The B.C. government will scrap a special LNG income tax, exempt plant construction from the PST and charge LNG plants standard rates for electricity.
The new fiscal framework was announced Thursday March 22 in anticipation of LNG Canada making a final investment decision on its $40 billion Kitimat project in the coming months or weeks. If built, it would be the single largest investment in an industrial project in B.C.'s history.
The government will also give LNG Canada and other large emitters a break on carbon taxes, if they can meet strict new benchmarks for reducing greenhouse gas emissions, and will aggressively pursue electrification of natural gas fields.
Those commitments are contingent on LNG Canada making a final investment decision by November.
"I told you so," said Jihad Traya, a natural gas analyst for Solomon Associates.
Since the NDP came to power in B.C., Traya has insisted that it had no choice but to scrap the special LNG tax, if it wanted to see the LNG Canada project go ahead.
He thinks there is now the chance that not only LNG Canada will be built, but that one other large LNG project could also be built in B.C.
LNG Canada welcomed Thursday's announcement.
"LNG Canada looks forward to working with government, and the many provincial stakeholders and First Nations that continue to strongly support our project as it progresses towards a future final investment decision by our joint venture participants," the company said in a written statement. "The measures announced today will be important to our effort to submit a competitive proposal for our Joint Venture Participants’ decision-making."
Premier John Horgan said he believes the LNG Canada project can be built while meeting all of his government's objectives on aboriginal reconciliation, getting a fair return, and meeting the province's commitments on climate change: a 40% reduction in greenhouse gases below 2007 levels by 2030.
"I believe we're very close to realizing that objective," Horgan said.
As for hiring, LNG Canada has agreed to hiring policies that will give local and B.C. residents priority, and a target of 25% for apprenticeship hires.
Horgan admitted, however, that the project is still "fraught with risks."
"I believe that British Columbians understand that these are very challenging issues," he said. "Potential opportunity is extraordinary. Potential risks are significant. I believe LNG Canada is working diligently to address those risks."
Horgan said the business community supports the development of an LNG industry. But he warned that there will be a cost to all other sectors, which will have to tighten their own carbon belts, so that the industry can be developed while meeting climate change targets.
“That means more aggressive reductions in other sectors of our economy,” Horgan said.
LNG Canada has already spent $100 million getting the project FID-ready. All major environmental permits for the LNG plant in Kitimat and a new gas pipeline are already approved, and LNG Canada has agreements in place with 16 First Nations, although the government acknowledged there are still some holdouts among some First Nations.
The government estimates the $40 billion project would create 10,000 full-time equivalent jobs, peaking in 2021, 950 permanent high-paying jobs once completed, and $22 billion in direct government revenue over 40 years.
But the government estimates that the project, though deemed to be the lowest-emissions LNG project ever built, will add 10% to the carbon budget that must be whittled down.
But Green Party Leader Andrew Weaver said the NDP government will need to show him how it can accommodate the LNG Canada project in its climate action plan, or he will bring the government down on a confidence vote.
Weaver said his party could support repealing the LNG tax, but would not vote in favour of any legislative changes that would give industry a break on carbon taxes. The NDP may be able to pass those pieces of regulation without Weaver's support, since the Liberal Party might support the changes.
But Weaver said a confidence and supply agreement depends on a climate change plan that will meet GHG reduction targets. And if it doesn't, he can bring the government down on a confidence motion.
"Show us the climate plan that will deliver these targets, and we continue to have confidence in government," he said. "If you can't, our confidence is lost."
But Weaver is setting an impossible task for the NDP government, since he is using a whole different set of calculations when it comes to assessing LNG Canada's GHG profile.
Environment Canada and the provincial government calculate the LNG Canada project would produce roughly 4 megatonnes of carbon dioxide equivalent (CO2e). But Weaver insists it is 8 to 10 megatonnes CO2e – a number he got from the Pembina Institute, which included in its calculations upstream methane emissions.
Based on his calculations, Weaver said the rest of B.C. would need to reduce its GHGs by 50% by 2030 in order to meet B.C.'s own climate change targets.
In a technical briefing this morning, government staff admitted building an LNG industry will make it challenging to meet its greenhouse gas reductions targets. Without LNG Canada, B.C. needs to cut 39 megatonnes of CO2e. With LNG Canada, it needs to reduce GHGs by 43 megatonnes.
That figure of 4 megatonnes include both the LNG plant and upstream emissions, a government official said in a Thursday technical briefing.
But the government believes it can be done, in part through aggressive electrification of industry, the transportation sector and residential heating (i.e phasing out natural gas with electric heating). Electrifying the natural gas fields alone would eliminate 1.7 megatonnes of CO2e, the government said.
There is also an assumption that, while natural gas production will increase to feed a new LNG plant, domestic use of natural gas will fall through "an aggressive decarbonization strategy" that includes switching from gas to electricity for heating.
Government officials also pointed out that the LNG Canada plant would be the lowest emitting plant of its size in the world to date, and that failing to seize on a growing market for LNG in Asia will simply allow LNG produced in other countries with less stringent climate change policies to meet the demand.
Horgan also pointed out that, though it doesn't count as a credit within B.C.'s own climate action plan, exporting LNG to Asia will have a net benefit, if it displaces coal power.
"There is a net benefit to those communities, to improve their air quality, to improve their GHG profile," Horgan said. "But we get no credit for that."
Even as he was announcing various tax breaks for LNG Canada, Horgan's own words were coming back to haunt him. Reporters pointed out that, while he was in opposition Horgan had criticized the previous Liberal government for giving away the farm when it structured it fiscal framework for LNG.
That framework included a special LNG tax, which no other LNG producing nation has, and which the NDP government now plans to cancel. The previous Liberal government had also planned to charge LNG projects a special, higher rate for electricity rate, which is also being scrapped.
Horgan said that, while the Liberal government agreed to their fiscal framework without tying it to a final investment decision, his government is only providing the new tax incentives if there is an FID by November.
It was also noted that Horgan had said the Liberal government's LNG ambitions were pipe dreams because there was no market for LNG. Horgan said Thursday that market conditions have since changed. LNG Canada estimates there will be a demand for new LNG supplies around 2024.
"Market conditions are now coming around," Horgan said.
