e-4368 (Environment)

In 2009, Canada and other G20 countries committed “to phase out and rationalize over the medium-term inefficient fossil fuel subsidies (IFFS) while providing targeted support for the poorest.” At the North American Leaders’ Summit on June 29, 2016, Canada, the United States, and Mexico, publicly committed to phase out IFFS by 2025. In June 2021, G7 leaders reaffirmed the commitment to phase out IFFS by 2025. Canada has since committed to accelerate this commitment to 2023.

On December 8, 2022, the Government of Canada published policy guidelines to implement its commitment to the Statement on International Public Support for the Clean Energy Transition (Glasgow Statement), which committed to ending new direct public support for the international unabated fossil fuel energy sector. Canada signed onto the Glasgow Statement at the Conference of the Parties (COP26) (November 2021) alongside 38 other countries and institutions and was one of only two net exporters of energy to do so. These guidelines have been in effect since January 1, 2023, and will ensure that Canada meets – and in some cases exceeds – the ambition outlined at COP26.

In support of Canada’s commitment to phase out or rationalize inefficient fossil fuel subsidies, nine tax preferences supporting the fossil fuel sector have been, or are in the process of being, phased out or rationalized, including:

• Rationalizing the tax treatment of expenses for successful oil and gas exploratory drilling (announced in Budget 2017);
• Phasing out a tax preference that allows small oil and gas companies to reclassify certain development expenses as more favorably treated exploration expenses (announced in Budget 2017); and
• Phasing out flow-through shares for oil, gas, and coal activities (announced in Budget 2022).

On July 24, 2023, the Government of Canada released the Inefficient Fossil Fuel Subsidies Government of Canada Self-Review Assessment Framework and the Inefficient Fossil Fuel Subsidies Government of Canada Guidelines, which were jointly developed by Environment and Climate Change Canada and the Department of Finance Canada. The Guidelines apply to all federal departments and agencies.

The Guidelines will be used to prevent the creation of inefficient fossil fuel subsidies in the future. Moving forward, fossil fuel subsidies will not be provided unless they meet one or more of the following six criteria:

1. Enable significant net greenhouse gas emissions reductions in Canada or internationally in alignment with Article 6 of the Paris Agreement.
2. Support clean energy, clean technology, or renewable energy.
3. Provide essential energy service to a remote community.
4. Provide short-term support for emergency response.
5. Support Indigenous economic participation in fossil fuel activities.
6. Support abated production processes, such as carbon capture, utilization, and storage, or projects that have a credible plan to achieve net-zero emissions by 2030.

The framework and guidelines fulfill our domestic, G7 and G20 commitments to phase out and rationalize inefficient fossil fuel subsidies by 2023. Canada is the first country to release a rigorous analytical guide that both fulfils its commitment to phase out and rationalize inefficient fossil fuel subsidies and transparently supports action. 

Inefficient fossil fuel subsidies enable and support the wasteful use and production of unabated fossil fuels, impeding the transition toward a net-zero economy. By eliminating inefficient fossil fuel subsidies, the Government of Canada is providing greater support for clean growth and accelerating efforts to decarbonize important Canadian industries, including the oil and gas sector, which continues to play an important role in the Canadian economy.

Canada is also committed to phasing out public financing of the fossil fuel sector domestically. The Government’s work will identify current public financing by 2024 and announce by fall 2024 the implementation plan to phase out public financing of the fossil fuel sector. Taken together, these federal policies will align government programs and spending that support the fossil fuel sector with Canada’s ambitious climate goals.