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Reducing Emissions in Canada by Eliminating Oil Sands Subsidies

March 25, 2015

In 1996, the Government of Prime Minister Chrétien introduced significant tax breaks for the oil sands sector to help spur the growth of the Alberta oil sands. These tax breaks were introduced for in-situ oil sands projects (sub-surface mining that uses heat to bring bitumen to the surface), providing these in-situ projects with tax breaks previously only available to traditional oil sands projects (open-pit strip mining).

These tax breaks came in the form of an accelerated capital cost allowance (ACCA) deduction of 100 per cent, which allowed companies to write off their entire capital investment in a single year, significantly reducing their corporate income taxes payable. Prior to 1996, in-situ oil sands projects could only write off 25 per cent of their capital investment per year.

Today, in-situ is the fastest growing method of oil sands extraction and is almost equivalent in production to traditional open-pit projects. Out of the 170 billion barrels of recoverable oil in oil sands deposits, approximately 80 per cent is recoverable through in-situ production. The remaining 20 per cent is recoverable through open-pit mining. Between 1996 and 2002, the estimated cost of this tax break was $538 million. By 2007, this cost had increased to $300 million in that year alone.

In an effort to combat climate change and reduce emissions, in 2007 Finance Minister Jim Flaherty announced the phase-out of this ACCA tax break for both in-situ and open-pit oil sands projects by 2015.

This year marks the first year in decades that this tax break – an indirect subsidy to the oil sands – is not available to oil sand companies. It is one of a number of steps that the Government has taken toward reducing greenhouse gas emissions (GHGs) in Canada. Other steps include the phase-out of coal fired electrical generation plants and the new strict passenger car and light truck fuel efficiency regulations that are expected to reduce fuel consumption by 50 per cent by 2025.

As a result of Government actions, GHGs have declined five per cent since 2005, from 737Mt in 2005 to 699Mt in 2012. This is notable, especially considering that from 1990 to 2005, total emissions grew from 591Mt to 737Mt.

While more needs to be done to meet the Government’s commitment to reduce GHGs by 17 per cent from 2005 levels by 2020, the phase-out of the ACCA for oil sands projects is another step toward meeting that commitment.

If you have any questions or comments, please contact me at (866) 878-5556 or at michael.chong@parl.gc.ca


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