What’s the dumbest policy in the world? Public cash for oil and gas!
Canada’s federal government handed out hundreds of millions of dollars per year in public money to oil and gas companies between 2016 and 2018, despite its longstanding commitment to phase out fossil fuel subsidies.
Actually, the final figure is likely much higher, but a lack of transparency from the federal government makes many subsidies to climate polluters difficult to quantify. With the recent purchase of the Kinder Morgan pipeline, that number is likely to be higher still.
Our updated analysis, released today with our partners in the #StopFundingFossils coalition, underscores the need for Canada to enhance transparency and show leadership on fossil fuel subsidy reform as Chair of this week’s G7 meeting of Energy and Environment Ministers in Halifax.
This matters, because subsidies can “lock-in” high-carbon projects and tip the scales against renewable energy alternatives, even as renewables become cheaper. Oil and gas projects are designed to operate for about forty years, meaning they will continue to spew carbon pollution for decades to come.
Fossil fuel subsidies support an industry that pollutes our air and water and they undermine action on climate change. 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’re never going to fix the problem of growing carbon pollution from the oil and gas sector.
In our new report, we provide details on the array of tax breaks, fiscal supports and direct grants from the federal government that are encouraging the production of more fossil fuels.
The report’s valuation of fossil fuel subsidies was lower than previous estimates, but not because of government action to eliminate subsidies. There have been small steps taken to reform fossil fuel subsidies in Canada in recent years, but Canada is still the largest provider of government support for oil and gas production per unit of GDP of all G7 countries.
The lower subsidies have more to do with the oil price crash, a perverse tax system, and crafty industry accounting than government action. The federal tax system allows oil and gas companies to carry forward expenses for exploration and development until it becomes most beneficial to reduce their tax liability. The result is: governments subsidize oil producers MORE when the price of oil—and industry profits—are high.
Our analysis of federal support for the fossil fuel industry comes shortly after the federal government bought the Trans Mountain pipeline and its proposed expansion. Until we know more about the details of the Kinder Morgan purchase, the size of this potential subsidy is impossible to quantify. But there’s a high risk that the pipeline purchase will entail a large subsidy, as it provides a financial benefit to Kinder Morgan and it’s not clear anyone will want to buy it back from the government.
Instead of rapidly phasing out fossil fuel subsidies and gradually winding down the oil and gas industry to meet its climate targets, Canada is buying a tar sands pipeline and financing its expansion. Fossil fuel subsidies prop up a sunset industry and slow down the inevitable transition to zero-carbon economy.
In June, Canada entered into a peer review of its fossil fuel subsidies with Argentina, a welcome and required step to ensure real transparency to fill the gaps identified in our report. As the Chair of this week’s G7 meeting in Halifax, Canada needs to lead in getting G7 nations to develop a detailed roadmap to phase out these subsidies by 2025.
It’s past time for Canada to stop giving public handouts to climate polluters and invest in a clean energy economy that puts workers and communities at its forefront.