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Psst, Trudeau: IMF Now Pegs Our Fossil Fuel Subsidies at $46 Billion

Fastest way to transition Canada to a green economy? Quit the giveaways.

By Mitchell Anderson 1 Feb 2016 |

Mitchell Anderson is a freelance writer based in Vancouver and a frequent contributor to The Tyee. Find his previous Tyee columns here.

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Justin Trudeau has a problem. How can Canada meet our international climate commitments so recently inked in Paris with an increasingly empty economic larder? The International Monetary Fund may have the answer. Last summer, the IMF updated its global report on energy subsidies and found that Canada provides a whopping $46.4 billion in subsidies to the energy sector in either direct support or uncollected taxes on externalized costs.

Globally, this figure balloons to US$5.3 trillion or 6.5 per cent of the world's GDP. To put that enormous sum in perspective, the global giveaway to the energy sector amounts to 40 times more money than is contributed in aid to the world's poorest people.

To be clear, the IMF is including all untaxed externalized costs of energy use under their definition of subsidies. The figures flagged for Canada still include $1.4 billion in direct "pre-tax" subsidies -- the kind of direct public giveaways that Trudeau campaigned to eliminate. The remaining $44.6 billion is in the form of externalized costs to society from dirty and dangerous fossil fuels -- things like air pollution, traffic congestion and climate change.

I realize that the folks at the Fraser Institute might get rankled by such a broad definition of subsidies by those pinkos at the IMF, and in fact they already have. But as they say in business, there's no free lunch, so why should all taxpayers have to pick up the tab for very real costs resulting from our ongoing addiction to fossil fuels?

Let's get down to brass tacks. How much money is being left on the table in favour of the fossil fuel sector? According to IMF economists, Canadian carbon-based fuels should be taxed an additional $17.2 billion annually to compensate for climate change, $6 billion for air pollution, $14.9 billion for traffic congestion and $2.1 for traffic accidents. Tacking on another $3.5 billion for uncollected value-added taxes, $880 million for road damage and of course the $1.4 billion in direct subsidies, we arrive at almost $50 billion annually that could help transition to a greener economy.

That's a lot of subway

And what could Canada do with another $46 billion each year? In terms of badly needed public transit, we could immediately pay for both the new Broadway SkyTrain line and the Bloor Street subway extension in Toronto, and still have $40 billion left over. There are also 120 kilometres of proposed light rail projects in the country we could finally build and only be down to $35 billion. Remember, these badly needed infrastructure investments are one-time expenses and the subsidies identified by the IMF rack up every year.

Other urgent needs include building and maintaining affordable housing, estimated to be about $3 billion annually. The public portion of a national pharmacare program might amount to an extra $1 billion each year (though it could also save us money too). That still leaves billions of annual public revenue that could provide tax relief to those shifting away from fossil fuels as well as transition training for displaced workers in our beleaguered oil sector.

So is Ottawa going to eliminate all $48 billion in giveaways identified by the IMF? Of course not. Politics is the art of the possible, and public opinion -- while heading in the right direction -- is not there yet.

For instance, $30 billion of our total subsidies flagged by the IMF are for petroleum. Canadians buy around 58 billion litres of gas and diesel each year. Covering all externalized costs of that fuel use would require additional taxes of about $0.50 per litre, a tall order even for a politician of Trudeau's current popularity.

Stop the hosing

But if the sticking point of getting to full-cost pricing on transportation fuels is public resistance, let's have a hard look at current pump prices. Crude has plunged more than two-thirds in the last 18 months when the average price for regular unleaded in Canada was $1.30 per litre and oil was at $110 per barrel.

And today when West Texas Intermediate is hovering around $30? Pump prices have come down a mere 32 per cent. In fact, national gas prices are now four cents per litre more than they were a year ago when crude was $20 per barrel higher. Meanwhile in the U.S., retail gas prices have plunged to half of what they were in 2014. What's going on?

It's not just you and me getting hosed at the pump; it's progressive energy policy. If retail gas prices fell half as much as crude has, or even in line with current pricing across the border, there would be a lot more room to include the full cost of our energy use without imposing historically high costs on consumers.

Strangely, the integrated oil companies who control Canadian extraction rights, refinery infrastructure and retail gas outlets seem to have other priorities. It's not just the interests of consumers that Ottawa should have in mind when considering acting on potential price gouging at the pumps -- it is getting ripped off, too. Obviously oil companies would like to subsidize their failing upstream operations by padding their refinery margins and the federal government needs to act quickly to ensure we all aren't taking a bath.

Can't cry poverty

Let's look at the rest of the energy mix. The IMF says we should be taxing natural gas consumption by another $10.8 billion annually. Current prices are near historic lows, less than 20 per cent of what they were in 2008. Canadians use about 4.3 billion GJ of natural gas each year. Raising $10.8 billion of additional tax revenue would result in industry and consumers paying the same price they did in 2011, which was cheaper than it was at any time in the preceding decade. Let's do it.

Which brings us to coal, the dirtiest of fuels. IMF analysts say we are under-taxing coal consumption by $4.92 billion -- incidentally about the same amount as Canada provided in foreign aid in 2014. I'm not even going to bother to crunch the numbers. This climate-killing 19th century fuel is rapidly going the way of the dodo bird and should be taxed without mercy.

But shouldn't we be going easy on the fossil fuel industry, which is obviously going through some hard times? Nonsense. Of course we need to scale up support for the thousands of workers displaced from a collapsing oilsands sector and help them transition to more sustainable careers. But the corporate entities masquerading as humans under the law and their investors that made bad bets on global commodity prices should take their lumps in the marketplace like the proud free traders they are.

There is plenty of money on the table to transition to a greener economy, and the best way of getting there (and paying for it) is to rapidly move to full cost accounting for carbon based fuels.

Trudeau has so far taken the Canadian political scene by storm, and he should continue to act boldly on the energy-pricing file. And if some vocal vested interests in the fossil fuel sector don't like it, they can take it up with those woolly headed hippies over at the IMF.  [Tyee]

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