Rick Koechl & Mike Kroecher: Carbon taxes and fairness

The carbon tax has once again become the centre of attention for many of us as we see prices jump exponentially at the gas pump. To be fair, supply and demand is also playing a role. There are at least three Canadian provinces —Alberta, Saskatchewan and Ontario — fighting the mandated carbon tax increases across the board on any of the fossil fuels we typically use in our daily lives.

Whether or not we agree with these taxes in terms of why the federal government has imposed them on the average consumer is not the question of this editorial. Rather, the question that we are raising is one of fairness with regards to the imposition of this tax on the average individual versus another corporate entity, namely the liquefied natural gas industry.

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It seems numerous countries around the world, including Canada, are pursuing the liquid gold rush of getting LNG to market. In 2013, a gigajoule of natural gas was valued at about $20 (Asia price), which subsequently dropped to pennies more than $9/ GJ in 2015 and is under $6/GJ today.

Herein lies the problem: the break-even marker for LNG sits at approximately $10 to 12 per gigajoule, which would include the fracking, processing, pipelining, liquefying, and finally shipping the gas to Asia. In other words, the latest price regime does not make financial sense because the industry would be losing money per shipment.

This spells trouble for the average B.C. or Canadian consumer and taxpayer, for that matter. According to Eoin Finn, a retired partner in KPMG, a major accounting/management firm, big business has already won its concessions regarding the LNG play. We can now look forward to the “unfairness factor” entering the picture regarding corporations versus the average Joe. Somehow, we know we will be paying for this in the end. 

Average British Columbians are indeed the losers. Here are just some of the concessions granted, federally and provincially, that will allow a losing business proposition to remain afloat, on the backs of the taxpayer.

A $35/ tonne carbon tax cap on produced gas and $0/tonne on any “fugitive” emissions is in place. What does this mean to you? For starters, the industry will never pay more than the allotted $35/T in perpetuity. Meanwhile, the sky is the limit for the rest of us pertaining to this tax. FYI: You now pay more in carbon tax per one GJ of natural gas, than the actual price of the commodity. With regards to the fugitive emissions problem, there is no longer an incentive for industry to worry about this wasted gas if there is no penalty attached to producing it. Also, consider natural gas or raw methane being released accidentally is at least 30 times more potent than the CO2 being produced by burning that gas in your homes. 

The industry will receive a 6 cent/kilowatt-hour electricity rate from BC Hydro for refining, cooling, and compressing the gas. Residential customers pay double that rate, 12 to 14 cents. This means the B.C. ratepayer is effectively subsidizing the industry through unequal and unfair electricity rates. 

There is a “zero” per cent LNG royalty tax and only a 9% corporate rate tax on future profits. That corporate tax could be a long way off depending on the industry return. Regarding the royalty tax, this is a payment back to the province (you and me), which is a zero return on a non-renewable asset no less. Finally, most of the LNG industry is financially structured so profits go to lower tax jurisdictions offshore. According to Finn, the amount of money returned to the B.C. public purse from all the gas in the province is less than the City of Vancouver collects in parking fees and fines. 

Back to the question of fairness. The public might indeed have an issue with how the carbon tax, both provincially and federally, is being dispersed across the country. 

For example, in those provinces where the tax has become highly controversial, the federal government has assured the tax is revenue neutral. This implies that you won’t be out of pocket. However, we no longer have similar assurances about revenue neutrality here in B.C. with our carbon tax. 

One final thought: If fairness isn’t an issue for you, then consider your wallet. Yet again, as individuals and families, we have lost far more financially, than the LNG companies have gained and benefited in their agreements with both federal and provincial governments. 

Mike Kroecher is a long retired resident of the Peace, expressing his deep roots in the land through his art. Rick Koechl is a recently retired teacher of the Peace with an enthusiasm for politics and energy.

© Copyright Alaska Highway News

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