Fossil Fuel Subsidies – What are they and how much are they worth?
by Daniel T’seleie
I often say Canada’s federal government subsidizes the fossil fuel industry with $1.4 billion a year, but this raises a good question. What exactly is a subsidy?
Not all of this money is a direct hand-out to industry. Over $800 million of this money is in the form of special tax breaks. This may not sound like a hand-out, but think of it this way. If your neighbor was the richest person on the block, and was getting tax breaks while you pay the full amount, wouldn’t you consider that a hand-out?
How can I say that these subsidies and tax breaks are unfair, and aren’t necessary for some complex, economic reason?
In 2010 Canada’s federal Department of Finance recommended the phase out of fossil fuel subsidies. In a government memo, leaked to the press, a top bureaucrat stated, “[tax breaks to the fossil fuel sector] were historically premised on factors such as exploration risk, spillover benefits of exploration to third parties (similar to R&D), large capital requirements, price volatility, and a desire to be competitive. Today, however, it is not clear that these factors are unique to the sector or merit preferential treatment.”
Part of the Department of Finance’s recommendation was based on the fact that Canada and other G20 countries had committed to phasing out fossil fuel subsidies at a meeting in 2009.
But instead of living up to its commitments and listening to the best advice of its bureaucrats, the government decided to “minimize the commitment” to end fossil fuel subsidies. Instead of ending current subsidies, they touted the benefits of other subsides that had expired years earlier, some as far back as 1989.
Don’t believe it? It’s all documented in this report by Climate Action Network Canada.
These types of subsidies don’t end at the federal level. If we include provincial subsidies as well the fossil fuel companies got close to $3 billion of taxpayers money in 2008. Unconventional sources of fossil fuels get the greatest benefit from these subsidies, and the tar sands are “disproportionately benefiting” according to the International Institute for Sustainable Development.
But we still haven’t gotten to the heart of the issue; what is a fossil fuel subsidy? Subsidies are support offered to industry by government (so funded through taxpayers dollars).
In this context we can consider more than hand-outs and tax breaks to be subsidies.
For example, it has been estimated that the costs of reclaiming land destroyed by tar sands development could cost taxpayers more than $10 billion. Oil companies profit, and the people pay. Should we also consider this a subsidy?
There is also the government money that is pumped into carbon capture and storage (CCS) technology; the idea that we can capture carbon dioxide from industrial facilities and store it deep underground without it ever reaching the atmosphere.
Federal and provincial subsidies for CCS technology total more than $3 billion in “recent years.” Most of this money goes to the fossil fuel companies.
There’s an even deeper link between CCS and subsidization; this technology, which is touted as a solution to climate change, helps fossil fuel companies extract even more oil from dying oil wells through a process known as “enhanced oil recovery.” Thus subsidized CCS helps fossil fuel companies increase their profits.
So if CCS is an expensive and unproven solution to climate change, but helps oil companies increase their profits, and is developed by the oil companies with the help of billions of dollars of taxpayers money, should we count this as a “fossil fuel subsidy”?
Subsidies don’t end here. What about public money spent on building roads and highways instead of electric rail? I don’t have it on record, but I’ve heard rumours that in the early days of the automobile there was a great deal of lobbying done to get the U.S. federal government to invest in interstate highways instead of railways and other modes of transportation. Today our governments still spend untold billions on roads and highways, which directly benefits the fossil fuel industry.
When you count all this up (or even just some of it) it becomes clear that the fossil fuel industry receives much more in subsidies than renewable energy.
Globally, fossil fuel subsidies are estimated to be worth upwards of US$600 billion a year.
It doesn’t end here though. If you really want to take the subsidy bean counting even further, you get into considering the costs of war and the future impacts of climate change. Some think that wars in the middle east are fought over oil, and to protect certain countries’ control of oil resources. Western governments spend trillions on wars like this.
The social costs of carbon, the amount we will pay to deal with the impacts of climate change in the future, are enormous, upwards of US$900 a tonne. As taxpayers we pay these costs in future, not the oil companies.
The National Round Table on the Environment and the Economy recently said the economic costs of climate change to Canada will likely average about $5 billion by 2020, and upwards of $43 billion by 2050. These are the average cost estimates, NRTEE also states that “the costs could be far higher than the average.”
So when I talk about fossil fuel subsidies, and quote the $1.4 billion from Canada’s government, keep in mind that this is a number from reputable organizations that economists and analysts can agree on. The actual value of government subsidies to the fossil fuel industry can be considered to be much higher.