The B.C. government is undermining its own climate action plan by granting hundreds of millions of dollars a year in subsidies to the fossil fuel industry, according to a report released Monday that singles out the LNG Canada project as a notable recipient of the largesse.
The report by the International Institute for Sustainable Development documents a wide array of subsidies that contribute to increased fossil fuel production and use in B.C. — subsidies that in the fiscal year 2017-18 totalled more than $830 million, write authors Vanessa Corkal and Philip Gass.
These subsidies include at least $268 million in provincial tax exemptions for that one year period, according to the report, Locked In and Losing Out: British Columbia’s Fossil Fuel Subsidies, which notes calculations are conservative because not all data related to provincial spending on fossil fuel subsidies is publicly disclosed.
Fossil fuel producers also claim millions of dollars in credits each year to reduce their royalty payments, and B.C. has accumulated up to $3.1 billion in outstanding credits, the report says.
Corkal called B.C.’s fossil fuel subsidies the “elephant in the room” as the provincial government touts its climate action plan, CleanBC.
“There is no getting around it: these subsidies promote the production and consumption of fuels that cause climate change,” Corkal said in a statement that accompanied the release of the 35-page report.
“They encourage increases in the same pollution that other policies aim to reduce.”
B.C. has ‘unique’ subsidy framework for natural gas
While many of B.C.’s subsidies are similar to those in other provinces, the report says B.C.’s complex subsidy framework for natural gas production is unique.
“Through an array of measures, the provincial government continues to make concerted efforts to expand natural gas extraction and export supports, in particular for liquefied natural gas (LNG).”
Despite its CleanBC initiative, the B.C. government has fallen significantly short of meeting its greenhouse gas emission reduction targets, notes the report, which points out that fossil fuel subsidies are often overlooked as one reason why B.C. is failing to meet emissions targets.
The report says fossil fuel subsidies — including tax exemptions, royalty reductions and direct spending commitments — pull vital government resources away from climate change strategies and other priorities such as health care and education.
“This means that other sectors of the economy must compensate for the vast amounts of government revenue spent on subsidies — which is neither fair nor efficient.”
According to the environmental group Stand.earth, B.C.’s fossil fuel subsidies amount to more than the province’s housing budget in 2019, while outstanding royalty credits to fossil fuel producers add up to more money than the $2.7 billion the province spent building new elementary and high schools in 2019.
“That is simply unacceptable,” said Sven Biggs, Stand.earth’s climate and energy campaigner.
The report says B.C.’s agreement with LNG Canada sets a precedent for similar subsidies for other fossil fuel producers “and will lock in high-carbon infrastructure for decades.”
The provincial government has already announced $5.3 billion in subsidies for LNG Canada, a consortium of five of the largest and most profitable multinational corporations in the world, including Royal Dutch Shell, Malaysian-owned Petronas and PetroChina Co.
The companies will ship fracked gas from B.C.’s northeast to Kitimat, where it will be cooled to below 160 degrees Celsius, compressed and turned into liquid for transport to Asian markets.
“Support for this new wave of fossil fuel production comes at the expense of cleaner — and more affordable — renewable energy,” the report notes.
Publicly funded projects provide electricity for gas sector
In addition to previously announced subsidies, the report says the B.C. government is undertaking “significant efforts” to support the natural gas sector through several capital expenditure projects that provide electricity access.
For instance, BC Hydro, a publicly owned utility company, will provide $56 million for the $82 million LNG Canada load interconnection project, which includes a new transmission line and substation upgrades to give LNG Canada access to sufficient electricity for its Kitimat operations.
“In this case, project financing comes from BC Hydro ratepayers, which includes the general public,” the report points out.
BC Hydro has provided an additional $205.4 million for expanding transmission infrastructure to the future Site C dam substation near Fort St. John, while the federal government has dedicated $83.6 million for that project.
“Both the federal and provincial governments, as well as BC Hydro, have emphasized the need for additional electricity infrastructure given increasing natural gas exploration and development in the region,” the report says.
There is also a “high risk” the publicly funded $10.7 billion Site C dam represents a public investment to support the expansion of the fossil fuel sector “and that electricity rates charged to the LNG sector will be insufficient to recoup the capital costs of the Site C dam infrastructure and related transmission expansion,” the report concludes.
The LNG Canada project will emit 3.45 megatonnes of greenhouse gas emissions annually, according to the provincial government, which has promised the cleanest LNG in the world even though claims of “clean LNG” have been thoroughly debunked.
By 2050, the project’s emissions will represent more than one-quarter of B.C.’s legislated targets for carbon pollution, set at about 13 megatonnes a year.
Fugitive emissions excluded from carbon pricing
The report also points out fugitive methane emissions and non-methane emissions from the oil and gas sector are exempt from any carbon pricing, including the provincial carbon tax, even though they represent a significant source of B.C.’s overall emissions.
The value of that subsidy is difficult to calculate due to a dearth of data about fugitive emissions, the report notes. However, according to B.C.’s Ministry of Environment, fugitive methane emissions from the oil and gas sector totalled at least 75,000 tonnes in 2016, a figure the report pegs as conservative, also noting that fugitive emissions are self-reported by oil and gas companies.
“With new LNG facilities under construction, B.C.’s fugitive emissions are expected to grow,” the report states. “As they do, so will the value of this subsidy.”
The report notes that B.C. has also amassed at least $2.6 billion to $3.1 billion in outstanding royalty credits for oil and gas producers, “representing significant foregone public revenue for future years.”
In 2018-19 alone, fossil fuel producers claimed more than $631 million in deep well credits.
“These billions in outstanding credits is money that fossil fuel producers will not have to pay in future years and that B.C.’s citizens will not see put toward social services,” the report says, pointing out that royalty payments to the B.C. government have decreased over the past decade.
According to a recent report from the Canadian Centre for Policy Alternatives, companies drilling and fracking for natural gas in northeast B.C. were bankrolled by the province to the tune of $703 million last year, a 45 per cent increase over the previous year when companies were handed more than $485 million in credits.
Since deep well credits are used to reduce the amount of royalties companies pay to the province when the production process has ended, that means B.C. is increasingly out of pocket even though the amount of gas produced in B.C. has risen more than 70 per cent over the last decade.
The LNG Canada project is expected to significantly expand fracking operations in northeast B.C., where the public is ultimately responsible for the soaring costs of cleaning up abandoned wells and leaking fracking ponds.
B.C. also continues to introduce new fossil fuel subsidies for which annual data is not yet available, the report notes.
The authors recommend that B.C. publicly release all data related to government spending on fossil fuel subsidies, establish an independent expert panel of advisors to review all provincial fossil fuel subsidies and create and implement a plan to phase out the subsidies.
They also say B.C. should establish clear guidelines to ensure no new fossil fuel subsidies are created and should coordinate with the federal government as it completes its G20 peer review of fossil fuel subsidies.
Canada provides more government support for oil and gas companies than any other G7 nation and is among the least transparent about fossil fuel subsidies, according to a June report from a coalition of NGOs.