G20 countries spend $450B a year on fossil fuel subsidies, study says

It's being called the "fossil fuel bailout." A new report from an environmental advocacy group says G20 countries subsidize the fossil fuel industry to the tune of $450 billion a year, undermining efforts to deal with climate change.

Countries promised in 2009 to phase out 'inefficient' fossil fuel subsidies — but progress has been slow

The processing facility at the Suncor oilsands operations near Fort McMurray, Alta. A new report from Oil Change International finds that G20 countries are spending $452 billion US a year subsidizing their fossil fuel industries. (Todd Korol/Reuters)

This column is part of a package of special coverage of climate change issues by CBC News leading up to the United Nations climate change conference (COP21) being held in Paris from Nov. 30 to Dec. 11.

G20 countries are spending $452 billion US a year subsidizing their fossil fuel industries and are undermining the world's effort to combat climate change in the process, according to a new international report by an environmental advocacy group.

"It's quite a shocking amount. I think we were surprised the scale of the subsidies is so great," said study co-author Alex Doukas, who is senior campaigner with Oil Change International.

"We're subsidizing companies to search for new fossil fuel reserves at time when we know that three-quarters of the proven reserves have to stay in the ground if we hope to avoid the worst impacts of climate change," said Doukas in an interview from Washington.

"So paying companies to find more fossil fuels is folly."

It's the first time annual subsidies from all G20 countries have been added up and individually analyzed.

It shows that Canada's total federal and provincial support for the petroleum industry was close to $2.7 billion US ($3.6 billion Cdn at current exchange rates) in the 2013-14 fiscal year, with federal subsidies accounting for roughly $1.6 billion US of that. 

The report says at least another $2.5 billion US of taxpayers' money also goes to petroleum companies working in other countries through Export Development Canada "and may be significantly higher."

Canada both a 'leader and a laggard'

Despite that, the report calls Canada one of the leaders in efforts to end subsidies for fossil fuels — sort of.

It points out that a number of subsidies to oil, gas and mining companies are in the process of being phased out, including special help for the oilsands that ended in January 2015. 

On the other hand, this country has ramped up taxpayer help for the fledgling liquefied natural gas (LNG) industry.

Canada has removed some producer subsidies and they've added new subsidies for fossil fuels ... that's why we see Canada as having both a leader and a laggard position.- Alex Doukas, Oil Change International

"Canada has removed some producer subsidies and they've added new subsidies for fossil fuels," said Doukas. "So it's a bit of give and take, and that's why we see Canada as having both a leader and a laggard position."

The document, titled "Empty Promises: G20 subsidies to oil, gas and coal production," was produced jointly by Oil Change International, an advocacy group focused on moving the world away from fossil fuels, and the Overseas Development Institute, the U.K.'s leading independent think-tank on international development and humanitarian issues.

The report uses government documents and research by independent think-tanks to look at the scale of fossil fuel production subsidies and how much taxpayers' money plays a role.

All G20 countries financially support their petroleum industries to some extent. Subsidies include everything from tax breaks for exploration and purchasing equipment, to royalty breaks and direct spending on projects from government-owned banks and financial institutions.

Cranes work in the water at the Kitimat LNG site near Kitimat, in northwestern British Columbia, on April 13, 2014. A new report says Canada is a laggard on fossil fuel subsidies because it has ramped up financial support to the liquefied natural gas industry. (Reuters)

"The scale of the G20 fossil fuel production subsidies calls into question the commitment of governments to an ambitious deal on climate change," warns the report, pointing out the subsidies are more than three times higher than what the world has spent on renewable energy.

Subsidies reduce financial risk, industry says

Canada's petroleum and mining companies have long argued they need government supports to stay competitive in a high-risk exploration industry.

The Canadian Association of Petroleum Producers echoed those sentiments when presented with the findings of the Oil Change report, and defended government initiatives as crucial to the industry's continued success.

However, CAPP argues that supports, such as the Canadian Development Expense (CDE) and the Canadian Exploration Expense (CEE) — which allows companies in the mineral and oil and gas industries to deduct all expenses related to the exploration of a resource for income tax purposes — are not subsidies.

"Instead, they are part of the fiscal framework intended to provide a globally competitive investment regime that attracts investment, creates jobs, generates government revenues, and benefits all Canadians," Chelsie Klassen, a spokeswoman for the organization, wrote in a statement to CBC News.

Giant earth-moving equipment in the Syncrude oilsands mining operations near Fort McMurray, Alta. The Canadian Association of Petroleum Producers says tax breaks that help defray the financial risk of exploration and development are not subsidies. (Todd Korol/Reuters)

"Compared to other industries, the petroleum industry is up-front and capital-intensive. Significant sums of money need to be spent on exploration and development before revenues begin to be realized."

Subsidies can also play a big part in helping junior oil and gas companies get off the ground or to help them invest in developing countries.

G20 agrees to subsidy phase-out

In 2009, G20 countries promised to phase out "inefficient" fossil fuel subsidies.

The report recommends that G20 countries set hard phase-out targets at the leaders' conference in Turkey next week. It's also being released to coincide with the start of the UN climate conference in Paris Nov. 30.

Justin Trudeau vowed to end subsidies for the fossil fuel industry during the last federal election campaign. (Darryl Dyck/Canadian Press)

"I think the G20 leaders haven't really felt the heat on this and hopefully this report will help put a spotlight on just how much they are spending," said Doukas, adding he's hopeful the new Liberal government could help push that change.

In his election platform, Prime Minister Justin Trudeau pledged his government would end fossil fuel subsidies.
Doukas hopes Trudeau sticks to his promise. 

"It's a huge opportunity for Canada to regain its position in the world as a leader on climate and environmental issues."


  • This story has been updated from a previous version that misstated the title of the report as "Fossil Fuel Bailout." In fact, it is "Empty Promises: G20 subsidies to oil, gas and coal production." A previous version also misstated CAPP's position on subsidies. In fact, CAPP says it does not see income tax and royalty tax programs for the industry as subsidies.
    Nov 12, 2015 10:25 AM ET