May 4, 2013

Debt Free BC?


It is pretty clear that the election-inspired promise of a debt free BC is not to be taken seriously. There is no credible market analysis indicating that the royalties from B.C. LNG exports would be sufficient to do that in 15 years, as the Premier would have it. The potential for increased gas supply from other sources and diminishing price spreads between North America and the Asian market are simply too great to place any weight on a promise of the multi-billion dollar windfall that would be needed to pay off B.C.’s debt.

The more interesting public policy issue, however, is whether it is a worthy objective in the first place. Should we be striving to eliminate all provincial debt (including all P3 long term contract obligations — debt in a different name)? And should we be using all the royalties we can extract from export-driven natural gas development to do that?

I would argue no.

There is no question that excessive debt can impose unfair burdens on future generations. But so too can inadequate investment in infrastructure and the environment. It is both sides of the ledger we need to consider — the physical, social and natural assets, not just the debt we leave behind. The objective should be balance and fairness. There is no reason to believe zero public debt would be balanced or fair.

As for the royalties that we can extract from natural gas, that depends very much on the costs we require the natural gas industry to pay.

In the election debate, the Premier stated that we need to build the Site C hydro-generating station to supply LNG plants. But would those plants pay the full costs of Site C power, last estimated by BC Hydro at $110/MWh. Or would they pay something closer to BC Hydro’s standard industrial rate — almost one-third of that. If it is anything close to the standard industrial rate it would not be natural gas royalties paying down our debt, rather it would be BC Hydro ratepayers who would ultimately have to pay for the massive subsidy that the below-cost supply of electricity would entail.

And if the LNG plants were to meet their power needs with natural gas, would they pay the full cost of offsetting the greenhouse gas emissions that would cause. In any event would the industry pay the full costs of offsetting all of their greenhouse gas emissions in the production and transport of natural gas.

It seems to me that calling on the industry to pay the full costs of the electricity it buys from BC Hydro, as well as the full costs of offsetting all of the greenhouse gas emissions it generates would be far fairer to present and future generations than using subsidy-supported royalties to pay down debt. Put another way. it is paramount to know what resource rents or royalty potential we really have before allocating it to the elimination of debt.




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