Finance Canada rejected her recommendation that, in its hunt for favourable tax measures for the oil and gas industry, the department take into account evidence that integrates economic, social, and environmental sustainability on an equal basis.

On Tuesday, when the commissioner of environment and sustainable development tabled her final reports in Parliament before she leaves the position this fall, that streak ended.

Julie Gelfand says she's never clashed with a federal department over one of her recommendations in the five years she's been Canada's environment watchdog.

She also found that the federal Environment Department did not consider the Canadian government's $4.5 billion purchase of the Trans Mountain oil pipeline and expansion project in its ongoing assessment of corporate handouts to the oil and gas sector.

The dispute with federal bean counters is contained in one of several audits Gelfand submitted April 2 to federal MPs and senators, on a range of issues including invasive species and water pollution from mining companies.

"It is their right to disagree, and really it's up to parliamentarians and Canadians to ask the departments why they disagreed, and what are they going to do about that."

"It is the first time that a department has disagreed with one of my recommendations. Was I surprised? A little bit; it hadn't happened before," Gelfand told reporters in a press conference Tuesday.

"Disagreed," the department retorted. Some of those considerations, it argued, may be more "relevant" than others.

Gelfand also found that Finance Canada's attempt to ferret out favourable tax measures to the oil and gas sector was "incomplete" and that the department did not clearly define how a tax subsidy for fossil fuels would be inefficient.

“In addition, after the period covered by our audit, the government purchased the Trans Mountain Pipeline, and the department did not consider assessments related to its expansion or purchase,” the report said.

Gelfand said the federal environment department also failed to probe things such as energy sector regulators and research grants.

“Overall, we found that Environment and Climate Change Canada’s work to identify inefficient, non-tax subsidies for fossil fuels was incomplete and not rigorous,” said the report by Gelfand. “In our view, this is partially because the department used unclear definitions.”

Her office reviewed the commitments by looking at both tax subsidies and non-tax subsidies, concluding that the federal government still had a lot of homework to do.

Gelfand’s investigation of fossil fuel subsidies follow up on a commitment, made at a 2009 G20 summit in Pittsburgh by former prime minister Stephen Harper, to phase out inefficient fossil fuel subsidies. The Trudeau government has also made a pledge to phase out non-tax “inefficient fossil fuel subsidies” by 2025.

Oil and gas subsidies punish clean technology companies by tilting the market in favour of carbon polluting energy sources that hurt Canada's chances at tackling climate change.

The pipeline purchase, completed by the Trudeau government last summer, is among a series of federal investments, including some “that were designed to increase production of fossil fuels and manage waste from oil sands production” that should have been on a list of subsidies, said Gelfand's audit.

However, Environment and Climate Change Minister Catherine McKenna announced last week that the government was launching public consultations about what needs to be on its list of fossil fuel subsidies.

In its response, included in the report, the government avoided saying whether it agrees that items such as the pipeline purchase should be included.

McKenna touted that announcement as a response to the audit's recommendations, in a statement she issued shortly after the audits were tabled. "To ensure Canada continues to show leadership on this front, we recently launched a consultation to seek public feedback on the government's framework to review non-tax measures," she said.

The consultation, which will run until June 30 and seek public feedback on the definitions of “fossil fuel subsidy” and "inefficient," will also be used in the government's peer review process to identify fossil fuel subsidies with Argentina that was launched in June 2018.

The department also relied on the newly-launched consultations when it responded to some of the commissioner's recommendations.

"The department will conduct consultations to solicit feedback," it said in one response, and will submit its review of inefficient fossil fuel subsidies "to a panel of experts" as part of the Argentina peer review. "The department will conduct consultations to solicit feedback," it repeated in another response.

But Karen Hamilton, program officer at Ottawa-based corporate accountability non-profit Above Ground, argued that a debate over what was a subsidy was missing the point.

"Ottawa should eliminate all public financial support for fossil fuels, regardless of whether it defines the support as a subsidy," she said in an interview.

Environment Canada looks at non-tax subsidies

Meanwhile, Finance Canada's assessments "focused almost exclusively on fiscal and economic considerations and did not consider the integration of economic, social, and environmental sustainability in subsidizing the fossil fuel sector over the long term," Gelfand wrote.

"In the context of the G20 commitment, the term 'inefficient' is not susceptible to the use of simple criteria, given the breadth of potential issues that may need to be considered," the finance department said in response.

While it agreed that economic, social, and environmental sustainability "are important considerations," the department said it "would not be practical to develop assessments that systematically devote equal attention" to them. "Depending on the context of the analysis, some types of considerations may naturally be more prevalent and relevant than others."

While Finance Canada is investigating tax measures, Environment and Climate Change Canada (ECCC) is looking at non-tax subsidies, which are things like government grants, favourable loans, or research and development funding.

In the two years since the auditor general found in 2017 that ECCC “did not yet know” the extent of non-tax subsidies, Gelfand's findings show that the department was able to examine 23 out of approximately 200 possible federal organizations.

Within those 23 organizations, it found four subsidies — none of which, it decided, should be eliminated, since it found they were not "inefficient."

"The department’s approach to creating the inventory of potential non-tax subsidies for fossil fuels excluded several projects that in our opinion should have been on the list," Gelfand wrote in the April 2 report.

The four subsidies that ECCC found related to “electric and alternative fuel vehicle infrastructure,” the government’s term for electric car chargers, natural gas and hydrogen fuel cell charging stations, as well as "oil and gas clean technology research" and support for electricity prices in Indigenous communities

The department "did not conduct rigorous and complete assessments" for three of the four subsidies, Gelfand said, and there was insufficient information to determine subsidy efficiency. The government is planning on spending $22 million on natural gas stations and $50 million on "clean oil and gas" tech.

Department 'guidelines' seen as inadequate

Part of the problem was that ECCC had not actually defined what “inefficient" meant in the first place, said Gelfand.

The Environment Department "did not clearly define criteria" for what made something inefficient, nor did it give any "detailed guidance" on how to made that decision to other government organizations, she said.

"Instead, the department established a list of broad considerations that could be used to guide the assessment of whether a non-tax subsidy was inefficient. In our opinion, the list of considerations was not sufficient to be a definition and did not have clear criteria."

ECCC also came up with a way to exclude some fossil fuel projects as subsidies by deciding that programs had to "disproportionately" benefit the oil and gas sector, although it failed to define what "disproportionate" meant.

In a discussion paper that was released alongside McKenna's announcement, the department laid out a proposed definition of non-tax subsidies as federal programs "that provide preferential treatment that specifically supports the production or consumption of fossil fuels."

That isn't precise enough, Gelfand told reporters Tuesday. "What they gave us was a broad set of guidelines," she said.

"Really, you should read them. They don't meet the term of a definition. It's up to them to define 'inefficient,' what they gave us didn't meet our test, and is not an adequate definition to guide the work that they need to do."

Gelfand's report also noted that there are several international organizations with definitions of subsidies that the government could use: The World Trade Organization, International Energy Agency, International Monetary Fund and World Bank all have such definitions.

But the discussion paper points to those organizations as providing "different definitions" and says there is "no single international definition of what constitutes a fossil fuel subsidy, or how to approach inefficiency."

The paper also says the department found that Export Development Canada, which provides loans and financing to Canadian business including in the energy sector, should not be specifically singled out.

Providing loans "on commercial terms," even from a Crown corporation, "would not constitute a subsidy to the fossil fuel sector, as there is no additional benefit provided by the government," the paper stated.

Export Development Canada's services are also "widely available to the general economy and are not specific to the fossil fuel sector."

Hamilton of Above Ground said that this finding was particularly troubling for her.

"Canada has pledged to make finance flows consistent with a pathway towards low greenhouse gas emissions. With $17.7 billion in EDC support to the oil and gas sector last year alone, we're headed in the wrong direction," she said.

"And as EDC's sole shareholder, the government is profiting from a sector that's directly fueling the climate crisis."

Editor's Note: This story was updated at 2:15 p.m. ET on April 2, 2019 to include additional information and quotes from Gelfand and Hamilton.