The B.C. government must establish an oil and gas royalty-revenue fund similar to the Alberta Heritage Trust Fund to help sustain towns that are dependent on non-renewable resources, says the author of a report released by the David Suzuki Foundation and the Canadian Centre for Policy Alternatives.
“My proposal is to actually use the fund in order to invest in economic development projects,” says Dale Marshall, a policy analyst with the Suzuki Foundation.
His recently released report, Running on Empty: Shifting to a Sustainable Energy Plan for B.C., contends that B.C. is headed for an energy crunch unless the provincial government focuses on energy security, renewable energy and conservation, and places less emphasis on export and extraction.
Alberta’s oil and gas industry royalties went into the Alberta fund in the early 1970s and mid-1980s. Although the fund still exists, and has been used to help fund such projects as 1988 Winter Olympics venues in Calgary, producers’ royalties now go into the province’s general revenues.Alaska and Norway have similar funds in place.
However, provincial Energy Minister Richard Neufeld says it will probably be a long time before the province considers establishing such a fund – if it does at all.
“What we have to do is get our fiscal house in order,” Neufeld says.
He notes that Alberta generated $7.5 billion in oil and gas royalties last year while B.C. earned $2.3 billion, and added it’s important to remember that Alberta has not made contributions to its Heritage Trust Fund since the late 1980s.
“It would be nice to have that (fund), but it’s equally important to remember that we need a good health-care system and a good education system,” says Neufeld.
Neufeld has said that the government considered establishing some kind of permanent fund when it was elected in 2001, but felt overcoming the deficit and retiring the “pretty large debt” were more important goals to meet.
But Marshall says a B.C. fund, in conjunction with an increase in royalty fees, would provide a solution in the mid-term while helping oil and gas regions develop new industries and extending the life of reserves.
“It’s not just to give out money,” says Marshall. “It’s to make some investment and bring jobs to the area.”
Higher royalties, based on a percentage that allows for fluctuating oil and gas prices, would decrease drilling activity and reduce environmental damage, he adds. “The northeast is heavily dependent on the oil and gas sector, but at some point, those resources will run out and those communities will be left with very few options,” says Marshall.
When the resources run out, the fund could be used for environmental rehabilitation and transitional funding for new industries. The province, he says, must find new ways to produce, consume and export energy – because its oil and gas industry is fundamentally unsustainable.
“We have no plan for when these oil and gas resources run out, either for the province’s energy needs or for the communities that depend on these industries for jobs,” adds Marshall.
But Neufeld counters that the province does have programs in place to ensure that the resource lasts for a long time.
The Suzuki Foundation report says the province’s fixation on extracting as much oil and gas from the ground as quickly as possible, and then shipping the non-renewable resources to the U.S., is also creating more harmful greenhouse gases and exporting jobs. Marshall asserts that the greenhouse gases are linked to an emerging pattern of drought, declining salmon stocks, heat waves, insect infestations and forest fires in B.C.
The report blasts the province’s energy plan, released in 2002, which claimed to be based on principles of sustainability and energy security.
“Two years later, it is clear that the government’s plan actually undermines energy security, ignores the dangers of climate change, and makes only token gestures toward the need for conservation and renewable energy,” says Marshall.
He says the province could use wind, micro-hydro and biomass technologies to help fill its power needs until more affordable tidal- and solar-power technologies are developed.
B.C. is considered a hotspot within Canada’s oil and gas industry because of provincial royalty rebates on summer drilling activity as well as horizontal and deep drilling, and private-public partnerships on road construction that allow companies to collect user fees.
The Petroleum Services Association of Canada, which monitors drilling activity across the country, forecasts that 1,275 wells will be drilled in B.C. this year – a 25-per-cent hike from last year’s 1,024. PSAC president Roger Soucy has cited B.C.’s royalty rebates as one of the reasons why drilling across Canada is expected to reach a record 22,255 wells this year, an increase of 450 from last year’s record.
Marshall contends that B.C.’s energy plan sparked the creation of new coal and natural gas-fired plants; more pipelines and increased oil, gas and electricity production for export; the development of coalbed methane and offshore oil and gas; and the break-up and incremental privatization of BC Hydro.
He says the plan also weakens the regulatory environment by streamlining environmental assessments and the oil and gas approval process – and intervenes in the land-use process to favour oil and gas development over all other options.
Echoing a report by a coalition headed by West Coast Environmental Law in April, Marshall argues that British Columbians make up only one-fifth of oil and gas employees in the province. He calls on the province to increase royalties and eliminate subsidies.
But Neufeld says the royalty incentives, which he describes as tax reductions, are not the equivalent of subsidies. Contending that B.C. has doubled its oil and gas activity since the Liberals took office in 2001, Neufeld says the additional tax revenue which the province has gained – in the form of individual and corporate tax and royalties – more than makes up for the royalty breaks.
“I think it pays – it pays off big time – for those people and communities that work in the industry,” says Neufeld.
Marshall says his research shows that B.C. sends 72 per cent of its natural gas out of province – 50 per cent goes to the U.S., 16 per cent heads to Alberta and six per cent ends up in Ontario.
Meanwhile, most B.C. crude oil goes to Alberta – because Canada’s most western province only has two refineries.
Arguing that B.C. needs more refineries, Marshall calls on the province to examine how its oil can be refined at home rather than shipped elsewhere and brought back in usable form – as it has done with lumber.
Neufeld acknowledges that the provincial government has made it more “attractive” for oil and gas companies to do business in B.C. and pay royalties.
“That provides solid employment and a good revenue stream for social programs,” he says.
The minister, who lives in Fort St. John, says the royalty breaks have “benefited British Columbia hugely,” especially in northeastern B.C. where he has lived and worked in the oil and gas industry all his life. Last year, he says, Fort St. John established 211 new businesses, which were mostly related to oil and gas.
He adds the province’s summer drilling incentives have placed less emphasis on winter drilling, meaning that workers no longer have to toil for 16 hours per day, seven days per week in cold months and look for seasonal jobs.
“That (seasonal employment) doesn’t give them any stability,” says Neufeld.
But the report contends that the rebates have benefited the government, rather than British Columbians.
While B.C.’s oil and gas revenues jumped to $1.5 billion in 2002-03 from $361 million in 1998-99, the number of B.C. jobs has declined to 1,300 from 2,500.
The report also calls for a continuation of federal and provincial moratoria on offshore drilling, which have been in place since the early 1970s, and a ban on coalbed methane development.
The province has made no secret of its desire to lift its moratorium and develop its offshore resources. But with a minority government in Ottawa and a provincial election looming in February – and an industry reluctant to spend huge dollars typically associated with often-speculative activity – the offshore moratoria do not appear likely to be lifted soon.
Marshall says the Suzuki Foundation will send a copy of its report to all government MLAs, as well as letters to Neufeld and Premier Gordon Campbell.
“It’s a tough one because the critique in the report, rightly so, is quite critical of the government,” says Marshall.
“In a lot of senses, it doesn’t open doors for discussion.”
The report also calls for BC Hydro to be converted back to a fully public utility, 0.3 cents per kilowatt hour to go into a public benefit fund, and a ban on electrical generation from coal.
“We can meet our electrical needs without the use of any additional fossil fuels,” Marshall says.
– with files from Canadian Press
