Canada ends government subsidies for oil and gas, with exceptions

Canada now has a set of guidelines to restrict federal subsidies to the fossil fuel sector, albeit with numerous exceptions.

the long awaited advertisement It fulfills the federal government’s promise to end inefficient subsidies to the fossil fuel sector by the end of 2023. In the words of Environment and Climate Change Minister Steven Guilbeault, the framework ensures that federal departments’ funding and tax measures only go “to projects that decarbonise the sector and result in a significant reduction in greenhouse gas emissions.” He announced the framework Monday morning in Montreal.

The new rules, if applied “with integrity,” should prevent the creation of new handouts of public money to the fossil fuel companies most responsible for the climate crisis, said Julia Levin, associate director of national climate for Environmental Defense.

Canada is the first G20 country to put forward such a framework, which sets a “really important international precedent,” especially with another round of global climate negotiations fast approaching, Levin said.

The burning of fossil fuels is one of the main drivers of climate change, so it is crucial to end public spending that supports the industry. Ending fossil fuel subsidies frees up those funds to support things such as renewable energy and electrification. Clean energy is of paramount importance as the world is under pressure to reduce greenhouse gas emissions by more than 40 percent by the end of the decade.

“In the future, any subsidies that the government wanted to give to the oil and gas sector would have to go through this filter, any department of the federal government, whether it be finance, international trade, natural resources, to ensure that we don’t hand out federal dollars to support oil and gas or coal production,” Guilbeault said. “This is a fundamental change from what we have done in this country for decades.”

However, the evaluation framework is still plagued by “problematic gaps,” Levin said in an interview with National Observer of Canada.

The most concerning exception, several environmental groups said, is support for fossil fuel production that uses carbon capture technology or projects that have a “credible plan” to achieve net-zero emissions by 2030.

In a technical briefing before the announcement, a senior government official explained that a “credible” net-zero plan would require carbon capture and storage, and any credits purchased to offset a company’s greenhouse gas emissions must be “of high quality, verified (and) permanent with actual emission reductions.” The official added that a clear implementation plan and emissions assessments using accepted quantification protocols and transparent and accountable reporting are also part of a credible net zero emissions plan.

Canada’s new fossil fuel subsidy rules, if applied “with integrity”, should prevent further handouts of public money to the companies most responsible for the climate crisis, @lev_jf said. Support for fossil production using #CCUS is still allowed.

Carbon capture, utilization and storage is the centerpiece of the oil and gas industry’s decarbonisation plan, but the technology is widely criticized by environmentalists for its high cost and its ability to block the production of fossil fuels. The technology captures the emissions created during oil and gas production, but it does not address the majority of oil and gas emissions, which occur when these products are burned. The Intergovernmental Panel on Climate Change 2022 report ranked carbon capture as one of the least effective and most expensive options for addressing emissions.

Currently, the most common use for captured CO2 is enhanced oil recovery: a process in which CO2 is injected into depleted oil and gas wells to force more product to the surface. The framework says that captured carbon used for enhanced oil recovery is excluded.

One exception that critics did not argue with are subsidies that provide an “essential energy service” (energy used for electricity, transportation, or space heating or water) to remote communities that are not connected to the electric grid or natural gas grid.

There are also exceptions for grants that support clean energy, clean technology, renewable energy, or indigenous economic participation in fossil fuel activities.

Monday’s announcement lacked details about how the new rules will be implemented, monitored and enforced, Levin said.

Environmental groups raised this concern shortly after Canada released guidelines to end international public funding for non-carbon sequestration fossil fuel projects last December. A few months later, Environmental Defense and international oil change notified Export Development Canada, the Crown corporation tasked with providing financing and other support to Canadian exporters, that several transactions appeared to violate government policy. EDC included a number of loan guarantees for oil and gas activities that included the US as the country of transaction.

Jessica Draker, EDC’s external communications manager, said National Observer of Canada and environmental groups that it was simply a misclassification. In fact, the loan guarantees had been issued to Canadian companies, Draker said, and the confusion stemmed from the companies’ main export country being the US.

In the months that followed, at least half a dozen more transactions were published with the same “inaccuracies”, although Export Development Canada was not aware of them until National Observer of Canada asked about it in mid-July. Draker said they would be corrected in due course of his time, adding: “We will also be reaching out to the appropriate business team to check if system changes are required to prevent this from happening in the future.”

Levin said this situation illustrates why the federal government needs to explain exactly what it will do to ensure that the small but important details of its promises are met.

“It can’t just be civil society that plays a role in holding the government to account for complying with its rules,” Levin said. There must be responsibility to ensure that the federal government uses the assessment framework to avoid any subsidies that hinder efforts to limit global temperature change to 1.5 degrees or impede the transition to renewable energy, he said.

This should include assigning responsibility for oversight to a federal department, maintaining an ongoing, publicly available inventory of oil and gas subsidies, and publishing the analysis used to determine whether the subsidies align with a future that limits global temperature rise to 1.5 degrees, Levin said.

Today’s announcement is a “major milestone” even though “the bulk of fossil fuel financing has yet to be addressed,” he added, noting the extensive domestic public funding that Crown corporations, namely Export Development Canada, dole out to oil and gas companies.

The fossil fuel subsidy framework only applies to federal fiscal measures and departmental spending and programs, not to the Crown corporations responsible for the bulk of public financing.

Guilbeault said a framework will be put in place to address domestic public financing by 2024, noting that Export Development Canada has cut its fossil fuel financing by “billions of dollars while increasing its clean technology support for renewable energy by several billion dollars.”

Claire O’Manique, public finance analyst at Oil Change International, said it is “disappointing” that the federal government only has a plan to write a plan, instead of taking concrete action now.

“This will leave more than $13 billion a year in government support for climate-destroying oil and gas projects,” O’Manique said in a press release. “These loans and loan guarantees are a form of subsidy that Canada’s little-known and seemingly forgotten public export bank, Export Development Canada, uses to prop up domestic fossil fuel companies with public money every year.”

A commonly cited example of domestic public financing of fossil fuels is the Trans Mountain (TMX) expansion project, which has been backed by billions of public dollars, including federal loan guarantees totaling $13 billion.

“While we’re pleased to see some taxpayer support for oil and gas companies being phased out, we’d like to remind the federal government that there are no ‘efficient’ subsidies for fossil fuels in an era of unprecedented climate disasters and oil industry profits, and especially not for unproven technologies like carbon capture,” Keith Stewart, senior energy strategist at Greenpeace Canada, said in a press release. Countless other environmental groups raised similar concerns and recognized the importance of the long-awaited framework for fossil fuel subsidies.

In a press release, NDP environmental critic Laurel Collins described the subsidy framework as “a half measure” and vowed to keep pushing for the “immediate removal” of fossil fuel subsidies that the Liberals scrapped, exploration and development deductions for oil and gas, as well as a plan to end public funding of the fossil fuel sector by the end of this year.

During the announcement, Guilbeault thanked Collins for his work on fossil fuel subsidies.

These guidelines come as Nova Scotia is dealing with the impacts of historic flooding caused by a storm this weekend, Guilbeault noted during the announcement. The province remains under a state of emergency.

Natasha Bulowski / Local Journalism Initiative / National Observer of Canada

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