Report Suggests Path to Phase Out Canadian Fossil Subsidies by 2023

This article was published first in The Energy Mix on February 20, 2022.

Canadian government policies should be geared toward preparing industries and citizens to thrive in a low-carbon economy, concludes a new assessment of the country’s current approach to phasing out fossil fuel subsidies.

“Whereas the debate has tended to focus on what does or doesn’t constitute a subsidy, we think it’s more important to assess all government spending to ensure it’s getting us where we need to go,” report author Rachel Samson, director of clean growth at the Canadian Institute for Climate Choices (CICC), said in a release.

Canada has committed to phasing out “inefficient fossil-fuel subsidies that encourage wasteful consumption” by 2023. However, governments and industry are interpreting this commitment narrowly to defend measures that support increasing fossil fuel production and consumption, according to Cutting to the Chase on Fossil Fuel Subsidies, CICC’s new report.

Investments in the fossil fuel industry are becoming increasingly risky as demand for oil and gas declines, the analysis shows. Government policies will strongly influence how the industry is affected by this market change, but the CICC suggests avoiding the typical government approach of trying to insulate affected industries from changing circumstances. Instead, “impacted sectors and regions will ultimately be better off with strategies that help them prepare for, and thrive in, the emerging low-carbon economy,” the institute says.

“Companies, communities, and workers will have a better chance of succeeding through transition with support for adjustment to new market realities,” said report co-author Peter Phillips, an expert panelist with the institute. “It’s not possible to insulate workers from long-term, structural shifts.”

The report identifies four criteria that governments can use to evaluate public spending to align with the suggested strategy, including consistency with the global low-carbon transition, value for money, employment outcomes, and policy fit. After applying the criteria to  existing and proposed fossil subsidies, CICC concludes with four recommendations, starting with a proposal that oil and gas companies pivot their economic strategies and decarbonize their assets to support success in the changing market.

The institute also calls on provinces and territories to reform fossil fuel subsidies and work towards social and economic goals, using “tools that better support long-term prosperity and job creation.” There will also need to be a clear decision-making framework for public investment in emission-reducing projects and technologies, based on future market conditions and the risk of stranded assets.

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