The problem with subsidizing LNG and coal production in B.C.

Fossil fuel subsidies

(This the third part in a series about problem with fossil fuel subsidies.)

The province continues to support liquefied natural gas, which at the same time undermines the CleanBC plan and other climate progress the provincial government is making.

B.C. has new plans to provide long-term support to the LNG sector through new subsidies and increasing access to existing ones. The B.C. government invested $86 million in public funds in LNG Canada’s plant in Kitimat. It also has provided $100 million in capital funding to local communities along the LNG pipeline to build infrastructure projects.

The province is unique in its complex subsidy framework for natural gas production. Through an array of measures, the provincial government continues to make concerted efforts to expand natural gas extraction and support exports, in particular for liquefied natural gas (LNG). BC has made long-term commitments subsidizing the production of the fossil fuels that cause climate change, locking in high-carbon infrastructure for decades.

Both the provincial and federal governments have stated their intention to work together to increase access to electricity for supporting natural gas production. Multiple transmission lines between the Site C dam and LNG facilities are being paid for by the federal government and BC Hydro, ensuring the electricity from the $16 billion Site C dam project will mostly go to drive fossil fuel development.

BC Hydro’s contributions will be paid for by BC Hydro ratepayers. Electricity rates charged to the LNG sector will be insufficient to recoup the capital costs of the Site C dam. Clearly, the primary beneficiaries of these large capital expenditures are fossil fuel producers.

LNG Canada is also the recipient of significant federal fossil fuel subsidies, including an initial direct investment of $275 million. The federal government also waived steel tariffs for specific imported modules used in the LNG Canada project, as well as the Woodfibre LNG project.

Other provincial subsidies include, elimination of the 3.5% LNG income tax, a Natural Gas Income Tax credit, a no-interest deferral of PST on construction costs and the natural gas road upgrade program.

The gas industry uses billions of litres of fresh water for fracking at very little cost. The application fee for a water licence from the B.C. Oil and Gas Commission ranges from $1,000 to $10,000, depending on the volume of water used. The rental fee for water is $2.25 per million litres. The water used for fracking is mixed with toxic chemicals and injected deep underground to crack open rock formations. The wastewater from fracking is too toxic to return to the water cycle and is typically disposed of deep underground in exhausted wells.

Believe it or not, B.C. even subsidizes the coal industry. There are seven major metallurgical coal mines in the province and one thermal coal mine. B.C.’s taxation regime and “free entry” system, which facilitates access to land by prospectors with placer claims, encourages mining exploration and development. B.C. coal and other mining tax reduction measures include:

• BC Mining Tax reduction measures

• Mining Exploration Tax Credit (20%, includes community engagement costs)

• Mining flow-through share tax credit (increased from 20 to 35%)

• B.C. Mineral Exploration Tax Credit (increased from 20 to 30%)

• Investment allowance

• New mine allowance

• Cumulative Tax Credit

• Reclamation Tax Credit

• Earned Depletion Tax Credit

• Electricity Cost Deferral Program

• PST exemptions on production machinery and equipment

• Geoscience B.C. supports the expansion of mineral, coal, and oil and gas development

Meanwhile, B.C. is already experiencing severe impacts from climate change through increased forest fires and erosion from sea level rise.

Current subsidies favour fossil fuel producers and prolonged production. Subsidies, especially decades-old ones, need to be reexamined. Are they the best way to achieve policy goals given the reality of climate change?

Additionally, subsidies that support new infrastructure lock in fossil fuel production for the long term and increase the risk of stranded assets, for which taxpayers will be on the hook.

What needs to happen?

• Determine the size of the problem. B.C. should publicly release all data related to government spending on fossil fuel subsidies; currently very little data is available.

• Have all provincial fossil fuel subsidies reviewed by an independent expert panel of advisers.

• Develop and implement an action plan to phase out subsidies; shift to policies that achieve economic, environmental and social goals, and lessen dependence on the fuels that cause climate change.

• Coordinate with the federal government in its G20 peer review of fossil fuel subsidies.

• Create no new subsidies.

Public funds should be spent in ways that are:

• Most effective for achieving Canada’s climate commitments;

• Supportive of a low-carbon economy;

• Consistent with a just transition

It is time to consider whether existing subsidies support the kind of future that British Columbians want, and whether the significant amount of public money spent on subsidies could be better focused on other priorities.

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