Outsized Fossil Fuel Subsidies Leave Little Room for Clean Energy

Oily Residue


May 22, 2014

Canada’s fossil fuel industries receive a whopping $34 billion in subsidies each year, according to data from the International Monetary Fund (IMF).

Details of the subsidies were published in The Tyee earlier this month, and were provided to the publication by IMF researchers after last year’s release of a major report on energy subsidies. That report pegged global energy subsidies at almost $2 trillion.

Some of the subsidies come directly from federal and provincial incentives – $840 million to oil companies and $440 million to natural gas producers.

But the majority take the form of untaxed externalities – costs from impacts, such as carbon emissions and air pollution, that are indirectly borne by the public. The IMF estimated that those costs totaled almost $20 billion in 2011.

The subsidies persist in spite of various federal commitments to reduce them. Starting in 2007, government budgets announced the phase-out of specific incentives for the fossil-fuel industry.

Still, a 2013 auditor general’s report identified “a number of other tax incentives that remain in place and provide a significant amount of support for fossil fuel extraction.”

The IMF report found that fossil-fuel subsidies “distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources.”

It also noted that eliminating global subsidies “could lead to a 13 percent decline in carbon dioxide emissions.”

The federal government has also provided subsidies to clean energy, but these have not fared as well as the fossil fuel incentives.

The government’s ecoEnergy program, which provided funding for renewable energy projects and home efficiency retrofits, has largely been dissolved.

Funding for renewable energy producers dried up in 2010, and an ecoEnergy biofuels subsidy was discontinued in 2013. The home retrofit program ended ahead of schedule in 2012, before all of its funding had been spent.

The government’s $1-billion Clean Energy Fund, announced in 2009, was largely devoted to carbon capture and storage demonstration projects. Like the ecoEnergy program, it is no longer accepting proposals.

In spite of these federal decisions, data suggest that redirecting fossil fuel subsidies toward clean energy makes good economic sense.

2012 report from Blue Green Canada found that “six to eight times more jobs could be created by investments in renewable energy, energy efficiency or public transit compared with similar investments in the oil and gas industry.”

The report found that at least 18,000 jobs could be created by investing subsidies in any of those clean energy initiatives, compared with fewer than 3,000 in oil and gas and related sectors.