ENVI Committee Report

The Conservative Party of Canada’s Dissenting Report: Fossil Fuel Subsidies

“We’ve eliminated all the fossil fuel subsidies at the federal level.”

Catherine McKenna

Former Liberal Minister of the Environment & Climate Change (2020)

Climate change is real. It needs to be addressed with realistic, concrete, and effective measures. Fiscal incentives should be utilized to develop and apply new technologies to reduce pollution. The value and expertise of the Canadian oil and gas industry clearly demonstrates why it is a part of the solution.

The Canadian oil and gas industry has a tremendous record of reducing pollution, reducing emissions, and the highest standard of environmental practices that ensures a sustainable environment for all. [1]

The Conservative members of the Standing Committee on the Environment and Sustainable Development cannot support the report The Government of Canada’s Planned Phase-Out of Fossil Fuel Subsidies and of Public Financing of the Fossil Fuel Sector (hereafter, “the report”), as it fails to define what a fossil fuel subsidy is, and further does not provide the tools that are needed to reduce emissions including fiscal incentives that would apply to all industries.

The report also does not give credit to the work that has already been done to phase out subsidies to the sector, including by the previous Conservative Government. Rather, it panders to those who work against Canada’s economic interests and funds their interventions with taxpayer money. The Government of Canada must work to capitalize on the contributions and opportunities of Canada’s most valuable sector.[2]

Ironically, the report does not provide a substantive definition of a fossil fuel subsidy.

Worldwide fossil fuel consumption continues to rise. In addition, worldwide greenhouse gas emissions also continue to rise.[3] Despite trillions of dollars of investment over the past decade, the percentage of the world’s energy consumption that is represented by fossil fuels is stubbornly north of 80% -- almost exactly where it was in 2010.[4]  We recognize that the base level of energy consumption has increased across all energy sources.

Therefore, His Majesty’s Official Opposition makes the following recommendations: 

Recommendation #1

That the Government of Canada cancel the federal carbon tax on consumers; withdraw the new Clean Fuel Regulations; and end its initiative for a Clean Electricity Standard.

Recommendation #2

That private sector involvement, with fiscal incentives, should be encouraged to combat climate change and reduce pollution, as opposed to the current regime of trying to modify consumer behaviour through taxation.

Recommendation #3

That the Government of Canada support policies that remove the gatekeepers that inhibit resource development for First Nations and Indigenous peoples. We must ensure that they are partners in prosperity.

Recommendation #4

That the Government of Canada acknowledge our position as a global leader in environmental standards. The Government must develop fiscal initiatives and fiscal policies which support the export of Canadian technology, expertise, and natural resources. 

Recommendation #5

That the Government of Canada follow the example of the United States, and quickly implement a regulatory regime that is more responsive to development—with a two-year limit for regulatory input—and move past the funded special interests that are stalling or blocking the development of oil and gas projects that follow our gold-standard environmental regulations and would bring prosperity to Canadians. This includes ensuring that low-emissions LNG can be developed and exported to global markets. Our inability to deliver clean solutions to the world is harming our environment, as the world seeks less environmentally-advanced solutions to their resource needs.

Recommendation #6

That the Government of Canada formally acknowledge that the development of Canadian-sourced oil and gas lowers emissions around the world, and that carbon leakage is a threat to the global climate. Carbon is embedded in the goods Canadians consume, no matter where they are produced.

Recommendation #7

That the Government of Canada align with our fiscal incentives with our main trading partner, the United States, in its approach to providing Investment Tax Credits and Production Tax Credits for Carbon Capture and Sequestration, and include Enhanced Oil Recovery in the credit mechanisms.

Recommendation #8

That Parliament direct the Parliamentary Budget Officer to examine and determine the role of subsidies in the Canadian economy generally, and compare these subsidies to any form of subsidy that could possibly be derived by the oil and gas industry.

Recommendation #9

That the Government of Canada examine only full-life cycle costs and benefits when it assesses subsidies in all sectors. 

Recommendation #10

That the Government of Canada acknowledge the billions of dollars annually of economic rent (royalties, taxes, and other payments) derived from the production of Canadian oil and gas – for both export volumes and volumes consumed in Canada – and contrast that with the lack of economic rents received by Canadian governments by foreign-produced oil and gas, and finished products; and, thereby, deem imported oil, gas and refined products to be subsidized consumption. 

Background:

Climate change needs to be addressed with realistic, concrete, and effective measures. Ideological narratives will not suffice. That said, we would welcome fiscal incentives to reduce pollution for all industries.

The Liberal Government’s pursuit of ideologically driven policies lacking any tangible justifications have resulted in Canadian consumers and businesses being forced to pay more throughout the supply chain, at the grocery store, and when fueling their vehicles.

The Conservative members of the Standing Committee on the Environment and Sustainable Development diligently examined this report. While doing so we were met with resistance from Liberal, Bloc Quebecois, and NDP members of the committee, including our efforts to establish a thorough, detailed, precise, and objective definition of a fossil fuel subsidy.

The committee’s report exhibited a subjective view of fossil fuels rather than objectively analyzing any basis of fossil fuel subsidies. The lack of a definition of “fossil fuel subsidies,” in our view, greatly impeded the committee’s work in studying this matter.

The report understates the importance of Canadian-produced oil and gas domestically, and on the world stage, as it relates to its value to society and quality of life. It also displays a poor understanding of carbon leakage and its impacts.

Definitions of Subsidies in the Report

The Conservative members of the committee are greatly concerned at the lack of definition of “fossil fuel subsidies” and “inefficient subsidies.” We feel this lack of direction enabled members of the committee to make misguided and negative statements about Canada’s oil and gas industry. And as a result, they made prejudicial recommendations about the financing of fossil fuels.

As stated by Former Liberal Minister of the Environment & Climate Change, Catherine McKenna, after leaving that post:

“We’ve eliminated all the fossil fuel subsidies at the federal level.”[5]

Indeed, the lack of clarity around this notion is nothing more than aimless virtue-signalling.  The self-interested and government-funded detractors of the oil and gas industry needs to be more transparent with Canadians about the source of their funds, and the economic destruction their agenda, if implemented, would visit upon Canadians, particularly low-income Canadians.Information received from the government via written question showed the large amounts of money paid to environmental special interest groups under the current government, the same groups that have testified in front of parliamentary committees. The amount of money paid to these groups by the Government of Canada amounts to millions of dollars.[6]

Definitions vary greatly for various reasons within the Government of Canada. It was abundantly clear that Finance Canada had reservations about defining the term “inefficient subsidies” as indicated by Mr. Miodrag Jovanovic:

“I'd like to start by clarifying the Department of Finance's response to the Office of the Auditor General in 2019, I believe. The Department of Finance disagreed with the Office of the Auditor General's statement that the department had not established a definition of an inefficient subsidy. We agreed to disagree on this. The primary reason for our disagreement is that the Office of the Auditor General expected to get a very prescriptive and clear definition of an inefficient subsidy.”[7]

Dr. Heather Exner-Pirot highlighted the challenges associated with this study acknowledging that:

“Not only do we have to define a “subsidy”, we also have to define what we mean by “fossil fuels”, because at their essence they're hydrocarbons, an incredibly accessible and versatile molecule with many uses that are critical to our modern way of life and living: textiles, rubber, digital devices, packaging, detergents, plastics, carbon fibre, medical equipment and fertilizer. In terms of the energy transition, they're also essential in the production of solar panels, wind turbine blades, batteries, thermal insulation for buildings and electric vehicle parts.”[8]

The broad range of definitions of a “subsidy” highlights the need for clarity and precision which is not contained in the committee’s report.

The Economic and Societal Impact of Oil and Gas

The Conservative members of the committee believe that the study of fossil fuel subsidies by the Standing Committee on Environment, completely missed the mark by ignoring the economic and social value of Canadian produced oil and gas. As former Liberal Member of Parliament, the Hon. Dan McTeague, stated:

“The oil and gas sector, like it or not—and I have fought them—is 10% of our GDP. It represents $20 billion to $30 billion in revenues to pay my pension, and to pay your fees and your costs as a member of Parliament, as well as to support social programs from coast to coast. Most countries at this time would give their right arm to have what Canada has and its ability to send energy to the rest of the world.”[9]

Because Canadian oil and gas is produced at a high environmental standard, it is a ‘high-cost barrel’ of production, that contributes significantly to government revenues through taxes and royalties.[10] This includes value for exported oil, for which Canadians receive revenue. In contrast, the importing of foreign oil is the subsidized barrel, and should be discouraged, as it adds much less economic value to the lives of Canadians. Thus, it is the foreign-imported barrel of oil that Canadians should properly look at as ‘subsidized’, in relation to our domestic production.

The taxes and royalties paid by oil and gas companies pay for schools, roads, hospitals, and other critical infrastructure projects. “Canada’s natural gas and oil industry also provided $12 billion in average annual revenue to governments through tax, leases and royalty payments for the period 2019 to 2021.”[11] This is the largest contributor to the taxation revenues that enable the equalization system in Canada, so provinces can provide social programs. The fact that the Liberal, New Democratic, and Bloc Quebecois members ignore these benefits completely disregards the hard work of hundreds of thousands of Canadians who work in Canada’s oil and gas industry.

Ensuring Energy Security for Canada and our Allies

The war against Ukraine and several other geopolitical and economic events has resulted in a massive increase for oil and gas. Countries, such as Germany, are held hostage to despots like Vladimir Putin because they are so desperate for energy. The German Chancellor, Olaf Scholz, on an official visit in August, 2022, pleaded: “we would really like Canada to export more (liquefied natural gas, LNG) to Europe.”[12] This plea from an ally was ignored and dismissed by Prime Minister Justin Trudeau “because there has never been a strong business case” for liquefied natural gas exports from Canada.[13] Canada’s allies should be able to count on us to be a reliable supplier of oil and gas.

When the Liberal Government was elected in 2015, there were 18 LNG projects on the table. Since that time, none have been completed and only 1 is under construction. This has contributed in a worldwide shift to unethical energy.

“In 2020, six out of the top 10 oil-producing nations were non-democratic or failed states. Those six nations accounted for about 40 percent of global oil production, while Canada accounted for just six percent.”[14] Of these ten nations, Canada is the only one that has imposed a national carbon tax on consumers, despite the Canadian oil and gas industry being viewed around the world as the most environmentally-advanced jurisdiction. Even President Biden in the United States, our neighbour - and both our largest trading partner and our largest competitor - refuses to impose a national carbon tax.”

The concept of carbon leakage is a serious issue that the committee’s report does not address, and by failing to address this, it hurts both Canada and the world. The lack of understanding and definition of carbon leakage by other parties, and the prominent role it plays in our national, energy, and climate security, should have necessitated a clear definition of carbon leakage within the report and throughout the study.

Consequently, the Canadian government’s approach penalizes our own consumers while yielding economic ground worldwide to energy resources produced from environmental laggards that are unaccountable and ethically suspect.

Emissions Reducing Technology

Canadian oil and gas have been instrumental in the development of clean technology including emissions reduction innovation. By denying the positive impact of Canada’s oil and gas industry, other political parties are stunting the development and implementation of clean technology in Canada. Canada’s oil and gas industry is the largest contributor to cleantech investment in Canada. Indeed, fully three-quarters of Canadian private sector investment in clean technology comes from this industry. [15]

By way of example, Dr. Exner-Pirot mentions that:

“Ammonia and blue hydrogen are also derived from natural gas, a fossil fuel, and a consensus is emerging that ammonia and hydrogen will play a key role in the energy transition.”[16] As previously noted, petrochemicals also are used in the manufacturing of solar panels, wind turbine blades, batteries, thermal insulation for buildings and electric vehicle parts.”[17]

There also must be context in terms of the role of the public sector to work collaboratively with oil and gas companies. For example, Dr. Exner-Pirot shared:

“Carbon capture, where it is a new untested technology, where there are large upfront costs, competitors in the oil and gas world elsewhere aren't doing carbon capture and aren't reducing the methane in the way we are. When you're asking the Canadian oil and gas industry to do something at a higher standard and at a more expensive level, which makes their production more expensive and thus less competitive, that's when I think there's a role for the public sector to step in.”[18]

It is our opinion that fiscal incentives which support the innovation of clean technologies that reduce pollution and emissions be available to industries in their efforts to innovate.

Further, Mr. Tristan Goodman stated:

“I believe it is an error to classify as a fossil fuel subsidy government initiatives that support Canadian companies in implementing clean technology that reduces emissions through hydrogen development, geothermal, CCUS, methane capture, wind, solar and other innovations.”[19]

Overseas Canadian Subsidies

In 2021, Canada purchased over $30 billion of crude oil and refined oil products. From which, related to crude oil, billions of dollars in government revenue were lost to other jurisdictions such as the United States, Saudi Arabia, and Nigeria (the top three source countries)[20]. 

Canadian-produced oil and gas provided a total of $21.8 billion to Canadian government revenues in 2021[21]. This taxation windfall was based on production in Canada, no matter where the product was consumed. To the contrary, the foreign oil and gas consumed in Canada results in minimal revenues for governments in Canada. In addition, because of infrastructure constraints, Canadian exports to the United States received discounted pricing[22]. If there were fewer constraints, Canadian government revenues would be higher. Conversely, imports of foreign oil and gas into Canada are priced with no discount.

Oil and gas revenues received by governments are the backbone of Canada’s equalization regime, whereby government revenues received provincially are ‘equalized’ across Canadian jurisdictions.[23]

In Conclusion

Canadian oil and gas fuels our nation, and can fuel our allies. In a world where oil and gas from democratic and reliable sources is essential to global peace and security, Canada stands above the rest.  

Contributing $21.8 billion to governments, the oil and gas industry is the largest taxpayer in Canada and has set the gold-standard in environmental and emissions frameworks.

In 2009, under then-Prime Minister, Stephen Harper, Canada joined other G20 countries in agreeing to "phase out and rationalize… inefficient fossil fuel subsidies" over the "medium term.”[24] This was a massive step to ensure that Canada would maintain its energy leadership on the world stage while ensuring the environmental was protected.

In conclusion, Conservative members of the committee want to emphasize the importance of the Canadian oil and gas industry and its contribution to both the economy and to Canada’s future.