Photo: Greenpeace/John Woods

After two years of stimulus spending and years of tax cuts, Canada’s debt has ballooned to $56 billion. Now the Harper government is sharpening the axe. Who will feel the cut? Given the Conservative’s position on social spending, they will likely focus on provincial transfers that support healthcare and social welfare.

Meanwhile, the federal government subsidizes oil companies to the tune of $1.4 billion every year, according to the International Institute for Sustainable Development (IISD). It’s more if you factor in other fossil fuels such as coal. If the government is looking for ways to pay down the debt, ending fossil fuel subsidies in the 2011-12 budget is a good place to start.

It’s not as if fossil fuel companies need public handouts, which together with provincial subsidies amount to $2.84 billion. According to the Climate Action Network Canada, companies with tar sands investments have combined annual revenues of more than $1.2 trillion. Of these revenues, more than $1.1 trillion belong to foreign-owned companies. In 2010, Fortune magazine ranked five of these companies as being among the top 10 largest in the world.

The bulk of these subsidies come in the form of special tax breaks and royalty reductions. The rest include loan guarantees and indemnification programs, as well as footing the bill for infrastructure that supports the industry.

According to a recent IISD report, government balances are actually worse off with the subsidies which are intended to increase exploration. The reason for this imbalance is that the subsidies have a negligible effect on job creation. While government support for the industry generates revenue from corporate taxes there is very little in the way of labour taxes, a major source of government income. As a result, the federal government’s balance is lower by one per cent.

While contributing to Canada’s massive debt, these subsidies lead to massive ecological damage as well. In addition to destroyed ecosystems and polluted fresh water and air, the subsidies alone will contribute to a two percent increase in Canada’s greenhouse gases by 2020, according to the IISD.

Imagine rather than supporting rich oil companies, the government continued with the now defunct EcoENERGY Retrofit — Homes program, which offered grants to homeowners who weatherized their drafty houses. The federal government’s approximate $460-million investment in this four-year-old program generated hundreds of thousands of grants in support of participants who had their homes insulated and EnerGuide windows and doors and solar hot water heaters installed.

According to a 2010 Natural Resources Canada (NRC) report to Parliament, the EcoENERGY program helped participants reduce their annual energy consumption by about 23 per cent and greenhouse gas emissions by approximately 3.4 tonnes (t) per house per year.

At a fraction of the cost of subsidizing big oil, investing in home energy efficiency not only helped our country reduce greenhouse gases and domestic heating costs, it gave local businesses and contractors work — work that simply cannot be outsourced to China.

Why would the government end such a program, which it abruptly did in March 2010, and yet continue to give massive handouts to an industry that clearly doesn’t need it? The answer may lie in the fact that oil and gas meetings with elected officials account for nine per cent of all lobbying since July 2008, more than any other single industry or civil society lobby.

Countering this pressure from fossil fuel companies to retain these subsidies, a number of agencies such as the Organization for Economic Co-operation and Development (OECD) and the International Energy Agency (IEA) have urged world governments to end these fossil fuel handouts. During the 2009 G20 Summit in Pittsburg, President Barack Obama led G20 countries, including Canada, to commit to phasing out “over the medium term inefficient fossil fuel subsidies.”

In a statement, the G20 countries acknowledged that “inefficient fossil fuel subsidies encourage wasteful consumption, distort markets, impede investment in clean energy sources and undermine efforts to deal with climate change.”

A leaked memo dated May 2010 and penned by senior Department of Finance officials presented the government with two options on Canada’s G20 commitment. Either initiate the immediate phase-out of these subsidies, which the officials recommended, or adopt a “minimize the commitment” strategy which would account for already committed minor subsidy reductions and expired and eliminated subsidies.

The Harper government chose the latter option.

The Climate Action Network, with the support of the Citizens Climate Lobby, is urging the government to honour its G20 commitment and begin phasing out subsidies to fossil fuel companies in the next 2011-12 budget, which will be announced later in March.

We ask organizations to sign an open letter to the prime minister and Jim Flaherty, the minister of finance, and that citizens write to the prime minister and finance minister, as well as their members of parliament, urging the immediate phase out of these subsidies. To learn more, click here.

Ending these subsidies will be one step toward creating a truer market price for fossil fuel, which will prompt greater efficiencies in extraction and production and encourage investment in clean energy development. It will also free up considerable money that can be much better spent elsewhere.

Cheryl McNamara is a volunteer group leader of the Citizens Climate Lobby in Toronto.