Report 7—Fossil Fuel Subsidies
Audit at a Glance Report 7—Fossil Fuel Subsidies
What we examined (see Focus of the audit)
Fossil fuels are a non-renewable source of energy, including coal, oil, and natural gas. While playing an important role in Canada’s economy, they have a negative impact on the environment, because when burned, they produce carbon dioxide, a significant greenhouse gas that contributes to climate change.
As a member of the Group of 20 (G20), Canada officially recognizes that inefficient subsidies for fossil fuels undermine efforts to deal with climate change, encourage wasteful energy consumption, reduce energy security, and impede investment in clean energy sources.
This audit focused on whether the Department of Finance Canada and Environment and Climate Change Canada, in a manner consistent with their respective roles and responsibilities, supported Canada’s 2009 G20 commitment to phase out and rationalize inefficient fossil fuel subsidies while providing targeted support for the poorest.
Why we did this audit
This audit is important because while fossil fuels play an important role in Canada’s economy, their consumption is the main source of greenhouse gas emissions. Fossil fuels also have a negative impact on the health of Canadians. Furthermore, inefficient subsidies to the fossil fuel sector encourage wasteful consumption, undermine efforts to address climate change, and discourage investment in clean energy sources.
What we concluded
We could not conclude whether the Department of Finance Canada supported Canada’s 2009 G20 commitment to phase out and rationalize inefficient fossil fuel subsidies while providing targeted support for the poorest. The Department refused to provide us with all documents that may contain analyses to support decision making. According to the Department, these documents are Cabinet confidences that it could not provide to us. As a result, we could not provide assurance to Parliament that the Department conducted the analyses required to support informed decision making.
We concluded that Environment and Climate Change Canada developed a plan to support Canada’s 2009 G20 commitment. However, the Department did not yet implement its plan.
What we found
Supporting the phase-out of inefficient fossil fuel subsidies
Overall, we found that the Department of Finance Canada and Environment and Climate Change Canada did not define what the 2009 G20 commitment to phase out and rationalize inefficient fossil fuel subsidies means in the context of Canada’s national circumstances.
We found that since 2009, six subsidies to the fossil fuel sector were reformed by legislation. Other tax measures for this sector were not reformed. We also found that the Department of Finance Canada did not consider all tax measures to determine whether they were inefficient fossil fuel subsidies under the commitment. The Department also did not develop an implementation plan with timelines to support the phase-out and rationalization by 2025 of remaining tax measures that are inefficient fossil fuel subsidies.
In addition, the Department of Finance Canada refused to provide all the analyses that we requested for tax measures that focus on the fossil fuel sector. As a result, we could not provide assurance that the Department analyzed the social, economic, and environmental aspects of all these tax measures to support informed decision making relating to Canada’s 2009 G20 commitment.
We also found that while Environment and Climate Change Canada developed a plan to guide the initial stages of its work, it did not yet know the extent of federal non-tax measures that could be inefficient fossil fuel subsidies.
These findings matter because without a clear understanding of the fossil fuel subsidies covered by the G20 commitment and without an implementation plan with timelines, the departments cannot ensure that they are providing the support needed for Canada to meet the commitment by 2025. Meeting this commitment will have a positive impact on the health of Canadians and the environment by reducing greenhouse gas emissions and wasteful consumption of fossil fuels, and by encouraging investments in clean energy.
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Recommendation. To support Canada’s G20 commitment to phase out and rationalize inefficient subsidies to the fossil fuel sector, the Department of Finance Canada and Environment and Climate Change Canada should clearly define how the commitment will be interpreted in the context of Canada’s national circumstances.
Recommendation. The Department of Finance Canada and Environment and Climate Change Canada should ensure that adverse impacts on the poorest are considered when supporting decisions to phase out and rationalize inefficient fossil fuel subsidies.
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The Department of Finance Canada did not provide all of its analyses for tax measures
Recommendation. We made no recommendations in this area of examination.
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Recommendation. The Department of Finance Canada should complete an analysis of all tax measures that apply to the fossil fuel sector, including benchmark income tax measures, to support the phase-out and rationalization of inefficient fossil fuel subsidies.
Recommendation. The Department of Finance Canada should develop a plan with timelines that outlines the actions that the Department will take to support the phase-out and rationalization by 2025 of remaining tax measures that are inefficient fossil fuel subsidies.
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Recommendation. We made no recommendations in this area of examination.
Entity Responses to Recommendations
The audited entities agree with our recommendations and have responded (see List of Recommendations).
Related Information
| Report of the | Auditor General of Canada |
|---|---|
| Type of product | Performance audit |
| Topics | |
| Entities | |
| Completion date | 28 February 2017 |
| Tabling date | 16 May 2017 |
| Related audits |
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