Oil and gas companies get massive federal tax breaks, despite increasing greenhouse gas emissions

Toronto Star: October 5, 2006

A group of men shuffles forward, heads bowed. They blow warm air into their cupped hands to fight the biting cold. They are waiting for their regular government handout. In a nation of so much wealth, the scene is at once moving and curious. And yet the men seem grateful, perhaps because they have a friend in government who defends them against taxpayers demanding they be taken off the dole. As you step closer you are surprised to recognize the men. They are all captains of industry — top executives in Canadian oil and gas companies who made a record $31 billion in profit last year while collecting about $1 billion in federal handouts.

Guess which part of this scene is actually fiction.

No, it isn’t the oil and gas companies’ profit figures. Last year they made a combined $31.3 billion in profits. Their profits continue to skyrocket. Imperial Oil alone made $3.1 billion in profit over the last 12 months, up 53 per cent from the previous 12 months. It is the 5th most profitable company in Canada. Petro-Canada did okay, too, with a $2 billion profit for the same period. And Shell Canada managed to pull through with a $1.99 billion profit.

No, it isn’t the fact of generous federal handouts. The companies get a cool $1.4 billion annually according to a detailed study by the Pembina Institute, based on department of finance data.

The handouts are in the form of tax breaks that deprive federal coffers at the expense of regular taxpayers. Much of the money goes to oil sands companies even though their developments are the single biggest contributor to Canada’s increasing greenhouse gas (GHG) emissions.

Last week the auditor general raised the alarm about the dramatic increase in GHG emissions from the oil and gas industry. Six years earlier she found that oil sands companies were receiving significant tax concessions.

And no, it isn’t the fact that these executives have a loyal friend in government. Finance Minister James Flaherty has refused calls to eliminate the tax breaks despite the fight against climate change, which the auditor general calls “one of the greatest challenges of our time.”

Ontarians remember Flaherty as a member of the Common Sense Revolution during the reign of premier Mike Harris. One of the goals of the revolution was to “restore hope for people by breaking the cycle of dependency.” The government moved quickly with deep cuts to welfare rates and welfare entitlement for individuals.

Give up?

The oil and gas executives don’t actually have to stand in line. They don’t even have to send their chauffeurs to pick up the federal booty. They just have their accountants do the math to calculate the federal largesse.

So why aren’t oil and gas companies being helped to break their own “cycle of dependency?”

Oil and gas companies have certainly had time to wean themselves from government support. Over the last three decades the industry has received more than $40 billion in subsidies — a nice push start for any fledgling enterprise.

These companies aren’t even being asked to take responsibility — another key lesson of the Common Sense Revolution — for their massive GHG emissions, which increased by 50 per cent since 1990, compared to a 27 per cent increase for all sources combined.

There is an obvious contradiction between doling out benefits to oil and gas companies while the nation struggles to reduce GHG emissions. Since Canada negotiated the Kyoto Protocol in 1997, the federal government has handed out more than $2 in tax subsidies to these companies for every $1 it spent on Kyoto compliance.

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But what about the unity card: Won’t asking oil and gas companies to give up their federal handouts and take responsibility for their emissions be seen as an attack on Alberta?

Some oil and gas company public relations people and Western politicians have made a business of rubbing salt in old wounds like the National Energy Plan.

This distracts attention from the contribution of these companies to increasing emissions. Former prime minister Paul Martin worried he would lose support in Alberta if he cut tax subsidies.

When the Liberals were putting together their climate change plan then natural resources minister Herb Dhaliwal and industry minister David Emerson quickly came to the aid of oil and gas companies by providing written guarantees limiting their responsibility for reductions.

The auditor general found that these guarantees could cost taxpayers another $1 billion.

The federal government’s talk this week about requiring strict emission cuts from cars puts a new wrinkle on an old issue. Ontario Premier Dalton McGuinty and a union leader attacked Environment Minister Rona Ambrose for sounding like she will be tough on the Ontario-based auto sector and soft on Alberta-based oil and gas.

The exchange made it clear that our leaders still see the fight against climate change as a turf war in which they hope to get away with doing as little as possible instead of as a national battle against a common foe. Flaherty weighed in on the matter but said nothing about whether he would eliminate oil and gas industry tax breaks that undermine any effort by Ambrose to reduce GHG emissions.

McGuinty can show leadership by accepting the need to seriously regulate both the long-coddled auto sector and the oil and gas industry. After all, only the transportation sector contributes more to Canada’s overall GHG emissions than the oil and gas industry.

Taxpayers aren’t the only ones complaining about billion-dollar oil and gas companies getting pogey.

According to a recent poll, 84 per cent of Albertans want a review of the soft provincial royalty scheme under which oil and gas companies get the rights to Alberta’s oil sands resources. The Alberta government gets one penny on the dollar of gross sales of tar sands oil for some years during the lifetime of projects.

Many Albertans are concerned about the unbridled pace of development of the oil sands and the enormous amount of water and natural gas used in the process. Most Albertans also know the companies won’t protect farmers from drought and city dwellers from heat waves, or keep glaciers and rivers from disappearing.

Will the elimination of tax subsidies to oil and gas companies be part of the Harper government’s upcoming environmental plan?

Ambrose is saying she plans to get tough with oil and gas companies over their emissions.

An obvious first step would be to eliminate their tax subsidies, precisely what the Organization for Economic Cooperation and Development has recommended for some time.

Oil and gas executives may not really have to stand in line for their federal handouts, but it is high time to cut them off the government dole anyway.