Why Oil Subsidies and Oily Weasels are Not Endangered

by Franke James

With the announcement of the Federal Budget right around the corner (March 29th) we can be assured that the Harper Government has been hunting high and low for programs and services to cut. They’ve even promised bonuses to government workers who excel at finding ways to cut spending.

Clearly those civil servants knew that environmentalists would be easy pickings! They’ve taken an axe to treehuggers and scientists everywhere. They’ve killed funding for environmental groups and yanked money from PEARL, forcing the Arctic Research station to close (thankfully concerned Canadians are reaching into their pockets to fund what the Government should be using our tax dollars for.)

Even 700 employees working hard to give us clean air and water couldn’t avoid the knife. Heck, the Climate Change office at DFAIT even cut token funding for my artshow in Europe!

But somehow they’ve missed the obvious: Subsidies to the Oil Industry.

And after meeting with Natural Resource Minister Oliver I know why.

Skeptical? See the excerpt below from my one hour meeting with Joe Oliver on March 3/12. (I’ll be featuring his answers to my 10 questions in a series of posts.)

Excerpt of meeting transcript:

Franke James: So I was just speaking with Tim Weis from Pembina and he was saying to me that the Federal Government is no longer supporting new renewable projects in Canada. He said that the main drivers for renewable projects are now the cities and the provinces!

Joe Oliver: Well, there was an increase as part of the stimulus program which was unsustainable fiscally, so we put in a lot of money to counter the international financial crisis. We said it was going to be short-term. We allocated a good chunk of the money to green initiatives but you can’t just keep spending, we want to get rid of the deficit.

Franke James: But your major emphasis – if we stand back – is the oil sands.

Joe Oliver: Yes but we’re not giving companies money to develop the oil sands.

Franke James: Aren’t you subsidizing the oil industry?

Joe Oliver: No.

Franke James: There are no subsidies?

Joe Oliver: No, there are no subsidies.

Franke James: Ok, I’ll have to do some research on that. I thought they were subsidies.

Joe Oliver: People have said a lot of things.

Franke James: So there are absolutely no subsidies given to the oil industry in Canada? I just want to be clear on that.

Joe Oliver: The only thing — there has been some help on the green stuff, for example one of the first things I did was to go up to Fort Saskatchewan which is north of Edmonton, to make an announcement in respect to an upgrader where they’re looking to create a carbon capture and storage system. Now we put in $120 million but over a billion was invested, part by the government of Alberta and part by Shell and so we did help in that specific project because we’ll reduce emissions by 40%. And it’s uneconomic so that’s why we put a bit of money.

Franke James: So, I’ll do some research and if I find out differently I will get back in touch with you.

Gee, I could’ve sworn I heard talk of oil subsidies…

So after the meeting, I did some Googling and discovered that taxpayer money is in fact subsidizing oil development — as well as gas and coal — to the tune of $1.3 Billion dollars annually. So what I’d like to know is…

Is he ashamed of giving tax breaks and other incentives to the oil industry? Is it a political embarrassment to fund dirty oil considering they stopped providing subsidies for clean, renewable energy projects? Or maybe it’s a sore point because the tar sands are Canada’s fastest growing source of greenhouse gas pollution? Hmmm… I sent Mr. Oliver a follow up email asking for clarification. I also phoned twice but have not heard back.

In March 2010, Minister Flaherty was urged (in a secret memo obtained by CanWest through access-to-information laws) to phase out “subsidies” for oil and gas — and they didn’t dodge the “S” word when they spoke internally…

“The Harper government is being urged by its own senior bureaucrats to ‘lead by example’ and deliver on a commitment to phase out subsidies for the oil and gas sector at a global economic summit next month in Toronto.”  [link]

The Global Subsidy Initiative’s 2010 report on Canada cites well over a billion dollars in subsidies! And yet Joe Oliver says there are ‘No subsidies.’ How curious. (See the IISD’s definition of subsidies at the end of this post.)

And then I noticed a Postmedia article by Mike De Souza with that dirty “S” word right in the headline… Clearly, oil subsidies have not disappeared as Mr. Oliver would like me to believe.

“Ending fossil fuel subsidies is no-brainer: former Tory MP”

“David Sawyer, an environmental economist and director of climate change and energy at the International Institute for Sustainable Development has estimated the federal government could save more than $1.3 billion per year if it phases out all of the existing subsidies for the oil, gas and coal industries.

In the same article De Souza interviewed David Macdonald, the former Tory MP who chaired Brian Mulroney’s first environment committee in 1989.  Macdonald said,

“We’re far too dependent on fossil fuels, and the longer we let that go on and subsidize it, the more we’re just making it so much tougher for future generations. So I think this is a no-brainer.” [link]

For good measure I checked with some experts I know and trust…
 

Climate Action Network weighed in on “subsidies” too:

“I think if Minister Oliver doesn’t think there are subsidies to rich fossil fuel companies in Canada he should have that debate with the International Energy Agency or the World Trade Organization who would both disagree (most subsidies studies you will have seen use these organization’s definitions). If he doesn’t care to listen to these groups perhaps he could consult with his own department of Finance who have laid out clear suggestions of which fossil fuel subsidies Canada should cut to comply with its promise to the G20 to end these hand-outs (in our Fuelling the Problem Report). Hannah McKinnon, Climate Action Network

CONTACT YOUR MP: Search for your MP.

The Global Subsidies Initiative adopts a three-step approach to: define, measure and evaluate subsidies (GSI, 2010). This approach starts with a broad definition of “subsidy” with the purpose of identifying all existing subsidies in a sector, whether those subsidies are considered “good” or “bad.” This provides a comprehensive starting point for the analysis to follow. Then, as the study proceeds through the steps, the focus will narrow to those subsidies that are measurable and able to be fully assessed. Therefore, it should not be assumed, that because a subsidy is identified at the beginning of the study that it is necessarily in need of reform.

The GSI’s approach is based on the view that a subsidy exists where preferential treatment—financial and otherwise—is provided to producers (in this case study, oil producers). Preferential treatment can be provided in three forms:

• To selected companies;
• To one sector or product when compared with other sectors;
• To sectors or products in one country when compared internationally (GSI, 2010).

It is useful to keep these three broad types of preferential treatment in mind when determining whether a specific subsidy is granted. The GSI uses a definition of “subsidy” based on the World Trade Organization’s (WTO) Agreement on Subsidies and Countervailing Measures (ASCM), which is agreed by 153 countries, including Canada. Under Article 1: Definition of a Subsidy, the ASCM determines that four types of subsidies exist, where:

1. Government provides direct transfer of funds or potential direct transfer of funds or liabilities,
2. Revenue is foregone or not collected,
3. Government provides goods or services or purchases goods,
4. Government provides income or price support.

The ASCM also requires that a subsidy be specific to an enterprise, industry, or group of enterprises or industries under Article 2. So although in some cases government support is offered to more than one sector, it can still be considered a subsidy for the purposes of this study if, for example, it is offered only to the oil, gas and mining sectors, or if the oil sector disproportionately benefits from the support. The Atlantic Investment Tax Credit is an example of a disproportionate benefit, as it is available to resource sectors, but is overwhelmingly utilized by the oil and gas sector.

“How the subsidies are implemented show a heavy reliance on both tax reductions and royalty relief, with direct expenditures small in comparison (Figure 8). Tax breaks are dominated by the federal accelerated capital write-offs for exploration and development activity, and to a lesser extent, the phasing out of a break to oil sands capital. At the provincial level, royalty reductions for new wells dominate, with large programs to provide incentives for more drilling in both Alberta and Saskatchewan.”

See IISD full report: Fossil Fuels: At What Cost?
Government support for upstream oil activities in three Canadian provinces: Alberta, Saskatchewan, and Newfoundland and Labrador

CREDITS AND LINKS

“Why Oil Subsidies and Oily Weasels are Not Endangered” © 2012 Franke James
Writing and photo-illustration by Franke James (based on antique engraving)
Franke’s Ten Questions for Joe Oliver 

ARTICLES:

CBC News: Tying bonuses to cuts motivating, Conservative MP says
The Dominion: Environment Canada Terminates Funding to Environmental Networks
CBC News: High Arctic research station forced to close
Donations: Canadians Support PEARL
Tim Weis, Op-Ed, Pembina Institute: Clean energy also needs political focus
CanWest / Vancouver Sun Flaherty urged to phase out subsidies for oil and gas
Mike De Souza, Postmedia: “Ending fossil fuel subsidies is no-brainer: former Tory MP”
The TYEE, Andrew Nikiforuk’s “Eleven Oily Questions for Every MP“

REPORTS

• International Institute for Sustainable Development: Fossil Fuels: At What Cost?
  Government support for upstream oil activities in three Canadian provinces:
  Alberta, Saskatchewan, and Newfoundland and Labrador
• Hannah McKinnon, Climate Action Network: Fuelling the Problem Report
• KAIROS: PUMPED UP: How Canada subsidizes fossil fuels at the expense of green alternatives