Canada’s fossil fuel industries are the recipients of $2.7 billion US ($3.6 billion CDN)  in handouts each year, despite a promise from all G20 nations, including Canada, to eliminate subsidies in 2009.

About $1.6 billion US of those subsidies came from the federal government with the rest distributed by the provinces, according to a new report from Oil Change International.

The report finds G20 countries spend about $452 billion US each year to prop up their oil, gas and coal industries.

The Liberals promised to “fulfill Canada’s G20 commitment to phase out subsidies for the fossil fuel industry,” in their election platform. The party singled out the Canadian Exploration Expenses tax deduction as too generous to industry, saying the tax break should only kick in if companies are completely unsuccessful in their resource exploration.

“The saving will be redirected to investments in new and clean technologies,” the party platform says.

But the Canadian Exploration Expenses tax deduction isn’t the only place where companies can take advantage of a generous subsidy system.

So were else is the money coming from and going to?

Direct Handouts to Fossil Fuel Industry

The Canadian government has heavily invested in fossil fuel projects, research and development in recent years.

Perhaps most notably, the government poured millions of dollars into the development of carbon capture and storage (CCS) technology.

Between 2011 and 2014, $226 million US was handed over to SaskPower, Saskatchewan’s main energy provider to develop CCS infrastructure at the Boundary Dam coal power plant. SaskPower, owned by the province, invested an additional $1.2 million US into the project over four years.

An additional $18 million US was paid into CCS research at the Saskatchewan Petroleum Technology Research Centre in a joint project funded by Canada, Saskatchewan, the University of Regina and the Saskatchewan Research Council.

Two CCS projects in Alberta received $156 million US from the federal government and an annual supplement of roughly $103 million US from the province for several years.

The development of CCS has been extremely controversial because it is an expensive, risky and unproved technology that, while ostensibly removing carbon from the atmosphere, is also used to facilitate enhanced oil and gas extraction, thereby releasing more carbon into the atmosphere.

B.C. also invested $19 million US directly in oil and gas extraction activities under the banner of  ‘transportation investment’ objectives.

Screenshot from Oil Change International.

Public Finance of Fossil Fuel Activities

The OCI report found Export Development Canada, the country’s main public finance institution, mostly funds projects that involve oil and gas production. The institution, however, doesn’t keep precise records on how much money is provided per transaction (records only provide a range, i.e. $250-$500 million US).

But OCI estimates that the institution provides an average of $2.5 billion US per year to fossil fuel production for companies like TransCanada, Enbridge, Encana, Devon Energy and Chevron.

Fossil Fuel Industry Tax Breaks

One of the main ways the federal and provincial government subsidizes the fossil fuel industry is through major tax breaks.

Canada has no shortage of generous tax deductibles and expenses for industry when it comes to expensive upstream development, which can include high resource exploration and infrastructure costs.

Here are some highlights:

The Canadian Development Expense

Under the Canadian Development Expense, oil and gas companies can claim up to 30 per cent of their field development costs when starting up a new project.

In 2013 oil and gas companies claimed an estimated $981 million US in tax deductions for drilling or completing an oil field or sinking a new mine shaft, according to OCI.

Canadian Exploration Expense

Companies exploring for new resources can claim up to 100 per cent of their expenses for exploratory drilling or seismic testing. This cost the federal government an estimated $159 million US in 2013.

Until January 2015, all pre-production expenses for development of the oilsands were eligible under this tax break, although now operators can only make those claims under the CDE (where they can only recoup 30 per cent, rather than 100 per cent, of their expenses).

Canadian Oil and Gas Property Expense

This tax break, which allows companies to claim a 10 per cent deduction on the cost of purchasing new oil and gas wells, has amounted to $35 million US in subsidies since 2011.

This expense did bring the benefit of reclassifying oilsands property and leases, which were previously eligible for 30 per cent deductions under the Canadian Development Expense. This change is estimated to save Canada $69 million US each year by 2015/2016, according to the report.

Atlantic Investment Tax Credit

This tax credit cost subsidized the oil and gas industry to the tune of $136 million US between 2013 and 2014 by providing tax deductions for developing mature or non-conventional resource fields in Atlantic Canada.

This credit mechanism is currently being phased out but companies can claim past expenses until 2017.

Foreign Tax Breaks

The Foreign Resource Expense and the Foreign Exploration and Development Expense allow Canadian companies to deduct 30 per cent of their overseas exploration costs.

OCI notes a lack of disclosure for deductions claimed under these foreign operations tax brackets means no one knows exactly how much these breaks cost for 2013 or 2014.

Alberta Crown Royalty Reductions

In 2013, companies were spared from paying an estimated $631 million US in taxes and royalties under this provincial subsidy. In 2014, the estimated total was $578 million US.

B.C. Deep Drilling Credit

B.C. gave $260 million US worth of royalty relief to gas developers in 2013 and an additional $238 million US in 2014.

In its primer on Canada, Oil Change International, along with the Overseas Development Institute and International Institute for Sustainable Development, outlines how these tax breaks work in more detail.

Why Stopping Fossil Fuel Subsidies Matters

Global subsidies for the fossil fuel industry are four time the global subsidies for renewable energy.

Clean energy analysts say the lack of tax breaks and subsidies for clean energy is holding the sector (which is still booming, by the way) back from reaching its potential.

Many countries in the developed world have already promised a long or medium-term phase out of fossil fuels as a pathway to lowering their emissions.

This year more than 190 countries are convening in Paris for the UNFCCC COP21 climate talks in the hopes of singing an international climate treaty.

“Axing $1.7 billion US in handouts to fossil fuel producers is a critical step that Canada needs to take towards tackling climate change, and it would be very welcome in the lead-up to major climate talks in Paris next month,” Alex Doukas, co-author of the report for Oil Change International, said.

“This is a unique opportunity for the new Canadian government to hit the ground running at the G20, live up to election promises, and push other G20 leaders to phase out subsidies as they first committed to doing six long years ago,” Doukas added.

“Continuing to fund the fossil fuel industry today is like accelerating towards a wall that we can clearly see,” Stephen Kretzmann, director of Oil Change International, said.

“G20 leaders need to slow down and turn us around before we hit climate disaster.”

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The recent shelving of the Joslyn mine oilsands project in Alberta is a reminder of the fragile economics of the oilsands. No economic formula could be found to make the $11 billion project work and it has been put on hold indefinitely.           

Oil major Total E&P, the biggest partner in the project, said the Joslyn mine project “cannot be (financially) sustainable in the long term.” Interestingly, Total did not blame lack of new pipelines for squeezing profit margins either.

“You run the risk in developing fossil fuels that one day will either become fully depleted or too expensive to extract,” Philip Gass, a policy analyst at the International Institute of Sustainable Development, said from Winnipeg.

It would be difficult to deny Canada has economically benefited from developing the oilsands, a particularly difficult and expensive fossil fuel to mine and refine into light fuels — but failing to diversify the Canadian economy beyond an oil and gas ‘energy superpower’ makes for a very uncertain economic future for Canada.

“Canada could find itself an energy superpower overspecialized in the ‘old economy’ (resource extraction) in a world rapidly trying to cut carbon emissions and avoid catastrophic climate change,” Andrew Jackson, a senior policy advisor with the Broadbent Institute, told DeSmog Canada.

“Putting all your eggs in one basket is never a good economic strategy,” Jackson said.

Benefits of Energy Development Remain Largely Locked in the Sector

The idea that all Canadians benefit from a surging oil and gas industry is slowly turning into a farce. An International Monetary Fund (IMF) report earlier this year finds every dollar invested in the energy sector in Alberta grows Canadian gross domestic product — an economic vitality indicator — by 90 cents. Of this growth, 82 cents remains in Alberta, mostly in the energy sector (67 cents).

IMF‘s breakdown of $1 investment in the energy sector scenario.

“There appears to be an important scope to increase inter-industry linkages across Canada that would lead to wider sharing of benefits from the energy sector,” concludes the IMF report released in January.

Increasing inter-industry linkages or value-added jobs does not appear to be priority of the federal government. New oil pipeline projects are almost all geared to shipping Canadian oil and oilsands bitumen to refineries in the U.S. or overseas, not in Canada. Most of the heavy equipment for oilsands extraction comes from the U.S.

“The spin-off effects of the energy boom are not being felt in Ontario and Quebec, where most Canadians are,” Jackson says.

The federal government’s low corporate tax rate and the exemption of provincial resource royalties from the Canadian system of wealth redistribution (which ensures all Canadians receive the same public services) further locks the economic benefits of the energy sector within the sector and resource-rich provinces.

Energy Sector Is Not A Big Jobs Creator

“The oil and gas sector is capital intensive, not labour intensive. Manufacturing could employ more people,” David Macdonald, a senior economist with the Canadian Centre for Policy Alternatives, says.

The same IMF report on the Canadian energy sector indicates that of the 752,000 jobs created in Canada between 2007 and 2012, the oil and gas sector can only take credit for less than 13,000, or 1.7 per cent, of them.

Job creation is not exactly Canada’s strong suit at the moment.

“The employment rate in Canada, that is the percentage of Canadians over fifteen years of age who are working, is sixty one per cent. This is the same level the employment rate was at during the worst of the recent financial crisis,” Macdonald told DeSmog Canada.

Employment rate (blue) and unemployment rate (black) from 2003 to 2013. SOURCE: Canadian Centre for Policy Alternatives 

The official unemployment rate (seven per cent) in Canada has returned to pre-recession levels, but Macdonald points out that Statistics Canada does not count Canadians who are not actively searching for employment as unemployed.

“Eighty per cent of the so-called ‘recovered jobs’ since the recession are Canadians who have simply given up looking for work,” Macdonald says from Ottawa.

Part-time/Temporary Job Creation On The Rise

Ninety-five percent of all net jobs created in Canada in 2013 were part-time according to the Canadian Chamber of Commerce. Part-time workers and the self-employed, who earn on average 20 per cent less than their employed counterparts according to CIBC, now make up 30 per cent of the Canadian work force.

Canada has created more full-time than part-time jobs since the recession but the rate of part-time job creation has grown faster than full-time. Fifty-three per cent of Canadians between the ages of 25 and 44 who found work since the recession could only find temporary jobs. The rate of Canadian part-time workers who want full-time work but cannot find it has grown 37 per cent during the same period.

“Since 2011 the number of underemployed workers has exceeded the number of unemployed workers — in 2013 there were 1.35 million unemployed workers and 1.43 million additional underemployed workers. And that is before we even begin to take into account skills-related underemployment. This is an issue that needs to be taken seriously,” a Canadian Labour Congress report concludes.

SOURCE: Canadian Labour Congress

Fourteen per cent of working Canadians are underemployed or unable to get enough work to meet their financial needs, a 28 per cent increase since 2008.

Canada Needs to Create Well-Paying, Long-Lasting Jobs

“Whether you are talking about green jobs or brown jobs (fossil fuels extraction) you want to create jobs that are fair, well-paying and long lasting,” Gass of the International Institute of Sustainable Development told DeSmog Canada.

“We would like to see federal policy facilitate the creation of more specialized manufacturing jobs and encourage unionization in the work place. Unions tend to create better paying full time jobs,” Macdonald says.

A report released last month by the Parkland Institute examining unions in Alberta (the province most hostile to unions) found in terms of economic performance, wage growth is lower in Alberta compared to other provinces with higher unionization rates, despite Alberta’s oilsands boom.

“There is $600 billion sitting on companies shelves in Canada that is not being reinvested in the economy. Companies only invest where there is an expectation for growth. At the moment it appears the expectations are low,” Jackson says from Ottawa.

Corporations operating in Canada are not the only ones with low expectations for growth. When polled earlier this year by the Broadbent Institute, Canadians between 20 and 30 believed they will face a future of precarious employment and the income gap will grow during their lifetimes despite Canada’s energy boom. Baby boomers (50 to 60 years of age) in the same poll stated they think their children are more likely to slip down an economic class than move up.

“With interest rates at all time lows I would like to see public investment into mass transit, passenger rail, etcetera ramped up. Public investment can pave the way for private investment,” Jackson said.

Unfortunately the current priorities of the federal government — tax cuts, tax breaks, battling unions and cuts to public spending — are taking Canada in just the opposite direction.

Image Credit: Cheryl via Flickr

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It took a solid year of outrage from Canadian researchers, the international science community and the public to force the Harper government to finally agree to transfer the world-renowned Experimental Lakes Area (ELA) to a non-profit organization.

And then the Minister of Fisheries and Oceans tried to take credit for today's announced signing of a crucial Memorandum of Understanding with the Winnipeg-based International Institute for Sustainable Development (IISD).

“The Harper government was being hammered on this from every conceivable angle before they finally buckled,” said Diane Orihel, PhD student at University of Alberta and founder of the Coalition to Save ELA.

The ELA is 45 year old freshwater research facility in northern Ontario considered unique in the world. It was there that Canadian scientists discovered the dangers of acid rain as well as mercury and phosphorus pollution. Regulations that protect the health of the environment in Canada many countries are based on the work done at the ELA.

Claiming a need for austerity the Harper government slashed the budgets of Fisheries and Oceans and Environment Canada last year. The ELA cost the federal government just $2 million a year to operate but it was shuttered March 31st.

For comparison, it cost Canadians $1 million to ship Stephen Harper's armoured limo and SUV to India for a state visit last November.

“This transfer is only happening because independent scientists asked the IISD to try and convince the government to make it happen,” Orihel told DeSmog.

Only a few days ago scientists called on the Harper government to allow access to the ELA to continue world’s longest, whole-lake eutrophication experiment. That experiment is fully funded and crucial to understand the causes of economically devastating algal blooms in freshwater lakes such as Lake Erie she said.

The transfer is not a done deal, many issues remain outstanding however.

“It's a big step forward. The ELA does critically important science for Canada and the rest of the world,” Scott Vaughan, CEO and president of IISD, an internationally respected public policy research institute.

“Saving the ELA is the right thing to do,” Vaughan told DeSmog.

The best part of today's MOU is an agreement to allow scientists back into the ELA to continue their research for balance of the year. Present and future liability, staffing, remediation responsibilities and other legal matters still need to be negotiated. However Fisheries and Oceans are working to address a number of issues with the intent of turning over the ELA to IISD in good shape he said.

Finding $2 million to run the ELA is “a big challenge” for the non-profit IISD that has to fundraise for its core operations. “We didn't take this on lightly,” he acknowledged.

Freshwater and climate change is major part of IISD's work but the organization can't provide good policy advice without good science such as that provided by researchers at the ELA he said.

While Orihel is happy she'll be back at the ELA continuing her research this year, she is disappointed no new research programs will be permitted. One of those ready to go was designed to investigate the environmental impacts of nanosilver particles found in products like food containers, socks, shoe inserts, sports clothing and towels. Nanosilver particles are smaller than a virus and lab research has shown they can mutate fish embryos.

It says a lot about what is happening in Canada that in order to save an invaluable scientific resource it has to be taken out of the hands of government she said.

“A year ago I would never believed I would say I'm delighted the ELA will soon be freed from the shackles of our federal government.”

Image Credit: Diane Orihel via twitter @DianeOrihel.

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