A Legacy Fund or Subsidies to Fossil Fuels

Budgets provide tangible evidence of a government’s priorities. The BC Liberals’ recently introduced budget illustrates their ongoing obsession with promoting oil and gas development.

Expect more of the same short-sightedness in energy priorities. Instead of a Legacy Fund for the post fossil fuel era, or incentives to move our economy away from fossil fuels while diversifying into new job-creating industries like renewable energy and hydrogen infrastructure, the budget includes hundreds of millions of dollars in subsidies to oil and gas companies.

What happened to the promise to end subsidies to business?

And why are subsidies needed when fossil fuel companies are reaping record profits off oil and gas extracted from public and unceded First Nations lands?

In 2005 fossil fuel Canadian companies reported record profits. Imperial Oil, who continues to beg for federal handouts for its Mackenzie Valley gas pipeline made $2.6 billion in profits, Encana reported $3.4 billion in net earnings, Shell made over $2 billion in profits.

Do they really need more government handouts?

So instead of incentives to promote energy efficiency, or a Legacy Fund the BC liberals have chosen to give money to companies making record profits off a pubic resource.

The massive subsidies to fossil fuel companies can be grouped into two categories: (1) a complex web of royalty breaks and (2) direct subsidies for infrastructure and road development.

You may not know it but you and I are providing a minimum of $100,000 in royalty reductions for wells drilled in the summer, a $50,000 royalty credit for coalbed methane wells (which have generated widespread opposition in every community where it has been proposed), $30 million in annual royalty credits for oil and gas infrastructure, and over $100 million for roads primarily used by fossil fuel companies.

Add various schemes to reduce the already paltry royalties paid for oil and gas extracted from public lands. These include the:

1.  Deep Well Royalty Credit for wells over ~2000 metres (depending on technique used);

2.  Marginal Well Royalty Regime for unconventional wells with low production

3.  Deep Reentry Well Royalty Reduction for wells that are deeper than ~2300 metres that have been previously drilled and are being reentered;

4.  Deep “Discovery Well” Royalty Holiday which provides a 3-year royalty holiday or 283,000,000 m3 of royalty free gas for wells which are deeper than 4000 metres and more than 20 kilometres away from other producing wells;

5.  Low-Productivity  Natural  Gas  Royalty reduction for if their production falls below certain levels;

6.  Base 9 Royalty Credit which reduces the royalty paid by 3% (from 12% to 9%) for new production from tenure acquired between June 1, 1998 and Dec. 31, 2008, that is drilled within five years of acquisition.

Government claims these subsidies are needed to develop wells that may not otherwise be economic.  But, with oil and gas supplies peaking, the price of these commodities will only trend up, meaning that currently uneconomic resources will become economic in time.

These giveaways of tax payer money illustrate a government obsessed with promoting oil and gas production at any cost, even over the long term fiscal future of the province.

By subsidizing the mind bogglingly profitable oil and gas industry, BC is short-changing the public purse.

Legacy Fund

By spending all of BC’s spiking energy windfall as general revenue, rather than saving some for the fast approaching post fossil fuel era, the BC Liberals’ are squandering the province’s fiscal future.

BC needs failing to set aside some of the booming oil and gas revenue in a Legacy Fund like our neighbors in Alaska and Alberta.

Despite their reputation as fiscal conservatives, the BC Liberals have chosen to allocate all the spiking oil and gas revenues for current spending. This is short-sighted.

Other jurisdictions have recognized the finite nature of fossil fuel revenues and have set aside some of them for the future or for economic diversification. Alberta, Alaska, Norway, and even Chad are either currently building or have at one time built a reserve fund from oil and gas revenues.

Since 1976, Alaska has placed 25% of oil and gas revenues into its Permanent Fund, which is valued at over US$27 billion.

Alberta is also putting money aside for the post-boom era. Between15% and 30% of Alberta’s oil and gas revenues were set aside in a Heritage Fund. Alberta no longer contributes annually, but recently announced plans to make an additional $1 billion contribution to the fund. While the management of the fund has recently been criticized, the fund has been valued at $12 billion.

Norway’s State Petroleum Fund stands at over $100 billion.

BC has set a target of doubling oil and gas production by 2011. According to government studies, this is also likely to be the peak year for BC production of oil and gas.

Since the resource is peaking, demand is increasing and the impacts of climate change and the post-fossil fuel economy are likely to hit BC harder than other jurisdictions, it is important that fossil fuel revenues be explicitly earmarked to ease the transition to the new energy economy.

Each day, trends in the news reinforce that the transition is inevitable. The only question is how well prepared we are.

The BC government should take the lead and end subsidies for fossil fuel, create incentives for renewables and set aside 25% of oil and gas revenue in a Legacy Fund.

Wouldn’t it be nice to have a few billion dollars in hand to pay for addressing future challenges such as settling aboriginal land claims and implementing climate change measures?

A few billion would come in handy to pay for sustainable transportation alternatives, incentives to retrofit our homes and offices for energy efficiency, making our major industries for energy efficient, petro-chemical free agriculture.

Given the BC Liberals obsession with promoting fossil fuels, ending subsidies and a Legacy Fund are unlikely to occur without public pressure.

That’s our job …and yours. Let’s get at it

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