Fossil Fuel Subsidies
Opening Statement to the Standing Committee on Environment and Sustainable Development
Fossil Fuel Subsidies
(Report 7—2017 Spring Reports of the Auditor General of Canada)
14 June 2017
Commissioner of the Environment and Sustainable Development
Madame Chair, thank you for this opportunity to discuss our spring 2017 report on fossil fuel subsidies. Joining me at the table is Andrew Hayes, the Principal responsible for the audit.
This audit report is part of a suite of audit reports that will be presented to Parliament in 2017 that pertain to the tools that the federal government has to help Canada reduce greenhouse gas emissions and meet its international commitments. This fall, audit reports will be tabled on climate adaptation, climate mitigation, and funding for clean energy technology.
As well, in early 2018, a collaborative report on climate change prepared with the provinces and territories will be tabled.
In 2009, Canada and the other G20 countries officially recognized that inefficient fossil fuel subsidies
- undermine efforts to deal with climate change,
- encourage wasteful energy consumption,
- reduce energy security, and
- impede investment in clean energy sources.
As a result, the G20 countries committed to phase out these inefficient fossil fuel subsidies, and they have reaffirmed this commitment every year since.
It is also worth mentioning that in September 2015, members of the United Nations, including Canada, adopted the sustainable development goals, otherwise known as the 2030 Agenda. One of the targets under these goals is to phase out harmful fossil fuel subsidies in a manner that protects the poor.
Our audit focused on whether Environment and Climate Change Canada and the Department of Finance supported Canada’s G20 commitment to phase out and rationalize inefficient fossil fuel subsidies while providing targeted support for the poorest.
Finance Canada is responsible for the tax side of the commitment, while Environment and Climate Change Canada is responsible for the non-tax side.
To begin with, we asked the departments to explain how they defined the G20 commitment, including what is meant by “inefficient fossil fuel subsidies,” “rationalize,” and “support for the poorest.”
A clear definition is important for a couple of reasons. First, each G20 country was left to define what an inefficient fossil fuel subsidy is in the context of the country’s national circumstances. Second, without a clear interpretation of the meaning of the commitment, the departments cannot identify the inefficient fossil fuel subsidies that should be considered for phase-out or rationalization.
We found that the departments did not define what the G20 commitment means in the context of Canada’s national circumstances.
On the non-tax side, Environment and Climate Change Canada’s responsibility began with the November 2015 mandate letter from the Prime Minister. The non-tax side of the commitment is important, as it covers things like government grants and contributions; government loans or loan guarantees at favourable rates; government intervention in markets to lower prices; and research and development funding.
Our audit found that Environment and Climate Change Canada did not yet know the extent of non-tax measures that could be inefficient fossil fuel subsidies. However, in February 2017, the Minister approved a plan with timelines to identify these measures and to interpret the G20 commitment.
On the tax side, the Department of Finance approached the commitment by focusing on identifying tax measures that are specific to the production or consumption of fossil fuels and that provide a preference to taxpayers. We found, however, that the Department did not consider a number of tax measures that applied specifically to the oil, gas, and mining sectors.
We also found that the Department of Finance did not have an implementation plan to support the phase-out and rationalization of tax measures that are inefficient fossil fuel subsidies.
During the audit, the Department of Finance refused to provide us with information we needed to conclude on whether the Department analyzed the social, economic, and environmental aspects of tax measures related to the fossil fuel sector.
Recently, the government introduced an order-in-council that should give us access to budget information in the future.
We have sent a letter to the Department of Finance asking for the information that it did not provide to us during the audit. At this point, we are waiting to see what the Department will give us. Once we have that information, we will determine what it means for our work.
Until the Department of Finance and Environment and Climate Change Canada complete the work we identified in the audit, we cannot provide assurance that Canada will meet its G20 commitment.
Meeting this commitment is important. It will have a positive impact on the health of Canadians and the environment by reducing greenhouse gas emissions and wasteful consumption of fossil fuels, and by encouraging investments in clean energy.
Madame Chair, this concludes my opening remarks. We would be pleased to answer any questions the Committee may have. Thank you.