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B.C. introduces new oil and gas royalty system

By Richmond Sentinel

Published 12:42 PDT, Tue May 24, 2022

Last Updated: 12:58 PDT, Tue May 24, 2022

The province is introducing a new oil and gas royalty system that aims to put the interests of British Columbians first and eliminate outdated and inefficient fossil-fuel subsidies.

"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 "That's why we're fixing the outdated oil and gas royalty system by eliminating the largest fossil-fuel subsidy in British Columbia.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."

The new system will eliminate the Deep Well Royalty Program, the largest oil and gas subsidy, as well as other outdated and inefficient programs, such as the Marginal Well, Ultramarginal Well, Low Productivity Well Rate Reduction, and the Clean Growth Infrastructure Royalty programs.

The new system will apply to all new wells. It will be phased in during two years starting on Sept. 1. In 2017, Alberta announced it would modernize its royalty system over a 10-year period.

"This new system is long overdue and will replace an outdated system that was in place for nearly three decades," said Bruce Ralston, Minister of Energy, Mines, and Low Carbon Innovation. "This will support vital public services, such as roads and hospitals, while advancing continued environmental protection for British Columbians."

A new minimum royalty rate of five per cent will be in effect, which is a significant increase from the current three per cent. This increase will provide more revenue for public services and climate action. It also recognizes the surplus of credits that companies have accumulated and the need for British Columbians to get a fair return.

"The new system is a good start to simplify, modernize, and eliminate outdated programs," said Nancy Olewiler, director and professor, school of public policy, Simon Fraser University.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, existing credits will expire in four years unless transferred to an environmentally focused land healings and emissions reductions pool. Using this pool, companies may use credits to fund healing the land and emission-reduction work, but only if it is beyond regulatory requirements.

This new system is the outcome of extensive public engagement that included industry, environmental groups, and First Nations. Most of the feedback favoured a revamped framework that puts British Columbians first and protects the environment.

An independent assessment of the existing royalty framework was completed by Nancy Olewiler and Jennifer Winter, and concluded that B.C.'s natural gas royalty system needed to be completely reformed. Public engagement on the discussion paper was open to anyone via govTogetherBC from Nov. 10 to Dec. 10, 2021, and the findings were summarized in a What We Heard report published this year.

B.C.'s existing royalty system was set up nearly three decades ago. During this time, the way natural gas is produced has changed significantly, along with market conditions, drilling technology and costs, and global concerns about the need to address climate change.

The Deep Well Royalty Program was created in 2003 and was initially intended to offset higher drilling and completion costs incurred by wells that are considered particularly deep. Royalty deductions reduce royalties payable to the Crown when production occurs.

The Royalty Review Engagement What We Heard report can be found here:

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