Substitution

“Cross-compliance refers to producers satisfying minimum environmental management requirements in  order to maintain eligibility for government support” (Schmidt et al., 2012:2). An analysis of OECD agricultural policy data on 54 countries worldwide suggests that only 1% of agricultural development funding has environmental criteria as a condition of financing (Global Alliance for the Future of Food, 2022). The federal government does not formally use cross-compliance, although measures with Environmental Farm Plans have been imposed in some provinces (Atari et al., 2009; Lorimer et al., 2022) and producers with an EFP appear to be more likely to be funded in some federal grant programs. The new Agricultural Policy Framework agreement (SCAP) appears to impose some new cross compliance provisions (Zafiriou, 2022).   Quebec has been using them since 2004 outside of the EFP process, but in only a limited fashion related to phosphorus management. Saskatchewan Crop Insurance has a type of cross-compliance measure in place regarding crop rotations with chickpeas.  Growers are ineligible for coverage if they plant chickpeas more frequently than once every four years in the same field.  They are considering something similar for canola rotations in order to reduce the risk of clubroot infections (Arnason, 2019). Farm Credit Canada (FCC) offers a positive cross-compliance measure in that it provides grants to beef producers certified under the Canadian Roundtable for Sustainable Beef and it has suggested it might expand the program to other sustainable production certifications.

Evidence of environmental effectiveness is mixed (Jeffrey et al., 2017), in part because many environmental programs have not been well designed and cross-compliance itself can be difficult to design and implement. Among those that are well designed, however, there is robust evidence that cross-compliance leads to environmental improvement (Piñeiro et al., 2020). Advocacy to widen the scope of application to other environmental problems has not necessarily been successful (Mundler and Ruiz, 2015), but that is what is required in the early stages of cross-compliance implementation.  EFPs and action steps should be a requirement for all other environmental program funding.  All provincial crop insurance agencies should require minimum crop rotations for insurance eligibility, and provide coverage for intercropping (SK is currently one of the few that has this diversification option). The FCC should expand its program to all sustainable certifications. Europe has applied cross-compliance measures since 2005 and applies them widely to agri-environmental and some socio-economic programming.  Based on their successes, the federal government should ultimately  require all producers and processors to be in transition to a recognized and verifiable sustainable system or already converted before receiving funding for other measures.  These provisions can be built into funding requirements regarding eligibility.

Transition risk offset and environmental service payments

Direct payments to producers for transition to environmental practices have been criticized in the past because they are difficult to target to those who will generate significant environmental improvements from their funded actions.  Evaluations of programs in the US and Europe have found that some are both too expensive and only really taken up in less intensive agricultural production areas where the environmental problems are not as acute (Dobbs and Pretty, 2001; Batie, 2002).  Other complicating factors include:

(1) that many farmers and other actors may be contributing to the problem;

(2) that since much of the pollution is non-point source, it is difficult to observe and measure impacts and their sources;

(3) the wide variability in farm types and their economic and ecological conditions;

(4) the unpredictability of negative natural events;

(5) the need for many farms to improve their environmental management to achieve improvements (Batie, 2002).

All these complications can mean considerable costs for government administering the program.

If only one environmental target is sought, then it is more efficient to design a program specific to that.  But since many of the most significant environmental problems in agriculture are not related to a specific farming activity, then combinations of changes, or system alterations, are usually required.  If multiple environmental improvements are sought, then targeting farms participating in multidimensional environmental enhancements is a much more efficient allocation of policy and program resources then designing programs around each specific environmental target (Batie, 2002; Dabbert, 2003). Organic farming generates multidimensional environmental improvements and direct payments for organic farming mitigate some of these programme design problems.  There is some empirical evidence available to support this from Germany (Sanders et al., 2011), but evaluations must assign costs and benefits according to the multiple environmental benefits that result from organic farming, an admittedly difficult task.  One study (Jacobsen. 2003) assigned all the costs of organic farming support to one environmental target, suggesting that organic farming support schemes are therefore inefficient.  A more appropriate approach would be to examine the main benefits that result from organic farming, for which there is significant scientific support and then determine programme effectiveness and then to contrast it with programs that support very specific measures, as was done in Germany (Sanders et al., 2011).

European states have been supporting farmers through adoption of sustainable practices (e.g., pesticide and fertilizer reduction, biodiversity enhancement, sensitive areas protection, organic, animal welfare) by providing payments, usually on a per area or per animal basis, through the transition period. The rapid increases in organic acreage experienced in Europe owe much to the existence of multidimensional organic aid schemes, of which payments for environmental improvements have been the most significant component  (OECD, 2003; Sanders et al., 2011).  Over 80% of organic growth in Europe occurred reasonably quickly after implementation of definitional and control measures and support schemes (Stockdate et al., 2001).  According to Lohr (2001), “The ability of EU farmers to rely on direct payments for conversion to and continuation of organic enables greater risk-taking in enterprise mixes, including high-value, high-risk crops, faster adoption of practices that require land-use adjustments that improve yields, and broader extensification of organic acreage that increases total output.”  Comparing the US and Europe, she found that while dramatic growth rates were the result of the introduction of direct payments in the EU, during the same period, the number of organic farmers and acres actually declined slightly in the US where governments have relied primarily on market mechanisms and some grants.  A multiplication of organic support packages through the 2000s across multiple program platforms (rural development, agri-environmental programs and competitiveness) has increased organic acreage even more rapidly in many countries (Sanders et al., 2011).  Many of these measures are not specifically designed for organic farmers, but these farmers are able to take significant advantage of them, as presumably would be able farmers following many other sustainability approaches.

A significant challenge has often been finding the right level of support.  A comparative assessment of direct subsidies in Canada and New Zealand (Bradshaw, 1995) indicated that the appropriate level of government support is not so high as to encourage unsustainable financial dependency, yet sufficient to compensate for the market’s inability to reward farmers for being good environmental stewards. Similarly, the European Commission has tried to find levels that do not substitute for the market’s contribution to income generation, but also recognize the broad societal benefits that result from farmer’s delivery of environmental services - benefits that can not necessarily be recouped from the market place.  When farmers are learning through the transition process, the benefits go beyond their own finances.  It is for this reason that governments began to support the transition in the late 1980s (Lampkin, 1996).  The intention, consequently, was to have the payment schemes be neutral - they would replace revenue foregone because of the adoption of environmental measures.  The EC believed that small incentives beyond this should only be paid to increase uptake to reach a stated environmental objective (European Commission, 1999). Lampkin (1996) concluded that the payment levels should take account of the costs of environmental improvements farmers are expected to meet, the resulting environmental benefits, the costs of conversion and the potential for savings in public expenditures.

In earlier programme periods, levels of payment in the EU were not sufficient to encourage arable, horticulture, pig and poultry producers.  The most common conversions in most countries were low to medium intensity dairying (Lampkin, 1996) and later in some countries grasslands in more hilly regions (Sanders et al., 2011).  This suggested that those systems reliant on pesticides were insufficiently encouraged to reduce the application of pesticides.  In the late 1990s, Austria (335 ECU/ha/yr for cereals) and Finland (365 ECU/ha/yr for cereals), with the highest payment rates also had the highest uptake, whereas the low rates in the UK (82 ECU/ha for all organic crops) proved to be less attractive (Lampkin, 1996).  Certainly, enhanced uptake in the UK was associated with programme and payment improvements in the early 2000s. The responses of farmers to both schemes, associated with programme changes, clearly exceeded projections, and funding was exhausted within six months (rather than 2 years as originally projected).  When the programme was altered and reopened, the take-up rates presented the largest wave of conversion to organic farming methods in the UK to that point, increasing the organic area 12-fold from 1997 (Centre for Rural Economics Research,, 2002). On so-called improved land, a tripling of per hectare payments in the first year (to 225 £/ ha) and a near doubling in total payments over 5 years (to 450 £) accounted for the rapid increases (Centre for Rural Economics Research, 2002:Table 1.1).  On average, payments ranged from 190 ECU/ha/yr for cereals, 210 ECU for grassland, 280 for vegetables and 540 for fruit trees.  Conversion rates in livestock operations were particularly sensitive to available payments.  Rates have since been altered again (see Table 2 in Stolze and Lampkin [2009] for 2004/05 and Sanders et al., 2011 for up to 2011).  Depending on the region, grassland and arable payments in 2011 covered from 25-100% of additional costs associated with conversion (Sanders et al., 2011).

MacRae et al. (2009) in an examination of programme and policy incentives to encourage organic adoption to 10% of conventional production in Ontario set payment levels at 10% of foregone gross revenue.  This level was chosen to be slightly lower than Europe, where such payments have typically ranged from 15 - 20% of foregone revenue.  Using a different indicator, Offerman et al. (2009) found that EU payments in the mid 2000s amounted to 3-17% of gross output, for both existing and converting organic farmers. Zander et al. (2008) concluded that in Western Europe, payments amounted on average to 4-6% of gross output and 10-30% of farm family income plus wages.  This is less than other non-organic payments.  Payments per certified organic hectare, in 2008/2009, varied from €7 (UK except England) to €314 (Cyprus).  In the EU27, the average was €163 (Sanders et al., 2011).  Organic farmers, because of other environmental improvements associated with adoption, are also  eligible for complementary agrienvironmental payments, the amount and eligbility rules varying by region (Sanders et al., 2011).

Daughberg et al. (2011) found that the UK Organic Farming Scheme annual payments had some positive impacts on organic farms and acres after conversion, while some of the Danish permanent and conversion subsidy schemes were drivers of conversion. Based on Swedish data, and comparing a situation with no direct payments to provision of direct payments for conversion, direct payments were estimated to induce a 27% increase in farmers undertaking a conversion (Lohr and Solomonsson, 2000). Arfini and Donati (2013), using positive mathematical programming and cluster analysis with Italian data, found that subsidy payments of 150 Euros / ha for organic cereals were more effective than price premiums at increasing adoption. However, the stimulation of adoption was very dependent on farm and spatial characteristics, with the most significant uptake amongst small to medium farms in regions where organic production is already at a higher level. Offerman et al. (2009) found that at least 56% of Western European farmers felt that organic farming payments were important or very important to the decision to adopt and 76% of Eastern European farmers felt similarly. The Centre for Rural Economics Research (2002), assessing the lower rates of payments in the UK at that time, found that,  ”66% of non-organic farmers said they would consider switching if the OFS grants were increased. Our findings suggest that an aid package that offered roughly twice what is currently available would attract 7.8% of conventionally managed land area over to organic production, bringing the total up to just over 11%.”In their analysis, 34% of conventional producers would not convert whatever the level at which financial incentives were set.   The Centre for Rural Economics Research data suggest that a further 10% of conventional farmers would convert with rate increases of from 60-120%, but that a significant jump to over 20% would require a 150% payment increase. And they found that “...   An aid package offering roughly twice the amount currently available (90% more) would attract 7.8% of the conventionally managed land area over to organic production, bringing the total up to just over 11%. Austria has an aid package similar to this and has roughly 8% of its agricultural land area under organic management.” (Centre for Rural Economics Research, 2002).  In some regions, the relative difference between organic and non-organic payments has encouraged conversions (Sanders et al., 2011).

The Centre for Rural Economics Research (2002) study also drew some other conclusions to inform the construction of a program:

• A quarter to a third of farms would have converted without the presence of the scheme, across the main enterprise types. Danish analysis drew similar conclusions (Sanders et al., 2011).
• Reversion to conventional production also had to be considered. They estimated “that for every 100 farmers who enter the Scheme, 79 will retain organic management after 5 years, but only 53 of these can be attributed to the operation of the Scheme, since 26 would have converted anyway. In other words, 79% of the initial benefits of conversion continue to be delivered after 5 years, but only 53% can be attributed to the Scheme.”  In their review, Sahm et al. (2013) identified a range of reasons for reversion, but economic factors were typically a main consideration.
• There is an augmented impact the more farms convert in an area: declining unit marketing costs; improved information dissemination; positive network effects; positive learning effects.

Certainly higher payments contribute to more rapid uptake, but many complications related to how schemes were administered, eligibility rules, acceptable practices, and changes in access to other non-organic schemes associated with participation in organic schemes.  In many cases, the loss of access to other schemes had significant negative impacts on organic uptake (Lampkin 2003). Kuminoff and Wossink (2010) found that conventional US soybean farmers would need to receive per acre payments over 10 years that exceeded the market price for soybeans (ie., a > 100% payment relative to gross income/acre) to compensate for risks associated with policy and program uncertainties. These kinds of complications, however, do not exist in Canada at present, given that conventional programme payments are far less robust than in Europe and the US.  However, interest in financial supports appears to be high, as a survey of Ontario sub-watersheds, including the one modelled in this project (Filson et al. 2009), found that 90% of farmers were interested in receiving payments for ecological services.

Many jurisdictions also provide maintenance payments, usually for the production systems with the highest conversion payments  (Sanders et al., 2011).

A 2000-2011 analysis of uptake of organic farming found that payments in combination with advisory support, market development, the presence of an enthusiastic farm organization and farmer attitudes were all elements of increased national adoption rates.  In the countries studied, the analysts largely found that changes in area in organic production correlated with increases and decreases in area payment levels, though the results suggested that other factors also had an impact,  With maturity of the organic sector, however, it appears that payment levels become somewhat less significant relative to other factors,  In other words, payments are particularly important in the early stages of building up an organic sector, though they remain important through the organic adoption lifecyle (Sanders et al., 2011).  Payments for other sustainable practices are also significant (in many jurisdictions the same as organic payments) but the relationship between payment levels and uptake is less well studied.

A few Canadian provinces offer transition programs for organic production on which more robust programming can be designed.  The most robust program is in Quebec, where farms producing field crops, fruits and vegetables, maple syrup and honey in conversion can receive up to $10,000 and those already certified and expanding operations can also receive up to $10,000 for a $20,000 maximum contribution. Organic livestock operations that require modification to infrastructure to meet organic standards are also eligible for up to $20,000 on a 50% reimbursement basis.  Farms can take advantage of both programs up to a maximum of $40,000 in support.  Per acre subsidies are $40 for grains and oilseeds, $1000 for fruit and vegetables and $10 for forage and grazing lands.  Payments are received during the 3rd year of transition.  There is also support to change livestock buildings to make them more compliant with organic approaches.  The program appears to be having a significant impact as  organic acres increased by 65% between 2017 and 19 while remaining relatively flat in other provinces (Arnason, 2020).

PEI also provides transition payments through its Organic Industry Development Program.  Producers in the first year of transition are eligible for per acre conversion payments, variable rates based on the crop, up to $10,000 / year.

Food, agriculture and aquaculture in carbon pricing and trading schemes, and emission reduction targets

Because of their perceived efficiency, economists typically prefer market - based instruments - pricing and cap and trade - to reduce GHG emissions.  Some 61 jurisdictions across the world had carbon pricing schemes in operation or development as of late 2017 (World Bank Group, Ecofys, and Vivid Economics, 2017) .  Some of these also involve carbon trading, others are structured more as taxes or regulatory charges. In addition to public schemes, there are also private arrangements, many of them originally established in anticipation of government intervention. Canada is one of the jurisdictions with a scheme under the Greenhouse Gas Pollution Pricing Act, and some provinces are in the process of developing schemes to comply with federal requirements.  Others have been fighting the federal government in the courts in a dispute over jurisdiction and attempting to avoid implementing such measures. The Supreme Court has ruled, however, that the federal scheme is valid (March 2021). But most jurisdictions (including Canada) have failed to fully incorporate the food  system into their schemes, in some cases actually exempting the sector from them.  Although understandable given the often poor state of farm and fishery finances, and the inability of farmers and aquaculture producers to pass on additional costs due to their weak economic position in corporately concentrated supply chains, this is unfortunate, since the food system is such a significant contributor to GHG emissions. By some global estimates, the food system accounts for 33% of emissions and could contribute 20% of target reductions if properly supported but is currently only receiving 3% of public climate financing for emissions reduction and most governments continue to fund agricultural development that is contributing extensively to GHG emissions (Global Alliance for the Future of Food, 2022).  In theory, such taxes must include all significant sources of emissions (Aldy and Stavins, 2012), which is not currently happening. While the federal suite of initiatives are projected by the Parliamentary Budget Office (PBO, 2021) and Bernstein et al. (2021) to reduce Canadian emissions (but not necessarily reach targets), the program designs will have limited impact on the agriculture and fishery sector emissions, even with tax increases (see below). The premise here is that as other measures (many locations on this site) are put in place to support farm finances and increase producer economic power  in the transition to sustainability,  including the food  sector in carbon pricing and trading becomes more viable.

Typically, this failure to integrate food  into schemes is because:

• Most food system emissions are very diffused (and often fugitive), the exception being certain input and food manufacturers.  Many of the carbon pricing and trading schemes are focused on big emitters and individual food firms are not typically large enough to fall in this category.  The food system is dominated by non-point source emissions and regulators have a weak track record of curtailing emissions of this kind.  Some industries that contribute to inputs are included in schemes (e.g., natural gas producers, electricity producers) but only a relatively small percentage of their emissions can typically be assigned to the food system, although that level is often very significant for determining food system behaviour (e.g, natural gas is the main feedstock for synthetic nitrogen fertilizer and the availability and price of such fertilizers have a major impact on the way the food system behaves).
• Schemes often rely on aggregators to bundle together credits (from disaggregated groups like farmers) to sell to large emitters.  As with other "middleman" circumstances in the food system, it is easy to create a scheme that disproportionately rewards the aggregator over the farmers who are actually storing the carbon. One way to address this problem is to have farm organizations act as aggregators, especially those with a not-for-profit mission (Ferguson, 2021).
• As discussed across this site, Canada's agri-environmental data collection is poor, making it hard to set baselines and monitor improvements. Many food system actors have little information on their emissions and no incentives to collect it or the costs for individual operators are very high. Equally problematic, food system emissions are often assigned to other sectors so the food system contribution is partly hidden.
• Although agricultural soils can be a significant carbon sink, there is important debate about what constitutes  permanent carbon storage, which agricultural practices contribute to it, and how much farming system redesign is required to store enough carbon to generate significant mitigation.  This makes the use of agricultural soils for cap and trade a dodgy proposition (see NFU, 2023 for details).  A suite of conventional practices, including reduced and zero tillage (see below), may or may not be significant contributors to storage depending on the conditions, but it is fairly well established in the literature that organic farming creates permanent soil carbon pools (Lynch et al., 2011).  Even if zero tillage is deemed a legitimate contributor to permanent carbon storage, many of the improvements occurred 20-30 years ago, so there is limited current additive value. Consequently, although many farmers feel they should be rewarded for past practices, it should not be through this mechanism.  Many other interventions on this site address farm income. The related challenge is that agricultural lands represent some of the lowest levels of soil and biomass carbon storage in Canada, when compared to many other less disturbed landscapes (see Sothe et al., 2021). To some extent, then, decision makers are more preoccupied with protecting those existing storehouses then improving carbon storage on agricultural lands, especially given these challenges.
• Even if there was a consensus on what practices contribute to long term carbon storage, the price for carbon  is often too low to make it a viable investment for farmers, and theory suggests this is a significant design flaw (Aldy and Stavins, 2012). In many schemes, farmer investment in soil carbon storage only yields a few dollars / ha in returns from trading.  Changes to carbon pricing may help with this problem (see below).

Certain food industry actors are named in the federal scheme regulations as covered facilities, including fertilizer manufacturers, grain ethanol producers for industrial applications, potato and oilseed processing plants, animal vaccine manufacturers, corn wet milling operations and sugar refiners. Fertilizer manufacturers are supposed to meet a 30% reduction from 2020 levels by 2030, very challenging since emissions from the sector have risen by 60% since 2005 and are projected to continue to increase (Environment and Climate Change Canada, 2020). Apparently in response, many large emitters on this list, including Nutrien, Syngenta, BASF, Corteva, PepsiCo and Maple Leaf Foods, are establishing voluntary schemes with farmers from whom they will buy offsets to reduce their carbon footprints (Cross, 2021).  A study conducted for the Canadian beef sector (Schaufele, 2017) on the private costs for beef producers (as opposed to the social costs) concluded that the carbon pricing scheme under a range of scenarios would shrink the beef sector and reduce beef consumption to varying degrees depending on the scenario.  Although for the purposes of the conventional beef sector that is undesirable, it is warranted to achieve sustainability and health objectives (positive for social costs). 

The federal scheme, a default backstop for provinces that do not put in place an equivalent approach, focuses on non-renewable fuel taxation. British Columbia, Quebec, Nova Scotia,  Newfoundland and Labrador and partially Saskatchewan have their own carbon pricing systems deemed equivalent, but with certain elements of the federal scheme in place.  The other provinces have more significant pieces of the federal scheme.  With BC and Alberta, the federal scheme exempts on-farm fuel.  Direct emissions from livestock are not included in the scheme and as of late 2017 no countries in the world did so (Schaufele, 2017).  Most food system firms are not part of existing cap and trade schemes, either as emitters or sellers of credits except in Alberta which uses a hybrid model of carbon pricing and caps. In June 2022, the federal government announced an Offset Credit System that will work with carbon pricing first in those provinces and industrial sectors covered by the federal backstop.  It will start with landfill methane capture, using projects started after January 2017 and then later rules will be written for other sectors including agriculture. A range of draft credit protocols for agriculture are anticipated in 2022 and 2023 but unfortunately they will all be build around BMPs not systems change. The system is supposed to have been designed partly from learning in the existing systems of three provinces: British Columbia, Alberta and Quebec. In the wake of the Supreme Court decision, Sask. claims it will have a carbon trading scheme involving farmers and ranchers.  The new system is already being criticized for allowing heavy emitters to pay less through purchase of offsets than they would pay through carbon pricing.

Soil sequestration, primarily associated with reduced or zero tillage, has been recognized since 2003 as an offset (Alberta Emissions Offsets Registry). Soil sequestration projects must comply with Alberta's Specified Gas Emitters Regulation Quantification Protocol for Conservation Cropping. This protocol expired in 2021 because adoption targets had been met. There are 3 other protocols: reducing GHG emissions from fed cattle, distributing generated renewable energy, and anaerobic decomposition of agricultural materials (see Sellars et al., 2022). However, only the expired cover cropping protocol has significant participation.  Farmers do not appear to be making any money from participating in any of the carbon credit schemes so far, in part because 1/3 of the credits go to aggregators (Wyngaarden, 2022).  Saskatchewan is supposed to be developing a carbon offset program similar to Alberta's in which farmers could participate, but has announced that practices adopted by at least 40% of the farm base will not be eligible, presumably because of concerns about additionality.  This means most minimum and no-till practices will not participate in the scheme (Cross, 2021).   The federal government is supposed to be developing protocols as part of its new Offset System and should base it's system on recognized and operational protocols for which permanent carbon storage is recognized, such as organic production. Related to this, the 2022 federal budget  "proposes $150 million for a resilient agricultural landscape program to support carbon sequestration, adaptation, and address other environmental co-benefits, to be discussed with provinces and territories".

The federal backstop will require carbon tax increases, from first $20 / tonne in provinces without an equivalent scheme, to $50 / tonne in 2022 and $65 on April 1, 2023.  The federal government proposed in Dec. 2020 to accelerate the price increases by $15/tonne each year for the next 8 years from 2022-2030, reaching $170 / tonne. As incentives for agriculture it also announced a $98.4 million Natural Climate Solution for Agriculture Fund and a $361 million fund to preserve wetland and grassland areas and sequester soil carbon, both to roll out over 10 years (Cross, 2020).   The 2021 federal budget announced an additional $200 million to Agricultural Climate Solutions for improving nitrogen management, increasing adoption of cover cropping, and normalizing rotational grazing. An additional $60 million over the next two years will come from the Nature Smart Climate Solutions Fund to target the protection of existing wetlands and trees on farms, using a reverse auction pilot program. Reverse auctions are also being used in a federally funded scheme to help restore grasslands, operated by the Saskatchewan Stock Growers Foundation (Briere, 2023). As well, the federal government will allocate $10 million over the next two years, from the Agricultural Clean Technology Program toward powering farms with clean energy and moving off diesel (see also Goal 5 Energy Efficiency). The 2030 Emissions Reduction Plan (ECCC, 2022) and the  2022 federal budget  proposed to accelerate these programs with additional funding, an On-farm Climate Action Fund of $183 million under the Agricultural Climate Solutions fund and delivered by numerous non-governmental, governmental and indigenous organizations across the country. Unfortunately, all these programs represent early stage transition approaches, focus on BMPs rather than systems change (see Instruments for elaboration on the weaknesses of these approaches), and are a very passive approach to addressing these pressing problems.  How on-farm implementation emerging from these programs might connect to  selling carbon credits as described above is unclear.

The federal government believes these initiatives will allow Canada to meet its international commitments. However, the Ecofiscal Commission (2019) has concluded that carbon prices, in combination with specified regulations and standards, will have to rise to $210 / tonne by 2030 to achieve reduction targets.  At this price level, combined with other measures on this site, it becomes more likely that food system behaviour will shift and farmer investments in sustainability can be rewarded if they are included in cap and trade schemes.  To make this viable, scheme regulations will have to be amended to include more food system actors as covered facilities, and also to cover livestock emissions. The most straightforward way to address this is to include conventional livestock, aquaculture and fowl production facilities (e.g, industrial style feedlot and barn production facilities) as covered facilities.  Other conventional producers (e.g., cow - calf operations, small independent pork producers, specialty fowl producers) would remain exempt.  Certain conventional greenhouse and mushroom operations might also be covered (but currently they receive rebates in the form of refundable tax credits, along with grain farmers using natural gas for grain drying).  Those with sustainable certifications (see discussion under Efficiency, Protocols) would be exempt.

Also in regard to international commitments, the federal government's Nationally Determined Contribution (NDC) and programs that support it, the Pan-Canadian Framework on Clean Growth and Climate Change (PCF) and the Strengthened Climate Plan (SCP) have failed to incorporate food system change. The Global Alliance for the Future of Food (2022) has highlighted this deficiency and called for better integration of the Canadian food system with these plans.

Other important concepts are additionality and permanence. Producers eligible to sell carbon offsets into a carbon trading system have to be following production systems that add permanent carbon, above and beyond an established baseline.  Only those following approved sustainable protocols and authentication regimes should be eligible.  In this way, carbon trading becomes another measure to help finance the transition to sustainable approaches.

Although many countries are moving in similar directions on carbon pricing, there is still the problem of leakage when trading partners do not establish the same regimes. The resulting international negotiations in Madrid (late 2019) on a global carbon trading system failed to reach agreement  Until one is reached, it is appropriate  to apply border taxes to level the playing field.  Although Canada might lose export sales to countries without a carbon tax, because we are also significant  importers, it creates the opportunity for import substitution based on higher prices generated by the border tax. As long as domestic and imported goods are subject to the same tax, they are consistent with the trade agreements (see Goal 10). And of course at this stage in the transition, the shift to sustainable practices is well underway and the dynamics of that market place are different from the conventional one.  The federal government has recently indicated interest in using such border adjustments to buttress it's carbon pricing scheme, perhaps in part because the EU has proposed a carbon border tax as part of its most recent climate action plan and there is a suggestion the US might follow suit (Radwanski, 2020; Erlanger and Sengupta, 2021; Jones, 2021), although there have been some contrary signals from the new Biden Administration.  The EU border tax, if approved, would start gradually and with products that are inputs to agriculture and other sectors, including cement, ammonia, iron, steel, aluminium, fertiliser, and electricity, with full implementation in 2026.  As it builds, however, it could seriously constrain trade in weakly sustainable Canadian agricultural goods, as it is linked to the Green Deal and the Farm to Fork program in the EU that has 2030 targets such as reducing the use of high risk pesticides by 50%, increasing organic farming area to 25% of all agricultural area, and reducing nutrient losses by 50%.  There will also be an emphasis on sustainable diets (see Goal 2, Demand supply coordination, Substitution) and food waste reduction (see Goal 5 Reducing food waste).  The implementation of numerous national measures to achieve these targets will leave Canada seriously behind unless significant action is undertaken shortly.  Market actors are already nervous, but do not yet appear willing to significantly change the North American approach to sustainability (cf. White, 2021).

The NFU (2023:14) has concluded that the following hierarchy of actions is the most appropriate and the food system can be included (and many strategies related to this are discussed in other sections of this site):

Emission-reduction strategies, though they must proceed rapidly and, thus, partly in parallel, should be prioritized in roughly the following order:
1. Pursue efficiency and conservation relentlessly (i.e., make buildings, vehicles, factories, and food systems as efficient as possible and pursue absolute reductions in energy and materials use).
2. Employ alternatives and substitutes (e.g., within continents, fast trains powered by low-emission electricity can substitute for jets; local carrots can substitute for air-freighted green beans).
3. Price pollution (i.e., place a levy on carbon dioxide emissions and rebate funds equitably).
4. Replace fossil fuels with near-zero-emission energy alternatives such as solar, wind, etc.
5. Work for systems change. For example, move agriculture from its current focus on exponential growth in output to a new foundation focused on feeding people and maximizing wellbeing.
6. Formulate near-term plans to reduce any remaining emissions where possible (e.g., capturing
methane from landfills and carbon dioxide from cement production).
7. Use offset projects, etc. as a last resort to deal with irreducible residual emissions.

Tax Provisions

Several tax instruments and programs can facilitate the transition.  See Instruments, Taxes for details on tax provisions.

1.  Remove HST/GST zero rating and Provincial Sales Tax exemptions/zero ratings from pesticides with an Environmental Impact rating above 20 on the Cornell system scale.  On this scale, pesticides with a 20 or lower inherent toxicity are typically lower impact pesticides.  The purpose of this measure is to shift price signals to favour lower impact pesticides relative to higher impact ones.  This is important because the new low-dose, lower impact chemistry is typically more expensive than the old chemistry.
2. Remove HST/GST zero rating and provincial sales tax exemptions / zero ratings from bulk synthetic fertilizers containing nitrogen, phosphorus and potassium.  All organic materials sold as fertilizer and soil amendments, regardless of quantity, should have a zero rating.  Currently, many organic fertilizers and amendments are taxed.  See also Goal 4 Fertilizers for more on how changes to the federal Fertilizer Act would shift consumption to organic fertilizers.
3. Three years after these changes are adopted, if use has not fallen by at least 10%, place an additional retail sales tax on these synthetic chemicals in the 10-30% range, depending on degree of change to that point.
4. Maintain HST/GST zero rating on farm and aquaculture equipment that facilitates the transition, and does not require excessive capital investment.  A schedule of approved equipment would need to be constructed and could be facilitated by the Organic Value Chain Roundtable.  The schedule would likely include such items as  rotary hoes, flame weeders, flail choppers and mowers, sod seeders.  On all other equipment, the zero rating would be removed.
5. Adjust ACCA on farm and aquaculture equipment so that items that support transition have preferred rates.  For example, cultivators, tillers and weeders are Class 8 under Schedule II of the Income Tax Regulations with a depreciation rate of 20%, but in sustainability terms, not all  have positive impacts.  Those that are more favourable to soil health should have their rating doubled and should be part of a class 8 sub-category.  Greenhouses are class 6 with a depreciation rate of 10%, but many are highly energy inefficient, so a class 6 subclass should have a double rate for those that surpass a minimal  energy efficiency rating.