Image credit: A processing unit is shown at Suncor Fort Hills facility in Fort McMurray, Alta., on Monday September 10, 2018. THE CANADIAN PRESS/Jason Franson

Phasing out fossil fuel subsidies aligns Canada’s economic policy with its climate goals

Governments should ensure future support only goes to projects that help Canada compete in a world moving rapidly toward net zero.

OTTAWA — Jonathan Arnold, Clean Growth Research Lead with the Canadian Climate Institute made the following statement in response to the federal government’s announcement about the future of fossil fuel subsidies in Canada:

“Phasing out government subsidies for increased fossil fuel production is an essential step toward aligning Canada’s economic policy with its climate goals. This is the first time Canada has created a framework for distinguishing efficient and inefficient subsidies. This new policy will enable a renewed focus on emissions reductions and economic growth.

“Overall, the framework announced today strikes a positive balance. It will help ensure that any existing or new support for the fossil fuel sector is aligned with Canada’s climate goal of keeping global temperature rise to below 1.5C degrees. It provides a clear focus on supporting clean technology and clean energy, and also includes safeguards for the energy needs of rural, remote, and Indigenous communities. 

“Leveraging public funding to unlock rapid reductions in oil and gas emissions involves a delicate balancing act. On one hand, recent analysis from the Canada Energy Regulator shows global demand for oil and gas could drop dramatically if the world acts fast to reach net zero emissions. 

“Since production could be substantially constrained by international market forces, governments should proceed cautiously, given the risk associated with investing taxpayer dollars into projects that could become stranded assets amid declining global demand. A dollar spent on fossil fuels is a dollar less for projects and technologies like renewable energy that will be important for maintaining competitiveness as the global energy transition accelerates.

“On the other hand, there are cases where temporary government support for initiatives like carbon contracts for difference, or carbon capture utilization and storage, makes sense to drive emissions down at the speed that is required. The production of oil and gas in Canada accounts for over a quarter of Canada’s total greenhouse gas emissions. Without swift, transformative action to reduce emissions, Canada is unlikely to meet its 2030 or 2050 climate targets.

Today’s announcement demonstrates the need for a rigorous framework that would make sure public dollars only go to projects that are genuinely aligned with Canada’s long-term economic and climate goals.  It also shows why Canada needs to adopt the proposed climate investment taxonomy—supported by the country’s 25 largest financial institutions—to give governments clear guidance, ensuring resources only go to projects that reduce emissions and improve the sector’s long-term competitiveness as global demand shrinks. 

“By investing only in projects that contribute to Canada’s transition to a prosperous, net zero economy, the federal government can make the most of limited public dollars to lower emissions, protect jobs, and help Canada stay competitive in a changing global economy.”


Defining fossil fuel projects by climate impact is critical

5 big questions about Canada’s new Climate Investment Taxonomy

Cash-flow modelling shows carbon capture and storage can help meet climate goals


Julien Bourque
Senior Policy Analyst
Canadian Climate Institute
(514) 292-9005