Fossil fuel subsidies are one of Canada’s biggest climate conundrums: where do the parties stand?

Sarah Cox
Syncrude oilsands mining operations near Fort McMurray, Alta. While three out of four of the major national political parties pledge to eliminate fossil fuel subsidies, there are differences in party positions in the 2021 federal election. Photo: Todd Korol

In 2009, when Canada and other G20 nations first pledged to tackle fossil fuel subsidies, a collective promise was made to do away with ‘inefficient’ subsidies. But the term inefficient has never been defined, giving governments and political parties during this election a significant amount of wiggle room

Sept. 16, 2021  10 min. read
Thirty minutes into the televised English language federal election debate, as the leaders of Canada’s major political parties bickered about climate policies, interrupting each other, Aaron Cosbey shut his laptop and walked away. 

It’s part of Cosbey’s job, as an economist with the International Institute for Sustainable Development, to hold Canada’s feet to the fire when it comes to eliminating public subsidies for the oil and gas sector, as climate change impacts intensify around the world and scientists issue a “code red for humanity.” 

But as Cosbey watched the first part of the Sept. 9 debate from the patio of his home in Rossland, B.C., he found the exchange about climate change issues, including the key issue of fossil fuel subsidies, to be “woefully inadequate.” 

“This is a top-of-mind issue for a lot of Canadians,” he says in an interview with The Narwhal. “B.C. went through some pretty harrowing times this summer. If you’re in Saskatchewan or Manitoba and you’re a farmer you’re in extreme drought conditions — looking at total crop loss in a lot of cases. A lot of parts of Canada are feeling the climate impact … ”

The choppy debate format and the poor calibre of the leaders’ responses made it impossible to understand the differences between each party’s platform, Cosbey says, and didn’t allow viewers to discern which political party will best deal with the climate crisis, including through its position on fossil fuel subsidies. “It was all soundbites and attacks … And that’s a terrible thing. Because this should be, and is, for many Canadians, one of the hottest voting issues on the table.”

“The format was terrible in terms of informing people and the responses were terrible in terms of actually enlightening debate. The whole thing frustrated me enormously.”

One day before the leaders’ debate, a study published in the journal Nature found almost 60 per cent of the world’s oil and gas reserves and 90 per cent of coal reserves need to stay underground in order to keep global warming below 1.5 C — the threshold the Intergovernmental Panel on Climate Change warned in 2018 would have devastating consequences. 

To avert a climate disaster, reports released this year by the International Energy Agency and the Intergovernmental Panel on Climate Change indicate all new fossil fuel developments must stop by the end of the year and governments must immediately start phasing out the use of coal, oil and gas.

Cosbey says subsidizing the oil and gas industry during the climate emergency is the equivalent of heading towards a cliff and putting your foot on the accelerator instead of the brake. “The basic idea that you would be accelerating the development, extraction and processing of fossil fuels in a climate change crisis makes no sense.” 

Most parties say they would eliminate fossil fuel subsidies

While three out of four of the major national political parties pledge to eliminate fossil fuel subsidies, there are differences in party positions that weren’t communicated during the debate, as well as issues of credibility. Varying opinions about what constitutes a fossil fuel subsidy also make it difficult to compare platforms, as it’s sometimes unclear which definition a party is using. 

In 2009, when Canada and other G20 nations first pledged to tackle fossil fuel subsidies, a collective promise was made to do away with “inefficient” subsidies. But the term inefficient has never been defined, allowing successive governments wiggle room. “I don’t know what an efficient fossil fuel subsidy is,” UBC political science professor Kathryn Harrison points out. “So there’s the complication of what is defined as a fossil fuel subsidy and then what is an inefficient fossil fuel subsidy.”

Cosbey’s institute uses the World Trade Organization’s definition of subsidy  — “a financial contribution by a government” that “confers a benefit” on its recipient. According to the institute’s calculations, Canada handed out at least $600 million in fossil fuel subsidies in 2019 and at least $1.9 billion in 2020, including funding to clean-up orphaned and abandoned oil and gas wells in B.C., Alberta and Saskatchewan.  

Even $600 million “going in the wrong direction” is alarming, Cosbey says. “A conservative definition of fossil fuel subsidies should be enough to cause us to reform.”

The group Environmental Defence takes a different approach, calculating that Canada dedicated $18 billion to assist the oil and gas sector in 2020. That figure includes $3.28 billion in direct spending and $13.6 billion in public financing for oil and gas companies — primarily from the opaque crown corporation Export Development Canada, according to the Environmental Defence report, Paying Polluters: Federal Financial Support to Oil and Gas in 2020

The report notes Export Development Canada provided up to $5.25 billion in financing renewals for the Trans Mountain pipeline expansion in 2020, a publicly owned project that will cost at least $12.6 billion and comes with a hefty carbon footprint. Export Development Canada also approved a loan of up to $500 million for TC Energy, the owner of the Coastal GasLink pipeline that will supply fracked gas from northern B.C. to the LNG Canada project, one of Canada’s largest single sources of carbon pollution — on par with Teck’s mothballed Frontier oilsands mine in terms of its greenhouse gas emissions.

The main oil and gas industry lobby group, the Canadian Association of Petroleum Producers, has repeatedly denied the sector benefits from subsidies, saying these incentives and tax breaks don’t fit its own definition of a subsidy. The industry lobby group has also promoted offering tax breaks to create new jobs, even though scientists warn this type of growth would lead to climate disasters.

Julia Levin, senior climate and energy program manager for Environmental Defence, says eliminating fossil fuel subsidies is one of Canada’s most important climate commitments. “We’ve had a commitment to eliminate inefficient fossil fuel subsidies for a decade, and yet we’ve seen very little progress … Because of the word subsidies, because of the government not agreeing what’s a subsidy and what’s not, we tend to miss the forest for the trees. We need to eliminate all of the financial tools that the government has made available to the oil and gas sector because those undermine all climate action.”

The Liberal election platform commits to eliminating fossil fuel subsidies by 2023, ahead of the G20 target date of 2025, conveniently sidestepping any mention of “inefficient” subsidies. If re-elected, the Liberal Party says it will develop a plan to phase out public financing for the oil and gas sector, including from Crown corporations, consistent with the party’s commitment to reach net zero emissions by 2050. 

Jonathan Wilkinson, Canada’s Minister of Environment and Climate Change before Parliament was dissolved for the federal election campaign, has said a re-installed Liberal government is “firmly committed” to phasing out mechanisms that incentivize the exploration and production of fossil fuels — but that money for  oil and gas well clean-up is not included in that subsidy bucket.

While subsidies with green strings attached are often better received by the public, Harrison notes the money is still going to the oil and gas industry. “And if it’s something they were going to do anyway, or would be required to do by law anyway alternatively, then it just frees up other money within the same company to do other things — explore for more fossil fuels or lower their cost of production beyond what it would otherwise be.”

If the government is willing to provide green subsidies to corporations, Canadians should be thinking about the industries of the future they wish to encourage “and which are the ones that are likely to decline over time,” Harrison says, ” … in which case, should taxpayers be propping them up?” 

The Liberal government first committed to phasing out fossil fuel subsidies as part of the 2016 Paris Agreement, a legally binding international treaty on climate change that aims to keep global temperatures to 1.5 C below pre-industrial levels. Wilkinson’s spokesperson Moira Kelly told The Narwhal earlier this year that the Liberals had eliminated eight tax breaks for the fossil fuel sector. 

Yet, aside from starting work with Argentina on a peer review of fossil fuel subsidies to help determine the next steps in phasing them out, the Liberals were slow to follow through on their 2016 promise. Canada provides more public finance for fossil fuels on a per capita basis than any other G20 country except for China, according to Levin. “Between 2015 and 2019 we provided $100 billion to oil and gas. These are not records that Canada can hold and claim to be a climate leader.” 

Cosbey says the caveat in the Liberal platform is the party’s promise to make sure the oil and gas sector reduces emissions “at a pace and scale needed to achieve net-zero by 2050, with five-year targets to stay on track.” If emission reduction targets are achieved, it would make moot much of the discussion around fossil fuel subsidies, he points out.

In that case, “we don’t need to talk about subsidies anymore. We need to talk about what that timetable looks like. Because the only reason we care about subsidies is because they encourage production and consumption of fossil fuels.”

The Liberals have already made good on many of the party’s climate change promises. They’ve put a price on carbon, set a 2030 target date to phase out coal-fired electricity, instituted an electric vehicle mandate, legislated Canada’s target of net-zero greenhouse gas emissions by 2050, set five year-national emissions reduction targets and passed the Net-Zero Emissions Accountability Act to deliver on their commitments.

“So those aren’t promises,” Cosbey observes. “The Liberals have a credibility problem based on their years in office — but not so big a credibility problem, because we actually have meaningful and ambitious climate change policies in place that are better than almost any other jurisdiction in the world.” 

No mention of fossil fuel subsidies in Conservative platform

The Conservative Party doesn’t include any promises to eliminate fossil fuel subsidies in its election platform. Instead, the party pledges to forge ahead with plans for new pipelines, create a LNG export strategy, invest $5 billion in carbon capture and sequestration technologies and support small modular nuclear reactors. 

“… the truth is that the world will still be burning oil and gas for decades to come,” the party platform states. 

Harrison and Cosbey both say this effectively means that the Conservative platform adds up to de facto subsidies for the oil and gas industry. “A general theme in the Conservative platform is one of support for the oil and gas industry and support for maintaining oil and gas jobs,” Harrison notes. “It says a lot that the Conservative platform doesn’t even talk about phasing out fossil fuel subsidies — however narrowly defined.” 

Cosbey says a LNG export strategy is unlikely to be viable without public subsidies. “To the extent that we’ve done anything at all on LNG in Canada it’s involved huge subsidies.” 

“If you’re talking about a LNG strategy that ramps up the existing efforts then it’s more subsidies. So really the Conservative platform — even though it doesn’t say that — is talking about putting a lot more subsidies into fossil fuel production, consumption and export.”

The NDP, on the other hand, promises to eliminate fossil fuel subsidies immediately. Taking a page from the Environmental Defence report, the party’s election platform says the Liberal government spent $18 billion to support the oil and gas industry in 2020, on top of its purchase of the Trans Mountain pipeline

The NDP says it will fulfill Canada’s G20 commitment to eliminate fossil fuel subsidies and redirect these funds to low carbon initiatives. It will also make sure future governments can’t reverse the policy by putting legislation in place to ban any future oil, gas and pipeline subsidies.

While Harrison agrees the investment of tax dollars in the Trans Mountain pipeline benefitted the oil and gas industry, she says the NDP has been “a bit fast and loose” with the $18 billion subsidy figure and the party’s platform costing consequently doesn’t align. “Normally, if you say you’re going to stop some spending stream it would appear in new revenues,” she notes.

And how the NDP, if elected, would deal with the pipeline purchase is uncertain. “Even for the NDP that one’s complicated, because it was an NDP government in Alberta that was strongly pushing for that pipeline and was very supportive of the federal government’s purchase of it.” 

On the issue of credibility, the BC NDP — Canada’s only provincial or territorial NDP government — has championed and generously subsidized the LNG Canada project. The provincial government announced an initial $5.3 billion in subsidies for the project, which is owned by a consortium of five of the largest and most profitable multinational corporations in the world, including Royal Dutch Shell, Malaysian-owned Petronas and PetroChina Co.  

“That’s a complicated one for the NDP,” Harrison says. 

The LNG Canada project will generate four megatonnes of emissions annually and eat up one-sixth of B.C.’s total carbon budget for 2040, placing the federal NDP in a difficult position if elected.

“There’s a good reason you haven’t heard about it in the campaign,” Cosbey says. “Nobody wants to be seen as treading on provincial toes with regard to their natural resources policies.”

The Green Party also promises to eliminate fossil fuel subsidies. The Greens go one step further and promise to end the extraction of oil and gas — wrapping up oilsands production between 2030 and 2035 — and to ban fracking for natural gas. But the platform contains no detailed costing, Harrison points out. 

“I think a lot of what’s in the Green platform is aspirational. They have no expectation that they will be in government. So they are throwing everything out there. These are all the things a government should be doing in a climate emergency. Eliminating fossil fuel subsidies is one of them.”

[Top photo: Syncrude oilsands mining operations near Fort McMurray, Alta. While three out of four of the major national political parties pledge to eliminate fossil fuel subsidies, there are differences in party positions in the 2021 federal election. Photo: Todd Korol]