UPDATE 1-Canada set to cut direct spending on fossil fuel sector

Tue Feb 5, 2013 10:41am EST

(Adds details, background)

* Canada spending much less than in 1970-99 period

* Most direct funding of fossil fuel sector for research

By David Ljunggren

OTTAWA, Feb 5 (Reuters) - Canada's federal government is set to sharply cut back its direct spending on the fossil fuel sector as part of an international push to phase out subsidies, the government's environment watchdog said on Tuesday.

Environment Commissioner Scott Vaughan said direct spending on the sector by the federal government totaled C$508 million ($508 million) from the 2007/08 fiscal year to 2011/12. It was Vaughan's first calculation of the total amounts Ottawa gives to energy companies.

"Extended over 30 years, this would represent a significant decline in direct spending support to the sector," he said, noting an official report in 2000, which found direct spending from 1970 to 1999 totaled C$40.4 billion.

Tax breaks aimed directly at the fossil fuel sector for 2006/07 to 2010/11 totaled C$1.47 billion.

In addition, separate tax breaks for the mining, oil and gas and clean energy sectors from 2006/07 to 2010/11 totaled C$2 billion. Fossil fuels accounted for most of the second amount but Vaughan said he was unable to ascertain exactly how much.

Canada sits on the world's third-largest proven reserves of crude and is the largest exporter of energy to the United States. Critics say the governing Conservatives, who have their roots in the Western Canadian oil patch, design their policies to benefit oil and gas producers.

As part of a 2009 agreement forged by the Group of 20 industrialized and developing nations, Canada committed to wiping out so-called inefficient subsidies to the fossil fuel sector.

The International Energy Agency says cutting all subsidies for fossil fuels would slash greenhouse gas emissions by 1.7 gigatonnes by 2020, about 40 percent of the abatement needed to limit global warming to a 2 degree Celsius rise by 2020.

Vaughan said 97 percent of the C$508 million in direct spending was for research and development, more than half of it for clean technology projects such as carbon capture and storage.

The C$1.47 billion in tax breaks was largely comprised of accelerated capital cost allowances for projects in the crude-rich oil sands of northern Alberta, a program that is being phased out.

The additional C$2 billion in tax breaks for the mining, oil and gas and clean energy sector was largely accounted for by deductions for flow-through shares.

($1=$1.00 Canadian) (Reporting by David Ljunggren; Editing by Peter Galloway)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.