Oil Subsidies

Letter from civil society demanding no subsidies for enhanced oil production

Joint Letter
Monday, March 8, 2021 - 17:00

To: Chrystia Freeland, Deputy Prime Minister and Minister of Finance 
Cc: Jonathan Wilkinson, Minister of Environment and Climate Change 
Seamus O'Regan, Minister of Natural Resources
François-Philippe Champagne, Minister of Innovation, Science and Industry 

Re: No subsidies for enhanced oil production 

Dear Minister Freeland,  

The Government of Canada faces important decisions on our route to decarbonization. As leading environmental, human rights and health organizations, our vision for a safe climate centers on rapid and deep economy-wide decarbonization and a transition to a just, equitable, and sustainable future. The path we take is a societal choice, with significant implications for intergenerational equity, social and economic justice, land use rights, access to energy, sustainable development, and our ultimate effectiveness in decarbonizing our economy. 

On behalf of 47 organizations representing 2 million people in Canada, we are writing to express our collective opposition to the introduction of new tax policy designed to extend subsidies for enhanced oil recovery (EOR).1 Specifically, Energy Future Forum — a partnership which includes most of the major oil companies in Canada — has been lobbying for a new federal tax equivalent to the 45Q tax credit in the United States.2 Section 45Q provides a performance-based tax credit to power plants and industrial facilities that capture and store CO2 that would otherwise be emitted into the atmosphere. Under the plan, companies can claim US $35 per ton of CO2 captured and then used for enhanced oil recovery.

EOR promotes the expansion of production of fossil fuels  

Despite a veneer of green, such a tax credit could result in a significant amount of foregone revenue and enable the production of more carbon than is captured.3 Since the overall incentive for power plants and industrial facilities to sell captured CO2 to oil companies for use in extraction would be more lucrative than the incentive for facilities to directly sequester their carbon pollution, this measure would primarily incentivize oil extraction. In fact, oil companies are looking to EOR to expand production — and the biggest expense in EOR operations is the CO2

Analysis done on the American 45Q tax credit found it could result in at least an additional 400,000 barrels per day of CO2-enhanced oil production in the United States in 2035, which would directly lead to as much as 50.7 million metric tons of net CO2 emissions annually – and possibly far more. The portion of the bill that benefits the oil industry alone could cost American taxpayers as much as U.S. $2.8 billion every year.4 

We oppose putting public funding behind a technology designed to extend the life of fossil fuel plants and extract more oil. The injection of CO2 into aging oil fields to increase production has helped extend the life of some fields by more than 25 years.5 Evidence that CO2-EOR is a stepping stone to wider deployment of carbon capture technology (a claim advanced by many proponents of CO2-EOR subsidies) is dubious.67 While EOR makes business sense for the fossil fuel industry — and that is why Energy Future Forum is lobbying for a subsidy to pump more oil — it is not a winning strategy for the climate. 

The fossil fuel industry has gamed the 45Q credit in the U.S. 

Environmental organizations in the United States have raised significant concerns with Section 45Q. The fossil fuel Industry has attempted to game the tax credit in the U.S. where 87% of the total credits claimed, amounting to nearly US $1 billion, were found to be not in compliance with the Environmental Protection Agency, according to an investigation by the U.S. Internal Revenue Service.8  

Meanwhile, big oil companies have successfully lobbied against monitoring, reporting and verification requirements. A lack of transparency makes it impossible to know which companies have claimed credits and to what extent.9 

Yet another inefficient fossil fuel subsidy 

By lowering the cost of production for the oil industry, the tax credit increases oil company profits and promotes the expansion of fossil fuel production. Canada is already falling short on its commitment to eliminate inefficient fossil fuel subsidies. This policy would add yet another taxpayer subsidy for the oil and gas industry. Furthermore, Canada already has in place a robust policy to incentivize carbon capture and storage: the proposed carbon price of $170/tonne, a move that has been welcome by the international community. 

This tax credit is a win for the fossil fuel industry but will negatively impact Canada’s climate credibility globally. This move will be received by the public as a loss for the climate, for taxpayers, and for frontline communities living in the shadow of fossil fuel infrastructure.

Sincerely,  
 
Julia Levin, Environmental Defence Canada  
Keith Stewart, Greenpeace Canada
John Noël, Greenpeace USA  
Tzeporah Berman, Stand.earth
Anthony Swift, Natural Resources Defense Council
Teika Newton, Climate Action Network - Réseau action climat Canada  
Émile Boisseau-Bouvier, Équiterre
Jesse Cardinal, Keepers of the Water
Anjali Helferty, Canadian Association of Physicians for the Environment
Fiona Koza, Amnesty International Canada
France-Isabelle Langlois, Amnistie Internationale Canada
Bronwen Tucker, Oil Change International
Cam Fenton, 350.org
Christina Warner, Council of Canadians - Le Conseil des Canadiens
Catherine Gauthier, ENvironnement JEUnesse
Hadrian Mertins-Kirkwood, Canadian Centre for Policy Alternatives
Maggie Chao, Leadnow
Tom Green, David Suzuki Foundation
Peter McCartney, Wilderness Committee
Adam Scott, Shift: Action
Toby Sanger, Canadians for Tax Fairness
Andrew Gage, West Coast Environmental Law
David Cooper, Alberta Liabilities Disclosure Project
Montana Burgess, West Kootenay EcoSociety
André Bélisle, AQLPA Association québécoise de lutte contre la pollution atmosphérique  
Rosalie Thibault, Coalition Étudiante pour un Virage Environnemental et Social (CEVES)
Pascal Bergeron, Environnement Vert Plus
Karri Munn-Venn, Citizens for Public Justice
Eva Garofalo, My Sea to Sky
Mitchell Beer, Energy Mix Productions  
David Erb, Protect Our Winters Canada
Rébecca Pétrin, Eau Secours
Mark Bigland-Pritchard, Climate Justice Saskatoon
Katherine Smail, Glasswaters Foundation
John Nathanie Gertler, La Coalition étudiante pour un virage environnemental et social (CEVES)
Lucie Massé, Action Environnement Basses-Laurentides
Amelia Rose Khan, Toronto350
Sylvia Obrig, Our Lady of Sion
Stefan Hostetter, Green Majority
Kim Perrotta, Canadian Health Association for Sustainability and Equity (CHASE)
Niovi Patsicakis, Global Peace Alliance BC Society
Susan Abells, Basic Income BC
Angela Bischoff, Ontario Clean Air Alliance
Bruno Detuncq, Regroupement Vigilence Hydrocarbures Québec
Bill Woolverton, Canadian Unitarians for Social Justice
Jessica Spencer, Extinction Rebellion New Brunswick
Baijayanta Mukhopadhyay, People's Health Movement Canada/Mouvement populaire pour la santé au Canada

___________

1 EOR describes the process of captured CO2 being injected underground to extract otherwise unreachable oil and gas. EOR could be described as a CO2 capture and release strategy whereby captured CO2 is used to recover fossil fuel resources that would have otherwise remained underground that, when burned, release CO2 back into the atmosphere. 
2 Public Policy Forum (July 2020) Carbon Capture, Utilization and Storage: It's Time to Act. Online: https://www.newswire.ca/news-releases/carbon-capture-utilization-and-storage-it-s-time-to-act-813263831.html
3 Climate Action Network International (2021) Position: Carbon Capture, Storage and Utilisation. Online: https://climatenetwork.org/wp-content/uploads/2021/01/can_position_carbon_capture_storage_and_utilisation_january_2021.pdf 
4 Oil Change International (2017) Expanding Subsidies for CO2-Enhanced Oil Recovery: A Net Loss for Communities, Taxpayers, and the Climate. Online: http://priceofoil.org/content/uploads/2017/10/45q-analysis-oct-2017-final.pdf 
5 IHS Energy (2016) CO2 EOR Potential in North Dakota. Online: https://www.legis.nd.gov/files/committees/64-2014%20appendices/IHS%20Energy%20-%20Final%20Report.pdf 
6 Sekera, J., Lichtenberger, A. (2020) Assessing Carbon Capture: Public Policy, Science, and Societal Need. Biophys Econ Sust 5, 14 Online: https://doi.org/10.1007/s41247-020-00080-5 
7 US Department of Energy (2010) CO2-Driven Enhanced Oil Recovery as a Stepping Stone to What? Online: https://www.pnnl.gov/main/publications/external/technical_reports/PNNL-19557.pdf
8 Inspector General for Tax Administration (April 2020) Department of Treasury Letter. Online: https://www.eenews.net/assets/2020/04/30/document_gw_07.pdf 
9 Kusnetz, N. (September 2020) Exxon Touts Carbon Capture as Climate Fix, but Uses it to Maximize Profit and Keep Oil Flowing. Inside Climate News. Online: https://insideclimatenews.org/news/27092020/exxon-carbon-capture/