Energy policy of the Government of Canada from 1980 to 1985
The National Energy Program (, NEP) was an energy policy of the Canadian federal government from 1980 to 1985. The economically nationalist policy sought to secure Canadian energy independence, though was strongly opposed by the private sector and the oil-producing Western Canadian provinces, most notably Alberta.
Created under the Liberal government of Prime Minister Pierre Trudeau on October 28, 1980, following the two oil crises of the 1970s, the NEP had three main objectives: increase ownership of the oil industry by Canadians; price energy fairly for Canadian consumers; and provide Canadian energy self-sufficiency. The NEP was also designed to promote lower prices through price controls; promote exploration for oil in Canada; promote alternative energy sources; and increase federal government revenues from oil sales through a variety of taxes and revenue-sharing with the oil-producing Western Canadian provinces.
The NEP proved to be a highly controversial policy initiative and sparked intense opposition and anger in Western Canada, particularly in Alberta. The province's premier, Peter Lougheed, was a vocal opponent of the NEP on the grounds that it interfered with provincial jurisdiction and unfairly deprived Alberta of oil revenue. In 1981, Lougheed and Trudeau reached a revenue-sharing agreement. Opponents claim that due to the NEP, the unemployment rate in Alberta rose from 3.7 percent to 12.4 percent, the bankruptcy rate in Alberta rose by 150 percent, and Alberta's losses were estimated to be between $50 billion and $100 billion (though Alberta's unemployment rate, bankruptcy rate, and revenue losses were also affected by the early 1980s recession and a crash in oil prices).
The term "Western alienation" was coined as a result of the NEP. The policy was repealed by the newly-elected Progressive Conservative (PC) government of Prime Minister Brian Mulroney on June 1, 1985. The NEP contributed to the creation and rise of the Western Canadian-based and right-wing populist Reform Party which made a major breakthrough in the 1993 federal election; the Reform Party merged with the PCs in 2003, becoming the Conservative Party which governed Canada from 2006 to 2015.
Background.
In his preamble to the announcement of the National Energy Program, introduced as part of the October 1980 federal budget, Finance Minister Allan MacEachen echoed concerns by leaders of developed countries regarding the recession that followed both oil crises of the 1970s and the "deeply troubling air of uncertainty and anxiety" that was shared by Canadians. The Bank of Canada reported that economic problems had been accelerated and magnified. Inflation was most commonly between 9% and 10% annually, and prime interest rates were over 10%.
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Global context.
Historically, the United States had been by far the world's largest oil producer, and the world oil market had been dominated by a small number of giant multinational (mostly-American) oil companies (the so-called "Seven Sisters of oil": Standard Oil of New Jersey, alias Exxon (US); Standard Oil of New York, alias Mobil (US/UK); Standard Oil of California, alias Chevron (US), Gulf Oil, now part of Chevron (US); Texaco, now part of Chevron (US); Anglo-Persian Oil Company, alias BP (UK); and Royal Dutch Shell, alias Shell (UK/Netherlands). During the late 1940s, the 1950s, the 1960s, and the early 1970s, the discovery and development of many giant oil and gas fields outside the US by those and other companies kept the world flooded with cheap oil. Meanwhile, global demand increased to take advantage of the increased global supply at lower prices. In particular, US oil consumption increased faster than production, and the country, which had been a net oil exporter, became a major oil importer.
In 1970, US oil production unexpectedly peaked and started to decline, which caused global oil markets to tighten rapidly as the US started to import more and more Arab oil. As the decade continued, global demand caught up with global supply, and two major oil price shocks occurred: the 1973 oil crisis and the 1979 oil crisis. The first occurred after the Organization of Arab Petroleum Exporting Countries (OAPEC), whose membership is the Arab members of the similarly named Organization of Petroleum Exporting Countries (OPEC), plus Egypt, Syria, and Tunisia, imposed an embargo on oil exports to the US, the UK, the Netherlands, Japan, and Canada in retaliation for supporting for Israel during the Yom Kippur War. US producers had been able to defeat the 1967 oil embargo by ramping up domestic production and flooding the world market with additional product at cut-rate prices, but declining domestic production and the ongoing rise in global demand prevented a similar response to the 1973 Arab embargo. The result was immediate shortages and lineups for gasoline in importing countries, particularly the US, which signalled the end of decades of cheap oil and a change in the balance of power from consuming countries, which now included the United States, to producing countries. On October 16, 1973, the Ministerial Committee of the Persian Gulf's OPEC membership announced an immediate rise in its posted price from $2.18 to $5.12 per barrel of oil. "Thus for the first time in oil history, the producing countries assumed power to consider and set the oil price "unilaterally", and independently of the" Seven Sisters.
The Yom Kippur War ended in October, but the price of oil continued to increase, and by January 1974, it had quadrupled to US$12 a barrel. "The more than seven-fold increase in the oil price from $1.80/b in 1970 to $13.54/b in 1978 created profound and far-reaching changes in the world oil balance, as well as the prevailing relationships among major oil producers, principal oil importers, and the major oil companies... [and the] spectacular jump of the crude spot price to more than $US40/b following the 1979 Iranian Revolution, turned the global oil market into total disarray." The Norwegian economics historian Ola Honningdal Grytten described that period in the 1970s as one of a prolonged global recession and slow growth that affected most developed economies.
The 1979 oil crisis, precipitated by the Iranian Revolution and compounded by the Iran–Iraq War, was the second major market disturbance in the 1970s. "The curtailment of oil supplies and the skyrocketing of oil prices had far-reaching effects on producers, consumers, and the oil industry itself."
In his State of the Union Address in January 1980, US President Jimmy Carter described how his country's "excessive dependence on foreign oil is a clear and present danger," and he called for a "clear, comprehensive energy policy for the United States."
Canadian context.
The Canadian petroleum industry arose in parallel with that of the US. The first oil well in North America was dug in Ontario in 1848 by using picks and shovels, one year before the first oil well in the United States had been drilled in Pennsylvania. By 1870, Canada had 100 oil refineries in operation and was exporting oil to Europe. However, the oil fields of Ontario were shallow and small, and oil production started to decline around 1900 while the automobile started to become popular. In contrast, US oil production grew rapidly after huge discoveries had been made in Texas, Oklahoma, California, and elsewhere. By the end of World War II, Canada imported 90% of its oil, mostly from the US.
The situation changed dramatically in 1947, when Imperial Oil drilled a well near Leduc, Alberta, to see what was causing peculiar anomalies on its newly introduced reflection seismology surveys. The peculiar anomalies turned out to be oil fields, and Leduc No. 1 was the discovery well for the first of many large oil fields. As a consequence of the large finds, cheap and plentiful Alberta oil produced a huge surplus of oil on the Canadian Prairies, which had no immediate market since the major oil markets were in Ontario and Quebec. In 1949, Imperial Oil applied to the federal government to build the Interprovincial Pipeline (IPL) to Lake Superior, which allowed it to supply the Midwestern United States. By 1956, the pipeline had been extended via Sarnia, Ontario, to Toronto; at , it became the longest oil pipeline in the world. The federal government gave approval to build a pipeline in Western Canada, and in 1953, the Transmountain Pipeline was built from Edmonton to Vancouver, British Columbia, with an extension to northwest Washington. The pipelines did more to improve the energy security of the United States than that of Canada since the Canadian government was more interested in Canada's trade balance than in military or energy security. The Canadian government assumed that Eastern Canada could always import enough oil to meet its needs and that imported oil would always be cheaper than domestic oil.
National Energy Board.
The National Energy Board (NEB) was created in 1959 "to monitor and report on all federal matters of energy as well as regulate pipelines, energy imports and exports and utility rates and tariffs." The NEB regulated mostly the construction and the operation of oil and natural gas pipelines crossing provincial or international borders. The Board approved pipeline traffic, tolls, and tariffs under the authority of the National Energy Board Act.
From its introduction in 1961 to its end in September 1973, the National Oil Policy (NOP) was the cornerstone of Canadian energy policy. It "established a protected market for domestic oil west of the Ottawa Valley, which freed the industry from foreign competition," and the five eastern provinces, which included major refineries in Ontario and Quebec, continued to rely on foreign imports of crude oil, such as from Venezuela. In 1973, "the federal government announced the extension of the inter-provincial oil pipeline to Montreal (completed in 1976), froze prices of domestic crude and certain oil products, and sought to control export prices. The federal government announced this change in policy so that supply problems in the United States would not automatically raise prices for Canadian consumers."
After the first OPEC price shock in 1973, the federal government "formally broke the link between domestic prices and international prices. The objective of 'made-in-Canada' prices for crude oil was to protect Canadians across the country from the whims of the world oil market and to provide producers with enough incentives to develop new energy resources."
In 1981, the Edmonton economist Brian Scarfe claimed that the NEB's setting of the price of oil and natural gas in Canada meant that producers did not receive full world prices for the resource and that consumers were not charged world prices. He claimed that the subsidies had a number of side effects, including larger trade deficits, larger federal budget deficits, higher real interest rates, and higher inflation.
Petro-Canada.
In 1975, in response to the world energy crisis, the federal government created Petro-Canada, a Canadian crown corporation that was national oil company. Petro-Canada was involved in the massive Hibernia oil find off Newfoundland and was a partner in the Syncrude oil sands venture in Fort McMurray, Alberta. The Alberta oil industry was then overwhelmingly owned by Americans, who were also the major importer of Albertan oil. The Petro-Canada Centre (1975–2009) was known in the oil patch as "Red Square" until its purchase by Suncor. The NEP included plans for a "greatly-expanded Petro-Canada."
Price controls.
In 1974, Canada inaugurated its first system for pricing oil with three objectives: to regulate prices of domestic crude oil by federal-provincial agreements, to subsidize imported oil so that consumers in Eastern Canada would enjoy lower prices, and to control prices and quantities of crude oil and products in the exporting market. Synthetic crude oil (upgraded petroleum from oil sands) was exempted from the policy and was sold at the world price. The federal government levied a tax on all oil refined in Canada to pay for the difference between the price of synthetic and that of conventional crude oil.
The federal budget in October 1980 reflected the concern that Canada could "become increasingly dependent on insecure foreign supplies and, therefore, unnecessarily subject to the vagaries of the world oil market."
On 28 October 1980, Finance Minister Allan MacEachen introduced the National Energy Program but cautioned that things could get worse if there were "new shocks coming from the price of oil or food or if the upward momentum of costs and prices proves impervious to the economic climate I am seeking to create." 
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