Lifting carbon tax freeze could burn B.C. industries, critics warn

December 15, 2015

By: Business Vancouver

During the recent climate talks in Paris, Premier Christy Clark struck a pose as one of the belles of the ball – showcasing B.C. as a climate-change leader that had proven greenhouse gases can be reduced by taxing them without ruining the economy.
But B.C.’s industrial and extractive sectors are warning that raising the province’s carbon tax could put them at a competitive disadvantage because they compete with jurisdictions that don’t have carbon pricing and are pushing back against calls to raise the tax above $30 per tonne.

Heavy industries like pulp and paper mills, cement plants, mines and natural gas producers – all heavy energy users – have been lobbying the government to keep the tax frozen at $30 per tonne or exempt them from it in favour of other regulatory and fiscal tools, such as cap-and-trade.

One sector that is feeling the pinch is the cement industry, which consumes a lot of natural gas.

Since B.C. introduced its carbon tax in 2008, cement imports into B.C. have risen from less than 5% to more than 40%, according to the Cement Association of Canada (CAC) in its submission to the Climate Leadership Team (CLT).
The CAC is lobbying for an exemption from the carbon tax for it and other trade-exposed industries.

“We recommend that B.C. revisit the carbon tax as it applies to energy-intensive trade-exposed industry such as cement, and consider a cap-and-trade system that is co-ordinated with other comparable systems across Canada,” the CAC writes.

The pulp and paper sector is also asking for relief from the carbon tax. Catalyst Paper Corp. (TSX:CYT) said it pays $9 million annually in direct carbon taxes – mostly on the natural gas it consumes – and another $8 million indirectly in its payments to shippers that also pay the tax.

As the company has pointed out, fuel-switching technology that reduces or eliminates greenhouse gases (GHGs) is capital-intensive.

“These changes require capital; however, high input taxes put Catalyst at a disadvantage in the global competition for investment,” the company said.

Catalyst is recommending a new technology fund that would use revenue from the carbon tax, the PST and taxes on electricity to fund the necessary investments.

When B.C. set its GHG reduction targets in 2007, the goal was a 33% reduction below 2007 levels by 2020 and 80% by 2050.

B.C. met its first interim reduction target (a 6% reduction by 2012), but it won’t be able to meet the next one, the CLT says.

A 33% reduction target by 2020 is not achievable because in 2013 the B.C. government froze the carbon tax for five years at $30 per tonne. To meet its longer-term targets, the CLT is recommending moving the goalposts from a 33% reduction in 2020 to a 40% reduction by 2030.

After 2018, it says the carbon tax will have to be raised $10 per tonne every year for 30 years, if B.C. is to meet its 80% reduction targets by 2050. It is also recommending that the carbon tax be extended to non-combustion sources – such as the carbon dioxide vented in natural gas processing – and including GHG emissions as part of the B.C. environmental assessment process – something that’s not currently done.

The CLT has identified three key sectors where GHG reductions need to occur:

•transportation (30%);

•industrial sector (30%); and

•built environment (50%).

If a liquefied natural gas industry takes off in the province, natural gas could pose a serious challenge for B.C. in meeting its GHG reduction targets.

Natural gas extraction and processing already account for 16% of B.C.’s GHGs, according to the CLT. At full build-out, a single large four-train LNG plant like the one Shell is proposing would double the amount of gas that B.C. currently extracts. In other words, B.C.’s natural gas carbon footprint could double with a single LNG plant. Worse, about a third of the gas that would come out of the ground for LNG would need to be burned for the extraction, processing and liquefaction.

“About 25% to 30% of what comes out of the ground never makes it onto an LNG tanker because it’s used to clean up, transport and convert natural gas into LNG,” said David Austin, a lawyer with Clark Wilson LLP who specializes in the energy sector.

It doesn’t have to be that way, however. As the CLT points out, LNG’s carbon liability could be largely mitigated through electrification, carbon capture and storage and better engineering to reduce fugitive methane leaks.

New transmission lines to electrify the gas fields in northeastern B.C. would reduce emissions by 25%, according to the Canadian Association of Petroleum Producers (CAPP).

Electrification of the gas fields is one of the recommendations the CLT is making. It recommends the B.C. government “instruct” BC Hydro to come up with a plan to electrify the northeastern gas fields. But even if that happens, CAPP says the industry would be challenged to retrofit existing facilities with electric drive, which “is not economically feasible due to the magnitude of the capital investment.”

The CLT is recommending that trade-exposed industries be granted special tax breaks to offset the rise in carbon taxes, including the elimination of the PST on electricity.

The Business Council of BC (BCBC) is urging the B.C. government to continue freezing the carbon tax at current levels for at least the remainder of the decade and increase it only when other jurisdictions catch up.

As BCBC president Greg D’Avignon points out, B.C. is out in front of most American states and provinces when it comes to combating climate change, thanks to its carbon tax, clean-power policies and vast carbon sink in the form of provincial parks.

“B.C. today – before any changes are made, even in light of what Alberta has done – has the highest carbon tax in North America and one of the top six in the world. We get 94% to 97% of our electricity from renewable sources, and we’ve also protected over 14% of our parks.”

D’Avignon said if B.C. gets too far out in front with carbon pricing, it could make the province uneconomic for many businesses.

By: Business Vancouver

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