Is BC Gas Subsidized? (Part II)

Is BC Gas Subsidized? (Part II)

Last week I discussed a report titled: Locked In and Losing Out: British Columbia’s fossil fuel subsidies1. It is well over a year old but is still being pushed by anti-industry groups claiming that BC’s tax system is unfair and grossly over-subsidizing the oil and gas industry. I reviewed the entities behind this report and the methodologies they used to come to their conclusions. This week I’m going to review the exact subsidies they are claiming, why this isn’t a fair report and why it doesn’t accurately portray BC’s tax structure or subsidies in the oil & gas industry.

The first and largest subsidy noted by the IISD report is Royalty subsidies. Royalties are the fees paid to provincial government for the extraction of the publicly owned resource. It is a complex structure that is designed to provide the greatest benefit to British Columbians. Too high a fee and the resource isn’t developed, leaving no revenue for British Columbian’s. Too low a fee and we our giving away our public resource. It is a fine balancing act that includes several reductions and credits including credits for wells that are low productivity, marginal and ultra-marginal2. Credits are not subsidies. They are a tax structure that ensures a competitive industry. Credits are earned by significant investments. This means money has already been spent on development in the province. Jobs with income tax, materials purchased with sales tax and business providing services with corporate tax have all been paid. The report would lead you to believe that hundreds of millions of dollars are being paid to oil and gas companies by BC taxpayers which couldn’t be further from the truth. Our provincial government understands how complex the royalty structure can be. Our provincial government conducts an annual reviews of BC’s Oil & Gas Royalty Credits program and reports it’s key performance measurements to “addresses questions of whether B.C.’s royalty programs maximize value to the Province…”3. The IISD reports fails to mention this. It is simply not a subsidy if its intentions are clearly in the benefit of all British Columbians.

After royalties the IISD report then grasps to find seemingly further disconnected subsidies of the oil and gas industry. They argue exemptions to motor fuel tax for things such as alternative fuels, international flights and transportation of non-marketable gas are subsidies. It fails to understand differences between the motor fuels tax and the carbon tax and that these exemptions have been in place because these activities are not relevant to purpose of the motor fuel tax. They also consider an exemption of farmers from the motor fuel and carbon tax as a subsidy for the oil and gas industry. This means a minor exemption to a tax that is almost exclusively implemented to deter consumption of products from the oil and gas industry is deemed as a subsidy. This exemption is obviously in place to ensure a secure food supply and feasible farming operations in the province and in no way benefits the oil & gas industry.  A claim of this being a subsidy is simply laughable. They use this same logic to claim that PST exemptions for residential fuels including electricity, natural gas, and fuel oils or mining exploration tax credits are subsidies to the oil and gas industry. Trying to make living affordable for British Columbian’s or encouraging mining for the worlds needs in no way reflects an effort by the province to subsidize oil and gas. Claiming that not taxing British Columbians is some how wasting British Columbians money on subsidies is a cyclical argument that simply leaves me scratching my head.

Finally, after a misconstrued argument of BC’s tax structure that doesn’t satisfy the IISD’s ideals, their report finally starts to talk about actual subsidies: direct spending of BC Taxpayers money. Except these subsidies aren’t being spent on the oil and gas industry. They are being spent on public initiatives that are trying to reduce BC’s carbon emissions, lower consumption of fossil fuels, or eliminate them all together. They include construction of Compressed Natural Gas (CNG) facilities to switch diesel vehicles to natural gas, purchase of CNG public buses, and subsidies or rebates to improve efficiency of commercial and residential buildings. They also discuss programs to encourage and fund heavy industry to reduce emissions. For a moment put this in the context of your own workplace. If the province of BC started paying the customers at your place of work to consume less, buy less, and look at alternative products would you go bragging to your friends that you are being subsidized? I would guarantee not. The IISD report has somehow taken government spending to minimize or eliminate an industry (largely because of their own lobbying efforts) and turned it into a claim of government spending to prop-up the oil gas industry. Does this idea anger you as much as it does me?

It truly is hard to summarize the frustrations of the IISD report into a short blog post so I encourage anyone who has the time to actually read and understand the claims they are trying to make. It is pretty clear to me that this report is not an accurate account of subsidies to BC’s oil & gas industry. It is neither a report intended to reduce spending by the provincial government nor a report that would be effective in increasing government revenues. It is clear from the entities that funded and published this report that it is biased in its findings and really only intended to achieve one goal; it intends portray a profitable industry in a poor light and encourage the public to support excessive and unfair tax policies that put a stop the industry.  A more appropriate title for this report would be, “Forget the provincial revenues generated, the jobs created or the numerous manufacturing and service industries supported by this industry and instead tax it into oblivion” but I feel like that wouldn’t grab headlines in the same way. There is no level of support (or lack there-of) that the provincial government could provide that would satisfy the authors of this report until the industry simply didn’t exist. I find this very concerning, not because this report was published, but because it is being poorly construed by mainstream media, creating a false narrative for the public, and causing great damage to BC’s industries and economy. Very little effort has been spent to understand the actual methodology, or subsidies claimed in the report. It is an important report for all BC citizens and understand and why you should care.