Saturday, March 2, 2019

The Energy Paradox: Environmental Defence on Canada's Escalating Oil Subsidies

Both Canada and the province of Alberta want to have it both ways. They want to be climate leaders and major oil and gas exporters.  The Canadian federal government and the provincial government in Alberta provide massive subsidies to the oil and gas industries in the form of tax breaks, fiscal support and direct grants.  Canada is the largest provider of government support for oil and gas production per unit of GDP in the G7.

After decreasing federal payments to Big Oil by $150 million in 2017 Justin Trudeau's Liberal government appears to have changed direction in 2018. Last May the Canadian government announced it was going to buy Kinder Morgan's Trans Mountain pipeline for $4.5 billion. Last December the Liberals announced that they were giving oil and gas companies $1.65 billion in new grants, loans and financial supports. This is in addition to Export Development Canada, the country’s export credit agency, that provides, on average, $10 billion in government-backed support for oil and gas companies every year.

This is inconsistent with the government's decision to phase out coal and implement a national carbon pricing scheme. It is at odds with government investments in public transit, energy efficiency, and renewable energy. This also does not fit with Canada's commitment to phase out all of its inefficient fossil fuel subsidies by 2025.

Alberta's fossil fuel subsidies have increased dramatically in the last few years.  Premier Rachel Notley's provincial government has provided $4.8 billion in subsidies to the oil, gas and coal industries in the last three fiscal years. She gave away more than $2 billion dollars in fossil fuel subsidies for the 2017/18 fiscal year (tax incentives, royalty holidays, research grants and direct subsidies). That is almost double the previous years total of $1.2 billion 

Like Canada Alberta's desire to have it both ways is creating an energy paradox.  These subsidies are in stark contrast to the goals of Alberta’s Climate Leadership Plan (CLP)  which includes phasing out coal electricity, increasing renewable electricity, funding energy efficiency, more public transit and placing a cap on oil sands emissions.

A recent Environmental Defense report titled, Doubling Down with Taxpayers Dollars, chronicles fossil fuel subsidies in Alberta. The report was co-written with the International Institute for Sustainable Development (IISD).

"[T]hese subsidies work directly against the goals of the CLP by enticing fossil fuel companies to expand their operations. For Canada to fulfil its commitment to phase out inefficient fossil fuel subsidies by 2025, all provinces must also end public support for oil, gas and coal companies."

In 2017, the aggregate gross profits of the Big Five oil sands producers were $46.6 billion.  In a recent Environmental Defense article,  Joshua Buck wonders how the Canadian oil industry can make billions in profits and yet receive ever increasing corporate subsidies.  Particularly when the industry is using some of these subsidies to expand extraction at a time when we should be winding down.  

"The science is telling us we have to pretty drastically reduce production of oil and natural gas, and in the face of headwinds in Canada around the price of oil and opposition from communities and opposition from First Nations, Canadian governments have really bent over backwards to try to help the industry with all these subsidies," said Dale Marshall, a program director with Environmental Defence.

Environmental Defence, along with Stand Earth, released a report titled Canada's Oil and Gas Challenge, at COP24.  The report indicated that emissions from the oil and gas sector are rising making it all but impossible for Canada to meet its Paris targets. Canada has agreed to 30 percent reduction in greenhouse gas (GHG) emissions from 2005 levels by 2030.

The report also reviews how fossil fuel lobbyists have succeeded in pushing back against the federal government's efforts to reign-in emissions. They point out that only 20 percent of Canadian fossil fuel emissions will be taxed under the national carbon plan.

Realizing the compromising optics oil industry insiders were tripping all over each other to distance themselves from the hand-outs. As reviewed in an article by Patrick DeRochie the fossil fuel industry claims it does not get nor does it want subsidies.

Tim McMillan, CEO of the Canadian Association of Petroleum Producers, Canada’s primary oil industry lobby group, said the industry "didn’t ask for money under federal government programs." The CEO of Alberta oil and gas producer Whitecap Resources, Grant Fagerheim, said "this is absolutely not what is needed" and that "the energy sector is not looking for handouts, it’s not looking for support in the form of loans."

Alberta Opposition Leader Jason Kenney said, "None of them—none of them—are asking for handouts," and Alberta Premier Rachel Notley said the oil and gas sector "doesn’t want free money."

Although this is political theater and public relations, it is hard to disagree with DeRochie when he says we should take them at their word and cut all subsidies.

Without the fossil fuel industry Canada would be justified in calling itself a climate leader. 
"The oil and gas industry, it’s fair to say, is one of the only things standing in the way of Canada showing leadership on climate change," said Marshall. "In every other respect there are really good initiatives happening in Canada, and yes, the oil and gas sector continues to get a free pass and that’s unfair. It’s unfair to other sectors and it’s unfair to other Canadians who are facing climate policies and are seeing the oil and gas industry be let off the hook."

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