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Fate of British Columbia thermal coal tax unclear

12 May 2017 16:33 (+01:00 GMT)
Fate of British Columbia thermal coal tax unclear

Washington, 12 May (Argus) — The fate of a proposed tax on thermal coal entering British Columbia remains uncertain following provincial elections this week, but market participants said they are following the Canadian province's political developments closely.

The Liberal Party, led by premier Christy Clark, appears to have won just 43 seats on 9 May, one shy of the number needed to constitute a majority. A final tally will not be ready for a few weeks as absentee ballots are still being counted in a number of close races.

Clark proposed the $70/metric tonne carbon tax on thermal coal in the final days of campaigning as a retaliation for the US tariff on Canadian softwood lumber. She also suggested the province could ban US coal shippers from using British Columbian ports for exporting.

Based on the initial election outcome, the Liberal party is likely to negotiate forming a government with other parties including the Green Party and the New Democratic Party (NDP). If that happens or the Liberals gain another seat and Clark continues as premier, she might consider delaying or "look for wiggle room" on the carbon tax, University of British Columbia political scientist Kathryn Harrison said.

Clark's proposals were a "bold move" given the Liberal party's overall support of fossil fuels, including the development of an LNG export industry in the province, Harrison said. And after disappointing election results, the party may not have the appetite to immediately undertake the significant legal challenges Clark's proposals would face.

Critics could question whether the province is unconstitutionally superseding the federal government's trade authority by incorporating carbon emissions end users in Asia and Latin America in its tax calculation. In addition, the party could end up souring relations with neighboring province Alberta, which supplies thermal coal to power plants in British Columbia.

The levy "has larger trade issues and I think the Liberals will have an uphill fight on their hands as it will effectively eliminate jobs at Alberta thermal coal mines," a US coal producer said. The tax "would put us out of business as well the Alberta mines that are higher cost than us."

Clark's office did not respond to a request for comment.

The Port of Vancouver handled 6.2mn metric tonnes of US thermal coal shipments last year, 94pc of the province's total exports.

Clark's proposed actions against thermal coal have already rankled US officials. US commerce secretary Wilbur Ross urged Canada not to retaliate against the softwood lumber tariff, calling such actions "inappropriate."

The Liberals may face political pressure to move forward with the tax regardless of criticism. Andrew Weaver, the Green Party leader in British Columbia, is a climate scientist who could insist on the tax as a condition for forming a coalition with the other parties.

"The expansion of BC's thermal coal exports should have been halted long ago," Weaver said in response to Clark's earlier request for Ottawa to ban steam coal shipments outright.

The Green Party said it is "in exploratory conversations" with the Liberals and the NDP as it awaits the final election results.

The NDP, which did not respond to a request for comment, has not weighed in publicly on the debate over thermal coal. The party counts on a steelworkers union for support, according to Harrison.

The risk to coal may be even greater if the Liberals cannot form the coalition government and the NDP and Green Party -- who have won 41 and 3 votes, respectively –- band together by themselves, Harrison said.

"We might see agreement to take measures that stop the Fraser Surrey Docks coal project" in the Vancouver area, Harrison said, noting that she has been part of a small citizens group that has opposed the initiative.

Fraser Surrey Docks did not respond to a request for comment.

The US coal producer said that Fraser Surrey is "irrelevant" to current thermal exports through Canada.

An outright ban seems unlikely in any scenario, and a carbon tax would be politically tricky. But coal producers that export through British Columbia are watching political developments closely.