Ottawa reveals conditions for allowing future fossil fuel subsidies

Subsidies phase-out unlikely to go over well Canada is phasing out what it calls inefficient subsidies for the fossil fuel industry and it's unlikely to go over well.

Ottawa is restricting the conditions under which it will allow subsidies to the fossil fuel industry but is leaving untouched -- for now -- the industry's largest source of public financing.

On Monday, federal Environment Minister Steven Guilbeault released six rules that are to shape how Canada supports the industry and ensure all programs across government are aligned with federal climate targets.

"What we're eliminating are federal supports that are directed to the oil and gas sector and give the oil and gas sector an economic advantage," Guilbeault said in Montreal.

Subsidies will be allowed if they support clean energy.

Companies that reduce their greenhouse gas emissions or have a "credible" plan to achieve net zero by 2030 could also be supported.

Subsidies aiding Indigenous involvement in the industry will continue, as will those that support service to a remote community or form part of an emergency response.

The federal Liberals will also permit subsidies that align with Article 6 of the Paris Agreement, which allows countries to claim carbon credits for providing fuels capable of lowering the carbon footprint of another country.

Guilbeault said 129 tax and non-tax measures were examined as the guidelines were set up.

He couldn't provide a figure for how much financing would be affected, saying it's impossible to predict how many applications the government would have had from industry.

A government official, speaking on background, said government programs that could be affected by the guidelines control about $1 billion in public money.

Monday's announcement does not affect generally available subsidy programs, such as exploration incentives used by other resource companies, nor does it affect public money that flows through Crown corporations, such as Export Development Canada -- the source of the majority of government subsidies to the sector.

"We will be conducting in-depth analysis of the newly released guidelines to determine the full implications to Alberta. However, fossil fuels are not the problem. Emissions are the problem and Ottawa's top priority should be working with provinces and finding more effective ways to help industry cut emissions in practical ways across all sectors," Alberta Environment Minister Rebecca Schulz said in a written statement Monday.

Alberta Energy Minister Brian Jean also took aim at the announcement:

"Minister Steven Guilbeault continues to send mixed messages to Albertans, to the energy industry and to our business community. The minister's narrative does not match the constructive conversations we have had with his cabinet colleagues on how to work together to support emissions reductions and carbon abating technology," he said.

Jean also directed criticism at the way the plan deals with future financing of carbon capture projects.

"I was concerned to hear Minister Guilbeault's comments downplaying the important role carbon, capture, utilization and storage (CCUS) will play in our energy sector and in decarbonization moving forward," he said.

Calgary's Chamber of Commerce weighed in late Monday, expressing concern for the province's ability to attract and retain investment.

"The chamber encourages government to work with industry to advance emissions reduction opportunities that are core to our economic future, including LNG, hydrogen and other promising technologies and processes," said Calgary Chamber of Commerce president Deborah Yedlin.

"At the same time, the framework also leaves room for potential unintended consequences, including the possibility of stranding private investment in decarbonization due to uncertainty. For Canada to remain the most competitive and responsible jurisdiction for energy production, ongoing policy and regulatory measures, (it) must provide both certainty and clarity for investors and producers."

Julia Levin of Environmental Defence said her group calculated that about $19 billion in financing for fossil fuels flowed through Export Development Canada in 2022.

That's compared to about $2 billion that came from other sources.

Guilbeault promised rules restricting Crown investments in fossil fuel development will come next year.

Still, Levin and other environmentalists praised Monday's announcement.

"There's a lot to be praised and there are problematic bits as well," she said.

She said she wanted to see more information on how the guidelines will be implemented and enforced across government departments.

Laura Cameron of the International Institute for Sustainable Development said, "We see this as a big moment to celebrate."

However, she said she's concerned about the space left open for public finance of carbon capture and storage projects.

Cameron said such projects are too expensive and take too long to build to contribute much to the fight against climate change.

She also noted carbon capture and storage only addresses oil and gas emissions from production -- not the 80 per cent of the carbon from a barrel of oil that's released when it's burned.

"Carbon capture and storage is not net zero," she said.

The Canadian Association of Petroleum Producers, on the other hand, welcomed the carve-outs for programs that could reduce emissions from industry.

"(The group) is generally aligned with the framework on inefficient fossil fuel subsidies released today," association president Lisa Baiton said in an email.

"We are pleased to see the recognition that partnering with industry to invest in technologies to help decarbonize Canada's economy remains an important part of reaching the government's climate change and energy priorities."

Baiton urged Ottawa to develop regulations under which those technologies could be funded and deployed.

Guilbeault said net-zero plans from companies will be evaluated case by case.

"We have lots of information looking at what's happening in Canada (and) around the world to evaluate what's realistic and what's not realistic in terms of targets from companies," he said.

Guilbeault said Monday's announcement makes Canada the first G20 country to release its framework for phasing out inefficient fossil fuel subsidies.

He said the new framework fulfills international commitments Canada made in 2009 and 2016.

He said the kind of summer Canada's been having, with record fires, floods, storms and temperatures from coast to coast, proves that action on climate change is needed.

"What we're doing now is leading to the type of summer we've had," he said.

"To those who tell me we're doing too much, I say, 'Is that the future we want? Is that how we have a prosperous Canada?'"

With files from The Canadian Press