Is BC Gas Subsidized? (Part I)

Is BC Gas Subsidized? (Part I)

It is becoming a common narrative in the news to hear that the BC government is subsidizing the oil and gas industry to the tune of hundreds of millions of dollars per year. This isn’t new news; it comes from a report more than a year old that studied BC’s 2017/2018 fiscal year and came to the conclusion that BC massively subsidized the oil and gas industry to the tune of over $830M. While this number may seem shocking, it’s extremely important to understand the report behind this “click bait” headline. The vast majority of British Columbian’s are getting their news from the headlines of major news outlets so it is concerning that this report isn’t properly understood. It’s even more frustrating when our own public broadcaster, CBC, poorly explains the report1. And while the report may now be old news, its being constantly recycled, pushed, and misrepresented in an attempt to created public shame and write a narrative that BC’s gas industry is neither profitable nor responsible and only viable by being propped up with taxpayer money. Over a year later this report is still being referenced to push anti-industry agenda’s2.

The report that the media and gas industry opposition loves to mention (but rarely by name) is titled: Locked In and Losing Out: British Columbia’s fossil fuel subsidies3. It is published by the International Institute for Sustainable Development (IISD), a Canadian charity based in Winnipeg, and self-described in the report as, “an independent think tank championing sustainable solutions…”, and, “Part scientist, part strategist…”. IISD operates with an envious budget of over $28M with 30% from Canadian government sources but 42% from international governments and the remainder from various NGO’s, organizations and UN groups4. The report is co-published by an IISD subsidiary called Global Studies Initiative (GSI) based out of Geneva, Switzerland with a goal to, “align subsidies with sustainable development”. GSI’s principal funders are not Canadian. Peculiarly, the report includes the logo for Environmental Defence on the title page but there is no mention of them in the report, or if they have funded or influenced the report in any way. Environmental Defence does however reference this report in their own publication ridiculing BC’s so- called subsidies. It is also important to note that this report has not been peer reviewed or published in any independent journal.

While the organizations behind the report are important to understand, equally important is the methodology used to determine these subsidies. This is noted in the report and appears to be fairly simple at first glance. IISD primarily uses public budget documents or government-published data. They then apply this data using World Trade Organization (WTO) definitions from the Agreement on Subsidies and Countervailing Measures. (I’ve copied these definitions at the bottom for your reference.) This is a legitimate publication, however, it is very loosely applied to the BC’s subsidies and for the incorrect purpose. Firstly, this publication is intended to define subsidies for international trade and then allow a framework for disputes and countervailing measures by the objecting government. IISD seems to find huge subsidies by this definition but none of Canada’s trading partners have ever brought a case forward regarding Oil and Gas subsidies. It is strange that our trading partners haven’t made a case for oil & gas subsidies yet have felt that that our wine, dairy, aircraft, pharmaceuticals, renewable equipment, and softwood lumber (among others) were worthy to file formal trade disputes5. Second, IISD applies WTO’s definition very loosely to “find” these apparent subsidies. Most of these claimed subsidies are for benefits internal to the province and don’t affect international trade of our resources. This is much easier to see when analyzing each subsidy individually.

What is left out of the report is the important fact of the revenue generated by the oil & gas industry. They fail to do any comparison of their claimed subsidies to tax revenue generated, both directly from the oil and gas industry and indirectly from income tax, sales tax and corporate tax of the industries service providers. It is truly hard to claim a subsidy if the industry is providing a net benefit to the province.

With this information now in hand, I ask you to decide if this report is a truly neutral source to evaluated oil & gas subsidies in BC or if it was written with a bias or foregone conclusion in mind. When you look at the publication, their goals, and their methodology, is this a fair report to note in public media as it has been? Should it be better referenced or explained to the public? Are the methods truly effective in accurately portraying oil and gas subsidies? Should we be concerned that this is creating a false narrative of BC Oil & Gas sector? Instead of reading the misleading articles, I encourage you to go directly to the referenced source and read the 35 page report for yourself linked in the references below. If you don’t have the time, no worries, I will delve into each individual subsidy next week so stay tuned.

  1. https://www.cbc.ca/news/canada/british-columbia/bc-fossil-fuel-subsidies-carbon-tax-1.5373311
  2. https://www.citynews1130.com/2020/10/08/bc-ndp-fossil-fuel-subsidies-climate/
  3. https://www.iisd.org/system/files/publications/locked-in-losing-out.pdf
  4. https://www.iisd.org/system/files/2020-07/iisd-annual-report-2018-2019.pdf
  5. https://www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm

WTO Subsidy Definition from Agreement on Subsidies and Countervailing Measures (ASCM), Article 1.1.

(i)         a government practice involves a direct transfer of funds (e.g. grants, loans,  and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees);

(ii)        government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits) [1];

(iii)       a government provides goods or services other than general infrastructure, or purchases goods;

(iv)       a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments;