Despite repeated promises to phase out fossil fuel subsidies, Canada’s federal government dedicated $18 billion in 2020 to assist the country’s oil and gas sector, according to a new report that outlines additional support for the industry since the COVID-19 pandemic was declared last March.  

“We’re seeing this pattern of oil and gas companies using the pandemic as an excuse to lobby for more subsidies and more public financing, and the government saying ‘yes’ and pretending to be committed to a green recovery,” said Julia Levin, climate and energy program manager for the non-profit group Environmental Defence, which published the report on Thursday.

“There’s a real hypocrisy this year that has been made clearer than ever,” Levin told The Narwhal. “We need to be starting the wind-down of the oil and gas sector in order to ensure that we have a liveable planet — and these subsidies do the exact opposite.”

Included in the $18 billion are $3.28 billion in direct spending and $13.6 billion in public financing for oil and gas companies that primarily comes from the opaque crown corporation Export Development Canada, according to the report, Paying Polluters: Federal Financial Support to Oil and Gas in 2020.

The report found that federal government agencies have played a key role in financing the construction of pipelines that have large carbon footprints, violate Indigenous Rights and put ecosystems at risk during a global biodiversity crisis. 

In 2020, Export Development Canada provided up to $5.25 billion in financing renewals for the Trans Mountain pipeline expansion, a publicly owned project that will cost at least $12.6 billion and comes with a hefty carbon footprint.

It also approved a loan of up to $500 million for TC Energy, the owner of the Coastal GasLink pipeline that will supply fracked gas from northern B.C. to the LNG Canada project, one of Canada’s largest single sources of carbon pollution — on par with Teck’s mothballed Frontier oilsands mine in terms of its greenhouse gas emissions.

According to the report, Export Development Canada provides an average of almost $14 billion a year to support domestic and international oil and gas companies.

Subsidies listed in the report include more than $13 million the RCMP spent to police the Coastal GasLink pipeline conflict in northern B.C. between January 2019 and March 2020. 

On-going construction of the pipeline, which is opposed by hereditary chiefs from all five clans of the Wet’suwet’en Nation, prompted the UN Committee on the Elimination of Racial Discrimination to ask the federal government to suspend the project until the free, prior and informed consent of Indigenous people is obtained. 

Canada lags behind other countries in phasing out fossil fuel subsidies

The federal government first announced a commitment to phase out fossil fuel subsidies in 2009. More than one decade later, Canada provides more public finance for fossil fuels on a per capita basis than any other G20 country except for China. 

Canada’s lack of action on fossil fuel subsidies comes as other countries follow through on promises to slash subsidies and high-profile investors, such as Sweden’s central bank and Norway’s sovereign wealth fund, divest from oil sands projects. 

On April 12, the New York State Pension Fund — the third largest such fund in the U.S. — announced it had divested $7 million from six oil sands corporations, including Imperial Oil, Canadian Natural Resources, Husky Energy, and Cenovus Energy, saying the companies have not shown they are prepared for a transition to a low carbon future. 

U.S. President Joe Biden has made eliminating fossil fuel subsidies and public finance a priority for his administration, directing all federal agencies to eliminate such spending from next year’s budget and instructing relevant departments and agencies to end international public finance for fossil fuels. 

The executive director of the International Energy Agency and the Secretary-General of the United Nations have also recently urged countries to remove fossil fuel subsidies and supports that include public finance. 

In contrast to the $18 billion Canada’s federal government dedicated to the oil and gas sector in 2020, the government’s new climate plan promises $15 billion in climate initiatives over a 10-year period. The initiatives aim to help Canada reach the commitment it made under the Paris Agreement to reduce greenhouse gas emissions by 30 per cent below 2005 levels by 2030 and to move to net zero emissions by 2050.

“When we set climate targets and we continue to hand out $18 billion a year to oil and gas companies, we make it so that those commitments are impossible to reach,” Levin said. “The oil and gas sector is the sector in our economy that produces more emissions than any other sector, and it’s the fastest growing. It’s incompatible with these climate commitments.”

She said fossil fuel subsidies could increase if funds from Canada’s new climate plan are directed to the oil and gas sector for initiatives such as carbon capture and storage and blue hydrogen derived from fossil fuels. 

Read more: ‘Hydrogen fervour’: the technology breathing hope into Alberta’s industrial heartland

Canada has vowed for years to eliminate fossil fuel subsidies in order to drive more support for diversified sources of clean and renewable energy. Photo: Todd Korol

Support for oil and gas industry increased during pandemic at request of industry

According to the report, many Canadian government support programs established in 2020 were at the request of the oil and gas industry. In April 2020, the Canadian Association of Petroleum Producers sent a letter to cabinet asking for an array of measures that were granted, including funding to reduce environmental liabilities and increased access to credit through Export Development Canada. 

The federal government subsequently announced it would spend $1.7 billion to clean up orphan and inactive wells in Alberta, Saskatchewan and B.C. Alberta received the lion’s share of the funding — $1.2 billion — while $400 million was designated for Saskatchewan and $120 million for B.C. 

Levin said the funding should only have been granted on the condition that provinces enforce the ‘polluter pays’ principle, which compels companies that cause environmental damage to shoulder the cost. Before distributing the funds to Alberta, Ottawa should also have insisted the provinces conduct a needs assessment to determine if companies like Canadian Natural Resources [CNR] were capable of paying for their own reclamation work, she said. 

“What ended up happening is that companies like CNR, all the big companies, paused their own reclamation work and stopped spending their own money, and applied and got the funds through this program. [They] just replaced what they would have been doing anyway with government funds … We just transferred the cost of doing it away from private companies onto taxpayers.”

The government also announced a $750 million program in 2020 to reduce greenhouse gas emissions in the oil and gas sector, especially methane. The report said the same outcomes could be achieved — with no public cost — by putting regulations in place to force companies to invest their own funds into solutions, noting that by taking on the cost of reducing emissions, “we are not holding industry accountable and the cost of doing business is lowered.” 

Oil and gas companies also claimed funds from pandemic support programs such as the Canada Emergency Wage Subsidy while continuing to issue shareholder dividends, the report pointed out. Imperial Oil claimed $120 million through the wage subsidy program and issued $320 million in dividends, the report said. 

Jay Averill, media relations manager for the Canadian Association of Petroleum Producers, said the oil and gas industry is cautiously optimistic after being impacted economically by the pandemic and the association is forecasting a 14 per cent increase in upstream natural gas and oil private investment this year, with capital spending reaching more than $27 billion. “This represents an additional $3.36 billion of private investment into the Canadian economy at a time when very few industries are planning to increase spending,” Averill said in an emailed statement. 

“As one of the largest private investors and employers in the country, the natural gas and oil industry can be a foundation for national economic recovery,” he said. “The industry is committed to working with governments, at all levels, to create an environment where businesses can thrive and attract investment back to Canada. This is how we will maintain jobs and create new opportunities for Canadians.”

Averill also said about 75 per cent of all clean technology investment in Canada comes from the natural gas and oil industry. “These efforts were recently recognized by the Harvard Business School which noted that traditional energy companies are some of the most prolific and influential producers of green innovation.”

Levin said the report underestimates total government support for the oil and gas sector because the lack of transparency makes it difficult to quantify all annual subsidies. Federal tax deductions are not disclosed, for instance, and there is no comprehensive inventory of direct spending by the government.  

She said Environmental Defence uses the World Trade Organization definition of subsidies: any kind of financial contribution by a government or government agency that confers a benefit to the recipient, including tax breaks and direct spending. 

Canada’s support to oil and gas companies includes providing funds to conduct research into new technology to lower their costs of doing business, paying for access to credit, loan guarantees and tax breaks. 

“Allowing oil and gas companies to access unique government financing or to leave their mess behind without paying for cleanup is just as helpful to a company’s bottom line and incentivizing production as a direct payment or tax incentive,” the report noted.  

Levin said the upcoming federal budget and Earth Day Leaders Summit on Climate provide ideal opportunities for the federal government to redirect support away from the fossil fuel industry while providing sufficient support for workers and communities. 

“We’re a global laggard and really need to take steps to catch up.” 

Moria Kelly, press secretary for Environment and Climate Change Canada, said the government remains committed to phasing out “inefficient” subsidies by 2025 and is on track to do so.

Kelly said Canada has already eliminated eight tax breaks for the fossil fuel sector and is working with Argentina on a peer review of fossil fuel subsidies to help determine what needs to be done next in order to meet its commitment. “Our government will continue working with Canadians to cut pollution across the economy in a practical and affordable way,” she said in an email.

Kelly said the Environmental Defence report labels environmental policies that reduce emissions and keep life affordable as fossil fuel subsidies, including orphan well clean-up, support for Indigenous communities that rely on diesel, efforts to ensure Canadian companies decarbonize faster and help the clean-tech sector scale up, and support for workers through the wage-subsidy program.

Environmental Defence is calling on the federal government to develop and publish a roadmap to achieve Canada’s commitment to phase out fossil fuel subsidies by 2025 and to ensure that funded programs apply the ‘polluter pays’ principle. It’s also asking the government to phase out all domestic and overseas public finance for fossil fuels, including financing from the export credit agency Export Development Canada. 

The report did not examine provincial subsidies for the oil and gas industry or include externalities such as healthcare costs from the impacts of fossil fuels and the cost of pollution clean-up. According to the Canadian Medical Association, the burning of fossil fuels is responsible for $53.5 billion in health-related costs each year in Canada.

Updated April 16, 2021, at 8:48 a.m. PT: This article was updated to add comment from the federal government, which was not able to respond by press time.

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For more than two years, the British Columbia government has vigorously fought efforts to compel the release of information on the hundreds of millions of dollars in subsidies that it doles out to fossil fuel companies each year.

It has either refused outright to release documents or it has handed over pages of essentially worthless information with all the dollar figures and company names blanked out.

Now, thanks to successive appeals to the Office of Freedom of information and Privacy by the B.C. office of the Canadian Centre for Policy Alternatives, the public finally has details on just how extensive those subsidies are.

The list shows for the first time publicly the astonishing scale of the so-called “deep well credit” program and provides insight into how much companies that drill and frack for natural gas in northeast B.C. continue to be bankrolled by the provincial government.

Established in 2003, the deep well credit program was intended to underwrite some of the costs that fossil fuel companies incurred for drilling deep and later horizontal wells. Back then, such wells were far less common than today and companies that drilled them gained credits for doing so. The credits were then used to lower the royalty payments companies paid to the Province once the gas flowed. Companies only pay royalties at the end of the exploitation and production process.

In the 17 ensuing years, however, such wells have become standard industry practice, meaning that the credit program is effectively an embedded subsidy.

The new information that the government was compelled to release shows that in fiscal year 2018, a total of 26 fossil fuel companies earned a combined $703 million in credits. The biggest credit recipient at more than $143 million was Cutbank Dawson Gas Resources Ltd., led by Encana, a company that made hefty political donations to the provincial Liberals ($1.2 million) and NDP ($113,000) between 2005 and 2017.

When the credits received by the next four largest recipients are added to those of the Cutbank group, they total $464 million, which means that two in every three credits that year went to just five companies.

Included in that list is Petronas Energy Canada Ltd., the Malaysian-owned company that is one of the principle partners in the approved Canada LNG project, which when built will benefit from an array of subsidies including corporate tax breaks, discounted electricity prices and deferred provincial sales taxes on construction costs. If you see a pattern here, you are not alone.

Companies only get to exploit natural gas resources after paying for “subsurface” rights, which are obtained through one-time auctions by the province known as land sales, even though it is not the land itself that is sold but what lies beneath it.

Only after such sales, can companies drill and frack for natural gas. And only after that, do they pay royalties to the province on the gas produced, which recognizes that the resources are publicly owned.

Unlike Norway, which invests its royalty proceeds for the future, B.C.’s royalties go into general revenue. But the royalties flowing into the provincial treasury are rapidly shrinking. In 2018/2019, the total value of all natural gas royalties was $102 million compared to a decade earlier when it reached $1.3 billion.

Making matters worse, the amount of gas produced in B.C. has risen more than 70 per cent over the same time period, meaning the public received far less money as far more gas was produced.

Part of the reason for the precipitous decline in royalties is that they are tied to the market price for gas and market prices have fallen sharply. But it is also the case that the credits have contributed to anemic royalty revenues. And with a combined $2.62 billion in credits sitting in the credit account, thanks to the credit program’s 17-year duration, those anemic revenues will be a fixture for years to come.

This is clearly not information that the government wants made public and may explain why in 2017 it tried to suggest it could not be released because it constituted sensitive “tax” information. When that argument was later successfully challenged under appeal by the CCPA, the government then argued in 2018 that publicizing such figures would harm the interests of undisclosed “third parties.” The CCPA challenged that argument too and eventually after much delay the credit amounts were released.

What the public still does not know, but should, is just how much in royalties Encana, Petronas and others pay annually. This too has been requested by the CCPA. But if you guessed that the finance ministry has refused once again to release it, you guessed right.

So once again, the CCPA has appealed the government’s decision to withhold the documents to the Office of Freedom of Information and Privacy.

We hope that with that information the public will, for the first time, be able to compare the credits to the revenues and ask the questions that ought to be asked, including:

• Is the government lowering royalty fees and effectively propping up fossil fuel extraction that would otherwise be unprofitable? And if so at what cost?

The appropriate thing for the province to do would be to quit the delay game and release the figures.

There is longstanding precedent for doing just that with another publicly owned resource in B.C. — our forests. For decades, members of the public have had access to a database that spells out in great detail what logging companies pay the provincial government for trees cut on public lands.

Significantly, the searchable Harvest Billing System database came into being partly in response to allegations from U.S. lumber producers that B.C.’s timber-pricing policies shortchanged the public. The result was that full public access was provided to detailed information on exactly what individual companies paid for publicly owned resources.

If the dollars paid by Canfor for the trees it logs are part of the public record, then the dollars that Encana pays for the natural gas it extracts from the ground should be part of the public record too. By withholding such information, the public is quite naturally left with the impression that its resources are practically being given away to private business interests with the government’s active and very generous support.

Ben Parfitt is a resource policy analyst with the B.C. office of the Canadian Centre for Policy Alternatives.

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Back in January, Premier John Horgan stood in front of the leaders of B.C.’s exploration industry at the annual Association for Mineral Exploration conference in Vancouver to announce that two B.C. tax credits — among the most generous mining tax breaks in Canada — would become permanent.

It wasn’t exactly a bombshell announcement — the new policy had been recommended by an industry-friendly task force months earlier, as part of a government-led process to promote mining exploration and jobs.

Within a month of Horgan’s announcement, B.C.’s 2019 budget approved $20 million in new spending for mining, accepting multiple recommendations from the same task force.

Permanent tax subsidies go a long way to explain why B.C. is home to more exploration mining companies than anywhere else on earth.

Of the 1,200 mining companies that consulting firm PricewaterhouseCoopers estimates are based in the province, about 800 are junior companies — not miners per se, but small enterprises searching for new deposits of minerals and metals.

B.C.’s concentration of junior companies is all the more impressive given that the province holds a relatively tiny amount of the world’s reserves of metallurgical coal and copper (our two biggest mining commodities by net revenue), and Vancouver is a financial backwater compared to New York, London and Shanghai.

So why do the world’s exploration companies gravitate here?

Robyn Allan, a former president and CEO of the Insurance Corporation of British Columbia and senior economist with B.C. Central Credit Union who has written about the province’s mining industry, says there are three primary reasons why B.C. — and Canada — is a good place to call home.

“First, there is a long history of mining in Canada, and particularly in British Columbia,” she says. “There is the relative ease of becoming a publicly-traded company.”

“And then there are the tax incentives.”

Persistence of the frontier

Our long history of mining has created clusters of expertise that in turn attracts companies to the province, concentrated in greater Vancouver. If you want to start a mining business, everything you need is here: there are specialist law firms, biologists and environmental consultants for hire, accountants, auditors, chemists and geologists. There are also specialist machinery companies, transportation-logistics expertise and multiple ports.

The geology on the west side of the Rockies is much more varied than in the rest of Canada, meaning there is a variety of ore deposits. Over the last 150 years, this too has attracted a lot of exploration interest.

There is a darker side to this long history. If you’re a B.C. exploration company, in some ways little has changed since the first mainland gold rushes of the mid-19th century. You can still stake a claim to sub-surface rights almost anywhere, regardless of what’s on the surface. This includes under river headwaters and other sensitive ecological areas, First Nations traditional territory and private property.

Under B.C.’s “free entry” system, a prospector with a claim can legally access virtually any land in their quest for metals and minerals.

British Columbia remains an outlier in Canada — provinces like Ontario and Quebec have reformed their archaic free-entry rules, while the Northwest Territories is currently in the process of changing its system.

And in 2005, B.C. introduced an online staking system that makes it possible to register mining claims on a computer, without having to physically stake the ground as in the past. So staking ground and calling yourself a prospector is easier in B.C. than in many other places — and easier than ever before.

(The Association For Mineral Exploration and the Mining Association of Canada declined interviews for this story; the Mining Association of B.C. did not respond to phone calls).

All resource roads lead to Toronto

A junior exploration company, in theory, is engaged in the business of searching for new marketable deposits of ore — which, if found, will be passed on to a mining company with the ability to bring it to production.

So how do speculative prospecting companies with no producing assets or revenue streams actually make money? And what does B.C. and Canada offer that nowhere else can?

Such questions lead to the Toronto-based TMX Group  — including the Toronto Stock Exchange (TSX) for more established companies and the TSX-Venture Exchange (TSXV) for mostly “juniors” — which in 2018 listed about half of the world’s public mining companies. Companies on the TSX and TSXV raised $6.5 billion in 2018 alone — a figure representing about half of global completed public mining financing and more than a third of the mining equity capital raised in the world.

“The TSX is first and foremost an institution fostering the frenzied speculation that the industry loves,” philosopher and political scientist Alain Deneault wrote in his 2015 book, Canada: A New Tax Haven. “On this exchange it is notoriously easy for a company to list presumed deposits and magnify their value.”

Deneault writes that the TSX gives juniors “more leeway than they have anywhere else to cultivate ambiguity” — because they are allowed to disclose both mine reserves and resources, the latter being a crude estimate of everything the deposit may contain. (Deneault did not respond to interview requests by press time.)

“Disclosure of resources encourages stock market speculation and makes the price of mining stocks go up,” he wrote.

He cites research showing that both the TSX and the Ontario Securities Commission, the provincial regulator, have historically been “negligent” when it comes to addressing illegal insider trading. “Unlike practice in the United States, such trading is rarely investigated.”

Tax breaks are the biggest perk

While generous provincial and federal tax breaks make Vancouver a good place to set up shop, two tax perks are particularly attractive to exploration companies.

B.C.’s mining exploration tax credit (made permanent in 2019; previously it had to be renewed annually) allows a mining exploration company to deduct a huge list of good-and-service costs from its payable provincial income taxes — including prospecting, drilling, sampling, carrying out geological surveys and much more.

There’s also an enhanced credit available that rises to 30 per cent (from 20 per cent of qualified exploration expenditures) if a company is exploring in an area affected by mountain pine beetle, which is a huge chunk of the province.

The province estimates that $15 million per year will be “provided” through the mining exploration tax credit in 2019/2020.

On the federal side, the flow through shares program provides a critical tax subsidy by enabling mining exploration companies to transfer their undeclared business expenses to the investors who buy their shares.

Purchasers of flow through shares pay extra for each share, but then are allowed to transfer and deduct mining company’s expenses as if they were their own, lowering their taxable income. B.C. also offers an income tax credit to individuals who have purchased FTS from a B.C. mining company.

(An accountant based in B.C. told The Narwhal flow through shares are typically employed by high-net worth investors in the $200,000+ income range, who can use them to lower their high taxable incomes.)

Not everyone is happy about these kinds of perks. The Organisation for Economic Co-operation and Development has criticized Canada in the past for granting “direct subsidies and fiscal incentives” to industry and has recommended that the preferential tax system for minerals and metals be eliminated.  

What is a subsidy?

For 2019, the federal government estimates that flow through share deductions will total $110 million for personal income tax, and $40 million for corporate income tax.

A spokesperson for Finance Canada said that flow through shares “could be characterized as a subsidy” — something this ministry loosely defines as “a tax or non-tax measure that provides preferential treatment.”

But B.C.’s Ministry of Finance would not provide a definition of a subsidy, or confirm if its $15 million/year B.C. mining exploration tax credit is a subsidy by any definition.

For the sake of clarity, economist Robyn Allan provided The Narwhal with a simple definition. A subsidy, she said, is “anything that reduces the cost to the company benefiting from the activity, and thus incentivizes either more activity or greater [financial] returns than would otherwise be available. That’s a subsidy.”

Allan points to excellent subsidy definitions from the April 2019 report to parliament by the commissioner of the environment and sustainable development.

The most important thing to know about subsidies, Allan concludes, is who ultimately pays the cost.

“Taxpayers may bear it, sometimes the environment bears it, and in other cases, it’s a local community.”

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There was a telling comment from Shell Global’s Maarten Wetselaar — representing five multinational investors in a $40 billion project to ship B.C. liquefied natural gas to Asia — amidst the hoopla that accompanied Tuesday’s LNG announcement.

“The governments of Canada and British Columbia have helped to ensure that the right fiscal framework is in place to make sure that the pie is divided in a just and fair way,” Wetselaar told a Vancouver news conference hosted by LNG Canada, which will oversee construction of a 670-kilometre pipeline carrying natural gas from northeastern B.C. to a processing plant in Kitimat, where it will be liquefied for transport in ocean tankers.

“And that fiscal framework leads to why we believe LNG Canada is in the right place.”

The “right” fiscal framework amounts to a bouquet of government subsidies for B.C.’s largest carbon polluter, including tax reprieves, tax exemptions and cheaper electricity rates for some of the largest and most profitable multinationals in the world — the LNG Canada quintet of Royal Dutch Shell, Mitsubishi Corp., Malaysian-owned Petronas, PetroChina Co. and Korean Gas Corp.

At a technical briefing for media, a B.C. senior government official pegged the province’s total financial incentives for the project at $5.35 billion.

The first of the incentives, a break on provincial sales tax during project construction, was approved Tuesday by the B.C. Cabinet.

“LNG under the existing framework was not going to be competitive in British Columbia,” said the official, noting that the LNG investors said they could not do business in B.C. without a new “cost-competitive” framework. (Media are not permitted to name government officials giving technical briefings.)

The official also noted that the Trump administration’s tariffs on steel — which have added considerably to the cost to building a new LNG facility in the Gulf Coast — and China’s retaliatory 10 per cent tariff on U.S. LNG now “makes our gas more competitive.”

Patrick DeRochie, climate change and energy program manager for Environmental Defence, pointed out that just two weeks ago in Halifax the federal government re-committed to ending fossil fuel subsidies by 2025, a promise that includes subsidies from provincial governments.

“It’s hard to see how the federal and provincial governments can continue to fund fossil fuel projects to the tune of billions of dollars, and meet this 2025 commitment,” DeRochie told The Narwhal.

“It’s completely contradictory.”

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.

DeRochie defined a subsidy as “any tax provision, or benefit from the government that has the effect of giving one sector an advantage over another in the economy.”

To entice the LNG Canada investors, the B.C. government has offered a break on the carbon tax, the elimination of the LNG income tax it previously supported and cheaper electricity rates than those set by the previous Liberal administration.

A PST exemption means that LNG Canada will not have to pay provincial sales tax during the project’s five-year construction period. A natural gas tax credit gives companies an additional three per cent corporate income tax cut, according to B.C. Green Party leader Andrew Weaver.

The corporate income tax act exemption will require legislation but the government said it will not be introduced during the current session because that particular tax break will only kick in when LNG production begins around 2023.

The B.C. Liberals hailed the LNG announcement as a “great day” for British Columbia, while Weaver called it a “tax giveaway.”

“Adding such a massive new source of GHGs means that the rest of our economy will have to make even more sacrifices to meet our climate targets,” Weaver said in a statement.

The LNG project will emit 3.45 megatonnes of greenhouse gas emissions annually, according to the provincial government, which promised the cleanest LNG in the world even though claims of “clean LNG” have been thoroughly debunked.

This Vigilante Scientist Trekked Over 10,000 Kilometres to Reveal B.C.’s Leaking Gas Wells

The project’s emissions will represent more than one-quarter of B.C.’s legislated targets for carbon pollution in 2050, set at about 13 megatonnes a year.

A beaming B.C. Premier John Horgan said at the LNG Canada press conference that carbon emissions from the LNG project will fit within a “robust and aggressive climate action plan” to be unveiled this fall, while noting that “it will be significantly challenging for all of us.”

“Today LNG Canada has sent a signal to the world that British Columbia and Canada are open for business,” the premier said.

The government said B.C. will still be able to meet its obligations under the 2015 Paris climate agreement.

But the NDP’s long-awaited climate action plan will only take the province to 75 per cent of its emissions targets, according to senior officials at the technical briefing.

Karen Tam Wu, B.C. managing director for the Pembina Institute, said B.C. is headed in the wrong direction with the LNG Canada project unless the province has a clean growth strategy that puts B.C. on track to meet its climate targets.

“The task of reducing B.C.’s carbon pollution must not be underestimated,” Wu said in a statement. “With B.C.’s climate action having stalled in recent years, we have to be ambitious to make up for lost time.”

In addition to the climate considerations, scientific research has not fully caught up on the many impacts of unconventional gas development, Wu said.

“Recent research demonstrates evidence of risks posed by hydraulic fracturing to our water resources and public health. In the absence of further investigation, we should be cautious about putting our communities at risk.”

Fracking wells in the Farmington area of northeastern B.C. Photo: Garth Lenz / The Narwhal

Exporting liquefied natural gas involves fracking for gas in B.C.’s northeast, a process that uses a proprietary mix of chemicals and massive amounts of water. The industry’s growing need for fresh water has resulted in the construction of at least 90 unlicensed dams in northeast B.C.

‘Time Bombs’: 92 Fracking Dams Quietly Built Without Permits, B.C. Government Docs Reveal

About 60 per cent of the gas for the LNG facility will come from new fracking, according to the government.

Northeast B.C. — a boreal region rich in biodiversity that is home to endangered woodland caribou and many other species vulnerable to extinction — is already ground zero for resource development in B.C. Existing linear disturbances in the region, including roads and seismic lines, are so extensive they could wrap around the planet four and half times, according to Global Forest Watch.

The fracked gas will be shipped through TransCanada’s new Coastal GasLink pipeline to Kitimat, where it will be cooled in massive compressors to minus 162 degrees Celsius, the point at which gas turns into liquid and becomes easier to transport in ocean tankers.

How this man’s legal challenge could stall LNG Canada

LNG Canada will burn its own natural gas for the energy-intensive compression process, resulting in substantial greenhouse gas pollution.

The government justified the project on the grounds that it will create 10,000 jobs and generate $23 billion for provincial coffers over the next 40 years.

The project is supported by elected councils of 25 First Nations communities along the pipeline route and the Haisla First Nation, on whose traditional territory the LNG facility will be built. Several Wet’suwet’en Hereditary Chiefs oppose the project, pointing to tactics they say have created division and strife.

The hereditary system has been tested in court several times and has helped form the laws most aboriginal rights and title cases have been based upon. “The Wet’suwet’en Hereditary Chiefs do not endorse nor support pipeline projects that threaten the health and well-being of our lands and our people,” said Debbie Pierre, executive director of the Office of the Wet’suwet’en.

DeRochie said research shows that six or seven times more jobs are created for every dollar invested in a renewable energy project instead of in fossil fuels.

“If our objective is wider jobs and indirect economic benefits there are better ways to spend public money than attracting resources for a sunset industry that we cannot continue to expand if we are going to meet our climate targets.”

Weaver pointed out that a significant portion of the investment will be spent on a plant manufactured overseas, with steel produced outside Canada.

“B.C. taxpayers will subsidize its power by paying rates twice as high and taking on the enormous public debt required to build Site C.”

The hugely over-budget Site C dam, under construction on B.C.’s Peace River, will generate 1,100 megawatts of power that will cost at least $120 megawatts per hour to produce, according to independent energy experts. Any difference between the cost of producing the power and its selling price will eventually have to be shouldered by British Columbians.

Of the 19 export LNG projects proposed under the previous Liberal administration, only one other project, the relatively small Woodfibre LNG championed by NDP insider and lobbyist Moe Sihota, has received a final investment decision.

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Norway’s sovereign wealth fund just hit a grand total of US $1 trillion dollars.

Just in case you’re wondering, 12 zeroes looks like this: $1,000,000,000,000

The number is 2.5 times Norway’s annual GDP and serves as the largest sovereign wealth fund in the world. It has also somewhat predictably triggered a new round of consternation among Albertans, mourning the state of their own fund currently worth a measly $17.2 billion.

But Andrew Leach, associate professor at the University of Alberta’s business school and chair of the province’s completed Climate Change Advisory Panel, said it’s important to read past the headlines when it comes to the Norway vs. Alberta comparison.

“If I said ‘wouldn’t it be great if Alberta had a trillion dollar sovereign fund?’ You’d say ‘yeah absolutely.’ But the better question is would it have been worth the tradeoffs that would have had to been made at the time to accumulate that fund,” Leach said in an interview.

Yet we’re still faced with the reality that Norway — a country with roughly the same population size as Alberta — now has a savings fund roughly 60 times the size of Alberta’s.

What the heck is up?

Alberta Would Have Over $163 Billion Had it Gone Norway’s Way

In 2015, the Calgary Chamber of Commerce calculated that Alberta’s sovereign wealth fund would be worth $40.9 billion if it followed Alaska’s model of taxation and $163.7 billion in the case of Norway.

That same year, Mitchell Anderson of The Tyee calculated much of that difference has to do with a difference in collected royalties.

“Norway realized revenues of $87.69 per barrel in 2013. Alaska managed $38.54. And Alberta? Just $4.38 — one-twentieth what our Norwegian cousins managed to rake in,” Anderson wrote.

But it comes down to more than how royalties are collected and has to do with funds being saved or spent.

Every dollar that’s invested in a sovereign wealth fund is a dollar that can’t be spent on healthcare, education, social services or infrastructure projects — all things Alberta funds through oil revenues.

Simply put, Alberta’s savings are so low because the province choses to spend the money on iminent, rather than future, needs.

“It’s not like there was money that was only available to Alberta had they decided to save it,” Leach said.

But surely Norway had social and infrastructure costs too? So why didn’t the Scandinavian paradise end up in a situation similar to Alberta?

There are a few ways of answering this question.

Norway Favours Publicly Managed Investments. Alaska, Dividends

First, there’s the Norwegian way.

The Government Pension Fund Global was established in 1990, partially based on Alberta’s example.

Since then, Norway has diverted a full 100 per cent of resource revenue into the fund — a number especially significant since the rebound of global oil prices in the late 1990s, and since taxation rates on oil production in Norway are considerably high.

Norway has a 51 per cent tax on petroleum-related income, on top of the 27 per cent income tax. That amounts to a whopping 78 per cent total tax rate.

Compare that to Alberta’s incredibly complex royalty framework, which varies based on product (conventional oil, unconventional oil or gas), per-barrel price and stage of production.

In the case of oilsands production, Alberta takes around 10 per cent of gross revenue via royalties, and administers a 12 per cent provincial corporate income tax.

Norway’s rules are very strict about actual use of the money by the government. Until recently, only four per cent of the fund could be withdrawn per year — effectively skimming off the interest without touching the principal. It’s since been cut to three per cent.

Such a restriction helps ensure savings for future generations in an era of decarbonization while also preventing an overheating of the economy due to a sudden spiking in government spending.

Some 65 per cent of investments are in equities, with the remainder residing in real estate and fixed income. There’s actually an ongoing concern in Norway that having so much money in the volatile stock market could lead to financial catastrophe if there’s a repeat of 2008 (that’s a key reason why the diversified fund is invested in some 9,000 companies).

In addition, there are ethical guidelines that prevent investments in industries such as coal, nuclear weapons and tobacco. Canadian companies including Barrick Gold and the Potash Corporation of Saskatchewan have been blacklisted from investments.

Main holdings include Royal Dutch Shell, Apple, Nestle and Microsoft.

Then there’s the Alaska example. Every year, the Alaska Permanent Fund — established in 1976 via a referendum — disperses cheques to each resident without a recent criminal record. The dividend usually amounts to between $1,000 and $2,000 per person.

Norway: doing things better than you since…forever. Photo: mariusz kluznia via Flickr

Alberta Operates With a ‘De-Facto Dividend System’

One might assume that Alberta tends towards the Norway model, despite the low amount in the province’s actual reserve.

But Alberta’s system is actually more like a “de-facto dividend system” via reduced taxes according to Geoff Salomons, PhD candidate at the University of Alberta focusing on intergenerational natural resource wealth governance.

“But people don’t realize it,” Salomons said.

In other words, instead of saving money in a Norway-like publicly managed fund, Alberta has chosen to buffer the gap between low taxes and high spending levels with oil and gas revenues.

Using oil revenues to fill provincial coffers lies at the root of what is known as the “Alberta advantage” — perpetually low income, corporate and sales taxes.

But those advantages come at high cost and with a high risk: the province is beholden to the historically volatile price of crude oil.

Price crashes throughout the decades, most recently in 2014, have resulted in huge deficits for Alberta.

Between 2014 and 2015 Alberta collected $8.9 billion in royalties. That fell to $2.8 billion 2015 to 2016. Over the last year the province added $10.3 billion to its deficit, with a provincial debt of over $33 billion.*

Alberta could choose to increase sales taxes to alleviate the reliance on natural resource revenues, as Saskatchewan recently did, but a political distaste for taxes makes that unlikely.

Salomons suggested the current system has actually resulted in a ‘baked-in’ subsidy that primarily favours high-income earners.

That’s because rich Albertans haven’t had to pay as much in income taxes over the years as they would in a less oil-rich jurisdiction. Since both the province’s previous flat tax framework and marginal tax rate system exempted very low-income earners, the poorest segment of society didn’t receive any benefit from the oil subsidies.

“The more you pay in taxes, the more you benefit, essentially,” Salomons said in an interview.

“When you start thinking about it in those terms, it’s a system that actually exacerbates inequality.”

Workers tend to an abandoned oil well in Alberta, May 18, 2017. Photo: Chris Schwarz, Government of Alberta via the Premier of Alberta’s Flickr

Expectations of Oil Price Decline Shaped Alberta’s Spending

A key distinction between Norway and Alberta is fundamental assumptions about when oil and gas revenues will actually begin to decline.

Leach said that offshore oil and gas resources in Norway have always been viewed as ones with relatively short-term life and value, leading to an expectation that future Norwegians will have fewer resources than current Norwegians.

That contrasts with Alberta’s vision of developing oil and gas resources, especially the oilsands, over the period of many decades.

However, when the Alberta Heritage Trust Fund was founded in the early 1970s by then-premier Peter Lougheed, there was an expectation that conventional oil resources would be depleted within a decade.

The expectation helped justify Alberta’s push to spend money now, rather than later, helping to suppress tax rates and attract new business. Almost all the investments in the Alberta Heritage Savings Trust Fund were made prior to the mid-1980s.

Leach said, “I don’t look at my students today and say ‘you should really save your money now for the times in the future when you have a job.’ ”

“It completely doesn’t make sense.”

Alberta Approach Subject to Boom and Bust

The Alberta approach doesn’t specify what is happening with revenue: residents don’t receive a specific amount of money in the form of a cheque like in Alaska, or long-term public savings like in Norway.

Instead, money is channeled into the province’s general revenue, effectively made invisible to the public until a major price drop and subsequent deficit occurs.

“The challenge is that makes government highly dependent on the fluctuations of the resource wealth coming in,” Salomons said.

“That’s the story of Alberta’s fiscal policy over the past 50 years: the boom and bust of the oil prices and what that’s done for our fiscal position.”

There’s also the issue of a boom and bust population.

Many Norwegians are multi-generational, with families having lengthy commitments the country. Conversely, Alberta often works to attract people who stay short-term for the work.

That creates a spend-now kind of ethos.

As Leach puts it: “You expect Peter Lougheed or early Klein to say Albertans should make some sacrifices today to save for some redheaded kid in Ontario, the son of two people from New Brunswick, who’s going to move here in 2006?”

Savings Don’t Sell In Austerity Situations

While Norway has the freedom to revisit its investment policy and Alaska can alter the amount of money it distributes to residents, Alberta’s left with little wiggle room.

Alberta’s finance minister Joe Ceci has previously stated “with the drop in oil prices, it will take some time for our government to reverse the damage” the Alberta’s Heritage Fund.

“We are committed to appropriately investing resource revenues for future generations and are working on a fiscal plan to that end,” he said.

The province’s short-term Contingency Account — previously known as the Sustainability Fund — has been significantly depleted in recent years due to the provincial deficit.

But here’s the thing: even if oil prices do bounce back, Leach isn’t sure that reinvesting in the Heritage Fund will necessarily be the best approach.

“If oil goes back to $70 or $80 a barrel and say we’re still going to make all the big cuts that people are talking about — education and healthcare and all those things — and put that money in a savings fund that’s going to invest in infrastructure in say New Zealand…I don’t know that people are going to be thrilled about that,” he said.

* This article has been updated to reflect to the fact that Alberta’s debt, not deficit, is $33 billion.

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By Maximilian Kniewasser, Pembina Institute.

Four years ago, the government of British Columbia bet big on the prospect of liquefied natural gas (LNG) exports creating overseas markets for the province’s shale and tight gas resources.

LNG development would deliver 100,000 jobs, a $100-billion Prosperity Fund, and over $1 trillion in economic activity, British Columbians were told. Since then, however, the economics of LNG have shifted, and the predicted LNG boom has yet to materialize.

In order to attract LNG investment, the provincial government has provided myriad incentives, exemptions, and direct transfers to the natural gas industry. Financial incentives that shield the emissions-intensive industry from current and potential future increases in carbon costs are of particular concern to the Pembina Institute.

For one thing, these measures lessen the incentive to reduce carbon pollution — as the world increasingly demands that polluters pay for their emissions. Furthermore, such incentives use scarce public dollars to support the fossil fuel sector at a time when government should be removing barriers to clean innovation and investing in green jobs.

Here is an overview of six carbon-related incentives that benefit LNG projects and the natural gas industry in B.C.

1. Carbon Tax Exemptions

B.C.’s carbon tax currently only applies to combustion emissions and fails to put a price on non-combustion sources (especially venting and fugitive emissions). According to B.C. government reporting, combustion emissions in the natural gas sector account for approximately 60 per cent of total emissions associated with the industry. That leaves 40 per cent of the industry’s emissions un-priced.

The current value of this exemption for the natural gas industry is estimated at over $150 million a year. This value would increase if a substantial LNG industry emerges. As well, a recent report shows that vented and fugitive emissions in B.C.’s oil and gas sector are 2.5 times higher than reported, making the exemption even more valuable.

By expanding the coverage of B.C.’s carbon tax to include all currently accurately measurable emissions, about half of these exempted emissions could be priced.

2. LNG Environmental Incentive Program

The Liquefied Natural Gas Environmental Incentive Program rebates industry 50-100 per cent of the compliance costs of the LNG benchmark regulations established by B.C.’s Greenhouse Gas Industrial Reporting and Control Act (GGIRCA). Of the three most advanced LNG projects, this incentive only applies to Pacific NorthWest LNG (PNW LNG), which is the only project that fails to achieve the emissions benchmark set by the provincial government. The value to PNW LNG is estimated at up to $16 million a year.

3. eDrive Electricity Rate for LNG Facilities

The eDrive electricity rate offers a significantly lower price to LNG projects that choose to use grid electricity to power the main liquefaction process. In 2013, B.C. Hydro announced an LNG-specific electricity rate. The rate was higher than the current industrial rate — to reflect the cost of new supply and to protect existing ratepayers.

However, the eDrive rate reduces this LNG electricity rate to the standard industrial rate. Woodfibre LNG announced that it would proceed with its project on the same day the eDrive rate was made public. The value to Woodfibre LNG is estimated at $26 million a year.

Six Troubling Subsidies That Support B.C.’s LNG Industry https://t.co/hpVLpox3QE #bcpoli #bcelxn17 #LNGinBC #cdnpoli @Pembina pic.twitter.com/y0Tk5TaxIH

— DeSmog Canada (@DeSmogCanada) May 5, 2017

4. Upstream Electricity Infrastructure Spending

In last year’s climate plan, the B.C. government announced it would invest in electricity infrastructure in the Montney basin to enable the electrification of upstream natural gas development. As details are not yet available, the Pembina Institute is not able to quantify the potential magnitude of the incentive.

5. Competitive Electricity Rate for Upstream Development

B.C.’s climate plan states: “Programs are also being developed to close the gap between electricity and natural gas costs.” Under current market conditions, using natural gas is generally cheaper for the industry compared to electricity.

As such, any public programs to equalize the costs of electricity and natural gas would be associated with material costs to government. As details are not yet available, the Pembina Institute is not able to determine the potential value of the incentive.

6. Project Development Agreement with Pacific NorthWest LNG

In 2015, the B.C. government signed a project development agreement (PDA) with Pacific NorthWest LNG. For PNW, the PDA locks in the current GGIRCA — the main legislation regulating carbon pollution from LNG facilities — for 25 years. It also locks in the aforementioned LNG Environmental Incentive Program.

If the government chooses to strengthen GGIRCA or alter the LNG Environmental Incentive Program, it could owe compensation to the proponent. In effect, the PDA is a significant barrier to future administrations strengthening regulations for the industry. This is an important point, because it will be the case over a period that we know must see the ambition of climate policy increase.

Wait, There’s More

This suite of carbon-related incentives for LNG projects and the natural gas industry is substantial in value. In addition, there are numerous non-carbon-related incentives, such as the cutting of the LNG income tax by 50 per cent, federal capital cost allowances, and significant upstream royalty credits that have led to record low royalties from a public resource.

Currently, 19 LNG projects are proposed in B.C. Only three — Woodfibre LNG, LNG Canada, and Pacific NorthWest LNG — are at an advanced stage and have received environmental assessment certificates. Together, the three projects would emit 18 million tonnes of carbon dioxide equivalent (Mt CO2e), making it impossible to meet B.C.’s legislated 2050 climate target of 13 Mt CO2e for the whole economy.

Instead of spending public dollars to bolster the carbon-intensive fossil fuel sector, the provincial government should be putting resources into revving up the clean growth economy. After all, a prosperous future for B.C. depends on investments in the industries of tomorrow — not yesterday.

Maximilian Kniewasser is an analyst at the Pembina Institute, Canada’s leading clean energy think-tank. Learn more: www.pembina.org.

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Saskatchewan Premier Brad Wall has repeatedly argued that putting a price on carbon would be bad for the economy — but experts say Wall’s own climate change strategy will end up costing the province more per tonne than the federal government’s plan, while failing to be nearly as fair or effective as a carbon tax.   

Much of Saskatchewan’s climate strategy centres around the SaskPower Boundary Dam carbon capture and storage (CCS) project, which cost $1.5 billion to build (funded mostly by SaskPower ratepayers and a $240 million investment from the federal government).

“When we think about how we can reduce emissions most cost-effectively, [Boundary Dam] probably stands out as an example of how not to do it,” says Dan Woynillowicz, policy director at Clean Energy Canada.

Choosing a preferential technology and using public dollars to subsidize it is “quite inconsistent with the approach that most conservative politicians and economists would take,” Woynillowicz added.

Indeed, even as oil companies and conservative politicians — such as Preston Manning, Jean Charest and Jim Dinning — have spoken in favour of putting a price on carbon, Wall has worked hard to establish himself as the major voice of opposition to a federal carbon tax.

Enter Saskatchewan’s 53-page “Climate Change White Paper,” released on October 18. Carbon nerds eagerly jumped into the paper head first, anxious to learn how Canada’s highest greenhouse gas emitter per capita planned to help Canada meet its climate commitments.  

Disappointingly, the paper essentially packaged up the policy actions Saskatchewan has already taken to date.

Off the Wall: #Saskatchewan @PremierBradWall's Bizarre, Contradictory #ClimatePlan https://t.co/sWJXdJzEFd #cdnpoli #skpoli #carbontax

— DeSmog Canada (@DeSmogCanada) October 25, 2016

Carbon Capture and Storage Far More Expensive Than Carbon Tax

The Boundary Dam CCS project is intended to reduce emissions from SaskPower’s largest coal-fired power plant by capturing smokestack emissions (in the range of one million tonnes of carbon per year).

However, because one-third of those captured emissions will be sold for use in oil extraction at Cenovus’ Weyburn site, the current estimate is that Boundary Dam will remove more like 600,000 tonnes per year from the atmosphere — if it can even manage that.

With that level of emissions recovery, the cost of CCS works out to about $100 or $110 per tonne, according to Trevor Tombe, assistant professor of economics at the University of Calgary.

Only four days prior to the release of Saskatchewan's plan, on the same day as Wall argued in the Globe and Mail that “carbon-capture technology works,” a report in Science concluded that negative-emission technologies such as carbon capture storage are an “unjust and high-stakes gamble” that “should not form the basis of the mitigation agenda.”

One of the reasons carbon pricing has attracted support from across the political spectrum is because it doesn’t pick winners and losers. It puts a price on pollution and then lets the market determine the best ways to reduce carbon emissions. The bizarre thing is that Saskatchewan’s gamble on CCS is the exact opposite of that.

Woynillowicz adds there’s little evidence that SaskPower has developed any plans for monetizing their experience and technology to sell it to other jurisdictions, or securing investments from the federal government for future projects.

The One New Thing In Saskatchewan’s Climate White Paper

The only major new announcement in those riveting 53 pages was the call to redeploy $2.65 billion in foreign aid to technology subsidies within Canada.

Tombe says that recommendation mixes two separate conversations —there’s no need to tie a case for additional government investment in research with foreign aid funding.

Experts Suggest Carbon Tax Required to Spark Investments in Renewables

A more consistent approach would be the establishment of a broad-based carbon price.

Such a mechanism — which will take the form of either a $50/tonne carbon tax or cap-and-trade system by 2022 due to the recent federal decision — would address the “market failure” of unpriced pollution, something that Tombe pointed out isn’t solved by providing subsidies for R&D.

It would also incentivize investments in renewable power sources, energy efficiency measures and perhaps even carbon capture and storage (although given the current price tag of the technology — between $75 and $100/tonne just for the “capture” part of it — such a carbon price would have to be significantly higher than currently proposed to justify it).

Yet Wall completely rules out the role of taxation: he argues British Columbia’s emissions are rising despite having a carbon tax, even though many acknowledge emissions are rising precisely because Premier Christy Clark has put a freeze on the tax, preventing its increase from $30/tonne since 2012.

In the White Paper, Wall strangely suggested that “we should be focusing our efforts on innovation and adaptation” and that “a carbon tax will harm Saskatchewan.”

But Woynillowicz says suggested innovations like “new crop varieties that are better able to withstand climate change and that effectively fix GHGs to the soil” would be incentivized in part via a price on carbon.

“You need either dollars to do that if it’s going to be the government making those strategic investments in R&D, or you need to send a price signal that creates the incentive for private sector actors to invest in R&D,” Woynillowicz says.

“You can do that through a price on carbon pollution.”

Climate Plan Quietly Recommits to Carbon Tax on Large Emitters Despite Premier’s Apparent Opposition

Even odder is the fact that Saskatchewan’s White Paper includes a commitment to “[move] ahead with plans for a fund supported by a levy on large emitters, with the fund’s expenditures limited to new technologies and innovation to reduce GHGs and not for general revenue” when the resource economy rebounds.

Tombe says that whether or not Wall likes to admit it, the notion of a “levy on large emitters” is indeed a tax, similar to what Alberta implemented with the Specified Gas Emitters Regulation (SGER) in 2007.

“Roughly speaking, that places that Saskatchewan carbon tax on about 50 per cent of what could be subject to a carbon tax,” he says. “It’s roughly the equivalent of half the coverage of Alberta and B.C.”

Carbon pricing can be designed in many different ways; Alberta’s Climate Leadership Plan offers up a recent example of how to insulate low-income residents and “energy-intensive, trade-exposed” sectors from the economically damaging byproducts of a tax.

“That’s more what I’m disappointed with: that [Wall] sets up straw men and then knocks them down on the carbon tax front,” Tombe says.

“It’s fine: if he wants to have more costly action through the CCS or through the large-emitter levy and leave a lot of low-hanging fruit unpicked, that’s something that will be up to the Saskatchewan people to decide.”

Saskatchewan Has ‘Excellent Renewable Resources’  

Woynillowicz says the one bright spot of the White Paper was the re-commitment to double SaskPower’s generation capacity of renewables by 2030, although that announcement was already made in November 2015.

However, he emphasizes it’s a pledge for 50 per cent generation capacity, not actual generation, meaning it’s more in line with Alberta’s target of 30 per cent renewable generation by 2030 (for contrast, Iowa generated 31 per cent of its electricity from wind power in 2015).

Saskatchewan has “really excellent renewable resources,” Woynillowicz says.

As part of its plan, SaskPower intends to develop 1,600 megawatts of power between 2019 and 2030. But as mentioned, such a transition would be greatly accelerated by a commitment to a broad-based carbon price.

“Really, I’m just left scratching my head, wondering why Premier Wall has made this decision to oppose [carbon pricing] so vocally and aggressively,” Woynillowicz concludes.

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The B.C. government has quietly slipped subsidies for the natural gas sector into its climate plan, which has been panned as "cynical" by leading experts.

B.C.’s so-called Climate Leadership Plan, quietly released on August 19, includes a vague pledge to subsidize the electrification of upstream natural gas facilities in the northeast of the province, using “renewable” power from BC Hydro projects.

“I just could not believe the audacity of it when I was reading the plan,” Alex Doukas, senior campaigner at Oil Change International, told DeSmog Canada.“We’re using public dollars to help them reduce their emissions, when that should be the responsibility of the natural gas producers.”

“That’s why B.C. ostensibly has a carbon tax: there’s a principle called the ‘polluters pay principle.’ Taxpayers shouldn’t be picking up the tab for big polluters.”

The hidden subsidies come on top of B.C. Premier Christy Clark’s many concessions to the natural gas industry, including more than a billion dollars in royalty breaks, a freeze on the provincial carbon tax and taxpayer-subsidized promotion and marketing.

B.C. to Pay for Natural Gas Infrastructure and Subsidize Power Costs

Natural gas production and processing, which requires a great deal of energy, has historically been powered by natural gas or diesel.

“Full electrification” — which would include building new transmission lines, compressors and pumps to move gas through the system — would cut carbon emissions by an additional 2.4 million tonnes, according to the B.C. government.

Maximilian Kniewasser, analyst at the Pembina Institute, describes such reduction numbers as “fairly significant,” requiring a bit more than 6,000 gigawatt hours of energy (20 per cent more electricity than the Site C Dam will produce).

The climate plan, which failed to implement the recommendations made by B.C.’s climate advisory team, also mentioned that programs are in development to “close the gap between electricity and natural gas costs.”

Doukas says this suggests that public dollars will be spent not only to subsidize construction of the infrastructure but to “ratchet down the cost of electricity delivered to these natural gas producers so they’re not taking any kind of financial hit.”

“None of this gas expansion is compatible with acting on climate change in line with science,” he said.

“On the one hand, they’re trying to greenwash that gas expansion. On the other hand, they’re promoting it actively by giving a handout to natural gas producers by offering to invest public money into new infrastructure to electrify their operations,” he says.

“It’s a double whammy.”

BC #Climate Plan Subsidizes #FossilFuels (Yes, You Read That Correctly) https://t.co/joWylQLghP @christyclarkbc @maryforbc #bcpoli

— DeSmog Canada (@DeSmogCanada) August 31, 2016

Clark Promised LNG Would Create 100,000 Jobs

Kniewasser notes there are no real details on what is being proposed, and that there is a big difference between a direct subsidy that pays for the entire cost of electrification compared to a program that provides upfront costs and eventually gets recouped.

But Clark has set quite the precedent for making intensely generous offerings to kickstart her LNG dreams (which she once promised would create 100,000 jobs and $1 trillion in GDP).

These commitments accompanied federal subsidies from former prime minister Stephen Harper, which Prime Minister Justin Trudeau cemented until 2025 in his government’s first federal budget.

Martyn Brown, former premier Gordon Campbell’s chief of staff, wrote about her 2015 legislation that locked in tax breaks and subsidies for 25 years: “We will all pay for the government’s failings on this file forever. We will one day live to regret them for all they will cost us in lost revenue, in lost sovereignty and in their lack of any guarantees for Canadian workers, skills training or local suppliers.”

While B.C. is seeing renewable energy alternatives struggling or even abandoning the province, other places are benefitting from the emerging clean energy economy. Ontario has created more than 5,000 full-time jobs from the solar industry alone and California, which has aggressively pursued its emissions reduction plan, has seen $48 billion flood the economy while creating an estimated 500,000 jobs over the last decade.

In the meantime Clark has effectively pinned her entire political career on the LNG industry, which, up to this point, has yet to see a single project get past the initial investment stage. Despite bleak economic prospects for B.C.’s LNG industry, Clark is clearly doubling down on her LNG dream.

At this stage it wouldn’t come as a surprise if B.C. taxpayers found themselves fully on the hook for the transmission infrastructure to electrify future natural gas production.

Huge Emissions Associated With LNG, Including Methane Leakages and Liquefaction

A key component of the government’s push for LNG is the idea that the product is “the cleanest burning fossil fuel.”

Clark once said that developing the LNG sector would be the “greatest single step British Columbia can take to fight climate change.”

That’s a seriously contested point.

Natural gas is essentially methane, a greenhouse gas that has 25 times the global warming potential over a century than carbon dioxide, meaning you really, really don’t want it released into the atmosphere.

That’s not a contested point.

In fact, both Canada and the U.S. have committed to reducing upstream methane emissions from the oil and gas industry by 45 per cent in large part by cleaning up oil and gas operations that routinely vent and leak methane into the atmosphere.

That venting and leaking is a part of the reason why the natural gas industry in B.C. is estimated to have such a significant climate impact.

A 2013 DeSmog Canada investigation revealed B.C.’s methane emissions are likely seven times greater than reported, meaning the CO2 equivalent of the natural gas industry is around 25 per cent higher than estimated.

In May, an open letter signed by 90 scientists concluded that constructing the Pacific Northwest LNG export terminal — one of twenty proposed terminals — would increase B.C.’s total emissions by between 18 and 22.5 per cent, spouting upwards of 11.5 million tonnes of carbon per year (most of the emissions are related to the liquefaction process, which involves burning gas to run compressors to liquefy gas).

Government Agreed to Pay Exporters If It Raises Carbon Tax

Kniewasser stresses that emissions reductions don’t even require public investments, just a predictably increased carbon tax.

But due to the aforementioned 2015 legislation, the government must compensate natural gas exporters if it increases its meagre $30/tonne carbon tax (in other words, it voluntarily signed up to pay corporations if it requires them to innovate and cut pollution).

In the plan, the government also expressed an interest in “developing regulations to enable carbon capture and storage,” a technology that has come at enormous public expense in Alberta and Saskatchewan; the Boundary Dam CCS project near Estevan has been riddled with design flaws and cost overruns.

All up, it’s abundantly clear that Clark has zero interest in meaningfully addressing emissions via an increased carbon tax and public investments in technologies like geothermal, solar and wind.

In the words of Mark Jaccard, one of the most respected climate policy experts in the country, the plan represented “Olympian heights of political cynicism.”

There’s a good chance that status will only be solidified as more information about the natural gas electrification plan comes out.

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This very long piece is the last of a four-part series on B.C.’s climate action plan. Part One addressed B.C.’s GHG reduction targets. Part Two addressed how that plan is at risk of being co-opted by Big Oil. Part Three took a closer look at the B.C. Climate Leadership Team’s recommendations for the carbon tax. This analysis explores how the oil and gas industry, and especially the LNG industry, might financially benefit from hidden subsidies recommended by that advisory body.

Like so many other governments around the world, British Columbia’s Liberal government led by Premier Christy Clark has been duped by the barons of Big Oil.

Beguiled by the petroleum industry’s promises of new investment and jobs, the Clark government has repeatedly proved itself a patsy in acceding to the LNG industry’s every demand.

In the process, it has subjugated B.C.’s global-leading 2008 climate action plan to its misguided vision for the unchecked exploitation of non-renewable natural gas.

It has broken its own law, in failing to meet B.C.’s legislated targets for provincial greenhouse gas reductions.

And it has tugged its forelock, at every turn, to meet each new industry demand for special treatment and locked-in subsidies and tax concessions that are fully underwritten by B.C. taxpayers.

This analysis explores how that taxpayer-subsidized boon to Big Oil stands to be further entrenched under the recommendations for updating B.C.’s climate action plan last fall by the government’s handpicked Climate Leadership Team (CLT).

The Ludicrous Foundation of B.C.’s Climate Avoidance Plan 

As I have explained in previous installments, B.C.’s greenhouse gas reduction plan is woefully off-track. The CLT has suggested a plan to help remedy that situation, mainly through a long-term commitment to a 12-fold increase in B.C.’s carbon tax.

Several other recommended measures that I address below are largely aimed at subsidizing B.C.’s worst carbon polluters, to help them offset the added carbon emissions they hope to impose upon B.C. in the name of economic development.

Underlying that project is the Clark government’s abiding obsession with LNG as B.C.’s principal driver of new resource development.

It intends to further aggravate B.C.’s GHG emissions challenges with a forthcoming climate “action” plan — more accurately, a climate action avoidance plan — that is sure to be tailor-made for the province’s largest industrial polluters.

Whenever that plan is released, it will be grounded in a vision for a massive expansion in fossil fuel development.

More drilling rigs and roads. More scars on our land base. More fracking and seismic instability. More water waste and groundwater poisoning. More pipelines. More energy burned in B.C. to produce still more non-renewable energy destined to be burned in far-flung places. And many, many times more greenhouse gas emissions.

All to “liberate” the “dream” of building plants on B.C.’s Pacific coast that will liquefy natural gas by chilling it to -160°C and ship it halfway around the world to China and other countries.

All in a rush to profit from that product that other countries are now struggling to sell because there is already far too much of it on the market.

It is to be a climate action plan aimed at largely undoing the anticipated damage from a new LNG industry that may never ultimately materialize in British Columbia, ironically, because it is so demonstrably unnecessary — a victim of its own global rapacity and redundancy.

It is an industry that is struggling to cope with the falling price of a product it wants to wish upon our choking world.

A product that has been devalued by the global glut of LNG that it has created from overproduction and from the world’s suddenly serious attempts to reduce its dependency on fossil fuels.

A product that at least one study from the Canadian Centre for Policy Alternatives shows will be devastating for B.C.’s environment and may well increase global GHG emissions over at least the next fifty years, compared to even building state-of-the-art coal plants.

Indeed, it is an industry that should have no future in B.C. if we are truly concerned about shifting to a low-carbon economy, about mitigating avoidable greenhouse gas emissions, and about seriously combating global warming.

That should be the central, unwavering message from British Columbia’s environmental community and from all those who should know better.

Which makes it all the harder to fathom why the environmentalists and academics who served on the CLT ever agreed to embrace a climate action plan that is innately dedicated to advancing the Premier’s LNG vision and to offsetting its negative impacts largely at taxpayers’ expense.

Accepting that vision for increased carbon emissions as the starting point for renewed climate action plan will make it even more challenging and more costly to meet British Columbia’s legislated GHG reduction targets.

This is the fundamental point that compromised the CLT’s mandate and mission, which it failed to articulate and which must be soundly rejected.

The most rational response to any problem is to first address it by doing less of the thing that is the problem, not the opposite.

You wouldn’t council a drug addict to take even more drugs as a way to kick their habit.

You wouldn’t advise a person mired in debt to max out their credit cards and to apply for new ones as a path to reducing their spending.

You wouldn’t urge someone who is drowning to keep gulping the stuff that is sinking them as they dog paddle their way back to safety.

So why on Earth would anyone think that the way to solve our global warming crisis is to intensify fossil fuel developments in Canada that we can readily live without and that will only compound the problem they are creating?

How crazy must we be to think that the best way to lower greenhouse gas emissions that are threatening our planet’s very existence is to launch a new carbon-intensive industry in B.C. that we don’t have, don’t need and can’t afford?

Nuttier still is planning to do that when the bottom has fallen out of the global LNG market, leaving exporting countries like Australia holding the bag for that industry’s environmental and social costs, with virtually nothing of worth for taxpayers to show for it.

Carbon emissions are the problem we want to solve.

It makes no sense to invite more of them, only to have to offset them, as we also try to eliminate the ones we are already producing at a rate that exceeds our efforts to reduce them.

Yet that is precisely what the CLT plan struggles to achieve, largely by transferring the risks and costs of the most onerous climate actions that would be required to follow that nonsensical course, from the largest industrial polluters, to B.C. taxpayers and families.

We need to reject that plan to further subsidize B.C.’s worst carbon polluters, and instead, make them more accountable for the actions and costs that will flow from eliminating their unwanted emissions.

This much is evident.

The well-meaning members of the CLT who care deeply about reducing British Columbia’s greenhouse gas emissions got outplayed by their government and industry colleagues.

The LNG representatives and advocates who sat on the CLT well understood that its “consensus” recommendations to increase and expand the carbon tax would never be adopted by the B.C. Liberal government.

They signed onto that package not for what it purports to demand in terms of right-pricing carbon; but rather, for what it might help to legitimize in further subsidizing their industries’ obligations to reduce their emission intensity levels, if not their actual emission outputs.

They signed onto it knowing that it would be “cherry-picked” by the Clark government, notwithstanding the CLT’s contention that its recommendations must be accepted a total indivisible package.

They signed onto it hoping that at least some of the hidden subsidies, regulatory concessions, risk avoidance measures and tax relief policies that stand to benefit their industries would be embraced by the government.

In short, they signed onto to that CLT “consensus package” because of what it does not demand. And also because of the enormous “wriggle room” for climate action avoidance that it provides, through its lack of specificity and through its lip service to future policy reviews and business relief measures in the interests of “global competitiveness.”

The Clark government will not support all of the measures that the CLT has recommended to most benefit B.C.’s largest carbon polluters. Yet the CLT’s report provides it with plenty of new ammunition to double down on its failing LNG vision with new mitigation measures that will principally mitigate industries’ costs of paying for their own carbon pollution.

Revisiting the B.C. Liberals’ LNG Subsidy Plan

The CLT suggested several actions that would especially benefit the LNG industry, the oil and gas industry, and more broadly, carbon intensive industries.

To appreciate the scope of those suggested hidden subsidies for LNG in particular, it helps to know a little about the incredibly generous tax arrangements that the Clark government has already extended to those huge firms, in furtherance of its LNG strategy.

Key among those is the infrastructure royalty credit program, which was introduced in 2004 by the Campbell administration to encourage natural gas exploration and development.

For a great analysis of the true hidden cost of that program, check out this piece from blogger Norman Farrell, who has written extensively on the subject.

The royalty credit program grants companies deductions from the royalties they would otherwise have to pay on the natural gas they extract. It is a well-hidden subsidy that is really a tax expenditure and that has poured billions into the pockets of the oil and gas industry over the last 12 years.

It was arguably a defensible trade-off for government back in the days when that royalty credit was at least partially offset by the billions of dollars in natural gas revenues that that industry returned to the provincial treasury from its investments.

But today, it is harder than ever to justify.

The Clark government recently approved yet another $120-million in tax breaks to 10 energy companies under that program, ostensibly, to “buy” ongoing industry investment in British Columbia’s northeastern region.

Yet the province is only expecting to collect $128 million in natural gas royalties this year — almost a dollar-for-dollar subsidy.

It was exactly a year ago, in the dead of summer that the Clark government pushed through its Liquefied Natural Gas Act Projects Agreement Act over the objections of the opposition.

That Act paved the way for the government to enter into the Petronas precedent, a 25-year, ironclad sweetheart deal aimed at landing the proposed Pacific NorthWest LNG project in Prince Rupert. (See my critiques in the Georgia Straight here.)

It also allowed the government to enter into similar project agreements with other LNG consortiums, without the requirement for legislative debate and approval.

The Petronas precedent set the floor for LNG subsidies in B.C. It guaranteed Pacific Northwest LNG ridiculously low corporate income tax rates, ongoing LNG tax credits and taxpayer-backed indemnities that would all be locked-in until for 25 years.

Initially the government planned to set the LNG industry’s tax on net income at seven per cent. When the industry balked, the government caved like a cheap campstool. It cut that rate in half, to 3.5 per cent, until at least 2037, when it may rise to five per cent.

To further sweeten the pot, the tax on net operating income from liquefaction activities, which is applicable for companies that technically don’t have a net income, was set at a mere 1.5 per cent.

That tax is not even payable until there is a zero balance in any LNG plant’s net operating loss account and its capital investment account.

Plus, any tax that the companies pay at the 1.5 per cent rate on their net operating income is only notionally payable in the short run. Their supposed tax “contributions” are actually set aside and accrued in a tax pool that can be later used to reduce the amount of income tax payable at the 3.5 per cent rate, after an LNG facility’s net operating loss account and its capital investment account are reduced to zero.

On top of that sweetheart deal, the Petronas precedent guaranteed that the current Natural Gas Tax Credit will also be locked-in for 25 years.

That tax credit, which reduces the amount of corporate income tax that LNG plants would otherwise have to pay from 11 per cent to as little as eight percent, will be increased next January.

The amount they will be able to deduct for the cost of any natural gas delivered to their facilities will rise from 0.5 per cent to three percent. And that tax credit can also be carried forward from previous years to reduce those companies’ corporate income taxes in future years.

Think of that.

Those oil and gas behemoths have now been guaranteed a special 25-year tax freeze, at rock-bottom tax rates, and a 25-year tax credit that will be six times higher next January than it is today.

It is an outrageous sell-out to the world’s richest oil companies that provides them a 25-year contractual tax benefit and tax certainty that no other industry or individual enjoys.

And it doesn’t stop there.

As I explained in my last analysis on the carbon tax, the gas industry is now also benefiting from the Clark government’s repeal of its predecessor’s Cap-and-Trade Act.

Instead of being obliged to reduce its carbon emissions under annually declining hard caps on emissions levels, the LNG industry is now subject to a new Greenhouse Gas Industrial Reporting and Control Act that only obliges it to meet prescribed carbon intensity levels.

Under the new regime, B.C.’s LNG companies can pollute without limit.

They are allowed to emit 0.16 tonnes of carbon dioxide for every tonne of LNG exported, without penalty. Beyond that threshold, theoretically, the companies must either purchase market-based emissions offsets or pay into a technology fund at the rate of $25 per tonne.

But the government will actually subsidize that penalty by as much 100 per cent for LNG plants that barely exceed the new intensity benchmark. That subsidy declines to “only” 50 per cent of the penalty that would otherwise be applicable for those who emit 0.23 tonnes of CO2 emissions.

Given that almost all of the proposed LNG plants plan to produce C02 emissions that vastly exceed the allowable emissions intensity benchmark, it is yet another whopping gift to polluters. It makes a mockery of the government’s claim that B.C. will have the “cleanest LNG industry in the world.”

And here’s the capper.

The Petronas precedent also gave those Asian state-oil monopolies a special 25-year indemnity that is underwritten by B.C. taxpayers.

That indemnity will save them harmless from any so-called “discriminatory events.”

It assured the LNG industry that any companies covered under such project agreements would not have to face any industry-specific carbon taxes or any new industry-specific GHG reduction initiatives for at least 25 years.

If any future government changes those locked-in tax rates and benefits at a cost to those companies that is greater than $25 million in any year, or more than $50 million over five years, they will be entitled to full compensation, courtesy of B.C. taxpayers.

Similarly, any changes in government policy that impose new rules or tougher standards specific to the LNG industry, which entail higher costs relating to carbon taxes or to greenhouse gas emissions and reporting requirements, will be fully compensable above that threshold.

And the Petronas precedent further stipulated that if any other LNG project got an even sweeter deal from the government, the Pacific Northwest LNG project would get that too.

In essence, the Clark government was so desperate to land a major LNG deal, it contractually signed away British Columbia’s ability to control its own tax regime, carbon pricing and climate action strategies in specific regard to that industry.

All of it amounts to a new license to profit from uncapped carbon pollution, as it also essentially prevents governments and taxpayers from properly taxing the natural gas industry for their profits and for their pollution.

To my knowledge, the Pacific Northwest LNG project is the only project thus far formally covered by an agreement authorized under the new Act.

But the concessions granted in the Petronas precedent and by the new emissions intensity regime are potentially a major additional problem for rebalancing B.C.’s climate action plan.

They will make it that much more difficult and potentially costly for taxpayers to make the LNG industry fully pay for its carbon emissions and for its incremental emission reduction measures under any serious climate action plan.

The last thing we should be doing is tying government’s hands in how it can use its available policy measures to put more onus on industrial carbon polluters to clean up their act and to pay disproportionately more for their disproportionately high carbon emissions.

If anything, we should be revisiting the carbon tax to create differential carbon tax rates that escalate with the type and usage of fossil fuels covered by its carbon tax, similar to Norway.

We should be putting more financial pressure, not less, on B.C.’s most carbon-intensive industries to expedite the mitigation measures necessary to dramatically cut their emissions that represent such a huge proportion of B.C.’s emissions inventory.

As I suggested in my last installment, a cap-and-trade system should also be embraced to do that at the lowest possible cost, as was originally envisioned in the 2008 climate action plan.

It should be implemented in tandem with a revised carbon tax that is gradually increased over time, in a politically sensitive way that will achieve the CLT’s end goal in that regard.

And the carbon tax should also differentially adjusted to oblige B.C.’s largest polluters to pay for their process emissions and for any other emissions that are not adequately captured within a globally integrated cap-and-trade system.

We should not be exempting the LNG sector or other carbon-intensive industries from any industry-specific carbon taxes or mandatory emissions reductions requirements. Rather, we should be requiring them to bear the full brunt of the cost of their carbon pollution as we also put new standards in place to drive them more quickly to adopt cleaner technologies.

In doing that, we must remain vigilant not to devise climate action strategies that would actually further subsidize those major polluters at taxpayers’ expense.

Unfortunately, many of the CLT’s recommendations would move us in the opposite direction.

Let me now turn to some of the uncosted hidden subsidies that would be effectively extended to the LNG sector and to other carbon-intensive industries under the CLT’s recommendations.

Hidden Subsidy #1: A Potentially Lower Carbon Tax for “Trade-Exposed” Sectors

The heart of the CLT’s plan is to increase B.C.’s carbon tax by $10 per year, from 2018 to at least 2050. That would raise the cost of the carbon tax from $30 a tonne to $360 a tonne.

But here’s the catch. The largest industrial polluters — that is, the “emission-intensive, trade-exposed sectors” — might not have to pay that under the CLT’s recommendations.

The following quotes from its report are instructive:

“Establish targeted and transparent mechanisms for emission-intensive, trade-exposed sectors that mitigate the competitiveness issues created for those sectors if B.C.’s carbon pricing is materially greater than jurisdictions with which they compete, provided that such mechanisms are structured in a manner that does not adversely impact the price signal to reduce emissions. These adjustments should remain in place until such time that carbon pricing and regulatory policy equivalency with other jurisdictions is achieved.”

“The scheduled annual increases in the carbon tax and the competitiveness adjustments for emission-intensive, trade-exposed sectors should be reviewed by the Province, with the support of a Climate Leadership Team, every five years, or more often where warranted, taking into consideration GHG reductions, economic competitiveness, carbon pricing and regulatory policy in other jurisdictions, and impacts on vulnerable communities.”

In other words, the CLT has thrown open the door to exempting B.C.’s worst carbon polluters from some or all of the carbon tax increases that would apply to all other British Columbians.

Its vision for carbon tax hikes is an open question for the “emission-intensive, trade-exposed sectors,” subject to future review and competitiveness considerations that are sure to mean those industries will enjoy breaks on their carbon taxes, while everyone else has to pay ever higher carbon taxes whether they like it or not.

For the LNG industry, it means that not only will it not be subject to a specifically targeted carbon tax to properly price its inordinately high carbon emissions. But it might not even have to pay the level of carbon tax this is generally applicable to individuals, families and small businesses.

Hidden Subsidy #2: A Lower Sales Tax That Will Disproportionately Benefit Large Emitters

As the CLT noted, “natural gas production accounts for 16 per cent of the province’s greenhouse gas emissions and is the largest industrial sector.” If the LNG vision ever comes to fruition, that proportion will grow by leaps and bounds, potentially doubling B.C.’s overall emission levels.

The CLT recommends many measures to address that fact, including new targets for reducing process and fugitive emissions and lots of lip service to adopting “best practices” and unspecified new regulatory standards and policies.

Its most specific recommendations are all hidden subsidies to that sector and to other industrial polluters that would cost B.C. taxpayers an unquantified bundle.

The CLT wants to lower the provincial sales tax from seven per cent to six per cent.

The biggest beneficiaries of that initiative, by far, would be B.C.’s largest corporations, typically in the natural resource sector.

They would get millions of dollars in annual tax relief, whereas most middle class families would receive a few hundred dollars a year in benefits.

The sales tax is a regressive tax that imposes the same dollar-for-dollar burden on anything subject to it, regardless of buyers’ different incomes.

A cut in the sales tax rate would most benefit those who buy the most, be they high-income wage earners or large corporations.

A middle income earner who spends even $40,000 a year on items that are subject to the sales tax — a fairly high amount — would save $400 a year on a one per cent sales tax cut.

A wealthy individual who makes ten times that amount would save ten times that amount. A large natural resource company that spends exponentially more would save exponentially more.

The CLT explained its rationale as follows:

“B.C. is competing with a number of new suppliers for a limited market. Our recommendations to reduce the PST (generally by one basis point and entirely on electricity rates) and make available transitional support for emissions-intensive, trade-exposed sectors are intended to address this reality — particularly if B.C.’s climate policy materially exceeds the stringency of our competitors.”

I noted in my last installment how the recycled money from the revenue-neutral carbon tax is already disproportionately benefiting business rather than individuals.

This recommendation from the CLT would further exacerbate that disparity, with the biggest benefits — by far — going to B.C.’s largest companies: the large natural resource companies that are B.C.’s biggest carbon polluters.

Hidden Subsidy #3: The Elimination of Sales Tax on Electricity for Industry

The CLT also recommended eliminating the PST on electricity rates for industry, noting that it does not apply to electricity purchased by individuals.

It did not quantify how much that gift to industry would cost, but suffice it to say, it would be massive — at least tens of millions of dollars annually, if not more.

That would represent an enormous gift to B.C.’s largest industrial polluters — the oil and gas industry, the forest industry, the mining industry, the cement industry and others.

It would substantially reduce the amount of revenue that would otherwise be available for crucial services, like health care, education, child protection, public safety and other social services.

Like the proposed sales tax cut, which would be financed from incremental carbon tax revenues, that measure would represent a whopping tax subsidy to big business and to B.C.’s largest energy users, at the expense of the individuals and families who depend on the services funded by those tax dollars.

It is only fair and sensible to retain that sales tax on industrial electricity, given the inordinate pressure those energy-intensive sectors put on British Columbia’s electrical system.

Even without LNG the industrial sector is expected to account for the most growth of all key sectors in the next 10 years, mostly for mining, forestry, and oil and gas activity.

As the B.C. government gradually weans itself off of the hundreds of millions of dollars in annual “dividends” it obliges B.C. Hydro to contribute (including through deferred debt), it will need every penny of its existing sales tax revenue to offset those revenue losses.

Carbon intensive industries that are already buying electricity and paying sales tax on that energy will not produce one less molecule of carbon dioxide if that sales tax is eliminated. They will only make more profit at the expense of all other carbon taxpayers.

Hidden Subsidy #4: Risk-free, Cost-free Electrification for LNG Plants

Of all the suggestions made by the CLT, perhaps none would be so costly to taxpayers as its proposal to oblige B.C. Hydro to electrify the LNG industry.

Its recommendation on that point reads as follows:

“Instruct BC Hydro to develop a strategy (generation and transmission) to supply in a competitive, timely manner the clean electricity required to facilitate electrification of upstream natural gas, LNG, and associated infrastructure. Amongst other things, the strategy should enable BC Hydro to commit to supplying new industrial projects with clean electricity by project start up, if necessary through the use of temporary natural gas generation until transmission infrastructure is available.”

The CLT rightly points out that “LNG plants … can rely on clean electricity instead of natural gas for both the liquefaction process and their auxiliary demands” to reduce their emissions.

True enough. If we are to be saddled with an LNG industry that exponentially ramps up B.C.’s carbon emissions, it makes sense to minimize those additional GHGs by requiring LNG plants to adopt e-drives or other zero emission technologies.

But the ones who should bear the cost for that should be that industry and those companies — not B.C. taxpayers.

Instead, the CLT wants BC Hydro to bear the brunt of that cost.

It wants to transfer those incremental costs and risks associated with electrifying those proposed LNG plants to the rest of us. That’s wrong.

The CLT also wants BC Hydro to incur the added costs of generating the additional electricity capacity and the untold billions of dollars in new costs that would be required to build new transmission lines and to service the added debt of that infrastructure.

It wants to guarantee those LNG companies expedited construction schedules that would transfer the risks of building those transmission lines and of supplying them with the electricity they need in accordance with their project timelines to B.C. Hydro. And it further wants to guarantee them they will be able to buy their new power at “internationally comparable” rates.

The CLT’s report put it this way:

“If a proponent wants to use clean electricity instead of gas, they need to be confident that the electricity transmission and supply will be available on the timelines they are advancing their project…One aspect of providing electricity in a competitive, timely manner is ensuring that BC Hydro is able to commit to supply contracts that provide, on reasonable commercial terms used in other jurisdictions in similar circumstances, for damages in the event of failure to deliver new supply within agreed upon time frames and, in the case of LNG, for liquidated damages in the event of interrupted supply. In the event of any damages being payable by BC Hydro, the ratepayers should not bear the burden.” [Emphases added.]

That last line sounds reassuring on the surface. But if ratepayers “should not bear the burden,” and the LNG companies are not expected to bear those costs, it can only mean that the government will — meaning B.C. taxpayers.

Essentially, what the CLT is recommending is that all future LNG plants in B.C. should use so-called “outside the fence” power sourced from outside the plant, instead of the on-site “inside the fence” gas-fired power that is now typically contemplated for most projects.

The Northwest Institute for Bioregional Research rightly observed, “If ‘outside the fence’ power is sourced for LNG production, large upgrades to B.C.’s transmission and generating capacity will be needed. This could cost tens of billions of dollars, but could also generate significant income to First Nations, or crown corporations.”

I repeat, it could cost “tens of billions of dollars” that someone would have to pay, ostensibly, ratepayers, or taxpayers, if not the LNG companies.

Even without the added electrification requirements suggested by the Climate Leadership Team to power LNG plants with e-drive systems, BC Hydro anticipates that its load forecast from oil and gas will climb by almost five-fold over the next 10 years, if the Clark government’s LNG vision comes to pass.

As it stands, BC Hydro’s most recent integrated resource plan only contemplates having sufficient supply to meet an initial expected LNG load of 3,000 gigawatt hours per year, before applying its demand-side management measures.

It anticipates that demand from the LNG industry could be as much as 6,600 GWh/year, even without powering all of its proposed plants with e-drive systems.

BC Hydro also projects a mid load forecast for LNG peak demand at 360 megawatts — an amount equivalent to roughly one-third of the 1,100 MW that the $8.8 billion Site C project would create.

But that vastly underestimates the amount of power that would actually be required to power even a handful of LNG plants with e-drive systems.

For example, the proposed the Grassy Point LNG Project would alone require 1,000 MW of power. The now indefinitely delayed LNG Canada Project would require 1200 MW and a new 500 kV line from Prince George to Terrace. And the Pacific Northwest LNG Project would require at least another 700 MW of electrical energy

And those are just three of the 20 proposed LNG projects that are at least theoretically on the drawing board in British Columbia. Many of those other projects — like the proposed Kitsault Energy Project, the Canada Stewart Energy Project and the Nisga’a LNG Project — are in very remote areas that would be incredibly expensive to power via the BC Hydro grid.

If the LNG “dream” ever comes true, even without the added pressure from e-drive plants and their associated transmission, BC Hydro estimated that the oil and gas sector will consume almost double the electricity consumed by the pulp and paper sector, and much more than even the energy-intensive mining industry.

The cheapest form of energy savings is conservation. The biggest projected driver for new electricity demand is natural gas development, including LNG.

The CLT’s proposal would serve the goal of reducing emissions from LNG plants. But it would place untold new power demands on BC Hydro that would put upward pressure on Hydro rates that would otherwise be avoidable.

Bear in mind, the new Northwest Transmission Line (NWTL) along Highway 37 alone cost $716 million, up from an original budget of $395 million, when Premier Clark came to power.

A major reason for its budget increases related to expedited construction schedules, to meet timelines mandated to supply power from the new Forrest Kerr run-of-river power project and other smaller energy projects to the new Red Chris mine and other new mines in that wild and remote area of B.C.

The much shorter Iskut Extension that extended that 287 kV transmission line from Bob Quinn Substation to the mine, was also over budget. Its cost increased from $180 million to $209 million, because building new transmission lines in that part of northern B.C. are no small feat.

As Vancouver Sun columnist Vaughn Palmer recently pointed out, the budgets for four recent transmission projects, including the NWTL rose from a combined $1.4 billion to over $1.9 billion, for a collective over-run of $516 million or 36 per cent.

On top of all of those cost considerations, the requirements for consulting and accommodating First Nations’ constitutionally protected rights is a further cost challenge. Especially if commitments are made to deliver fully compensable power rights to LNG companies within their projects’ designated timelines.

In the interest of providing clean, cheap, reliable electricity to power LNG plants that would reduce their GHG pollution, the costs of properly respecting Aboriginal rights and title could be astronomical.

No one really knows how high they might be, but the CLT was altogether silent on that point, which represents another aspect of the hidden subsidy for power its industry representatives succeeded in advancing in its recommendations.

The fact is, the CLT’s recommendations for powering LNG plants could have dramatically adverse unintended consequences for taxpayers and the environment alike.

Mostly, however, they would stick taxpayers and BC Hydro with the lion’s share of costs and risks for making e-drive LNG plants more economical for the large oil companies that stand to profit from them.

If those costs and risks were properly factored into the government’s LNG vision, it would significantly alter its cost-benefit bottom line.

Yet in the absence of e-drive LNG plants, British Columbians will be left holding the bag for much of the cost and sacrifice needed to offset the added emissions those gas-fired plants will entail.

Either way, most B.C. taxpayers and most B.C. families will lose.

Hidden Subsidy #5: A Five-year Minimal Carbon Tax Holiday for Process Emissions

The CLT recommended expanding “coverage of the current carbon tax to apply to all greenhouse gas emission sources in B.C. after five years, starting with measurable GHG emissions covered by the current reporting regulation.”

Essentially it is proposing to let the oil and gas industry off the hook for paying carbon taxes on their methane process and fugitive emissions for at least five more years, until 2021 at the earliest. While it also envisions that the carbon tax will also go up for everyone else by another $40/tonne over that period.

In the meantime, it hopes the natural gas industry will voluntarily act to cut its process emissions by some 40 per cent, assisted by further subsidies from the forthcoming green infrastructure tax credit.

But there is no guarantee that will happen. And the only hard action recommended by the CLT to address fugitive and vented methane emissions to require “industry through regulation to implement leak detection and repair programs in line with best practices in North America.”

Why that has not already been required is beyond me.

Ditto for the CLT’s suggestion that the industry “develop best practices for methane reduction, including transparent reporting, through a collaborative initiative involving the provincial government, industry, and other stakeholders with expertise in this area…and seek alignment with Canada and other provincial jurisdictions in this regard.”

The Pembina Institute and others are right to maintain that we should not wait until 2021 to act on reducing deadly methane emissions with an earlier imposition of the carbon tax and other measures.

Yet the CLT’s most important recommendation in respect of addressing fugitive and vented emissions is this one:

“Providing that at the time of the first five year review of the Climate Leadership Plan, a new reduction goal for fugitive and vented methane emissions should be established and a determination made whether future reductions in fugitive and venting methane emissions are best achieved through expanding the coverage of the carbon tax to such emissions…[or through] a continuation on a voluntary basis of the best practices developed above for methane reduction (provided the industry has reached the 40 per cent methane reduction goal within five years), or such best practices developed for methane being mandated by regulation at that time (with such regulations to be reviewed every five years thereafter).”

In other words, under that recommendation, even after another five years’ carbon tax holiday on those emissions, it might well be that the industry will continue to be exempt from paying carbon taxes on those uncaptured process emissions.

Stunning.

Once again, the environmentalists and academics on the CLT got completely snookered by the industry representatives and the government mouthpieces that succeeded in rendering its carbon tax commitment almost meaningless for B.C.’s largest carbon polluters.

No wonder the oil industry representatives on the CLT signed onto that almost meaningless “commitment.”

Conclusion

All of these are only a handful of the effective subsidies to carbon emitters that were tacitly recommended by the CLT, mostly for the benefit of Big Oil.

It is unfortunate that the CLT offered so little in the way of specific “bullet-proof” recommendations for reducing B.C.’s carbon emissions.

British Columbians must now await the government’s Climate Action 2.0 to ascertain what more it will actually do to meet its legislated GHG reduction targets, besides buying itself more time, as suggested by the CLT, which failed to prescribe new provincial interim targets before 2030.

Hopefully it will be as detailed and progressive as Ontario’s truly excellent new climate action plan.

Just as that province’s first climate action plan largely borrowed from many of the measures adopted in B.C.’s 2008 plan, British Columbia would now be well advised to use Ontario’s new blueprint as the key resource it is for advancing climate action.

In a future article I will suggest a number of hard measures that B.C. could take to help meet its targets in the oil and gas sector and in other sectors I did not address in this analysis.

The fact is, the CLT’s recommendations for emissions reductions from buildings, forestry, agriculture, transportation and other sectors are pretty much all as vague as they are aspirational.

The good news is that, by and large, they do not overtly suggest anywhere near the level of hidden subsidies that I have highlighted above in regard to the LNG and natural gas sector. It’s just that they say so little of substance to advance the mission that the CLT was given.

The bottom line is this: the only sensible way to responsibly address British Columbia’s growing greenhouse gas emissions is to stop unecessarily adding to them in the first place.

Instead of digging ourselves ever deeper in the hole by inviting an LNG industry that British Columbians will also be expected to subsidize in addressing its added emissions, we should just say, “enough.”

We do not need that industry and do not want its added carbon pollution.

Enough. It is time to develop a serious climate action plan that embraces a low-carbon economy and that duly ensures its largest carbon polluters pay their full share of the cost of reducing those emissions.

Martyn Brown was former B.C. Premier Gordon Campbell’s long-serving chief of staff and a key architect of B.C.’s climate action plan and clean energy plan. He was the top strategic advisor to three provincial party leaders, and a former deputy minister of tourism, trade, and investment in British Columbia. A frequent contributor to the Georgia Straight, Brown is also the author of the eBook Towards a New Government in British Columbia. Contact Brown at towardsanewgovernment@gmail.com.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

An ugly thread of misspent taxpayer dollars, environmental destruction and conflict-of-interest — backed by a government beholden to the mining industry — runs along the recently completed Northwest Transmission Line, charges acclaimed explorer and scholar Wade Davis.

The $716-million transmission line, budgeted in 2010 at $404-million, snakes 344 kilometres into B.C.’s wilderness, from north of Terrace to Bob Quinn Lake, and, to the alarm of downstream Southeast Alaska residents, the line is opening the area to mining in the headwaters of vital salmon-bearing rivers.

Those concerns have grown exponentially since the Mount Polley tailings dam collapsed in August 2014, sending 24-million cubic metres of toxic debris flowing into Hazeltine Creek and Quesnel Lake, and groups in B.C. and Alaska are warning that a Mount Polley-type disaster in the area known as the Sacred Headwaters, where acidity is likely to be high, would wipe out the multi-billion dollar fishing and tourism industries on both sides of the border.

Davis, a writer, former explorer-in-residence at the National Geographic Society, anthropology professor and B.C. Leadership Chair in Cultures and Ecosystems at Risk at the University of B.C., is appalled at the B.C. government’s decision to encourage mining in the ecologically rich northwest corner of the province and at the lack of government oversight as the pricey Northwest Transmission Line was carved through the wilderness.[view:in_this_series=block_1]

“It’s industrialization of the wilderness. It’s the story of politicians more concerned about the next election than the next generation,” he said.

Davis, who sometimes visits 30 countries a year, loves the wild beauty of B.C.’s northwest corner, which has the world’s largest population of stone sheep, grizzly bears, caribou and wolves.

“It’s not for nothing that it is called the Serengeti of Canada,” he said.

A Sweet Deal for Imperial Metals

All of which makes it inexplicable that the government would forego future high-end tourism opportunities by encouraging mining on a site such as Todagin Mountain where the Red Chris mine, owned by Imperial Metals — the same company that owns the Mount Polley mine— opened in February, he said.

An Energy and Mines Ministry spokesman, responding to questions by e-mail, said the province, Imperial Metals and Tahltan Nation — which approved a co-management agreement with the company in April — have been working to develop wildlife management strategies “to take care of this resource for future generations.”

That does not satisfy Davis, who owns the closest private property to the $650-million Red Chris copper and gold mine and believes the Liberal government has bulldozed ahead with the power line without a proper review and despite public concerns.

“The government was 100 per cent engaged in an effort to make this happen to the point of deceiving the Canadian people and certainly squandering their tax revenue,” he said, questioning the influence of party fundraisers.

Murray Edwards, controlling shareholder of Imperial Metals Corp. — a major donor to the B.C. Liberals — organized a $1-million fundraiser at the Calgary Petroleum Club for Premier Christy Clark shortly before the last election.

B.C. Government Committed to Mining Expansion

It is expected that mining companies will push for concessions, but it is also expected that the government will ask the important questions to minimize environmental damage, said Davis, who has frequently worked with industry and says he has no objection to responsible mining.

“But, here we have a government that is ideologically committed to making (Red Chris) go ahead,” said Davis, who speculates that Imperial Metals was given an easy ride to avoid the perception of a power line to nowhere.

Financial experts believe it was essential for Imperial Metals to get cash flow from Red Chris as soon as possible because Mount Polley remained closed for nearly one year and cleanup costs are estimated at between $67-million and $100-million. In May, the company reported a loss of $33.4 million during the first three months of the year.

The Northwest Transmission Line was billed by government as the engine that would drive economic development in the province’s northwest by powering up revenue-generating mining operations in the richly mineralized area.

So far, Red Chris is the only mine drawing power from the line. After a provincial review, the mine received provincial approval in June to operate the tailings storage pond, which has the same unlined earth and rock dam design as Mount Polley.

Red Chris is likely to be followed by Seabridge Gold’s Kerr-Sulpherets-Mitchell (KSM) mine, in the Unuk River headwaters, which will be one of the world’s largest open-pit copper and gold mines. KSM has received federal and provincial approval and is tying up funding for the $5.3-billion project while obtaining permits. The mine is expected to employ more than 1,000 people for 50 years.

The transmission line is also bringing power to the Tahltan community of Iskut, whose 350 residents previously relied on diesel, and to the $725-million, 195-megawatt AltaGas Forrest Kerr run-of-river independent power project.

AltaGas contributed $180-million of the cost and Imperial Metals contributed $69 million of the $209 million cost to build the Iskut extension. BC Hydro then purchased the extension for about $52 million.

Davis charges that the environmental insensitivities of Imperial Metals were revealed during the extension’s construction when the company clearcut to the edge of the scenic Stewart-Cassiar Highway, instead of leaving a buffer zone of trees as shown in the original plans.

Cutting trees adjacent to the highway is allowed and the company had all necessary permits, according to the ministry.

“As much as possible, the cutting is contained within the right-of-way of the highway to reduce impact to the visual quality of the surrounding landscape. In some instances, due to geotechnical and safety concerns (i.e. slope stability,) the power lines are located away from the highway,” said the ministry spokesman.

Taxpayers on the Hook?

The Iskut project enabled the province to obtain $130 million from the federal Green Infrastructure Fund. But, according to Davis, that is something that should make taxpayers uneasy when they look at the bill of almost $400,000 per resident and he questions labelling the project as green when, during construction, the equivalent of 14,000 logging truckloads of wood were burned.

BC Hydro has said the timber was burned because it was marginal and the long distance to roads and markets made selling it uneconomical.

 A Mining Association of B.C. study estimates the transmission line will attract $15-billion in mining investment, 10,000 jobs and $300 million in annual tax revenue.

However, energy economics expert Marvin Shaffer, adjunct professor at Simon Fraser University, would like British Columbians to look carefully at those figures, especially as the province decided to go ahead with the project without a B.C. Utilities Commission review.

“The rate policy in B.C. effectively subsidizes new mines and this was a line that was heavily subsidized,” he said.

Metal mines require large amounts of electricity. The standard industrial rate charged in B.C. is $40 to $50 per megawatt hour, but the draw on power means more power sources are needed and producing electricity from new sources, such as the Site C dam, will cost about $90 per megawatt hour, Shaffer said.

“An individual mine will consume up to 10 per cent of the output of Site C and the price doesn’t cover even half the cost of a new supply,” he said.

“The government argues that it is economic development, so then you have to ask: what are the benefits in subsidizing mining developments?”

Many of the jobs are likely to go to people living outside the province, Shaffer said.

“There might be some stimulus, but it’s not as if it’s going to be employing a lot of British Columbians who would otherwise be unemployed,” he said.

Image Credit: BC Hydro

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A new study published today in the journal Nature finds the vast majority – 99 per cent – of Canada’s oilsands are “unburnable” if the world is to avoid a global temperature rise of more than 2 degrees Celsius. 

The study, co-authored by Christophe McGlade and Paul Ekins, also found over 80 per cent of the world’s current coal reserves and half of all gas reserves similarly need to remain unused. 

Given changing market conditions that are already making the production of expensive and carbon-intensive fossil fuel reserves – like oilsands crude – more difficult, the authors concluded that a concerted effort to limit global warming would result in a massive drop in Canadian oil production.

The extraction of bitumen would “drop to negligible levels after 2020 in all scenarios because it is considerably less economic than other methods of production,” the report states.

The use of in situ mining and carbon capture and storage (CCS) to limit greenhouse gas emissions from oilsands production would only slightly move the needle, according to the study, with a total of 85 per cent still remaining unburnable despite these efforts. The authors also predict CCS, a process both the government of Canada and the oil and gas industry are increasingly relying on, will have a limited role to play in a world taking action to limit global warming.

“Because of the expense of CCS, its relatively late date of introduction (2025), and the assumed maximum rate at which it can be built, CCS has a relatively modest effect on the overall levels of fossil fuel that can be produced before 2050 in a 2C scenario.”

The authors argue that keeping within that 2C target will require an entirely reworked relationship with carbon and a concerted effort to keep reserves underground.

“A stark transformation in our understanding of fossil fuel availability is necessary,” the authors write in the paper’s conclusion, adding, “in a climate-constrained world…large portions of the reserve base and an even greater proportion of the resource base [recoverable under current economic conditions] should not be produced if the temperature rise is to remain below 2 degrees Celsius.”

The new research for the first time uses a single integrated model to analyze the world’s oil, gas and coal reserves and what portion of the remaining global ‘carbon budget’ countries might claim given the type and location of their reserves.

Within their analysis McGlade and Ekins found the Middle East holds over half of the world’s unburnable oil and that Canada has the lowest utilization of its deposits – the majority of which are buried in bitumen stores – while the U.S. has the world’s highest.

Coal is by far the most restricted fossil fuel resource in the study with 82 per cent of global resources remaining unburned before 2050.

The region assignment of unburnable reserves can be seen in the chart below:

In December countries will gather at the UN climate summit in Paris to sign an international climate deal meant to limit rising greenhouse gas emissions and global atmospheric temperatures. According to the Intergovernmental Panel on Climate Change (IPCC) in order to avoid a temperature rise above 2C the carbon budget between 2011 and 2050 must be limited to between 870-1,240 gigatonnes of CO2.

However, as the study’s authors point out, global fossil fuel reserves surpass that number by three times.

Given the urgent need to limit the use of current resources, the study makes the point that policy action on climate change would “render unnecessary” the continued exploration of new fossil fuel reserves.

As DeSmog Canada recently reported, G20 nations spend around $88 billion annually to explore for new coal, oil and gas reserves.

A report produced by the Overseas Development Institute and Oil Change International notes this level of investment for carbon stores that may never be exploited creates a “triple-loss” scenario by investing in potentially stranded fossil fuels, diverting investment from alternative energy, and undermining an ambitious climate deal in 2015.

“In 2013, fossil fuel companies spent some $670bn (£443bn) on exploring for new oil and gas resources. One might ask why they are doing this when there is more in the ground than we can afford to burn,” study author Paul Ekins told The Guardian.

“The investors in those companies might feel that money is better spent either developing low-carbon energy sources or being returned to investors as dividends,” said Ekins. 

Image Credit: Oilsands operations by Kris Krug.

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