Wednesday, July 23, 2014

More Big Bad Subsidies

The explicit subsidies we give to fossil fuel companies here in BC are actually not very big, popular noise notwithstanding. Most of the direct tax breaks are from the Federal goverment, and they are "general" business tax breaks having to do with capital investment writeoffs.

Of course, there are other, implicit subsidies that we give to industries. These are embedded in our regulations regarding access, tenure, pollution, etc. I'm guessing it's these implicit subsidies that eco-concerned citizens are really concerned about. But these subsidies are actually hard to put a dollar figure on. So, being my pin-headed, quantitative self, I get riled when people claim it's millions! billions! without backing up their claims.

As an example, consider the mining industry, which arguably is "subsidized" because of mineral rights: private land owners have only surface rights (and no rights to anything deeper than 1m underground).  This means that a mining company can dig up your land for kitty litter and you have no recourse, although you will likely receive some compensation. Most mining companies (and forestry companies, and gas/oil firms) have to pay royalties on the products extracted from the land. One could argue that the royalties are too low, and that therefore this is a subsidy (this was the basis of the softwood lumber dispute a number of years ago), but it is very difficult to set an "impartial, data-driven" cost on such a subsidy - mostly they are set by political means, which means that business-friendly governments lowball 'em and pinko-commie governments set 'em high. The discussions around BC's LNG royalty regime are ongoing.

Most resource-extraction activities take place on Crown Land (ie. public lands). Companies lease the land from the Crown to operate on it, and there are regulations that govern what they can do on the land they've leased. The Alberta bitumen sands, BC's hydro dams and many remote windfarms also fall under this category. These regulations frequently require remediation of lands (replanting, cleanup, etc). The amount of remediation that Joe Public wants done has increased over the years (for instance, in 1910 nobody gave a shit about creekbeds in the backwoods; hence Hydraulic Mining, the evidence of which is still visible around BC today), and of course regulations are slow to follow. So is this a subsidy?  How much of one?

Lots of people complain about the "externalities" of industry that the companies don't have to pay for; CO2 emissions being one of them. Here in BC, emitting CO2 is no longer free. It costs money. Not so in Alberta... So is this a subsidy?

Then, there is R&D funding that is industry-specific. Clearly, over the years, a lot of government-funded, University-performed research into extracting oil from the tar sands in the best way possible (most efficient, least damaging) has been done. This, it could be argued, is a form of subsidy to the tar sands industry. But how big of one? There are professors studying forestry best practises, wind and solar energy as well....are these subsidies to those industries? There was a lot of "help" from government sources to establish the whole of Alberta's oil and natural gas sector, back in the 60's, including setting up the Geological Survey of Canada, which provided tax-payer funded mapping services - not all focused on oil deposits! - for decades. Subsidy? Good? Bad?

full disclosure: I profited directly from these government efforts. My father was a geologist with the GSC in Calgary when I was growing up.

Alberta's oil and gas sector - including the Tar Sands - has been decades in the making. For many years, oil sands development was carried on by Petrocan, which, back in the day, was a Crown Corporation and a child of the energy crisis (and "energy nationalism" - good? bad?). But no longer.  Now, the role of government is in tinkering with royalty rates (setting them high enough for revenue but low enough to attract business), and in establishing a "trained workforce" via targeted university R&D funding (which is what some of those royalties go towards). What has been driving oil extraction for a good decade now is the fact that money can be made selling an international commodity. The oil market is such that the very expensive tar sands stuff is profitable. It's even profitable if there are insufficient pipelines to bring it to market, and if they have to rail-car the crap to its destination.

In fact, one could argue that the government "backed a winner" - helping, over decades, to create an industry that gives people jobs and the government, revenue. The fact that it's a large industry now has created its own problems. And that is the catch with all "government tinkering". Whatever you think you're going to create by "targeted encouragement", it won't be nirvana. The Ontario government is ramping up wind power (over nuclear), and is facing increasing opposition from rural people who don't like the industrialization of their landscape that this entails. Energy production on a large scale - whatever the source - has a large environmental footprint.

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