The Pacific Northwest LNG Decision

Environment Minister Catherine McKenna announced this week that the federal cabinet had approved the Pacific Northwest LNG project, subject to 190 conditions. Some environmental groups have called the decision a betrayal, accusing the Trudeau government of dropping a “carbon bomb” that will make meeting Canada’s Paris climate targets impossible. But Minister McKenna defended the decision as striking the right balance between economic development and environmental protection, saying that it will proceed “in the most sustainable manner possible.” So does the Pacific NorthWest LNG approval succeed in reconciling the environment and the economy, and can Canada build LNG terminals and still meet our international climate obligations?

Canadians for Clean Prosperity believes the answer is a cautious “yes.” We believe that Canada can continue to develop major natural resource projects, including oil and gas, so long as efforts are taken to minimize their carbon footprint, and if the greenhouse gases they produce are subject to a sufficiently strong carbon price. This carbon price would have to be compatible with meeting Canada’s greenhouse gas reductions targets. In the case of Pacific NorthWest LNG, we think that the federal regulatory approval, and the carbon price commitments of the federal and BC governments, meet these tests.

When completed, the $11 billion Pacific NorthWest LNG project located on Lelu Island near Prince Rupert, BC (majority owned by Petronas, the Malaysian state run oil and gas giant) could export 18 million tonnes of liquefied natural gas per year and produce some 4.3 megatonnes (MT) of carbon dioxide per year. It will also likely stimulate some 5 MT of additional upstream emissions from extracting and transporting natural gas to the plant. Undoubtedly adding almost 10 MT per year of emissions will make meeting Canada’s Paris target of reducing our emissions to 30 percent below 2005 levels by 2030 more challenging to meet.

But the fact that an industrial project will increase overall emissions isn’t sufficient reason to block any particular project, or else Canada would have to block all new industrial activity that increases emissions, from Alberta’s oilsands to the newly announced Silverado production at GM’s assembly line in Oshawa.

The more relevant questions are: Is this project being developed in a way that minimizes its emissions impact? And: Can we build this project while still meeting Canada’s greenhouse gas reduction targets?

In answer to the first question, it does look like the Canadian Environmental Assessment Agency has taken steps to constrain the GHG impact of Pacific NorthWest LNG. In Pacific NorthWest LNG’s original submission to the Canadian Environmental Assessment Agency, the proponents estimated GHG emissions of 5.2 MT per year when the project reached full capacity. Among its 190 conditions, CEAA has insisted on specific technological improvements to the project that would reduce emissions to 4.3 MT per year, and has given Pacific NorthWest LNG a hard cap not to exceed that level.

As for whether we can build this plant and still meet Canada’s Paris goals, it is important to note that Pacific NorthWest LNG will be subject to BC’s current carbon tax and a special additional carbon pricing regime for LNG facilities, and that both Minister McKenna and Premier Clark stated that the carbon price should increase under a future pan-Canadian framework.

In our view, a smart, intensified carbon pricing policy at both the federal and provincial levels is the better tool to reduce emissions than technology specific regulations and emissions caps at the facility level.

Right now, like all BC businesses, LNG projects are subject to a $30 per tonne carbon tax on all fossil fuel combustion. Furthermore, LNG plants are required to meet a GHG intensity target of 0.16 tonnes of CO2 emissions per tonne of LNG production. Plants that don’t meet this target must buy additional credits or offsets at $25 per tonne once they are over the threshold. This means that BC LNG plants will effectively pay a $30 per tonne price on all emissions, rising to $55 after they exceed the intensity benchmark – probably the highest carbon price existing anywhere in Canada.

Both Minister McKenna and BC Premier Christy Clark indicated their support for increasing the BC and Canadian carbon price. Minister McKenna noted “British Columbia’s commitment to increase its price on carbon in line with the Pan Canadian Framework.” Premier Clark called for “a pan-Canadian price on carbon that would rise to BC’s level, and then affordably increase over time,” promising to “return every penny of that carbon tax” with “deep tax cuts that make us more competitive, that create more jobs, and that make life more affordable for middle class people.”

Canadians for Clean Prosperity firmly supports the goals of both increasing the carbon price uniformly across Canada, and of refunding 100% of any carbon revenues as tax cuts. With a sufficiently strong carbon price, Canada can meet its greenhouse gas goals. And by refunding carbon revenues to businesses and households as tax cuts, we can do so without harming the economy.

So overall, we think the federal government got the balance right in approving Pacific NorthWest LNG providing it meets rigorous conditions to keep its emissions down and making the remaining emissions subject to a rising carbon price. If the price is right, we can continue to develop our natural resources while still meeting our Paris climate goals.

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