Canada Subsidizes Fossil Fuels, Can’t Talk Climate Change In Election Year

August 21st, 2019 by Michael Barnard

In the 21st Century when the largest pressing global issue is climate change, Canada continues to subsidize fossil fuels to the tune of US$2.5-$35 billion per year. Progress on eliminating subsidies for the high-polluting and high-carbon emissions sector depends on the results of the Canadian election.

Canada is in a federal election cycle, one mostly ignored internationally in favor of the US Democratic primaries with their 20 candidates and President Trump’s Twitter rants. However, it’s an important election for climate change. The Liberals, elected in 2015, brought in a national carbon tax along with a raft of climate positive measures (and some questionable but pragmatic actions). The Conservatives, their primary candidates, are promising to kill the carbon tax and their climate action plan is heavy on platitudes, but light on anything which will actually make a difference to emissions. Unsurprising, as the Conservative base is in the fossil-fuel rich provinces of the country.

Map of Canada showing major facilities reporting carbon emissions

Map courtesy of Government of Canada

Yes, that thick carpet of oil and gas facilities reporting emissions of pollutants including carbon in the west is Alberta, seat of Canadian conservatism these days.

During election year information sessions for charities last week, Elections Canada told them that any ads by environmental charities mentioning climate change during the election period could be consider partisanand hence subject to significant changes in charity status. This is because the formal position of one of the registered parties, the People’s Party of Canada (PPC), has a stated position of global warming denial. The PPC was formed by a disgruntled former leadership candidate for the Conservatives, Maxime Bernier, who tweeted recently.

“There is no climate emergency. No reason to panic or be anxious. No consensus supporting climate alarmism. No justification to regulate and tax ourselves to death.”

It linked to a video by a Canadian climate change denier. The PPC is only polling at 3% and is unlikely to even get a single seat or, sadly, sufficiently split the right-wing vote to ensure that climate action by Canada isn’t at risk, but still Elections Canada stands by the rather absurd position that stating empirical reality on climate change is considered partisan lobbying.

In that context, it’s worth looking at Canada’s fossil fuel subsidies. Canada has been committed, as all G7 countries have, to eliminating fossil fuel subsidies for over a decade. The former Conservative government under Stephen Harper made that commitment, and then did nothing with it. How have the Liberals done since 2015? What’s at stake for Canada’s commitment to climate action?

First off, what are fossil fuel subsidies?

A subsidy is a financial benefit that the government gives, usually to a specific business or industry. Economists can debate the difference between a subsidy and “support” for hours, but that’s a pretty good plain-English definition. (It’s also roughly how the World Trade Organization defines the term.)

The benefit from a subsidy can be a direct handout of cash or a tax break that has the same effect. Either way, it’s more money in the pocket of whoever receives the subsidy.

What subsidies does Canada provide, per the International Institute for Sustainable Development (IISD) from the link where the definition comes from? About CA$3.3 billion per year or about US$2.5 billion per year.

However, the NRDC publishes an annual scorecard of fossil fuel subsidies across the G7 group of countries, which includes Canada of course. It includes some things that the IISD doesn’t. Its numbers for Canada are higher, US$4.7 billion, about 89% higher than the IISD-cited numbers above.

The International Monetary Fund disagrees with both numbers. They quite reasonably add negative externalities including health impacts, premature deaths and the cost of carbon emissions to the mix. Basically, they price negative externalities based on the costs to other segments where the costs are felt. They peg Canada’s fossil fuel subsidies at US$34 billion per year.

“The lion’s share of the $34 billion are uncollected taxes on the externalized costs of burning transportation fuels like gasoline and diesel — about $19.4 billion in 2011. These externalized costs include impacts like traffic accidents, carbon emissions, air pollution and road congestion.”

Canada even provides artificially cheap fossil fuels to some buyers, which is what many think of as the only real ‘subsidy’, proving that those who deny any subsidies based on artificially strict definitions are wrong in any event. Specifically, Ontario provides non-taxed ‘coloured fuel’ to a subset of rural dwellers for agricultural and business needs.

So yes, any way you cut it, Canada subsidizes fossil fuels to the amount of $2.5, $4.7 or $34 billion every year, depending on what is included in the accounting, just as our neighbor to the south does. The equivalent numbers for the USA are US$4.7 billion annually (Congressional narrow definition), US$27.4 billion (G7 analysis) and US$649 billion (IMF numbers). That last one is higher than the annual US military budget, to provide some context. So what is Canada doing about it?

Well, the G7 report card provides a good summary.

“Canada, which holds the G7 presidency this year, scored highly on ending support to coal mining, fossil fuel-based power, and fossil fuel use. However, Canada ranked poorly on reforming support to oil and gas production because it spends the most money per capita subsidizing oil and gas production.”

Yeah, that’s a mixed bag. The Trudeau Liberals have managed to draw down one aspect of fossil fuel subsidies, but is not doing so well on the exportable oil and gas side of things yet. Politically, it’s very difficult to unravel subsidies for fossil fuels in Canada, just as it is in the US.

The Office of the Auditor General of Canada, an arm’s length federal department, has a Commissioner of the Environment and Sustainable Development (CESD), currently Julie Gelfand. In April, the Commissioner tabled a report in Parliament on progress of eliminating fossil fuel subsidies. The report was fairly damning. Some select quotes per Canada’s Environmental Defence.

“the Commissioner found a poorly defined decision-making process that has made it impossible for Canada to take concrete steps to meet its commitment. Furthermore, the commissioner criticized both departments for failing to clearly define what an inefficient subsidy is and “failing to consider the economic, social or environmental sustainability of subsidizing the fossil fuel sector.”

The commissioner found that Finance Canada’s “assessments to identify inefficient tax subsidies for fossil fuels were incomplete, and that advice it provided to the Minister was not based on all relevant and reliable information” and did not consider all relevant evidence. […]

Similarly, the audit found “Environment and Climate Change Canada’s work to identify inefficient non-tax subsidies for fossil fuels was incomplete and not rigorous,” in part due to the use of unclear definitions and the failure compile a complete inventory of potential fossil fuel subsidies. Of the 36 potential non-tax subsidies identified by the department, it determined that 4 were subsidies for the fossil fuel sector, and that none were inefficient.”

Basically, the departments involved found that the subsidies that they were providing were mostly really good, but external auditors disagree. Smells like politics favoring the oil and gas industry.

There’s more.

“the evaluation of government programs and crown corporations does not consider Export Development Canada (EDC), the country’s export credit agency, a fossil fuel subsidy provider. In fact, Export Development Canada provides, on average, over $10 billion in government-backed support for oil and gas companies every year.”

Yes, another CA$10 billion is unaccounted for. And none of this appears to include the $4.5 billion expenditure to purchase the Kinder Morgan Pipeline in an effort to keep up the pretense that twinning it was a good idea in the age of global warming.

The World Bank keeps track of oil rents, the percentage of GDP associated with the oil and gas industry.

Chart of World Bank oil rents for Canada from 1970 to 2017

Image courtesy World Bank

Canada’s oil rent is at a relatively historic low of 0.894% as of 2017. That means that well under 1% of our economy flows from oil and gas. Our GDP was $1.653 trillion in 2017. That puts oil and gas at about $1.5 billion, mostly in Alberta and Saskatchewan. If we consider the IMF numbers, that means that we are subsidizing the oil and gas industry to the tune of about 2.3% of their annual revenue. Nice little profit boost for them, being given tax breaks directly, given money directly and being shielded from the costs of doing business.

Past time to stop, but while the Liberals have made much more progress than the Conservatives ever did, it isn’t easy to unpack decades of politics and lobbying.

And to be clear, the Liberals are doing good work on this front, if more slowly than would be best, and if they are booted out later this year, progress will stop.

Tags: Canada, Conservative Party of Canada, elections, Justin Trudeau, Liberal Party of Canada, Maxime Bernier, People's Party of Canada

About the Author

Michael Barnard is Chief Strategist with TFIE Strategy Inc. He works with startups, existing businesses and investors to identify opportunities for significant bottom line growth and cost takeout in our rapidly transforming world. He is editor of The Future is Electric, a Medium publication. He regularly publishes analyses of low-carbon technology and policy in sites including Newsweek, Slate, Forbes, Huffington Post, Quartz, CleanTechnica and RenewEconomy, and his work is regularly included in textbooks. Third-party articles on his analyses and interviews have been published in dozens of news sites globally and have reached #1 on Reddit Science. Much of his work originates on Quora.com, where Mike has been a Top Writer annually since 2012. He's available for consulting engagements, speaking engagements and Board positions.