Two pump jacks in rural Alberta, Canada, at sunset
Policy Analysis

Time's Running Out on Canada's Inefficient CAD 8.6 Billion of Support for Big Oil

The clock is ticking on two of the federal government’s promises to make tangible progress to stop subsidizing and funding fossil fuels by the end of 2022. But the government continues to provide huge support to the industry, and while lower than the previous year, it is still over CAD 8.6 billion.
By Laura Cameron , Émile Boisseau-Bouvier on August 9, 2022

This article was originally published in Canada's National Observer and is reprinted below with permission.

The clock is ticking on two of the federal government’s promises to make tangible progress to stop subsidizing and funding fossil fuels by the end of 2022. But the government continues to provide huge support to the industry, and while lower than the previous year, it is still over CAD 8.6 billion.

So what’s the holdup? It largely comes down to one tricky word: inefficient.

In 2009, Canada promised to end so-called “inefficient” fossil fuel subsidies, stating last year it would do so by 2023.

And yet, with six months before 2023 hits, Canada still hasn’t clarified what “inefficient” — a term first introduced in the G20 commitment in 2009 — actually means. Canada also pledged to end public finance for fossil fuels, including ending all new support for unabated coal, oil and gas projects overseas by the end of 2022. But can public finance for fossil fuels within Canada be considered “efficient”?

While some industry players rally to benefit from the current energy crisis, Canada must not cave to pressure from oil and gas companies to ramp up production. Rather than using “inefficient” as a loophole to water down commitments, Canada should act swiftly to move money from fossil fuels to renewables and head to COP 27 in Egypt this November with something to show.

A starting point would be for the government to define inefficiency and align all spending with four key directives: supporting a sustainable economy, creating good long-term jobs, respecting climate commitments, and using taxpayer dollars most effectively. The Canadian Climate Institute has similarly called for government spending to reflect climate imperatives.

Support a sustainable economy

As global economies transition from fossil fuels, the government must keep Canada’s economy competitive by focusing on industries with strong long-term economic prospects, such as renewable energy.

From 2018 to 2020, Canada provided 14.5 times more financing to fossil fuels than renewables. Putting public money into fossil fuels diverts it from other priorities and risks creating stranded assets taxpayers may be on the hook for, alongside the rising costs of climate change.

The Trans Mountain pipeline expansion project is one example of how these liabilities can take shape. Since the federal government bought the project and put over CAD 11 billion in loans towards it, construction costs have ballooned to CAD 21.4 billion, leading the Parliamentary Budget Officer to declare it “clearly not profitable.” Despite this, the government approved a new CAD 10 billion loan guarantee for the project, putting even more public money on the line.

Create good, long-term jobs

Rather than supporting oil and gas companies that are making record profits, Canada’s government should focus on people. Nearly 200,000 workers are employed directly in oil and gas. Many more depend on the industry indirectly. All these workers deserve support to ensure the energy transition opens more doors than it closes.

A 2021 poll found that 88 percent of oil and gas workers want training for jobs in the clean economy. And it would only cost half what the government put towards fossil fuels in 2020 to upskill a million workers over 10 years. Job growth in renewables is far outpacing oil and gas and is expected to grow by nearly 50 percent over the next eight years while the fossil fuel industry cuts back.

Respect our climate commitments

The government’s climate targets, including reaching net-zero by 2050, are another metre stick to assess federal support.

Support for fossil fuels moves us away from climate goals. Subsidies for cutting emissions from oil and gas production, like the new investment tax credit for carbon capture and storage estimated to cost CAD 7.2 billion by 2030, may appear positive. But putting public funds towards expensive and unproven technologies is economically risky. These types of measures could prolong fossil fuel production, increasing overall emissions.

Get the best value for taxpayer dollars

Given the scale of the climate challenge, every dollar counts. The government should ensure taxpayer money is used most effectively to meet social, environmental and economic goals. If a subsidy or tax break aims to create jobs, those funds should go to promising opportunities in fast-growing clean industries, rather than jobs in, for example, the oil and gas industry, which will likely be short-lived.

With less than six months left on key deadlines to end fossil fuel support, there is no time to lose. Canadian taxpayers can no longer subsidize the problem — they deserve to fund the solutions.

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