N.L. included in challenge to oil and gas subsidies
Posted on February 24, 2022 | By Ashley Fitzpatrick | 0 Comments
The International Institute for Sustainable Development (IISD), an independent think tank based in Winnipeg, has come out swinging against public subsidies for oil and gas production and use in Canada, including subsidies in Newfoundland and Labrador.
The IISD has over 150 full-time staff, associates and consultants around the world, charitable status in Canada and the United States and counts the Government of Manitoba among its supporters. In a report released last week—“Blocking Ambition: Fossil fuel subsidies in Alberta, British Columbia and Saskatchewan”—it asks provinces to “step up” in the phase out of fossil fuels.
Specifically, the report calls for Canadian provinces to not create any new subsidies for fossil fuels, increase transparency on subsidies and align with federal targets to phase out fossil fuel subsidies by next year. Along the way, it takes a rare run at actually quantifying the subsidies coming from the provinces.
The counts cover any direct transfers of public money from provincial coffers, but also the larger contributors of tax breaks and royalty reductions used to incentivize exploration and production. The result? The IISD team identified $765.3 million as subsidies provided in B.C. in fiscal year 2020-21, $1.32 billion in Alberta, $409.3 million in Saskatchewan and $82.6 million in Newfoundland and Labrador in the same time period. All amounts are in Canadian dollars.
The report also states an amount-to-date for subsidies for each province for the current fiscal year; Newfoundland and Labrador’s subsidies increased to $94.7 million as of the end of December 2021.
“Overall, these large numbers indicate that provinces are diverting significant public funds to incentivize fossil fuel production that may not otherwise occur, and provincial governments are missing out on millions in uncollected royalty and tax revenue from fossil fuels,” the report states.
The IISD report also flags different pathways for the funding, affecting both producer and consumer behaviours, from Alberta’s contributions towards carbon capture utilization and storage projects (CCUS) projects; to Saskatchewan’s fuel tax exemptions, including those for natural gas used for heating; to some of Newfoundland and Labrador’s carbon pricing exemptions and funds to companies through the province’s Innovation and Business Development Fund.
Speaking with Atlantic Business Magazine, IISD policy advisor and report co-author Vanessa Corkal said it’s not about the pandemic. She highlighted changes made to the Terra Nova project’s royalty structure, valued at $300 million over the lifespan of the project and the province’s new Offshore Exploration Initiative.
“Evidence shows that is not the best use of public dollars,” she said, saying every dollar spent on retaining oil and gas production is also an opportunity cost, as it could more directly speed the energy transition, climate-related mitigation measures and addressing other changes in economy and society. “But also, we should be abiding by the polluter pays principle,” she said.
The IISD says—reiterating an issue also raised in a 2021 ABM report—discussions of emissions-reducing measures like electrification of offshore production facilities does not address the downstream and final emissions from oil and gas. Citing the International Energy Agency and Stockholm Environmental Institute, it states new fossil fuel developments are not in line with meeting climate change goals.
However, the report does not offer any answers on how the province might address the real financial and social consequences from cuts to jobs or total returns from the oil and gas sector. And that remains a central point for individuals working within the industry, politicians and many other people in the province who support the industry’s continued production locally, particularly in the absence of any clear alternative for both public finances and private sector health.
“The Newfoundland and Labrador offshore oil and gas industry has provided tens of thousands of jobs and billions of dollars in revenue to Newfoundland and Labrador and Canada over the last two and a half decades,” stated Noia, the provincial offshore oil and gas industry association, in response to the report.
According to the Government of Newfoundland and Labrador, direct employment in the industry was about 4,000 person years in 2020, representing about 1.9% of total employment in the province. The majority of industry employment referenced by Noia is in supply and service companies, with varying degrees of dependency on oil and gas sector contracts, but legitimate thought across the board to how the loss of oil and gas work will affect business.
“Noia recently advocated for the offshore oil and gas industry to help it recover from the global pandemic and the collapse of oil prices. The industry remains grateful for the support provided during that challenging time as it helped maintain skilled workers and substantial benefits for Canada and Newfoundland and Labrador. A significant portion of that funding has also been allocated to help lower the industry’s carbon emissions—which are already some the lowest in the world—and plan for our net zero industry of the future.”
Industry references to emissions from oil in Newfoundland and Labrador do not include all downstream emissions (as the oil is used).
Before the Omicron wave, the oil and gas sector proved its resilience and ability to bounce back from pandemic challenges. A report on the oil and gas sector in Canada, issued by Statistics Canada’s economic analysis division in July 2021, showed that by April of last year, the industry’s employment had returned to 95.7% of pre-pandemic levels, with exports actually moving beyond those levels.
“However, capital expenditures in the industry have been declining since 2014. Capital outlays fell by 55% from 2014 to 2019 and then by another 36% in 2020. Looking ahead, Canada’s oil and gas extraction industry still faces some challenges despite the recovery of oil prices, such as uncertain near-term energy demand because of the potential for new waves of the pandemic, the cancellation of Keystone XL, carbon pricing and increasing demand for clean energy, which may prevent capital spending in the industry from rebounding,” stated the report.
This month, the proposed, new Bay du Nord offshore oil development has made headlines. It began with a Radio-Canada report, describing divisions in the federal Cabinet over approval for the project. Provincial Progressive Conservatives called for an emergency return to the provincial House of Assembly for debate on the topic. While the decision that sparked outrage is a federal one, provincial Progressive Conservative leader David Brazil suggested the back and forth in the House would be the path to developing a clear voice from the province, calling for the project’s release and go-ahead from all levels. Both Brazil and the PC’s Energy critic Lloyd Parrott emphasized the employment and government revenues from a Bay du Nord Project. “It’s about jobs and it’s about our future,” Parrott said.
In the House of Commons, Conservative MP for Coast of Bays-Central-Notre Dame, Clifford Small, questioned Environment Minister Jonathan Wilkinson on “when the Bay du Nord Project will be approved.” Wilkinson said the project was subject to environmental assessment and the process will continue. Liberal MP for St. John’s East Joanne Thompson had already called for “united support” for the project, saying she stands with the Newfoundland and Labrador federal Liberal caucus. And in the midst of reactions, Newfoundland and Labrador MP Ken McDonald called in to popular radio show Open Line on VOCM and spoke with host-of-the-day Tim Powers. In the discussion, he referred to the project and oil production as, “the sole saviour of the local economy in Newfoundland and Labrador.”
When it comes to the Bay du Nord process, Cabinet member and MP Seamus O’Regan asked for calm. “There is a regulatory process that is in place,” he said, while dismissing the Radio-Canada report.
“What has happened so far is utterly and totally keeping with the (review) process,” he said.
Find more on the Bay du Nord project in the next issue of Atlantic Business Magazine. The Power Issue is available March 1.
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