In a groundbreaking move, Canada has taken a significant step towards eliminating inefficient fossil fuel subsidies by releasing a comprehensive framework. This achievement makes Canada the first G20 country to fulfill its commitment, made in 2009, to rationalize and gradually withdraw government support for the fossil fuel sector.
The newly unveiled framework has been met with mixed reactions from climate policy analysts. While many view it as a positive step forward, some critics argue that it falls short of expectations by allowing continued government support for oil and gas projects that aim to reduce emissions through carbon capture and storage (CCS) technologies.
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Federal Environment Minister Steven Guilbeault highlighted that the framework targets existing tax measures and 129 non-tax measures but clarified that ongoing multi-year subsidy agreements already in place will not be canceled. However, the exact dollar value of the subsidies affected and a comprehensive inventory of the subsidies covered have not been published by the government.
Minister Guilbeault emphasized that the ultimate goal of the framework is to ensure that federal support for oil and gas is channeled solely into projects that actively contribute to decarbonizing the sector and significantly reducing greenhouse gas emissions.
Notably, the framework outlines six categories in which fossil fuel activities will be exempt. These exemptions apply to projects that enable significant carbon emissions reductions, support clean energy, provide essential energy to remote communities, offer short-term emergency response support, promote Indigenous participation in fossil fuel activities, or have credible plans to achieve net-zero emissions by 2030.
This move towards eliminating fossil fuel subsidies is a part of the agreement forged in 2022 between Prime Minister Justin Trudeau's minority Liberal party and the New Democratic Party (NDP). The NDP, however, criticized the new rules, arguing that they do not address the urgency of the current climate crisis.
Laura Cameron, a policy advisor for the International Institute of Sustainable Development, commended the framework for adopting the internationally recognized World Trade Organisation's definition of a subsidy. Still, she expressed concern about the continued support for oil and gas projects that plan to utilize CCS technology.
Canada, as the world's fourth-largest oil producer, has high hopes for CCS technology in the industry's decarbonization process. Last year, the country introduced a CCS investment tax credit. Notably, the Pathways Alliance, comprising Canada's six largest oil sands producers, is developing a C$16.5 billion ($12.53 billion) CCS hub in northern Alberta. The organization expressed satisfaction that the framework recognizes the need for government partnership in their project.
On the other hand, environmental campaigners from Environmental Defence criticized the framework for not encompassing public financing of fossil fuel projects through government-owned crown corporations, such as the loan guarantees for the C$30.9 billion Trans Mountain pipeline expansion project. Ottawa has, however, revealed plans to unveil a separate framework aimed at phasing out public financing of fossil fuel projects within the next year.
