Let’s not forget the hard-learned lessons of LNG

Politicians can and will make promises they cannot keep, Thomas Gunton writes.

As we approach another election, we should all be a little skeptical of government election promises. Just look at LNG.

During the last election, the centrepiece of Liberal Leader Christy Clark’s campaign was her LNG promise: three to five LNG plants by 2020, creating more than 75,000 jobs and a $100-billion prosperity fund that would pay off our debt.

It is now clear to everyone that this promise will not be kept. What happened, and what can we learn?

The premier blames international markets for the failure to develop LNG. On this point, she is correct. The higher price in Asia relative to North America that provided the rationale for developing LNG has eroded and LNG is not economically viable at today’s prices.

Here is the first lesson. Politicians should not make promises that are dependent on international markets beyond their control, and voters should not believe them.

But even if markets had not changed, the LNG promise was still exaggerated. At the time the government was promising three to five LNG plants, other forecasts warned that more projects were being planned than were required, and that only one or possibly two projects might be developed in B.C., well below the government’s forecast.

The government’s jobs estimates were based on flawed assumptions that defined one person working for 10 years as 10 jobs, and overstated the number of spinoff jobs. The revenue assumptions made no adjustments for increased costs to government of providing services to the LNG sector.

And the assertion that LNG development was consistent with B.C.’s emissions targets and would help reduce world emissions was inconsistent with just about every independent study.

Making unrealistic promises is bad enough. But trying to deliver on them can be even more damaging. In its failed effort to deliver on its LNG promise, the B.C. government has made things worse by signing long-term agreements that provide a series of concessions to the LNG industry that undermine the rationale for developing the industry in the first place.

First, the government cut its maximum proposed LNG tax in half and then offset the tax with a corporate income tax cut for natural gas producers. The federal government followed up with accelerated depreciation allowances that further cut taxes for LNG.

This was followed by signing a special royalty agreement with the LNG sector that capped B.C. natural gas royalties at six per cent, with a gradual rise to just over 13 per cent by 2038. This is a significant reduction from the current royalty, which varies between nine per cent and 27 per cent, depending on prices. Under this special LNG royalty, a major proportion of the profits generated by rising natural gas markets are retained by the LNG industry, not the B.C. public that owns the gas.

The third concession was removing the requirement to use clean energy for LNG production and exempting the LNG sector from having to use best available technology to mitigate emissions. Although B.C. attempted to address environmental objectives by setting a fairly ambitious greenhouse gas emissions target for LNG, emissions will still be higher than necessary and the government is prohibited from strengthening the regulations.

Another concession was to provide electricity at a special rate that is well below B.C. Hydro’s cost of production. This will result in Hydro customers and taxpayers paying higher prices to subsidize an industry that was supposed to make us all rich.

By committing to all these concessions, the government has ensured that if LNG ever does develop in B.C., we will lose out on potential benefits while incurring long-term costs.

The primary lesson from LNG is that we need comprehensive, independent assessments of major development projects to ensure the public knows all the costs and benefits and that the development is in the public interest.

Without independent assessments, politicians will continue to repeat the errors made in LNG of making unrealistic promises and then providing unjustified concessions that could leave us all paying for decades to come for a promise that never should have been made.

Thomas Gunton is the director of the resource and environmental planning program at Simon Fraser University and a former deputy minister for B.C.