Ottawa has no plan to eliminate tax incentives for Alberta’s new oilsands projects — even while cutting greenhouse gases under the Kyoto Accord, says Natural Resources Minister Herb Dhaliwal.

The oilsands tax incentives “were put there to encourage investment in that industry. So I don’t see that there’s going to be any change,” Dhaliwal said after meeting in Calgary with oil and gas chief executives.

Earlier this month, Ontario MP Charles Caccia, chairman of the House of Commons environment committee, called on Finance Minister John Manley to remove “perverse tax subsidies which encourage greenhouse gas emissions” by fossil fuel producers.

Caccia said that as part of Canada’s commitment under Kyoto, Ottawa also should consider rewarding producers of renewable energy and give consumers incentives to buy low-emission vehicles and use public transit.

Herb Dhaliwal

Dhaliwal said Caccia’s opinion on federal incentives for the oil and gas industry “doesn’t reflect the view of the government.”

Ottawa will be announcing new investments in renewable energy as part of its plan under Kyoto, Dhaliwal said.

“Hopefully, in the budget we’ll see a partnership fund which also invests in technology as well, as part of our climate change program.”

But environmental activist Martha Kostuch, a veterinarian in Rocky Mountain House, says both the federal and provincial governments should end all subsidies for fossil fuel production, including oilsands.

Oilsands expansion is projected to increase Canada’s total greenhouse gas emissions by 29 per cent by 2012, the end of the first compliance period under Kyoto, Kostuch said.

“Everybody else has to make up the difference” in reducing emissions in order to achieve the Kyoto target, she said. “All the rest of Canadians and all the other provinces have to make up the difference to have an overheated economy in Alberta.”

Dhaliwal suggested that Ottawa is close to resolving the oil and gas industry’s long-standing complaint about how much tax it pays.

The resource sector, because it receives other federal financial incentives, was left out of a five-year budget plan in 2000 to cut the corporate tax rate from 28 per cent to 21 per cent.

The Canadian Association of Petroleum Producers (CAPP), in a brief presented last year to the standing committee on finance, directly linked the tax rate with efforts to reduce greenhouse gas emissions.

The foundation for a competitive oilpatch “is the inclusion of the oil and gas industry in the announced reductions in corporate income tax rates and adoption of a broad-based plan for Canadians by Canadians to address this country’s greenhouse gas emissions,” CAPP said.

Dhaliwal said while he can’t predict what will be in the next budget – expected in February – the Finance Department “is looking seriously at what they can do to deal with the concerns of the industry . . . .”

He said he is confident that the assurances he provided last month to CAPP have addressed the industry’s concerns about how much implementing Kyoto will cost and uncertainty by investors in long-term projects such as new oilsands plants.

In a letter to CAPP, Dhaliwal pledged that Ottawa will cap the cost to the oil and gas industry of reducing greenhouse gases to $15 per tonne of carbon dioxide, and will limit the expected reduction to 15 per cent below the projected business-as-usual emission levels for 2010.

Ottawa predicts that achieving the Kyoto target will cost the industry an additional 12 to 14 cents per barrel of oil produced, but some companies estimate the cost will be 20 to 27 cents per barrel.

In either case, Dhaliwal said, “I think that’s manageable and they will be able to deal with that in their costs.”

Dhaliwal, who noted that French oil giant TotalFinaElf SA earlier this month announced a $1-billion investment in an Alberta oilsands project, said although Kyoto will have some impact on the oilsands, “it does not have an impact that will cause projects to be cancelled.”

The industry has toned down its criticism about Kyoto since Ottawa ratified the accord last month.

However, CAPP is still looking for a more detailed federal implementation plan with assurances about long-term project costs beyond 2012.