If anyone is still not convinced that our ongoing subsidization of fossil fuel consumption is irrational (to say the least), a recent statistic released by the International Energy Agency (IEA) should prove convincing.
In 2008, the world economy subsidized oil consumption to the tune of US$557 billion in developing countries and provided as much as US$100 billion in subsidies to oil production in developed countries. Meanwhile, the top five earning publicly traded oil companies reaped $US150 billion in profits ( ExxonMobil $US45.2 billion, Royal Dutch Shell $US31.4 billion, BP $US25.6 billion, Chevron $US29.3 billion). According to the report by the IEA, this level of subsidy, if removed, could reduce oil consumption by 850 million tonnes (6.7 billion barrels) by 2020- the combined consumption of Japan, South Korea, Australia and New Zealand or 13 years of oilsands production at current rates of extraction.
To put the $557 billion into perspective, this amount of money is greater than:
- Twice the global contribution to foreign aid;
- The gross domestic products of Indonesia, Switzerland, Sweden and Saudi Arabia; and
- Three times the amount invested globally in renewable energy in 2008.
In Canada the federal government was recently put on the spot on this issue. In 2009, at the G20 meeting in Pittsburgh, Finance Minister Jim Flaherty committed, along with his international counterparts, to a phase out of fossil fuel subsidies. And as my colleague Clare Demerse described in an earlier blog, just two weeks ago a leaked memo revealed that Minister Flaherty has been advised by his own top officials to reduce Canada's contribution to global oil and gas subsidies, in line with the G20 commitment. Unfortunately, Minister Flaherty has not yet shown any evidence that he's listening to this advice.
Currently, oil and gas companies enjoy several federal government support programs in Canada including programs that allow them to transfer tax-deductible expenditures back and forward as they see fit. Some of the programs include: the Canadian Exploration Expenditures and Canadian Development Expenditure programs, a Resource Allowance, scientific, research and development tax credits and Flow-through shares. The Finance Canada memo mentioned above noted that there is no clear rationale why Canadian oil and gas producers should continue to receive these subsidies.
Just as President Obama is doing far more than Prime Minister Harper to support clean energy,
he is also leading the way in phasing out fossil fuel subsidies. An objective observer could be forgiven for thinking that Prime Minister Harper may only be interested in following the Americans' lead on energy and climate policy if it means delaying action.
Later this month Canada hosts the G20 in Toronto. While we've been told that European financial conditions will be a primary point of discussion, I cannot help but think that Canadians will be embarrassed that Canada is once again assuming a laggard's role on the global stage, just as we did in Copenhagen last December.
Mike Kennedy was a Senior Resource Economist with the Pembina Institute until 2010.
