Equalizing carbon pricing on coal shipped through B.C.

Original content courtesy of Organizing for Change, Equalizing Carbon Pricing on Coal Shipped Through B.C. brief, 2015

The Problem Coal combustion is the largest contributor globally to greenhouse gas emissions and climate change. British Columbia has taken strides to become a climate leader in reducing those emissions in our province, administering a successful carbon tax that serves as a model for other jurisdictions. But the local and global impacts of coal shipped through the province for export threatens to overshadow and tarnish B.C.’s climate leadership. B.C. is currently the only place on the west coast of North America that ships thermal coal to Asia—and that coal gets a free ride.

All coal is responsible for serious carbon emissions, but only B.C. coal is subject to the carbon tax. B.C. producers are dinged for the fuel they use during extraction, processing and transportation to B.C. ports. But coal producers from the U.S. and Alberta that also ship from B.C. ports are not subject to the carbon tax.

Coal transhipments through B.C. have detrimental effects on public health, critical transport infrastructure, access to emergency services, traffic, air quality and water quality. The end-use combustion of the coal shipped through B.C. has global climate impacts that come back home in the form of mercury pollution and extreme weather patterns like drought and wildfires that affect B.C. communities and our economy. These impacts have not been adequately assessed, coal shippers are not paying a fair share to mitigate their impact and B.C.’s communities are not getting the health and safety protection they deserve.

The Policy Solution The provincial government has the power, under the Climate Leadership Plan as a regulatory scheme, to impose a charge on coal shipped through B.C. This charge can be calculated to be equivalent to the carbon tax levied on B.C.’s coal producers and can take many forms, serving to “proscribe, prohibit or lend preference to a behaviour.”1

Extending or amending the carbon tax to include transhipments is outside the provincial government’s constitutional taxation authority — as is a separate tax aimed at entities engaged in transhipping coal in British Columbia pass the constitutional test — so to be valid, the regulatory charge must be part of a regulatory scheme, and there must be a sufficient connection between the regulatory charge and that scheme.

Existing case law provides guidance for crafting a constitutionally valid charge.2, satisfying the requirements of free trade agreements (GATT and NAFTA) as long as British Columbia’s charge applies equally to all entities engaged in transporting coal, regardless of the origin of the coal.3

The regulation can include provisions to ensure shippers already subject to the carbon tax or another equivalent carbon pricing regime are not unfairly burdened, while shippers currently escaping the carbon tax are charged an equal cost, calculated in a similar way. A regulatory charge could be imposed as part of legislation, but pursuant to section 53 of the Constitution Act, does not necessarily need to originate in the Legislative Assembly. As such, government could use its regulatory powers to enact the charge without legislative action in order to act swiftly to level the playing field for coal shipped through B.C.

The Impact Using current coal shipping activity as an example, we can calculate some initial impact estimates for a regulatory charge on coal transhipments. Currently, thermal coal from mines in Montana’s Powder River Basin (PRB) and metallurgical coal from Alberta’s Grande Cache mine (note: Grande Cache recently filed for bankruptcy) are shipped to B.C.’s ports for export. If a carbon tax-style calculation of $30 per tonne of carbon dioxide equivalent emitted into the atmosphere were applied to these shippers, Pembina Institute estimates the charge would amount to a minimum of $1.05 per tonne of coal shipped from the PRB and minimum $1.25 per tonne of coal shipped from Alberta. This accounts for the greenhouse gas emissions associated with fossil fuel combustion during extraction, production and transportation of coal to port.

For PRB thermal coal producers, this additional cost would change the economic outlook for current and proposed exports through B.C. Adding even the seemingly small additional cost of one dollar per tonne of thermal coal shipped would significantly affect the economic prospects of current and future exports through Westshore or proposals for new thermal coal export facilities. In this way, a regulatory charge aimed at reducing the use of thermal coal in overseas markets and the local impacts of coal transport would be very effective.

We call on the BC government to impose a regulatory scheme through the Climate Leadership Plan that would ensure coal producers pay their fair share to export through BC- regardless of the product’s origin.

1. 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7, para 20.
2. See in particular: 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7; Westbank First Nation v. British Columbia Hydro & Power Authority, [1999]
3. S.C.R. 134 3 A regulatory charge imposed solely on actors engaging in the transshipment of thermal coal from the United States would likely be held as inconsistent with the rules of GATT and NAFTA, and not savable by the Article XX exception.

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