Is Canada Phasing Out Fossil Fuel Subsidies?

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By: Anna Hardie

According to BloombergNEF, between 2015-2019 Canada increased fossil fuel support by 40%. These funds havegone on to support pipelines such as the Trans Mountain pipeline, Keystone Pipeline, and Coastal GasLink. Yet, Canada is also obligated under the Canadian Net-Zero Emissions Accountability Act to have a Net-Zero economy by 2050. Further, Canada has made a promise to phase out all inefficient fossil fuel subsidies by 2025

Despite the numerous targets and commitments, there is limited transparency in how much the Canadian government supports the fossil fuel industry. Understanding the financial relationship between the government and the fossil fuel industry is a crucial step towards reaching Net-Zero. 

 Before going further, it is important to note that there “is no single international definition of what constitutes a fossil fuel subsidy. According to the WTO, a subsidy is a financial contribution made “by a government or any public body within the territory of a member” and which confers a benefit. Each country can interpret and change the definition of subsidy as they see fit. Second, there is a distinction between the terms “fossil fuel subsidies” and “fossil fuel supports”. When talking about fossil fuel subsidies, think tanks and not-for-profit organizations commonly use “fossil fuel support” instead of “fossil fuel subsidies” because they do not have enough data to prove which funds legally qualify as a subsidy. Fossil fuel supports include but are not limited to financing methods such as direct subsidy programs, loan guarantees, COVID-19 fiscal stimulus, and investments in state-owned companies.

On December 13, 2019 Prime Minister Justin Trudeau asked Bill Morneau, the Finance Minister at the time, to create a report showing Canada’s “list of federal fossil fuel subsidies”. This report is yet to be published, and has no official deadline

Here is what is known about the report. Currently, the Ministry of Finance Canada (FIN) and Environment and Climate Change Canada (ECCC) are each conducting their own separate peer reviews of government fossil fuel subsidies. Canada is in a partnership with Argentina to get feedback on these two peer reviews and to ensure accountability for itspromise to phase out inefficient fossil fuel subsidies by 2025. The Office of the Auditor General Canada also conducts an evaluation of the peer reviews. The Auditor General reported that the review from Finance Canada “focused almost exclusively on fiscal and economic considerations” and left out social and environmental considerations. As for the peer review by the ECCC, the Auditor General stated that the department did “not compile a complete inventory of potential non-tax subsidies for fossil fuels”.

At the moment, think tanks and not-for-profit organizations offer some of the best calculations of fossil fuel subsidies than can be used to hold the government to account. However, even these estimates amount to a patchwork of figures rather than a comprehensive account of Canadian subsidies. BloombergNEF states that between 2015 and 2019, Canada’s fossil fuel industry received $81 billion (USD) in government supports. The IMF reports that in 2015 alone, Canada spent $43 billion (USD) in post-tax energy subsidies (the majority of which were in the oil and gas sector). One of the most comprehensive and recent reports from July 2021 states that there was at least $23.37 billion CAD of quantifiable fossil fuel support made by the Alberta and federal government between 2018-2020. A large proportion of fossil fuel financing has occurred through the crown corporation Export Development Canada (EDC). The EDC is estimated to provide oil and gas companies more than five times the financing amount compared to renewable energy companies. Multiple organizations have remarked on the lack of transparency on disbursements and transactions made by the EDC. 

Why does the federal government keep introducing new fossil fuel subsidies? What are the underlying causes for the Canadian government’s slow progress in phasing out fossil fuel subsidies? The answer to these questions include prioritization of short-term policy solutions, flaws in government structures, and challenges to taking accountability. Taking accountability will likely mean sacrificing conveniences, higher prices of goods and services, and changes to many people’s wealth and lifestyle. Taking environmental accountability poses short-term risks and means disrupting the many conveniences people take for granted. Canada’s strong support for the fossil fuel industry might indicate that political parties are not prepared to take responsibility for these short-term economic consequences and risks to transition to a Net-Zero economy.

The future is uncertain but track record of meeting targets suggests caution. In 2017, the Office of the Auditor General Canada released an audit showing that the ECCC’s plan to reduce fossil fuel subsidies, as outlined in Canada’s 2009 G20 commitment, had not yet been implemented as of 2017. Knowing this, how long will it take for Canada to implement COP26 commitments from 2021? The phase out plan of fossil fuel subsidies will likely be delayed to after 2025.

Anna Hardie is a first-year student in the Master of Public Policy program. She graduated from Mount Allison University in 2021 with a Bachelor of Arts in Economics and English Literature. Her policy interests include environmental and health policy. Anna is working towards pursuing a career in consulting for the public sector and is currently a Client Liaison at the Public Good Initiative.

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