Fueling Change: The journey to end fossil fuel subsidies in Canada

It may have taken 14 years but what a feeling it was to finally hear the words: “We're eliminating subsidies to produce fossil fuels in Canada.” 

Delivered at a press conference in Ottawa, Canada, by Canadian Federal Environmental Minister Steven Guilbeault, that sentence was the culmination of more than a decade of behind-the-scenes work by Canadian climate organizations to end subsidies supporting domestic oil and gas production. This was an important step forward and a long-awaited landmark towards eliminating support for fossil fuels. 

In front of a group of reporters and government officials, Guilbeault took a moment to acknowledge the efforts of those who worked so hard for this achievement, including IISD and Environmental Defence. 

The Government of Canada’s guidelines on inefficient fossil fuel subsidies are the first transparently published conditions that will be used to prevent any new measures that would constitute inefficient fossil fuel subsidies. A subsidy is a financial benefit that the government gives, usually to a specific business, group or industry. This new policy builds on Canada’s commitment in 2022 to end new direct public support for the international unabated fossil fuel energy sector under the Glasgow Statement.  

Where it started... 

The journey to this seminal decision began in 2010—at least for the organizations determined to tackle the relatively unexplored, but at the time very controversial, topic of government fossil fuel subsidies. It was at this time that IISD launched a ground-breaking report: Untold Billions: Fossil-fuel subsidies, their impact and the path to reform. 

The report examined the extent of fossil-fuel subsidies, their impact on climate change, and the challenges to reforming them in Canada. It was a critical component of a much broader effort at IISD to map the scope and role of fossil-fuel subsidies in the world economy.  

“It was the first major piece of research to focus on fossil fuel subsidies in Canada,” says Philip Gass, Interim Co-Director, Energy and Lead, Energy Transitions for IISD, “and it was quite contentious at the time. We were criticized for it and were told that we didn’t understand the impact that ending subsidies would have on jobs. We were even getting angry phone calls.” 

But the issue was becoming increasingly important to Canadians, so Gass and his team persisted.  

In 2015, IISD launched a series of initiatives revolving around fossil fuel subsidies with a specific focus on Canada. Experts compiled regular inventories of fossil fuel subsidies at the provincial and federal level and combined these with webinars and public engagement focused on increasing awareness of the economic and climate change-related impacts of subsidies, along with technical advice on how Canada could meet its G7 and G20 commitments on fossil fuel subsidy reform. These endeavours also aimed to convince the government that continuing to provide subsidies would undermine any climate measures it was considering. 

“Our argument was that continuing to have fossil fuel subsidies while introducing policies like carbon pricing was like bailing water out of a leaking boat, without fixing the leak itself.  You never really get to the root of the problem” said Gass. “Fossil fuel subsidies prevent carbon pricing from being fully effective.” 

After eight more years of work on the topic, the team at IISD was happy to see the new policy this summer. It’s a significant advancement, but there’s still more work to be done.  

Where should Canada go from here? 

The focus now, says Laura Cameron, Policy Advisor with IISD, will be on understanding how the framework gets interpreted and implemented. In creating the framework, the government identified 129 subsidy measures, but these haven't yet been made public. How the guidelines in the policy are applied will determine how effective it is in ensuring no further subsidies are introduced. 

Cameron is also hoping to see a mechanism for accountability. It’s not clear who is going to make sure the rules are being followed across government departments. 

And there remains a big gap in current policies: domestic public financing for fossil fuels. Along with the subsidies framework, the government announced they would introduce a plan to end domestic public financing for fossil fuels by fall 2024. This is an essential next step because the majority of Canada’s financial support for fossil fuels is through public financing. IISD is pushing to have that plan released this year. Environmental Defence estimates about CAD 19 billion in financing for fossil fuels has come from the Federal Government in 2022. 

IISD applauded the framework in a public statement, pointing out that one of its key strengths is the adoption of the World Trade Organization's definition of fossil fuel subsidies. Canada's notable contribution lies in its establishment of a comprehensive definition of inefficiency, thereby bringing some transparency to a term that has clouded the subsidies conversation for over a decade. This clarity plays a crucial role in guiding the classification and eventual elimination of subsidies, encompassing direct transfers, foregone revenue, transfer of risk, and provision of goods and services. 
 
However, the definition of inefficiency still allows for support of “abated” fossil fuel production for projects that include emissions reduction measures, such as carbon capture and storage in the oil and gas sector and fossil-derived hydrogen. A recent report by IISD, Persistent High Costs of CCS: Implications for Canada's Oil and Gas Sector, provides new analysis that shows it is unlikely the costs of CCS will decline significantly over time: the technology is too complex, it demands too much customization with each application, and it is improbable that it will capture the benefits of mass manufacturing in the way technologies such as solar PV have.  

The fossil fuel subsidy framework allows for exemptions in six categories: enabling significant carbon emissions reductions, supporting clean energy, providing essential energy to a remote community or short-term support for an emergency response, supporting Indigenous participation in fossil fuel activities or are projects that have a credible plan to reach net-zero by 2030. 

IISD will actively monitor and advocate for the government to reform these exemptions, while ensuring that conditions are implemented in a transparent manner aligned with Canada's climate commitments. The ultimate goal, simply put, is to completely phase out all fossil fuel subsidies and redirect support towards renewable energy. 

Responses by other organizations for the framework also pointed out its shortcomings. Julia Levin, associate director of Environmental Defence, issued a statement saying that the framework marks an important step forward but there are still loopholes in the guidelines to be addressed. Political opponents in the Canadian government said the framework did not go far enough and did not meet the urgency of the moment regarding climate disasters.  

But despite some criticisms, the framework represents meaningful progress. 

“This is a significant step forward and sets a strong example for Canada’s G20 peers,” says Cameron. “But gaps in the framework mean public money could continue to flow toward oil and gas production at a time when the country must swiftly move to renewable energy. With these gaps closed, Canada can ensure public funds are truly advancing climate solutions.”