Fact-checking the gas tax talk in the Ontario election leaders’ debate
This week's Political Climate newsletter careens from a whopping 565 pages of Ring of Fire...
For years, B.C. Premier Christy Clark has been under immense pressure to deliver on the liquefied natural gas (LNG) promises that formed the backbone of her 2013 election campaign.
Back then, the Liberals predicted LNG could create almost 40,000 construction jobs in BC, 75,000 full-time jobs once in operation, and much more.
“It’s no fantasy,” read the Liberal platform of 2013. “We can create $1 trillion in economic activity and create the BC Prosperity Fund with $100 billion over 30 years.”
But four years later, the opportunity to cash in on LNG exports to Asia has dissolved, while the $100 million currently sitting in the Prosperity Fund has been drawn not from natural gas, but from sources like the premiums for the BC Medical Services Plan.
On the cusp of the 2017 election, just one relatively tiny LNG plant (Woodfibre LNG), owned by Singapore tycoon Sukanto Tanoto, has committed to move forward. Meanwhile the long-time front-runner, Pacific Northwest LNG planned near Prince Rupert, continues to stall despite receiving federal environmental approval in September 2016. And last week, Royal Dutch Shell announced it’s abandoning its Prince Rupert LNG project.
In hopes of luring major LNG producers to our shores, the BC Liberals have offered perks and subsidies of unprecedented generosity. What follows is an incomplete list of the public giveaways offered to spur the creation of a B.C. LNG industry. Taken all together, the largesse of these incentives prompts a disturbing question: at what point do the perks offered by government negate the public benefit of owning the resource in the first place?
Around the same time Woodfibre LNG made a final investment decision last November, Clark announced that all LNG projects using electric drives powered by the grid would qualify for an industrial electricity rate of around $60/megawatt hours (MWh).
This slashed the previous LNG electricity price of around $84/MWh by 2020. This higher price recognized that new and future supply used by potential LNG companies, from sources like Site C, will be much more expensive than the electricity generated by our older, already paid-for legacy hydro dams.
The savings implication of this price cut is astronomical for future LNG operations if they appear. An independent analysis by Paul Ramsey conservatively calculated that Woodfibre LNG alone will save at least $13.8 million annually from the change. (A separate analysis found the annual subsidy to be closer to $34 million per year for Woodfibre).
Ramsey’s analysis concluded that the BC government was paying $138,524 for each of the 100 permanent jobs being created by this LNG facility.
“Government is about choices, and this government is making some batshit crazy choices,” concluded Ramsey.
Sweetening the electricity deal even further, the latest B.C. budget phased out provincial sales tax (PST) on electricity purchased by businesses, which will result in millions more in savings for Woodfibre LNG.
Since former premier Gordon Campbell introduced North America’s first revenue-neutral carbon tax in 2008, British Columbia has been celebrated as a climate action innovator. But a major problem with the tax, beyond B.C.’s failure to increase the per tonne cost over time, is that it only covers combustion sources. (Combustion only accounts for only about 70 percent of total provincial emissions). That leaves 30 percent untaxed, and a huge share of these come from the upstream production of natural gas, says Pembina Institute analyst Maximilian Kniewasser.
“It’s pollution that is not taxed,” he says.
Consider that the natural gas sector in B.C. is responsible today for about 11 million tonnes of greenhouse gas emissions, or about 17 per cent of all of B.C.’s emissions. About 40 percent of those natural gas-related emissions are from non combustion sources – like venting of carbon dioxide and leaks of methane all along the supply chain — and the industry does not have to pay carbon tax on these emissions. It’s a gaping loophole that remains wide open, costing industry nothing.
The carbon-related perks do not stop there: it was originally proposed that LNG plants would have to meet a greenhouse gas emission benchmark for each tonne of LNG produced. If they could not meet this, they would have to either pay for offsets, buy credits from other companies or pay into a clean technology fund at $25/tonne. Since then, the province has created an incentive program for LNG projects that come close (but fail) to meet the benchmark, which rebates anywhere from 50 to 100 per cent depending on the company’s performance.
— DeSmog Canada (@DeSmogCanada) March 15, 2017
In 2012, the Clean Energy Act, which stipulates that B.C. must get 93 per cent of its energy supply from clean sources, was changed to lift any restrictions on future LNG plants using natural gas to power their operations. By making the change, B.C. signalled a willingness to abandon its climate change targets for the sake of enticing energy-intensive LNG plants into the province.
Flash forward to last August, when the BC Liberals unveiled their Climate Leadership Plan, which contains a scheme to spend public money to electrify gas extraction. The idea to “green” gas production had actually been set in motion months before, in January of 2016, when BC Hydro announced the construction of a $300-million, publicly funded transmission line deep into the Montney gas fields (one of three being planned).
“Before, industrial customers had to burn gas to power their facilities,” stated Christy Clark in the press release. “The new transmission line not only makes more projects possible, it means they’ll be even cleaner.”
Providing BC Hydro grid power to the gas fields is particularly important because the Montney Basin is home to a lot of “wet” natural gas, meaning it contains valuable things like propane, ethane and butane. Especially during the ongoing commodity slump, such spinoff products are more valuable, so gas companies are loath to burn wet gas just to generate energy.
“Irrespective of what happens with LNG, it is in the financial interest of the gas industry to see those operations electrified,” said Ben Parfitt, a resource policy analyst with the Canadian Centre for Policy Alternatives, who wrote on this subject in DeSmog Canada.
It’s this policy of providing hydro power to the gas industry that provides what Parfitt calls “the only credible explanation for why the Crown corporation is rushing to build the controversial [Site C] dam at this time.”
In February 2017, the B.C. government announced it was spending at least $145 million in deals with two north coastal First Nations affected by proposed LNG projects near Prince Rupert. In addition to the money, the communities of Lax Kw’alaams and Metlakatla will receive about two cents per tonne of LNG shipped (to be placed in a coastal fund), and a transfer of more than 2,100 hectares of provincial Crown land.
The agreements will allow the Pacific Northwest LNG to work “on a common goal of realizing the project,” said Wan Badrul Hisham, the company’s chief project officer at the Victoria announcement. The B.C. government confirmed to DeSmog Canada that the benefit agreements will be funded by the province and not by industry.
In 2013, the BC Liberal election bus was wrapped with a “Debt Free B.C.” banner, an idea predicated on a bullish outlook for future gas royalties. But in 2017, not only have B.C. royalty rates plummeted (largely due to low commodity prices), but the revenue to the Crown continues to be eroded by provincial “royalty credits” — estimated by the Centre for Policy Alternatives’ economist Marc Lee to average $244 million per year over the past decade. According to Lee, these credits for deep fracking and “road and pipeline infrastructure,” in addition to super-low usage charges for water, are examples of how the upstream gas producers needed to supply a future LNG industry are being subsidized by the public.
In summer of 2015, the province signed its first Project Development Agreement with front-running Pacific Northwest LNG — a project led by Malaysia’s Petronas (and including China Petrochemical Corp., Brunei National Petroleum Co., and others). Among other things, the agreement locked in taxes (including a tax rate of 3.5 percent, cut in half from the previous LNG rate of seven per cent) and various environmental regulations for the first 25 years of commercial operation.
One impact of the agreement, says Pembina’s Kniewasser, is that if a future government attempts to strengthen LNG specific environmental regulations (like those found in B.C.’s Greenhouse Gas Industrial Reporting and Control Act), they will have to pay compensation.
“It insulates companies from future increases of carbon costs,” he said.
The deal particularly incensed Martyn Brown, Gordon Campbell’s former chief of staff, who vented during a conversation with Vancouver Province columnist Michael Smyth.
“It’s an unprecedented giveaway to the biggest oil companies in the world,” he said. “This is not a deal that the Campbell government would have ever, ever put in place because we are selling out this resource for a song.”
Photo: Province of British Columbia via Flickr
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