Regulating BC's oil and gas industry as if the environment mattered

September 25, 2007

For several years, BC has been hooked on revenues from the fossil fuel industry. Skyrocketing royalty payments to the province from companies pulling oil and natural gas out of BC's energy-rich northeast corner now outstrip income from forestry. Over the past 10 years, production of natural gas in BC has increased by more than 40 per cent, and the number of wells has more than tripled.

Such dependence, however, is about to be put to the test. After years of inattention to - indeed outright dismissal of - climate change, the government announced in February that BC's greenhouse gas emissions will be cut by one third by 2020.

This new focus on climate change is certainly welcome. But meeting the 2020 goal will be a lot harder thanks to the provincial government's active promotion of increased oil and gas extraction. This year's provincial budget, for example, projected that between 2006 and 2010, subsidies to oil and gas companies could exceed $1.05 billion.

Such subsidies accelerate the drilling of oil and gas wells by reducing the royalties that energy companies pay, and they are troubling for many reasons. They encourage unnecessary depletion of a finite resource while upping greenhouse gas emissions. They deny our children's generation the benefit of future revenue streams. And, finally, they throw into sharp relief the inherent contradiction in the government's green agenda. On the one hand, it aims to cut greenhouse gas emissions. On the other, it undercharges an industry responsible for a big share of those emissions.

Happily, the province recently said that one particular energy industry practice responsible for a shocking volume of greenhouse gas emissions must stop. That practice is flaring, whereby companies burn off usable gas rather than direct it into pipelines. Hopefully, we'll hear concrete details when Premier Gordon Campbell talks about climate change during his address to the Union of BC Municipalities convention in Vancouver later this week.

Flaring occurs for many reasons, commonly when gas is produced at oil wells but not in enough volume to warrant investment in a gas pipeline. In the last ten years alone, gas flaring, leaks and waste in northeastern BC have been responsible for a staggering 13.5 per cent of the province's total greenhouse gas emissions. This is untenable and must be stopped.

But ending flaring won't be enough. Far more must be done to curb emissions in BC's fossil fuel-rich northeast region.

A lasting irony in BC is that we have had a lively debate over what constitutes sustainable logging of provincial forests, yet no equivalent with fossil fuel resources - which, unlike trees, are non-renewable. Based on current exploitation rates and reliable estimates of remaining natural gas, northeastern BC's supplies would last just 33 years. A doubling of industry activity - something the province promoted just a few years ago - would deplete reserves in half that time.

So what would it take to regulate the oil and gas sector as if the environment mattered, and in a way that brings long-term security to BC's northeast?

There is an obvious starting point. In recent years, nearly 15 per cent of all the natural gas pulled from the ground in northeastern BC was wasted, much of it flared. Had it been captured instead and sold, overall exploitation rates could have been correspondingly reduced with obvious environmental benefits and no loss to communities, the industry or government.

Why not do this and make further badly needed reforms? For example, eliminate unnecessary industry subsidies and overhaul BC's gas royalty regime beginning with a requirement that companies pay royalties on all flared or otherwise wasted gas. Higher royalty rates should also be instituted. Significantly, a study just released by the Alberta government says much the same thing, noting how that province has undercharged companies exploiting its fossil fuel resources.

Channeling a portion of increased royalties into a dedicated BC fund modeled on Alberta's Heritage Fund and then investing that money in our efforts to reduce greenhouse gas emissions would also move us further in the right direction.

Beyond that, a carbon tax (with offsetting measures for low-income British Columbians) is necessary to speed the transition to carbon-capturing technologies. In Norway, such taxes are in place. An energy company there has chosen to avoid the tax by stripping large amounts of CO2 from natural gas and pumping it deep underneath the North Sea seabed with the result that less greenhouse gases enter the atmosphere.

Curbing rates of exploitation, using taxes to encourage the right behaviour, charging a fair dollar for finite resources - others have done it. It's time we did the same.

Ben Parfitt is a resource policy analyst with the Canadian Centre for Policy Alternatives and author of "Foot Off the Gas: Regulating BC's Oil and Gas Industry as if the Envirornment Mattered."