Subsidizing Climate Change 2021 How the Horgan government continues to sabotage BC’s climate plan with fossil fuel subsidies In 2020 – 21, BC’s NDP-led government In 2020 – 21, the NDP government Highlights: spent $1.3 billion on fossil fuel subsidies spent more subsidizing fossil fuels — 8.3 percent more than the previous ($1.3 billion) than it did on its climate year — and they are now more than change program ($1.1 billion), a trend Premier John double what they were when Premier that is predicted to increase Horgan’s NDP took power. dramatically through 2024. Horgan’s Worsening The largest single source of this By 2023 – 24, the government plans increase is the Deep Well Royalty to spend almost $1.8 billion on fossil Record on Program, a tax loophole for fracking fuel subsidies, including a 150 percent operators, which is projected to increase in the Deep Well Royalty Fossil Fuel cost taxpayers $421 million this year. Program. Subsidies The outstanding liability fracking companies have amassed through unused Deep Well Royalty Credits has The NDP government consistently grown to $3.1 billion. underestimates the costs and future liabilities of its oil and gas subsidies and overestimates the royalties it In 2020 – 21, the NDP government gave will earn from the oil and gas sector, the oil and gas industry almost five creating a vicious feedback loop that times as much money in subsidies as will cost current and future taxpayers it earned in oil and gas royalties ($282 billions of dollars. million), a higher ratio than it did in 2019 – 20. 2 Introduction: The Road Away from Net-Zero In May 2021, the International Energy Agency (IEA), the most influential energy policy organization in the world, issued Net Zero by 2050: A roadmap for the global energy system.1 It’s the IEA’s most ambitious report yet, and details how the world can meet its shared climate aspira- tions and reach net-zero carbon emissions by 2050. Net Zero by 2050 is a timely guidebook for recently re-elected British Columbia Premier John Horgan, who com- mitted to passing legislation that commits BC to achieve the 2050 net-zero goal. One of the foundational pillars of the In March 2021, BC announced sectoral IEA analysis is the need to immediately targets, which set 2030 climate pollution eliminate investment in, and approvals for, reduction targets for each sector of the oil and gas projects. “There is a growing economy, including a stand-alone target gap between the rhetoric we hear from for the oil and gas industry.3 Our analysis governments and industry leaders, and of Premier Horgan’s 2021 budget reveals what is happening in real life,” said IEA that increasing subsidies to the oil and gas Executive Director Fatih Birol, warning industry will make it all but impossible to that carbon emissions continue to rise rein in carbon emissions and set BC on a substantially despite increasingly path to a net-zero future in 2050.4 ambitious government commitments.2 3 Big Bucks for Increase of fossil fuel subsidies over time Fracking 250 $1.75B Total fossil fuel subsidies $1.58B 200 $1.46B Even as Canadian governments claim their % change on 2016–17 $1.32B Budget Year GHG-reduction policies will wean us off $1.22B fossil fuels by 2050, they award even the 150 biggest and most profitable oil and gas $922M companies with taxpayer-funded financial PERCENTAGE 100 benefits. While demand-side policies such $555M $557M as the carbon tax are meant to decrease the production and combustion of fossil 50 fuels, the subsidies enjoyed by Big Oil and Gas do exactly the opposite: they actually 0 promote the production and consumption 2016–17 2017–18 2018–19 2019–20 2020–21 2021–22 2022–23 2023–24 of the same dirty fuels that are warming Liberal Party New Democratic Party government government the planet beyond all recognition. In BC, fossil fuel subsidies include provin- totaled $1.3 billion in fiscal year 2020 – 21. increase to $657 million in 2023 – 24, triple cial tax exemptions, royalty reductions Rather than decrease over time, these sub- what the BC Liberals spent. and credits, and direct investments in sidies are estimated to surpass $1.8 billion infrastructure and technology — and they in 2023 – 24 — more than triple what the BC The second biggest publicly funded have grown significantly since the BC NDP Liberals spent in 2016 – 17. fossil fuel windfall is the so-called Clean took over from the Liberals in 2017. Indeed, Infrastructure Royalty Program, which BC is second only to Alberta in the gener- The vast majority of these subsidies go encourages investment in oil and natural osity of subsidies it gives to the fossil fuel to fracking companies via the Deep Well gas infrastructure that reduces methane industry, mostly to expand the production Royalty Program, which increased to $421 leakage. This program gave $71 million to and export of fracked liquified natural gas million last fiscal year, twice what the the fossil fuel industry in 2020 – 21 and will (LNG), a dirty fuel source that is both an Liberals granted in 2016 – 17 and 58 percent almost double to more than $135 million economic and a climate disaster.5 more than the Horgan government fore- in 2023 – 24. While these subsidies might cast a year earlier. This program provides reduce emissions, they must be viewed in According to Premier John Horgan’s 2021 royalty credits to companies that drill deep the context of the BC government’s policy government budget, fossil fuel subsidies gas wells, usually by fracking, and will of using subsidies to increase natural gas 4 production. Even if this program is respon- Unlike Christy Clark’s BC Liberals, Premier Taking Wealth sible for reducing the emissions intensity John Horgan’s NDP government also rou- of some wells, overall emissions from a tinely invests public funds directly in fossil Away from Future growing natural gas sector will continue fuel production, specifically $53 million in to skyrocket, making it impossible for BC 2020 – 21 to support the construction of Generations to reach its climate targets. Furthermore, LNG Canada’s plant in Kitimat, up from this subsidy violates the polluter-pays $29 million last year. principle and will lead to other taxpayers The Deep Well Royalty Program is not covering the costs of the oil and gas sector just a huge tax loophole for the benefit to comply with environmental laws and of fracking companies, it also is creating regulations. a growing liability that has ballooned into billions of dollars because the Horgan government gives out tax credits faster than the companies can cash them in. Natural gas royalties vs natural gas production The government’s failure to address this growing financial liability reveals that 2,300 either they are completely unwilling to stand up to the fossil fuel lobby or that Natural gas production they are asleep at the wheel. Royalties Originally this tax credit was enacted $164M $159M in 2003 by Gordon Campbell’s Liberal $153M government to incentivize the drilling of 2,000 $145M deep and horizontal wells, which was then PETAJOULES a relatively new and expensive way to access natural gas deposits. Now fracking is commonplace — there are more than 21,000 active and abandoned wells in northeastern BC, the only area of the province producing commercial quantities 1,700 2016–17 2017–18 2018–19 2019–20 of oil and gas. Liberal Party New Democratic Party government government 5 Growth in outstanding deep well royalty credits Depending on how deep a well is, it is eligible for between $440,000 and $2.8 million in royalty credits, which reduce ‹ Liberal Party NDP › the royalties payable for a producing well. 4,000 Given the huge number of wells being $3.692B drilled to expand fracking in BC, Deep Well royalties have created a government liabil- ity estimated to be $3.1 billion — a fact the 3,500 Horgan government attempted to down- play. This figure is forecasted to increase to $3.7 billion in 2024. This significant liability 3,000 only grows larger when compared to the MILLIONS measly revenues generated each year by $ oil and gas royalties, an annual average of only $284 million over the last three years. 2,500 According to government information $2.148B released to the Canadian Centre for Policy 2,000 Alternatives, 26 companies received deep 2016–17 2017–18 2018–19 2019–20 2020–21 2021–22 2022–23 2023–24 well royalty credits in 2018. The top three ACTUAL FORECAST ESTIMATE PLAN recipients — Encana, Painted Petroleum Royalty credits and Tourmaline Oil — received almost half the credits. Between 2005 and 2017 Encana donated $1.2 million to the provin- These outstanding royalty credits will School of Business Prediction Markets. cial Liberals and $113,000 to the NDP. have to be honored by future taxpayers, “Once it’s gone, it’s gone.”7 reducing revenues that would otherwise Another beneficiary is Petronas Energy be available to fund public services for During BC’s fall 2020 election campaign, Canada Ltd., one of the principal partners future generations. “It’s basically taking the NDP committed to undertake a com- in the planned LNG Canada export facility wealth away from our future generations prehensive review of natural gas royalty at Kitimat, which also benefited from that actually should have equal rights credits.8 Now is the time to cancel the discounted electricity prices, exemptions in the benefits of this natural wealth, Deep Well royalty giveaway and prevent from carbon tax increases, corporate because you can only consume it once,” further burdens on future generations of income tax breaks and deferral of provin- said Werner Antweiler, director of the taxpayers.