New Report Shows Canadians on the Hook for up to CAD 18.8 Billion in Ongoing Subsidies to the Trans Mountain Pipeline

September 17, 2024, Ottawa—Canadian taxpayers could end up contributing up to CAD 18.8 billion in subsidies to the Trans Mountain Pipeline if the federal government continues charging discounted transportation tolls to the oil industry, according to a new report from the International Institute for Sustainable Development released today. 

The report, Assessment of Fossil Fuel Subsidies in Canada: A Case Study of the Trans Mountain Pipeline, shows the Canadian government is subsidizing the oil industry through these discounted tolls, which fail to cover the costs of building and operating the expanded pipeline. In 2022, the federal government committed to stop using public funds for the pipeline project. 

"Using taxpayer money to subsidize the oil industry is unfair and inconsistent with Canadian policy to eliminate inefficient fossil fuel subsidies,” said Thomas Gunton, author of the report and professor in the Resource and Environmental Planning Program at Simon Fraser University. “The government needs to follow its stated policy and phase out the subsidy on TMP as soon as possible.”

When the government bought TMP from Kinder Morgan in 2013, it did not renegotiate the toll fees and did not provide an updated estimate of the costs of completing the expanded pipeline. Consequently, according to the report, the current fees being charged are based on 2017 figures and are vastly lower than they should be. Based on 2024 figures, the based fixed tolls charged should be CAD 24.53 per barrel instead of the current proposed rate of CAD 11.37 per barrel. If the correct toll rate was charged, or a levy was introduced to recover the full cost, the subsidy could be phased out, saving the equivalent of CAD 1,255 per Canadian household. 

The report notes that, although the size of the subsidy could vary between CAD 8.7 billion and CAD 18.8 billion, depending on future shipping volumes and transportation cost estimates, there is no likely scenario in which the government will recover its investment in TMP. 

If and when the government sells TMP, the selling price will be well below the approximate CAD 37.5 billion the government has invested, and Canadian taxpayers will incur a significant loss.  

As a solution, the report recommends the government implement a cost recovery levy on all oil pipeline shipments from Western Canada, including TMP. In doing so, the government can effectively recover the losses and remove the subsidy to the oil industry.  

In December 2022, Canada ended financial support for all unabated fossil fuel projects abroad and, most recently, in July 2023, released a new framework to deliver on its commitment to end all inefficient fossil fuel subsidies. Yet the report finds that the government's investment in the TMP is a subsidy under both Canadian and WTO definitions as it involves direct transfers of funds (e.g., grants, loans, and equity infusion) and potential direct transfers of funds or liabilities (e.g., loan guarantees), goods and services beyond general infrastructure, and benefit of tolls below marketplace costs, thus resulting in significant foregone government revenue.  

“If Canada is serious about its climate goals, it must phase out all subsidies, including those supporting TMP, and fully align its actions with its commitments,” said Gunton. “By acting promptly, the government can relieve Canadian taxpayers of this burden and recoup its investment in TMP.”

Media Contact:

For more information or to interview Thomas Gunton, please contact Trish Tervit: trish.tervit@iisd.net