'It’s like pulling teeth': Catherine McKenna accused of stalling on fossil fuel subsidies

Two years after the auditor general concluded that the Trudeau government had failed to identify its subsidies for the oil and gas industry, Environment Minister Catherine McKenna says federal officials are still working on it.

In a letter sent to Karen Hamilton, a program officer at Ottawa-based corporate accountability organization Above Ground, McKenna suggests this identification process is ongoing, 20 months after the auditor general reported that the minister's department “did not yet know” the extent of the subsidies.

“Please be assured that the government is working to identify and review non-tax measures that support fossil fuel production and use,” McKenna wrote on Feb. 11. A copy of the letter was obtained by National Observer.

Canada committed in 2016 to axing “inefficient” fossil fuel subsidies by 2025. Phasing them out is one priority in McKenna’s mandate letter. It is also a key objective for a global renewables agency that Canada joined last month. The former Harper government had also joined other G20 countries in a commitment to phase out inefficient fossil fuel subsidies following a summit in Pittsburgh in 2009.

The auditor general considers “non-tax” subsidies to be things like government grants or research funding, loans or loan guarantees that governments offer at favourable rates, and actions by government to intervene in markets, for example to sell off resources at below-market rates or to depress prices.

The minister’s letter meant it was unclear what had happened since the auditor general’s report, Hamilton said in an interview. “Just to get dates or more information, it’s like pulling teeth — we don’t really understand why it’s so complicated,” she said. “We don’t know where they’re at in their process.”

She said without receiving a firm date, she was skeptical the government would reveal anything until after the federal election scheduled for this fall.

Fossil fuel subsidies are widely viewed as roadblocks in the path to a country’s low-carbon economy. Economists say they distort the marketplace in favour of oil, gas and coal businesses and against clean technology, hampering efforts to get these businesses off the ground.

The International Institute for Sustainable Development, for example, has calculated that over a five-year period Canada spends several billion dollars in direct subsidies and publicly funded loans on these subsidies, an amount of money “of the same order” as losses that Canadian low-carbon firms experience.

In the letter to Hamilton, the minister laid out a number of steps the government had taken “toward fulfilling” its commitment. This included the 2016 budget’s announcement that accelerated capital cost allowance for facilities that liquefy natural gas will expire in 2024, and the government’s move to restrict what types of expenses incurred by oil and gas companies can get tax deductions.

Canada has also proposed hundreds of millions of dollars for new clean technology initiatives as well as new tax incentives for businesses investing in wind turbines and solar panels.

But the auditor general warned in 2017 that without a clear understanding of fossil fuel subsidies and a plan with timelines, departments won’t be able to ensure they’ll be able to meet the 2025 target.

The government launched a peer review process with Argentina in June 2018 that promised to “ensure both countries are on track to phase out inefficient fossil fuel subsidies.” McKenna as well as Finance Minister Bill Morneau are expected to carry out the peer review on behalf of Canada.

Environment and Climate Change Canada said last year that “public reporting” on the subsidies issue will occur once the two reviews — one on non-tax measures in the department, and the other with Argentina — have been finalized.

Since then, government officials have stayed relatively quiet about any progress on either review. McKenna’s office was contacted for this story but did not respond to questions before publication.

National Observer asked the Embassy of Argentina in Ottawa a series of questions about the peer review beginning Dec. 18, 2018 and following up several times. Cecilia Ines Silberberg, first secretary and consul at the embassy, said Jan. 16 that she had “not received yet formal answers” to these questions.

In September at a G7 conference in Halifax, McKenna appeared unwilling to discuss whether the group had held any talks on the issue. A few months later in December, McKenna said the government was not considering speeding up the phase-out target to align with a call to action by 415 investors, with $32 trillion in assets-under-management called the Global Investor Statement to Governments on Climate Change. “Our commitment is 2025,” she said in response.

In January, Canada joined the International Renewable Energy Agency, whose director has previously told National Observer that the government should be asking itself whether using taxpayer dollars to subsidize fossil fuel infrastructure is a “wise investment given the fact that this may end up as a stranded asset.”

Morneau spearheaded the government’s decision to spend billions of public dollars buying the Trans Mountain oil pipeline and expansion project. He has gone on to defend the price the government paid against an estimate by the Parliamentary Budget Office that it was at the higher end of the pipeline's true value.

Hamilton said she believed if the Argentina peer review was being taken into account, the earliest that something on subsidies could be published would be for the G20 in Japan this June. But that timeframe was unlikely, she added, given how long it has taken other G20 countries to undergo their own reviews.

Germany and Mexico, for example, underwent their own peer review process. Germany identified US $17.6 billion in measures that favour fossil fuels in 2016, while Mexico identified US$2.6 billion. The Mexican review did not include subsidies to consumption of fossil-fuel-based electricity and natural gas.