Ottawa to Rethink Methane Reduction Subsidy after Scathing Enviro Commissioner Report

A pandemic aid program to help oil and gas companies cut their methane emissions will be revisited now that the industry is back on its feet, Natural Resources Minister Jonathan Wilkinson said Friday.

But he said the government won’t consider aid programs that help the fossil fuel sector cut emissions to be the “inefficient fossil fuel subsidies” the government has promised to eliminate by the end of 2023, The Canadian Press reports.

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The Onshore Emissions Reduction Fund (ERF) is under an unflattering spotlight after an audit found it to be poorly designed and not good value for money. Environment Commissioner Jerry DeMarco’s report released last Thursday criticized the program for poor design, overstating the emissions cuts it could achieve, and possibly double-counting emissions that would have been cut without this fund. He also said the program was helping some companies increase their production without accounting for the increase in emissions that would bring.

With only about one-fifth of the program’s C$675-million total already awarded, and the third round of applications not closing until January, DeMarco said there is still time to fix the multiple ways this program is failing.

In Ottawa Friday, Wilkinson said the program was conceived 20 months ago to help oil and gas companies stay afloat at a time when oil prices had tanked.

“What I would say, and I agree with the commissioner on this is, we’re not in the same situation now,” Wilkinson said. “The economic crisis for the oil sector has passed, and now it’s time to actually look at whether this program should continue in its current form.”

In the first weeks of the pandemic, oil prices in Canada took a double whammy hit of plummeting demand as the world came to a standstill, and a production war between Russia and Saudi Arabia that caused a glut in oil supplies. At certain points the benchmark price for Alberta oil was less than zero.

But prices have rebounded, now sitting somewhere north of US$50 a barrel.

Julia Levin, senior program manager for climate and energy at Environmental Defence Canada, said the crisis period for the industry was very short-lived, and industry projects to cut methane are required work under new federal regulations that are in the midst of being implemented.

“There is no evidence that public dollars were needed to help these so-called struggling companies take on spending that they should be doing on their own,” she said.

DeMarco said it’s not clear how many of the projects would have gone ahead without the ERF funding since companies were already required to do the work to meet the new methane regulations. As such, he said it’s not clear how many additional emissions cuts this program has achieved.

Wilkinson said 4.6 million tonnes of emissions were already avoided strictly as a result of the program. Therefore he said it does not qualify as the kind of fossil fuel subsidy the government has promised to eliminate by the end of 2023.

However, DeMarco’s audit found 27 of the first 40 projects funded included claims that the companies would increase their production as a result of the program, largely because the technology it was funding to cut emissions meant they could produce more oil and gas and still meet the new methane regulations.

Wilkinson said the government only sees as financial aid to fossil fuel companies as a problem if it creates incentives for “the exploration and the production of fossil fuels.”

“Let me be clear, though,” he added. “What (Ottawa’s definition of a fossil fuel subsidy) does not mean is investments that the government may make alongside energy sector partners to reduce emissions. So things like carbon capture and sequestration are not inefficient fossil fuel subsidies.”

This report by The Canadian Press was first published November 26, 2021.