With oil companies posting record profits in Canada in 2022, the federal government on Monday announced the framework under which it will stop granting certain subsidies to the oil and gas sector deemed “inefficient”.
The goal is to avoid the adoption of new measures or the establishment of future programs that would subsidize the oil and gas industry, according to the criteria established by Ottawa.
The policy is therefore not intended to eliminate or disrupt the pre-existing funding that has supported the fossil fuel sector to date.
The federal government will therefore check in each individual case whether the subsidies granted in the future are in conflict with its climate goals. A priori, any measure identified as a fossil fuel subsidy is considered ineffective.
We’re talking about any subsidy that encourages waste, hinders investment in clean energy, or hinders the fight against climate change.
A number of exceptions
However, the government has cited exceptions that justify funding for certain industry activities.
A subsidy that allows for “a significant net reduction” in greenhouse gas emissions in Canada or internationally, or that allows for the development of clean or renewable energy and technology, would thus be approved. For example, the electrification of a natural gas project is eligible.
The government also considers a subsidy to be effective when it funds “low-emission manufacturing processes” such as CCUS (Carbon Capture, Utilization and Storage) equipment. However, according to experts consulted by Radio-Canada, these technologies have not yet produced “conclusive results”.
Projects with a credible plan to achieve carbon neutrality by 2030 can also receive financial support.
The same applies to short-term support for emergencies or to supply remote communities. The federal government will also make an exception to subsidies that support Aboriginal economic participation in the fossil fuel industry.
When asked how much this would take out of the pockets of oil companies, senior government officials were unable to provide any estimates.
However, we will have to wait until autumn 2024 to hear how the federal government intends to end public funding for the fossil fuel industry, i.e. lending and other transactions on commercial terms, usually through state-owned companies, Environment and Climate Change Minister Steven Guilbeault said.
Export Development Canada, which has given billions of dollars in loans to the oil and gas industry, will no longer have any room for maneuver, he assured.
billions in grants
According to estimates by environmental groups, Canada is one of the countries that finances the oil and gas sector the most.
According to Environmental Defence, the federal government has allocated more than $20 billion in subsidies to the oil and gas industry in 2022. Without a full inventory of Ottawa’s direct expenditures in this area, the organization believes that other funds could not be included in its balance sheet. The total amount would therefore be higher.
At their meeting in 2009, the G20 countries, including Canada, agreed to phase out and rationalize inefficient fossil fuel subsidies in the medium term. But the details of implementing this commitment were long overdue.
To honor this commitment, the Liberal Party of Canada announced at the last federal election that it would bring forward the deadline and move it from 2025 to 2023.
The German government was the first G20 country to present a framework for reducing subsidies for fossil fuels on Monday.
“Tonight I will go to the G20 summit in India and ask my counterparts to do the same,” said Minister Steven Guilbeault. I will even urge them to make expedited announcements on fuel and fossil fuel subsidies by the COP28 in the fall.
More details to come.