The Carney government’s financial support for the oil and gas industry amounts to breaking a federal commitment to phase out fossil fuel subsidies, according to environmental advocates.

They say the measures represent further federal backsliding on climate policy at a time when oil industry earnings are on the rise.

After the Trudeau Liberals promised to phase out “inefficient” fossil fuel subsidies, Prime Minister Mark Carney’s government introduced a new tax benefit for oil extraction and brought back an old one for natural gas.

This comes as the federal government is preparing to invest billions of dollars into a new West Coast pipeline and at least one Crown corporation is disclosing more public dollars might be directed toward fossil fuels.

The Liberals recently committed to bringing back a tax break for liquefied natural gas (LNG). The measure, which allows companies to claim accelerated depreciation on their assets for a lower tax bill, expired in 2024 but was reinstated in last year’s budget.

The tax break for LNG companies will cost the government $362 million over five years, according to the Parliamentary Budget Office.

“We’re seeing quite worrying steps backwards,” said Nichole Dusyk, the Canada energy transition lead at the Institute for Sustainable Development.

The Carney government is also expanding its carbon capture investment tax credit to a technique used to recover more oil and gas, what’s known as enhanced oil recovery or EOR. The technique injects carbon dioxide underground to squeeze more oil out of reservoirs. 

It’s been hailed as a “game changer” for those involved in the conventional oil business. The original carbon capture tax credit excluded oil recovery, which environmental groups argued would count as fossil fuel subsidy. 

Before the tax credit was expanded to include oil recovery it was estimated to cost Ottawa $12.3 billion, according to the Parliamentary Budget Office.

“We’re seeing a very worrying pattern with this government of [not only] increasing fossil fuel subsidies across a number of fronts, but the creation of new subsidies, new measures, new vehicles to transfer public dollars to the fossil fuels sector,” said Dusyk.

In 2023, the federal government rolled out guidelines to end what it called “inefficient” federal subsidies for fossil fuels. Critics said the plan contained loopholes, including exemptions for subsidies that enabled significant greenhouse gas emission reductions, adoption of clean energy or technology or supported Indigenous economic participation in fossil fuel projects.

Oil benchmark again passes $100 US

Dusyk said the Carney government is offering billions in incentives for oil and gas companies at a time when the war in Iran is bringing higher revenues for the companies that can get their product to market. 

On Thursday, oil prices topped $100 US per barrel as Houthi militants attacked tankers in the Red Sea, where Saudi Arabia has rerouted much of its oil exports after Iran blocked the Strait of Hormuz.

In a recent social media video, Carney said that the Iran war’s impact “will be with us for a long time.” He said the world needs Canada, with its massive conventional energy reserves, to step up.

Carney says his government remains committed to creating a low-carbon economy but Ottawa cannot “afford to restrain the growth of an important part of our energy mix, oil and gas” to meet short-term climate goals. 

CBC News asked the office of Canada’s finance minister if Ottawa was still committed to phasing out fossil fuel subsidies. 

A statement from a spokesperson for the minister suggests the government hasn’t abandoned the Trudeau-era framework.

“It’s worth reiterating that Canada is the lone country in the world to release a rigorous analytical guide to phase out inefficient fossil fuel subsidies,” said John Fragos, the press secretary for the minister of finance and national revenue.  

$29B spent on sector in 2024

One group has been keeping receipts on how many federal dollars are going to boost fossil fuel expansion. 

Environmental Defence Canada recently released a report that found the government of Canada provided “tremendous” public dollars to fossil fuel projects across the country.  

In 2025, the group’s analysis found, the federal government spent more than $10 billion on fossil fuel subsidies, financing and other incentives.

That’s down from the more than $29 billion in 2024. 

“The government continues to put a huge amount of our money into projects that are fuelling the climate crisis,” said Julia Levin, an associate director at Environmental Defence Canada.

Most of the financing was delivered through Ottawa’s export financing agency, Export Development Canada (EDC).

The agency’s total support for the oil and gas sector totalled $9.3 billion, up 22 per cent compared to the previous year, according to its annual climate-related disclosure report. 

“EDC expects increased demand to support Canada’s domestic oil and gas sector, as it is being called upon to help strengthen Canada’s resilience, competitiveness and economic security,” the report notes.

“As a result, we anticipate providing increased support for certain carbon-intensive and nation-building projects.”

The report also notes that EDC is committed to supporting solar, wind, geothermal and battery energy and in 2025 EDC disbursed $1.4 billion in financing in this area. 

In a statement the agency pushed back on the characterization that it’s subsidizing the oil and gas industry.

“EDC’s business support is not considered a subsidy as we provide Canadian companies with financing solutions on commercial terms,” said spokesperson Zoé de Bellefeuille.

“EDC is a self-financing Crown corporation that equips Canadian companies with financing, equity and insurance on commercial terms — and does not provide grants or subsidies.”  

But Export Development Canada does provide loans, which environmental groups point out are considered subsidies by the World Trade Organization when administered by a public body.

More public dollars could be going to carbon-intensive infrastructure projects as the federal government revealed in July that the Alberta government’s proposal for a pipeline to the West Coast will be built in partnership with the federal government.

The government-owned Trans Mountain Corporation and the province, through the Alberta Petroleum Marketing Commission, will build the pipeline. A private sector proponent, Pembina Pipeline, will hold a minority stake once construction begins.   

Ottawa hasn’t said how much the federal government will pay. 

“I am quite comfortable that this is a good investment for Canadian taxpayers,” Energy Minister Hodgson said in an interview with CBC’s Power and Politics after the proposal was released.