Canada Loves to Shower Fossil Fuel Companies With Public Money

Between 2018 and 2020, Canada ranked as the world’s top subsidizer of the fossil fuel industry. Now the province of Alberta is trying to outdo the nation by paying oil and gas producers to fulfill their legal obligation to clean up their own mess.

At Fort McKay, Alberta, in the heart of Canada's boreal forest, the pines and people were long ago cleared out to make way for huge open-pit mines dedicated to the excavation of oil sands. (ED JONES / AFP via Getty Images)

Alberta premier Danielle Smith has introduced a plan to reward oil and gas companies — which have been producing and profiting at record levels — for cleaning up the environmental mess their projects have left behind, which they’re already required to do by law. What’s more, Smith lobbied the government to adopt this proposal as recently as last year, when she was still a corporate lobbyist.

This means that in the very recent past, when she was on the other side of the revolving door between the private sector and government, Smith was representing the interests of the very companies she’s now seeking to subsidize. Smith’s initial proposal was rejected by then energy minister Sonya Savage. Savage deemed the proposal beyond the pale, despite being a former oil and gas lobbyist herself. In the interim, Smith replaced Savage with Peter Guthrie, a legislator who supports her hairbrained proposal, resulting in the potential advance of a $100 million pilot. Smith revealed on February 24 that the program’s implementation rollout will be delayed until the fall, making the provincial election scheduled for May in part a referendum on this subsidy to big oil and gas companies.

To drill for oil in Alberta, companies have to pay royalties to the provincial government, which, on paper, owns the resources. During the austerity bonanza of the 1990s, this rate was greatly reduced at the urging of industry. Despite efforts to change rates in 2007 and 2015, they haven’t been increased since. The so-called R-Star program would reduce these rates even further if companies fulfill their environmental obligations under the long-standing “polluter pay” principle.

In effect, Smith is promising to lower already cut-price royalty obligations if oil companies fulfill a task to which they are already legally committed. If Smith is reelected and the program goes through, the cost to Albertans will very likely be immense. When Smith first pushed the idea as a lobbyist, she advocated for oil companies to be subsidized by R-Star credits in the amount of $20 billion.

Another Handout to Fossil Fuel Companies

Environmental liabilities are a major issue in Alberta. These liabilities take the form of inactive wells, mining facilities, and pipelines, which continue emitting greenhouse gasses long after the wells are sucked dry, waters are polluted, and dangers are posed to wildlife. In order to prevent these impacts, the sites need to be returned to their original state, or “reclaimed,” in industry jargon.

This is a pricey process. According to the Alberta Liabilities Disclosure Project (ALDP), there’s anywhere from $58 to $260 billion worth of environmental liabilities across the province, yet just $1.5 billion has been collected from energy companies as security against these costs. The scope of the predicament is tremendous, with tens of thousands of orphaned wells requiring remediation. Ultimately, it’s the companies themselves that should be paying these costs. But R-Star would reverse the onus of responsibility, paying these companies to clean up this mess.

Another problem is that this program, because it’s dependent on the sweetener of royalty reductions, would only apply to companies that are continuously drilling. The program therefore will not address the issue of companies that have gone bankrupt and left behind “orphan wells” while their former owners move on to make money elsewhere.

An egregious example is Forent Energy, which was owned by celebrity businessperson W. Brett Wilson, who once called environmentalists “slimy bastards” who should be “hang[ed] for treason.” Forent, which went into receivership in 2017, leaves in its wake dozens of orphaned wells and is on the hook for $2.1 million to $3.7 million in cleanup costs. The company’s former chairman and largest shareholder, meanwhile, is worth an estimated $300 million. The R-Star program does nothing to compel companies that have absconded the field with their lucre to fulfill their cleanup obligations.

Companies that are eligible under the R-Star subsidy simply don’t need the money on offer. According to Scotiabank, the program’s biggest beneficiaries would be a scant three companies — Canadian Natural Resources, Cenovus, Whitecap, and Paramount — whose combined net income, according to their last quarterly reports, was nearly $5 billion.

Corporate Welfare

Edmonton-based political columnist Graham Thomson, writing in the Toronto Star, said the form of corporate welfare envisioned by Smith might be a bridge too far for many Albertans, who have previously tolerated generous subsidies to the oil and gas industry:

Alberta governments have had such a cozy relationship with oil and gas companies that, at times, you’d think they should be holding their discussions in a motel room.

Over the years, energy companies have enjoyed tax breaks, financial incentives and questionable environmental regulations that allow oilsands companies to build massive tailings ponds — the kind big enough to see from space and toxic enough to kill migrating ducks unlucky enough to land on them.

But with a new proposal to give $100 million in aid to energy companies, Premier Danielle Smith may be straining what Albertans are willing to accept.

But the problem isn’t confined to the fossil fuel–sympathetic politicking of Smith. Of $1 billion given to the province by Prime Minister Justin Trudeau in 2020 to assist in cleanup for the Site Rehabilitation Program (SRP), more than half went to companies in good financial shape. This included almost $142 million to the Big Four oil companies — $102 million for Canadian Natural Resources, $12 million for Cenovus Energy, $16 million for Husky Energy, and $11.7 million for Imperial Oil. Not a single orphan well was recovered with these funds, despite the fact that under the Supreme Court of Canada’s 2019 Redwater decision, insolvent companies have a legal obligation to clean up their liabilities before paying off any creditors.

Regan Boychuk, a researcher with the ALDP and candidate for the Green Party in the upcoming Alberta provincial election, told environmentalist news site The Narwhal that the ALDP’s pleas to the federal government to offer loans with strings attached — instead of grants to industry — fell on deaf ears. While Trudeau’s funding did lead to work getting done at various stages in the process on 31,925 sites, Boychuk said this was only done because “it was raining money from Ottawa,” adding:

It takes a real feat of ideological blindness not to see how much money is coming out of the ground, how big of a mess is being left behind and how we’re being cheated. It could not be more transparent or clear.

The World’s Leading Subsidizer of the Fossil Fuel Industry

A 2021 report from the Parkland Institute and Oxfam Canada concluded that the federal funding “amounts to little more than a bailout to the oil and gas industry.” But, according to a report from Oil Change International, the $1 billion SRP is but a small fraction of the $14 billion in average annual subsidies the Trudeau government gave the industry between 2018 and 2020. Oil Change International ranked Canada as the world’s top subsidizer of the fossil fuel industry in those years.

Despite this, Smith insists her approach is novel. “We have to try something different,” she said at a news conference in response to a question from journalist Catherine Griwkowsky. But there is a clear alternative that, believe it or not, has never been attempted: forcing the companies to pay for their own cleanup costs. The Alberta Energy Regulator has the ability to suspend drilling permits for companies that haven’t fulfilled their environmental obligations. They’ve just never used it. “We can hold these folks accountable, but we have the same dilemma we’ve always had in Alberta — the sheriff won’t take his gun out of his holster, he won’t hold this industry accountable and, as far as complaints go from citizens to the regulator, the door’s locked,” Boychuk told me.

Opposition to R-Star is not simply the domain of environmentalists; it is issuing from some surprising precincts. Scotiabank, one of Canada’s largest banks, warned that Smith’s scheme would undermine “the core capitalist principle that private companies should take full responsibility for the liabilities they willingly accept.” This take, of course, couldn’t be further from the truth. A core principle of capitalism is to always depend on the strong arm of the state to keep it functioning. But the R-Star program, and Smith’s history of lobbying before seizing the reins of government, lays bare for all to see the extent to which state power itself is captured by corporate interests.