Climate policy: contradiction #2

Speaking of BC climate policy contradictions that desperately need to be addressed (like I was doing here), wrap your head around this: our current policy framework is supposed to simultaneously reduce consumers’ dependence on fossil fuels and increase our dependence on fossil fuel production in the province.

What?

It’s true. It works like this. If you think of energy like any other commodity, it moves along a chain, with someone at one end producing the power, which gets distributed to a consumer at the other end, who uses it up. If you think of the whole oil and gas sector this way, then you can imagine a flow of energy and fuel from a group of industrial producers to a bunch of consumers like you and me.

BC’s carbon tax, the province’s flagship climate change policy, targets the “downstream” part of this flow. The goal of the tax is to reduce greenhouse gas by decreasing consumption. It does not make oil and gas production more expensive. Instead, it fiddles, in a pretty minor way relative to the movement of international oil prices, with the price at the pump. Presumably, the policy hopes that if we demand less at this end of the stream, there will be less need to produce it at the “upstream” end.

Now, you might think that makes sense. Or you might think that is a little bit strange, since at least at first glance, the upstream seems like a good target too.

But it gets even stranger. Because not only does the existing policy framework not target carbon taxation at the both ends of energy production stream, it actually lavishly subsidizes the upstream end (to the tune of $327 million in the 2008 budget): road construction subsidies, moves to allow off-shore drilling, exploration tax breaks, power line construction and more. All of which makes oil and gas production in the province significantly cheaper, and far less risky, than nature or the market would allow on their own.

Consider, for example, the “ultra-marginal royalty program“, a subsidy the province says

allows British Columbia’s less productive wells to remain attractive investments even where well returns decline after initial drilling and production.

This program is intended to increase the development of shallow (up to 2500m for vertical wells and up to 2300 m for horizontal wells) gas wells with low rates of production.

If you are feeling somewhat generous, you might think this is an oil and gas version of the old “minimum cut control” provisions in forestry legislation (the ones that insisted the industry sometimes harvest unprofitably to maintain employment). Not so. Not only did minimum cut control expect the companies to foot the bill, but the jobs in question here are relatively few in comparison.

In fact, with the exception of the absurdly resource-intensive production technology used at the tar sands, the oil and gas industry is not a big job generator, and never has been. This is true all over the world, and BC is no exception. Labour costs as a proportion of total costs in oil and gas are among the lowest in industry. According to the census, of the 20,000 direct jobs in “mining and oil and gas extraction” in BC in 2006, a little under 3,000 were in “oil and gas extraction”. These jobs were spread across approximately 1,600 wells, which means about two jobs per well. With annual capital investment running at around $5 billion annually, that’s not exactly a rate of direct job creation to celebrate. Even if we grant the province its decidedly rose-coloured estimates of total oil and gas jobs, around 12,000 if we include support services, road construction and site preparation, many of these jobs require skills that are hard to find in the rural northern part of the province, and few promise any long-term stability for employees.

The real issue is the more than $2 billion the oil and gas industry contributes every year to the provincial coffers, accounting for almost one-tenth of revenues. In fact, with the “success” of subsidization programs in place to encourage the growth of BC’s oil and gas sector, the extent of this budgetary dependence is growing.

So, at the same time that we are attempting to reduce our individual rates of fuel consumption, the whole province, you and me included, is in no uncertain terms increasingly dependent on the fossil fuels. This is, to put is bluntly, nuts. I am all for reducing our consumption; indeed, we must. But we also have to change the fossil fuel orientation of that economy at a more significant scale. The same “incentive-based” logic that drives the province’s relentless subsidization of the oil and gas industry would suggest that if we stopped subsidizing it, we might turn to other ways of doing things, like alternative energies. Right now, even with the help they get, those efforts are directly undermined by the double-talk that constitutes our approach to climate change.

Topics: Climate change & energy policy, Economy, Provincial budget & finance, Taxes