The numbers don’t surprise an energy economist at the University of British Columbia
The B.C. government provided over $765 million in subsidies to the fossil fuel industry between 2020 and 2021, says a new report.
That subsidy amount is second only to Alberta, and together with Saskatchewan, and Newfoundland and Labrador, make up a combined $2.5-billion pot of money provided to the oil and gas sector in the 2020/21 financial year, according to a report from the International Institute for Sustainable Development (IISD).
“In light of both Canada’s net-zero goals and looming peak oil demand, continuing to subsidize the fossil fuel sector does not make economic sense for provincial governments,” wrote authors Janetta McKenzie, Estan Beedell and Vanessa Corkal.
The report calls on all four provinces to align their targets with the federal government and move to reform and phase out all fossil fuel subsidies by 2023.
Federal subsidies to the fossil fuel industry reached $1.9 billion in 2020/21. The federal government has provided several billion more in tax subsidies and 14 billion in public finance, says the report.
Werner Antweiler, an energy economist at the University of British Columbia’s Sauder School of Business, says the numbers don’t surprise him.
“It raises the question, do we need that? Do we need to give preferential treatment to these industries when we’re trying to transition to renewable energy sources?” Antweiler said.
Some government subsidies to the oil and gas industry make sense, added Antweiler. He points to money used to clean up old wells or invest in new technology to reduce fugitive methane emissions during the extraction, transportation and storage of liquified natural gas, which is largely made up of methane. (Methane produces a greenhouse effect up to 84 times more potent than carbon dioxide over the first 20 years it’s in the atmosphere.)
But in many cases, subsidies end up funnelling public dollars into improving a company’s bottom line. That, says Antweiler, is bad policy for any government to pursue, let alone one that plays an outsized role in altering the planet’s climate system.
“Where government subsidies encourage production or increasing the profitability of the industry — that is a very questionable way of using taxpayer money,” he said. “Unfortunately, we sometimes see a lot of the bad subsidies.”
In 2020, the COVID-19 pandemic prompted some provinces to provide short-term tax exemptions and one-time direct transfers to the industry.
Of $765 million in oil and gas subsidies handed out in B.C. during the 2020/21 financial year, $232 million came through tax measures and another $41 million came through direct transfers.
By far the largest share came through a 30-year-old royalty reductions program, which provided $492 million in subsidies to the industry through 11 programs over the 12-month-period.
B.C.’S ROYALTY PROGRAM UNDER REVIEW
First launched in 1992, the B.C. government’s oil and gas royalty program is estimated to have poured at least $10 billion into the industry.
“There was a time we didn’t have green energy alternatives,” said Antweiler. “In most instances, [the subsidies] no longer serve the purpose they were designed for.”
By lowering well-operating costs, the royalty programs create incentives to drill wells that otherwise would not have existed, found an independent assessment of the program released last fall.
That assessment determined the oil and gas royalty programs was “broken” and inconsistent with the province’s environmental goals of lowering greenhouse gas emissions and minimizing the disturbance of land often overlapping with First Nations territories. Without the royalty credits, revenue flowing to the province from oil and gas would be “significantly higher.”
There are nearly 36,000 active oil and gas wells in British Columbia with another 8,600 authorized for drilling. Nearly all of them are on Crown land leased to drilling and extraction companies.
The B.C. government has since launched a review of the royalty program. The Ministry of Energy, Mines and Low Carbon Innovation is expected to release the results of its oil and gas royalty review by spring 2022.
LACK OF TRANSPARENCY
During the last federal election, the Liberal Party of Canada said it would phase out the public financing for fossil fuels and eliminate subsidies to the industry by 2023, instead of a previously promised target in 2025.
It wasn’t the first time a Liberal government had promised to cut subsidies to the oil and gas sector. In 2020, the Canadian government is estimated to have contributed $18 billion to an industry responsible for roughly half of all Canadian emissions, according to a report done by Environmental Defence.
Pinning down the vast sums of money flowing from government to oil and gas is not easy. The $765 million that is thought to have gone to oil and gas companies in B.C. is a “conservative” estimate and is “likely much higher,” write the report’s authors.
That’s because they rely on publicly available data, such as provincial budgets and fiscal updates, which paint an incomplete picture.
The authors warn there is a “lack of transparency” on provincial fossil fuel subsidies, making a full accounting difficult.
Whatever the final tally, the subsidies show no early sign of waning. So far this financial year, the B.C. government has handed out $566 million to the oil and gas sector. That’s only slightly less than the $658 million the Alberta government has provided the fossil fuel industry.
The report comes two weeks after a government-run survey found a large majority of British Columbians (77 per cent) agreed with the independent assessment’s finding that the outdated program needed an overhaul — environmental protection, they said, should be the most important goal.
Another 69 per cent of respondents — who were self-selected — said they were in favour of an overhaul as soon as possible with no “grandparenting.”
But while divesting public funds from fossil fuel into renewable energy is an important step towards decarbonizing Canada’s economy, it’s not always a simple political decision.
Governments often enter into contractual agreements with companies that can’t easily be broken and sometimes need to expire before they can end, says Antweiler.
“Ultimately, where we need investment is in the cleantech sector,” he said. “What we do need is greater transparency.”
“These reports will help…[but] it takes a lot of time and effort.”