Calgary

OPINION | It's time to reconsider the NEP

"What’s perhaps most alarming (and ironic) about the NEP is that it effectively terminated the era of nation-building and ‘big’ federal government in Canada, even though it never had a chance to prove itself."

'There is no government policy more misunderstood in Canadian history than the National Energy Program'

Alberta premier Peter Lougheed and prime minister Pierre Trudeau meet in Trudeau's Parliament Hill office to finalize a tentative oil pricing agreement. Although the NEP may be ancient history, Canada still hasn’t come to terms with the truth of the policy, says Taylor C. Noakes. (Dave Buston/The Canadian Press)

This column is an opinion from Taylor C. Noakes, an independent journalist and public historian.

Trigger warning: This article is a critical re-evaluation of the National Energy Program, and seeks to dispel common myths and misconceptions about the policy. It isn't recommended for people with high-blood pressure, short fuses or former members of the Western Canada Concept.

There is no government policy more misunderstood in Canadian history than the National Energy Program, and likely no government program whose misunderstanding has been as impactful.

Reconsidering the NEP is worthwhile, even after four decades, as on-going debates regarding resource exploitation, climate change, the pandemic and Indigenous sovereignty remind us that the 19th-century jurisdictional divide between federal and provincial governments is inadequate for 21st century problems.

The great irony about the NEP is that it anticipated the problems we face today, based on challenges experienced since the dawn of our energy industry, but the solutions it proposed came at the wrong time.

The NEP has been described as a redistribution of wealth, or even as an example of Eastern Canada taking advantage of Western Canada. In truth, the NEP was just one iteration of government energy policies that had been in place for decades.

Three principles

It was based on three simple principles: independence from the world oil market, Canadian ownership of production and participation in exploration, and fairness in pricing and revenue sharing.

It would be hard to argue with such a program were it introduced today. 

The early challenges facing the oil and gas sector that encouraged federal intervention lay chiefly in American dominance of the sector and the lack of adequate infrastructure to move the primary supply of oil and gas across the country to the primary market. Then, like now, that market is the half of the national population that lives and works in the Windsor-Quebec City corridor.

It was during the Diefenbaker administration of the late 1950s that the National Energy Board was created to regulate interprovincial pipelines and advise the federal government on energy policy.

The National Oil Policy of 1961 determined that domestic sources would supply Canada west of the Ottawa Valley to help develop the homegrown energy industry, while Quebec and the Atlantic provinces would import from foreign sources because that was the less expensive option. At the time, this was an excellent compromise between keeping prices down and developing a new industry.

Liberal finance minister Allan MacEachen introduced the National Energy Program in his 1980 budget. It would be hard to argue with such a program were it introduced today, says Taylor C. Noakes. (Fred Chartrand/The Canadian Press)

The oil crisis of 1973-74 involved both a fourfold increase in the price of oil and an embargo, and this demonstrated a peculiar problem: Canada essentially had two energy markets, and they were pulling in opposite directions.

Western Canadian oil resources were particularly valuable during a time of increased prices and decreased global supply, but these resources were flowing south to the United States. Meanwhile, Canadian consumers were contending with high prices and significant drops in supply.

Canada was a net exporter of energy and also a net importer of oil. 

In response to these new challenges, the Pierre Trudeau administration, supported by the NDP, set about creating Syncrude and then Petro-Canada. The aim was to limit dependency on foreign imports, re-assert Canadian control over a strategic resource, fund exploration in areas outside Western Canada and to push for oil conservation.

All of these efforts were moving forward, with the support of two federal parties as well as provincial governments, by the time the Iranian Revolution precipitated the second oil crisis of the 1970s. Though the global supply of oil only decreased by four per cent, the price of a barrel of crude oil nearly doubled within 12 months.

Political volatility

The political situation in Canada was also volatile. In the 18 months preceding the announcement of the NEP, Canada had entered into an economic recession, gone through two elections, and witnessed the first Quebec referendum. Trudeau and his Liberals had promised major changes, including constitutional negotiations, new economic policies and nation-building efforts.

The NEP wasn't particularly radical: Canadians didn't want an energy industry dominated by foreign interests, nor an economy subject to the aftershocks of geopolitical crises on the other side of the globe.

The federal government had negotiated taxation and production rates for decades, and setting a domestic price on oil equitable to all consumers — and using increased energy taxes to reduce the deficit — was smart federal fiscal policy. Joe Clark had proposed the same thing in the budget that brought down his Progressive Conservative government in December of 1979.

Marc Lalonde was Canada's energy minister when the NEP was introduced. According to Taylor C. Noakes, the program was designed to eliminate the boom and bust cycle that has characterized the energy sector in Canada ever since. (The Canadian Press)

So why oppose the NEP? The program was designed to increase Canadian participation in the sector, retain a greater share of the value, and ensure Canadians consumed their own crude. What's not to like?

The editorial page of the Calgary Herald the day after NEP was announced provides us with some insight.

The lead editorial is remarkably tame considering the vitriol that was to come, as its primary objection was that Alberta's oil workers would soon become federal government employees in a massive state-run oil company.

The editorial cartoon said what perhaps couldn't be printed, with Pierre Trudeau, finance minister Allan MacEachen and energy minister Marc Lalonde portrayed as gangsters shaking down the oil and gas industry.

The lead editorial's major concern, however, wasn't about job losses, but rather about what kind of message this sent to Calgary's "first-class corporate citizens" and whether this was a disincentive to foreign investment.

While the editorials that day thought the NEP was a lofty experiment and that government was incapable of running large, complex projects, former Southam News editor Charles Lynch's assessment was that the nationalization of the energy industry would deliver greater control over our own destiny than even the constitution Canada was then trying to repatriate.

What couldn't have been anticipated was the oil glut.

Production rates remained high despite lower consumption, and by 1982 the world price of oil was in steep decline. In 1986 alone, the price dropped by half. The rapid drop in oil prices didn't immediately lead to an upswing in consumption, either.

This combination of factors — lower demand, increased production, and a price collapse — all contributed to the difficulties experienced by the energy sector in the 1980s.

The NEP had nothing to do with it. Quite the contrary, the NEP was designed to eliminate the boom and bust cycle that has characterized the energy sector in Canada ever since.

Not only did Alberta premier Peter Lougheed negotiate an agreement with the federal government in 1981, the NEP was actually scaled back year over year, until scrapped by the Brian Mulroney government early in its mandate in 1985. By that time, there was very little left of it, and by the following year, the world price of oil plummeted.

Energy-producing provinces have a greater need today for federal intervention on their behalf, but myopic premiers bite the hands that feed them, hinting at separatism as a means to incentivize federal co-operation, says Taylor C. Noakes. (Facebook.com/Screenshot)

Though the NEP may be ancient history, Canada still hasn't come to terms with the truth of the policy, nor with the needless restrictions on national development imposed by strict interpretations of 19th century documents written before the western provinces had entered Confederation (or before the invention of the internal combustion engine, for that matter).

Though we managed to dismantle our attempt at a nationalized energy sector, today we supply private enterprise with billions of dollars in corporate welfare; socialism without any of the benefits.

And even though the energy-producing provinces have a greater need today for federal intervention on their behalf, myopic premiers bite the hands that feed them, hinting at separatism as a means to incentivize federal co-operation.

This is a peculiar tactic for provinces that ostensibly support a major industry in terminal decline.

The end of nation building

What's perhaps most alarming (and ironic) about the NEP is that it effectively terminated the era of nation-building and "big" federal government in Canada, even though it never had a chance to prove itself.

Call it another classic Canadian missed opportunity, but the greater loss here is the inability of our federal governments to do anything for the greater good.

We wince at the thought of any big project, any national effort, in no small part because the nation's executive leadership lives in fear of three little letters throwing shade on seemingly everything Ottawa does. 

Is this really why we can't have nice things?

Consider that this article was just a history lesson and a philosophical discussion until this year. The horrors of the pandemic and climate change that we have experienced ought to provide us with all the proof we need that our country is more than merely the sum of its parts. The twin crises we contend with today are existential threats far more serious than the economic challenges of four decades ago. 

Where there was once boldness in confronting lesser challenges, the gravity of our present predicament seemingly locks self-described leaders in silos, resolute in their commitment to not exceed their authority.

Whatever happened to "that vision thing?"


This column is an opinion. For more information about our commentary section, please read our FAQ.

About the Author

Taylor C. Noakes is an independent journalist and public historian.

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