...A growing number of oil companies recognize that social and environmental pressures will lead to more stringent regulatory requirements in the future, particularly around carbon pollution. As a result, a number of companies have adopted internal “shadow” prices on carbon. While those shadow prices are factored into the industry’s cost of doing business, Canada doesn’t actually collect those dollars. The absence of a carbon price means that the federal government is effectively foregoing between $4 and $18 billion a year in revenues that could otherwise have been collected without changing oil and gas investment decisions. Benefits versus costs The argument that the economic benefits of the oil sector justify the subsidies we give to it resides on three foundational errors: First, any economic benefits from subsidies in the short-to-medium term are countered by the sector’s long-term environmental impacts. Those are very real costs that we, as Canadians, are passing on to generations to come. This is particularly concerning because the sector — and its environmental impact — continues to grow at a rapid pace. Second, although the sector provides economic benefits, they’re often overstated. It does not drive Canada’s economy, as economists have explained and Pembina showed in our analysis of the economic implications of Canadian oilsands development. As of 2013, unconventional oil and gas — the subsector that includes the rapidly growing oilsands — accounts for just two per cent of Canada’s GDP. That raises questions about the value of the current subsidies. The combined value of the CDE and CEE subsidy programs for the oil sector alone (not counting gas) was $711 million in 2008, and the total value of subsidies and other federal support measures has risen since then. Unconventional oil and gas accounts for only two per cent of Canada’s GDP. Photo: Roberta Franchuk, Pembina Institute Meanwhile, the combined oil and gas sector paid $1.3 billion in federal corporate income taxes in 2012. So it’s possible that the amount of revenue the government foregoes through these subsidies, plus the direct support measures it provides, now exceeds the federal income taxes being paid by the sector. Finally, the sector doesn’t really need the help. Subsidies are usually justified when there are imperfect markets, or for industries that are either new or going through difficult times. None of those justifications apply for the oil sector. For example, governments often subsidize exploration activities because of the risk they carry — that’s the logic behind the CEE. But Canada’s oil sector is highly profitable and well positioned to carry a larger portion of that risk, rather than to take subsidies for such activities. Solutions that make sense Canada should deliver on its fossil fuel subsidies promise. To reduce the environmental and financial cost of the oil sector, the government should phase out the CDE. It should also reclassify eligible expenses for the CEE, so that it applies only to unsuccessful exploration expenses — that is, we should only provide the subsidy for projects that need it. It’s also high time for Canada to introduce federal emissions regulations for the oil and gas sector with enough stringency to put Canada on track to meet our 2020 emissions reduction target. Together, these steps would maximize the benefit Canadians receive from the development of our oil and gas sector. Moreover, as countries around the world shift to the low-carbon economy of the future, Canada must capitalize on those new opportunities. Part of that transition involves shifting our support away from the oil sector — which doesn’t need subsidies — and toward the development and uptake of clean energy technologies. Canada should keep its word on fossil fuel subsidies, and get on track for a cleaner energy system. ...
Posted on: Wed, 03 Dec 2014 14:17:02 +0000
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