Trudeau Liberals end oil and gas subsidies for international projects, cite domestic support for fossil fuels as 'problematic'

The Trudeau Liberals have made do on a promise to end government subsidies for fossil fuel investments abroad. Instead, they will prioritize clean energy projects to promote a "climate-safe future."

At COP26 in Glasgow, Scotland, Natural Resources Minister Jonathan Wilkinson signed the Statement on International Public Support for the Clean Energy Transition ending new support for the international unabated fossil fuel energy sector by the end of 2022. Canada made this commitment alongside 38 other countries and institutions and was one of only three major energy producers.

The new policy applies to all federal departments, Crown corporations and public agencies but will target Export Development Canada (EDC) in particular. The agency within the Ministry for International Trade currently has $2.5 billion in committed financing for international fossil fuel projects, which Natural Resources Canada confirmed it would not renew.

The policy will apply to all oil and gas operations outside of Canada, regardless of where the company is headquartered — but will exclude decarbonization projects for existing fossil fuel facilities, such as carbon capture and storage (CCS) technology, which must limit global heating to 1.5°C, and fossil fuel projects required on 'national security grounds.'

"Canada is taking another step toward becoming a clean energy and technology supplier of choice in a net-zero world," said Wilkinson, who applauded his government for delivering on its international climate commitments.

The Trudeau Liberals fulfilled a commitment announced in this year's federal budget to eliminate certain tax deductions for resource expenses related to oil, gas and coal activities in 2023. EDC plans to continue scaling its annual financing for clean technology to grow investment from $6.3 billion in 2021 to $10 billion by 2025.

International Trade Minister Mary Ng commented that EDC is "well ahead of the curve" in supporting Canadian businesses to navigate fast-changing, sustainable global markets while remaining competitive. "By working together across Canada and with our international trade and investment partners, we can ensure a better future for all."

In this year's federal budget, Ottawa announced the elimination of certain tax deductions for resource expenses related to oil, gas and coal activities in 2023 and planned to reduce nine other subsidies being phased out.

"The [policy is] distinct from and does not pre-determine the Government of Canada's future domestic framework on fossil fuel subsidies," said the natural resources department. "The government recognizes that work must also be done to eliminate inefficient fossil fuel subsidies domestically and commits to eliminating additional significant fossil fuel subsidies early in 2023."

However, most public financing for fossil fuels currently supports the domestic activity. A new Leger poll for Second Street confirmed that Canadians want to help. The poll of 1,535 Canadians found 72% of respondents either 'somewhat' or 'strongly' supported developing and exporting more oil and natural gas resources to displace Russian crude.

Over the next seven to 10 years, Canada could offset upwards of 59% of Russia's annual natural gas exports and 46% of its crude oil exports, amounting to 7.72 billion cubic feet per day (BCF/D) and 1.85 million barrels per day (BPD), respectively.

In 2022, the Trudeau Liberals provided up to $18.429 billion in traceable support to oil and gas companies. But, they lost $150 billion in energy investment opportunities from 2015 to 2020, which would have generated taxes, jobs and businesses for the domestic economy.

A Fraser Institute survey indicated, "the federal government's stance on petroleum production has definitely deterred investment," citing "an overall hostility to petroleum companies in Canada that is very palpable in Eastern Canada." Its respondents criticized the country's inability to build pipelines and handle land claim disputes for "deriding the oil and gas sector."

Analysts have previously warned that the policy could drive up the cost of capital for oil and gas companies seeking to develop new projects. Russia's invasion of Ukraine caused disruptions to global energy supplies, further compounding the problem.

But the International Energy Agency (IEA) claimed that energy efficiency and renewable energy investments would solve the current energy crisis, not new fossil fuel investments. The impacts of this policy will directly shift $38 billion globally each year from fossil fuels to clean energy and direct considerable sums of public and private money from fossil fuel investments.

"Canada is one of the worst fossil fuel financiers in the G20," said Julia Levin, national climate program manager with Environmental Defence. "We're top one or two, so it's incredibly important for our climate commitments to stop bankrolling oil and gas projects wherever they happen."

Levin said her biggest remaining concern was project exemptions based on "national security, including ensuring the energy security requirements of Canada or an ally" — an exemption she suggested supporters of LNG export projects would exploit. "We have to continue to ensure the government isn't using these loopholes to violate or undermine what is a really strong policy."

Levin concludes: "The science is very clear. The International Energy Agency has been clear that financing fossil fuel is incompatible with limiting temperature rise to 1.5 degrees."