By Nick Martin
Published in the Province

October 14, 2018

The decision to move ahead with LNG Canada — a $40-billion facility to export liquefied natural gas — is great economic news for B.C. and Canada, but it is not being applauded by all.

Some politicians and environmental groups are denouncing the project. They say moving forward with the facility will make it nearly impossible for B.C. to achieve its legislatively mandated greenhouse gas emission goals.

And they are right — on paper at least.

Depending on who you ask, LNG Canada will add an additional four to 10 megatonnes of GHG emissions to the province’s balance sheet. Taking the higher estimate, this means that up to 75 per cent of B.C.’s 2050 emissions budget will be consumed by LNG Canada alone.

But in terms of mitigating global climate change — the ultimate goal behind setting emission targets — the numbers driving opposition to LNG Canada don’t add up.

LNG Canada isn’t likely to increase global emissions, the metric that really matters for mitigating climate change. It may actually reduce global emissions if the exported natural gas displaces coal in places such as China.

This apparent contradiction stems from how Canada — and most of the world — assigns responsibility for GHG emissions. The current method allocates emissions to the region in which they are physically produced. In an increasingly integrated global economy, however, this accounting practice creates perverse incentives.

Emissions can be reduced on paper by replacing domestic production with foreign imports. This means it would be good, from an emissions accounting standpoint, to shut down factories in Canada and instead buy those products from elsewhere. In reality, however, the emissions will still be created, just not in Canada. The main difference will be fewer jobs for Canadians.

For export-oriented industries such as LNG, reducing emissions by not producing and exporting LNG will likely result in more LNG and associated emissions being produced elsewhere to fill the supply gap — once again shifting emissions and the economic benefits associated with them to another country. Economic pain and no emission-reduction gain.

A better way to allocate emissions is by final domestic consumption. This means assigning the emissions embodied in goods and services to the region that consumes them. British Columbia, for example, would count emissions embodied in the electronics, food, fuel and other goods it consumes (including imports) and the emissions resulting from the production of exported goods such as LNG would be assigned to the region in which they are used.

While this accounting method — assigning emissions to the location in which they are ultimately consumed — may be more fair, it doesn’t necessarily show our country in a better light. Recent research suggests that B.C.’s emissions (and Canada’s emissions as well) taken from a consumption standpoint are higher than current measures show.

Fortunately, Canadian policy-makers have tried to adapt our policies to address these counterproductive policy implications driven by our current accounting mechanism.

For LNG, both Premier John Horgan and Prime Minister Justin Trudeau touted the potential global GHG emission reductions of LNG Canada, and B.C. has offered a partial carbon-tax rebate to help the project compete with jurisdictions lagging on climate action. More generally, the federal government’s backstop carbon pricing scheme is specifically designed to minimize the incentive to shift output in trade-exposed industries to countries that do not price emissions.

Still, the accounting dilemma should not be ignored.

The failure to achieve GHG targets is a strong and convincing story to tell, which is good because it helps hold government accountable. But when it rests on flawed accounting practices, it can lead to flawed policies that cause economic harm without effectively reducing emissions.

We need to achieve our emission reduction targets. But we need to measure these targets in ways that support good policy to reduce global emissions.

This will mean we can no longer hide emissions by importing them, while reducing the focus on export-related emissions that cannot be effectively reduced though unilateral Canadian actions.

Nick Martin is a policy analyst at the Canada West Foundation.