Canada ranks highly among the developed countries that have provided government support to the fossil fuel sector, but this situation is changing. To address the climate emergency, Canada has legally committed to achieving net-zero carbon dioxide (CO2) and other greenhouse gas (GHG) emissions by 2050. How our federal, provincial, and territorial governments spend public dollars to meet this net-zero target is critically important as Canada finances its recovery from the COVID-19 pandemic. This report serves as a source of information to guide Canadian policymakers, business leaders, pension fiduciaries, and civil society members in their efforts to align fossil fuel subsidies with the country’s net-zero policy targets. It includes recent information on our government’s international policy commitments at the United Nations sponsored Twenty-Sixth Conference of the Parties (COP 26) that held from October to November 2021, federal ministerial mandates in December 2021 and other national responses as of February 2022 and forecasts other implications in Canada. The author finds that Canada has federal, provincial, and territorial subsidies, but governments do not report enough data. However, based on recent data from governments and the International Institute for Sustainable Development (IISD), the leading research organization analysing data on fossil fuel subsidies in Canada, there is a conservative estimate: the combined federal, provincial, and territorial fossil fuel subsidies in Canada total at least $4.8 billion annually in 2018 and 2019, and most were given by provincial and territorial governments. Federal subsidies tend to take the form of grants, but provincial and territorial subsidies are often from tax programs such as waivers and breaks as well as uncollected or under-collected resource rents or royalties. From the available data, we see some patterns of fossil fuel subsidies in Canada. The federal government gives more subsidies to producers than consumers to incentivize the extraction of fossil fuels and/or reduce their emissions, and some subsidies have recently shifted focus from exploration to infrastructure development for production and export of Canadian fuels abroad. Subsidies that reduce emissions make oil, gas, coal, and fossil fuel products less GHG intensive and/or expand natural gas production to reduce the reliance on oil. Many provincial and territorial governments give consumption subsidies, although provinces such as Alberta and British Columbia have significant production subsidies as well. Consumption subsidies include tax exemptions for the use of fossil fuels such as gasoline, coal, natural gas, diesel, and propane.Given Canada’s race to net-zero, these federal, provincial, and territorial subsidies now have more negative than positive implications for Canadian society. The report classifies and discusses four governance implications: government transparency, climate policy effectiveness, climate justice, and risk exposure. While government transparency and some aspects of climate policy effectiveness and climate justice are better known, the risk exposure of companies, investments and fiduciaries have hardly been acknowledged. The report contributes on these four implications.First, Canadian governments across levels do not report fossil fuel subsidies transparently to enable companies, financial institutions, and Canadian civil society members to adequately evaluate the costs and benefits. We do not fully understand how governments spend public dollars in subsidies. Second, some fossil fuel subsidies cause more global warming and climate change, while others aim to reduce GHG emissions by promoting the use of low-carbon technologies such as renewable energy, energy efficiency and, controversially, carbon capture and storage. Fossil fuel subsidies therefore have two major implications for climate policy: the impact on GHG emissions reduction and on the finance of low-carbon technologies. How fast and well Canada transitions is at stake.Third, fossil fuel subsidies disproportionately impact societal stakeholders that are most vulnerable to policies, corporate actions, and investment decisions in the fossil fuel industry. Canadian society, especially low-income people and communities who bear the consequences of the social externalities of subsidies, workers and communities relying on the fossil fuel economy, and Indigenous Peoples and communities suffering the consequences of oil extraction, are impacted. Fourth, businesses, investments and governments are increasingly exposed to risks in the race to net-zero. Government of Canada has signed the COP 26 Statement on International Public Support for the Clean Energy Transition and the Glasgow Climate Pact. In doing so, Canada commits to ending new direct public support for the international unabated fossil fuel energy sector by the end of 2022 and diverting funding to clean energy and phasing out some fossil fuel subsidies by 2023. Canadian developments to implement these latest policy commitments increase corporate and investment risk exposure, and governments can expect more litigation checking their policies and other actions. Given these far-reaching implications, the report offers extensive recommendations to support Canada’s fossil fuel subsidy reforms. Because governments have the most important role to play in reforming subsidies, most of the ideas seek to help them enhance information, promote policy targets, enable stakeholder evaluation, address vulnerabilities, and limit exposure to litigation risks. Governments at both federal and provincial/territorial levels should: adopt the Auditor General of Canada’s definition of subsidy for government direct and indirect support given to the fossil fuel industry, in line with international best practice; prepare and release detailed periodic inventories of subsidies, identifying those that are inefficient; provide information on subsidies supporting net-zero GHG emissions; report annually on risk management measures; review and revise tax, royalty and other legislation and policies relating to fossil fuel subsidies; and frame energy subsidies, including renewables and other sources to benefit from a shift from fossil fuel to alternative sustainable energy subsidies, with the concept of climate justice. The fossil fuel subsidy phase-out should specifically include collaboration at all levels of government to protect workers and communities dependent on the oil and gas sector by developing a pan-Canadian just transition program that retrains fossil fuel workers, integrates fossil fuel-dependent communities into new low-carbon economic activity, and partners with Indigenous Peoples in the transition to net-zero. These recommendations for governments can guide business involvement in Canadian policy, but the report also offers ideas for corporate and investment fiduciaries to mitigate their subsidy risk exposure in Canada’s transition. Corporate and investment fiduciaries should deliberate on the risks of fossil fuel subsidies and opportunities related to low-carbon transition through engagement, planning, disclosure processes, and risk management. Additionally, the report makes recommendations for civil society members, acknowledging how their actions could impact business, investment, and fiduciaries. Indigenous Peoples, fossil fuel workers, and other vulnerable groups have the immediate opportunity to question fossil fuel subsidies through engagement with governments and pension funds, climate litigation and, in the medium term, by orchestrating actions that support the phasing out of fossil fuel subsidies
