A Shell Refinery in Fort Saskatchewan.
The federal government does not have a plan in place to meet its commitment to phase out inefficient fossil fuel subsidies by 2025, according to an auditor general’s report tabled Tuesday in the House of Commons.
Leaders of the G20 countries agreed in 2009 to phase out inefficient fossil fuel subsidies “over the medium term,” and have reaffirmed the commitment every year since then.
At the North American Leaders’ Summit in June 2016, Canada, the U.S. and Mexico agreed to phase out subsidies by 2025.
Although the Canadian government has eliminated some subsidies in recent years, auditors found, the finance and environment departments haven’t fully defined what the commitment means for Canada.
Without a clear understanding of the fossil fuel subsidies covered by the G20 commitments and without an implementation plan with timelines, the departments cannot ensure that they are providing the support needed for Canada to meet the commitment by 2025
“Without a clear understanding of the fossil fuel subsidies covered by the G20 commitments and without an implementation plan with timelines, the departments cannot ensure that they are providing the support needed for Canada to meet the commitment by 2025,” the report concludes. Auditors also found that Finance Canada doesn’t know how much fossil fuel subsidies have cost the government overall.
The report finds that the government has reformed six fossil fuel subsidies since 2009, with reforms to another two subsidies announced in Budget 2017.
Those include cutting the tax deduction for expenses related to bringing mines, oil sands and oil shale projects into production from 100 per cent to 30 per cent annually, as well as the phase-out of the Atlantic investment tax credit for oil and gas and mining, which saved the government $85 million in 2016.
Still, the auditors found that the government has no plan to reform flow-through shares for exploration and development expenses, which allow fossil fuel corporations to transfer tax deductions to investors. Flow-through shares are expected to cost the government $130 million in 2017.
In its response to the report, the finance department claimed there is “only one remaining federal tax expenditure potentially relevant to the G20 commitment,” referring to flow-through shares.
But the auditors point to several other subsidies that are considered part of Canada’s benchmark income tax system, meaning they’re not supposed to give the fossil fuel industry any particular advantage over other sectors, since all businesses can claim tax deductions for expenses.
The report finds that the finance department has not studied whether it’s still true that those subsidies, “which have been in place for decades,” don’t give the fossil fuel industry an unfair advantage.
The government “hasn’t really identified the complete universe of subsidies,” auditors said. But it has agreed to study whether the benchmark tax measures are still neutral.
Auditors also found that Environment and Climate Change Canada doesn’t know the full extent of non-tax measures that could be considered fossil fuel subsidies. A 2012 report of the commissioner of the environment and sustainable development found that the federal government gave $508 million in direct funding to the fossil fuel sector between 2007 and 2012, largely for research and development.
Other types of non-tax subsidies include government loans and loan guarantees.
For Canada to meet its 2025 commitment, the report finds, the department “needs to develop an implementation plan with timelines to support the phase-out and rationalization of non-tax measures.”
Environment Minister Catherine McKenna has approved a plan in February to identify non-tax measures.
The audit of fossil fuel subsidies was hampered by the fact that the finance department refused to provide auditors with all of its analyses of tax measures. The department claimed some budget briefing notes were cabinet confidences and could not be released.
“Our right to freely access information is fundamental to our work, and a cornerstone that protects our independence,” said auditor general Michael Ferguson in a message accompanying the report.
Ferguson said access to information has been an issue before. But the government has now agreed to provide more information about budget matters in the future, which Ferguson called a “good first step.”
As a result of being denied information, the auditors conclude, “we could not provide assurance to Parliament that the department analyzed the economic, social, and environmental aspects of all tax measures related to the fossil fuel sector.”
Eliminating fossil fuel subsidies is a target of the sustainable development goals adopted in 2015 by United Nations member countries, including Canada.
A 2016 study from four Canadian environmental groups found that federal and provincial governments still subsidize the oil and gas industry to the tune of $3.3 billion annually.