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Green Budget Coalition Issued March 29, 2006 “Perverse” Energy Subsidies The term “perverse subsidy” is often used to refer to subsidies intended to support energy exploration and production but which also work against other important public policy objectives, such as human health and a clean environment. A 2001 OECD analysis recommended that, “the preferential tax treatment of conventional resource sectors, such as oil and gas and minerals and metals, should be eliminated” on both environmental and economic grounds. Three key recipients of such perverse subsidies are the oil and gas sector, Atomic Energy of Canada Limited (AECL), and the mining sector.
One particularly egregious subsidy is the accelerated capital cost allowance for tar sands developments. Capital cost allowance rates generally reflect the useful life of the assets being depreciated. Tar sands projects qualify for significantly accelerated write-offs resulting in a tax expenditure of $484 million between 1996 and 2002 according to the Pembina Institute. These tax expenditures are likely to grow dramatically given the numerous multi-billion dollar tar sands projects that have recently been proposed. Since 1997 when Canada first agreed to its Kyoto target, the federal government has been spending $2 on oil and gas industry tax subsidies --- and indirectly promoting greenhouse gas emissions --- for every $1 it has spent on reaching its Kyoto goal. Between 1990 and 2003 Canada's GHG emissions increased by 24%, with a significant part of the increase attributable to the oil and gas industry. Contact: Amy Taylor, Director of Ecological Fiscal Reform, Pembina Institute, 403-678-3355, amyt@pembina.org Following the failure of licensing processes for the ACR in the United States and the United Kingdom, no utility or government has stepped forward to take the risk of building the untested prototype reactor. In September 2005, the former Liberal government allocated $2.3 billion for the clean-up and decommissioning of AECL’s Chalk River Laboratories, in the Ottawa valley. These funds should be kept in a segregated fund, separate from AECL and its day-to-day operations. Contact: David Martin, Greenpeace Energy Coordinator at 416-627-5004
The flow-through program, a tax incentive for “grassroots” mineral exploration, was introduced in October 2000 as a temporary measure to help moderate the effect of a global downturn in mineral exploration in the 1990s. The original three-year program has been extended twice since its inception, both for additional one-year periods, and was then due to come to an end on December 31, 2005. The program enables mining companies to allocate a portion of their exploration losses to investors to use as a loss on their tax returns. The federal ITCE further enables investors to receive a 10% credit for their investment in a mineral exploration project on previously undeveloped land. The ITCE was institutionalized with Bill C-48 at the end of 2004. The ITCE enriches speculative investors by reducing the after-tax cost of a $1000 investment in exploration in Canada to as little as $207 in Quebec, and $333 in BC. The federal government should phase out the ITCE and flow-through share program. It would also be economically prudent to further investigate whether the investment of public funds to support primary resource extraction over recycling and conservation measures reflects good business or environmental practice. Contact: Joan Kuyek, National Coordinator, MiningWatch Canada, 613-569-3439, joan@miningwatch.ca
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