Ottawa announces plan to phase out 'inefficient' fossil fuel subsidies

Ottawa published its plan for eliminating inefficient fossil fuel subsidies today — making Canada the first country among wealthy, heavy-emitting nations to do so, according to the federal government.

In 2009, the countries that make up the G20 publicly promised to "phase out and rationalize ... inefficient fossil fuel subsidies" over the "medium term."

Such subsidies "encourage wasteful consumption, reduce our energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change," said the G20 communique.

Environment and Climate Change Minister Steven Guilbeault announced the plan in Montreal Monday as Canada continues to grapple with one of the worst wildfire seasons ever recorded and devastating flooding in Nova Scotia.

"We're eliminating subsidies to produce fossil fuels in Canada, unless those subsidies are aimed at de-carbonizing the emissions of the sector," Guilbeault said.

Environment and Climate Change Canada and the Department of Finance developed the guidelines.

Guilbeault said there are exceptions to the government's new directive. Federal dollars can still flow to fossil fuel projects if they: 

• Enable significant greenhouse gas emissions reductions

• Support clean energy, clean technology and renewable energy

• Support Indigenous economic participation in fossil fuel activities

• Offer essential energy services to remote communities

• Provide short-term support for an emergency

• Support abated fossil fuels — oil and gas projects which capture production emissions through carbon capture. 

The framework targets government departments, agencies and Crown corporations.

Much of the federal government's support for the fossil fuel sector comes from Crown corporations like Trans Mountain, the Canada Development Investment Corporation (CDEV) and Export Development Canada (EDC).

The advocacy group Environmental Defence estimates about $19 billion in financing for fossil fuels came from EDC in 2022.

Much of that support comes in the form of commercially viable loans. The current policy doesn't consider those loans a subsidy.

Guilbeault said the government is working on identifying all remaining sources of public financing — including Crown corporations — and will announce a plan to phase those subsidies out by the end of 2024.

Phase-out plan is a 'half measure': NDP

A plan to phase out public financing of the fossil fuel sector, including Crown corporations, was a key requirement of the confidence and supply agreement the Liberals arranged with the NDP to support their minority government.

MP Laurel Collins, NDP critic for climate change and the environment, said in a media statement she is "frustrated" with a Liberal plan she described as a "half-measure."

"The NDP will keep pushing for the immediate elimination of specific fossil fuel subsidies that Liberals left out — like the exploration and development expense deductions for oil and gas — and for a plan to end public financing of the fossil fuel sector," Collins said.

The environmental advocacy group Environmental Defence said today's guidelines set a "high benchmark" for other countries in the G20 to follow.

But Julia Levin, associate director of Environmental Defence, said more work must be done to close loopholes in the guidelines. She said the government's investment tax credit for carbon capture continues to bankroll oil and gas directly.

"There are exemptions that continue to show the influence of big oil on climate policy decisions," Levin said.

Mixed reviews from Alberta and industry

In a media statement, Alberta Environment Minister Rebecca Schulz said that while the province is still reviewing the new guidelines, she thinks Ottawa's focus is misplaced. 

"Fossil fuels are not the problem. Emissions are the problem, and Ottawa's top priority should be working with provinces and finding more effective ways to help industry cut emissions in practical ways across all sectors," Schulz said.

Energy for a Secure Future, which promotes the natural gas sector, said it doesn't believe Canada has any inefficient oil and gas subsidies to eliminate.

"These projects are economically viable, and that's why people are investing their private capital in them," said Shannon Joseph, a member of the organization's advisory council.

Joseph said tax measures offered to any other types of business in Canada should also go to the oil and gas sector. She also called on Canadians to remember the role fossil fuels play in our economy and funding our social safety net.  

"What Canadians need to know about the energy sector in Canada is that it is a major source of investment and innovation, it is a major source of jobs and GDP, and that the world is still asking us for this energy," she said.

Others within the industry applauded the exemptions for projects that have Indigenous ownership or reduce emissions.

"We're pleased to see the guidelines recognize the need for government partnership on projects essential to Canada's efforts to meet its climate commitments, including the Pathways Alliance's ambitious proposed carbon capture and storage project," said Kendall Dilling of Pathways Alliance, an association of oilsands companies.