B.C. introduces new oil and gas royalty system, phasing out existing subsidies

VICTORIA, B.C. – The province has introduced a new oil and gas royalty system that will eliminate several “outdated and inefficient programs.”

When oil and gas are produced, the province charges producers either a royalty or a freehold production tax on behalf of British Columbians, which is used for public services, such as healthcare.

The programs to be removed include the Deep Well Royalty, the Marginal Well, Ultramarginal Well, Low Productivity Well Rate Reduction and the Clean Growth Infrastructure Royalty programs.

The new system will be phased in over two years, starting on September 1st, 2022, replacing the existing system that was created almost 30 years ago.

“Our province is blessed with abundant resources, which belong to all of us. But for too long, a broken system of fossil-fuel subsidies has failed to align with our climate goals or ensure people fully benefit from these resources,” said Premier John Horgan.

“That’s why we’re fixing the outdated oil and gas royalty system by eliminating the largest fossil-fuel subsidy in British Columbia. This will give British Columbians a fair return and allow us to invest in their priorities – like improving services, bringing down costs and tackling carbon pollution.”

Through the new system, the minimum royalty rate will jump from three percent to five per cent. The province claims the increase will result in more revenue for public services and climate action.

This system applies to all new wells.

The elimination of the so-called deep well royalty program, the largest oil and gas subsidy, will mean a loss of credits between $440,000 and $2.81 million for companies, depending on the depth of the well.

The change is expected to bring in $200 million more in revenue annually for the government.

“The new system is a good start to simplify, modernize, and eliminate outdated programs,” said Nancy Olewiler, director and professor, school of public policy, Simon Fraser University.

“I look forward to seeing the new system implemented and more details on how the Government of British Columbia will continue to use the royalty system to incent efficient production and maximize shared value for British Columbians.”

Under the new system, the existing credits that companies have accumulated will expire in four years unless transferred to a pool focused on land healings and emissions reductions.

Companies can then use the credits to fund the environmentally-focused work if it is beyond regulatory requirements.

Olewiler and Jennifer Winter concluded that B.C.’s natural gas royalty system needed to be completely reformed through an independent review.

This new system results from extensive public engagement, including industry, environmental groups, and First Nations, according to the province.

Most of the feedback favoured a revamped framework that puts British Columbians first and protects the environment, according to the province.

The province launched the review of the royalty system last October.

With files from The Canadian Press

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