10th December 2021
Experts Say Fossil Fuel Royalty Review Should Include Water
BC is overhauling what it charges companies to access public resources. The public can weigh in until Dec. 10.
Michelle Gamage 7 Dec 2021 TheTyee.ca
British Columbia should review how hydraulic fracturing companies are allowed to use and pollute water, because the industry’s current access works as a subsidy, according to the Canadian Centre for Policy Alternatives.
The government promotes fossil fuel production by allowing fracking companies to pay cheap rates for a publicly owned resource, and by not requiring companies to treat the water they pollute, noted the CCPA in an open letter sent to the province in late November.
B.C. is currently overhauling its oil and gas royalty system, which is “broken,” according to a recent report commissioned by the province. Royalties are like rent that companies pay to the province to access a publicly owned resource, like minerals and lumber — or water.
Overhauling the system will let the province get rid of “outdated, inefficient fossil fuel subsidies and ensure British Columbians get a fair return on our resources,” said Bruce Ralston, minister of energy, mines and low carbon innovation in an October statement.
The public can weigh in on the review until Dec. 10. Environmental organizations say the review is an opportunity to tell the government to slash subsidies, hike royalty rates and encourage the fossil fuel industry to wind down during the climate crisis.
But that review is “incomplete” without also looking at how the oil and gas industry uses water, which is an essential part of the fracking process, noted the open letter.
The letter is signed by public health, public policy and environmental organizations like the Canadian Association of Physicians for the Environment, the Public Health Association of BC, Sierra Club BC, Stand.earth and the Wilderness Committee.
Fracking is the only industry in B.C. that is not required to treat the water it uses, and it should be charged at a rate that reflects that impact, said Ben Parfitt, resource policy analyst with the CCPA’s B.C. office who organized the letter.
“The oil and gas sector, in using water for fracking, is paying the equivalent of less than a pint of beer for every Olympic swimming pool’s worth of water that they withdraw from lakes, rivers and streams,” Parfitt said. “It’s $5.62 for every 2,500 cubic metres of water that they use.”
That rate is similar to what other industries pay. But Parfitt adds that water used by fracking companies “is permanently toxified, is not treated and is pumped for disposal underground in processes that can cause earthquakes and cause toxic water to start to move in unanticipated directions.”
B.C. water use fees are based on volume and purpose for use, according to the Ministry of Environment and Climate Change Strategy. In an emailed statement, the ministry said oil and gas fees match the highest rate charged for industrial use. The industry is charged $200 per year, or $2.25 per 1,000 cubic metres — whichever is higher.
Another way to say that is oil and gas companies pay less than one cent per cubic metre of water. For comparison, residents in the City of Vancouver pay between $1.53 and $1.22 per cubic metre depending on the season.
A single well will use between 5,000 and 30,000 cubic metres of water during the fracking process, according to the Canadian Association of Petroleum Producers website.
In an analysis of industrial water use in 2019, Parfitt found the oil and gas industry is the eighth largest user in B.C., excluding hydro and agricultural. The industry used 2.6 million cubic metres per year — about 1,020 Olympic swimming pools’ worth.
That’s smaller than snowmaking (5,239 Olympic swimming pools’ worth) and freshwater bottling (1,062 Olympic swimming pools’ worth), but larger than well drilling (786 Olympic swimming pools’ worth).
But that number will increase if proposed natural gas projects like the Coastal GasLink pipeline or LNG Canada facility are built. The industry has already grown exponentially.
From 2012 to 2019, the average well went from using 7,000 cubic metres of water to more than 22,000 cubic metres, Parfitt noted in a Policy Note article published in May.
When contacted for comment, CAPP said B.C.’s natural gas resources could be used to help countries reduce their coal use.
“B.C. produces some of the cleanest and lowest emission natural gas on the planet,” said Geoff Morrison, CAPP’s B.C. manager in an emailed statement. “If we want to act to lower global emissions, B.C. needs to participate in the push to grow natural gas supply and develop a competitive environment that attracts investment here rather than to push it to countries that do not match our high environmental standards.”
Public health groups like the Canadian Association of Physicians for the Environment argue that when you consider the entire lifecycle of natural gas — from production, shipping and burning — the fossil fuel is no better than coal.
CAPP did not respond to questions about whether the industry could treat its wastewater or if the organization supported adding water to the current royalty review.
Its website noted that fracking is highly regulated in Canada, creates thousands of jobs and generates government revenue through taxes and royalties.
As of July 2021, B.C. has almost 36,000 oil and gas wells, 36 per cent of which are active.
Fracking companies can also access free water.
Parfitt said oil and gas companies don’t have to pay for their use of “deep groundwater” under the Water Sustainability Act. The province defines “deep groundwater” as water at least 300 metres deep and found below a geological formation called the “fish scale” zone.
So how did we get here?
Donna Forsyth, who worked for the B.C. Ministry of Environment and Climate Change Strategy from 2006 to 2020, explains the history of the fossil fuel industry’s access to water in a paper submitted alongside the open letter to government.
The free access to water is a holdover from the early 2000s when the government was trying to encourage the growth of the natural gas industry, she writes. The initial idea was that oil and gas companies already paid high permit fees, so rental fees for the small amount of water used by the industry for mixing drilling muds could be waived.
At the time, no one was thinking about the huge volume of water future fracking projects could use.
But then the industry grew. And as it expanded, its water use jumped exponentially because of the industry’s size and because the industry started using fracking technology more and more.
Deep groundwater exemptions started as a way to encourage fracking companies to use salty water “unsuitable” for any other use — but industry lobbying later got the salinity requirement dropped, so companies can now harvest fresh or salty water from deep underground, Forsyth noted.
Then there’s the pollution issue.
The fracking process pollutes water by mixing it in with a cocktail of mud and chemicals used to break apart rock formations deep underground, where it’s further polluted when it comes into contact with salt, minerals, heavy metals, hydrocarbons and radioactive elements, Parfitt said.
CAPP’s website says fracking water is 98.5-per-cent water and sand, and 1.5-per-cent “additives,” which are used to reduce friction while drilling.
The water is then stored in holding tanks or large lined pits, before being pumped back underground for permanent storage.
“Every other industry ‘borrows’ their water and is required to treat it, if necessary, before returning it to the water cycle,” Forsyth said. But that process is “voluntary” for the oil and gas industry.
This could be considered a “huge indirect subsidy, through the removal of [cleanup] costs,” she said.
But ordering fracking companies to clean up their wastewater might not be as easy as it sounds. To start, no one really knows what’s in the wastewater — and that means it’s hard to know how to clean it up.
Water purification processes like reverse osmosis or distillation can remove salts and radioactive materials from the water but are expensive.
Pumping water underground is the cheapest option for disposal so companies are likely to resist change, Parfitt said.
But pumping water underground isn’t a solution either, said John Janmaat, a professor of economics at the University of British Columbia.
A 2019 fact sheet by the BC Oil and Gas Commission said wastewater is disposed of in wells up to two kilometres deep with “multiple impermeable layers” between the wastewater and groundwater. The commission didn’t respond to questions submitted by The Tyee by press time.
That means hundreds to thousands of years will likely pass before something like an earthquake creates cracks that mixes wastewater with groundwater — but that could also happen way sooner too, Janmaat said.
By choosing to dispose of wastewater underground, we’re choosing to protect today’s fracking companies from the cost of cleanup while offloading that cost on a future community, he said.
Thinking of the future is exactly why we should review the royalties paid by the fossil fuel industry today, Parfitt said. The climate crisis means that fossil fuel industries need to be wound down as the world reduces its energy use and transitions to renewable power.
“If the fossil fuel industry was required to treat its water, they wouldn’t be in business,” Parfitt said.
“This is why we want attention focused on this right now. Is it the case — and we’ll find out if the government is really serious about its royalty system review — can this industry operate at all without the breaks that it’s being given?”
Janmaat said B.C. has options when it comes to making companies pay for the cost of polluted water.
The government could increase royalties to improve the “fair return” paid on resources, he said. But royalties don’t consider environmental risks, like permanently removing water from already arid watersheds, or potential future groundwater contamination.
If British Columbians are more concerned with environmental risks than getting a fair return for their resources, the province could use a bonding system to ensure companies pay for their pollution, Janmaat said.
Companies would put up money for a bond before a project was started, he said. That money would then be held — for hundreds or even thousands of years — until the company could prove in the future that it did not cause groundwater contamination, or any other environmental disaster.
After water is disposed of underground, the BC Oil and Gas Commission says it can request and audit data on the pressure in the well for up to one year.
There are so many unknowns when it comes to disposing of wastewater underground, it seems like an unnecessary risk,” Janmaat said.
continued in Part 2