RNNR Committee Report

There is No Definition: “Subsidies?” to Natural Resources Sectors

Conservative Party of Canada Dissenting Report: Federal Assistance to Canada’s Natural Resources Sectors

Standing Committee on Natural Resources

For as long as people have lived in Canada, this land has been defined by its natural resources. From buffalo, animal furs, fish, and timber; to coal, oil, and natural gas; to lithium, uranium, copper, and gold, Canadians responsibly develop, process, and export natural resources.

That’s why the anti-energy, anti-private sector alliance of the NDP, Liberals and Bloc are doing everything in their power to recklessly and prematurely shut down one of the key pillars of Canada’s natural resources development: the oil and gas sector. This ranges from their anti-development C-69 to their export ban C-48, to unrealistic and punitive electricity mandates, expensive carbon tax one and carbon tax two, to their production cap, the job-killing “Just Transition” plans, and now, their crusade against Canada’s uniform tax treatment of the oil and gas sector.

Instead of gatekeeping and excluding Canada’s largest and most profitable sector from continuing and advancing the development of alternative energies like hydrogen, solar, wind, tidal, geothermal, and more, from incentives for lower emissions, the Liberal Government’s incentives should be technology-neutral for companies in all sectors to increase energy efficiency and reduce emissions.

But instead, this Liberal Government’s approach is to demonize and cancel the very sector that provides the vast majority – 75% – of private sector clean technology investment and emissions reduction innovation in Canada.[1]

The Committee’s final report does not provide a definition of a “subsidy” that should be cancelled, and fails to fairly, accurately and comparatively portray the tax treatment of the oil and gas sector in Canada. It also doesn’t take into context the centuries-long benefits of oil and gas in Canada, and does not account for technology-neutral production and investment tax measures in the U.S. or for the risk of carbon leakage and the benefits of exporting more of Canada’s oil and gas products and technology to the world to displace higher-emitting sources of energy from dictators and hostile regimes with lower environmental, human rights, regulatory and transparency standards than Canada. For these reasons, Conservatives are issuing this dissenting report.

Defining Subsidies:

It’s notable that in a study titled “Federal Assistance to Canada’s Natural Resources Sectors”, the Committee’s final report could not include a concrete definition of “subsidies,” or even make any recommendation of its own to the government to properly reflect what “subsidy” means.

The Canada Energy Regulator, Department of Finance, Prairie Economic Development Canada, Export Development Canada, Dr. Thomas Gunton, Environmental Defence Canada, and the Parliamentary Budget Officer all could not define what a subsidy was when asked to do so by Committee members.

Witnesses like Todd Winterhalt of Export Development Canada stated that “EDC does not provide subsidies,”[2] yet lines of questioning from certain Committee members pre-supposed that export development investments, if not directed to their favoured industries, were subsidies.

Unfortunately, this type of narrative taints any discussion around what is or isn’t a “subsidy,” and where tax dollars are used efficiently. When these dollars, as in the Liberal budget 2023, are constrained by parameters like certain percentages of union labour conditions – which disproportionately impacts Indigenous workers – and the inability to co-produce oil and gas, it restricts investment in Canada, and further harms the already broken investment climate in Canada.[3]

Tax Treatment and the Numbers:

The reality is that businesses in Canada’s oil and gas sector receive a standard benchmark support from various government programs, comparable to other sectors, while the energy sector is actually a net contributor of taxes to all levels of government – far from a subsidized industry, which is and was implied and presumed in the title and lines of questioning in Committee.

Standard tax measures that apply to all sectors of the economy should not be included in the context and concept of accurately assessing the existence of energy sector subsidies. While the final report included the list of “beneficiaries” of tax payments as examples of natural resource subsidies, other recipients include: individuals, businesses, corporate donors, adoptive parents, seniors, apprentice vehicle mechanics, caregivers, families with minor children, corporations in the film and video production industry, Canadian journalism organizations, and members of the clergy or of a religious order, regular ministers of a religious denomination – just to name a few.[4]

Witnesses pointed out that federal funding support for alternative energy currently eclipses the same for the oil and gas sector – while it is also the case that the alternative energy sector does currently make significantly less contributions to the Canadian economy and tax revenue to all levels of government.[5]

Stewart Muir of Resource Works highlighted the example that $2 billion in deep-well royalty credits launched $80 billion in upstream natural gas investment: “Great social and climate benefit was created by bringing this lower-emission fuel to market because of those subsidies. I would challenge anyone to show me a more productive return on subsidy dollars from any sector that is supported in any way by subsidies.”[6]

For years, Canadian private sector resource proponents have wanted timely, fair, clear, certain, and predictable regulatory and fiscal conditions for their industries. not government subsidies. But the pancaking of regulations, red tape, taxes and mandates by the NDP-Liberal anti-energy agenda drives investment out of Canada, and also forces Canadian businesses to look elsewhere to start up new, innovative operations like hydrogen or biofuels.

The best remedy was highlighted by Dr. Exner-Pirot: “The best assistance the government can provide to the natural resource sector is to reform the regulatory system and make investing in natural resources more competitive and attractive in Canada.”[7]

Conservatives agree. Rather than arguing over benchmark tax treatment and about “inefficient fossil fuel subsidies” that the government and its agencies can’t even define, the Liberals should put their effort into fixing the regulatory system that they broke – or get out of the way, so Conservatives can fix it for them.

Benefits of Canadian Oil and Gas:

The Canadian oil and gas sector contributed $216 billion to Canada’s nominal GDP – 11% of all of Canada’s GDP in 2021.[8] It provides 178,000 direct jobs across the country, with another 415,000 indirect jobs, and hundreds of thousands more induced jobs in energy-based and rural, remote, and Indigenous communities across the country.[9]

Resource Works highlighted that “jobs in natural resources create five or six times the impact on GDP, because they create resource commodity exports and contribute directly to them. There's a five or six times greater impact than the average job. These 15,000 individuals have an impact on the economy of 75,000 average workers.”[10]

Grossly out-contributing other industries, the oil and gas sector is estimated to pay $50 billion in taxes and royalties to federal and provincial governments in 2022,[11] while unrealized revenues to government only average $1.8 billion. This outpaces forestry contributions, estimated at $220 million in revenues to the federal and Quebec governments,[12] the $15 billion in taxes from finance and insurance, $1 billion from agriculture, forestry, fishing, and hunting, $5 billion from real estate and $3.6 billion from construction.[13]

The outsized contribution in taxes and royalties to all levels of government pays for healthcare, roads, education, and other social programs and public services, and various governments’ incentives to alternative energy and other government-funded economic development programs.

Despite these benefits, Liberal government barriers hamper the sector, and its prime objective remains to recklessly and prematurely phase out the Canadian industry. Dr. Heather Exner-Pirot testified that Canada’s regulatory regime, of which the Liberal anti-energy Bill C-69, the Impact Assessment Act, is a competitive obstacle to the Canadian natural resources sector. She said “the regulatory system is still a huge barrier to actually getting investment into mines that get developed and start producing those minerals.”[14] Derek Nighbor of the Forest Products Association of Canada also said that the sector “need[s] greater regulatory and policy certainty… [Liberal government actions] are creating some problems for us rather than solutions, and bringing some uncertainty to future investment in Canada.”[15]

It has also stunted the growth of Indigenous-led projects, as Calvin Helin notes: “I think there's a great frustration in the indigenous community that their interest in becoming active participants in the economy is being frustrated by government policy, particularly in the natural resources sector. Instead of managing our poverty, there's a huge interest in getting back to the prosperity that existed prior to Europeans coming to the Americas.”[16]

Conservatives believe that anti-investment policies like the carbon tax one and two (fuel regulations) should be removed, to spur Indigenous prosperity and unleash and expand the investment potential from Canada’s traditional energy sector into Canada’s emerging alternative energy sector.

Canada in a Global Context: Carbon Leakage and the United States

The committee heard from witnesses that the Canadian industry “has an incredible opportunity to help meet the growing global demand for climate-friendly products,”[17] and “Canada can be the supplier of choice, both domestically and for our strategic partners.”

This report assumes that emissions stop at the border, and that exporting Canada’s oil and gas to displace other higher-emitting sources of energy is not beneficial. But Dr. Exner-Pirot highlighted in her testimony that “it is not an exaggeration to say that the energy security of our allies in the decades to come will rely on Canada's continued exports of significant quantities of oil and gas. The consequences of becoming reliant on authoritarian regimes to supply the world with their biggest source of energy are dire, as we are seeing in Europe already.”

Due to the Liberal government’s anti-energy, anti-private sector policies, companies now look elsewhere, especially attracted by the United States’ Inflation Reduction Act created technology-neutral production and investment tax credits. Canada’s Budget 2023, which the Liberals framed as a response to the IRA, instead created red tape and conditions on almost every one of its subsidies. As an example, Budget 2023 has no production tax credits. The U.S. IRA has a technology-neutral production tax credit for net-zero GHG electricity production, and another for “advanced manufacturing” of “clean energy equipment.” Both credits are available for 10 years.

The government has not provided comparable tax incentives or credits for Canadian energy, and instead committed a $16.3 billion subsidy to Volkswagen’s plant, which led to another major private sector proponent threatening to leave Canada unless it received comparable support. The U.S. Inflation Reduction Act’s incentive program was worth $370 billion – more than Canada’s federal budget’s revenues were in 2020-21 ($316 billion), and just shy of the 2021-22 ($413 billion). The Liberals have created a structural spiral of inflationary spending and debt financing which has resulted in $25 billion in annual spending just to service Canada’s debt, not even pay it down, and added another $90 billion in debt last year, after adding over $310 billion the year before. This short sighted, irresponsible and failed fiscal mismanagement has resulted in soaring inflation and interest rate heights. It would clearly be folly for the Canadian government to even attempt to compete dollar-for-dollar with the U.S. on direct subsidies, so rather than trying to compete by picking winners and losers, Canada should aggressively improve the certainty and predictability of domestic regulatory and investment conditions, and reduce timelines and taxes – elements the government can completely control and make competitive with the U.S. and other jurisdictions. Tragically, Canada’s regulatory competitiveness, environmental excellence, and global perception previously made it a prime destination for foreign investment but the Liberal government has complicated, duplicated, and slowed down Canada’s regulatory and permitting processes, and implemented more political and arbitrary interference so jurisdictions like Australia, the U.S. and others, surpass Canada as a global resource developer and supplier of choice.

In Conclusion:

It’s clear that the Liberal government doesn’t care about the development of traditional oil and gas energy, or about the future of alternative energy like wind, solar, tidal, geothermal, hydrogen, biofuels, and more. Hejmas Agrifibre Technologies, a pulp mill that would create bio-plastics from their waste stream, submitted a brief[18] that highlighted the “need in Canada to create a business environment where private investors want to come in to Canada, instead of recommending that companies like ours put our technology into practice in other countries.” Unfortunately, since their brief, Hejmas has indicated it will move overseas, as the regulatory and investment regime in Canada does not exist for this type of innovative emerging technology.

The reality is the world will continue to need and use oil and gas for decades to come, while major polluters like China and India, generate the vast majority of global emissions – and continue to fire up new coal plants (data from 2022).

Conservatives recognize that Canada’s oil and gas sector is the top private sector, top exporter, and top investor in the Canadian clean economy. The report was a missed opportunity to signal the Government’s support for the future of Canada’s resource development and to make recommendations that would foster both traditional and alternative energy development and attract investment to Canada.