Some argue gaps in government’s plan could allow public money to support production

This article was written by Alex Ballingall and was published in the Toronto Star on July 25, 2023.

The federal government plans to keep exploration and development tax breaks available for fossil fuel companies, a decision the Liberals’ parliamentary partners in the NDP view as a major hole in a new vision to reduce financial supports for the lucrative industry whose products created the climate crisis.

On Monday, Environment Minister Steven Guilbeault unveiled the government’s long-anticipated method for deciding which types of “inefficient” fossil fuel subsidies it will ditch as promised by the end of 2023.

At a news conference in Montreal, Guilbeault said the government is looking at 129 potential subsidies and has identified several for elimination. He declined to say how much money those subsidies are worth, though one government source told the Star a “preliminary” analysis suggests the new framework could reduce public support for the fossil fuels sector by about $1 billion.

Yet some environmentalists and the opposition NDP raised questions about the plan, including its continued public supports for fossil fuel companies under a range of conditions. Alongside exceptions that include money that helps the industry reduce its greenhouse gas emissions, government officials confirmed Monday that the policy doesn’t target subsidies that apply generally to all sectors, like tax breaks for natural resource exploration and development.

Asked how these measures could remain accessible to the fossil fuel sector under the plan, Guilbeault said the government intends to eliminate subsidies targeted directly at the fossil fuel sector that give it an “economic advantage” to produce more oil, gas or coal. The goal is to stop public money from financing that production, he said.

“This is a fundamental shift from what we’ve done in this country for decades,” said Guilbeault, who described Canada as the first G20 country to develop a framework to eliminate fossil fuel subsidies.

“We’re eliminating subsidies to produce fossil fuels in Canada, whether it’s oil, gas or coal, unless those subsidies are aimed at decarbonizing the emissions of this sector,” he said.

The plan was first promised back in 2009 as part of a joint commitment with G20 countries to phase out fossil fuel subsidies in the “medium term.” It is also part of the government’s supply and confidence agreement with the opposition New Democrats, and the two parties held talks on the framework to eliminate some fossil fuel subsidies for the past several months.

One senior NDP official close to those negotiations expressed frustration that the Liberals weren’t willing to go further. The source noted that the plan allows for tax breaks to continue for measures that don’t “solely” support the fossil fuel sector, including tax breaks for exploration and development of natural resources.

“To us, it doesn’t meet the bar, considering we are in a climate emergency,” said the source, who agreed to speak on condition they aren’t named.

In an emailed statement, Lisa Baiton, the president of the Canadian Association of Petroleum Producers, said the industry is “generally aligned” with the framework released Monday and that it is “pleased to see the recognition” that the government will continue helping it reduce emissions through technology.

“As long as the world needs oil and natural gas, it should be loweremission, Canadian energy,” Baiton said.

Environmentalists also generally welcomed the framework, though some raised concerns that it doesn’t go far enough.

Laura Cameron, a policy adviser with the International Institute for Sustainable Development, called the new framework a “significant step forward,” but said there are still “gaps” that would allow public money to support oil and gas production. Julia Levin, associate director at the group Environmental Defence, said the framework is an “important milestone” that could ensure government spending is aligned with Canada’s goals to significantly reduce national emissions, even though there are still “problematic loopholes.” And Greenpeace’s Keith Stewart said in a statement that all government subsidies for the sector should be eliminated “in an era of both record-breaking climate disasters and oil industry profits.”

Those profits include billions of dollars in tax breaks the government expects to give fossil fuel companies that spend money to develop technology that prevents greenhouse gas emissions from oil and gas development from going into the atmosphere and contributing to global warming. The Trudeau Liberals also bought the Trans Mountain oil pipeline system in 2018, and are overseeing public financing of the expected $30.9 billion cost of its expansion.

The framework announced Monday would not eliminate either of those supports. Instead, it would target measures that “disproportionately” benefit the fossil fuel sector, or only support the industries’ activities. It also targets measures that support the consumption of fossil fuels.

The government says it is already eliminating or has scrapped nine fossil fuel subsidies, including ending some tax breaks and the ongoing phase-out of tax deductions through “flow-through shares” for oil and gas companies.

But there are a number of exceptions that will allow government supports to continue if certain conditions are met. That includes if financial supports enable “significant” emissions reductions, support clean or renewable energy, or provide “essential energy service to a remote community.”

Other exceptions include supports for “short-term” emergencies, Indigenous participation in fossil fuel activities or for the “abated” production of oil and gas — meaning projects that use technology to prevent emissions from staying in the air. The framework also says subsidies can continue for oil and gas production that includes a “credible” plan to become carbonneutral by 2030.

On Monday, the government also said it would create a plan by the fall of 2024 to eliminate other public financing of Canada’s fossil fuel sector. In 2021, the Liberals promised the government would eliminate financing of the sector through Crown corporations like Export Development Canada, which has given billions of dollars in loans and credit guarantees to the industry, including for controversial projects like the Trans Mountain expansion project and Coastal GasLink pipeline in northern British Columbia.

Asked about this financing Monday, Guilbeault said Crown corporations are already decreasing how much money they provide to the fossil fuel sector.

“That’s what the transition looks like: you phase out one thing that you don’t want, and you phase in something that you really want. That’s exactly what we’re doing,” he said.

According to Environmental Defence, which has tracked fossil fuel companies’ profits, major oil and gas firms with operations in Canada posted almost $40 billion in profit in 2022 — more than double their results from the previous year.