Pandemic increased direct aid to fossil fuel producers, new study shows

A new report suggests the economic impact of the pandemic led to a massive increase in federal aid to Canada's oil patch.

But the annual inventory of fossil fuel subsidies published by the International Institute for Sustainable Development also highlights that almost all of the direct aid was paid out in two programs to protect jobs and cut greenhouse gas emissions.

It raises further questions about how to define fossil fuel subsidies, an issue Canada has not solved despite promising to eliminate "inefficient" ones for more than a decade now.

"The problematic aspect is how do we make sure they're not supporting for future fossil fuel production," said Vanessa Corkal, a policy analyst at the IISD and author of the report.

'Trying to bail water out of a leaky boat'

Her report notes that it makes no sense for Canada to both provide direct funding to help fossil fuel producers and charge a price on the pollution fossil fuels create, likening it to "trying to bail water out of a leaky boat."

Canada first promised to eliminate the subsidies as part of a G20 commitment in 2009, and Prime Minister Justin Trudeau more recently set a target date of 2025 to do it.

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But a peer-review of fossil fuel subsidies being done with Argentina is still not done, and a full list of what subsidies even exist has yet to materialize. That peer review began in June 2018 and was expected to be done by June 2020 at the latest.

Corkal said it's impossible to phase out anything until there's a full picture of what exists.

Finance Canada has not yet provided an update on the status of that review.

The IISD report shows Canada spent at least $1.9 billion in direct aid to the traditional energy sector last year, up from $600 million in 2019.

More than three-quarters of that $1.5 billion was to help companies restore abandoned oil wells in Alberta, Saskatchewan and British Columbia.

Abandoned wells are a significant source of methane emissions. Canada's most recent emissions inventory suggests in 2018, 270,000 tonnes of greenhouse gas emissions came from them. However several studies suggest there are more abandoned wells than we think, and they emit more methane than we count.

Another $320 million was aid to Newfoundland and Labrador's offshore oil industry, which was hit hard last year by the pandemic and the oil price collapse in the spring.

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Corkal said initially the oil recovery fund for the province was pitched in a way that would require it to show an environmental impact, but it's not clear that's happening. Most of that funding has yet to be committed.

Defining efficiency

Corkal said loans aren't included in the subsidies total because it's not clear how much they will ultimately cost taxpayers, so federal loan programs offered to oil companies last spring to help them weather the pandemic downturn aren't included in the totals. Nor is a $750-million package to help companies cut their methane emissions to meet new federal standards, because a lot of that funding is supposed to repayable.

Environment groups welcomed the orphaned oil well program last spring, believing it to be a better way to help the sector than subsidizing oil production. But Corkal said taxpayers shouldn't be on the hook for cleaning up orphaned wells permanently.

"Even if a subsidy has clear emissions reductions benefits, it's ultimately still reducing the cost of business for fossil fuel producers," she said.

Defining how a subsidy is "inefficient" lies at the heart of the promise to eliminate them in Canada.

Environment Canada once listed four subsidies from its department and yet determined all were efficient, either by aiding small remote communities with the cost of fuel, or having a positive environmental impact.

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President Joe Biden made eliminating fossil fuel subsidies in the United States an immediate priority. On his first full day in office he directed all federal agencies to identify any direct federal spending on fossil fuels, and to eliminate any such spending from the budget next year.