How Ottawa punishes its own energy sector
June 22, 2020
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By Elmira Aliakbari, Associate Director, Natural Resource Studies; and Ashley Stedman, Senior Policy Analyst, Fraser Institute
The Trudeau government recently announced details of its loan program for large corporations called the Large Employer Emergency Financing Facility (LEEFF), which provides financing to firms unable to secure loans from banks and other private lenders.
However, to access the program, companies must commit to contribute to Canada’s Paris Accord climate agreement and the national goal of net zero emissions by 2050.
Consequently, firms in emission-intensive industries (oil, gas, airline, manufacturing) face markedly disproportionate costs to qualify for LEEFF. Such firms are already experiencing cost increases from the national carbon tax, which undermines their competitiveness with firms in similar industries in other countries with no such tax (for example, research has shown the tax will increase costs in the petroleum manufacturing sector by 25 per cent).
To further illustrate the punitive treatment of firms seeking aid from Ottawa, consider the lack of conditions attached to other COVID recession aid programs. For example, the Canada Emergency Response Benefit (CERB) is easily accessible (and Ottawa lifted restrictions to make it easier for international students and other temporary foreign residents to access CERB).
Moreover, LEEFF’s environmental conditions are not consistent with similar programs for businesses in other countries. For example, the United States passed the Coronavirus Economic Stabilization Act of 2020 in response to the pandemic, which provides loans and guarantees for U.S. businesses including oil and gas companies. However, this program doesn’t require companies to report their annual environmental performance to receive financial support.
Clearly, instead of simply delivering much-needed relief to various sectors of the economy during an unprecedented crisis, the Trudeau government chose to push its climate agenda at the expense of struggling firms, including embattled oil and gas companies.
And of course, this isn’t this the first time. In 2019, new federal Bill C-69 created mass uncertainty in the sector and the new Impact Assessment Agency of Canada (IAAC) has added significant subjective criteria into the review process of major infrastructure projects (pipelines, etc.) including “social” impacts, gender implications and potential climate effects, which will further politicize and lengthen the process for future projects.
Ottawa also adopted federal Bill C-48, which bans various large oil tankers off British Columbia’s northern coast, creating another barrier to exporting Canadian oil to foreign markets.
The Trudeau government also rejected the previously-approved $7.9 billion Northern Gateway pipeline in 2016 and imposed new regulatory hurdles on TransCanada’s proposed Energy East project, which included consideration of “downstream emissions” that were never part of prior assessments. Consequently, TransCanada deemed the pipeline economically unfeasible and scuttled the project.
So what are the results of all these polices?
Simply put, Canada’s energy sector has become less competitive and less attractive for investors, which means fewer jobs for Canadians (particularly in embattled Alberta) and less revenue for governments including the federal government, which will run a projected record-breaking $252 billion deficit this year. Between 2015 and 2019, investment in our oil and gas sector declined by 35 per cent and various companies (such as Royal Dutch Shell and Devon Energy) have either divested assets or reduced their exposure to Canada’s oilsands.
Clearly, various policy decisions made by this federal government have harmed Canada’s energy sector. As Ottawa grapples with the economic recovery from COVID, it should rethink policies that asymmetrically and negatively impact the energy sector and the many Canadians who rely on it.