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Is Canada's oil and natural gas industry subsidized?

CAPP vice-president Ben Brunnen sets the record straight: Canada’s oil and natural gas industry does not receive subsidies.

There has been talk in some circles that Canada’s energy sector is subsidized–that provincial and federal governments give us money, pay our bills, and in exchange, expect nothing but more production and development.
CAPP vice-president oil sands Ben Brunnen refutes the notion that Canada's oil and natural gas industry receives subsidies.

Canada’s oil and natural gas industry is not subsidized. A subsidy generally means a company or sector is given an unfair advantage or benefit.

However, like other industries such as manufacturing, mining, and renewable energy, the tax framework for our business was created to recognize the particular cost and revenue profile of our industry. As with other industries, it is designed to balance revenues with growth and investment, to the long-term benefit of all Canadians.

There are some people or groups that want to lambast sound tax policies such as capital cost allowances, exploration and development deductions, and revenue-minus-cost royalty payments. These are policies that encourage exploration, investment and growth by recognizing the high, upfront costs of developing Canada’s natural resources and its associated risks.

Those same people or groups want the public to think we rely on the government for direct funding, but that’s not true. The oil and natural gas industry is subject to the same fiscal policies and incentives other sectors face.

Prior to the commodity price crash that began in 2014, our industry contributed about $18 billion annually to the country through royalties, income taxes, and other payments. Between 2013 and 2015 our contribution to municipal, provincial and federal governments averaged $15 billion.

This money is not re-invested into buying new trucks for oil sands extraction or tools to drill oil and natural gas wells. Instead, it is used to provide benefits to Canadians in the form of health care, education, public infrastructure, and social services.

In the past three years we have been forced to face a new normal – more than 100,000 people directly and indirectly affected by the energy sector have lost their jobs. Oil prices remain low and the industry as a whole suffers from a lack of major market access. All of this has affected our global competitiveness.

Despite these obstacles, Canadian oil production will continue to grow. According to the Canadian Association of Petroleum Producers’ 2017 Crude Oil Forecast, Markets and Transportation report, Canadian oil output will rise to 5.1 million barrels per day by 2030 from nearly 3.9 million b/d in 2016.

Amidst all this growth – and still without the assistance of subsidies – industry continues to deal with other, homegrown challenges such as changes to existing provincial and federal regulations and policies. At present there are between 40 and 50 initiatives underway that could potentially cost our upstream oil and natural gas sector as much as $4 billion annually.

"Those same people or groups want the public to think we rely on the government for direct funding, but that’s not true. The oil and natural gas industry is subject to the same fiscal policies and incentives other sectors face."

Federally, those changes include plans to modernize the National Energy Board, review the Canadian Environmental Assessment Agency, and implement a tanker moratorium in British Columbia.

As well, recent changes to the Canadian Exploration Expense (CEE) – originally created to encourage investment in Canadian natural resources – will result in even higher costs to industry and potentially encourage companies to invest capital elsewhere in the world.

In the meantime, the upstream oil and natural gas sector continues to be a major contributor to Canada’s economy by supporting about 425,000 jobs, as well as providing $100 billion to the gross domestic product.

It is also spearheading research and development through organizations such as Canada’s Oil Sands Innovation Alliance (COSIA) which has invested $1.33 billion of industry-funded money to develop more than 935 distinct environmental technologies.

There are some very promising technologies in the sector that have the potential to continue to position Canada’s oil sands as a leader in climate and environmental performance, but Canada needs the right framework to encourage this innovation – just like the national oil sands task force did in the 1990s.

The world is paying attention to our initiative. In the Global Energy Pulse, a first-ever survey conducted by Ipsos, Canada was the preferred choice for oil and natural gas imports globally, largely due to our commitment to climate change and responsible development.

Canada’s energy industry is committed to producing our country’s natural resources sustainably, environmentally, and economically to the benefit of all Canadians. We need the federal and provincial governments to continue to recognize our industry’s importance and maintain solid fiscal policy. Together we can provide the world with the energy of tomorrow.