After reviewing British Columbia’s 30-year-old oil and gas royalty system, the province says it plans to phase out existing fossil fuel subsidies and introduce a new royalty payments system.
The province says that since the current system was implemented in the 1990s, natural gas production, market conditions and concerns about climate change have changed dramatically.
“For too long, a broken fossil fuel subsidy system has failed to align with our climate goals or to ensure that people take full advantage of these resources,” Prime Minister John Horgan of Victoria said in prepared remarks at a news conference.
The Deep Well Equity Program, the largest oil and gas subsidy in British Columbia, as well as the marginal, micro and low productivity subsidies program will be cancelled. Current credits will expire in four years.
“This will give British Columbians a fair return and allow us to invest in their priorities – such as improving services, reducing costs and tackling carbon pollution,” Horgan said.
Deep Well Royalty was established in 2003, according to a statement from the county. It offsets the higher drilling and completion costs incurred by wells that are particularly deep.
The new royalty system will be applied to all new wells and will be implemented in phases from 1 September.
The county says it expects the new program to be in full swing by September 2024, when the minimum royalty rate of five percent will be in effect. Now, the royalty rate is three percent; The county says the increase will generate more money to be allocated to public services and climate action.
“This will support vital public services, such as roads and hospitals while promoting continued environmental protection for British Columbians,” said Bruce Ralston, Minister for Energy, Mines and Low Carbon Innovations.
Under the new system, companies will pay a flat 5 percent fee on revenue until they reach the amount the company spent drilling the well. Royalties can rise to 40 percent once drilling costs are recovered.
The province says it does not believe this new system will affect drilling in British Columbia, despite the high costs to companies.
The changes come after an independent evaluation of the current ownership framework by Nancy Olweiler, director and professor of SFU’s School of Public Policy and Jennifer Winter, director of energy and environmental policy at the University of Calgary’s School of Public Policy.
They concluded that British Columbia’s natural gas property rights system needed a complete overhaul.
“The new system is a good start to simplify, update and eliminate outdated software,” Olweiler said in response to Thursday’s announcement.
Environmentalists also applauded the changes in how the BC supports the oil and gas sector.
🎉 Break: File Tweet embed It will eliminate the largest fossil fuel subsidy, thanks to the massive pressure from the population across British Columbia! But they stopped short of eliminating all fossil fuel subsidies. Use our tool to send an email and say thank you – but the job isn’t done yet. https://t.co/2hG7OQnbtg pic.twitter.com/v7jbtk6cf1
Stand.earth said in a statement that loans from the property of Deep Well cost the British Columbia government $1.2 billion in 2021.
She said the subsidy helped support the county’s hydraulic fracturing operations, which, she says, creates a barrier for the county to achieve its climate goals.
“Today’s announcement is a clear acknowledgment by Prime Minister Horgan that hydraulic fracturing companies in this province are getting a free ride at the expense of taxpayers and the environment,” said Sven Bigs, Canadian Oil and Gas Program Director at Stand.earth.
“This is a step towards fixing this flaw.”
The changes announced Thursday still include the creation of new fossil fuel subsidies that will continue to use public funds to encourage new fracking wells, Stand.earth said.
The organization is calling for the boycott to end all fossil fuel subsidies in order for the oil and gas sector to meet emissions cuts below 2007 levels by 2030.