A flare stack lights the sky from the Imperial Oil refinery in Edmonton Alta, on Dec. 28, 2018.JASON FRANSON/The Canadian Press
Thomas Gunton is a professor in Resource and Environmental Planning Program at Simon Fraser University, and a former deputy minister of environment and deputy minister of finance for British Columbia. David Wheeler was a member of the Export Development Corporation (EDC) corporate social responsibility advisory council between 2015 and 2021. Kyla Tienhaara is Canada Research Chair in economy and environment, and an associate professor in the School of Environmental Studies and Department of Global Development Studies at Queen’s University.
In 2009, Ottawa made its first commitment to end “inefficient” fossil fuel subsidies that “encourage wasteful consumption, distort markets, impede investment in clean energy sources, and undermine efforts to deal with climate change.” Last year, this was adopted as a mandate of the Trudeau government.
However, instead of delivering on this pledge when the federal government released its framework in July, the new policy consists only of guidelines to evaluate subsidies without announcing the elimination of any of them.
The government has had some development in recent years in reducing subsidies. Last December, Canada fulfilled its commitment in the Glasgow UN agreement it signed to end public finance for international fossil fuel projects by the end of 2022.
But overall, Ottawa’s removal of subsidies has been unacceptably slow. One recent study ranked Canada last among 11 developed countries in its progress to do so, while the International Monetary Fund estimates that the total value of the country’s fossil fuel subsidies plus associated environmental costs actually increased, from US$43-billion in 2015 to US$64-billion in 2020.
So what needs to be done for Canada to do right by its commitment to eliminate fossil fuel subsidies?
First, the EDC should end domestic fossil fuel financing just as it did for international financing. EDC financial support has actually increased from $4.4-billion in 2021 to $8.7-billion in 2022, and there is no justification for not applying the same prohibitions at both levels of financing.
Second, subsidies for the Trans Mountain Pipeline Expansion Project (TMX), which the government bought in 2018, need to be eliminated. Canada has provided $13-billion in loan guarantees and is planning to set shipping tolls to cover less than one-half of the $30.9-billion cost to build the new pipeline.
The $16.2-billion cost of the TMX that is not covered by the tolls represents the largest single subsidy to the oil sector provided by taxpayers. It should be eliminated by setting tolls to cover the full cost of the pipeline.
Third, the guidelines for assessing subsidies need to be revised to remove potential loopholes. One loophole is to allow subsidies to support “abated production processes, or projects that have a credible plan to achieve net-zero emissions by 2030.”
An obvious example of a subsidy that would be allowed under this criterion is the carbon capture and storage tax credit, which is estimated to cost the taxpayer $8.6-billion by 2030. While CCS is identified by the International Panel on Climate Change as a necessary component of a climate strategy, it is likely to play a limited role in the energy transition.
CCS is among the most expensive and questionable strategies, so subsidizing it is risky and may not achieve the desired reduction in emissions. And if CCS is used to support the expansion of fossil fuels as opposed to reducing greenhouse gas (GHG) emissions in existing operations, or used as an alternative to other proven options – such as using natural gas as opposed to renewables in electricity generation – it could lead to significant increases in emissions.
Another exemption that needs further elaboration is the allowance of subsidies that “support Indigenous Economic Participation in Fossil Fuel Activities.” While supporting Indigenous economic development should be a top priority of any government, more detail is required to ensure that subsidies allowed under this exemption benefit primarily the Indigenous community – and that they do not indirectly fund the fossil fuel sector and result in higher emissions.
Fourth, the new guidelines do not include equity as a criterion. Asking whether a policy reduces inequities in income distribution is a fundamental feature of fiscal-policy evaluation, and it needs to be added to the new guidelines to assess whether it is fair to use taxpayer funds to subsidize the oil and gas sector when it has been making record profits – even if the subsidies reduce GHG emissions.
Fifth, the federal government needs to complete a comprehensive inventory and detailed plan to end all fossil fuel subsidies that do not meet the revised criteria by the end of 2023 as promised.
Finally, the guidelines need to include some due process involving a range of stakeholders to review decisions and assessments to ensure that it is applied consistently and fairly.
With these changes, Ottawa can finally deliver on its commitment to eliminate fossil fuel subsidies and strengthen climate policy to maintain a livable planet.