Fossil Fuel Subsidies

Opening Statement to the Standing Committee on Public Accounts

Fossil Fuel Subsidies

(Report 7—2017 Spring Reports of the Auditor General of Canada)

24 October 2017

Michael Ferguson, Chartered Professional AccountantCPA, Chartered AccountantCA
Fellow Chartered Professional AccountantFCPA, Fellow Chartered AccountantFCA (New Brunswick)
Auditor General of Canada

Mr. Chair, thank you for this opportunity to present the results of our spring 2017 audit of fossil fuel subsidies. Joining me at the table is Andrew Hayes, the Principal who was responsible for the audit.

In 2009, Canada and the other group of twentyG20 countries committed to phase out and rationalize inefficient fossil fuel subsidies while providing targeted support for the poorest.

Our audit focused on whether Finance Canada and Environment and Climate Change Canada supported this commitment.

Finance Canada is responsible for the tax measures covered by the commitment, while Environment and Climate Change Canada is responsible for the non-tax measures.

We asked the departments to explain how they defined the G20 commitment, particularly 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 commitment, the departments cannot identify which fossil fuel subsidies are inefficient and should be considered for phase-out or rationalization.

We found that Finance Canada still had not defined what an inefficient fossil fuel subsidy was, nor could the Department tell us how many inefficient fossil fuel subsidies there could be.

Finance Canada focused on certain preferential tax measures that are specific to the production or consumption of fossil fuels. We found, however, that the Department did not consider a number of other potentially preferential tax measures that also applied specifically to the production and consumption of fossil fuels.

We also found that Finance Canada did not have an implementation plan to meet Canada’s 2025 deadline to identify, phase out, and rationalize tax measures that it considers to be inefficient fossil fuel subsidies.

Environment and Climate Change Canada’s responsibility for non-tax measures began with the November 2015 mandate letter from the Prime Minister. Non-tax measures include 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 know the extent of non-tax measures that could be inefficient fossil fuel subsidies. The detailed action plan that the Department provided to this Committee contains timelines to identify these non-tax measures and to interpret the G20 commitment.

Until Finance Canada 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.

When we presented this audit report for tabling in Parliament, I stated that Finance Canada did not give us its analyses of the social, economic, and environmental aspects of the tax measures that it considered, and that we needed this information to do our work. Therefore, I was not able to provide Parliament or Canadians assurance about Finance Canada’s work on this file.

This past May, the government issued an order-in-council that is intended to give us access to budget information. In June, we asked Finance Canada for the information that it did not give us during the audit. A week later, Finance Canada gave us 139 pages of budget briefing notes.

However, it was only this past Friday that Finance Canada gave us the other information that we asked for, including unredacted strategic environmental assessments and other documents that contain explanations, analyses of problems, or policy options.

In May, I indicated that we were working with the Privy Council Office to try to find a mutually acceptable arrangement to ensure that we get access to the information that we need to conduct our audits. While we have had a number of discussions with the Privy Council Office, a solution has not been reached.

We are pleased, however, to report that Finance Canada and Environment and Climate Change Canada agreed with our recommendations and have prepared action plans to address them.

Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the Committee may have. Thank you.