Canada has been giving billions of dollars in subsidies to oil and gas companies for years — an approach that critics say goes against the country’s climate goals and hinders efforts to focus on renewables.
Now the federal government is preparing to release a new policy that will end “inefficient fossil fuel subsidies,” a commitment Canada made more than a decade ago.
A spokesman for Environment Secretary Steven Guilbeault said the new policy will be released in July.
But the strength of that commitment, environmental groups say, will depend on exactly how the terms “inefficient” and “subsidy” are defined.
Julia Levin, deputy director of national climate for the advocacy group Environmental Defense, said Canada has a chance to become a world leader in reducing fossil fuel subsidies if done right.
“If it’s a strong assessment framework, it sets a great precedent. It reinforces a little bit of climate leadership for Canada,” she said in an interview.
“If it’s weak, it sets an incredibly dangerous precedent.”
Where is Canada on fossil fuel subsidies?
Canada is routinely ranked near or at the top of the developed world when it comes to subsidies for oil and gas, according to environmental groups.
G20 countries, including Canada, have committed to phase out such subsidies in 2009, but have not given a clear timetable for when this would happen or what that commitment would entail.
The Liberals later committed to a target for 2025, pushing that back to 2023 in the latest election campaign.
The long-awaited policy comes as the oil and gas industry posts record profits.
The five largest companies in Canada’s oil sands earned approx $35 billion in profit by 2022.
The parliamentary committee on the environment released a report last week with recommendations for phasing out subsidies and government funding.
The report contained 21 recommendations, the first of which was that by the end of the year the government should “continue to take steps to abolish subsidies and applicable public funding”, while at the same time paying “careful attention to and mitigation of potential social problems” . and economic consequences.”
Another recommendation was to ensure that existing subsidies “facilitate the transition to a low-carbon future” and are consistent with the country’s climate goals.
While not binding, the federal government must file a response to the report — and proponents hope it will put additional pressure on them to act. The NDP too issued a statement last week appealed to Guilbeault to scrap subsidies.
“Canadians are increasingly concerned about the devastating impacts of wildfires, floods and extreme weather events on their communities, their homes and their livelihoods. They want bold action to address the climate crisis,” said Laurel Collins, environmental and climate change critic of the party.
In a statement, a spokesperson for Environment and Climate Change Canada said details of the policy will be provided at the time of the announcement, noting that it “has already made progress in phasing out tax measures that are inefficient subsidies”.
What exactly is a fossil fuel subsidy?
There is no agreed upon definition in Canada of what constitutes a fossil fuel subsidy – therefore how much the government pays out is determined remains a source of heated debate.
Milieudefensie recently calculated that the federal government has provided more than $20 billion to oil and gas companies by 2022.
The list includes:
- $78 million from the Strategic Innovation Fund to help grow the oil and gas sector and reduce greenhouse gas emissions.
- $20 million from the Emissions Reduction Fund to help oil and gas companies reduce their methane emissions.
- Tax breaks for developing mines and exploration costs abroad.
The Canadian Association of Petroleum Producers (CAPP), on the other hand, does to maintain that the oil and gas industry is not subsidized at all.
In a short submitted to the parliamentary committee last year, CAPP argued that tax breaks it receives are part of the tax system, “so not subsidies”.
Last month, more than 100 environmental and social groups wrote a open letter to Prime Minister Justin Trudeau calling for a “robust” definition of the term subsidy.
The signatories, including Milieudefensie, want the government to follow the example of the World Trade Organization, which says that a grant is, simply put, a ‘financial contribution’ that ‘provides a benefit’. Under that definition, a grant would include anything from direct transfers to lost revenue to loan guarantees.
When is a subsidy effective?
There is also no agreed upon definition of what constitutes an “efficient” or “inefficient” subsidy.
The G20 declaration from 2009 did say that inefficient fossil fuel subsidies “encourage wasteful consumption, reduce our energy security, hinder investment in clean energy sources and undermine efforts to address the threat of climate change.”
Levin and other advocates say that grants should only be considered “efficient” – and therefore an acceptable form of government funding – if they are consistent with the goals of Canada’s Paris Agreement.
That means subsidies should not support new or updated fossil fuel infrastructure, or delay the transition to renewables, the signatories of the letter to Trudeau said last month.
The parliamentary report released last week makes no clear recommendation on how to define the term.
But it calls on the government to adopt a “broad, internationally recognized definition of a fossil fuel subsidy” and a “definition of ‘inefficient’ in the context of fossil fuel subsidies.”
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Government funding included?
In its memo to the parliamentary committee, CAPP argued that removing all government funding for oil and gas “would run counter to the government’s commitments to meet their targets and obligations under the Paris Agreement, as government funding would undermine emissions performance of the industry improve”.
But Bronwen Tucker, who tracks government financing of oil and gas companies at the advocacy group Oil Change International, hopes the new policy will cover all forms of government financing (such as government loans or loan guarantees) to ensure that fossil fuel projects are not funded. gain no advantage over renewable energy sources.
Canada ended international public financing of oil and gas companies last yearsomething Tucker said was a good first step to cutting government aid to the industry.
She said tax breaks and more direct support for oil and gas have also been scaled back, but that support is showing up in other ways, such as cleaning up orphaned wells And storage of carbon capture.
“To the public it can sound very exciting or it is often branded as a climate solution where in practice we see money going to a fossil fuel company that frees up money elsewhere in their budget and in their spending,” she said. .
“It’s still alms and it’s just to release them for the cleaning costs they should be able to cover themselves.”
