Thank you for the opportunity to appear before the committee.
I am a professor in resource and environmental management at Simon Fraser University. I've also held senior positions in various provincial governments, including assistant deputy minister of energy and mines, deputy minister of finance and deputy minister of environment.
I will begin my remarks with a brief overview of fossil fuel subsidies, followed by a more detailed review of the subsidy for the Trans Mountain pipeline. I will then conclude with a few recommendations.
As the committee is no doubt aware, Canada has made a commitment to phase out fossil fuel subsidies at a number of meetings and in the mandate letter for the Minister of Environment and Climate Change. Despite these commitments, we still provide significant subsidies in Canada, with estimates for 2020 ranging from between $4.4 billion and $86 billion. The lower end of the range is an underestimate because it omits a number of subsidies. The upper range includes environmental costs.
While there's a wide variation in definitions and methodologies, these estimates show that fossil fuel subsidies are significant. The evidence also shows that we have not made significant progress in reducing these subsidies. According to the OECD, the subsidies provided in Canada by federal and provincial governments in 2020 were at the highest levels over the last five years. We have rated last, along with France, among the 11 largest OECD countries in terms of reducing subsidies.
I would now like to focus on the Trans Mountain pipeline as an example of a subsidy. The Trans Mountain subsidy is not included in any of the estimates provided. In 2013, Trans Mountain submitted its application to increase the capacity of the pipeline to ship oil from Alberta to Burnaby, British Columbia. It was approved by the federal government in 2016 and again in 2019 after rehearing. In 2018, Kinder Morgan announced that it was suspending construction of TMX due to increasing financial risks. In response, the Government of Canada purchased the pipeline in 2018. When Canada purchased Trans Mountain, the official estimate of the costs of building the pipeline were $7.4 billion. Recently, in 2022, these cost estimates were increased to $21.4 billion.
Currently, the tolls approved by shippers on Trans Mountain are set to cover capital costs of just the $7.4 billion, plus approximately 25% of any additional capital cost increases. What this mean is the toll revenues will not cover the remaining 76% of the cost overruns, which are estimated to be about a subsidy of $10.6 billion to the oil company shipping on TMX. This is a very significant subsidy.
Tolls on other oil pipelines in Canada are set to fully cover costs with no government subsidies. Consequently, providing this subsidy on Trans Mountain creates an unlevel playing field among different pipeline companies and oil companies. It stimulates higher oil production and GHG emissions by reducing shipping costs, and it poses a significant opportunity cost by consuming public funds that could otherwise be used in other ways.
We completed a cost-benefit study of Trans Mountain, including all the costs and benefits to Canada, and our conclusion was that there was a net cost in the range of $8.3 billion to $18.5 billion. That was with the old capital costs. We're in the process of updating that with the new capital cost numbers of $21.4 billion. Those costs to Canada are going to be in the range of $15 billion to $25 billion.
Let me conclude by outlining a couple of recommendations for dealing with fossil fuel subsidies.
First, we need a comprehensive inventory of the value of all fossil fuel subsidies using the WTO subsidy definitions. This inventory should include an evaluation of the subsidies relevant to government objectives, such as reducing GHG emissions.
Second, we need to publish an action plan to eliminate these subsidies. It should include milestones and who is responsible.
Third, we need to provide for independent monitoring and annual public reporting to assess compliance with the plan and identify remedial actions to stay on course. This plan should include the elimination of the subsidy to TMX by directing Trans Mountain, which is owned by the government, to apply to the Canada Energy Regulator for approval of tolls to cover the TMX full cost of service.
I'll conclude by saying that with these measures, we will be able to deliver on our commitment to phase out fossil fuel subsidies.
Thank you.