BC’s LNG tax breaks and subsidies offside with the need for climate action

The BC government’s new fiscal framework for LNG is fundamentally at odds with the province’s CleanBC climate plan.

Details in the government agreement with LNG Canada show that BC is subsidizing fossil fuel production at a time when we need to keep it in the ground.

The BC government made four major concessions in the LNG Canada Agreement:

1. Discounted electricity prices: Through BC Hydro, all ratepayers will pay for large new public investments in the Site C dam and new transmission lines that will benefit the gas industry. LNG Canada’s Kitimat facility will also pay the much lower industrial rate for its electricity. The catch is that the cost of the new power supply is about double what LNG Canada will pay—a subsidy valued at between $32 million and $59 million per year.
2. Exemptions from increases in the BC carbon tax: Any BC carbon tax above $30 per tonne of CO₂ will be rebated for LNG Canada. The tax will be $50 per tonne by the time the facility opens, making this tax break worth $62 million per year.
3. A corporate income tax break: A natural gas credit against corporate income tax has been created with the intent of lowering tax from the regular 12 per cent rate to nine per cent. It is difficult to estimate the value of this tax break because landing LNG on Asian shores is expensive and higher than current prices for LNG in Asia, meaning there may be little income declared in BC.
4. Deferral of provincial sales tax on construction: This measure is essentially an interest-free loan that does not have to be repaid for more than two decades. On an annual basis, this break is worth $17–21 million.

BC’s royalty regime is also extremely generous to the gas industry with a range of credits that dramatically reduce actual royalties paid, which are supposed to represent the public’s financial share from the development of the public gas resource.

In addition, the BC government has a long-term royalty agreement (LTRA) with LNG Canada partner Petronas through its Progress Energy subsidiary. Whereas the regular royalty on gas ranges from nine per cent to 27 per cent of market value, the LTRA rate starts at six per cent then rises steadily over 22 years to 13 per cent.

The BC government claims LNG Canada will end up contributing $22 billion in public revenues over the project’s 40-year lifespan. This is likely a maximum amount if everything goes according to the BC government’s plans. Even at face value, the revenue contribution is about half a billion dollars per year, equivalent to approximately one per cent of BC’s 2019 budget.

The LNG Canada agreement locks in these tax and subsidy provisions for 20 years against future changes by governments that might be concerned about, say, climate change. A decade from now—amid growing climate chaos—a newly elected BC premier would have their hands tied by having to pay financial compensation for any changes to the four measures that affect LNG Canada’s bottom line.

Approving a massive fossil fuel project intended to be operational several decades into the future is an example of what is known as “carbon lock in” and will likely result in BC missing its greenhouse gas emissions targets. In spite of lofty rhetoric and ambition in the CleanBC climate plan, the LNG Canada project shows BC moving in the wrong direction.

Read my latest report that provides more background.

Topics: Climate change & energy policy, Fracking & LNG, Taxes