Pembina Institute

Canada defends billions in taxpayer subsidies to oil and gas industry

Industry receives $1.4 billion in tax breaks annually while greenhouse gas emissions skyrocket

Released: June 14, 2006

Media contact: Amy Taylor

TORONTO - Groups from across Canada today renewed calls for the federal government to eliminate massive tax subsidies to the country's booming oil and gas industry. Last fall the groups formally petitioned Canada's Auditor General to investigate the billions of dollars in government tax breaks to oil and gas companies, even as the industry was enjoying record profits and causing rapidly increasing emissions of greenhouse gases that cause climate change. In his response Federal Finance Minister James Flaherty, however, dismissed the groups' demand to eliminate subsidies saying, "tax policy takes into account the particular situation of these various sectors through a number of targeted provisions."

"I don't know what 'particular situation' the oil and gas industry is in to justify billions in federal handouts," said Albert Koehl, a lawyer with Sierra Legal Defence Fund. "Instead of squandering taxpayer dollars and throwing in the towel on Kyoto, the government would do well to require the industry to start paying for using our atmosphere as a convenient waste dump for its pollution."

The most recent data, based on government figures, show that the industry receives $1.4 billion annually in federal tax breaks. The groups, including Sierra Legal, Friends of the Earth Canada, the Pembina Institute, and Charles Caccia of the Centre for Environmentally Sustainable Development, demanded that the government eliminate the so-called 'perverse' subsidies because they promote environmentally harmful activities. A similar call to eliminate these subsidies was made by the Organization for Economic Cooperation and Development (OECD) in 2000.

"The Government of Canada is contradicting itself," said Charles Caccia. "On the one hand it encourages greenhouse gas emissions through the tax system, while on the other it recognizes the necessity of reducing them with a made-in-Canada plan. You cannot do both at the same time!"

The oil and gas industry accounts for about 20% of all Canadian greenhouse gas emissions. Between 1990 -- the base year for the Kyoto Protocol -- and 2004, emissions from the oil and gas industry increased by 50%, according to government statistics released in May. Greenhouse gas emissions associated with oil and gas exports to the U.S. accounted for a 123% increase in the same period. A particularly egregious component of these subsidies is the Accelerated Capital Cost Allowance for oilsands exploitation - a booming sector of the industry. The Minister's response fails to mention this subsidy in the context of the oilsands.

"Surely the billions of dollars the oil and gas industry is getting from the Canadian taxpayer would be better spent on objectives such as promoting renewable energy and energy efficiency programs," said Amy Taylor, an economist with the Pembina Institute and author of a study on tax subsidies to the industry. "This would give Canada credibility at home and abroad, help reduce emissions, and adjust our tax system in line with our Kyoto obligations."

Since Canada first agreed to the Kyoto Protocol in 1997, the federal government has spent more than $2 in tax subsidies to the industry for each $1 spent on action to implement the accord.

"This government prides itself on accountability and a change from past practices," said Bea Olivastri, CEO of Friends of the Earth Canada. "It is unclear how big tax breaks to an industry that is making massive profits fits with those policies."

The original petition was filed with the Commissioner for the Environment and Sustainable Development, a part of the federal Auditor General's Office, in October 2005. The groups are calling on the Auditor to further investigate the subsidies and report to Parliament.

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To download the submission or response, please visit www.sierralegal.org.

For more information, please contact:
Albert Koehl, Lawyer, Sierra Legal Defence Fund, 416-533-1231

Charles Caccia, Centre for Environmentally Sustainable Development, 613-562-5800 ext. 1041

Amy Taylor, Economist, Pembina Institute 403-678-3355

Beatrice Olivastri, CEO, Friends of the Earth Canada, 613-724-8690


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