Mar 4, 2020

Managed wind-down of BC’s fossil fuel industries: A just transition to a green economy

By and

Imagine it’s 2025 and because of the escalating climate crisis, governments in Asia have declared ambitious new climate action plans and an aggressive transition off natural gas. BC’s fossil fuel exports would soon dry up, workers would be laid off and local communities would lose public- and private-sector jobs.

This type of scenario needs to inform planning for BC’s fossil fuel industries (coal, oil and gas), not the government’s continued interest in expanding their production and export. The government has shown little willingness to contemplate a managed wind-down so long as there are external buyers for BC fossil fuels. This poses significant risks such as market conditions changing abruptly as other jurisdictions implement more aggressive climate policies and importers cut their consumption of fossil fuels.

Today, Seth Klein and I published a report with a four-point framework for a managed wind-down to thoughtfully and strategically phase out the extraction and production of fossil fuels in BC, most of which are exported and burned elsewhere and not counted in BC’s emissions.

The government has shown little willingness to contemplate a managed wind-down so long as there are external buyers for BC fossil fuels.

To fully decarbonize the economy by 2050 we need a fair transition for workers and resource-dependent communities. Wind-down policies must acknowledge Indigenous rights and title, with key elements of a wind-down planned with First Nations. BC has embedded the United Nations Declaration on the Rights of Indigenous Peoples into law, and we must understand that fossil fuel resources are often on lands that are unceded by First Nations or are subject to treaties that may be violated by the cumulative damages from fossil fuel extraction activities.

This report is being published at a time of extreme polarization in BC and Canada over ‘energy politics’—jobs versus the environment versus Indigenous rights, and it is our hope that this report will launch a much needed conversation that addresses all of these issues.

Fully phasing out BC’s fossil fuel industries over the next 20-30 years may be—for now at least—politically unthinkable, but with this report we hope to start a necessary conversation about what’s needed to get to net-zero emissions by mid-century.

The four pillars of our wind-down framework are:

  1. Establish carbon budgets and fossil fuel production limits.
  2. Invest in the domestic transition from fossil fuels and develop a green industrial strategy.
  3. Ensure a just transition for workers and communities.
  4. Reform the royalty regime for fossil fuel extraction.

1. Establish carbon budgets and fossil fuel production limits

It is now widely understood that the world needs to keep a large share of fossil fuel reserves in the ground if we are to meet the critical warming thresholds like 1.5 degrees C or 2 degrees C determined in the Paris Agreement. A carbon budget is typically defined as the maximum amount of carbon dioxide, worldwide, that can be released before critical temperature thresholds are surpassed.

Carbon budgeting would compel policy-makers to confront the classic economic problem of allocating resources subject to a budget constraint. Ideally, a carbon budget pushes policy-makers toward strategic use of remaining fossil fuel reserves, as opposed to the current Wild West mindset that seeks to extract and export as much as possible, exacerbating global over-supply problems.

BC’s liquefied natural gas (LNG) industry is an example of these problems. By approving LNG Canada and other proposals, the government is essentially requiring all other sectors of the economy to reduce their emissions even more if BC is to meet its 2030 greenhouse gas emission target. The government’s support for LNG as a growth sector for the economy is ethically untenable and an economic vulnerability given the need for global decarbonization.

2. Invest in the domestic transition from fossil fuels and develop a green industrial strategy

Decarbonization is increasingly seen as a new framework for economic development. A forward-thinking green industrial strategy, informed by climate justice considerations, should serve as a template for growing jobs and incomes in the transition to zero-carbon. Shifting investment patterns away from fossil fuels and toward green alternatives is essential for a managed wind-down.

BC should commit to fully phasing out fossil fuels for domestic purposes to clearly signal that we are on a wind-down path. There is potential to leverage the provincial government’s CleanBC plan into a more comprehensive industrial strategy, starting with domestic emissions in buildings, transportation and industry. This means, for example, no new buildings (residential, commercial or public like hospitals and schools) should be allowed to use gas or tie into gas pipelines.

A lot of work will be required to make the transition from fossil fuels, something to be embraced as a collective province-building project. The best defense against job losses in fossil fuel industries is a good offense: efforts to create new green jobs in areas that decarbonize the economy and more inherently green jobs in the public sector, such as child care and seniors’ care.

To promote a strong and equitable economy, the provincial government must commit to invest in green infrastructure, skills and training and to develop an industrial strategy around decarbonization. BC should aim to invest two per cent of its GDP annually in these areas (about $6 billion in 2019), which would yield at least 42,000 direct and indirect jobs in a range of green economic activity.

3. Ensure a just transition for workers and communities

The transition before us will see a net increase in jobs overall, however, they will not be the same jobs in the same places. The bigger challenge is that direct fossil fuel jobs are highly concentrated in certain regions of BC, and green investments (such as a new transit line) may not be in the same geographic area.

In recent years, just transition has shifted from the abstract to actual policy and packages for workers, funded by governments. Two examples of transition plans for coal workers and communities in Alberta and Spain are much cited, and BC has an existing model—the Columbia Basin Trust—that could be applied to regions with a disproportionate burden from a wind-down.

With a managed wind-down over 20 to 30 years, most of the heavy lifting can be accomplished through attrition, as existing workers hit retirement age, although ensuring decent and stable pension income is essential. For those continuing to work, examples of green jobs include remediation of old coal mines and oil and gas wells, building green infrastructure and renewable energy projects, and deriving additional value from renewable-resource sectors, in particular forestry.

4. Reform the royalty regime for fossil fuel extraction

BC’s current royalty regime for fossil fuels is aimed at encouraging and ramping up these industries, not winding them down. Royalties—the public’s share of the value of the public resource being extracted—are falling in BC. The regime must be overhauled to maximize returns from the extraction of this collectively owned resource. These revenues can, for the next 20 to 30 years, support the transition to a zero-carbon economy.

Key directions for reform include:

  • A moratorium on issuing new leases or tenures.
  • Increase royalty rates and set a minimum royalty per unit extracted (unlike now, where the royalty rate is primarily based on the price of gas).
  • Establishment of a Wind-Down Fund from increased royalty revenues.
  • Eliminate subsidies, including: credits against royalties for fracking and associated infrastructure in the gas industry, low industrial electricity rates through BC Hydro, and low industrial usage charges for water.
  • Shift to public ownership, including the development of Crown corporations that can capture greater public benefits from development, while operating within a wind-down schedule.
  • For the remaining years that we extract fossil fuels, new revenue-sharing agreements must allot income from resource extraction between Indigenous communities and the public at large.

For too long, BC’s role as a major exporter of fossil fuels has been sidestepped, and political parties have not been willing to engage in an honest conversation about what is needed to get to net-zero emissions by mid-century.

We now know that BC must live within a declining carbon budget and must make decisions within that budget to promote a strong and equitable economy. This will require investments in green infrastructure and development of a decarbonization industrial strategy. The wind-down approach developed in our report is informed by climate justice to ensure that the transition is fair, that the path forward is set in partnership with Indigenous people, and that no one—in particular workers and communities in the existing fossil fuel sectors–is left behind.

This post is part of the Corporate Mapping Project, a research and public engagement project investigating the power of the fossil fuel industry in Western Canada, led by the University of Victoria, the Canadian Centre for Policy Alternatives (BC and Saskatchewan Offices) and Parkland Institute. This research is supported by the Social Science and Humanities Research Council of Canada (SSHRC) and the Minor Foundation for Major Challenges.