Offshore oil rig

Newfoundland’s carbon tax gives ‘free pass’ to offshore oil industry

The province is planning to double oil production in the next decade — undermining the point of a price on carbon and making a risky bet on an industry in decline

After months of secrecy — and a few vague threats to withdraw from carbon pricing altogether — the provincial government of Newfoundland and Labrador has finally unveiled its federally approved climate plan.

While many details around its implementation remain unclear, what we know so far suggests that the big winner is the province’s oil and gas industry.

Filled with exemptions for large producers and consumers alike, the carbon pricing framework was designed to spur plans to double Newfoundland and Labrador’s offshore oil production by 2030.

“The way the [Dwight] Ball government has chosen to roll this out is to say: ‘there is no real carbon tax here, it doesn’t apply to anything, don’t worry, keep your head down, ignore this,’ ” Memorial University political scientist Russell Williams told The Narwhal.

“That’s exactly the opposite motivation for why we adopt carbon pricing systems in the first place.”

The centrepiece of the Newfoundland and Labrador climate plan is the controversial Muskrat Falls hydroelectric project, anticipated to come fully online in 2020. When this occurs, the province hopes to completely decommission the bunker oil-burning generator in Holyrood, which emits roughly 10 per cent of the province’s total 10.3 megatonnes of greenhouse gas emissions.

The remainder of the provincial carbon pricing scheme emphasizes just how little anyone will be required to pay. For example, the province is upping fuel taxes from four cents on gasoline and five cents on diesel to 4.42 and 5.32 cents respectively.

The provincial plan exempts home heating fuel, off-grid diesel generators, aviation fuel, the interprovincial ferry system and municipalities.

“Consider the exemption on home heating fuel,” Williams said. “This exemption is for everybody, and for as much home heating oil as you can consume. This is really counter-productive in a carbon-pricing environment.”

After factoring in exemptions, only 76 per cent of total greenhouse gas emissions in Newfoundland and Labrador are subject to carbon pricing. The provincial government also advises that it reserves the right to scrap all this should any other province refuse to set a plan or abide by the federal backstop.

“Given developments elsewhere in Canada, it’s excellent that the government of Newfoundland and Labrador isn’t outright rejecting carbon pricing,” University of Waterloo political economist Angela Carter told The Narwhal.

“But at the same time, this is a free pass for the offshore oil industry. The reality is that they will be paying a very small fee on a fraction of their emissions.”

Offshore oil industry dominates

Plans for Newfoundland and Labrador, put forward by the Liberal government, anticipate more than 100 new offshore exploration wells will be drilled in the next decade.

“That is absolutely remarkable,” Carter said, “because based on the data I’m seeing, there have only been 151 wells drilled into the offshore on Canada’s east coast since 1955.”

“The emphasis more than ever is on situating Newfoundland as the preferred location for oil extraction.”

Newfoundland and Labrador has become increasingly dependent on the petrochemical industry.

When Hibernia — an oil field about 300 kilometres offshore from Newfoundland — first came online in 1997, mining and oil extraction made up 11 per cent of the province’s GDP. By 2007, it reached a high of 47 per cent. Oil revenues, meanwhile, accounted for 30 per cent of the province’s revenue by 2010. After the 2014-2015 oil crash, mining and oil extraction dropped to 24 per cent of provincial GDP in 2017 while royalties declined by nearly 80 per cent between 2011 and 2017.

The industry also represents about 20 per cent of the province’s total emissions, a share expected to climb as new projects come online.

The provincial government’s stated intention is to double offshore oil production by 2030.

In her latest comparative study of carbon pricing plans in Canada’s oil producing provinces, Carter found that climate policy in Newfoundland and Labrador has always reflected its dependence on offshore oil.

“An industry-friendly approach has been built into the core principles of the province’s approach to regulating large emitters,” she told The Narwhal.

“Earlier climate documents were very frank in terms of acknowledging that the oil sector is driving along the rise in provincial emissions. But even the mandate of the Office of Climate Change from its inception was to give equal weight to environmental sustainability and economic growth. There was an emphasis on protecting industry and economic competitiveness from the get-go.”

The carbon price regulations reflect that industry-friendly approach. There are exemptions for agriculture, fishing, forestry, offshore and mineral exploration, methane venting and fugitive emissions. New entrants or “significantly modified” facilities are also exempt from the first three years of production, followed by a five-year phase-in.

Doubling oil production by 2030 guarantees the province will not meet its emission reduction targets. But this is par for the course in the Canadian carbon pricing strategy.

‘The underbelly of oil dependence’

Williams argues that the lax carbon pricing in Newfoundland and Labrador is representative of the broader failings in the federal system.

Canada’s national carbon pricing plan is not designed to slow growth in industries, Williams said.

“At best, it’s intended to try and get consumers to reduce their emissions, to try and wash out what’s going on on the large industrial side.”

But ultimately, he said, “the climate plan is a federal responsibility” while provinces have to pay “for all the services that voters clearly really want, like healthcare.

“The provinces badly need money. Natural resource revenues are really hard to ignore as a solution to that problem.”

Carter warns that the call of oil revenue is a siren song. Weaning the province off its dependence on oil and gas is as important for sustainable economic development as it is for the environment.

“The underbelly of oil dependence was revealed to us by the oil price crash at the end of 2014,” she told The Narwhal. In the three years following the crash, the province packed on debt to pay for basic services in the absence of the oil revenues it had become accustomed to.

“We can see what it does to our economy. It’s not a reliable industry.”

A bigger shift is happening globally as well that could start to see oil and gas prices permanently depressed. Carter said a much larger conversation needs to happen around the concern of stranded assets.

“Decarbonization is underway globally. What if we are moving away from a fossil fuel-powered energy system?”

“That means Newfoundland is putting all of its hopes on an industry that’s in decline.”

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