Fossil Fuel Subsidies: Time to Stop ‘Paying Oil Companies to Cook Us’

Canada’s upcoming restrictions on fossil fuel subsidies can deliver some simple progress on an issue that never should have been this complicated.

Jul 22, 2023

With fossil fuel subsidies, Job 1 is to stop throwing fuel on the fire. Photo: Wildfire evacuation, Upper Tantallon, Nova Scotia, May 2023 by Neal Alderson/Twitter

It’s taken 14 years for Canada to take onboard a common sense notion that none of us would think twice about in real life: If you’re paying someone big money to grievously harm you, the first thing you can do is stop paying.

But now, federal action to curtail fossil fuel subsidies is close enough at hand that The Canadian Press was expecting an announcement sometime this past week. When Environment and Climate Minister Steven Guilbeault makes his move, he’ll be weighing in on a promise that dates back to a G20 meeting in Pittsburgh in 2009, a commitment to phase out “inefficient” fossil subsidies that both the Harper and Trudeau governments have been slow-walking ever since.

We’ll get into the details in just a moment, courtesy of the CP coverage 10 days ago and the news commentary since. But first, a reality check from a good friend of The Mix who got wind of this story a couple of days ago:

When I hear “fossil fuel subsidies”, I think of governments using my tax dollars to pay oil and gas companies to cook us. When I read things that contain words like subsidies or other technical financial jargon, my mind finds something else to do and I tend to tune out. But if you think of it as the people we elect are paying other people to basically destroy the world with what they spew out, that’s more interesting to me. Actually, it’s critical information.

Or, if you were in Nova Scotia overnight, to flood your basement, wash out your local highway, shut down parts of your electricity grid, and force you to evacuate in case of a potentially catastrophic dam breach.

Our good friend was reacting to news from Brussels July 14 that Guilbeault was set to publish policy guidelines setting out the circumstances under which future federal investments can still flow to Canadian oil and gas firms.

“Canada will no longer support subsidies that are directly aimed at the oil and gas sector that give that sector an advantage in comparison to other sectors, and subsidies that help the production of fossil fuels,” Guilbeault said. He was speaking during a media availability ahead of an environment ministers’ meeting in Belgium where he later championed a global commitment to phase out unabated fossil fuels.

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The Devil in the Details

It’s good news, and has no doubt been a hard-fought battle behind the scenes, that this policy is finally about to see the light of day. Around mid-morning yesterday, I realized I’d been tacitly expecting the standard practice in Official Ottawa, another Friday afternoon information dump ahead of a summer weekend. So kudos to Guilbeault and his team if they don’t hold off until next Friday.

But whenever the policy is released, you may want to grab a large quantity of your favourite beverage, find a comfy spot in the shade (out of the rain, away from wildfire smoke), and dig in for a couple of hours of careful reading and parsing. Because as simple as it should be to just stop “paying oil and gas companies to cook us”, the past history and trajectory on fossil fuel subsidies guarantee that the devil will be in the details.

After his remarks in Brussels, Guilbeault told CP the policy will be similar to one the government first announced in November, 2021 that ended most of Canada’s public financing for international fossil fuel projects. It means future domestic projects will only receive federal funding if they align with the country’s climate commitments.

Fossil companies will, however, remain eligible for tax credits and federal aid to help them lower their emissions. “That means the new tax credit for carbon capture and storage systems is not on the chopping block,” CP wrote.

That’s a problem, University of British Columbia political scientist Kathryn Harrison told the Toronto Star, because “if we give them money to make it cheaper to reduce their pollution, they’ve got more money to do other things, like explore more or charge less for their product and sell more of it.”

In its final form, the international public finance policy bars new, direct financial support for “unabated” fossil fuel projects, a nod to carbon capture technologies that are still far from being ready for prime time, but that fossil companies are still counting on as a lifeline—with further, lavish taxpayer support as a condition before they invest their own record profits in the effort.

When is a Subsidy Not a Subsidy?

But those details are just the beginning for the economists and assorted policy wonks who’ve spent the last dozen-plus years making this issue more complicated, and vastly slower-moving, than it needed to be.

When I first heard the G20 had promised to phase out “inefficient” fossil fuel subsidies, I was just finding my way back into the climate and energy space after too many years away. At first glance, I was amazed that the annual meeting of the world’s richest economies had progressed so far: beyond just shining a light on fossil fuel subsidies, I thought, they were actually being pejorative about them.

Weird that senior government officials would resort to name-calling, I remember thinking, but we take the wins where we can.

If only.

It turns out that “inefficient” means something different to economists than it does to the rest of us. In real life, if something isn’t working the way it should, you fix it or replace it. In the rarified world of economic theory, it’s taken more than a dozen years for officials to negotiate what “inefficient” even means. But the propensity of those subsidies to drive up global temperatures and trigger record heat waves and devastating wildfires across seven continents is just one among many considerations, not the “efficiency” factor that should decisively trump all others.

Last year, Canada’s definition of “inefficient” subsidies still hadn’t been finalized.

How Much Are We Paying Out?

Nor is there any agreement on how much Canadians are paying out in fossil fuel subsidies each year. Canada and Argentina launched a peer review of each other’s fossil subsidies in 2018. It was supposed to conclude in 2020. But three years later, Guilbeault told CP the work still isn’t done.

That leaves the field wide open for different calculations. The Canadian Association of Petroleum Producers ridiculously claims its members receive no fossil fuel subsidies at all. The Organization for Economic Co-operation and Development put the total at $3.4 billion in 2021, plus another $600 million in direct grants, CP says.

Environmental Defence Canada quite rightly argues the subsidy count should include a $10-billion loan guarantee to the controversial Trans Mountain pipeline expansion from Export Development Canada.

Last year, the International Institute for Sustainable Development calculated “quantifiable” federal subsidies at $1.4 billion in 2020, plus public finance worth another $14 billion. That report also detailed $2.5 billion in provincial subsidies in 2020/21 and another $1.5 billion for the first nine months of 2021/22.

In 2016, using a methodology that included uncollected taxes and externalized costs, the International Monetary Fund put the total at $46 billion. And I’ve seen no calculation method that takes in remediation costs for abandoned oil and gas sites that could hit $260 billion in Alberta alone, presumably because it’s plausible but not yet certain that deadbeat fossil companies will leave taxpayers paying the tab for that work.

The Storyline is Shifting

The definitions and the numbers do matter. But if you’ve been watching closely, there’s little doubt that the federal storyline on fossil fuels is shifting.

In this year’s federal budget, the weight of subsidies shifted heavily toward cleaner energy options meant to drive down emissions, rather than fossil investments that throw more fuel on the fire. Now we’re hearing those budget allocations may not be enough to compete with equivalent funding in the United States, but they still represent a profound shift for Canada.

When Guilbeault declines to meet with the oil sands lobby during a 36-hour stopover in Calgary, that sends a message that all the rest of us should be cheering—including the 84% of oil sands workers who say they’re ready for “rapid upskilling” to join the clean energy economy.

"I had a pretty packed agenda," Guilbeault told CBC. "I felt it would be important to meet with people I have less of a chance to talk to."

When Natural Resources Minister Jonathan Wilkinson spurns an invitation to the big LNG 2023 global conference in his adopted home town of Vancouver, that’s progress. When fossil fuel apologist Brian Lilley bemoans and thereby amplifies the snub in the august pages of the Toronto Sun, well… in our line of work, that thar is what we like to call a “co-benefit”.

When the Globe and Mail digs into efforts to twist international carbon accounting rules to accommodate liquefied natural gas exports, it’s another influential brick in the effort to counter industry greenwashing.

It remains to be seen how or how well Guilbeault’s impending announcement will fit the picture. But the stakes are high: beyond the domestic impact, the new rules will make Canada the first country to “roll out an official definition of which subsidies it will eliminate under the G20 pledge,” the Toronto Star writes.

“If done well, this is a road map for other countries to use,” Julia Levin, Environmental Defence’s associate director, national climate, told the Star. “If done poorly, it sets a really dangerous framework that will allow other countries to shirk their responsibilities as well.”

So “all eyes will be on Canada this week.”

Mitchell Beer traces his background in renewable energy and energy efficiency back to 1977, in climate change to 1997. Now he and the rest of the Energy Mix team scan 1,200 news headlines a week to pull together The Energy Mix, The Energy Mix Weekender, and our newest weekly e-digest, Cities & Communities.

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