EnviroEconomics.ca

…environmental economics and the implications of environmental policy

Why Subsidies Matter

with 32 comments

My attention turned to perverse subsides recently for a number of reasons (see here).
Subsidies are obviously a bad thing, especially if they promote more of something we are spending cash to reduce. In Canada when one thinks of fossil fuel subsidies, one thinks oil and gas. Pembina has done a lot of work on oil and gas subsidies, resulting in a Green Budget Coalition recommendation (see a short summary here).

Pembina estimates direct tax expenditures on the oil and gas sector by the feds to be about $1.4 billion annually (here). But this is likely decreasing due to the federal government’s repeal of the oil sands development expenditures valued at about $300 million annually (see here).

So, say $1.1 to $1.4 billion annually rolling forward in time.

Is this a big number? Initially, I thought not given that oil and gas GDP was about $76 billion in 2005, so the tax subsidy was about 1.8% of annual GDP. But then I looked at emissions. Oil and gas emissions were about 130 MT in 2005. This means that the effective subsidy is equivalent to a carbon price of $11/tonne. This caught my eye. Enough so that I thought it worth modeling what it could mean for emissions.

The best way to model the subsidy is to reduce production costs by the rate of the effective subsidy to production, and not as a carbon price. But, just for fun, and because it is easier, I simply put a carbon price of $11/tonne into the sector and modeled the results (in CIMS). Essentially the policy case would be: what happens if we drop subsidies to the sector and price emissions the equivalent value?

In this policy case, national GHG emissions from oil and gas drop significantly in time, from a BAU of about 214 MT in 2020 to 179MT. Over the long-term, emissions drop by 2050 from 230MT to 169 MT. See chart below. These are significant reductions.

So, it is great to be proven wrong and it seems there is scope to look at this subsidy issue a lot closer. Indeed, $11/tonne is a crazy number, and put in context with the federal government’s Technology Fund safety valve price of $15 to $22, it seems the Feds are pricing emissions even less than we thought.
oilsubsidy.JPG

Written by Dave Sawyer

November 13th, 2008 at 4:15 pm

32 Responses to 'Why Subsidies Matter'

Subscribe to comments with RSS or TrackBack to 'Why Subsidies Matter'.

  1. .

    good!!…

    Lonnie

    27 Jul 14 at 9:25 am

  2. .

    tnx!!…

    Sam

    22 Aug 14 at 6:18 pm

  3. .

    good info!!…

    luke

    22 Aug 14 at 8:04 pm

  4. .

    tnx for info….

    homer

    23 Aug 14 at 7:00 am

  5. .

    good!!…

    Ernest

    23 Aug 14 at 8:14 am

  6. .

    thank you….

    lee

    23 Aug 14 at 2:14 pm

  7. .

    ???????!…

    antonio

    23 Aug 14 at 3:12 pm

  8. .

    good info!!…

    Orlando

    23 Aug 14 at 3:24 pm

  9. .

    tnx for info!!…

    Cory

    23 Aug 14 at 10:14 pm

  10. .

    good info….

    arturo

    24 Aug 14 at 5:51 am

  11. .

    good info!!…

    jorge

    24 Aug 14 at 6:01 am

  12. .

    ñýíêñ çà èíôó….

    Chester

    16 Nov 14 at 3:47 pm

  13. .

    thanks for information!…

    pedro

    18 Nov 14 at 12:44 pm

  14. .

    tnx!…

    guy

    20 Nov 14 at 4:28 am

  15. .

    ñïàñèáî çà èíôó!!…

    Arthur

    20 Nov 14 at 6:01 am

  16. .

    good!…

    Chester

    21 Nov 14 at 2:15 pm

  17. .

    ñïàñèáî çà èíôó….

    julian

    22 Nov 14 at 10:21 am

  18. .

    ñïàñèáî çà èíôó!…

    Troy

    26 Nov 14 at 4:18 pm

  19. .

    good….

    Ben

    27 Nov 14 at 1:38 am

  20. .

    tnx for info!!…

    Alex

    27 Nov 14 at 2:10 pm

  21. .

    tnx….

    jessie

    27 Nov 14 at 4:22 pm

  22. .

    ñïàñèáî çà èíôó!…

    Rick

    30 Nov 14 at 2:38 am

  23. .

    ñïàñèáî çà èíôó!!…

    matt

    1 Dec 14 at 1:42 am

  24. .

    thank you!!…

    kyle

    4 Dec 14 at 4:34 pm

  25. .

    ñýíêñ çà èíôó….

    carlos

    5 Dec 14 at 4:24 am

  26. .

    hello….

    trevor

    5 Dec 14 at 10:42 pm

  27. .

    thanks….

    Travis

    8 Dec 14 at 5:28 pm

  28. .

    áëàãîäàðñòâóþ!…

    Jared

    11 Dec 14 at 8:07 pm

  29. .

    good info!!…

    Rex

    12 Dec 14 at 10:16 am

  30. .

    áëàãîäàðþ….

    tyrone

    14 Dec 14 at 12:28 am

  31. .

    áëàãîäàðþ!…

    jonathan

    14 Dec 14 at 1:01 am

  32. .

    thanks!…

    matt

    15 Dec 14 at 5:15 am

Leave a Reply