Last month, the government of British Columbia announced plans to eliminate the province’s largest fossil fuel subsidy, the Deep Well Royalty Program. The change is expected to benefit British Columbians and their investments, as well as align with government plans to fight climate change.
A report by the International Institute for Sustainable Development found that B.C., along with Alberta, Saskatchewan, Newfoundland, and Labrador, gave out a combined $2.5 billion in fossil fuel subsidies in the 2020/2021 fiscal year and $1.5 billion in the 2021/2022 fiscal year.
B.C. gave out $765.3 million in 2020/2021 and $566.0 million in 2021/2022. The 2020/2021 numbers for all four provinces are higher due to government assistance during the first year of the pandemic.
The report found that these provinces “incentivize fossil fuel production” by providing those amounts of fossil fuel subsidies. It also mentions 1.5 C, the global target for the planet’s temperature by 2100, won’t be possible with “additional developments of fossil fuels.”
In B.C., oil and gas companies pay the government in exchange for “oil and gas developments on crown land.” The Deep Well Royalty Program produced the biggest returns in royalties. However, government officials believe the new change is good and will benefit British Columbians.
Other royalty programs that will be eliminated are the Marginal Well, Ultramarginal Well, Low Productivity Well Reduction, and Clean Growth Infrastructure.
According to the Natural Gas Royalty review, the new oil and gas royalty system will be “price-sensitive” with the purpose of bringing back a profit of 50 per cent. The review shows this estimated profit number after considering the cost of using public resources.
A five per cent royalty rate will be charged to companies once they start drilling the wells. Then, the price will be adjusted once the revenue earned from the well “exceeds the total capital cost for drilling and completion.”
This amount is expected to range between five to 40 per cent of the cost. The new amount is expected to be paid five per cent. Companies currently pay three per cent.
The report also shows that the cost of creating the well will factor into how much companies are charged for their wells. Companies are expected to make the government aware of these details once they start the work on the wells. This change is expected to go into effect on Sept. 1, 2024.
This new rule ensures that any company that begins drilling a well on Sept. 1, 2022 or after will have to pay the price listed in the new royalty program, as the old ones will no longer be in effect. Well productions that start before Sept. 1, 2022 will pay the price listed in the old programs but will have to transition to the new program by Sept. 1, 2024.
The International Institute for Sustainable Developments still recommends the provinces “phase out fossil fuel subsidies by 2023.” For B.C. in particular, the report says that any subsidy programs that create ways for companies to produce more fossil fuels “require scrutiny” because it will not help the province reach its goals for climate action.
Bruce Ralston, B.C. minister of energy, mines and low carbon innovation, said in a news release that the new royalty program will “support vital public services, such as roads, and hospitals, while advancing continued environmental protection for British Columbians.”