Trudeau to maintain Harper's tax cut to spur LNG export terminals

Photo by Brian Huntington
Photo by Brian Huntington

On Feb. 19, the Harper government announced a substantial tax cut – estimated to be about $50 million over five years, but increasing through to 2024 – to help spur the development of the Liquefied Natural Gas (LNG) industry in British Columbia. Given the Liberals promised to end subsidies to the fossil fuel industry there had been some hope the Trudeau government would cancel this tax cut. But on Nov. 23, the Vancouver Sun reported, "B.C. Premier Christy Clark has been assured by the new Liberal government that it won’t remove a tax break considered crucial for the nascent liquefied natural gas industry."

When the tax cut was first announced in early 2015, we highlighted in this blog that if just five of the nineteen proposed LNG terminals were to be built they would release 28 million tonnes of greenhouse gas emissions a year. So it is curious that the federal government's promise was made public at the time of the meeting between the prime minister and provincial and territorial leaders to discuss a national climate change strategy. In other words, the tax break (in reality a subsidy to the fossil fuel industry) was made just prior to Canada committing at the COP21 climate summit to do its part to limit global warming to 1.5 degrees Celsius.

The Vancouver Sun article also notes, "At the time of the platform announcement before the October election [that included the promise that a Liberal government would phase out all oil and gas industry subsidies], a Liberal spokesman didn’t rule out the possibility that policy would apply to a tax break handed to the LNG sector by the former Conservative government. ...[But now] Liberal spokeswoman Kate Purchase [has] confirmed to The Sun that the new government won’t change the policy. ...[Premier Clark commented] if the tax break was removed that would be a huge blow against efforts to develop an LNG sector, and 'they’re very sensitive to that'."

On Dec. 28, Seth Klein of the Canadian Centre for Policy Alternatives wrote, "It's time for the provincial government to admit that its LNG project is over, and for the new federal government to clearly state that there is no room in our future for new fossil fuel development of this sort. ...While the Alberta tarsands may represent Canada's largest source of greenhouse gases, were B.C. to succeed in realizing its LNG dream, this new industry (along with the fracking fields in B.C.'s northeast needed to fuel it) would constitute Canada's next largest 'carbon bomb'. In short, B.C.'s LNG hopes are simply incompatible with any realistic notion of Canada meeting its obligations to keep global temperature rise to 1.5 degrees."

Beyond the environmental costs, how much will the Trudeau tax cut for the LNG industry cost us in dollar terms?

While Harper pegged the tax cut at about $50 million, the Vancouver Sun reported in Feb. 2015 that the "savings are expected to increase in later years if the industry grows as expected..." And that news report noted, "The Canadian Association of Petroleum Producers (CAPP) has said it will allow companies to write off 90 per cent of their investments in seven years, rather than 27 years." It's not clear what that amount would be but, in terms of scale, Royal Dutch Shell has disclosed that it will cost up to $40 billion to develop their proposed LNG export terminal in Kitimat.

At that time, the Canadian Press also reported, "Harper said companies will receive a capital cost allowance of 30 per cent for equipment used in natural gas liquefaction and 10 per cent for buildings at a facility that liquefies natural gas. Tax relief will be available for capital assets acquired between now and 2025." And the Globe and Mail noted, "Ottawa [hopes] the incentive will help persuade LNG backers to make final investment decisions. ...The B.C. LNG Alliance and the provincial government have been advocating for better fiscal rules federally for planned export terminals, saying the manufacturing sector already enjoys favourable tax treatment."

The first federal budget under the Trudeau government is expected to be presented to the House of Commons by Finance Minister Bill Morneau sometime between February and April 2016. We call on the federal government to rethink this tax cut for the LNG industry given its commitment to the 1.5°C target in Paris. The Council of Canadians also believes that a ban on the development of LNG terminals and pipelines is necessary to respect Indigenous rights, defend the province's freshwater sources, protect wild salmon, and protect communities and the coastline.

For more on our campaign to stop LNG terminals and pipelines, please click here.