Canada Ban on Fossil Fuel Tax Breaks to Target Measures That Boost Production

(Bloomberg) -- Canada will propose long-awaited measures to end some fossil fuel subsidies this month, becoming the first country in the Group of 20 to make the move, its environment minister said.

Canada and other G-20 countries committed in 2009 to phase out “inefficient” fossil fuel subsidies but did not set a deadline. In 2016, Canada, the US and Mexico promised to complete the process by 2025, but Prime Minister Justin Trudeau’s government has since accelerated its timeline to this year. 

The government will ban subsidies that “help the production of fossil fuels,” Environment Minister Steven Guilbeault told Bloomberg News during an interview in Brussels, where he is co-hosting an international ministerial meeting on climate action. “Canada will no longer support subsidies that directly aim at the oil and gas sector and give the sector an advantage in comparison to other sectors.” 

Guilbeault gave few specifics but said money for technologies such as capturing and storing carbon dioxide — which aim to catch emissions before they enter the atmosphere — will still be allowed. 

Canada’s major oil producers and Trudeau’s government are staking their climate goals on carbon capture and storage systems. The government has pledged C$12.4 billion ($9.4 billion) in tax credits for the technology until the middle of the next decade. 

“In Canada, oil and gas companies need to ramp up their decarbonization efforts, especially when they are making record-level profits,” Guilbeault said.

Canada gave support exceeding C$20 billion ($15.2 billion) last year to the oil and gas sector, according to the International Institute for Sustainable Development, which said subsidies accounted for a significant portion of that total. 

The Canadian Association of Petroleum Producers, however, has argued the sector is not subsidized. Standard tax deductions used by companies in all sectors should not be called subsidies, the group says, and they don’t give oil and gas an unfair advantage over other industries. 

Guilbeault announced separately on Wednesday that Canada will contribute C$450 million to the United Nations Green Climate Fund, which helps developing countries facing the worst impacts of climate change. The pledge is a 50% increase over Canada’s 2019 pledge, but will fall within the C$5.3-billion that Trudeau’s government earmarked for climate finance in 2021.

©2023 Bloomberg L.P.