More problem with fossil fuel subsidies

Subsidizing fossil fuels

(This is the second of three columns about fossil fuel subsidies covering B.C. royalty, direct and indirect subsidies.)

The fossil fuel industry in British Columbia received $765.3 million in subsidies in 2020-21.

The subsidies point to a pattern of public spending that runs counter to both the goal of B.C.’s climate policies and the larger social imperative to undertake meaningful climate action.

The vast majority of these subsidies go to natural gas producers. Royalty reductions and credits are available to fossil fuel producers in B.C. through allowances, exemptions, credits and lower royalty rates (see below).

Reduced royalty programs are designed to address situations where costs are not covered by existing oil and gas royalties. Those programs reduce royalties that companies pay to the government, thereby encouraging fossil fuel exploration, development and production in higher cost environments.

The largest is the Deep-Well Royalty Program, which provides royalty credits to companies that drill deep wells, usually by fracking. According to budget documents, the B.C. government plans to continue expanding the credit to $657 million in 2023-24.

Worth more than $100 million in 2022-23, the second biggest publicly funded fossil fuel windfall is the Clean Growth Infrastructure Royalty Program, which encourages investment in natural gas infrastructure that reduces methane leakage. (The B.C. government does not consider this a subsidy, so you be the judge.)

Royalty payments from oil and gas producers are supposed to provide benefits to B.C. residents by funding social services, like health care and education.

However, each year, fossil fuel producers claim hundreds of millions of dollars in credits to reduce the amount of royalties they pay. Those billions in outstanding credits that fossil fuel producers will never have to pay is money B.C. residents will not see put toward social services, thus contributing to B.C.’s overall deficit.

Finally, not all credits granted in a given year are deducted that same year. The carry-forward element means the B.C. government will provide significant amounts of royalty reductions to fossil fuel producers for many years to come, an enormous future financial burden.

At least $532 million in tax-related fossil fuel subsidies were provided in B.C. in 2021. Some of the most significant ones were the provincial sales tax exemption for residential fuels for fossil fuels (worth $177 million in 2020-21), and the motor fuel tax exemption for jet fuel (valued at $23 million in 2019).

Provincial sales tax on electricity for industry was eliminated in April 2019 in order to encourage LNG producers to use electricity for their energy needs.

B.C. also provides fossil fuel subsidies in the form of direct payments via various government programs and one-off investments. CleanBC building efficiency measures rebates provide a number of rebates for installing natural gas equipment. The CleanBC Industrial Incentive Program exempts carbon tax on emissions below benchmark levels as an emissions reduction incentive.

The CleanBC Industry Fund, valued at $12.5 million in 2019, provides direct investments for greenhouse gas emission reductions projects by heavy industry.

Those programs amount to fossil fuel consumption subsidies since they ultimately reduce costs of fossil fuel use for large emitters.

Most emissions from the oil and gas sector (80% to 90%) are exempt from carbon pricing. Fugitive methane emissions are substantial, likely significantly higher than reported and are exempt from carbon pricing, including provincial carbon tax.

Because the full amount of B.C.’s venting-related emissions is uncertain, it is difficult to calculate the value of this subsidy. It was estimated at least $56 million in 2016 and would be much higher now.

In 2022-23, nearly 30% of all Canadian-controlled private corporations that extract oil and gas (80 in B.C.) paid the lowest income tax rate for small businesses of 9% for some of their taxes, instead of the regular rate of 15%.

Additionally, B.C.’s budget lists its road and pipeline infrastructure credit and other infrastructure programs at $71 million in 2021.

The Clean Growth infrastructure credit allows firms to claim royalty deductions related to GHG emission reductions (without showing any specific expenditures), further encouraging investment in oil and natural gas infrastructure with no guarantee of emissions reductions.

British Columbia fossil fuel subsidies include:

Royalty reductions:

• Low Productivity Well Royalty Reduction

• Marginal Well Royalty Reduction

• Ultra-marginal Well Royalty Reduction

• Net Profit Royalty Program

Credits:

• Clean Growth Infrastructure Royalty Program

• Clean Infrastructure Royalty Credit Program

• Infrastructure Royalty Credit Program

• Deep Well Royalty Credit Program

• Natural Gas Deep Well-Re-Entry Credit Program

Allowance:

• Producer cost of service

• Natural gas allowance

Gas cost allowance exemptions:

• Oil discovery wells

• Natural gas or by-products used for production, drilling or injection

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

The federal election, the U.S., and climate action

Parties quiet on climate

The problem with fossil fuel subsidies

Subsidizing fossil fuels

A subsidy is a financial aid, granted by the government, to assist an industry so price of its commodity is artificially lowered.

Fossil fuel subsidies increase sales of gas, oil and coal—sources of the carbon pollution we must lower. Rather than making pollution expensive, subsidies make it cheaper. This is like raising taxes on cigarettes to discourage smoking, while also giving tobacco companies tax breaks so they can make more cigarettes and profits.

To make matters worse, fossil fuel subsidies disadvantage clean energy. They make fossil energy cheaper than renewables. Consequently, investing in renewable energy becomes less attractive. Subsidies distort the market, pushing investment toward sectors that might not otherwise be viable.

When fossil fuel producers receive hundreds of millions of dollars in subsidies each year, vital government resources aren’t available for important sectors, such as renewable energy and social services.

There are three major types of fossil fuel subsidies, royalty reductions, direct subsidies such as grants, loan guarantees and fossil fuel specific tax measures and indirect subsidies such as public infrastructure investments, reduced utility rates, general tax measures and the cost of pollution borne by society.

All of these help fossil fuel companies lower their cost of business and increase profits. Some incorrectly think that removing fossil fuel subsidies means advocating for job losses and energy insecurity. In truth, fossil fuel subsidy reform can be done in a way that supports job creation and enhances energy security, setting Canada up to thrive in the emerging low-carbon economy.

Four of the top oil companies in Canada (Cenovus, Imperial Oil, Suncor and Canadian Natural Resources Ltd.) had a combined annual profit of more than $25 billion in 2021. Oil and gas extraction companies in Canada made more than $63 billion in profits in 2022.

In 2009, at the G20 meeting, Canada committed to eliminate “inefficient” fossil fuel subsidies by 2025. The G20 decision on fossil fuel subsidies set an important international precedent. Unfortunately, Canada has failed to significantly reduce its level of support to the fossil fuel industry. Canada is one of the largest international fossil fuel financers in the world, ranked last among 11 OECD countries on progress in ending fossil fuel subsidies.

• In 2019, the Canadian government purchased the Trans Mountain pipeline and expansion project for $4.5 billion.

• In 2022, Environmental Defence Canada reported tracking $21 billion in federal fossil fuel subsidies, adding that it believed that was likely an underestimate.

• In 2023, the Government of Canada provided at least $18 billion in financial support to fossil fuel and petrochemical companies, including:

• $8 billion in loan guarantees for the Trans Mountain expansion pipeline.

• $7.3 billion in public financing through crown corporation Export Development Canada

• More than $1.3 billion for carbon capture and storage projects.

One of the last things Chrystia Freeland did as federal finance minister was to authorize an additional $20 billion loan to the Trans Mountain pipeline project, bringing the total disclosed federal commitment to nearly $50 billion. The guarantee appears to violate a commitment made by Freeland in 2022 that no further public money would be invested in the project after the pipeline’s cost swelled to $21.4 billion.

In 2022, the Government of Canada introduced a 15 per cent windfall tax on excess profits in the banking and insurance sectors (the Canada Recovery Dividend). Oil and gas companies were not included in this new tax.

The Parliamentary Budget Office estimated that applying the Canada Recovery Dividend to oil and gas profits in 2022 would have generated $4.2 billion in one year alone.

In addition to those supports, federal subsidies are available through numerous funds, such as Canada Infrastructure Bank, Clean Fuels Fund, Strategic Innovation Fund, Sustainable Development Technology Canada (not monitored for use for sustainable development), and Trade Corridors Fund and tax credits, such as the Accelerated Capital Cost Allowance for LNG, Canadian development expenses, Canadian exploration expenses, Canadian oil and gas property expense, Flow through shares, and foreign exploration and development expenses.

Avoiding financial responsibility for climate pollution created by oil and gas companies is an indirect subsidy. Climate costs borne by society include health costs, property damage from extreme weather events and decreased agricultural productivity due to changing weather patterns.

The Government of Canada has developed a tool to calculate these costs, and they would have been over $52 billion in 2023.

(This is the first column in a three-part series about fossil fuel subsidies. The second part, on April 15, will cover royalty, direct and indirect subsidies in B.C. and the third, on April 29, will cover LNG, coal and offer some conclusions.)

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Myths of the B.C. forest industry

Case against clearcutting

Successive B.C. governments have failed to seriously overhaul forestry policy.

The late Upton Sinclair, a distinguished American author and political activist (1878-1968), pointed out a truth that is applicable today.

“It is difficult for a man to understand something, when his salary depends on his not understanding it,” he said.

A good example is the March 7 letter to Castanet by Brian LaPointe. LaPointe has worked in the forest industry continuously since 1973. His letter expresses many of the myths propagated by the forest industry.

The industry has always said, echoed by Lapointe, that clear cuts mimic insect and disease infestations and wildfires. However, that is true only when a forest is regarded as a supply of timber. But forests are much more than that. Forests are critical to the hydrological cycle. Trees hold back water from melting snow and rain, allowing it to seep deep into the soil following tree roots.

Trees shade and cool the land and water evaporates from trees, keeping the forest air moist.

Dead trees are important for wildlife. Biologists employ bat boxes, bluebird nesting boxes and artificial bear dens to make up for the loss of dead trees. Many insects use dead trees for food. Birds, especially woodpeckers, and mammals feed on those insects. Have you ever tried to burn rotten wood? It is often wet, as it holds water.

After insect or disease outbreaks, as well as wildfires, dead trees remain as do some healthy trees due to luck or valuable properties that they can pass on. Dead standing trees provide habitat and food for wildlife, provide shade and hold back water with their roots for years afterward. Downed trees also provide habitat and moisture but if the area is logged—with the healthy trees cut down as well as the dead ones—downed logs are removed prior to re-planting.

LaPointe’s idea that our forests need to be “refreshed” by clear-cutting and re-planting, and that it is “gentler than wild fires” and has “conservation and bio-diversity benefits” is simply propaganda. The forest industry in B.C. has been successful at it, convincing B.C. residents and trading partners our forests are sustainably managed.

If this were the case, why are caribou and spotted owl populations collapsing, moose and furbearers on the decline, many lumber and paper mills closing and forestry jobs having declined by 50% in the last 20 years?

Two reports in the last five years found only 3% of our high-value low-elevation old growth forests remain. There is not more public outcry in B.C. because everywhere you look there are trees. However, the trees are mostly replanted, small and dense, and are of one or two species with few deciduous trees, shrubs, mushrooms or herbaceous plants. That is because of soil compaction from heavy machinery, herbicide sprays and soil disturbance carried out before planting.

It may look like a forest but animals know different and they are not found there. A replanted forest is like a city where everyone over the age of 15 has left. There would still be people, but the community would not be functional. If you want to get a sense of what we have done to the forests in B.C., use Google Earth’s time lapse. There you can look at time lapse videos of anywhere on the planet from 1984 to 2022. In most areas of B.C., it would appear there is a giant infestation eating our forests. That “infestation” is our forest industry.

B.C. forests used to store carbon, now they emit it. The B.C. government does not include those emissions in its yearly reports. However, they are as big as all the emissions reported. In bad fire years (2017, 2018, 2021 and 2023), forest emissions were two the three times as big as all reported emissions. Forests sequester less carbon because the trees are smaller and less healthy than they used to be.

Our forestry practices contribute to climate change, which is partly responsible for the increase in fires, floods, landslides and droughts that we are experiencing. But forestry practices are also directly responsible. Ministry of Forests recommendations are that no more than 20% to 30% of a forested area can be clearcut over a 60- to 80-year period without comprising the forest’s ability to hold back water. That recommendation is rarely respected.

That and the lack of shade means clearcut areas are more susceptible to fires for 20 years, even if re-planted. Ironically, herbicide spraying removes deciduous trees which are able to slow down forest fires.

If clearcuts are so harmful, why are they the dominant form of logging? In a word, profit. Clear cutting means faster and bigger machinery can be used. So it is more efficient and cheaper. The downside is on jobs, tourism, wildlife, fires, floods, scenery, landslides, biodiversity and the climate.

Selective logging, which cuts down trees without destroying the forest, is a sustainable way to log. In 20 years, clearcut logging will be recognized for the barbaric and destructive practice it is, like smoking cigarettes on an airplane, or spraying people with DDT to get rid of lice. No one in the future will clear cut.

We need that future now.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.