Government handouts of public money to fossil fuel industry undermine climate solutions – study

Federal government uses hundreds of millions in taxpayer dollars to support the fossil fuel industry, keeps true cost of subsidies hidden from Canadians

Ottawa, September 17, 2018 – As policy-makers are about to meet at the G7 environment ministers’ meeting in Halifax this week, a coalition of environmental organizations has launched a report that provides details on the hundreds of millions of dollars in subsidies that the federal government is still providing to the fossil fuel industry every year. The report, entitled Public Cash for Oil and Gas, sheds light on the tax breaks, fiscal supports and direct grants that are encouraging the production of more oil, gas and coal, even as the government moves to reduce demand for fossil fuels through carbon pricing and climate action programs.

The report finds that, although there has been some progress on fossil fuel subsidy reform in Canada in recent years, there is still a significant amount of work to be done. Canada is the largest provider of government support for oil and gas production per unit of GDP of all G7 countries, which together had pledged to end all “inefficient fossil fuel subsidies” by 2025 at a meeting in 2016. With the recent purchase of the Trans Mountain pipeline, it is likely that the quantifiable amounts of federal subsidies just became even larger.

“Our findings illustrate the need to reform the tax system so that the impact of fossil fuel subsidies on climate change and the environment is taken into account, and that public funds are managed in ways that are most beneficial to Canadians,” says Yanick Touchette of the International Institute for of Sustainable Development. “For Canada to move forward on its climate commitments, the government will undoubtedly be faced with a number of tough choices.”

In fact, the level of federal support for fossil fuel production is likely much higher than outlined in the Public Cash for Oil and Gas report. A lack of transparency from the federal government made many tax deductions claimed by oil and gas companies impossible to quantify.

The fossil fuel subsidy phase-out process must be accelerated

Even as the federal government prepares to roll out a national carbon price in 2019, its fiscal efforts to upkeep Canada’s fossil fuel industry may lock in environmentally harmful economic activities. The oil and gas sector accounted for more than a quarter of Canadian emissions in 2016. Since 1990, the sector’s emissions have increased by 70 per cent. When considering oil sands production alone, the increase is 367 per cent during the same period.

“Although $200 million for federal fossil fuel subsidies is lower than our study from three years ago, this has more to do with the oil price crash and crafty industry tax accounting than significant action by Canada’s government,” says Patrick DeRochie of Environmental Defence. “Combining carbon pricing and fossil fuel subsidies is like trying to bail water out of a leaky boat. If you don’t fix the leak (the subsidies) you are never going to fix the problem (growing GHG emissions from the oil and gas sector).”

In June, the federal government agreed to enter into a peer review process of its fossil fuel subsidies with Argentina.

“Canada and Argentina’s peer review process is a welcomed and required step. It will need to ensure real transparency to fill in the gaps identified in the report,” says Catherine Abreu of Climate Action Network. “As 2018 G7 President, Canada needs to lead in getting nations to develop a detailed roadmap on how G7 members intend to phase out these subsidies by 2025.”

Purchase of Trans Mountain likely to entail a new significant subsidy

The analysis of federal support for the fossil fuel industry comes shortly after the federal government finalized its purchase of the Trans Mountain pipeline and its proposed expansion. There is a high risk that the pipeline purchase will entail a large subsidy, as it will provide a direct financial benefit to Kinder Morgan in the form of indemnification, financial assurances and the potential resale of the pipeline for below market value.       

“Canada should be rapidly phasing out fossil fuel subsidies and planning for the managed decline of the oil and gas industry, but instead it’s buying a tar sands pipeline and financing its expansion,” says Adam Scott of Oil Change International. “The federal government should stop wasting public money on a sunset industry and start investing in a clean energy future and a just transition for communities and workers.”

Propping up a sunset industry is slowing down the transition to a clean energy future

By making fossil fuel extraction and production financially attractive, these policies undermine renewable energy alternatives’ attractiveness to and ability to compete for investors and tip the scales in favour of the energy sources that are driving climate change. Reforming broad fossil fuel subsidies and supports can remove distortion from the markets and prevent the creation of oil and gas projects that will become increasingly reliant on government support to remain viable.

“The fiscal space created by removing subsidies and supports can be utilized to fund a just transition that takes care of the workers and communities that will be most affected when Canada’s energy sector evolves towards clean energy alternatives,” concludes Mr. Touchette.

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To learn more:

The full report can be accessed here. It is also available in French. 

Public Cash for Oil and Gas’ analysis of federal fossil fuel subsidies will be followed by inventories of provincial subsidies later this year, with a Quebec inventory having already been released.

About #StopFundingFossils

#StopFundingFossils (INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT, ENVIRONMENTAL DEFENCE, CLIMATE ACTION NETWORK, ÉQUITERRE, OIL CHANGE INTERNATIONAL) is a coalition of environmental groups that have come together to ensure Canada fulfills and accelerates its commitment to phase out fossil fuel subsidies by 2025.

About INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT (iisd.org): The International Institute for Sustainable Development (IISD) is an independent think tank championing sustainable solutions to 21st century problems. Our mission is to promote human development and environmental sustainability. Through research, analysis and knowledge sharing, we identify and champion sustainable solutions that make a difference.

About ENVIRONMENTAL DEFENCE: (environmentaldefence.ca): Environmental Defence is Canada’s most effective environmental action organization. We challenge, and inspire change in government, business and people to ensure a greener, healthier and prosperous life for all.

About CLIMATE ACTION NETWORK (CAN-Rac) (climateactionnetwork.ca): Canada’s primary network of organizations working on climate change and energy issues, CAN-Rac is a coalition of more than 100 organizations operating from coast to coast to coast. Our membership brings environmental groups together with trade unions, First Nations, social justice, development, health and youth organizations, faith groups and local, grassroots initiatives.

About OIL CHANGE INTERNATIONAL (priceofoil.org): Oil Change International is a research, communication, and advocacy organization focused on exposing the true costs of fossil fuels and facilitating the coming transition towards clean energy.

For more information or to arrange an interview:

Ziona Eyob, International Institute for Sustainable Development; zeyob@iisd.ca

Barbara Hayes, Environmental Defence; bhayes@environmentaldefence.ca