If the Energy [R]evolution is to happen, then governments around the world—including Canada’s—need to play a major part. Their contribution will include regulating the energy market on the supply and demand side; educating everyone, from consumers to industrialists; and stimulating the market for renewable energy and energy efficiency, by a range of economic mechanisms. There are a number of successful policies already adopted that can serve as models.
As a first step, governments should agree on further, binding emissions reduction commitments in a second phase of the Kyoto Protocol. Only by setting stringent greenhouse gas emissions reduction targets will the price of carbon become sufficiently high to properly reflect its true cost to the environment and society. This will in turn stimulate investments in renewable energy. Through funding for emissions reduction and adaptation, industrialized countries will also promote renewable energy and energy efficiency in developing countries.
Support is also needed for the introduction of feed-in tariffs in the developing world in order to duplicate the success of countries such as Germany and Spain, where the growth of renewable energy has boomed. Energy efficiency measures should be more strongly supported through the Kyoto process and its financial mechanisms.
Carbon pricing can also play an important role in the success of the Energy [R]evolution. The price of carbon must be sufficiently high to reflect its real costs to the environment and society. Only then can we create a level playing field for efficiency and renewable energy.
Industrialized countries should ensure that all financial flows to energy projects in developing countries are targeted toward renewable energy and energy efficiency. All financial assistance (including grants, loans or trade guarantees) for fossil fuel and nuclear power production, should be phased out in the next two to five years. International financial institutions, export credit agencies and development agencies should provide the required finance to facilitate the implementation of the Energy [R]evolution in developing countries.
We encourage all countries to join the Energy [R]evolution by adopting the following policies.
At the most basic level, policies to fight climate change must discourage the use of fossil fuels, and encourage the use of renewable energy.
Action: Phase out subsidies for fossil fuel and nuclear power production and inefficient energy use
The United Nations Environment Programme (UNEP) estimates the annual bill for worldwide energy subsidies at about US$300 billion, or 0.7% of global GDP.122 Approximately 80% of this is spent on funding fossil fuels and more than 10% to support nuclear energy. The lion's share is used to artificially lower the real price of fossil fuels. Subsidies (including loan guarantees) make energy efficiency less attractive, keep renewable energy out of the market place and prop up non-competitive, inefficient technologies. Eliminating direct and indirect subsidies to fossil fuels and nuclear power would encourage a level playing field across the energy sector. Scrapping these payments would, according to UNEP, reduce greenhouse gas emissions by as much as 6% a year, while contributing 0.1% to global GDP. Moreover, these subsidies rarely address poverty directly, thereby challenging the widely held view that some of these subsidies assist the poor.
According to a 2005 report for the Climate Action Network, Canadian oil and gas companies (including the tar sands) benefited from a federal subsidy of $1,085 million in 1996. That amount had increased 33 per cent, to $1.4 billion, by 2002. Total expenditure over the 1996 to 2002 period was $8.3 billion.
As progress on fossil subsidies, the Harper government points to its 2007 Budget commitment to phase out the Accelerated Capital Cost Allowance (ACCA) for the tar sands by 2016, starting in 2011, as well as the phaseout of two other tax subsidies, “earned depletion” and “resource allowance.” However, the overall oil and gas sector taxrate has actually decreased relative to the 2001–2002 level, and five major tax subsidies, identified in the 2005 Climate Action Network report, still remain in place.
The remaining Canadian tax subsidies include:
• Canadian Exploration Expense,
• Canadian Development Expense,
• Canadian Oil and Gas Property Expense,
• Atlantic Investment Tax Credit, and
• Scientific Research and Experimental Development Tax Credit.
According to the Pembina Institute, that level of subsidy rose to a level of about $2 billion per year in 2010.
The Harper government is also providing direct subsidies to the fossil fuel industry, in the form of support for carbon capture and storage (CCS) projects. In its March 2010 budget, the Harper government announced “over $800 million” in subsidies for carbon capture and storage projects, under two programs, the Clean Energy Fund , and the ecoEnergy Technology Initiative.
Subsidies have already been provided under the Clean Energy Fund for three large-scale carbon capture and storage projects:
• $120 million for the Shell Quest CCS project,
• $315.8 million for the TransAlta Keephills CCS project for a coal-fired power plant near Edmonton, and
• $30 million for the Alberta Carbon Trunk Line project.
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