Today in the Legislature we were in Committee Stage for Bill 2: Budget Measures Implementation Act 2017. One of the questions I asked the Minister of Finance concerned the application of BC’s carbon tax to marine gas oil.
As noted in the video and text exchange, reproduced below, I serve on the Select Standing Committee on Finance and Government Services. We recently had a compelling public presentation in Nanaimo from a representative from Cruise Lines International Association – North West & Canada (also reproduced below). One of the issues he raised was the competitive disadvantage that BC ports have been placed in relative to US ports due to an error in the application of our carbon tax.
In what can be only described as an oversight, the carbon tax in BC is only exempt on traditional bunker fuels and jet fuel for international travel (consistent with international reporting rules). However, more modern cruise ships use refined marine gas oil which is not exempt.
I am thrilled with the response I received from the Finance Minister who stated that she is very open to examining this further.
A. Weaver: I am on the Finance Committee, and we had a very compelling presentation made by representations from the cruise ship industry who have noted that bunker fuels, as per international standards, are exempt from carbon pricing because of the fact that you’re essentially moving from jurisdiction to jurisdiction, and they’re historically exempt. However, modern cruise ships don’t actually use the traditional fuels that are exempt, and they’re under a competitive disadvantage against Seattle, which does not, of course, have a carbon pricing.
My question: is there a consideration for exempting cruise ships who will be using fuels now subject to the carbon tax?
Although, under international reporting regulations or rules, typically multi-jurisdictional travel is not charged with carbon tax — international airfare, for example, international cruise ships and so forth.
Hon. C. James: Thanks to the member for the question. As the member points out, quite rightly, there are already exemptions for interjurisdictional travel that are in place for the carbon tax. But as we’re going through the budget process for February, we know a request and the information has come in. The member sits on the Finance Committee, so it may come forward through that route as well. But we’ll take a look at all of that information as we develop the February budget.
A. Weaver: The Finance Committee has a very broad set of recommendations. I’m not sure something as specific as interjurisdictional travel and fuels with the cruise ship will be in the report. It may, but I’m not convinced. I just bring this to the attention of the minister, if she might consider having a look at this with her staff as we move forward. We wouldn’t want to put our cruise ship industry in a competitive disadvantage against docks in Seattle versus docks in Vancouver.
Hon. C. James: Happy to take a look at it.
G. Wirtz: Good afternoon, and thank you for the opportunity.
I am Greg Wirtz. I’m the president of Cruise Lines International Association, North West and Canada. Our association is based in Vancouver, and we represent the cruise lines operating in Canada. Our association has been a pillar of the B.C. economy for decades, with 15,000 jobs associated with B.C.’s cruise industry and some $2.2 billion in economic benefits to our province each year.
Currently British Columbia’s cruise industry is facing some serious competitive challenges. That’s why we’re here today asking for your support for a small change to tax policy that will enhance our competitiveness and further the growth of our industry while reinforcing British Columbia’s environmental leadership and promoting the use of cleaner-burning fuels.
Please allow me to explain. Cruise ships operate in this region typically between Vancouver and Alaska or Seattle and Alaska. Alaska is the marquee destination, and Vancouver and Seattle are the primary home ports. Each year more than one million cruise guests tourists sail to Alaska from either Vancouver or Seattle as home ports. The ships often call at B.C. destination ports, like Victoria, Nanaimo and Prince Rupert as well.
The cruise lines, however, acquire the vast majority of the services and supplies needed by the ships — like fuel, food and other supplies — in the home ports, Seattle and Vancouver. Each home-port call in Vancouver creates $3 million of direct benefits to the B.C. economy. In total, there were more than 230 home-port calls in Vancouver this year alone.
When ships buy fuel for an international voyage, it is normally tax-exempt. This is just like airlines flying on international voyages. The fuel purchased is tax-exempt, recognizing that taxing fuel exports is not good tax or economic policy.
In B.C., cruise lines can purchase what are known as residual fuels, or bunker fuel or heavy fuel oil, for their Alaska voyages on a tax-exempt basis. Cruise lines also purchase cleaner, refined fuel, known as marine gas oil, in B.C.
However, due to a historical artifact of B.C.’s tax legislation, these marine gas oil purchases are only tax-exempt if used in what is called a gas turbine engine. The legislation is more than 15 years old, reflecting that the only cruise ships at the time using marine gas oil were gas turbine ships. Today most ships can operate with the cleaner marine gas oil whether they have gas turbine engines or traditional internal combustion engines. In fact, most cruise ships today are equipped with internal combustion engines, as will be most of the $50 billion in new cruise ships currently on order. Gas turbine ships just have not caught on.
Cruise ships with the much more common internal combustion engines will have to pay three cents per litre on the cleaner-burning fuel when purchased in British Columbia, but not on the less clean-burning bunker fuel. A cruise ship that’s home-ported in Seattle, Washington, does not pay any such tax on their fuel used in international voyages.
As a result, Washington state enjoys a significant fuel-tax advantage over British Columbia in attracting cruise ships, and their passengers, as well as the associated work and supplies needed to support the cruise ships, their thousands of passengers and crew.
In recent years, Seattle has outpaced Vancouver as the home port of choice for cruise ships. There are a number of reasons for this, and a long-term strategy is needed to help British Columbia remain competitive.
However, in the interim, a small, positive change regarding the taxation of cleaner-burning marine gas oil would send a very encouraging signal to the cruise industry that British Columbia remains committed to a sector which contributes $2.2 billion in direct and indirect spending in our province, including $712 million in wages and salaries.
In summary, if British Columbia provides an expanded exemption for the purchase of marine gas oil, it will (1) eliminate a significant competitive disadvantage in attracting cruise ships to British Columbia’s port cities, (2) send a clear signal of support to a key revenue-generating industry in the province and (3) help create jobs in related industries on which British Columbians rely.
I do have copies of a letter and a short backgrounder, which I’d be happy to give to you for your reference. I’d welcome questions, although I acknowledge you can’t ask them.