Approving Pacific Northwest LNG: Hopefully A Cunning Strategy

by Ray Grigg

The political idealists who believed that the new Liberal government under the leadership of Justin Trudeau would keep its promise to cut greenhouse gases were dismayed by its decision to approve the Petronas Pacific Northwest LNG plant on Lelu Island near Prince Rupert. Not only did the decision seem to ignore regional concerns about the safety of Skeena River salmon, but it committed an additional 4.3 million tonnes of annual of carbon dioxide emissions. This would be a serious handicap to Canada’s pledged reduction targets, and would make BC’s targets virtually impossible to meet.

Either the government has seriously compromised its principles or a cunning method lurks in its madness. Consider the situation.

Trudeau’s Liberal government has announced that Canada will have a $10 per tonne carbon tax (or equivalent) starting in 2018, rising in equal annual increments to $50 per tonne by 2022. Some of the provinces were shocked and promised to resist. To get the support of a reluctant BC government, the Petronas project for some $31 billion was approved with 190 conditions.

But this doesn’t guarantee the project will be built. LNG prices are currently low, other LNG supplies are being added to an already competitive global market, renewable energy production is surging — 2015 was its best year ever — and Petronas, the project’s major investor, has delayed its decision to build because of economic uncertainties.

Meanwhile, right on cue, First Nations have filed a legal challenge to the approval process, one that could take years to wind through Canadian courts, further stalling the construction of the project.

The longer the delays, the higher will be the construction costs. And the carbon tax will be in place should LNG production ever begin. Even in a best-case scenario, the plant is unlikely to be finished before 2022, when the carbon tax will be $50 per tonne.

Do the math. An annual carbon dioxide production of 4.3 million tonnes translates to $215 million per year in additional taxes. These operating costs are a serious handicap to the economic viability of this plant.

Is the federal government’s strategy to grant approval but gamble that the economic and legal forces will preclude it being built? Meanwhile, in exchange for a project that may not happen, the Trudeau team gets crucial BC support for its carbon tax — one of the key factors that could scuttle the viability of the Petronas LNG project.

Petronas must have considered in its calculations the current $30 per tonne carbon tax in British Columbia. But this tax has been frozen for years in order to promote BC’s gas and oil industry. That moratorium essentially comes to an end with the forthcoming $50 per tonne federal tax.

Will this disincentive be sufficient for Petronas to cancel its project? The answer will come sometime in the future. But the complications of First Nations’ legal challenges, coupled with the explicit discouragement from higher carbon taxes, might just be enough to accomplish a win-win-win for Justin Trudeau, his government and the environment.

It’s a risky strategy that could fail. But in the high-stakes game of politics, economics and climate change, the risk might be worth the rewards.