Governments subsidize exploration for oil reserves that can’t be used: report

Why subsidize the search for oil and gas that we can never burn if we want to limit the damage from climate change?

Why subsidize the search for oil and gas that we can never burn if we want to limit the damage from climate change?

That’s the question asked in a new report from an environmental think-tank, which says Canada is one of the most generous countries in the G20 towards energy exploration.

“There’s been virtual consensus among the scientific community that we have significantly more proven reserves than we can afford to burn and put into the atmosphere if we’re going to meet the international goal for climate change,” said Stephen Kretzmann, director of Oil Change International.

“The idea that we are spending, in the G20, $88 billion every year to find more reserves is kind of crazy.”

Scientists suggest that about two-thirds of the world’s current reserves of fossil fuels must remain in the ground if climate change is to be held at two degrees Celsius, beyond which consequences are expected to be dire. Yet energy exploration continues, often encouraged by the public purse.

The Oil Change report, released Tuesday, uses data from the Organization for Economic Cooperation and Development to calculate the sum total of economic assistance to energy exploration for the world’s 20 largest industrial economies. That assistance can come in the form of direct payments, various kinds of exploration tax breaks, favourable financing deals and the activities of state-owned companies.

In Canada, the three largest subsidies to energy companies come from the ability of both companies and certain types of shareholders to deduct exploration expenses.

As well, oilsands development has been greatly spurred by rules that allow companies to speed up depreciation, allowing them to deduct their capital spending more quickly. That program is available to all manufacturers.

Using subsidy definitions from the World Trade Organization, the report calculates the total value of those breaks — not including additional subsidies offered by provinces — at $928 million a year.

That means every Canadian subsidizes energy exploration to the tune of $26 a year. Only Australia, where subsidies reach up to $153, is more generous among G20 countries on a per capita basis.

United Kingdom subsidies are up to about $18 per capita; Russia spends about $17; the United States spends $16.

The report calculates the annual value of state subsidies for exploration is about twice the $37 billion cash energy companies put up themselves.

“This suggests that their exploration activities are highly dependent on public support,” the report says.

Kretzmann points out G20 countries promised five years ago to phase out “inefficient” subsidies to the energy industry.

“This is the most inefficient fossil fuel subsidy you can imagine,” he said. “They’re actually subsidizing stuff that we’ll never be able to burn.”

Kretzmann said the subsidies take up resources that could be spent elsewhere, from health care to developing renewable energy.

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