Thank you very much, Mr. Chair.
Ladies and gentlemen, thank you very much for having me here today. The main message of my presentation focuses on accountability—accountability to present and future Canadians, as well as to the international community.
We have heard strong pronouncements from government about taking action on climate change, but when we get to the real indicator of action, the finances, we see a system of subsidization and tax breaks that does not match the rhetoric. The Canadian development expense program, the Canadian exploration expense program, and the accelerated capital cost allowance bring together a system of subsidization that is not only unnecessary, given the profitability and growth of the oil sector, but one that is also irresponsible, in that the programs are counterproductive to the goal of reducing greenhouse gas emissions. It is time that words be matched with action. It is time for accountability.
Because many environmental goods and services, such as carbon sequestration through the maintenance of our forests, are not generally valued or traded in Canadian markets, we fail to provide appropriate signals that might otherwise contribute to efficient allocation and sustainable resource use. The 2001 Nobel Prize in Economics winner Joseph Stiglitz emphasizes that these services must be accounted for through mechanisms such as carbon emissions trading so that these environmental services are recognized by the market, and so that the maintenance of ecosystem integrity and the benefits generated therefrom can be rewarded. Without such mechanisms, even if they are aware of the services provided by ecosystems, they're neither compensated for providing these services, nor penalized for reducing them.
The OECD defines “subsidy” as “any measure that keeps prices for energy consumers below market levels or for energy producers above market levels, or that reduces costs for consumers or producers”. The International Energy Agency defines “energy subsidies” as “any government action that concerns primarily the energy sector that lowers the cost of energy production, raises the price received by energy producers or lowers the price paid by energy consumers”.
Economic and financial interventions are powerful means to regulate the use of environmental goods and services. In their worst form, subsidies can substantially increase rates of resource consumption and increase negative externalities.
In its recommendations to lessen the severity of these problems, the UN millennium ecosystem assessment stressed the need for the elimination of perverse subsidies that promote excessive use of environmental services and the reallocation of these subsidies to payments for non-marketed environmental services. These sorts of recommendations are not new. In 2004, the OECD called on Canada to systematically review its environmentally harmful subsidies in sectors such as energy, and to phase out environmentally harmful subsidies, including subsidies in the form of tax incentives for the resource-based economic sectors. Moreover, under the Kyoto Protocol, Canada committed itself to implementing measures for the progressive reduction or phasing out of subsidies in all greenhouse-gas-emitting sectors.
Today, the federal government is unfortunately going in the opposite direction, through its subsidies to the oil industry. Not only do these actions not account for the value of the environmental goods and services lost due to the destruction of the boreal forests above the tar sands, they provide dramatic incentives for the acceleration of greenhouse gas emissions through high-emissions-intensity tar sands oil extraction and through consumption of the oil produced from these activities. Instead of accounting for environmental goods and services, we are rewarding their neglect.
In his recent report for the U.K. Treasury, former World Bank chief economist Nicholas Stern addressed the issue of the cost of increasing greenhouse gas emissions and the issue of energy subsidies. He emphasized that these subsidies “are a source of economic distortion and loss” providing “a strong historical bias toward the more polluting fuels.”
Investors, operators, and consumers in a liberalized energy market should face the full cost of their decisions, but this is not the case in the Canadian energy sector. Federal subsidies distort the market in favour of existing fossil fuel technologies despite the greenhouse gas and other negative externalities that they create. As noted by Stern, these subsidies compound failures to internalize the environmental externality of greenhouse gases and affect the incentive to innovate by reducing the expectation of innovators that their products will be able to compete with existing choices. They also detract investment from more sustainable energy supplies and conservation initiatives.
Canada has signed and ratified the Kyoto Protocol, committing this country to reduce its greenhouse gas emissions by 6% below 1990 levels by 2008 to 2012. However, ladies and gentlemen, as you well know, our emissions have increased dramatically since that time, and we need to take more effective action.
Since 1997, when the Kyoto Protocol was created, the federal government has spent more than two dollars in tax subsidies to oil companies for every one dollar spent on meeting its Kyoto targets. Canadian oil and gas companies have been making billions of dollars in record profits over the past several years, yet these companies annually collect about $1.4 billion in government subsidies.