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Semantics with a price tag: What is an 'inefficient' fossil fuel subsidy?

by Mark Sabourin
EcoLog, 4/5/2019 2:02:00 PM

The federal Commissioner of the Environment and Sustainable Development (CESD) says the Department of Finance has done a poor job of defining “inefficient” tax subsidies for the fossil fuel industry. Canada has committed to phase out or rationalize inefficient subsidies to the industry by 2025.

Meanwhile, Environment and Climate Change Canada has initiated a consultation on the government’s draft framework to review non-tax measures that support the fossil fuel industry. That consultation will run until June 30, 2019 and will examine the definition of “inefficient” and “fossil fuel subsidy”.

The CESD’s spring audit devotes two chapters to fossil fuel subsidies, one to tax subsidies, the other to non-tax subsidies.

The Department of Finance says that Canada has phased out most tax preferences for fossil fuel production. A September 2018 report, “Public Cash for Oil and Gas: Mapping federal fiscal support for fossil fuels”, by the International Institute for Sustainable Development says otherwise. It identified five tax measures that favoured the fossil fuel industry that had either been phased out or reformed since 2011, but also found another seven under the Income Tax Act that were still in place.

In an April 2, 2019 release, Environmental Defence named Export Development Canada, which it says averages more than $10 billion in government-backed support for oil and gas companies every year. The Department of Finance did not include Export Development Canada in its analysis.

As to specifically defining the term “inefficient”, the Department of Finance says the CESD is asking the impossible. It’s a term that defies simple definition, it says in its reply. Economic, social and environmental considerations are all important, it says, but they are not always equally important depending on the measure being analyzed.

“That raises real alarm bells about the way that the term ‘inefficient’ will be used to determine which of Canada’s tax measures need to be eliminated,” Environmental Defence Climate and Energy Program Manager Julia Levin told EcoLog News by e-mail. “Using a nebulous definition allows the Department of Finance to claim to have already phased out most tax preferences for fossil fuel production.”

As to non-tax measures, the CESD audit finds that Environment and Climate Change Canada has let too many programs slip through its fingers. Environment and Climate Change Canada found only four federal programs that qualified as subsidies.

Like the Department of Finance, Environment and Climate Change Canada did not define “inefficient non-tax subsidy.” Levin does give it credit, though, for seeking public input on the question.

“The bottom line is that fossil fuel subsidies, including in the form of tax breaks, are stalling the country’s transition towards a green economy and must be phased out urgently,” says Levin.

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