Commentary

No More Oil Industry Subsidies

I wonder how much no-emission, renewable energy infrastructure could be built for $88 Billion US?

By Jim Sweetman
Published February 11, 2016

The 2015 Paris Climate Conference (COP21) concluded last December with an agreement to limit global warming to below 2 degrees Celsius. So we must reduce our carbon dioxide emissions from the burning of fossil fuels - oil, natural gas, coal - to the level that can be continuously absorbed by the earth's ecosystems - plants, oceans and soils.

Said another way, we must reduce our burning of fossil fuels by 80 percent. And the developed countries like Canada must do this by 2050. That's 36 years from now.

The fossil fuel industry has already found 5 times more oil, natural gas and coal than we can ever burn if we have any hope of limiting global warming to below 2 degrees Celsius.

Yet they keep looking. In remote and environmentally sensitive areas all over the earth. "Ain't no mountain high enough. Ain't no river wide enough. Ain't no valley low enough" for the fossil fuel industry.

But why wouldn't they keep looking? In November 2014, The Guardian newspaper in England reported, "rich countries" - including ours - "are subsidizing oil, gas and coal companies by about $88 Billion US per year to explore for new reserves."

These companies want to keep building new infrastructure - pipelines and rail lines and roads across mountains and rivers and valleys to reach refineries and terminals. And rich countries - including ours - continue subsidizing and allowing that too.

Enough. No more fossil fuel exploration. No more new fossil fuel infrastructure. We don't need it.

I wonder how much no-emission, renewable energy infrastructure could be built for $88 Billion US?

Jim is involved with a number of local food and community service organizations. He is a retired engineer living in Dundas.

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By Shaykh (anonymous) | Posted February 11, 2016 at 13:53:55

Agreed. Unfortunately, the current short-sighted rulers of this world and the mindless consuming masses remain heedless. From scripture, "Mutual rivalry for the things of this world diverts you, until you visit your graves, ah but you will soon come to know".

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By Crispy (registered) | Posted February 11, 2016 at 20:08:19

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By z jones (registered) | Posted February 12, 2016 at 09:21:00 in reply to Comment 116501

There's this thing called the google which you can use to easily find easy-to-find information instead of ordering random strangers on the internet to do your work for you. But since you asked...

Canada's tar sands need to stay in the ground, the oil beneath the Arctic has to remain under the sea, and most of the world's coal must be left untouched in order to prevent global temperatures from rising more than 2°C, a study released Wednesday says.

...

The research, unlike other bleak assessments of the world's climate predicament, zeroes in on which regions should halt their production of coal, oil, and gas—and by how much. It comes ahead of climate talks in Paris later this year that aim to broker a new global accord to cut greenhouse gas emissions.

...

Absent a dramatic global policy shift, such as a universal tax on carbon emissions, the study seems to suggest that the 2°C goal is far out of reach.

...

In addition to abandoning more than 80 percent of current global coal reserves, the researchers say, the world should forego extracting a third of its oil and half of its gas reserves before 2050.

...

As for oil, the Middle East holds more than half the world's "unburnable" oil, according to the analysis, or 38 percent of the region's reserves. Canada would not be able to use any oil from its emissions-intensive tar sands, McGlade says, unless the energy used during production became entirely carbon free. Of the Arctic's oil he says: "That's an unburnable resource if you want to stay below 2 degrees."

http://news.nationalgeographic.com/news/...

Comment edited by administrator Ryan on 2016-02-12 09:38:01

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By Crispy (registered) | Posted February 12, 2016 at 10:11:47

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By wolf! (anonymous) | Posted February 14, 2016 at 01:07:29 in reply to Comment 116504

unfortunately for you, i guess your reputation precedes you

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By ergopepsi (registered) | Posted February 12, 2016 at 12:02:25 in reply to Comment 116504

It didn't come across as you asking politely. Sounded more like a prickish / sarcastic reply.

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By Stephen (anonymous) | Posted February 12, 2016 at 10:52:44 in reply to Comment 116504

The study was in Nature, so he can't link to it directly. You could buy a subscription. The National Geographic article seemed like a good synopsis.

The press release for the study has contact information for the actual researchers; maybe they'll speak with you (I'm not kidding- who knows).

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By z jones (registered) | Posted February 12, 2016 at 10:16:57 in reply to Comment 116504

  1. Stop trolling. 2. Stop trolling. 3. Stop trolling. 4. Stop trolling. The planet is cooking and you're playing silly games on the internet. Don't do that.

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By Crispy (registered) | Posted February 12, 2016 at 10:57:18 in reply to Comment 116505

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By z jones (registered) | Posted February 12, 2016 at 12:59:29 in reply to Comment 116508

The oil industry thanks you for your shenanigans. Future generations, not so much.

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By Well (anonymous) | Posted February 12, 2016 at 18:50:08 in reply to Comment 116510

Well, since you and I will not be here in 50 years to see if you are correct, easy for you to say.

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By Crispy (registered) | Posted February 12, 2016 at 10:51:22 in reply to Comment 116505

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Comment edited by Crispy on 2016-02-12 10:51:43

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By jim (anonymous) | Posted February 14, 2016 at 12:28:36 in reply to Comment 116506

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By Here's the thing (anonymous) | Posted February 12, 2016 at 18:53:13

Canada is a resource economy. Most of our social welfare is paid for by the sale of resources (as most of our income is derived from resources.) Net - I mean net - the resource industry brings in billions of dollars to the Canadian economy monthly. If you want to strip it and reduce GDP and therefore taxes etc., you must be prepared to live with the consequences.

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By veganeer (registered) | Posted February 16, 2016 at 13:55:38 in reply to Comment 116513

The loss of GDP argument is puzzling. The new industries of renewable energy will replace the existing industries and contribute to the GDP. We often hear the cost of renewable energy would be too high - but from a GDP perspective that would be good

The "loss of GDP will ruin out social services" argument would support the approach of not reducing smoking or car accidents - as cancer drugs, car repair and rehab all contribute to the GDP, so we should in fact encourage them.

The fact that the GDP does not count the health of our air, water and planet but does count the cost of cleaning it up, indicates that we might be better served discussing the impacts of no more oil subsidies on a more meaningful indicator - our children's future

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By CharlesBall (registered) | Posted February 16, 2016 at 16:08:25 in reply to Comment 116534

In the very long run you might be correct (but then the famous axiom is that in the long run we are all dead.)

In the present however, a very cold, wide open and resource dependent country like Canada will not be able to stand up to the rigors of the competition from cheap oil. China and India dwarf our economy. In the short run, a radical shift away from resources will beggar our economy.

What I took the commentator above to mean is not that we should not move away from the resource base, but if we do, we have to accept that we will not be able to afford the social programs we have that presently depend to a great extent upon the income derived from the sale of natural resources. With all due respect, that is not puzzling at all.

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By Here's the thing (anonymous) | Posted February 12, 2016 at 18:54:18 in reply to Comment 116513

Not most - should have said the largest single portion.

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By KevinLove (registered) | Posted February 12, 2016 at 19:29:19 in reply to Comment 116514

About 10 seconds with Google was enough to establish that the #1 source of government income is income tax.

Comment edited by KevinLove on 2016-02-12 19:30:30

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By Here's the thing (anonymous) | Posted February 12, 2016 at 20:00:11 in reply to Comment 116515

Where do the people get the income to pay the tax? Y=C+I+G+X-M Google it. National income from which taxes derive comes from where?

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By KevinLove (registered) | Posted February 12, 2016 at 19:36:42

"rich countries" - including ours - "are subsidizing oil, gas and coal companies by about $88 Billion US per year to explore for new reserves.

Kevin's comment:

And that's just subsidies for exploration for new reserves. Total G20 fossil fuel subsidies are over $450 billion.

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By DowntownInHamilton (registered) | Posted February 13, 2016 at 01:11:08

Perhaps we shouldn't subsidize any industry and let capitalism figure out who's best at business?

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By GWW (registered) | Posted February 13, 2016 at 09:48:43

I would question whether there are any subsidies in Canada for the Oil and Gas Sector. If so review a financial statement of a major oil and gas firm in Canada and identify the subsidy, or better yet, identify the specific rulings within the CRA rules that identify the subsidy. They are not there.

Definitions of what is subsidy may be an issue.

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By kevlahan (registered) | Posted February 13, 2016 at 14:05:41 in reply to Comment 116522

The subsidies are in the form of tax breaks for exploration, investment and other business activities. Some of these are even specific to the oil and gas or mining industries.

Here's a National Post discussion of the debate over whether the fossil fuel industry is subsidized or not.

http://www.nationalobserver.com/2015/09/...

Those who claim it is not subsidized don't want to count tax breaks as subsidies, even though most people would understand tax breaks on something as a way for government to encourage it by reducing its cost (i.e. a subsidy). And even the WTO defines tax breaks as subsidies!

And here's a list of some of these subsidies (in the form of tax breaks):

Canadian Development Expense ($478 million), Canadian Exploration Expense ($233 million), Accelerated Capital Cost Allowance ($300 million), Investment Tax Credit ($100 million), and Liquefied Natural Gas capital cost allowance ($50 million).

Federal and provincial governments could legally exclude the fossil fuel industry from these tax credits if they wanted to eliminate public subsidies from the fossil fuel industry. For example, the mineral exploration tax credit explicitly excludes the oil and gas industry (as well as coal).

Comment edited by kevlahan on 2016-02-13 14:34:15

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By GWW (registered) | Posted February 14, 2016 at 11:02:36 in reply to Comment 116525

Your concept of what is a subsidy is questionable. As an example for the Canadian Development Expense line item, this is a deduction for legitimate expenses incurred for drilling or completing a well, building a temporary access road to a well, preparing a site in respect to a well. These are all legitimate business expenses in the process of drilling for oil or gas. They reflect the costs associated with the business activity. Your analogy of it not being legitimate or reasonable would imply that perhaps a retailer should not be able to deduct the cost of the merchandise they purchase as a legitimate expense.

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By kevlahan (registered) | Posted February 16, 2016 at 09:57:38 in reply to Comment 116530

It's not just me: the WTO counts tax breaks as subsidies.

Not all business expenses are deductible: tax policy is full of all sorts of fine grained decisions about what is allowed and what isn't.

According to Natural Resources Canada, here is a list of "mining-specific" tax breaks:

Corporate Income Tax Provisions:

Deduction of Provincial/Territorial Mining Taxes and Royalties

Capital Cost Allowances (CCA)

Accelerated Capital Cost Allowance (ACCA)

Investment Tax Credit for Qualified Property Acquired for Use in the Atlantic Provinces and the Gaspé Peninsula (AITC)

Canadian Exploration Expenses (CEE)

Investment Tax Credit (ITC) for Pre-Production Mining Expenditures

Foreign Resource Expense (FRE) and Foreign Exploration and Development Expense (FEDE)

Canadian Development Expenses (CDE)

Canadian Oil and Gas Property Expense (COGPE)

Mine Reclamation Funds

Resource Allowance

Mining Depletion

http://www.nrcan.gc.ca/mining-materials/...

Why is there all these special tax breaks just for the mining industry? Why don't they simply use the usual deductions available to all businesses? These industry specific tax breaks are designed to encourage and promote the mining industry. Why should we be subsidizing the fossil fuel industry through specific tax breaks?

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/s...

The subsidies are clear when we are considering tax breaks specifically for the mining industry.

The government could decide to disallow certain tax breaks for the fossil fuel industry, or claw them back by adding additional carbon taxes (which would work out to the same thing). The tax regulations are constantly fine tuned to encourage or discourage certain behaviours. The argument is that the tax code should not be encouraging production of something we are trying to discourage and that is harmful. Does the tobacco industry still have special tax breaks?

Comment edited by kevlahan on 2016-02-16 10:03:27

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By GWW (registered) | Posted February 16, 2016 at 19:00:02 in reply to Comment 116532

Business expenses, are by definition are deductible, if not deductible they are not an expense. Some costs are capitalized, hence the CAA deductions. If the government is wishing to encourage an activity the may be accelerated CCA. Nobody in the business world or having an understanding of accounting would consider these subsidies.

I can empathize with the intent to make fossil fuel production less desirable, to reduce CO2, but in the long run there will be consequences. There will be either higher prices for certain products, or lower wages in certain sectors, or a combination of both and transfer of jobs overseas, if there is not universal regulation, or a taxing system for the implicit CO2 production buried in every product or activity.

If all our power was solar at a feed in price of 80 cents per KWH, most consumers would face an increase of close to 600 to 800 percent, cost of food production, and most consumer goods would also jump.

At the end of the day, all business activity, ultimately is a consequence either directly or indirectly of consumer consumption, and if you wish to change consumption behaviour it needs to taxed or charged accordingly. Raise the price of gas, or tax larger vehicles, increase the costs of heating for homes and buildings. When mandarins from Spain or salads from California cost two or three times what they do today, less will be shipped to Canada, and less CO2 will be produced.

I suspect Canadians will face a drop in our standard of living in order to meet a CO2 level that results in not exceeding a 2 degree celsius temperature rise. The bigger issue is, are all the nations on earth willing to do this together?

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By KevinLove (registered) | Posted February 17, 2016 at 01:19:34 in reply to Comment 116538

"Nobody in the business world or having an understanding of accounting would consider these subsidies."

Nobody except professional accountants, some of whom contribute to Raise The Hammer. Professional accountants who require the difference between accounting depreciation and government CCA subsidies to be reported as deferred taxes.

And if you don't think deferred taxes are a subsidy, then you surely would not mind making me an interest-free loan.

Comment edited by KevinLove on 2016-02-17 01:23:27

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By CCA (anonymous) | Posted February 17, 2016 at 07:54:43 in reply to Comment 116539

CCA is determined by the government. It possibly could be seen as a subsidy but the differing treatment the CRA uses to assign to differing inputs is mostly based on the business nature of the input. Take computers for example. When they first came out the CCA was greater than 5 years I believe. The government saw them to be like typewriters which lasted 20 years. It was reduced largely because business found that they were replacing items in a shorter span than the then assigned CCA. CCA is supposed to reflect economic reality.

Since you are an accountant, you know that income is revenue - expenses (or inputs). To a person trying to maximize income for tax purposes, you want to reduce the inputs so spreading the expense out over time as opposed to allowing the expense in the year it is spent looks like a subsidy. But to the person who has to buy the input, it looks like a cost of doing business and nothing like a subsidy. This is not just semantics.

Now the government is considering negative interest rates so not spending your money is going to be seen as a subsidy and you will pay not to take an interest free loan. How you use the word depends on who you are. No person of business sees the CCA issue as about subsidization. They see it as about minimizing taxes. Subsidy implies that the government is entitled to your labour before you exercise your labour. It is a bad word.

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By kevlahan (registered) | Posted February 17, 2016 at 09:29:35 in reply to Comment 116540

I can understand why businesses don't like to think of tax breaks as subsidies, but economically they certainly are. And in modern economies the term "subsidy" certainly includes post-tax subsidies.

There are many types of subsidies, for example see

https://www.iisd.org/GSI/subsidy-types

They include direct grants, tax concessions, in-kind subsidies, cross subsidies, credit subsidies and government guarantees (e.g. low interest loans), hybrid subsidies, derivative subsidies, subsidies through government procurement, market price support.

It is not reasonable to claim only a cash grant counts as a subsidy. That is not the way economists or governments or international financial organizations like the IMF define subsides.

Here's a world bank paper discussing the tricky question of how to evaluate fossil fuel subsidies:

http://blogs.worldbank.org/developmentta...

Which explicitly includes specific tax concessions for fossil fuels. Is the World Bank wrong as well?

How you use the word should not depend on who you are. Subsidy has a well defined meaning in economics. To claim the IMF, the World Bank, the government of Canada, the profession of economics etc. etc. are not using the term subsidy properly is clearly a losing battle!

Comment edited by kevlahan on 2016-02-17 09:30:33

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By GWW (registered) | Posted February 21, 2016 at 15:39:14 in reply to Comment 116541

You or and none of the other readers have identified any subsidies in a Canadian context. I repeat legitimate business expenses are not a subsidy. Please identify which tax deductions do not reflect an underling expenditure by a corporate entity. I have been involved in a small business for over 40 years, and have yet to see anything that looks like a subsidy. Yes, there may be deferred taxes, but that only reflects differences in timing and reflects differences from a tax perspective compared to an accounting perspective.

If you tell me of a potential subsidy, I would love to be able to use it!

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By kevlahan (registered) | Posted February 22, 2016 at 10:26:07 in reply to Comment 116593

That's your point of view, but it is not one shared by the government of Canada, the WTO, the World Bank etc.

When the oil industry has specific advantageous tax breaks and treatments that other industries cannot benefit from, these are subsidies to this industry compared with others.

Here's one example:

accelerated capital-cost writeoffs recently extended to the proposed liquefied natural gas plants

And I gave you a long list of other mining-industry specific tax breaks. If these are not available to all businesses, at the same rates and with the same conditions, they are subsidies. Surely you understand that there are all sorts of rules about which "legitimate business expenses" can be deducted, at what rates, and what rates capital depreciation is calculated.

The former Conservative government pledged to scale back fossil-fuel subsidies at a Group of 20 meeting in Pittsburgh in 2009, and did cut some tax incentives for the oil sands.

http://www.theglobeandmail.com/report-on...

I'm pretty sure the Conservative government would have not have pledged to eliminate subsidies if there weren't any! Even the oil industry executives quoted in the article admit they receive special tax subsidies, but justify the special fiscal treatment in terms of the capital intensiveness and risk of the industry.

The article quotes an oil executive claiming, not that they don't receive any subsidies, but that are not net receivers of subsidies (i.e. they pay more in tax than they receive in subsidies).

CAPP’s Mr. Brunnen noted the industry paid $18-billion in federal, provincial and municipal taxes and royalties last year, and can hardly be considered to be a net beneficiary of subsidies.

So we can add the Canadian Association of Petroleum Producers (CAPP) to the long list of groups that agree that the industry receives tax subsidies!

Comment edited by kevlahan on 2016-02-22 10:41:31

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By KevinLove (registered) | Posted February 16, 2016 at 15:00:37 in reply to Comment 116532

Does the tobacco industry still have special tax breaks?

Tobacco farming in Ontario is a government regulated monopoly with the Ontario Flue-Cured Tobacco Growers' Marketing Board issuing licences without which tobacco cannot legally be grown. I also note that in 2008, tobacco farmers got a $300 million bailout to exit their failing industry.

Lots of companies in many industries went bankrupt in 2008. Not too many got $300 million on their way out.

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By kevlahan (registered) | Posted February 16, 2016 at 16:56:31

The International Monetary Fund also has a report on energy subsidies and estimates Canada's total subsidies to the Petroleum products, natural gas and coal industries at 3.96% of total government revenues in 2011 or 1.52% of GDP.

These are "post-tax subsidies", i.e. taxes "below their efficient level". Canada does not have pre-tax subsidies according to this report.

The report notes that "Energy subsidies are pervasive and impose substantial fiscal and economic costs in most regions." and that "Removing these subsidies could lead to a 13 percent decline in CO2 emissions and generate positive spillover effects by reducing global energy demand."

http://www.imf.org/external/np/pp/eng/20...

Comment edited by kevlahan on 2016-02-16 17:02:54

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By TreyS (registered) | Posted February 18, 2016 at 03:01:52

So I guess these climate geniuses can somehow stop the planet from spinning 25,000 mph a day, stop the planet from revolving around the Sun every 365 days and wobbling on an 19-22 degree axis. Make that stop and then maybe climate change will stop.

Comment edited by TreyS on 2016-02-18 03:24:41

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By TreyS (registered) | Posted February 18, 2016 at 03:13:11

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By TreyS (registered) | Posted February 18, 2016 at 03:20:55

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