The (Public) Cost of Pollution: Ontario's fossil fuel subsidies

Key Messages

• Each year, Ontario provides nearly CAD 700 million in public subsidies for fossil fuel consumption at the expense of investing in other policy areas that matter to Ontarians.
• The highest subsidies in Ontario fall into three categories: tax exemptions for aviation and railway fuels, tax exemptions for coloured fuel (e.g., fuel used in agriculture) and direct spending on natural gas expansion.
• Ontario has an opportunity to lead the charge on provincial fossil fuel subsidy reform. As a first step, Ontario should undertake a transparent self-review of the subsidies listed in this report to determine their efficiency and effectiveness.

IISD has documented the billions of public dollars that support fossil fuel production and consumption by the Canadian government. But fossil fuel spending is also a problem among Canadian provinces and territories. 

Ontario spends nearly CAD 700 million each year in public subsidies for fossil fuel consumption. These subsidies represent large amounts of foregone public revenue that could be invested in everything from good jobs to education and healthcare. Spending money on fossil fuel encourages their use and contributes to the pollution that causes climate change. Ontario's largest subsidies include CAD 320 million in 2018/19 in tax exemptions for fuels used by the aviation and rail industry, CAD 225 million in 2018/19 in tax exemptions for coloured fuel (commonly used in agriculture) and at least CAD 100 million in direct spending on natural gas expansion in Budget 2018.

How can Ontario move away from fossil fuel spending to facilitate good fiscal management and a transition to a clean economy? The report recommends the following action areas for the province:

• Undertake a transparent self-review of all fossil fuel subsidies and identify potential areas for improved policy efficiency from economic, environmental and social perspectives. 
• Develop an action plan to phase out subsidies to ensure responsible budgetary management, increased support for sustainable energy and support for affordable energy access for Ontarians.
• Establish clear guidelines to make sure that no new fossil fuel consumption or production subsidies are introduced without a thorough analysis, to ensure that they are absolutely essential, time limited, consistent with a long-term low-carbon economy, and that they are the only way to ensure policy objectives such as lowest-cost energy access.
• Proactively engage with the Government of Canada as they complete their G20 peer review of fossil fuel subsidies.