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  • Report looks at captured nature of BC’s Oil and Gas Commission August 6, 2019
    From an early stage, BC’s Oil and Gas Commission bore the hallmarks of a captured regulator. The very industry that the Commission was formed to regulate had a significant hand in its creation and, too often, the interests of the industry it regulates take precedence over the public interest. This report looks at the evolution […]
    Canadian Centre for Policy Alternatives
  • Correcting the Record July 26, 2019
    Earlier this week Kris Sims and Franco Terrazzano of the Canadian Taxpayers Federation wrote an opinion piece that was published in the Calgary Sun, Edmonton Sun, Winnipeg Sun, Ottawa Sun and Toronto Sun. The opinion piece makes several false claims and connections regarding the Corporate Mapping Project (CMP), which we would like to correct. The […]
    Canadian Centre for Policy Alternatives
  • Rental Wage in Canada July 18, 2019
    Our new report maps rental affordability in neighbourhoods across Canada by calculating the “rental wage,” which is the hourly wage needed to afford an average apartment without spending more than 30% of one’s earnings.  Across all of Canada, the average wage needed to afford a two-bedroom apartment is $22.40/h, or $20.20/h for an average one […]
    Canadian Centre for Policy Alternatives
  • Towards Justice: Tackling Indigenous Child Poverty in Canada July 9, 2019
    CCPA senior economist David Macdonald co-authored a new report, Towards Justice: Tackling Indigenous Child Poverty in Canada­—released by Upstream Institute in partnership with the Assembly of First Nations (AFN) and the Canadian Centre for Policy Alternatives (CCPA)—tracks child poverty rates using Census 2006, the 2011 National Household Survey and Census 2016. The report is available for […]
    Canadian Centre for Policy Alternatives
  • Fossil-Power Top 50 launched July 3, 2019
    What do Suncor, Encana, the Royal Bank of Canada, the Fraser Institute and 46 other companies and organizations have in common? They are among the entities that make up the most influential fossil fuel industry players in Canada. Today, the Corporate Mapping Project (CMP) is drawing attention to these powerful corporations and organizations with the […]
    Canadian Centre for Policy Alternatives
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The Progressive Economics Forum

Don’t believe the (LNG) hype

Today we released a new report, Path to Prosperity? A Closer Look at British Columbia’s Natural Gas Royalties and Proposed LNG Income Tax, about liquefied natural gas (LNG ) development in BC, and the public revenues that might be expected. So far, LNG has lacked a real public debate. On one side, we have the drumbeat of the business press with coverage of the deals in the works (which, after a couple years, have yet to come to a final investment decision by any interested party). On the other, we have what can only be called propaganda coming from the BC government: 100,000 jobs! $100 billion in revenues! Cleanest LNG in the world! We’ll reduce emissions in China!

These claims have been repeated ad nauseum, without anything a researcher might call evidence. The rush is on, we are told, and we have to cash in or lose our opportunity forever — sounds a lot like the Nigerian email scam. There is good reason to believe that we may be witnessing a phenomenal giveaway of a finite public resource to global corporations, and with very little coming back to us, the collective owners of that resource.

The report looks at the case for a massive revenue windfall — a $100 billion Prosperity Fund claimed in the 2013 pre-election Throne Speech. That claim got turned into a banner wrap on Premier Clark’s election tour bus for a “debt-free BC” and also hints at tax cuts and increase public services to boot. None of which is consistent with the idea of a true Norway-style “prosperity fund”, which would set aside public revenues and then use the annual interest revenue to pay for good things. No matter, this is more about politics than good economics.

The case for any revenue windfall hinges on high Asian prices for gas in recent years vs low prices in North America due to the shale gas revolution. But this is not likely to last. Japan and Korea, together more than half the world market for LNG, have had nuclear downtime and are both likely to get those reactors up and running soon, which will undercut Asian demand. And lots of new LNG supply is in the works, and Asian importers are banding together to press for lower prices.

If BC exports cannot get top prices, corporate profits fall dramatically because it costs a lot to liquefy and ship gas to Asia. The proposed LNG income tax, tabled in Budget 2014, would raise less revenue accordingly. But it gets worse because the design of that tax allows companies to write-off all of their capital costs before the start paying the full LNG income tax (there is a pre-payment, called the Tier 1 tax, in the early years but this too is fully deductible from the full LNG income tax). This means any cost over-runs will be paid for out of reduced LNG tax revenues, a significant design flaw given the massive cost over-runs common to this industry (Australia, in particular).

The paper models revenues at different levels of output and price to develop a more plausible range of revenues, like what one might see in a budget not an election campaign. I conclude that BC needs to lower its expectations, and its claims, of a financial windfall.

The other point the paper makes is that there will be public costs of getting this industry off the ground. More study is needed on what those costs are, but they may exceed any public benefits BC receives. Basically, the BC government has no plan to manage the complex labour, environmental and community issues associated with an LNG boom. They are not talking to anyone besides industry, and they are not engaging the public in an honest debate about costs and benefits of development.

The danger in all of this is that the BC government has placed all of its bets on LNG. So much political capital has been spent, and the proponents know this, that they may settle for a bad deal rather than no deal.

Enjoy and share:

Comments

Comment from Guy in Vic
Time: May 1, 2014, 4:58 am

Is it not true that before an LNG plant is built, BC taxpayers must first provide the 8 Billion dollar Site C dam ? And once that is done, that single Site C dam will be used by just one LNG plant ” “The BG Group has filed plans for a liquefied natural gas plant at Prince Rupert that would consume the equivalent to all of the province’s current production of natural gas and almost all the energy generated by BC Hydro’s proposed Site C dam to produce it.” (Globe & Mail )

Comment from Marc Lee
Time: May 1, 2014, 2:16 pm

Site C is not necessary. The companies could just burn some of the gas they extract to power operations. Whether they will be required to use some renewable power is to be determined (likely not).

Comment from Murray Reiss
Time: May 5, 2014, 4:51 pm

“They are not talking to anyone besides industry, and they are not engaging the public in an honest debate about costs and benefits of development.” Oh dear, does this mean our last election was … a bit of a farce? Like the one before and the one to come? How do we get past this rampant pandering and deception and actually engage in an honest debate on any of the crises we’re facing? Is it possible, I have to wonder, within our current model of electoral politics.

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