Fossil Fuel Subsidies at Different Levels of Government
- Traditionally when we discuss fossil fuel subsidies the focus is at the federal level with tax breaks that are provided to the fossil fuel sector. It is challenging to know how much is actually provided to the fossil fuel sector in tax breaks as federal and provincial governments haven't transparently reported on how much they really provide in fossil fuel subsidies. Canada ranked last among 11 OECD countries, however, on progress in ending fossil fuel subsidies.
- In addition to subsidies there is also the issue of direct governmental fossil fuel funding provided by the federal government. For example in 2023, the Government of Canada provided at least $18.5 billion in financial support to fossil fuel companies. Including $8 billion in loan guarantees for Trans Mountain pipeline, $7.4 billion in public financing through Export Development Canada and over $1.3 billion for carbon capture and storage projects.
- Over the last 4 years, the federal governments financial support to the oil and gas industry was at least $65 billion.
- The climate pollution created by the oil and gas sector has massive costs including health care, property damage from extreme weather, decreased agricultural outputs is estimated at $52 billion.
- https://environmentaldefence.ca/wp-content/uploads/2024/03/Canadas-Fossil-Fuel-Subsidies.pdf
- Ultimately it is municipalities that often must pay the price for climate impacts based on their responsibilities related to local infrastructure affected by extreme weather. Fossil fuels are the primary cause of those costs.
- There are some significant provincial fossil fuel subsidies that are resulting in the continuation of investments in fossil fuels and subsidization of fossil fuel infrastructure to meet people's energy needs, even when there are other cost effective, lower carbon and easily accessible opportunities.
- The December 2023 decision by the Ontario Energy Board to eliminate the Enbridge fossil fuel subsidy to have the rate base pay for bringing fossil fuel infrastructure to low rise residential new developments is an example of a fossil fuel subsidy that the OEB decided has significant stranded asset risks to the rate base. The OEB determined that the risk of stranded assets needs to be brought into infrastructure decisions making rather than forcing the rate base to pay for that infrastructure and take on the risk of that standard asset.
- It takes from 40 - 60 years for the customer to pay back the rate base for that infrastructure cost. If that customer isn't on the rate base for those 40 - 60 years then the rate base has to accept that infrastructure cost liability. All fossil fuel infrastructure investments within the fossil fuel system are paid for by the rate base. Paying for new electricity infrastructure (or any other infrastructure for that matter) are applied to the development itself following the principle that growth should pay for growth. This highlights the unequal playing field between how we cost out electricity infrastructure and fossil fuel infrastructure. Without addressing this infrastructure cost subsidy it is likely that developers will continue to use fossil fuels without considering other options, especially when fossil fuel infrastructure is free to them and they have to pay for electricity allocation and any electricity system upgrades.
- Ontario needs to develop a more objective method for identifying a fairer approach for costing out energy infrastructure and decisions to identify the different options and their pros an cons from a variety of perspectives rather than just resorting to the fossil fuel solution. Which is our present status quo.
- What is an Energy Decision Matrix? Comparison of costs re: fossil fuel use, geo-exchange, heat pumps, efficiency improvements, renewable energy, storage. Both up-front and operating costs.
- Identification of pros and cons, and costs and benefits associated with each of these scenarios, and the development of an objective decision matrix for comparison
- The application of different lenses to these decisions, including resilience, climate, economic, social, market transformation, etc.
- Example of application of an Energy Decision Matrix: Phase 2 of the Natural Gas Expansion Program taken from a Province of Ontario press release.
- Phase 2: $234 million for 8,750 connections. Comes to $26,742 per connection.
- Estimated to save customers an estimated $250-$1500 per year ($2.2 million - $13 million in energy costs (this is based on natural gas costs in 2022). The press release did not provide any info on how many would save 250 and how many are estimated to save 1500$. So this means pay backs are just bookends. At $250/year that comes to a 106 years pay back; and at $1500/year a 17 year pay back
- Subsidized on the Ontario wide rate base, estimated at $1 per month from ALL natural gas customers - not just those within those newly connected communities. How might have efficiency, geothermal, heat pumps, net metering, etc. compared re costs and benefits of reducing electricity costs for these customers?
- There are also some fossil fuel subsidies forced upon municipalities, with an example being how Ontario municipalities are requires to provide Enbridge with free access to the municipal right of way and the province has provided Enbridge with the right to abandon fossil fuel infrastructure in the municipal right of way.
- Other provinces enable municipalities to collect payment for use of the municipal right of way by utilities. For example, Kelowna, Highlands, Nanaimo, and Nelson charge 3% of all gas revenues.
- Municipalities authorized to enter into franchise agreements with utilities in return for exclusive rights to provide a service within the municipality. The fees can be up to 35% of delivery revenues to compensate the City for direct costs, restrictions on planning and development due to utility rights of way, as well as inherent risks related to utility access. Ex. Edmonton charges 32.9% , which represents $60M, or 5.3% of the City's annual operating revenues ($61/capita)
- In Saskatchewan, all urban municipalities have the authority to implement a 5% access fee to gas utilities in exchange for municipalities giving up the right to establish their own natural gas distribution systems. Regina earns $5.6 million annually ($24/capita)
- Winnipeg applies a 2.5% sales tax on natural gas for domestic purposes and 5% for other than domestic purposes = $22M, ($29/capita).
- Halifax receives an access fee of 2% of the total natural gas revenues.
- To correct this fossil fuel subsidy forced upon municipalities, there would need to be a MMAH ministerial direction to remove O. Reg 584 and then the Minister of Energy would need to direct the OEB to review and update the model franchise agreement and include payments for use of the municipal right of way. 5% of revenues is recommended.
- There would also be the need to amend section 101 to remove the ability for the gas utility to abandon old equipment in the municipal right of way.
- Municipalities are requested to identify if their municipality charges Enbridge property taxes for pipelines in the municipal right of way.
- Ontario municipalities are also encouraged to have staff identify the costs to the municipalities to have fossil fuel pipelines in the right of way.
- There is a sample resolution for Ontario municipalities to use for advancing this discussion in their councils and there is a franchise agreement backgrounder that can be shared with staff internally.
- There are significant concerns across municipalities relating to the ability of Enbridge to abandon pipelines in the municipal right of way.