Independent Foundation Could Evaluate Energy Subsidies Similar to US Agency: Study

The LNG Canada industrial energy project under construction in Kitimat, B.C., on Sept. 28, 2022. The Canadian Press/Darryl Dyck

The Fraser Institute think tank has released a new study that documents the current state of energy subsidies in Canada and makes recommendations for reform of what it calls “complex and contentious debates.”

The study states that Canada participates in “an international, intergovernmental effort to phase out inefficient fossil fuel subsidies,” but defining what constitutes an inefficient subsidy or measuring the size of subsidies has been left to individual governments.

“Reaching agreement on the definition of what constitutes a subsidy and on the question of how subsidies should be measured has been difficult,” said the study, “Measuring Canadian Energy Subsidies: A Review of the State of the Art with Recommendations for Reform.”

Study author Glenn Fox, professor of agricultural economics and business at the University of Guelph, says the American experience might help Canada measure energy subsidies.

South of the border, the United States Energy Information Administration (US EIA) is an independent agency that collects and analyzes data within the U.S. department of energy. It considers four categories of subsidies and energy interventions including tax expenditures, direct expenditures, research and development support, and loan guarantees from the department of energy.

“There is no Canadian counterpart to the US EIA but the US experience is noteworthy for thinking about future efforts to measure energy subsidies in Canada,” writes Mr. Fox.

He suggests that as an independent and “impartial data collection and analysis institution,” it has no policy agenda, and has development a consistent framework and approach over a long period of time to resolve questions. He contrasts that with Canada’s system, which he says consists of “ad hoc collections of individuals and organizations involved in measuring and reporting energy subsidies.”

This makes it difficult to compare measurements and claims and lacks transparency,  Mr. Fox said.

“Maybe Canada needs a counterpart to the US EIA. If measuring energy subsidies is important, and if my claim that the current state of the art in Canada is dysfunctional is accepted, then maybe an independent impartial agency would be a better alternative to the current situation,” he writes.

Mr. Fox advocates for the creation of an “independent and impartial foundation” governed by a board to ensure independence and impartiality to oversee data collection and analysis on the subject.

No Definition

The study notes that Canada is an important producer of energy and that Canadians, due to geography and climate, are also proportionately “significant consumers of energy.” Several provincial governments receive substantial royalty payments from natural gas and oil extraction, according to the study.

Canada has so far not been able to produce its own definition of what constitutes “inefficient energy subsidy,” it says, even though international agreements task national governments with creating such a definition. Without a definition, subsidies cannot be measured and the process of reforming or eliminating subsidies, as Canada has committed to, cannot begin.

“We are far from achieving a consensus on key definitions of what constitutes a subsidy, on the proper methods for conducting this type of analysis, on the documentation of data sources and methods, or on the interpretation of the results,” Mr. Fox writes.

According to the study, Canada has committed to phasing out or reforming “inefficient fossil fuel subsidies” by virtue of a G20 resolution at a 2009 meeting, and again in September 2015 as part of the United Nations. This commitment was made again during the June 2016 North American Leaders’ summit involving heads of state from Mexico, Canada, and the United States, when the countries resolved to phase out inefficient fossil fuel subsidies by 2025.

“Subsidies in all forms and attached to all rationales should be viewed with skepticism. The aim should be to eliminate them all,” writes Mr. Fox.