Stock of fossil fuel subsidies still needed from Ottawa despite more ambitious goal, says expert

By Palak Mangat September 30, 2021

While a new “completely manageable” Liberal pledge is earning praise from one environmental group, critics say Ottawa remains behind the eight ball in transparency around the country’s existing “inventory” of oil and gas subsidies.

The government needs to offer a snapshot of such “baseline” figures “as soon as possible” to offset the impression it is going “one step forward and two steps backward” in its efforts to tackle the climate crisis, said Julia Levin, a senior climate and energy program manager with Environmental Defence.

Included in the Grits’ 89-page platform is a promise to ramp up a commitment to “eliminate fossil fuel subsidies from 2025 to 2023,” a file that has been frequently trumpeted by Prime Minister Justin Trudeau as proof electors voted for an “ambitious” agenda in last week’s election.

The party notably “dropped” use of the term “inefficient” subsidies, which the Liberals ran on in 2015 with a promise to phase out such support within a decade, noted Levin. She said while it’s a “positive change,” it comes as the feds are gearing up to “introduce new tax subsidies.”

Levin noted this summer, Finance Canada launched consultations on a budget pitch to bring in a new investment tax credit for those investing in carbon capture, utilization and storage projects. Per a release, the government “intends” the support to be used for “applications” from “industrial subsectors” like concrete, fuels and plastics, “but not enhanced oil recovery projects.”

Consultations closed September 7 with the design still being finalized and the credit to become available “starting in 2022.”

“If that is allowed to provide tax credits to oil and gas companies, that is a fossil fuel subsidy,” said Levin. “So those are the areas where I have concerns, where you see a step forward and then two steps backward.”

The Grits have long taken heat for subsidizing the sector and offering little government data to measure their support. While the feds in 2018 said a joint Argentina study would help it log progress on its promise to hit the 2025 target date, a Natural Resources Canada official told a committee during the last Parliament that the pandemic halted that initiative, making it unclear when that review will be complete.

Finance Canada, the lead department on the file, could not be reached in time for publication to answer questions about progress on that study and how the feds will track the Liberals’ new 2023 timeline. NRCan deferred inquiries to Finance.

Levin said Ottawa should share the results of that peer study soon.

“It’s certainly not wasted work if work has been done,” she said.

Former public servant urges comparison between sectors
Even before the recent promise, the department faced scrutiny for years for failing to adequately define what an “inefficient” subsidy is, with several environmental and advocacy groups forced to put out their own predictions of how much money Ottawa is funneling to the industry.

By some estimates, the figures reached $600 million in 2019 and at least $1.9 billion the following year, folding in dollars to help clean up orphaned and abandoned oil and gas wells in regions like B.C., Alberta and Saskatchewan.

It’s a definition that is still very much “up in the air,” according to Julie Gelfand, who served as the federal environmental commissioner from 2014 to 2019.

Gelfand slammed Finance and Environment Canada two years ago for defining the term so broadly that they could not decide which subsidies fall into the category. Speaking to Parliament Today, she said the feds would be better suited to offer Canadians a more wholesale picture across multiple sectors.

“Irrespective of whether they’re inefficient or not, shouldn’t we be looking at all the subsidies we provide to the fossil fuel industry, and then look at all the subsidies that we’re providing to the renewable sector?” she said yesterday. That would allow the feds to see “whether they’re in line [with our targets], whether we should continue to give more to one than the other, and [determine] which one.”

“I remain hopeful that we are going to achieve this goal. We kind of have no choice,” added Gelfand, noting the last several years have shown the electorate is “awakened” to the need to reduce fossil fuel consumption. “I actually believe there is support for tracking this information, getting this information and reducing the subsidies.”

Feds must show coherence of timeline, says senator
The PM has appeared to stake a good chunk of political capital on portraying himself as an environmentally friendly leader, with Trudeau touting the election, which sent all parties back to the House under the same minority regime in the same standings, as handing his team a “strong mandate to fight climate change and transform our economy.”

Independent Senator Rosa Galvez, who has studied environmental engineering and the effects of oil spills, said history suggests Ottawa has had a “problem” hammering out a definition of inefficient, which leads to a lack of clarity (an issue that was flagged in as early as 2009).

While she was “happy and hopeful” to see the Grits push the timeline for phasing out supports up by two years, she remains “skeptical” of its implementation given the government’s past reluctance to lean on definitions from international bodies like the World Trade Organization.

Such entities can be looked to for guidance on “rigorous definitions, so I think that is an excuse for tackling the problem,” she said. (The WTO characterizes a subsidy as “a financial contribution by a government” that “confers a benefit” on the group or person receiving it.)

“We want to say to the oil and gas [sector] that ‘You will be able to survive and keep going.’ But I don’t think that’s a responsible way of managing and governing, because that’s not true,” said Galvez.

“We need more explanations on how the government sees this [2023 timeline] is coherent,” added the senator. “I think that we are coming to a [time] where many of the parties are cornered in a place where they don’t have any more excuses, so they need to act.”