Coastal GasLink, LNG Canada get $24-million break despite B.C.’s plans to shift away from subsidies

Coastal GasLink will pay almost $16 million less for its contentious pipeline over the next 25 years after the new BC Energy Regulator slashed a major charge for the project, The Narwhal has learned. 

In one of its first orders of business, the regulator, which recently replaced the BC Oil and Gas Commission, additionally granted LNG Canada — the consortium of fossil fuel companies behind the LNG export facility in Kitimat, B.C. — a financial break that adds up to savings of $8 million over the project’s anticipated 40-year lifespan. 

The charges, known as levies, are intended to meet monitoring and other obligations and recover expenses associated with the Coastal GasLink fracked gas pipeline as well as the the first phase of the LNG Canada export project, which will cool gas from the pipeline to below 160 C, compress it and convert it into liquid for transport to Asia in ocean tankers.

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The launch of the LNG export industry — championed by B.C.’s NDP government, the Alberta government’s energy war room and the Canadian Association of Petroleum Producers —  ushers in the biggest fossil fuel boom in the province’s history at a time when the Intergovernmental Panel on Climate Change warns rising greenhouse gas emissions are pushing the world to the brink of disaster.

In an emailed statement, the BC Energy Regulator said the cuts reflect “cost-efficiencies” associated with overseeing multiple projects. The B.C. Greens and non-profit groups say the cuts amount to fossil fuel subsidies, despite B.C. Premier David Eby’s statement that governments cannot continue to subsidize fossil fuels and expect clean energy to “manifest somehow.”

Julia Levin, associate director of national climate for the advocacy group Environmental Defence, called the levy reductions for Coastal GasLink and LNG Canada “a concerning development.” 

“It’s very telling that one of the first priorities of the newly named regulator is to provide even more subsidies for two already hugely subsidized projects,” Levin said in an interview. She said the cuts amount to subsidies because they represent foregone revenue for the BC Energy Regulator, which is funded by industry. 

Vanessa Corkal, a policy analyst with the International Institute for Sustainable Development, pointed to a Twitter comment made by former B.C. NDP premier John Horgan last May when his government introduced a new oil and gas royalty system. Horgan, announcing the elimination of the “largest fossil fuel subsidy in B.C.,” said oil and gas companies have made huge profits while people face the effects of climate change. 

“In order to stay credible as a government that is serious about climate change, this is not the type of signal that helps with that image,” Corkal, the co-author of several reports about fossil fuel subsidies, said about the cuts. 

Coastal GasLink will pay $636,500 less to regulator each year

The changes are mentioned in a brief update on the BC Energy Regulator’s website. The update says Coastal GasLink will be charged $1,700 per kilometre for its 670-kilometre pipeline instead of the previous levy of $2,650 per kilometre. 

The cut means Coastal GasLink, owned by the highly profitable Calgary-based corporation TC Energy, will pay $636,500 less to the energy regulator each year than it would have paid to the BC Oil and Gas Commission, according to The Narwhal’s calculations.

LNG Canada, a consortium of some of the most profitable oil and gas corporations in the world, will now pay an annual levy of $900,000 — instead of its previous $1.1 million levy — for the first phase of a project that will generate annual greenhouse gas emissions equivalent to the putting 800,000 new cars on the road per year.

B.C. Green Party MLA Adam Olsen said he’s concerned about “shockingly little information” in the BC Energy Regulator’s website statement about why it reduced charges for the two companies. “In the end, they’re getting a break. One of the things that we’ve been pressing this government on has been that we shouldn’t be subsidizing these fossil fuel industries. And this is yet another example of that behavior from the provincial government and from our regulators.”

The two projects appear to be the only ones singled out for cuts. In an emailed response to questions, the BC Energy Regulator confirmed levies are charged annually to recover estimated regulatory costs for the fiscal year. If additional expenses, such as increased engineering work, are incurred, the regulator said its board has the authority to impose more than one levy in a calendar year. 

The regulator charged Woodfibre LNG, the only other company mentioned in the website statement, a first-time annual facility levy of $900,000. Owned by Indonesian billionaire Sukanto Tanoto and Enbridge Inc. — and championed by former NDP environment minister Moe Sihota — Woodfibre LNG has not yet announced a final investment decision. Sihota is an active lobbyist for the project in addition to representing the B.C. NDP on CBC Radio’s weekly B.C. political panel. 

The levy cuts for Coastal GasLink and LNG Canada follow the government’s February announcement of a name change for the BC Oil and Gas Commission. In addition to oil and gas, the new BC Energy Regulator is also charged with overseeing B.C.’s nascent hydrogen, geothermal and carbon capture and storage industries. In a news release, the B.C. government promised the new regulator would improve “transparency in oversight and governance” of the energy resource sector.

“We can change the name, and we can add hydrogen, and we can do all that,” Olsen said. “But if we’re not going to be in a robust regulatory environment — where people who are operating in this province are not held accountable and they’re allowed to leave pollution behind as they go — I think we’ll be in exactly the same situation that we’re in today, just with the new regulatory body that includes slightly larger portfolios of energy products than previously.”

The name change appears to be part of a growing trend to excise the words “oil and gas” and “petroleum” from regulatory bodies and ministries as the words become synonymous with the growing climate crisis.

On the east coast, offshore petroleum boards recently became offshore energy boards. The Alberta Energy Regulator cycled through a handful of previous names, including the Oil and Gas Conservation Board. B.C.’s NDP government scrubbed all reference to oil and gas from the name of the ministry responsible. The Ministry of Energy, Mines and Petroleum Resources is now the Ministry of Energy, Mines and Low Carbon Innovation. 

Regulator cites ‘cost efficiencies’ as reason to reduce fees

In its emailed response to questions, the BC Energy Regulator justified the levy cuts by saying many major project costs, including third-party engineering and technical reviews and archeological impact assessments, are often “front-end loaded” and vary over the project life cycle. 

Cost efficiencies — such as office, equipment or training costs — are also gained when regulating multiple projects, said the regulator, which now answers media requests anonymously without providing the name of a communications staff person. (The regulator turned down The Narwhal’s request for a telephone interview, saying, “It’s not always possible to accommodate an in-person or phone interview request.”)

The addition of a new project “can have implications to the respective levy amounts across projects,” said the regulator. “The adjustments will not result in any changes to our regulatory oversight, including in relation to monitoring and compliance and enforcement.” 

Levin said the regulator’s claim that oversight won’t be affected by the levy reductions “rings hollow when it’s giving breaks to big oil and gas companies that, of course, will affect how much money it has to operate.”

“These kinds of actions will make it hard for the energy regulator to generate any kind of confidence that it’s new and improved and not just a facelift. … Rebranding won’t make this less of a captured regulator.” 

The term “captured regulator” refers to a regulator that is not independent from the industry it monitors. 

Regulator board chaired by former Enbridge accountant

The BC Energy Regulator said Coastal GasLink and LNG Canada did not ask for their levies to be cut and the decision was made by its new seven-person board, which was appointed following the name change in February. The board, which is now required to have Indigenous representation, is chaired by chartered accountant Chris Hayman, who worked for Enbridge for almost a decade and served as a consultant for the BC Oil and Gas Commission.

“That should make anyone very cautious about trusting that this is anything else but a rebranding effort to try to build social licence,” Levin commented.

Olsen said it appears the B.C. government is captured by the oil and gas industry. As one example, he pointed to a question he recently asked in the legislature about provincial fines for Coastal GasLink pipeline infractions, a pattern of “constant infractions and minor penalties” that Olsen said are financially insignificant for the company. 

The B.C. Environmental Assessment Office has issued more than $450,000 in fines to Coastal GasLink for repeated violations since pipeline construction began in 2019. Many violations were related to sediment — which can suffocate fish — entering wetlands, lakes, creeks and rivers.

“I can’t even call it really a penalty,” Olsen said. “Basically, the penalties are so low that the company just builds it into the cost of the business.” 

Olsen said a more arm’s length relationship between industry and the government is necessary. “What we need is a regulatory environment that respects the needs of British Columbians first, and that doesn’t basically serve industry and the purposes of industry to extract resources and huge profits and then kind of roll out of town and leave us with the mess.”

LNG Canada has already received billions in B.C. subsidies

LNG Canada has already received at least $5.34 billion in subsidies from the B.C. government in the form of financial breaks and incentives such as tax exemptions, tax reprieves and cheaper electricity rates. Despite repeated promises to curtail fossil fuel subsidies, the federal government also chipped in $220 million so LNG Canada could purchase energy-efficient gas turbines and spent $55 million to replace a bridge to accommodate increased traffic from the project. 

Canadian taxpayers are also on the hook for up to $500 million in loans to Coastal GasLink and more than $25 million for policing costs on contested Wet’suwet’en territory where a section of pipeline is under construction. A special unit of the RCMP maintains a constant presence in northern B.C., enforcing a court injunction against anyone who takes action against the pipeline. 

Corkal pointed out that levies, royalties and other taxes are paid by oil and gas producers and pipeline operators because they are using public resources on public lands. “There’s an impact, environmentally and socially, from the process of resource extraction.” 

In response to a question, the BC Energy regulator said it has not yet made a decision about the amount Coastal GasLink and LNG Canada will be charged for liabilities and securities. It will begin assessing pipeline companies next year as part of a review to estimate liability and security amounts, in keeping with the B.C. government’s public interest bonding strategy for large industrial projects, the regulator said. 

Corkal said levies, royalties and taxes allow governments to recoup money from economic activity and invest it in government services and other endeavours that benefit people who live in British Columbia. “So when those levies are reduced, it reduces the amount of money that’s actually going towards British Columbians because of that resource development — and ultimately ends up benefiting the producers.”

Fee reductions come as scientists say fossil fuel production must decline rapidly

The new levy reductions for Coastal GasLink and LNG Canada point to a larger question about the viability of LNG production in the absence of government subsidies, Corkal said.  “Projects should be able to demonstrate their economic viability without taxpayer dollars, particularly fossil projects.”

She said B.C. and Canada should not be increasing fossil fuel production when evidence from the International Energy Agency and Intergovernmental Panel on Climate Change clearly shows global fossil fuel production must decline significantly by 2050 for a liveable planet.

The Institute for Energy Analysis and Financial Analysis says a tidal wave of new LNG projects coming online in the next two to five years will “create the potential for an extended supply glut and a return to the low global prices.” 

“We’re kind of stuck in this myth right now in Canada, where we’re seeing these really high energy prices and thinking, ‘Oh, maybe it makes sense to invest in these products and benefit from these high prices, and there’s going to be Asian markets,’ etcetera,” Corkal said.

“But the reality is that countries are responding to high energy prices by shifting to alternative energy sources, and that is going to negatively impact the long-term outlook for LNG. … So in the long term, there’s a low likelihood that LNG from Canada, and western Canada in particular, is going to be able to take advantage of those high prices and really reap economic benefits, because by the time it comes online, demand will almost certainly have dropped.”