Feds, BC are shifting LNG risks to public purse, report claims

TORONTO, September 24, 2025 – Ottawa and the British Columbia government are shifting financial risks of LNG companies onto the public purse while weakening commitment to the "polluter pays" principle, a new report suggests.

The federal and provincial governments are on track to provide almost $4 billion in support for fuel expansion of LNG exports on the West Coast, despite forecasts that global demand for the fossil fuel will peak well before most projects come online. 

To date, the federal government supports the LNG industry with an estimated $1.8 billion in public financing and infrastructure funding, while BC alone has tabled a total of $2.16 billion to back LNG through direct subsidies, favourable tax rules, reduced electricity rates, electrical infrastructure development and carbon tax exemptions, according to a new report by the International Institute for Sustainable Development (IISD).

The study inventoried the federal and provincial support for the sector, examining both direct financing and ‘enabling infrastructure,’ such as pipelines and electrical grid connections or expansion, including aspects of BC Hydro’s $4.7-billion North Coast Transmission Line that it claims were built largely to meet the LNG sector’s voracious demand for electricity.

The LNG sector is being pitched as one way to diversify exports beyond the United States and boost Canada’s economic resilience to US tariffs, said Danielle LaBrash, IISD policy advisor and the report’s co-author.

Developing the sector will cost billions, but demand in Europe and Asia — the target markets for Canadian LNG — is not as strong as advertised, she said. 

Additionally, most Canadian LNG projects likely won’t come online until after the end of the decade, arriving “late to the party” in a saturated market, said LaBrash. This could leave taxpayers holding the bag with significant stranded assets and unmet climate targets. 

Shifting the risk of LNG projects from the private to the public sector will also prevent investments and advances in cleaner industries, LaBrash said. 

Despite the risks, Prime Minister Mark Carney and BC Premier David Eby are clearly signalling public support for LNG projects, with both governments gifting direct subsidies totalling $400 million this year. 

Carney put the proposed LNG Canada Phase 2 project in Kitimat — which has already been approved by both levels of government — on his “major projects” list that identifies initiatives of national importance to be fast-tracked. Last week, the BC government and Ottawa also approved the environmental certificate for Ksi Lisims, a massive floating LNG project located north of Prince George near the Alaskan border. Both projects are awaiting their final investment decision. 

Companies may push for more subsidies from provincial and federal governments to reduce their own financial risk, LaBrash said. 

LNG Canada the biggest beneficiary 

LNG Canada Phase 1, a $40-billion project that shipped its first LNG cargo to market in June, has reaped the lion’s share of government support to date. The project is on track to receive at least $1.36 billion in subsidies by 2030, if all the federal and provincial measures remain in place, the report said. 

That package stems largely from the 2018 LNG Canada Agreement, crafted by the BC NDP government to secure the final investment decision, which granted provinces a number of tax breaks, PST deferrals and reduced industrial electricity rates. 

The BC Liberals had first secured an agreement between BC Hydro and the project that saw LNG Canada paying electrical rates that would fully cover any needed grid updates. But the NDP-crafted agreement offers the project grandfathered industrial rates, which cover neither newer and more expensive generation costs nor the transmission infrastructure needed for the project — leaving payment to other BC Hydro customers, who must absorb subsidies that amount to about $200 million over the next five years, according to the report. 

LNG Canada’s Phase 1 alone is set to become one of BC’s largest single sources of planet-heating carbon pollution, emitting an estimated four million tonnes of CO2 annually — equivalent to approximately six per cent of the province’s annual emissions in 2022. 

By pledging public funding for LNG, it makes private investors more likely to follow through with projects that would otherwise be abandoned due to risk, LaBrash said. There’s concern the federal, provincial government — or both — will deliver further agreements or subsidies to secure the futures of LNG Canada Phase 2 and Ksi Lisims, she added. 

“These projects have required government support to get positive financial investment decisions,” LaBrash said. “I’d be concerned about seeing renewed requests for subsidies.” 

The office of Adrian Dix, minister of energy and climate change solutions, did not reply to questions from Canada’s National Observer.

LNG electrical rates and transmission upgrades aren’t subsidies, Dix’s office said in an email, noting those projects pay the same rates as other large-scale customers and the same proportion for new transmission upgrades as other industries.

LNG Canada Phase 1 was the largest private-sector investment in Canadian history and has created 300 permanent jobs, the ministry noted. It is expected to generate $23 billion in new government revenues over the life of the project.

But the government needs to uphold the polluter pays principle, minimize public risk and ensure that government investments don’t torpedo climate targets, the report concluded.

For example, all new LNG terminals in BC were required to be net-zero by 2030, but earlier this year, the rule was weakened. LNG facilities now only need to have a plan to be “net-zero-ready” by the end of the decade if electrical grid supports aren’t in place. The province has said LNG proponents “will not be penalized for factors beyond their control.” 

Critics have suggested it isn’t the responsibility of taxpayers to ensure fossil fuel companies have the electrical resources needed to decarbonize. 

The federal government needs to act on its 2022 commitment to eliminate subsidies for fossil fuels and revamp the current framework to exclude funds for LNG infrastructure, LaBrash said. 

Other recommendations call upon BC to stop offering LNG projects grants from the Clean BC Industry Fund, strengthen and meet its existing carbon pollution-pricing policies, charge fossil fuel projects the full cost of grid electricity and phase out tax deferrals on construction costs and other favourable tax measures. 

A lack of transparency around the sector makes it difficult to evaluate financial and climate risks associated with LNG projects, LaBrash said. 

The existing subsidies, as well as any potential new ones, don’t have to be “locked in” if BC and Ottawa make good on already existing climate policy, she added. 

“Our recommendations are they enforce what they have on the books,” she said. “They need to close those loopholes and stop those subsidies before they go out.” 

Rochelle Baker is a Local Journalism Initiative reporter with Canada's National Observer. Title image: BC Premier David Eby gives a thumbs up while touring the LNG Canada site in Kitimat in July. The project is set to benefit from $1.36 billion in subsidies by 2030, according to a new IISD report (Photo by BC Government / Flickr).