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According to a new International Monetary Fund (IMF) report, Canada subsidized the fossil fuel industry to the tune of almost $60 billion in 2015 — approximately $1,650 per Canadian.
Yet subsidizing one of the world’s wealthiest industries is folly.
Such subsidies not only hurt Canadian taxpayers and the economy — they also exacerbate the climate emergency.
Indeed, the G20 countries have already agreed that subsidizing fossil fuels is irrational in a warming world — and have called for action to eliminate inefficient fossil fuel subsidies that distort markets.
The problem is that subsidies encourage the production and wasteful consumption of fossil fuels all while impeding the shift to cleaner renewables.
For these reasons, during the last election campaign Justin Trudeau sensibly committed to “phase out inefficient fossil fuel subsidies.”
The problem is that government has not yet delivered on this promise.
A new 2019 report by Canada’s Auditor General reveals government’s review of such subsidies is “incomplete and not rigorous,” is “not based on all relevant and reliable information” and “did not consider economic, social and environmental sustainability over the long term.”
Canada continues to subsidize the fossil fuel industry in myriad ways. First, it provides tax breaks under the federal Income Tax Act. For example, in 2015 the federal government introduced a new accelerated depreciation rate for equipment used in LNG facilities, which was a change proposed by the Canadian Association of Petroleum Producers.
A natural gas well pad with numerous wells for fracking near Farmington, B.C. The LNG industry in British Columbia is the recipient of numerous tax breaks and exemptions. Photo: Garth Lenz / The Narwhal
Second, government provides funding to the fossil fuel industry at favourable rates through direct financing and loan guarantees. A recent example is Export Development Canada’s administration of a nearly $5 billion loan to support the government’s controversial purchase and operation of the Trans Mountain pipeline.
Ottawa has no plan to recoup that principal cost from industry — and is also subsidizing half the interest expense with taxpayer dollars.
Third, Canada provides direct funding to the fossil fuel industry through research, development and other services provided by federal agencies.
For example, the federal government is paying $1.5 billion for the Oceans Protection Plan, an initiative to safeguard bitumen transport through the Port of Vancouver. This plan was necessitated by new oil tanker traffic — and should be paid for by oil shippers.
Prime Minister Justin Trudeau visited Victoria in April of 2018 to reiterate the federal government’s support for the Trans Mountain pipeline and commitment to the Oceans Protection Plan. Photo: Carol Linnitt / The Narwhal
Yet now, taxpayers will pay up to $6 billion for the plan over the next 20 years.
Finally, there is the $60 billion subsidy that the IMF focused on — the “social costs” of carbon that governments pay, instead of fuel producers.
Lacking adequate carbon taxes, governments continue to pick up the tab for the impacts of climate change — for example, repairing damage from extreme weather events, building new levees, sea walls and storm sewers and paying for wildfire control and increased health costs.
The Fort McMurray wildfire in northern Alberta. MacEwan University estimated the cost of the 2016 wildfire, nicknamed “the beast” for its unpredictability, to be around $9 billion. Photo: pilotbiologist / Flickr
Fortunately, implementing carbon taxes and eliminating fossil fuel subsidies will pay off in the long run.
The IMF estimates that elimination of global fossil fuel subsidies would reduce CO2 emissions by 28 per cent and reduce premature air pollution deaths by 46 per cent.
Equally important, the IMF concluded that elimination of subsidies would actually result in a net economic gain. Eliminating fossil fuel subsidies will be a win for the environment and for the economy.
In sum, Canada needs to implement robust carbon taxes to pay for the massive climate change costs that society now confronts.
Just as important, Canada must finally follow through on its specific promise to phase out inefficient fossil fuel subsidies.
After all, claiming to fight climate change while subsidizing fossil fuels is as crazy as brushing your teeth while eating Oreos. It may make you feel virtuous, but it isn’t going to work.
Erin Gray and Calvin Sandborn QC are lawyers with the University of Victoria Environmental Law Centre, where Emilie Benoit and Sydney Hamilton are both law students.
