Fossil Fuel Subsidies; Tax Subsidies for Fossil Fuels—Department of Finance Canada; Non-Tax Subsidies for Fossil Fuels—Environment and Climate Change Canada

Opening Statement to the Standing Committee on Finance

Fossil Fuel Subsidies

(Report 7—2017 Spring Reports of the Auditor General of Canada)

Tax Subsidies for Fossil Fuels—Department of Finance Canada

(Report 3—2019 Spring Reports of the Commissioner of the Environment and Sustainable Development)

Non-Tax Subsidies for Fossil Fuels—Environment and Climate Change Canada

(Report 4—2019 Spring Reports of the Commissioner of the Environment and Sustainable Development)

10 March 2020

Andrew Hayes
Deputy Auditor General
and Interim Commissioner of the Environment and Sustainable Development

Mr. Chair, thank you for this opportunity to appear before your committee to discuss our audit reports on fossil fuel subsidies. Joining me at the table is Heather Miller, the Principal who was responsible for our most recent audits on this subject.

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 can have a negative impact on the environment and on the health of Canadians.

In 2009, Canada and the other G20 countries committed to phase out and rationalize inefficient fossil fuel subsidies. In November 2015, the Prime Minister instructed the Minister of Finance and the Minister of Environment and Climate Change to work together to fulfill our G20 commitment and phase out subsidies for the fossil fuel industry over the medium term. In June 2016, Canada committed to phasing out inefficient fossil fuel subsidies by 2025.

The Department of Finance Canada was responsible for identifying the tax measures covered by the commitment, while Environment and Climate Change Canada managed the process to identify non-tax measures.

We recently presented 3 reports on this issue: 1 in 2017 and 2 in 2019. The audits examined whether Finance Canada and Environment and Climate Change Canada supported decision-making in order to meet Canada’s commitment to phase out inefficient fossil fuel subsidies.

In 2017 and 2019, we asked the departments to explain how they defined “inefficient fossil fuel subsidies” and whether they had identified inefficient tax and non-tax subsidies. Without a clear definition, the departments cannot identify which fossil fuel subsidies are inefficient and which should be considered for phase-out.

In 2017, we found that the Department of Finance Canada had not defined what an inefficient fossil fuel tax subsidy was, nor could the department tell us how many there were. At the time, we could not provide assurance that the department analyzed the social, economic, and environmental aspects of all tax measures to support informed decision making.

As a result, we followed up on this issue in 2019 and found that the Department of Finance Canada did not have a clear and meaningful definition of inefficient. We also found that, although some tax subsidies for fossil fuels were eliminated, the department’s assessments focused almost exclusively on fiscal and economic considerations. It did not consider how economic, social, and environmental factors, which are the components of sustainable development, were integrated into the decision making on fossil fuel subsidies over the short, medium, and long terms.

I would like to turn now to Environment and Climate Change Canada. In 2017, the department developed a plan to guide the initial stages of its work. However, it did not know the extent of federal non-tax measures that could be inefficient fossil fuel subsidies. In 2019, the department’s work to identify inefficient non-tax subsidies for fossil fuels was still incomplete and not rigorous.

The department considered only 23 of more than 200 federal organizations to compile an inventory of potential non-tax subsidies. The department did not include all regulatory organizations with mandates in the fossil fuel sector, nor did it include all research-granting organizations or publicly funded projects. In our view, this is partly because the department used unclear definitions to guide its determinations.

Without having clear definitions of inefficient fossil fuel subsidies and without providing decision makers with advice that is based on complete assessments, the departments cannot ensure that they are providing the support needed for Canada to meet its commitment by 2025.

The Department of Finance Canada and Environment and Climate Change Canada did not agree with our 2019 recommendations to clarify their definitions of inefficient. However, Environment and Climate Change Canada did agree with our 2 other recommendations on the identification and assessment of potential subsidies.

Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have. Thank you.