How BC Is Letting Big Industry Evade the Carbon Tax

When B.C. introduced a carbon tax in 2008, the point was to apply it to all emissions causing climate change but start at a low rate and increase it over time.

Yet as the carbon tax has increased for households at the gas pump and to heat homes, large industrial players — including the oil and gas industry causing climate change — have steadily evaded the carbon tax.

When the NDP government came into power in 2017 and committed to raising B.C.’s carbon tax, it made special provisions for industry. Their increased carbon taxes would be fully returned to “best-in-class” companies and through supporting projects advancing industrial decarbonization.

As of April, a new system — the output-based pricing system — is in place.

The name is somewhat confusing, but the key point is that it is a system of managing carbon pricing for big polluters by exempting a portion of emissions from taxation.

In doing so, companies still have an incentive to reduce emissions “on the margin.” But the exemptions preserve the “competitiveness” of operations vis-a-vis other jurisdictions.

Big industrial players have dodged the tax

Why we should be concerned about the competitiveness of the oil and gas industry, whose business model involves overheating the planet, is never discussed.

This new system exempts 65 per cent of industrial emissions from the carbon tax.

In other words, the oil and gas industry will only have to pay the carbon tax on just over one-third of its carbon emissions. Higher exemption rates, up to 95 per cent of emissions, have been set for a few sectors like aluminum and cement because their emissions are from industrial processes not burning fossil fuels.

Of what’s left to pay in carbon tax, up to half can instead be met through loopholes called “compliance mechanisms.” Companies can use banked credits from previous years, credits purchased from other companies and, most problematically, carbon offsets.

Carbon offset projects are a licence to pollute. Companies can spend much less than they would otherwise pay in carbon tax on cheaper projects that allegedly reduce emissions elsewhere, including forest conservation and agriculture projects.

Some of these reflect worthy objectives, but it’s not clear that they actually reduce emissions as claimed.

Indeed, offset projects have proven to be a form of greenwashing. A decade ago, B.C.’s auditor general slammed the government for claiming offsets for projects that would have happened anyway through bona fide emissions reductions.

A more recent inquiry into global offset projects found that a large share of corporate projects were “likely junk.”

On the plus side, the ability of large industries in B.C. to use compliance mechanisms will drop from 50 per cent of carbon tax owed this year to 40 per cent next year and 30 per cent in 2026.

And the system is designed to get tougher on polluters over time, through a “tightening rate” of one per cent annually that lowers the emission limit for each company before the carbon tax must be paid.

Exactly how the tightening rate will be implemented is not stated, but presumably, the 65 per cent of emissions exempted this year will then drop to 64 per cent next year and so forth. Fifteen years from now, one-half of emissions will still be exempted. So the regime does get tougher on emissions but takes its time doing so.

Offset projects a form of greenwashing

The new B.C. system was inspired by a similar federal system that has been in place since 2018. B.C. industrial emitters were seeking to join the federal system but seemingly have gotten a better deal with a “made in B.C.” output-based pricing system.

The specs of the B.C. system were substantially watered down relative to the initial proposals tabled last year.

Indeed, they dovetail with a recent story in the National Post about a former NDP staffer working for TC Energy bragging about the company’s “influence tactics” with senior B.C. civil servants.

According to the Post, “the company’s efforts ‘dramatically’ influenced B.C.’s carbon-tax rate adjustment in February 2023 and ultimately halved the operation costs of the province’s carbon tax on its projects.”

Gas production numbers also speak volumes. There was a 44 per cent increase in B.C.’s gas production between 2017 and 2023, and this will rise even more when the new LNG Canada export facility opens up next year in Kitimat.

Pandering to oil and gas industry lobbying

It’s no surprise that big polluting companies are not happy about annual carbon tax increases. But it is unfair that British Columbians must pay the full carbon tax when the oil and gas industry, whose production is responsible for more than one-quarter of B.C. carbon emissions, gets a carbon tax break.

The new system will also have a negative impact on B.C.’s carbon tax revenues. In 2024-25, carbon tax revenues will be about $500 million lower than they would have been under the old system. This revenue loss means fewer dollars to pay for climate action.

These changes point to a B.C. government that is far too cosy with the oil and gas industry. And they make no sense given the urgency of acting on climate change. Disasters in 2021 alone caused between $11 billion and $16 billion in damage to the B.C. economy.

If B.C. really wants to be a climate leader, the government must stop pandering to lobbying by the oil and gas industry that is causing climate change and act in the interests of all British Columbians.