Billions In Subsidies Flow To LNG Canada As Kitimat Terminal Nears Launch
As Kitimat prepares to ship its first liquefied natural gas cargoes in the coming couple of weeks, billions more in subsidies and favorable fiscal treatment for fossil fuel infrastructure come sharply into focus, along with the 2.2 billion tons of greenhouse gases the facility will be responsible for over its intended life. LNG Canada’s Phase 1 terminal, a massive investment initially pegged at roughly C$17–18 billion, has been underwritten by significant public sector backing at federal, provincial, municipal, and international levels. This cascade of support is reminiscent of Canada’s costly experience with the Trans Mountain Expansion (TMX), another megaproject underwritten by taxpayers through explicit grants, loans, and indirect support, with a standout being $3 billion a year in operating subsidies due to artificially cheap fees for transmitting crude.
The federal government explicitly invested about C$275 million into LNG Canada in the form of direct grants. This included C$220 million from the Strategic Innovation Fund, specifically intended for advanced gas turbines touted as “low-emission,” and another C$55 million to upgrade infrastructure in Kitimat, including replacing the Haisla Bridge to handle heavy industrial traffic. Such grants represent clear cash injections, directly lowering the capital burden on project developers. But perhaps even more consequential than these explicit grants is the hidden fiscal support provided through policy-driven tax exemptions and deferrals, worth substantially more over the project’s lifetime.
A significant federal subsidy came through tariff exemptions granted specifically for LNG Canada, waiving import duties on fabricated steel modules brought from overseas. These enormous modular components, constructed primarily in Asia, represented a major element of project costs. By exempting these imports from tariffs, Canada effectively provided LNG Canada with a fiscal gift that analysts estimated to be around C$1 billion. This subsidy reduced upfront construction costs substantially, allowing LNG Canada to avoid otherwise considerable expenses that domestic industry might have incurred.
The political response to LNG Canada’s reliance on massive steel imports from China offers a stark contrast to British Columbia’s current intense partisan debate over ferry construction in Chinese shipyards. While the province’s decision to commission new hybrid ferries from China Merchants Industry Weihai Shipyard sparked vocal criticism and vigorous posturing from both the governing BC NDP and opposition BC Liberals, the far larger and more economically consequential steel purchase for LNG Canada’s Kitimat terminal received almost no partisan pushback at any level of government.
The steel exemption effectively outsourced billions in fabrication contracts and substantial employment opportunities overseas, eliciting strong criticism from domestic industry groups and unions, but notably absent was the political grandstanding that is surrounding the electric ferries, where there was no chance for Canada’s miniscule shipyards to deliver. Instead, a remarkable bipartisan silence emerged, suggesting that even massive scale outsourcing in the energy sector, far exceeding the ferry contracts, has not become a politically charged issue in British Columbia’s legislature. This disparity underscores how selective political sensitivities can be when aligned with high-profile energy infrastructure investments.
Provincially, British Columbia also rolled out an extensive package of tax incentives and subsidies specifically designed to make LNG Canada economically attractive. The province provided deeply discounted electricity rates, pegged at approximately C$47 per megawatt-hour, significantly lower than what might be expected under normal industrial tariff structures. Estimates suggest this saves LNG Canada between C$32 million and C$59 million annually. Given that the power consumed by LNG facilities is enormous, these discounted rates represent a substantial ongoing operational subsidy, ensuring lower costs and greater competitiveness for the LNG plant operators at the public’s expense.
British Columbia also implemented a significant carbon-tax carve-out specifically tailored for LNG Canada. Under normal provincial policy, carbon pricing for industrial emitters increases steadily, and other industries are expected to bear these rising costs fully. LNG Canada, however, was granted a special exemption, effectively capping its carbon price liability at just C$30 per ton, with any excess above that rebated back to the company. With carbon prices rising significantly beyond C$50 per ton and scheduled to go higher, this rebate translates into approximately C$62 million per year in savings for the LNG terminal’s operators. These subsidies will scale upwards significantly if Canada’s carbon price trajectory continues as planned.
On top of the electricity discounts and carbon rebates, British Columbia created additional preferential tax conditions to support LNG Canada. The province introduced a corporate income tax credit designed explicitly for LNG operators, reducing their effective corporate income tax rate from 12% to 9%. While LNG profitability in Canada remains uncertain, particularly due to depreciation and transfer pricing mechanisms, this special tax rate nonetheless ensures a permanently lower tax liability compared to other industries. Additionally, the provincial government deferred the provincial sales tax on construction materials, providing an interest-free fiscal benefit worth roughly C$17 million to C$21 million annually during construction, repaid only gradually through operations rather than upfront.
The combination of federal and provincial support paints a comprehensive picture of the fiscal landscape supporting LNG Canada’s Kitimat project. But the public sector commitment extends even further. Municipalities around Kitimat incurred significant infrastructure costs, such as road improvements, bridge upgrades, and community investments to accommodate industrial growth, funded by municipal and provincial sources, indirectly subsidizing the project’s logistical requirements. Additionally, British Columbia’s crown corporation, BC Hydro, is investing heavily in transmission infrastructure and generating capacity enhancements necessary to meet LNG Canada’s demands. While these costs are currently borne by the public utility and its ratepayers, they represent yet another substantial indirect subsidy benefiting the LNG project.
LNG Canada’s significant subsidies and favorable fiscal treatment echo the financial trajectory of the Trans Mountain Expansion. Initially purchased by the federal government for C$4.5 billion, TMX saw its budget balloon dramatically, initially from an estimated C$7 to C$12 billion at purchase, eventually surging past C$30 billion. This dramatic cost escalation required enormous public sector involvement through Export Development Canada’s multi-billion-dollar loan guarantees. As costs spiraled upwards, Canada’s public sector absorbed substantial risks, ensuring artificially low transportation tolls on the pipeline, effectively subsidizing oil exports at public expense, amounting to billions annually. As it operates, tolls signed for before costs ballooned were never renegotiated, so each barrel is only paying half of the true costs amortized to operations. Canadian taxpayers are paying C$3 billion a year to send oil to California and China.
When TMX and LNG Canada are considered together, the cumulative public exposure is staggering. Both projects, each positioned as critical infrastructure investments, have received enormous upfront public funding and favorable tax structures, generous carbon pricing carve-outs, discounted utility rates, and massive financing guarantees. The LNG Canada subsidies alone are calculated to be worth billions when measured across the project lifecycle, much like the ongoing taxpayer backing of TMX, whose toll subsidies alone have already cost billions.
From a policy perspective, the heavy public backing of both LNG Canada and TMX reveals a clear and persistent governmental bias towards fossil fuel infrastructure, despite Canada’s stated climate goals. The scale of subsidies made available contrasts sharply with comparatively modest financial commitments to clean energy and grid enhancements. The sustained fiscal support for LNG terminals and oil pipelines has largely remained opaque in public discourse, hidden behind complex tax policy and buried in departmental budgets. Canadians are largely unaware of how substantial this public investment has become.
The economic and climate implications of this level of subsidization are profound. LNG Canada’s emissions alone, potentially exceeding 3.5 million tons of CO₂ annually at the facility, become a substantial barrier to British Columbia meeting its ambitious climate goals. Meanwhile, the TMX project, encouraged by its own suite of subsidies, ensures expanded bitumen exports continue, locking in high carbon footprints for decades. Both investments are going to become stranded assets as global demand shifts. China and India are importing and burning less gas this year than last as domestic fracking, pipelines from the ‘stans and renewables put expensive LNG bottom of the list. This underscores the urgent need for policy recalibration, where public fiscal resources are transparently deployed in alignment with long-term climate objectives rather than perpetuating fossil fuel dependence.
As Kitimat prepares to launch its first LNG cargoes, Canadians should be asking pointed questions about whether the scale of public investment in such infrastructure is justified. The subsidies awarded to LNG Canada and TMX represent major long-term public liabilities, justified by claims of economic development and jobs, yet carrying clear fiscal and environmental negative impacts. As the country contemplates future infrastructure investments, the LNG Canada and TMX experiences provide critical lessons in the need for transparency, accountability, and fiscal prudence. Going forward, the challenge is clear: Canada must reconsider whether these enormous fossil fuel subsidies are aligned with the nation’s broader climate, economic, and public interests.
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