British Columbia Hansard — Thursday, July 16, 2015

20150716pm-Hansard-v28n3

British Columbia — Debates (Hansard)

Fourth Session, 40th Parliament OFFICIAL REPORT OF DEBATES OF THE LEGISLATIVE ASSEMBLY (HANSARD) THE HONOURABLE LINDA REID, SPEAKER ISSN 0709-1281 (P rint) ISSN 1499-2175 (Online) Thursday, July 16, 2015 Afternoon Sitting Volume 28, Number 3

PROVINCE OF BRITISH COLUMBIA (Entered Confederation July 20, 1871) LIEUTENANT-GOVERNOR Her Honour the Honourable Judith Guichon, OBC Fourth Session, 40th Parliament SPEAKER OF THE LEGISLATIVE ASSEMBLY Honourable Linda Reid EXECUTIVE COUNCIL Premier and President of the Executive Council .............................................................................................................. Hon. Christy Clark Deputy Premier and Minister of Natural Gas Development and Minister Responsible for Housing ......................Hon.

Rich Coleman Minister of Aboriginal Relations and Reconciliation ......................................................................................................... Hon. John Rustad Minister of Advanced Education ............................................................................................................................... Hon. Andrew Wilkinson Minister of Agriculture ........................................................................................................................................................ Hon.

Norm Letnick Minister of Children and Family Development .......................................................................................................Hon. Stephanie Cadieux Minister of Community, Sport and Cultural Development ........................................................................................... Hon. Coralee Oakes Minister of Education ..................................................................................................................................................... Hon.

Peter Fassbender Minister of Energy and Mines and Minister Responsible for Core Review .....................................................................Hon. Bill Bennett Minister of Environment ..........................................................................................................................................................Hon. Mary Polak Minister of Finance .................................................................................................................................................. Hon.

Michael de Jong, QC Minister of Forests, Lands and Natural Resource Operations......................................................................................Hon. Steve Thomson Minister of Health ............................................................................................................................................................... Hon. Dr. Terry Lake Minister of International Trade and Minister Responsible for Asia Pacific Strategy and Multiculturalism ..................Hon.

Teresa Wat Minister of Jobs, Tourism and Skills Training and Minister Responsible for Labour ...................................................Hon. Shirley Bond Minister of State for Tourism and Small Business ....................................................................................................Hon. Naomi Y amamoto Minister of Justice ...............................................................................................................................................................Hon.

Suzanne Anton Minister of Social Development and Social Innovation..............................................................................................Hon. Michelle Stilwell Minister of Technology, Innovation and Citizens' Services ................................................................................................ Hon. Amrik Virk Minister of Transportation and Infrastructure ......................................................................................................................Hon.

Todd Stone LEGISLATIVE ASSEMBLY Leader of the Official Opposition ...................................................................................................................................................John Horgan Deputy Speaker .............................................................................................................................................................................Douglas Horne Assistant Deputy Speaker ...............................................................................................................................................................

Raj Chouhan Deputy Chair, Committee of the Whole ............................................................................................................................................ Pat Pimm Clerk of the Legislative Assembly ................................................................................................................................................... Craig James Deputy Clerk and Clerk of Committees .................................................................................................................................

Kate Ryan-Lloyd Sessional Law Clerk ............................................................................................................................................. Loredana Catalli-Sonier, QC Sergeant-at-Arms ................................................................................................................................................................................. Gary Lenz

ALPHABETICAL LIST OF MEMBERS Anton, Hon. Suzanne (BC Liberal) .............................. Vancouver-Fraserview Ashton, Dan (BC Liberal).....................................................................Penticton Austin, Robin (NDP) ................................................................................ Skeena Bains, Harry (NDP) ....................................................................Surrey-Newton Barnett, Donna (BC Liberal) ............................................... Cariboo-Chilcotin Bennett, Hon.

Bill (BC Liberal) ...................................................Kootenay East Bernier, Mike (BC Liberal) ................................................... Peace River South Bing, Dr. Doug (BC Liberal) ................................ Maple Ridge–Pitt Meadows Bond, Hon. Shirley (BC Liberal) ...........................Prince George–Valemount Cadieux, Hon. Stephanie (BC Liberal) ................................Surrey-Cloverdale Chandra Herbert, Spencer (NDP) .................................Vancouver–West End Chouhan, Raj (NDP) ...........................................................

Burnaby-Edmonds Clark, Hon. Christy (BC Liberal) ........................................ Westside-Kelowna Coleman, Hon. Rich (BC Liberal) ...........................Fort Langley–Aldergrove Conroy, Katrine (NDP) .............................................................. Kootenay West Corrigan, Kathy (NDP) ..................................................... Burnaby–Deer Lake Dalton, Marc (Ind.) ......................................................... Maple Ridge–Mission Darcy, Judy (NDP) ..................................................................New Westminster de Jong, Hon.

Michael, QC (BC Liberal) .............................. Abbotsford West Dix, Adrian (NDP)............................................................Vancouver-Kingsway Donaldson, Doug (NDP) ......................................................................... Stikine Eby, David (NDP) ..........................................................Vancouver–Point Grey Elmore, Mable (NDP) ................................................... Vancouver-Kensington Farnworth, Mike (NDP) ............................................................ Port Coquitlam Fassbender, Hon.

Peter (BC Liberal) ................................... Surrey-Fleetwood Fleming, Rob (NDP) .......................................................... Victoria–Swan Lake Foster, Eric (BC Liberal) .......................................................Vernon-Monashee Fraser, Scott (NDP) ............................................................Alberni–Pacific Rim Gibson, Simon (BC Liberal) ............................................. Abbotsford-Mission Hamilton, Wm.

Scott (BC Liberal) .................................................Delta North Hammell, Sue (NDP) .................................................... Surrey–Green Timbers Heyman, George (NDP) .................................................... Vancouver-Fairview Hogg, Gordon (BC Liberal) ............................................... Surrey–White Rock Holman, Gary (NDP) .......................................Saanich North and the Islands Horgan, John (NDP) .......................................................................

Juan de Fuca Horne, Douglas (BC Liberal) ..............................Coquitlam–Burke Mountain Hunt, Marvin (BC Liberal) ....................................................Surrey-Panorama Huntington, Vicki (Ind.) ..................................................................Delta South James, Carole (NDP) .........................................................Victoria–Beacon Hill Karagianis, Maurine (NDP) ........................................Esquimalt–Royal Roads Krog, Leonard Eugene (NDP) .............................................................

Nanaimo Kyllo, Greg (BC Liberal) ........................................................................ Shuswap Lake, Hon. Dr. Terry (BC Liberal) ....................Kamloops–North Thompson Larson, Linda (BC Liberal) .........................................Boundary-Similkameen Lee, Richard T. (BC Liberal) ......................................................Burnaby North Letnick, Hon.

Norm (BC Liberal) ..............................Kelowna–Lake Country Macdonald, Norm (NDP) ....................................Columbia River–Revelstoke McRae, Don (BC Liberal) ............................................................ Comox Valley Martin, John (BC Liberal) ..................................................................Chilliwack Morris, Mike (BC Liberal) ..................................... Prince George–Mackenzie Mungall, Michelle (NDP) ..........................................................Nelson-Creston Oakes, Hon.

Coralee (BC Liberal) .............................................Cariboo North Pimm, Pat (BC Liberal) .........................................................Peace River North Plecas, Dr. Darryl (BC Liberal) .............................................Abbotsford South Polak, Hon. Mary (BC Liberal) ..............................................................Langley Popham, Lana (NDP) ...................................................................Saanich South Ralston, Bruce (NDP) ................................................................ Surrey-Whalley Reid, Hon.

Linda (BC Liberal) ..................................................Richmond East Reimer, Linda (BC Liberal) ........................................ Port Moody–Coquitlam Rice, Jennifer (NDP) ........................................................................North Coast Robinson, Selina (NDP) .............................................Coquitlam-Maillardville Routley, Bill (NDP) .................................................................. Cowichan Valley Routley, Doug (NDP) ............................................Nanaimo–North Cowichan Rustad, Hon.

John (BC Liberal) ................................................ Nechako Lakes Shin, Jane Jae Kyung (NDP) ...............................................Burnaby-Lougheed Simons, Nicholas (NDP) ................................... Powell River–Sunshine Coast Simpson, Shane (NDP) .....................................................Vancouver-Hastings Stilwell, Hon. Michelle (BC Liberal)............................... Parksville-Qualicum Stilwell, Dr. Moira (BC Liberal) ........................................ Vancouver-Langara Stone, Hon. Todd (BC Liberal) .........................

Kamloops–South Thompson Sturdy, Jordan (BC Liberal) ..................................West Vancouver–Sea to Sky Sullivan, Sam (BC Liberal) ...........................................Vancouver–False Creek Sultan, Ralph (BC Liberal) ..................................... West Vancouver–Capilano Tegart, Jackie (BC Liberal) ............................................................Fraser-Nicola Thomson, Hon. Steve (BC Liberal) .......................................Kelowna-Mission Thornthwaite, Jane (BC Liberal) ..........................

North Vancouver–Seymour Throness, Laurie (BC Liberal).................................................Chilliwack-Hope Trevena, Claire (NDP) .................................................................... North Island Virk, Hon. Amrik (BC Liberal) ............................................. Surrey-Tynehead Wat, Hon. Teresa (BC Liberal) .............................................. Richmond Centre Weaver, Dr. Andrew (Ind.) .......................................... Oak Bay–Gordon Head Wilkinson, Hon. Andrew (BC Liberal) ........................ Vancouver-Quilchena Y amamoto, Hon.

Naomi (BC Liberal) ................ North Vancouver–Lonsdale Y ap, John (BC Liberal) ......................................................Richmond-Steveston Vacant ...................................................................... Vancouver–Mount Pleasant LIST OF MEMBERS BY RIDING Abbotsford-Mission ......................................................................Simon Gibson Abbotsford South ..................................................................... Dr. Darryl Plecas Abbotsford West ...................................................... Hon.

Michael de Jong, QC Alberni–Pacific Rim .......................................................................... Scott Fraser Boundary-Similkameen ................................................................ Linda Larson Burnaby–Deer Lake ................................................................... Kathy Corrigan Burnaby-Edmonds ..........................................................................Raj Chouhan Burnaby-Lougheed .............................................................Jane Jae Kyung Shin Burnaby North ..............................................................................

Richard T. Lee Cariboo-Chilcotin ........................................................................Donna Barnett Cariboo North .................................................................... Hon. Coralee Oakes Chilliwack ......................................................................................... John Martin Chilliwack-Hope ....................................................................... Laurie Throness Columbia River–Revelstoke ..................................................

Norm Macdonald Comox Valley.....................................................................................Don McRae Coquitlam–Burke Mountain .....................................................Douglas Horne Coquitlam-Maillardville........................................................... Selina Robinson Cowichan Valley ................................................................................ Bill Routley Delta North .........................................................................Wm.

Scott Hamilton Delta South...............................................................................Vicki Huntington Esquimalt–Royal Roads .....................................................Maurine Karagianis Fort Langley–Aldergrove ...................................................Hon. Rich Coleman Fraser-Nicola.................................................................................... Jackie Tegart Juan de Fuca .....................................................................................John Horgan Kamloops–North Thompson ............................................ Hon. Dr.

Terry Lake Kamloops–South Thompson ..................................................Hon. Todd Stone Kelowna–Lake Country ..................................................... Hon. Norm Letnick Kelowna-Mission .............................................................. Hon. Steve Thomson Kootenay East .......................................................................... Hon. Bill Bennett Kootenay West ............................................................................ Katrine Conroy Langley.......................................................................................Hon.

Mary Polak Maple Ridge–Mission ..................................................................... Marc Dalton Maple Ridge–Pitt Meadows ........................................................ Dr. Doug Bing Nanaimo ........................................................................... Leonard Eugene Krog Nanaimo–North Cowichan ......................................................... Doug Routley Nechako Lakes ........................................................................ Hon.

John Rustad Nelson-Creston ........................................................................Michelle Mungall New Westminster ............................................................................... Judy Darcy North Coast......................................................................................Jennifer Rice North Island .................................................................................. Claire Trevena North Vancouver–Lonsdale ........................................Hon.

Naomi Y amamoto North Vancouver–Seymour ..................................................Jane Thornthwaite Oak Bay–Gordon Head ...................................................... Dr. Andrew Weaver Parksville-Qualicum .......................................................Hon. Michelle Stilwell Peace River North ................................................................................ Pat Pimm Peace River South ............................................................................Mike Bernier Penticton............................................................................................

Dan Ashton Port Coquitlam ..........................................................................Mike Farnworth Port Moody–Coquitlam ................................................................Linda Reimer Powell River–Sunshine Coast ................................................. Nicholas Simons Prince George–Mackenzie ............................................................. Mike Morris Prince George–Valemount ...................................................Hon. Shirley Bond Richmond Centre ......................................................................Hon.

Teresa Wat Richmond East ..........................................................................Hon. Linda Reid Richmond-Steveston ..............................................................................John Y ap Saanich North and the Islands .................................................... Gary Holman Saanich South ................................................................................

Lana Popham Shuswap ................................................................................................Greg Kyllo Skeena .............................................................................................. Robin Austin Stikine ....................................................................................... Doug Donaldson Surrey-Cloverdale ....................................................... Hon. Stephanie Cadieux Surrey-Fleetwood ........................................................... Hon.

Peter Fassbender Surrey–Green Timbers ..................................................................Sue Hammell Surrey-Newton ................................................................................. Harry Bains Surrey-Panorama ........................................................................... Marvin Hunt Surrey-Tynehead ......................................................................Hon. Amrik Virk Surrey-Whalley..............................................................................

Bruce Ralston Surrey–White Rock ....................................................................... Gordon Hogg Vancouver-Fairview ..................................................................George Heyman Vancouver–False Creek ...................................................................Sam Sullivan Vancouver-Fraserview ......................................................Hon.

Suzanne Anton Vancouver-Hastings ....................................................................Shane Simpson Vancouver-Kensington .................................................................Mable Elmore Vancouver-Kingsway..........................................................................Adrian Dix Vancouver-Langara .................................................................Dr.

Moira Stilwell Vancouver–Mount Pleasant ......................................................................Vacant Vancouver–Point Grey .........................................................................David Eby Vancouver-Quilchena ................................................ Hon. Andrew Wilkinson Vancouver–West End ...............................................

Spencer Chandra Herbert Vernon-Monashee ...............................................................................Eric Foster Victoria–Beacon Hill .......................................................................Carole James Victoria–Swan Lake.........................................................................Rob Fleming West Vancouver–Capilano ............................................................. Ralph Sultan West Vancouver–Sea to Sky ..........................................................Jordan Sturdy Westside-Kelowna ................................................................

Hon. Christy Clark Party Standings: BC Liberal 48; New Democratic 33; Independent 3; Vacant 1

CONTENTS Thursday, July 16, 2015 Afternoon Sitting Page Orders of the Day Committee of the Whole House ............................................................................................................................................ 9051 Bill 30 — Liquefied Natural Gas Project Agreements Act (continued) B. Ralston Hon. M. de Jong S. Chandra Herbert A. Weaver

THURSDAY , JULY 16, 2015 The House met at 1:31 p.m. [Madame Speaker in the chair.] Orders of the Day Hon. M. de Jong: Madame Speaker, committee stage on Bill 30. Committee of the Whole House BILL 30 — LIQUEFIED NATURAL GAS PROJECT AGREEMENTS ACT (continued) The House in Committee of the Whole (Section

B) on Bill 30; R. Chouhan in the chair. The committee met at 1:33 p.m. On

section 1 (continued). B. Ralston: Prior to the lunch adjournment we were discussing, and the minister was responding to, a passage from Mr. Horne that I read into the record. I can appreci- ate the minister may very well and quite prudently refuse to be drawn on the issue of what would or would not trig- ger compensation, but Mr. Horne does pose that example. The minister has set out the framework under which questions like this might be considered, particularly whether they fell within one of the four areas. Certainly, in relation to the incentive program as one of the four headings — that seems to be what Mr.

Horne’s comment is framed in terms of. Could the minister at least…? Again, I appreciate the need for prudence and not wanting to trigger compensa- tion when none might otherwise be due. Can the minis- ter acknowledge that this is at least a question where that consideration might reasonably apply, without offering an opinion as to whether it does or not? [1335] Hon. M. de Jong: To the member, I wasn’t trying to be argumentative, and I thought I did that. I thought I did acknowledge the possibility that it could be….

Whenever that language, as it relates to, specifically and to the exclu- sion of all others, an LNG facility…. I think that triggers a heightened state of awareness. There’s a subsequent con- sideration and test, but the possibility of the indemnifi - cation of a change event occurring and indemnification being triggered certainly exists. B. Ralston: No, I understood the minister to be speak- ing about the general rubric of the act and what might fall within the act, but I just wanted to clarify that I was seeking a response to this specific suggestion from Mr. Horne. I think I have that.

Referring to the incentive program — and it’s de - scribed as an incentive program — can the minister ex - plain why, as a matter of principle, an incentive program is necessary in order to simply…? Why wouldn’t the pro- ponent or any other operator simply comply with the regulations as they’re promulgated, without the need of an incentive to do so? Hon. M. de Jong: I’m trying to — hopefully, in a coher- ent way — provide an indication for what the rationale is for the incentive program that goes beyond, and an - swers…. It says, well, that it is to incent certain behaviour. Interjection. Hon.

M. de Jong: It is clearly that. [1340] The point I would want to make for the committee in terms of the mechanism that has been created here and how it is intended to operate…. It is intended to take ac - count of the fact that if, for example, your emissions exist at…. To go from 0.24 to 0.23 is easier, less expensive, than to go from 0.18 to 0.17, or 0.17 to 0.16. The incentive pro- gram seeks to recognize that.

It does, obviously, seek to incent to drive to the cleanest possible, but it also acknowledges the fact that the degree of difficulty and the investment required to achieve that is not necessarily linear. It changes, depending on where on that chart you exist. B. Ralston: Given what…. It may not be apparent to a member of the public listening to this debate why it’s as the minister has said — more difficult to go from 0.18 to 0.17 as opposed to 0.24 to 0.23. I think that was what he said, and that the progress of that was not linear. On what basis does the minister make those sugges - tions?

Is that something that emerged from the nego - tiation with the proponent to the project development agreement that was developed, or is this a result of in - dependent advice through, say, the Ministry of Natural Gas Development, or the Ministry of Energy or some other government agency? Hon. M. de Jong: The proposition I’ve advanced as part of the rationale for the incentive program, I believe it’s fair to say, is one that is the result of analysis and work…. Two things.

Analysis and work undertaken by the environment ministry, so certainly, independent of submissions we would have received from proponents — I’ d make that point. But I’ d also want to acknowledge to the member that that work and analysis was helpful because it was also a matter advanced by the proponents during the course of 9051

British Columbia Debates9052 Thursday, July 16, 2015 the discussions and the consultation that led up to the conclusion of the project development agreement. S. Chandra Herbert: I wonder if the minister might be able to, in the case of the Petronas project, share with us what analysis they’ve done financially in terms of how much money the B.C. government would have to give Petronas as an incentive over the life of the 25 years. Hon. M. de Jong: Insofar as this follows along from what the member’s colleague….

I presume the member’s question pertains to, specifically, the incentive program. [1345] I apologize for the delay — trying to verify and ensure that I’m giving the member and the committee accurate information. The challenge, of course, with modelling or providing a specific number is that it depends on what the emissions are. There will be that reality, and one can make certain assumptions about that. I’m hesitant to do so with respect to a specific project, but one can, in the abstract, at least, make certain assumptions and then plug those numbers into the formula.

I wonder if the best, the most helpful way might be for us to take the formula for the member and in an ab - stract or hypothetical way say: “Were the emissions to be at this level, here’s how that formula would work. ” I can’t do that in my head or on the fly here, but I can do it for the member. S. Chandra Herbert: It would be helpful. I know the Pembina Institute did their analysis based on Petronas’s environmental assessment, some basic assumptions of how that works, and they came out that the life of the agreement would be about $411 million over 25 years. That’s what they suggested the figure would be.

I’m as - suming that in creating legislation and negotiating with a specific proponent, the government would have done some modelling to make sure that value for money, value for taxpayers, etc…. Is it possible to release the analysis? I’m assuming that a statute, a law, would not be written, an agreement would not be made with a proponent without doing that kind of work. Was that work done, or is it just a calcula- tion that hasn’t actually been completed yet? [1350] Hon. M. de Jong: The member will know there has certainly been extensive analysis and modelling around the question of revenue.

It is based on a series of as - sumptions. I’ve never tried to be coy about what those assumptions are. We try to be conservative about the as- sumptions. Some of them are easier to make than others. Assumptions around production levels are just that; they are assumptions. Assumptions around pricing are some- what more speculative in terms of what may occur there. That material is available, and I can certainly forward it to the member. With respect to the incentive program, I can point the member to material that I tabled along with the other documents that actually presents a couple of specific ex- amples.

One of the examples is a facility that produces one metric tonne of LNG and achieves a total facility green - house gas intensity of 0.26 and eligibility greenhouse gas intensity of 0.22. They will pay a compliance cost of $2.50, assuming a compliance unit cost of $25, and will receive an environmental incentive of 87½ cents. I can’t do the math in my mind, but we can start to flow that through and get a sense of the environmental incen- tive. That would only be paid for compliance costs of total annual greenhouse gas emissions below 0.23.

No incen - tives are paid for compliance costs in relation to total an- nual greenhouse gas emissions above 0.23. Built into all of that is a series of restrictions and as - sumptions. We can start to plug some numbers into that which generate other numbers on an annualized basis and over the term of the agreement. S. Chandra Herbert: Thank you to the minister. I know the minister talked about the revenue side of it. Certainly, that has been the public face of LNG: how much revenue. I’m curious about the expense side — the subsidy side or the incentive side, if you will — and what those numbers would be.

I’m guessing those numbers weren’t subtracted from the revenue side if that calculation hasn’t been done. That’s really what I’m trying to get at. For this one specific project — which is, of course, wrapped up in this bill and in the PDA attached — there has been a lot of talk about the revenue side. I guess what I’m trying to get at is: really, what is the cost side? I appreciate the unit costs the minister cited. I just really am looking for what the estimated…. I get it’s an esti - mate. Certainly, the revenue side has not really been ap- proached as an estimate, but I assume it is as well.

It would be helpful if I could get an estimate using the same assumptions that the minister has used for the revenue side of LNG when speaking about the revenue to be brought in. I would assume he could use the same assumptions to come up with the expense side for this incentive program. Is that possible? [1355] Hon. M. de Jong: Hopefully, this will be helpful to the member and the committee. If we take the material that we have thus far and plug in some numbers, we can gen- erate some annualized cost numbers.

We did, of course, analyze this as part of the usual Treasury Board approv- als and would have quantified in the usual way — again, based on estimates. If I can do that…. As I say, I can’t do it on the fly here, but we’ll be back next week, and maybe I can undertake to have some material for the member then.

British Columbia DebatesThursday, July 16, 2015 9053 B. Ralston: Then, following what the member for Vancouver–West End has said. In one of Mr. Horne’s comments, he says the following: “The Pacific NorthWest LNG project is expected to miss the performance stan - dard by 0.06 tonnes of carbon pollution per tonne of LNG produced. ” That would seem to be a reference to the 1.6 and the 2.23. “This subsidy could amount to $411 million over the course of the 25-year agreement. ” I appreciate the minister is not in a position to respond to that directly here and now, but given that Mr.

Horne has made that calculation and given his general author - ity and reliability, can the minister undertake to…? As part of the work he has said he will do and present to the committee on Monday, could he respond to that specific suggestion of Mr. Horne? Hon. M. de Jong: I think that’s a fair request. We’ll try to pull some material together — again, based on as - sumptions that we’ll lay out as clearly as possible — and have that for the members next week. S. Chandra Herbert: I’m just trying to understand exactly what the incentive is trying to do.

If you get with- in a certain range and you start getting paid to be in that range, what is there to incent you, really? It is expensive, as the minister knows, to get down to lower carbon and lower methane emissions, and so on. What is the incen- tive if you’re at one point and you get paid…? Maybe it’s $411 million, if the calculation I’ve seen is correct. Really, what’s the incentive to go further, beyond that, if every- thing else is locked in at the same level for 25 years? [1400] Hon.

M. de Jong: Well, conceptually, the idea here is to create a mechanism that incents improvement and the various ways that that can be achieved, recognizing that proponents — I guess by the time this applies, they’re operators — are expending significant sums of money, be it by technology or offsets. They’re also paying the car - bon tax. That, coupled with this program, is designed to encourage them not to be static or remain at a particular level but to seek to do better. That, conceptually, is what lies at the heart of the program. S.

Chandra Herbert: I understand conceptually; I guess I’m trying to understand realistically. In a day-to- day world if you lock in an agreement for 25 years, where the cost of a carbon tax declines every year with inflation and the cost of a technology fund declines every year with inflation, in effect it gets cheaper to pollute over time, as the carbon tax becomes less costly due to inflation. I’m trying to understand really what the incentive is in an incentive program where you’re paid, effectively, to pollute at a certain level and where if you’re at that level, you’ll continue to get the payments.

Meanwhile, all the other costs that you would have — like a carbon tax, which the minister mentioned — decline. I know the minister has said earlier in this debate that at least it’s not his government’s plan to increase the carbon tax. I’m really trying to understand what the ministry is thinking in terms of how to actually make it a real incen- tive when, in fact, the fixed costs decline each and every year due to inflation. Hon.

M. de Jong: Perhaps where I’m inclined to take a little bit of issue with the hon. member is around this no- tion of fixed costs, whether it is the carbon tax or whether it is the cost of offsets. I’ve indicated that the government is not contemplating at the moment changes to the carbon tax. But the member, in fairness, is asking questions in the context, I think, of a 25-year term, which he rightly points out is the term of the agreement that has been tabled in the House, and I think also seeking to clarify under what circumstances a future government might address that.

To be clear on the record, a future government would have the option of altering the carbon tax rate of general application. It is not precluded from doing that. So to the extent that the member points out these costs are locked in and therefore diminish over time, that’s not quite so. Likewise, the cost of offsets also are not in any way locked in, in the terms of this agreement. I think because I’m having difficulty with that part of the member’s analysis, I may not be providing him with the answer that he seeks, but I do need to point out that difference of opinion. [1405] S.

Chandra Herbert: I guess what I’m hearing from the minister — and correct me if I’m wrong — is that in order for this incentive program to work in the future, future governments will have to increase the carbon tax over time and will have to increase the costs of offsets over time. Otherwise, the program won’t work. Otherwise, I’m not sure what the minister is arguing. Is that correct? Hon. M. de Jong: No, that is not correct, and I regret if I left that impression with the member or the commit- tee.

What I was endeavouring to address was the charac- terization of those measures as, theoretically, absolutely fixed costs, that they are not. But the operation of the in- centive program designed to encourage the reduction in emissions…. The operation and effectiveness of that is not dependent upon future changes to those measures. It can certainly alter some of the math around calculations, but the success in reaching the objectives is not depend- ent on future increases, no. S.

Chandra Herbert: If I’m understanding correctly, then, the minister is not arguing that you have to increase the carbon tax or offset fees or so on in order to make the incentive work 25 years down the road, even though the incentive basically pays you to pollute at one level.

British Columbia Debates9054 Thursday, July 16, 2015 If all the other fees stay flat — the minister has argued that the fees don’t have to necessarily increase for the in- centive to still work — what is the incentive then? If in 25 years, as the minister has suggested, the carbon tax and offset fees and so on don’t have to go up, will the in- centive still work? How, if those fixed costs do not go up? I don’t understand it.

If you’re going to keep a flat rate for those costs, as the minister suggests could happen — it doesn’t have to go up in order for the incentive to work — how does the incentive work 25 years down the road, when all those costs are now lower and it’s effectively be- coming cheaper to pollute? [1410] Hon. M. de Jong: I apologize for the delay. I’m just try- ing to make sure I understand the concern of the member and endeavour to answer it.

I think perhaps — and he will correct me if I’m wrong — the member’s concern is that we have created a mechanism by which an operator will get to a certain level of emissions and say: “Well, great. Here we are, and we’re getting paid a certain amount through this incentive program, and that’s where we’re going to stay in perpetuity over the term of the agreement. ” Y et the structure of the incentive program is such that it actually encourages them, through the manner in which the payments are calculated, to go further. Not to be glib about this, but that is the incentive.

The incentive is that as you move further and do better, the amount changes. There is a fiscal incentive in the positive sense, and of course, there is a fiscal incentive with respect to the costs of offsets that could go up and the carbon tax at whatever rate it is being charged. That’s where perhaps I am having the difficulty. The member, I think, seems to be concerned that the flaw in this system is that it will incent to a certain level and that’s it.

What I am trying to convey is that the structure of the program is such that it is designed to incent beyond that, coupled with the evolving technology and the industry standards that can improve, and generally do, over time. S. Chandra Herbert: Y es, that is indeed the concern that I have — that you get paid to stay at one level of pol- lution. I know that the government often says we have a polluter-pay principle, where the polluters have to pay for their pollution. In this case, it’s a public-pay for compan- ies — in this case, Petronas — to pollute a little bit less.

The concern is that it’s effectively a subsidy which could last for 25 years. Maybe it’s $411 million — maybe it’s more; maybe it’s less — to keep one level of pollution. I guess that, really, the concern is that, given technology and given changes to industry, it can be very expensive. The minister spoke about it in an earlier answer, about how it is challenging and it is expensive. This is to provide a little bit of support so people can do a better job, but the cost is high. They’ll want to do a better job because the car- bon tax and these other things are a cost to them.

The concern really was that it declines. The effect - iveness of these sticks, so to speak, declines over time. Meanwhile, the subsidy continues, regardless of if you’re improving operations or not. It was surprising to me that it’s not a true incentive program, in the sense that…. If you get to a level, that’s great, because you invest in the technology and you put in the money to be at that level. But after that, I just don’t really see how it works there. I’m curious. When was this decided? How was it craft- ed?

What kind of independent analysis was done to see how much carbon emissions would be reduced through this incentive program? Has it been used in other juris - dictions? What gives the minister confidence that this will actually drive down emissions, as opposed to keep a company stuck at one level of pollution, with the public paying them to stick at that level of pollution? [1415] Hon. M. de Jong: I’ll get to the essence of the question. Can I just offer this one observation? I’m not suggesting the member or others or even myself from time to time have done this nefariously.

We do occasionally fall into the trap of referring to the Petronas project. I understand why that is. They are the largest partner, a 60 percent partner, but it is technically not the Petronas project. It is the project they are involved with as the largest partner. For those other partners, who I’m sure are glued to their sets in various parts of the world, I would want to as- sure them that we in this chamber are alive to the fact this is very much an international group of agencies that have come together and are operating as part of the Pacific NorthWest LNG group.

I say that to ensure people under- stand we know there is more than just this one Malaysian agency involved, though we are pleased they are seeking to participate in this investment along with their partners. Now, to the point that the member raised. Ultimately, the benchmark level of 0.16 is what matters most for us.

In terms of the analysis and the trigger points and the thresholds contained within the legislation and the in - centive program, those are the products of extensive an- alysis that the Ministry of Environment has conducted and provided and shared with other ministries of govern- ment, the Ministry of Natural Gas. I think the member and the House had an opportun - ity — through the earlier discussion, debate, that took place around the earlier pieces of legislation — to learn a little bit about that, and I’m happy to share whatever else I can on that front.

Three of those reports are posted on, I believe, the Environment Ministry’s website. Some of the methodology, work, analysis, that contributed to the settlement around the benchmarks and the development of the program are contained within that work. As I said a few moments ago, along the way this matter has certainly come up in the conversations and consulta- tions that have taken place with the various proponents themselves.

British Columbia DebatesThursday, July 16, 2015 9055 S. Chandra Herbert: Is the minister at all concerned that the incentive program, in a sense, may incent bad behaviour if you want to get under the target so you can start making the money of the incentive? “We’re not pol- luting as badly as we could be; we’re polluting not quite as badly as we could, so now you subsidize us through the incentive program. ” [1420] Is there no concern that somebody may, for example, use provisions of an emergency release? “We have some backup. We have some issues.

We’re going to have an emergency release, pump out emissions up into the atmosphere. ” It’s not counted in the calculation towards the incentive. I believe it’s called entrained emissions, pumping out emissions before it actually gets into the plant. Again you can say: “We are below the emissions standard. Now we need the money. ” Meanwhile, of course, the environmental problem is still there. Y ou could claim an emergency and release the emissions and not be counted — in a sense, incentivizing bad behaviour and breaking of the rules. Hon.

M. de Jong: I won’t put words in the member’s mouth, but I understood his question to, in effect, be: how do we ensure someone isn’t gaming the system? That’s al- ways a fair question with respect to the myriad of taxation and regulatory requirements that we have. We are still…. As the member knows, the government is in the midst of finalizing the regulatory regime that would apply to much of this — in the collection of data, in the manage - ment calculation of that data.

I am advised that the material that government re - ceives from an operator would already have received third-party validation from an accredited third-party or- ganization. I would say this. It would be extremely risky, inappropriate and unacceptable for an operator to en - deavour to skirt the requirements by inaccurately desig- nating a particular discharge. In the examples that the member has used, that was inaccurate. Look, I’m not going to stand here and tell the mem - ber that we’ll get them the first time they do it, but our system operates on the basis that people comply appro - priately.

There will be mechanisms to ensure third-party validation. It would be entirely inappropriate and ultim- ately contrary to the interests of an operator to endeavour to game the system. S. Chandra Herbert: There’s talk about gaming the sys- tem. I can understand we’re looking at a so-called emer- gency release, which maybe it’s not.

However, I know in talking to people in oil and gas that there’s a whole bunch of ways that an emergency can occur — sometimes as simple as you just don’t plan; or somebody has fallen asleep at the switch; or maybe one of the components breaks down, and because you didn’t put in the backups, then you have an emergency, then you have to do a release. [1425] What I don’t understand is why those emissions…. Y es, there are emergencies. I understand that often in the ear- ly stage of a setup as you’re building, you’re trying to get the mix right, trying to figure it out. That might happen more often than later.

What I don’t understand is why those emissions…. They’re real. They are real emissions. They do harm the climate. They do have a real cost to all of us. Why aren’t they included in the question of be - ing below the certain benchmark — rather, excluded as something separate, even though the reality is that they are real? I’m not sure why…. There might be one company which is really poor at planning. They have an emergency every year and pump out lots of climate change emissions. They’re just a poor planner. Maybe they say: “Well, our system breaks down.

We bought the cheapest component, which we’re allowed to do under the law, and it breaks down all the time. ” There’s no incentive that I can see, at least in this case, to ensure that they don’t do that. Now, that’s the side of gaming the system. The other part to my question was: what about the CO2 emissions, methane emissions, etc., which could be pulled out, off- gassed or pushed out of the atmosphere before they even get to the plant? They could say, up to the supply chain: “I know you’re bringing gas to me, to our plant.

In order for me to make this government subsidy, I need you to get rid of the bad stuff. So you bring me only the clean - est stuff so that I look good. ” Meanwhile, that doesn’t change the reality that that bad stuff is still shooting up into the atmosphere and causing a problem. I just don’t understand why the incentive, so to speak, is red-circled just around one plant and doesn’t take into account the total environmental impact. Y ou try and incentivize good behaviour in a small area that’s eas- ily outside of the realm.

Y ou can be incentivizing bad be- haviour elsewhere just because now you can get a subsidy to push the problem off to somebody else to deal with. Are there any means to try and stop that kind of behav- iour? I don’t see that in the legislation. I know the min - ister is genuine in saying that he hopes this incentivizes better behaviour, but I know that in his previous roles in this House, he has seen how people play games. He knows how that works. I just don’t see the defence here to stop that from happening. Any thoughts? Hon. M. de Jong: Hopefully, this will help a little bit.

The notion that in the event of an emergency situa - tion…. I’ll talk a little bit more about that in a moment, because perhaps I can assuage some of the member’s con- cerns around that. Where an emergency emission…. I’ll use that example. [1430] It would be incorrect to suggest that the emissions that result from that emergency are not relevant in terms of

British Columbia Debates9056 Thursday, July 16, 2015 calculating, as against the 0.16 benchmark — are not taken into account for the purposes of calculating car - bon tax payable. I don’t want to leave…. The member says the incen - tive…. They are differentiated for the purpose of the in - centive, on the basis that they fall outside of the control of the operator.

But if I can refer to, in the material that was tabled, the definition of “emergency emissions. ” It means the quan- tity, as determined by the director under the act, of emis- sions that have occurred as a result of the following: “an accident, fire, explosion, technical failure or effect of the forces of nature; or actions in response to an unplanned event taken by an…operation to avoid or respond to an imminent threat of accident, fire, explosion, technical failure or effect of the forces of nature. ” The director, in those circumstances, has the author - ity to sign off.

I think it would be a mistake for me to leave the impression that this is open-ended and allows the operator to be the sole determinant of what qualifies. That’s not the case. There is, firstly, the definition and, then, the oversight offered by the director. On top of that, the emissions that result from that incident are relevant and are taken into account for the purposes of calculating some of the other liabilities that would accrue to the company. [D. Horne in the chair.] B.

Ralston: Returning again to the definition of “in - centive program, ” I’m interested in how that interacts with the obligation to pay an indemnity. In the minis - terial briefing which took place last week, a discrimina - tory GGIRC…. That is, the Greenhouse Gas Industrial Reporting and Control Act, for the non-initiate. It says as follows: “ A discriminatory GGIRC event occurs if the GGIRC features are amended following their finalization.

The agreement includes six GGIRC features: emission limit, ability to apply compliance units, attribution rules, prescribed price of funded units, earned credits and the incentive program. ” So the incentive program is singled out here. It refers to the incentive program that’s a part of it, but it forms one of the six features of the Greenhouse Gas Industrial Reporting Act. Given that incentives are paid if the emis- sion falls below 0.23…. That’s pollution intensity. That’s 0.23 tonnes of CO 2 per tonne of LNG. And the target goal, the optimum goal, is 0.16 tonnes of CO2 per tonne of LNG.

This plant, the example that has been chosen by Mr. Horne, appears to fall at 0.22 tonnes — that is, just below the 0.23 — and compensation flows. If there were a change in the incentive program, I pre- sume that would be…. Let’s suppose that the new target was 0.14. That would be the goal. How would that work? Would that, then, in addition…? This is, arguably, a dis - criminatory event, according to the material. Would that mean that the incentive would increase in order to get to 0.14?

Or would there be a separate stream of compensa- tion merely because the incentive program target was changed all on its own? [1435] I’m interested in how that works, because there is a stream of revenue, if you wish, flowing to the company based on not hitting the target but nearly hitting the tar- get. If that were changed, how would that interact with the compensation or the indemnification mechanism that, really, this act is all about? Hon. M. de Jong: Let me see if I can walk through a version of the member’s example.

If I stray or vary from what he endeavoured to provide for the committee, he’ll let me know. The general construct is this in analyzing the question that I think lies at the heart of the member’s submission, which is: what triggers the potential for indemnification or payments of one sort? The first thing: is there a change event as defined discriminatory, and is there a change event that falls, even if it is discriminatory, within one of the four areas? If the answer to those questions is yes and yes, then there is an analysis about whether or not the adverse impact goes beyond the threshold.

We haven’t gotten to those provisions yet, but I’m sure we will. The member, I think, in his second reading remarks may have signalled an interest in talking about that. Do they go beyond the threshold? If the answer to that question is yes, then in the example the member has relayed to the committee, I would suggest that the first thing that would happen is there would be a discussion, a negotiation of sorts. I think the member described the two ways to address that. One is through the general equilibrium process, and the other could be an adjust - ment to the incentive program.

That’s the process by which you make a determination. That’s conceptually how this is intended to work, in terms of the analysis around indemnification and equilibrium. B. Ralston: In the example that I’ve chosen, what would be the obligation of the proponent to provide their estimate of the cost of compliance? Say the target was lowered. Clearly, this would apply to LNG plants only, so arguably fall within the ambit and within this particu- lar heading: the GGIRC, the Greenhouse Gas Industrial Reporting and Control Act.

Presumably, it would fall within those features. [1440] How would the negotiation take place in the sense of: what would be the independent verification of the com - pany’s assertion that, in order to go from 0.16 to 0.14, this is going to cost us, over five years, $75 million — taking it conveniently over the threshold, for the purposes of my example? What would be the independent verification of that?

British Columbia DebatesThursday, July 16, 2015 9057 It seems that as the regulated body as opposed to the regulator, a lot of this technical information and costing would be uniquely within the purview of the company and not of the regulator. If it were the only plant, how would one determine that? Hon. M. de Jong: I’m reminded that the notion of deal- ing with changes is not an entirely foreign one. A major roadbuilding contract where you’ve had a change order would be a comparable example. The process that would be followed would certainly bring the parties together into a discussion, a negotiation.

There’ d be reference to third- party validation for costs. The hope would be that the par- ties arrive at an agreement around what the direct costs are. I was reminded that in the example that I think is be - fore us, it is only the direct costs. Ironically, in that ex - ample, there’s a fairly straightforward way of calculating, for example, from 0.16 to 0.14. What are the additional costs of offsets? That, for example, would be a fairly dir- ect way to calculate that cost. The other aspect of this that I am reminded of….

Well, what one hopes is always that that negotiation discussion process leads to a mutually agreeable finding solution. If it doesn’t, the agreement provides for reference to arbi- tration, arbitration governed by the arbitration laws of British Columbia. Finally, I’m alerted to and reminded that before pay - ment is made, there is a subsequent verification process whereby the operator would be obliged to demonstrate their actual costs. They’ d have to show the receipts.

There is a process, and the concept here is not one entirely for- eign to the relationship that frequently occurs between government and other agencies. This is, I suppose, unique in the sense of the contractual setting we’re talking about. B. Ralston: Thank you for that response. The minis - ter mentioned just in his previous answer there are two ways in the example I’ve chosen that the compensation or the indemnification might be paid. He mentioned what he called general equilibrium or an adjustment program. [1445] Is it conceivable…? Forgive me.

This may be inaccur - ate, but I’m sure the minister can clarify it. It sounds as though there’s no fixed path or no determination at this point about how such a change might be achieved. Those are two alternatives. Is it conceivable that both mechanisms of payment might be made as well — a payment under the heading of what the minister called general equilibrium, and sec- ondly, a change to the adjustment program to pay more? Hon. M. de Jong: If I’ve misunderstood the question, the member will correct me. There is no prospect of double payment.

The intention and the contractual obli- gation, if you will, is to address the cost that has been borne by the operator for the change event, but there is no prospect for double payment, double indemnification. The only reason I mentioned the incentive program — actually, the member did — is: would that be an option? I suppose it would, as part of a conversation that takes place in the scenario we’ve been discussing, but if that were the mechanism chosen to address, there would be no additional entitlement to equilibrium or indemnifi - cation payments. B. Ralston: I understand the minister’s response.

Would it be then possible…? I suppose this follows logic- ally, that it would be not a double payment but a mixture of payment streams that would equal the equivalent of one or the other. There could be a mixture of what the minister called general equilibrium and an adjustment to the program that would not double the payment but enable the sum total to equal what could be paid in 100 percent from one stream or the other. Hon. M. de Jong: The short answer to the member’s question is: theoretically, I think that’s possible.

But with respect to the arbitration provisions that might ultimately become relevant, the arbitrator would have no authority to arbitrate government policy — the incentive program being government policy. As part of an entirely negotiat- ed response, I suppose what the member has described is theoretically possible. If the matter, however, slipped into a different setting, an arbitrated setting for resolution, I think by definition one of those two streams is excluded. B.

Ralston: By including the incentive program — it is one of the six features that are mentioned in the written briefing by the deputy ministers — would the minister agree, then, with the statement of Mr. Horne, which I’m going to read? “Beyond the regulatory components of the act, the agreement also appears to lock in the LNG incen- tive program, ” which was announced last fall in combina- tion with the act. The answer to that would appear to be yes, but since he’s posed that in a somewhat tentative way, I just wanted to confirm that that is indeed true. [1450] Hon.

M. de Jong: Let me answer this way, and hope - fully, I’ve covered the member’s question and he can pur- sue any part of my answer. Under the terms of the agreement that has been tabled, the government has agreed to have an incentive program — or one that is substantially the same as the incentive program that has been tabled. Government is not pre - cluded from changing that program or even eliminat - ing it. If it chooses to, however, under the terms of the agreement, that is a change event.

If it alters it or elimin- ates it in a way that has an impact beyond the threshold amount, that triggers indemnification entitlements and the processes that can lead to the quantification of an in- demnification amount.

British Columbia Debates9058 Thursday, July 16, 2015 I hope that begins to answer the member’s question. B. Ralston: I think that confirms, essentially, the gen- eral proposition that Mr. Horne was advancing. Also, in giving specific examples where compensation could be triggered in relation to the incentive program, he says this event would trigger compensation — I just want to confirm whether or not this is accurate: increasing the technology fund price above the initial $25-per-tonne price plus a yet to be determined inflator.

If it was decid- ed to increase that price above the $25 that he’s spoken of, would that trigger compensation? [1455] Hon. M. de Jong: A two-part answer. The first is prob- ably the caveat which says that the finalization of the regulations is relevant here insofar as…. An example I’ll use with respect to the $25 amount is the possibility of building into the regulations an inflator calculation. I’ d have to attach that caveat.

Thereafter — and we’ve obviously signalled the inten - tion to have the regulations finalized by the end of the calendar year — that same analysis would follow around a change event, a calculation around threshold, before moving to discussions around equilibrium or indem - nification. B. Ralston: Again dealing with the incentive pro - gram, since we’re on that definition, Mr. Horne also says that compensation could be triggered by strengthening the rules governing carbon offsets or limiting the use of offsets. Is the manner in which…?

I believe that in the agreement they may be referred to more as compliance units or funded units. I’m not sure which, but certainly, the features that are referred to among the six include those titles. First of all, perhaps the minister could, as a prefatory comment, clarify whether the carbon offsets and compli- ance units or funded units are one and the same thing. Secondly, could he confirm, or not, the general propos - ition that strengthening those rules — in other words, I suppose, in the manner that he’s described — would trigger compensation under the indemnification provi - sions of the act? Hon.

M. de Jong: I’m not answering the second ques- tion of the member’s. I’ll come back to that. But with respect to carbon offsets and funded units within the definitional sense, those are both compliance units and have the significance related to that. I’ll take a moment and try to offer an answer to the second part of the question. I think the question relat - ed to the government’s ability and the consequences of changing the degree to which operators could rely upon offsets.

The member is indicating that that is correct. [1500] Again, based on the conversation we had earlier, my sense is that insofar as that would require a change in the act — and on that basis, let us assume that represents a change event — then again, you move from that to the calculation around impacts, thresholds and thereafter, if necessary, the question of equilibrium. That, again, is the sequencing. Hopefully, I’ve addressed the essence of the member’s point. B. Ralston: I think it does.

As I understand it, what is being referred to here is, rather than letting or permit - ting the operator to purchase offsets, that ability might be constrained and actual reductions of emissions would have to take place. That’s as opposed to purchasing off- sets, which would, arguably in the calculus, compensate for the…. By reducing in another venue or another av - enue, whether it’s…. There are all kinds. The offset in - dustry is a rapidly changing one. We’ve had our own experience here with Pacific Carbon Trust and how off - sets are calculated.

If a subsequent policy change was to reduce the ability to use those and simply reduce emissions in a real way, if I could put it that way, that would trigger compensation and would qualify as a discriminatory event in the man- ner that’s described in the act. Hon. M. de Jong: To go back to those provisions that we were dealing with, you can eliminate and replace with a regime that is substantially the same.

If, however, you effect a change and, through the analysis that follows, that change operates negatively beyond the threshold levels contemplated in the act, then in those circumstances, you move to the calculation of equilibrium indemnification. Again, I will say that I’m endeavouring to answer gen- eral conceptual questions. I think the member appreci - ates that. B. Ralston: Then looking back at the document, the briefing document describes the six features, of which one is the incentive program.

Is it fair to assume that the previous definition on page 1 of the act — the “green - house gas regulatory change” — would refer to the other five features? The incentive program is specifically…. I can’t wave the document around because of the rule that I’m sure the Chair would want to enforce, but there are those other five features, as they’re described, included in this briefing document. Are they, then, included under the rubric of the “greenhouse gas regulatory change” and the regulations that under that act? I think that would be sub (a)(ii). Is that where one would find them? Hon.

M. de Jong: I am advised the answer is yes. [1505] B. Ralston: I’ll have further questions about the in - centive program when we get to

section 2 and the ac -

British Columbia DebatesThursday, July 16, 2015 9059 companying queries about the agreement itself. Unless the member for Oak Bay–Gordon Head has any ques - tions on this topic…. I’m looking at him, and indeed, he looks as though he does. I’ll keep talking until he’s ready to stand. Now he is. A. Weaver: Special thanks to the member for Surrey- Whalley for speaking so eloquently for those last 15 seconds there while I got my notes together. I would like to explore the topic, a little bit, of emer - gency emissions. I think it has been covered briefly, but I’ d just like to build on that a bit more.

I was wondering if the minister could let me know if he has any sense of what the projected emergency emissions from Pacific NorthWest LNG would be, both in terms of absolute numbers and in terms of contribution to the facility’s emissions intensity. Hon. M. de Jong: I’m not sure I have an answer — a specific answer. By definition, an emergency event is one that is unforeseen and unpredictable, so there’s not a number or a figure. An emergency can, as we all know, exist on a very small scale and be quickly and readily con- tained, or an emergency can exist at a larger scale.

I don’t think I can provide the member with a number that says we are assuming that emergencies will take place with X amount of frequency and that the result will be Y in terms of emergency emissions. A. Weaver: I’m wondering if the minister could please formally define, then, what emergency emissions are. There is not in this suite of

definitions an “emergency emission, ” which I know is related to recent release of further rules and regulations that were done earlier this week. Hon. M. de Jong: I don’t want to waste the member’s or the committee’s time. So may I ask…? I’m referring to the liquefied natural gas environmental incentive pro - gram document that I tabled, where there is a definition of “emergency emissions. ” Is it the member’s suggestion that that does not — if he has seen it — represent a de - finitive description of what is contemplated?

All I would do otherwise is read that definition into the record, and I’m happy to do so. “Emergency emissions, ” by virtue of what we’ve tabled, means the quantity, as determined by the director under the act and measured in tonnes of CO2e emissions that: “(

a) have occurred as a direct result of (

i) an accident, fire, explosion, technical failure or effect of the forces of nature, or (ii) actions in response to an unplanned event taken by an LNG operation to avoid or respond to an imminent threat of accident, fire, explosion technical failure or effect of the forces of nature or to mitigate the effects of same where such accident, fire, explo - sion, technical failure or effect of the forces of nature creates or would create a direct threat to the health, safety or welfare of a person or substantial damage to property, and [1510] “(

b) are attributable to an LNG operation under GGIRCA during a calendar year, but does not include emissions occur - ring after the threat described in paragraph (

a) has ended or emissions that could be avoided by the exercise of due diligence by the operator. ” That’s the definition we would presume to apply to de- termine whether an emission was an emergency emission. A. Weaver: My

interpretation of that, of course, is it leaves a lot of discretion to the director to determine what is or is not counted as an emergency emission. My next question, then, is: to what extent have emer - gency emissions been quantified in other jurisdictions where LNG facilities are at present?

The reason why I ask that is that in terms of the overall greenhouse gas accounting that the government is dealing with in some sense through specific liquefication facilities, I’m con - cerned that this may be a non-trivial source if emergency emissions are, in fact, a relatively common occurrence in other jurisdictions around the world. I wonder if the minister has any examples there that he could provide to alleviate such concerns. Hon. M. de Jong: Two-part answer to the member.

First of all, I’m advised that as a result of the analysis conducted by the Environment Ministry, it is their be - lief that applying this definition, as I have related to the committee and the member has seen, would ensure that emergencies of the type contemplated in that definition would occur with great rarity. I realize that is not quanti- fied, but it is described to me in those terms. The second thing I would say, though — and to repeat something I said earlier….

The emissions that result from an emergency emission situation are relevant for a whole range of purposes, not the least of which is the impact they have on the environment. They are relevant in terms of the calculations that relate to achieving the benchmark. They are relevant for the purposes of calculating the obli- gations that the operator has pursuant to the carbon tax. I don’t want to leave the impression that this is the mul- ligan. It actually does have relevance for a whole host of reasons.

I am also advised that the definition as crafted is crafted in a way to ensure that it is applicable only in the rarest of circumstances. [1515] A. Weaver: Further to that, and thanks to the minis - ter for his response. Can the minister state, specifically to Petronas, under the definition that was developed and was recently read into the record, how many inci - dents and how often these have occurred where emer - gency emissions have been released into the atmosphere at other Petronas facilities around the world? Hon. M. de Jong: We were endeavouring to get as com- plete an answer as possible for the member.

I mentioned earlier about the analysis that was done. I cannot confirm for the member either a specific number for Petronas or

British Columbia Debates9060 Thursday, July 16, 2015 what information might have been conveyed by Petronas. I can endeavour to find out, but I can’t do that here today. A. Weaver: Hence, my concern. We are being asked to actually enter into a 25-year agreement. It could be more, because we have this ten-year leeway in there. Such fun- damental questions as to the frequency and occurrence of emergency emissions are not forthcoming, because they’re not readily available. This is deeply troubling. What happens if we find out they’re quite frequent and the magnitude is large? This leads to my next question.

What happens if a dir- ector and Petronas, in this particular case…. When I say Petronas, obviously, I’m referring to the consortium as outlined earlier by the minister. What happens if there is a disagreement here? We would enter into litigation. I’m wondering if an indemnity clause could be trig - gered if government forces through something being called an emergency emission by Petronas — not being called the case by the government — going to the director, the director overruling, going to court, Petronas winning. Is an indemnity clause now being triggered? [1520] Hon.

M. de Jong: I think in this case I am able to hope- fully provide the member with some assurance. The scen- ario he has portrayed…. And that’s why we are here — to explore these scenarios. In this case there is virtually no risk of that playing out for the following reasons. It is the director that is determinative. It is not the product, the finding. The determination, the character - ization, of an incident or event is not the product of a ne- gotiation or a discussion. The director is determinative. The finding, I am reminded and advised, by the direc- tor does not represent a change event.

Therefore, it does not trigger an entitlement on the part of the operator of the sort that a defined change event would — which could, to be fair, lead to, in certain circumstances, the equilibrium entitlement, the indemnification. But in this case, in this example that we are describing, that scenario, for the reasons I’ve described, does not play out. A. Weaver: Coming back to a clarification. I’m not ques- tioning the previous bill here. There was a backgrounder that was released when the Greenhouse Gas Industrial Reporting and Control Act was released.

In it, it stated the following: “Leading global facilities had emissions intensi- ties of between 0.18 and 0.27 tonnes of CO2e” — that’s car- bon dioxide equivalent — “per tonne of LNG produced. ” What I am asking here is whether or not those calcu - lations at the time included entrained and emergency CO2 emissions. [1525] Hon. M. de Jong: A couple things. By definition, of course, we are dealing with extraordinary and, I have been advised and shared with the committee, rare events.

I’m also advised that the threshold numbers that we have been considering would not be impacted by those extra- ordinary or emergency events. I’ d also want to say this, though. Candidly, we are deal- ing with data emerging from other jurisdictions, not in Canada insofar as the widespread operation of an LNG sector. The degree to which other jurisdictions separate out emissions and emissions that are resulting from rare emergency situations…. I’m just not in a position to of - fer an authoritative answer to the member and therefore don’t wish to do so. I don’t want to endeavour to mislead him or the committee. A.

Weaver: Entrained emissions are not rare emissions. In the natural gas stream, entrained emissions are carbon dioxide that’s there. In the liquefication, you don’t want to liquefy carbon dioxide. Y ou only want to liquefy methane. They can vent the carbon dioxide at the liquefication fa- cility, and those are the entrained emissions. Again, I reiterate the question, maybe not with respect to emergency emissions but with respect to entrained emissions. The leading global facilities had emissions intensities between 0.18 and 0.27 tonnes of CO 2e per LNG produced. Did that included entrained emissions?

Those are non-trivial amounts of carbon dioxide that can be released from the stream at the point of liquefication. Hon. M. de Jong: Thank you to the member. I apolo- gize. I was referring exclusively to emergency emissions. Entrained emissions, I’m advised by officials, were in - cluded and taken into account in the calculation of the threshold. A. Weaver: I would ask, then, if the minister could point me to any evidence to actually document, if he’s available now, where in fact it states that the numbers I stated earlier, the 0.18 to 0.27 tonnes of CO2e….

Where was it actually stated that such facilities — for example, in Norway — included in there the emissions that were actually vented in the natural gas stream at the liquefica- tion, prior to liquefication, not upstream? [1530] Hon. M. de Jong: I think the best thing I could do is re- lay to the member the reports that I’m advised by the of- ficials they relied upon and the material contained within those reports for the calculations. Rather than my trying to interpret some of that material on the fly, if I might of- fer that to the member. A. Weaver: My final

summary on this particular line of questioning, then, is: would the minister not agree with me that it is simply not possible, in light of these emission loopholes, for B.C. to actually have the clean - est LNG in the world?

British Columbia DebatesThursday, July 16, 2015 9061 Hon. M. de Jong: I don’t think it’ll surprise the mem- ber to know that I don’t agree with him, but I don’t agree with him on this basis. He is a scientist; I am not. He may want to quarrel whether we are going to get there and achieve that objective, but it strikes me that in the operating of these facilities or other types of facilities, some are cleaner than others. What influences that is the technology that is employed and the regulatory regime that enforces and requires certain standards.

Most cer - tainly, in the world of LNG liquefaction activities there will be the cleanest facility. We seek to have that to the extent that we can establish that industry in Canada and in western Canada and in British Columbia. In so doing, we seek to lay claim in a very real and practical way and have sought to impose standards that will achieve that. The member will have views, I suppose, on whether these regulations will achieve that, but most certainly, I would say it is possible to have the cleanest LNG plants in the world. That is our objective, and that is what we seek to achieve. B.

Ralston: The next definition in

section 1 is “li - quefaction activities. ” I do not have questions on that particular definition, but I believe the member for Oak Bay–Gordon Head has some questions he wishes to pose on this particular definition. A. Weaver: I was just wondering if the minister could please clarify that burning natural gas for the purpose of electricity production generation to power a liquefaction plant…. Would that constitute, under this definition, a liquefaction activity? [1535] Hon.

M. de Jong: I think the member’s question was whether I could confirm that the definition of liquefac - tion activity includes “a person who owns or operates all or part of an LNG facility” — itself a defined term — “dis - posing of electrical power generated at the LNG facility. ” The answer to that is yes. That definition of liquefaction activity would cover that person engaged in that activity. A. Weaver: Would the release of the emissions that are vented to purify the stream being liquefied at the site of liquefication also be deemed to be a liquefication activity? Hon.

M. de Jong: Does the member’s question relate to emissions that relate to the production of electricity? I’m not sure I understood the question. A. Weaver: In the stream of methane that is to be li - quefied, there will be a mixture, at times, of methane and carbon dioxide. The carbon dioxide will be vented off to purify the methane prior to liquefication. That likely would happen in and around the facility somewhere. My question would be: would that venting off of any carbon dioxide in the methane stream prior to liquefication be counted as a liquefication activity? Hon.

M. de Jong: If I understand the member’s question correctly, then insofar as the activity is taking place within the LNG facility, that being a defined term itself, I think the answer is yes. But the member may want to pursue that, and if I learn something that alters that, I’ll let him know. A. Weaver: In a similar vein…. I’m just trying to get an understanding from the minister, for my benefit, on record here. If there’s any, say, fugitive emissions through leakage of methane…. I recognize that nobody wants to leak methane, because it’s a waste of money if you do that.

But at the site of liquefication let’s suppose there’s some venting, some enhanced pressure that’s vented off every now and again. Would that be considered, under this def- inition, a liquefication activity? [1540] Hon. M. de Jong: Again, it appears to me that sub (

c) would apply to capture the activity described. A. Weaver: The final question in this area is to try to get a sense of the extent to which the minister is able to provide budget estimates as to the cost to the province of the tax incentive that has now been extended to in - clude emissions being vented to purify the stream, and that is as follows. Assuming that Pacific NorthWest LNG total facility GHG emissions are higher than 0.23, the key threshold…. That is, it could be 0.26 but reduced down to 0.23 because we’re not counting the entrained emissions.

To be clear, could the minister please confirm that by eliminating entrained — we can ignore emergency, just entrained — emissions from the calculation of eligible greenhouse gas intensity, the province will now have to pay PNW’s sum amount? And my question is: what amount will that be to PNW LNG in terms of millions of dollars of addi - tional incentives? Given what PNW , presumably, has done in terms of their calculation as to what the entrained emissions will be…. They must have done a calculation of that.

Based on their known carbon dioxide content of Montney play and other gas sources in B.C., they must know how much CO2 will be vented. They must also, then, have an under- standing of how much credit they will get from the prov- ince in millions of dollars, as they now are able to get that credit because those emissions that are vented are no longer accounted for. My question here is very specific. How much more is this going to cost the B.C. taxpayer because of the fact that entrained emissions are no longer accounted for? Hon.

M. de Jong: In an earlier part of the discussion I offered to one of the other members some material that

British Columbia Debates9062 Thursday, July 16, 2015 will endeavour to provide…. I think I understand the member’s question, which is to attempt to quantify if not the entire incentive program then a portion of it. [1545] I have to be a little bit cautious. I’m not suggesting the member has to be, in his important role in this discus - sion, but I have to be in terms of dissecting out a portion of a program that has been developed to try and incent a certain behaviour — I hope the member agrees, a posi - tive behaviour.

As I mentioned to the other member — for Vancouver– West End — I will endeavour to take the formulas that we have provided in the examples and plug some numbers in that we can present to the member. That may provide some additional information. I’m afraid that’s probably the best I can offer today at the moment. B. Ralston: I’m hopeful that the minister will include me in the distribution of any of the documents that he makes available to other members. I’m sure he will.

I’ d like to move now to the definition of “LNG pro - ject agreement. ” I have debated this with the Minister of Natural Gas Development, but I suppose the basic ques- tion is: why did the ministry and the minister consider that a project development agreement was necessary? In a review of International Monetary Fund literature, certainly it’s very clear that these types of agreements are very common in the Third World, with many countries around the world, but not so common in countries where there’s a very well-established fiscal regime, rule of law, access to the courts.

The examples were given of Great Britain and Norway in some of the IMF literature. Indeed, even Nigeria does not enter into these kinds of agreements when concluding arrangements with foreign companies. So why was it felt that this form of agreement was ne- cessary with this particular proponent? Hon. M. de Jong: We, at various times over the last year or year and a half, had elements of this conversation.

I think when we were talking about the taxation regime, the member made similar observations about the need for project development agreements. [1550] Those, of course, were in the days when he didn’t think we were going to be in here discussing a specific one be- cause I would never, ever release it. Interjection. Hon. M. de Jong: Of course, that skepticism has now been displaced, and here we find ourselves. But look, I would say two things because I, too, have read the material that the member has, I think, perused about the circumstances in which agreements of this sort are utilized. But I’ d say this.

Things have changed. The members opposite, many of them, during the course of the second reading debate on this bill, pointed to, or at least alluded to, provisions of agreements that exist in Australia, for example. I don’t think…. I’m certain the member isn’t describing our brothers and sisters within the Commonwealth as a Third World nation. But he’ll confirm that, to remove any doubt, when he…. T o suggest that this is a mechanism reserved for use in underdeveloped countries — if it was true, it is certainly no longer true. And I would go further and say this.

Whilst they may not have been called project development agree- ments, there are examples in some of the countries that the member has alluded to where governments have provided, through various mechanisms, measures of certainty, assur- ance to private capital contemplating or embarking upon investments in the multi-billion-dollar range. They may not have been called project development agreements, but the objectives they were intended to achieve were the same.

The agencies we are dealing with, I will be the first to acknowledge, in contemplating the measure of in - vestment — the $20 billion, $30 billion, $35 billion investments that are at stake here — have said to the government of British Columbia that they are seeking to eliminate some of the uncertainty that falls within the jurisdiction of government. There has been a discussion about how much of that uncertainty we are prepared to eliminate in the context of an agreement. And much of that will characterize much of the ongoing discussion here about the balance that we have struck.

But the idea that these are instruments that are only employed in Third World situations — I’m not sure it was ever true, but it is certainly no longer true. The Chair: Would the member like to respond, or shall the committee take a brief break? B. Ralston: Perhaps this would be an opportune time for a break, Mr. Chair. I’ d concur. I don’t know what the minister would think. The Chair: The committee will recess for ten minutes. The committee recessed from 3:54 p.m. to 4:15 p.m. [R. Chouhan in the chair.] B.

Ralston: I probably should begin by correcting, just in case the government caucus communications wants to distort my words and suggest that somehow my reference was to British Columbia as a Third World jurisdiction. That’s clearly not true, and I just say that for those down in the basement who are monitoring this transcript and endeavouring to find weaknesses in it. The reference to Australia was as a result of a refer - ence by the Minister of Natural Gas Development, who referred me there. He or, at least, other members of the Liberal caucus seemed somewhat discomfited by the

British Columbia DebatesThursday, July 16, 2015 9063 fact that I actually went there and read those agreements and found some aspects, which I thought he was recom- mending for inclusion here, apparently weren’t included here. But that’s probably a debate for later when we get to the formal agreement. I suppose my question….

Given what the minister has said, and he can correct me if I’m wrong, it appears that the desire for this kind of agreement was solicited by and sought by the proponent and that the government decided to respond to that and begin a negotiation with this kind of agreement as the basis or the substance of considerable discussion and negotiation about important parts of the proposal if it were to go forward.

Can the minister then, to begin, confirm the requirement or the suggestion that this would be a positive way to provide the assurance the com- pany sought was initiated by the company or by the con- sortium, however he chooses to characterize the group? Hon. M. de Jong: Look, I think that as we began the work on this going back two and a half, three years, our folks were certainly made alive to the fact that in other jurisdictions, particularly jurisdictions where this indus- try was establishing itself for the first time, this instru - ment had come into common usage.

The interest that proponents had once we became engaged with them revealed itself, although not in every instance, initially. I wouldn’t want to leave the impression that at the in- itial stage every one of the groups with which we were en- gaged set this out as a prerequisite.

I think it would be fair to say that as the conversations progressed, it became clear to us that as a means of dealing with some of the matters that fell within the jurisdictional authority of the govern- ment of British Columbia, a contract of this sort was go- ing to be the preferred mechanism, ultimately, for all of the proponents that we were intensively engaged with. [1620] B. Ralston: And in considering this definition of an LNG project agreement, and the preparation for negotia- tions leading to one, can the minister explain…?

In this particular case, the completed agreement, which we’re going to deal with later in these proceedings, can the minister confirm…? At that stage it was Petronas before they had sold off or brought in other partners, minority interest partners, although they retain the majority inter- est in the consortium. To what degree was due diligence exercised in terms of finding out or discovering…?

Since they are a global company active in some 60 countries around the world — from Sudan, Chad, Vietnam, Iran — to what degree had they negotiated agreements of this type in other jurisdic- tions in order to provide some negotiating guide to of - ficials and political leadership here in British Columbia? Hon. M. de Jong: Two different means by which we did seek to obtain information relevant to the question.

The first involved the retention of our own experts that have practised internationally in this field, tapping into their expertise and intelligence and experience about where these agreements have been utilized generally, where they have been utilized by Petronas in circum - stances where they are the senior member of a consor - tium, and in circumstances where they have been utilized where Petronas is a more junior partner and has a re - duced participatory role in an agreement. That work was undertaken.

We have the benefits of that intelligence and reports and then direct conversa - tions with Petronas themselves in terms of the parts of the world where they have embarked on projects and the work they have undertaken and the agreements, some of them, that they have entered into. So those two combined, but the primary source would have been through our independent experts that were hired to assist us through this process. B.

Ralston: I don’t want to provide the minister with an opportunity, although he may take it, to enter into a long discourse on the public accounts that he tabled yes- terday, but I haven’t had a chance to examine the list of suppliers that is included as an appendix. Can the minis- ter explain or set out who the principal consultants were that he’s described and, if it’s possible, describe how much they were compensated and over what period of time for providing that kind of advice? [1625] Hon.

M. de Jong: The lead of the legal-based team for this work was the firm Shearman and Sterling, Anthony Patten being a principal with that firm. Their office in Singapore specializes, I am advised, in the LNG sector, so they would have been a key part of the team that we would have relied upon. I can’t, as the member would expect, off the top of my head indicate what the payments to that firm were over the course of the time they have been working. But I can, if the member likes, go to the public accounts and secure that information. It’ll be readily available.

I would say, and I don’t think I will either surprise or offend the firm, that they’re not cheap. B. Ralston: I think that’s usually considered a com - pliment in legal circles — but contrary to the minister’s well-known personal inclinations, perhaps, celebrated in recent newspaper articles I’ve seen. Can the minister then…? He spoke of two categories of contracts in the course of doing due diligence about Petronas as a potential negotiating partner, one in which Petronas was the lead partner in agreements that were concluded there and one in which it was a junior partner.

I’m more interested in those agreements where Petronas was a lead partner, insofar as those documents are avail- able in English or perhaps French and not some other lan-

British Columbia Debates9064 Thursday, July 16, 2015 guage which would require a translation, although there’s nothing wrong with concluding agreements in other lan- guages, obviously. But for ease of access, are there agree- ments that he’s prepared to table or at least point to? Petronas’s financial affairs are somewhat opaque. As the minister will know, they report directly to the Prime Minister of Malaysia and not to the parliament. In terms of transparency of their financial position, there’s a cer- tain level of murkiness there.

If those contracts are avail- able and he has the consent of Petronas to release them, would he be prepared to do so? [1630] Hon. M. de Jong: There’s a fairly straightforward an- swer to the specific question, which I think is: did we have access to, and are we in a position to release, any agreements to which Petronas was a signatory or a major partner? The answer to the first question is no. We did not and therefore are not in a position to provide access to the member or the committee to any of those agreements. The other thing I’ d say, though, is these discussions took place….

It would be incorrect to portray the setting around which the discussion took place as being purely bilateral, because, of course, there were more propon - ents involved. I don’t want to suggest that this was a summit-like meeting with all of the people in the room necessarily all at the same time, but we had conversations, discussions, consultations with various proponent groups and agen - cies, Petronas being one of them. I can point the committee and the member to three agreements that are in the public domain.

They don’t in- volve Petronas, but they are in the public domain, and they are documents that we analyzed and studied. The Gorgon gas processing and infrastructure pro - ject in Western Australia, which I think the member is familiar with and has referred to; North West Gas Development–Woodside in Western Australia; and the Stony Point Liquids Project in South Australia are all examples of agreements that we did have the benefit of examining and reviewing. B.

Ralston: I suppose in preparing for agreeing to en- ter into a negotiation for a project development agree - ment, and I suppose deciding or agreeing upon what topics would be the subject of agreement, which is the definition

section in

section 2, ordinarily leads…. In any negotiations I’ve been involved in, one tends to want to research as best one can the characteristics, the track re- cord, the history, as much knowledge of one’s negotiating opposite as one can endeavour to do. Given, particularly, that LNG, as the minister will be quick to point out, is notoriously a global industry, how — without access to any contracts that the company had signed in any of the 60 countries that it’s active in — could one effectively bargain with them?

Would the minister not consider the absence of that knowledge a handicap to an effective negotiation on be- half of the people of British Columbia? [1635] Hon. M. de Jong: I’m not going to dispute what I think was the member’s submission off the top. When you are in a negotiation, you would like as much information as you can. Y ou wouldn’t mind having the other guy’s play- book. They did not share theirs.

The member has correctly pointed out the reporting mechanism that exists between the state energy company and Malaysia is different than the relationship that exists between a Crown corporation and the government here in British Columbia. We are, in our various roles, participating in about as open and transparent an exercise as one can with respect to a contractual arrangement.

It will not just be British Columbians — although they are our concern — but others around the world who will derive the benefit from being able to see what it is that we agreed to and hearing a little bit about how we came to that agreement. We did not have that same advantage with respect to Petronas. In addition to the information that was pub - licly available, what we did have — and, candidly, what we paid for — was the advice from international counsel who had been involved in extensive negotiations and dis- cussions in this field.

They could bring that experience to bear and share with us — and they did — detailed infor - mation about the positions we might expect to encounter at the discussion table and strategic advice on the manner in which we might respond and give effect to our own objectives in those discussions. B. Ralston: I thank the minister for his response. There is a term in economics — I think Joseph Stiglitz has written extensively on it: “asymmetrical knowledge” in markets. What the minister seems to be describing, in terms of this negotiation, is a classic case of asymmetrical knowledge.

The bargaining position of the government, through the political process, was transparent — indeed, widely pro - claimed by the Premier beginning in 2011 through to the election in 2013. I won’t go through all the details. I’m sure the minister is probably very familiar with the submission that many on this side and in the public make about the position taken by the Premier on behalf of the province. That position is very public. Y et the degree of know - ledge about the multinational, the 28th biggest oil and gas company in the world….

There’s no access to any of the contracts they’ve signed in any of the other 60 coun- tries they are active in. A little bit of legal advice…. I’ll ask some questions about pricing models and that kind of information separately. Would the minister not agree that the province of British Columbia went into these negotiations weighed

British Columbia DebatesThursday, July 16, 2015 9065 down with numerous handicaps and the bargaining ad - vantage clearly in favour of Petronas? [1640] Hon. M. de Jong: A couple of things. I am going to, not surprisingly, take a little bit of issue with the charac- terization that the member and some of his colleagues have offered that all of the cards in this discussion, ne - gotiation — in the case of a contract, it is a negotiation — were held by one of the parties. I’m going to do so in the following way.

First, with respect to the information that one seeks in order to prepare — the experience, the information — one can acquire that, and we did, on behalf of the tax - payers. We tapped into the intellectual capacity of some very talented individuals — some who work within the government, and we’re lucky that they do; others who don’t and whom we paid money to, to receive the benefit of their expertise.

I’ve mentioned the international counsel who we re - tained and who brought great value, we believe, to pre - paring us not just for the discussion with Petronas but the discussion that took place with other agencies. Secondly, I would say this. We tend to forget this, in terms of measuring who brought what to the table. Petronas came to us. In fact, Petronas came to British Columbia and invested upwards of $6 billion, $7 billion, and they did so on the basis of a desire to gain access to a resource that British Columbians own.

Then they went further and signed supply agreements with customers elsewhere in the world that they are on the hook to satisfy. There is pressure now associated with meeting those obli- gations. That is pressure they have created for themselves, but pressure nonetheless. They are perhaps familiar with and have experience in the process of liquefaction. They have less experi - ence in how the laws of British Columbia operate and the regulatory framework and the need to engage with communities and First Nations.

Those are matters that we as British Columbians enjoy a marked advantage in. [1645] Then I would say this. I realize and I understand that the member will want to characterize this differently, and that’s fine, but at least conceptually, governments in this regard are very different than private sector companies. We have an obligation to say to our shareholders, the people of British Columbia: “Here is our vision of what we can or should or intend to do with the resource that you own as citizens. ” In presenting that vision, we in this case clearly chose to highlight what the potential is.

But in the same way that governments in the past have talked about the advantages of developing the Hibernia offshore fields or Suncor or Syncrude…. Those projects didn’t just emerge out of thin air. Governments of a pre- vious day said to their citizens: “We choose to develop this. We choose to engage in discussions with the private sector agencies who are expressing an interest in bring - ing capital to develop. ” I understand the member’s proposition, and some of his colleagues, that in any negotiation, signalling your objective reveals a bit of your playbook. Fair enough. But that’s an obligation we have.

That’s not an obligation we have to the person or the agency on the other side of the negotiating table. That’s an obligation we have to our cit- izens and not one that we can avoid. I don’t know that I’ve persuaded the member, but that is my take on how the dynamic, if you will, and the com- peting pressures operate on all of the parties involved in a discussion of this sort. B. Ralston: I appreciate the minister has the position that has been set out by the Premier, and he’s obliged, as a member of executive council, to defend that vigorously. Indeed, that’s his obligation and duty.

I don’t doubt that he actually sincerely — because he said so in the House — believes that what he’s doing is a good thing. His sig - nature is on the agreement, and he said in his speech that he was proud of it. I accept all that. I suppose the issue is really, given…. Not only just the ordinary obligations of a leader in a democratic govern- ment but the very particular promises that were made in the election — and the political urgency felt, I would suggest, by the Premier on behalf of her cabinet and caucus to actually deliver a deal — led to a very opening and weak bargaining position.

Not only was the general position of the government clear that they wanted to ne- gotiate a deal. There was a very specific political urgency which is reflected in the terms of this deal. Certainly, the previous CEO, Mr. Shamsul Azhar Abbas, made a number of statements, but I’m think - ing particularly of his statements that he made in rela - tion to negotiating an LNG project agreement and the items therein back on October 6, 2014, where he said that he was prepared to walk away, that he would have a tough time meeting, that missing this date at the end of October…. That was October 14, 2014.

I’m quoting from the release signed by Spencer Sproule, I think someone who’s known to the members opposite. “Missing this date will have the impact of having to defer our investments until the next LNG marketing window, anticipated in ten to 15 years. ” Clearly, the other side was prepared to bargain hard and, in this case, bargain publicly; threatened to with - draw entirely, to pull out of the deal, to leave the prov - ince.

The position that had been taken by the Premier didn’t permit a similar flexibility or opportunity for the government side. [1650] It’s striking the minister mentions Hibernia, because the role of Premier Danny Williams in Newfoundland in ne- gotiating there was dramatic. He threatened to pull out and got a much better deal, including equity, a super-royalty

British Columbia Debates9066 Thursday, July 16, 2015 and local supply provisions, because he was prepared to negotiate hard on behalf of the citizens of Newfoundland. I appreciate that it’s unlikely that the minister will agree with me, but I think he should be prepared to at least acknowledge that the position the government started out from and continued with was not the most advantageous position in which to enter a negotiation, faced with a very determined, experienced global player who was negotiating very hard in private and in public. Hon. M. de Jong: Right. I think we’ve both kind of had our say on this.

I won’t seek to prolong it, except perhaps to extend this initiation. The member referred to a letter or a press release and attaching the letter. I vaguely re - call…. There was lots of paper flying around publicly and otherwise. If it’s the one I’m thinking of, and to the extent that it refers to specific issues or measures, it would be in- teresting to compare that and the expressions of concern contained in that document with what we actually have before us, to see to what extent actually the government moved or someone else moved. I don’t have a clear enough recollection.

I know the member is sharp enough and quick enough that either today or tomorrow he’ll do that. But if he wants to tell me which document it is, I’ll do the same thing, and we can see to what extent these negotiating tactics…. And there’s clearly, in something of this sort…. Let me end by saying this. I think the proposition that the member and his colleagues wish to advance is that the government was resolved or prepared to negotiate a contract at any price. That was not the case. It is clear to me that the member and his colleagues do not find fa - vour with the product we ended up with.

But I am equally adamant at wanting to, at least, put on the record with the committee that the government wasn’t, isn’t and is not prepared to sign agreements of this sort at any cost. They must meet the test of being in the best interests of British Columbians. B. Ralston: Just to deal with the minister’s first point. This is a press release by Petronas — Vancouver, British Columbia, October 6, 2014. I don’t have an additional copy.

I can have one made, obviously. [1655] It does say: “Without material cost reductions across the project, we’ll have a tough time reaching a positive FID by mid-December 2014. ” Now, no positive FID has been received yet. “In order to remain competitive, Petronas needs to secure consensus on key principles vital to the success of this project by…October. ” If we miss that date, it’ll have to be deferred ten to 15 years. Certainly, that was a very tough position taken by the then CEO of Petronas on behalf of the company.

I sug - gest that went someway towards moving the government to reduce some of the proposed taxes and revenues that it envisioned negotiating with this particular propon - ent. The minister, I’m sure, is going to disagree, but it’s pretty compelling evidence that after that release there were changes in the position of the government acknow- ledging the decline in the price of landed LNG in Japan and Korea. The other question I have in terms of the project de - velopment agreement is in terms of preparation for and the financial aspect of it. Obviously, global price and the economics of the project are key.

Indeed, the CEO refers to that. The minister has referred to the advice of the Singapore law firm Shearman and Sterling. What specific advice on global pricing and costs of comparable projects was solicited and available to the negotiating team, given that in October 2014 the financial projections of the gov- ernment used a $12.50 LNG price? Even the document that has been recited by so many of the minister’s colleagues in this second reading debate assumes a price of Henry Hub plus $7, which is nowhere near what the price is right now.

Can the minister explain how, in preparing for nego - tiating an LNG project agreement, information analysis of price scenarios was developed and made available to those negotiating on behalf of the government? [1700] Hon. M. de Jong: I guess the first point…. Not to dwell on it, but the member at the beginning of his question referenced the law firm Shearman and Sterling. Two things about that. First of all, we did not derive pricing advice from our legal team. The member will know that advice we did re- ceive from our legal team I’m not likely to speak about in this setting. Nonetheless, I’ll set that aside.

The other observation I’ d make…. The member will undoubtedly respond, but I do want to say this. The pricing information, advice, analysis that was conducted was certainly relevant and something that we talked about in previous discussions and debates in this cham- ber with respect to setting taxation rates. There is no question about that. Our analysis in trying to settle upon that balance — we were taking that intelligence, that an - alysis, that forecasting into account.

But when we shift to the project development agree - ment, those numbers then have been set, and the agree - ment is about establishing certainty, stability, particularly in the four areas that we have discussed and will discuss further. I don’t want to leave the impression that that advice and exchange of information internally was an ongoing process through the negotiations that took place leading to the signing — in this case, Pacific NorthWest — of the project development agreement, because those numbers have then been set.

What we’re talking about in the pro- ject development agreement are the stability mechanisms and the certainty that accrues with respect to four areas, three of which are taxation areas.

British Columbia DebatesThursday, July 16, 2015 9067 The member may want to pursue further the nature of the advice. We talked a lot about that, actually, when we were talking about the taxation numbers. But I do draw that distinction between the degree to which we relied upon that information and intelligence in setting tax numbers versus the shift that took place when we were dealing with the provisions of both this legislation and, prior to that, the project development agreement itself. B. Ralston: The principal heads of agreement in the LNG project agreement — they’re contained in

section 2 as the template for this agreement and for future ones — involve and result in, I think in the view of many, fair - ly clear tax concessions to the proponent, in some cases up to 25 years plus up to ten years — as long as 35 years. The minister says that the price numbers are set, and this was a different negotiation. It seems to me that in that negotiation one might well want to consider whether, for example…. The minister, I recall in the briefing, said that….

I think the way in which he phrased it was he hadn’t devoted a lot of intellectual capital to the question of whether or not the project was going forward. He said it was going forward, and he proceeded on that assumption. Can the minister…? The price that’s being used, even in the material that Henry Hub plus $7…. That’s the one that’s the basis for all the submissions by, and all the rep- resentations by, all the Liberal MLAs throughout the de- bate. It’s not a market price. It’s a price 30 percent higher than the actual July price. [1705] So can the minister say, in this current price environ- ment…?

Has Pacific NorthWest LNG or Petronas, de - pending on how you want to phrase it, committed to construction of the facility — not to a final investment decision but to construction of the facility — in this price environment? Hon. M. de Jong: In fact, it was a very specific ques - tion, so it should be uppermost in my mind. Are they going to build? I think that’s what the member has asked.

What we have not just been told but what is the es - sence of what is before us and the agreements that have been signed and the memorandums of understanding that have been signed is that subject to two conditions precedent, the passage of this ratification legislation and the receipt of environmental approval from the federal agency, Pacific NorthWest energy, including Petronas, will proceed. Of course, the terms of this agreement only become relevant and take effect if they do. So that is a rel- evant consideration.

The member, I think earlier in his submission, made observations around pricing — pricing assumptions, pricing models. I would say two things in response. [1710] One, in assessing the economics of this project and perhaps future projects, one needs to be a bit cautious insofar as we are led to believe, but are not privy to all of the details, that supply contracts have been signed be- tween this agency and others. Those agreements may well involve prices other than what is the market price today. So one has to be cautious about making assumptions for the purpose of calculating.

Secondarily, that analysis is fundamentally import - ant if we’re pledging public dollars, and we are not. It is why we can say — and the Minister of Natural Gas and Housing is here and has said this repeatedly — that that analysis takes on an entirely different complexion when it is non-public dollars, not British Columbians who are assuming the risk. It is the agencies who are purporting to make this investment. Then the last thing I would say relates to the fact…. The member has pointed to some of the modelling.

I took the view, as did my colleagues, that it was important that British Columbians, via the opposition and the good of- fices of the opposition, have an opportunity to analyze and scrutinize this agreement. I equally thought it was appropriate that they have some appreciation for the benefits that would flow from this agreement if and when it takes effect. That is the rationale behind providing in- formation as best we can, based on certain assumptions, about the benefits that will accrue to British Columbians as the owners of the resource. B. Ralston: I thank the minister for that answer.

I am interpreting — and he will correct me if I’m wrong — from what he said that he has received a verbal assurance from the highest level of the Pacific NorthWest LNG that, assuming the province keeps its word and its contractual obligation here in

section 2.1 of passing the enabling legislation and ratifying the agreement, the company will move to deal with the project certainty matters as they’re defined in the agreement. That will trigger a pro- ject certainty date set out in 2.4 which is 24 months after the effective date. Does the minister…? I put this proposition in my speech at second reading. I feel a bit like the Minister of Transportation, quoting myself and saying as I said, but be that as it may…. The commercial operations date is December 31, 2025.

Obviously, there’s time required to construct the project, but even assuming that the company reaches the project certainty date and is certified by the province, as I read the agreement — and perhaps the minister can correct me — there is no obligation to construct other than to meet the deadline of December 31, 2025. Effectively, there’s a very long window there in which the company, despite their verbal assurance of saying they’re going to construct, doesn’t have to, and they would not be in breach of the contract. Now, I’ d be interested in the minister’s reaction to that.

The reason for raising that is that it does seem to play into certain elements of the negotiation. If that is indeed the

British Columbia Debates9068 Thursday, July 16, 2015 case and effectively Pacific NorthWest has purchased an option, they’ve got what I would describe as very serious and massive concessions by the province on the fiscal side. What is the trade-off there? [1715] Rather than being obliged to begin construction and then trigger the concessions, they’ve got the concessions with a very long window, which is effectively an option. Given their global operations, they can wait and decide whether they want to proceed at some point.

In any event, they can give 90 days’ notice and get out of the agree - ment, should they decide, say, in 2021 or 2022 that they no longer wish to proceed with construction of the plant. I think, given the quality of the legal team that the minister has talked about, that scenario would have been considered. So can the minister advise what his view of that likelihood is? Hon. M. de Jong: Let me start by ensuring that I prop- erly understand the concern/suspicion that the member harbours.

That is, that the proponent in this case, Pacific NorthWest, would indicate to the Crown, “We have taken final investment decision, ” and send whatever notice one sends in those cases, trigger the provisions of this agreement and then sit idle for the better part of a dec - ade. If I understand that concern correctly, then what I would do is refer the member to the

definitions within the agreement, “project certainty date” and “project cer- tainty matters. ” The member will see that, as a precursor to reaching a positive final investment decision, they are obliged to do a whole bunch of things that involve spending vast sums of money.

When they send that letter that says, “We’ve taken final investment decision, ” yes, we will likely cheer and be pleased about that. [1720] The next thing we’ll do is say: “ All right, let’s see your notice to proceed in respect of the material engineering, procurement and construction contracts for your LNG facility. ” We’re entitled to see that. So were the propon- ent to proceed in the manner that the member expresses concern around, they put tens of millions of their own dollars at risk. That

section was built purposely to avoid the scenario that the member has described. B. Ralston: Well, I don’t agree with the minister. Thanks to the good offices of the Premier and the nat - ural resources conference in Prince George…. I wasn’t there last year, but I was there the year before. Some of the major proponents for LNG projects were there and spoke about what expenditures they’re prepared to make and walk away from if they don’t decide that the project is worth proceeding with. I had no idea of the magnitude of this. That could

Document details

Collection	British Columbia — Debates (Hansard)
Citation	20150716pm-Hansard-v28n3
Type	hansard
Volume / chapter	20150716pm Hansard v28n3
Language	en
Format	pdf
Source	PROVINCIAL
Identifier	739901a17ce81bbfe15656b8c059616cce908962

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