Subsidies to the Fossil Fuel Industry – on the way out!

In 2010 the G-20 countries concluded that financial assistance by a state to its fossil fuel industry encouraged development of fossil fuel resources, leading to increased emissions from fossil fuels. These countries agreed that state assistance, whether in the form of a subsidy or tax incentives, should be phased out over time.

EnviroEconomics Inc., a Canadian consulting firm, delivered a study later that year on how Canada could reduce emissions by eliminating financial assistance.  Using research by the Swiss-based Institute of Sustainable Development, the authors, David Sawyer and Seton Steibert, characterized any financial benefit to the fossil fuel industry as a subsidy, regardless of form. The benefit could be a direct payment by a government or a concession that relieves a fossil fuel industry from a higher tax bill.

The authors observed:

“. . . subsidies drive production and hence more emissions. Nationally, emissions are about 2 per cent higher in 2020 with the subsidies. In Alberta, the likely increase in emissions attributable to the subsidies is large, with about 5 per cent more provincial emissions than if the subsidies were removed. . . Non-conventional production is experiencing the greatest benefit from the subsidies, followed by new drilling. With targeted programs for the oil sands, as well as a large share of total production, the oil sands are disproportionally benefiting. Our assessment indicates that the subsidies are adding 6 per cent to 7 per cent more production to the sector and about 12 per cent more emissions. Most of the targeted programs are for more exploration activity and drilling in the provinces.”

So what has happened since 2010?

The Conservative Government eliminated direct payments to the fossil fuel industry, but maintained tax breaks, such as the Canadian Development Expenses tax deduction and the Canadian Exploration Expenses tax deduction.

In the 2015 Federal Election, the Liberal Party platform included the following promise:

“We will fulfill our G20 commitment and phase out subsidies for the fossil fuel industry over the medium-term.”

Thanks to Shaun Chen, the Liberal Member of Parliament for Scarborough North, we received additional comment on Federal Government policy:

“In 2014, the Pembina Institute estimated that more than $1 billion in fossil fuel subsidies still existed in our current tax framework. We will direct the Department of Finance to conduct a detailed analysis of fossil fuel subsidies. A target of $250 million in reduced fossil fuel subsidies is our starting point, and a first step will be to allow for the use of the Canadian Exploration Expenses tax deduction only in cases of unsuccessful exploration.   See  2015 Election Platform as linked, above

Environmental groups will continue the pressure until the Liberal Government follows through on its promise to eliminate subsidies for the fossil fuel industry.  (An excellent summary).

Equiterre, a Quebec based group, has made the issue a matter of principle:

  1. ÉLIMINER LE TRAITEMENT FISCAL PRÉFÉRENTIEL ACCORDÉ AU SECTEUR PÉTROLIER ET GAZIER :

Afin de concrétiser l’engagement du gouvernement du Canada visant à éliminer les subventions aux combustibles fossiles et assurer une instauration efficace du nouveau système fédéral de tarification du carbone, son budget de 2017 doit inclure un plan détaillé pour rétablir la neutralité du traitement fiscal accordé au secteur pétrolier et gazier au Canada par rapport aux autres secteurs industriels. Cela pourrait donner lieu à des recettes fiscales additionnelles pouvant atteindre 1,3 milliard $ par année.

(Our Translation: In order to realize the Government of Canada’s commitment to eliminate fossil fuel subsidies and ensure the effective implementation of the new federal carbon pricing system, its 2017 budget must include a detailed plan to restore fiscal neutrality to the federal government. . . . This could result in additional tax revenues of up to $ 1.3 billion per year.)

As 2017 is the mid-term year for the Federal Government, 4RG will monitor the subject and advise when this much-delayed reform is completed.

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