Fossil-Fuel Subsidies: At What Cost? Fossil-Fuel Subsidies in the Canadian Oil Sector

Transcription

1 Fossil-Fuel Subsidies: At What Cost? Fossil-Fuel Subsidies in the Canadian Oil Sector David Sawyer 21 June 2010

2 Canadian Case Study Up-to-date estimates of Canada's subsidies to the upstream oil sector in Alberta, Saskatchewan and Newfoundland and Labrador, and the federal government. Three core questions, Identify subsidy policies for oil production Quantify the value transfer between producers and government Evaluate the environmental and economic and outcomes of these subsidies

3 Focus on current subsidies in programs aimed at development and exploration, less for operation and still less in R&D Total value of CDN $2.8 billion A mix of tax expenditures, royalty relief, direct spending and credit support

4 Focus on outcomes in the 2020 Use CGE model to determine impact on GDP, emissions and government balances National GDP impacted marginally, but sectorally significant (7%) Emissions 2 % nationally, but 10% percent in oil sands Federal balances: 1% federal, 5% Albert. But doubling by 2020 given sector growth projections Ongoing work indicates there are equivalent to a -$30/tonne in the oil sector

5 Challenge #1: Subsidy definition There will always be conjecture and debate about the level and impact of subsidy to the oil industry. Conjecture exists in large part because of the divergent perspectives on subsidy. Two competing definitional extremes: Environmental View: polluter pay tinged with ability to pay Development View: investment competitiveness to maximize private returns

6 Environmental View: Its All a Subsidy Environmental view treats any benefit to the oil sector as a subsidy, regardless of whether or not it is otherwise available to other sectors. Taxes are low or not collected, Royalty payments are below the value of the oil in the ground, Environmental services are provided for free. Prices misrepresent the societal cost of a barrel extracted, with activity levels higher leading to more environmental damages.

7 Development View: Subsidy, what Subsidy? A development view is where competitiveness is maintained through keeping taxes and royalty payments low to keep investment and activity levels high. Under this view there are no subsidies, only responses to market pressures. Incentives and programmes make the sector more competitive relative to other jurisdictions thereby attracting investment and activity.

8 A more balanced definitional view (WTO Agreement on Subsidies and Countervailing Measures) Identifies benefits that are otherwise not available, 1. Government provides direct transfer of funds Grants and loans, equity infusions 2. Government revenue is foregone or not collected Tax expenditures such as capital allowances 3. Government provides goods or services at below their economic value Royalties and royalty reductions, programmes Benchmark here is a challenge what is fair share? Unique to FF mix of lease payments, royalties and corporate tax. A complex set of value sharing 4. Government provides income or price support Consumer price supports

9 Challenge #2: Not data but methods Jurisdictions make public their data for three reasons Financial accountability and public accounts Communicate their programs to the sector Demonstrate their investment competitiveness Using and reconciling the data is a challenge Reconciling top down and bottom-up Program expenditures allocated at the facility level (well) but overall estimate not available Sector profits aggregated nationally but hard to allocated to sub-sectors The two will not align and we had to reconcile estimates.

10 Moving Forward Clean-up the definition. Develop methods guide Different methods lead to different estimates Develop cook-book A real challenge unique to fossil-fuels How to deal with benchmarks across countries Measuring resource value and royalty benchmark is a real challenge for any definition that includes revenue foregone