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Canada’s National Energy Program Showed What a Public Energy Policy Can Achieve

In 1980, Canadian prime minister Pierre Trudeau introduced the National Energy Program. Though flawed, the policy showed how state intervention in the energy sector could overcome the boom-and-bust of the business cycle.

Petro-Canada was founded as a state-owned company in 1975, as part of the Canadian federal government’s National Energy Program. (Trekphiler / Wikimedia Commons)

In April 2020, Canadians were treated to the irony of ardent free-market conservative and premier of Alberta Jason Kenney nationalizing private infrastructure. Kenney’s government invested $1.5 billion directly into the Keystone XL pipeline that runs from Alberta all the way down to Texas. In addition to putting up funds for the construction of the pipeline, Kenney also provided another $6 billion in loan guarantees for the project.

His enthusiasm was, however, not matched by his neighbors south of the border. On his first day in office, Joe Biden, in keeping with his campaign promise, canceled the construction permit. Kenney’s bad bet — made with public money — was evidently made on the assumption that Donald Trump was going to win a second term.

Nationalizing pipelines appears to be in vogue with Canadian governments of all political stripes these days. Justin Trudeau’s federal Liberal Party government bought the Trans Mountain pipeline in 2018. The petroleum industry, meanwhile, has been content with this direct government intervention, but has nevertheless continued to moan that “we lack a clear national energy strategy.” The industry maintains that global market access has been inhibited by the absence of new pipeline infrastructure. Its representatives have complained that “although Canada produces much more crude oil than it consumes, incredibly we import 760,000 barrels a day of crude oil from the US and other foreign countries.”

The last time a federal government tried to implement a national energy strategy, it was greeted with teeth-gnashing and apoplectic fury from Canada’s West. In 1980, the federal Liberal government of Pierre Trudeau, father of the current prime minister, introduced the National Energy Program (NEP) to build cross-country pipelines to ensure that Canada did not need to import foreign crude. Not only did the oil industry revolt against the intervention, but the backlash in Alberta set the stage for decades of outrage and self-pitying claims of victimhood on the part of regional oil producers.

The NEP saga is still relevant today because its legacy is baked into the politics of energy in Canada. It pitted public benefit against private interest for control of national energy resources. Oil companies fiercely resisted attempts at state-directed oil development in favor of letting profit decide where pipelines should go. The consequence was that pipelines went mostly to the United States, locking Canadian oil exports into a single market.

Postwar Oil Production

Understanding the roots of the NEP and the current politics of energy requires some knowledge of the history of oil and gas development in Canada after World War II. In 1947, Canada found huge oil deposits in Leduc, Alberta. The ensuing oil boom rapidly transformed the province’s rural agricultural economy into an industrialized oil exporter.

As of 2019, Canada has the third-largest proven oil reserves in the world at 167 billion barrels, almost all of which is in Alberta. Canadian energy policy in the 1950s and 1960s was concerned with promoting expansion of the domestic oil industry. In 1961, the national oil market was split in two. East of the Ottawa Valley, where most Canadians lived, oil was imported cheaply from the world market. In the West, the oil market was protected from imports and consumers paid higher prices to subsidize domestic production. Because the Canadian oil industry was largely American-owned and primarily exported to the US market, Western Canada was also integrated into the US oil market through price-fixing agreements. This arrangement collapsed in 1973.

In response to Western support for Israel in the 1973 Yom Kippur War, Arab oil-producing countries cut off their crude exports to much of the developed capitalist world. Oil prices had been low and stable since 1945, but between October 1973 and March 1974 — when the embargo ended — prices more than tripled. They would stay high for a decade, with a further spike in 1979 thanks to the Iranian Revolution.

Although Canada was a net oil exporter, its divided market and lack of East-West pipelines meant that the country could not supply itself entirely through its domestic production. In 1973, the country shipped fifty percent of its oil and gas south of the border. At the same time, Eastern Canada was hit by extremely high fuel prices. Because the industry was largely US-owned, the windfall profits from high prices were shipped south too and did not directly benefit the Canadian economy.

The National Energy Program

The Liberal federal government of Pierre Trudeau responded by freezing the domestic price of crude at $4 a barrel, well below the world price. Next, the government implemented a tax on oil exports to discourage companies from simply selling domestically produced oil on the world market to avoid Canada’s price cap. The government then poured public money into developing unconventional oil sources such as the Athabasca oil sands in northern Alberta. In 1975, the Liberals created the state-owned company Petro-Canada to aid these efforts.

Prices remained high through the 1970s. The federal government decided that a more comprehensive plan was needed to secure Canadian energy sovereignty. In the 1980 election, the Liberals campaigned on a “made-in-Canada” oil price, and, after winning, they introduced the NEP.

The NEP had three main goals: fair energy prices for Canadian consumers; an increase in Canadian ownership (both public and private) to majority stakes of the oil and gas sector; and the securing of Canada’s energy supplies. Accomplishing these goals would give Canada energy sovereignty, insulate domestic energy prices from world market–price spikes, and ensure most of the profits earned by the petroleum sector stayed in Canada.

In practice, these goals were accomplished using a series of price controls and tax incentives, rather than any wholesale nationalization of foreign assets. Domestic oil prices were capped below the world market, but the government also established a price floor to cover for a potential fall in global crude prices.

Taxes on resource revenues were recycled to Canadian petroleum companies that prospected for new fields in joint partnership with Petro-Canada. Pierre Trudeau’s government also planned cross-country pipelines to end his country’s dependence on imports.

Over the five-year lifespan of the NEP, consumers benefited from stable fuel prices, and Canadian ownership significantly increased. However, foreign companies did retain dominance, especially in refining and retail. On balance, the NEP was successful in using government intervention to increase Canadian public benefits from the country’s energy resources.

The Right-Wing Backlash

Unsurprisingly, the oil industry hated the NEP and threatened to reduce investment. Petro-Canada’s headquarters in downtown Calgary was derisively called “Red Square” by right-wing oilmen who resented “socialist” government intervention in their industry. The NEP remains one of the foundational flashpoints for Alberta’s resentment of perceived federal government overreach. Popular bumper stickers from the time read, “Let the eastern bastards freeze in the dark,” “I’d rather push this thing a mile than buy gas from PetroCan,” and “Pierre Elliot Trudeau Rips Off Canada.”

The high prices for oil after 1973 were not the result of an increase in the cost of production, which remained more or less stable throughout the period, but instead had geopolitical roots. This meant that producers were capturing massive windfall profits on every barrel of oil they exported to the United States. The NEP’s prioritization of the Canadian domestic market, price controls, and higher royalty taxes cut into the huge profit margins of the mostly US companies.

The Alberta provincial government also opposed the NEP, seeing it as a federal intrusion on provincial jurisdiction over resources. Federal price and export controls reduced provincial royalty revenue from high global prices. The Alberta government of Progressive Conservative Peter Lougheed was also deeply intertwined with the oil industry. Alberta’s intransigence forced several rounds of renegotiation with the federal government over price setting in 1981 and 1983. The result of this showdown was the blunting of some of the effects of the NEP.

In 1984, the Progressive Conservatives of Brian Mulroney defeated the Liberal federal government. As promised, he dismantled the NEP the next year and, in the early 1990s, privatized Petro-Canada. The oil industry got the free market it wanted. But by 1985, the oil glut on the world market had caused prices to collapse. This drove Alberta into a severe and protracted recession.

The “Eastern Bastards” Vindicated

University of Alberta economist Andrew Leach estimates that between 1980 and 2013, the Canadian oil industry lost $160 billion in potential revenue because of low world prices and the absence of an NEP-assured price floor.  The NEP was designed, in part, to reduce the domestic impact of extreme boom-and-bust cycles that characterize the petroleum industry. Alberta has been hammered by consistently low oil prices since 2014. In April of last year, the price of oil was briefly below $37.63 USD a barrel. The prospect of a green energy transition creates further uncertainty for the fossil fuel–dependent Alberta economy.

The NEP is not merely a curio in the history of Canada’s extractive industries — the story of its development contains useful lessons for the Left today. The politics of energy are very important for the Left in our era of climate crisis. Canada is presently operating a “no-energy-program plan.” This dithering around energy policy will result in either business as usual —  a resignation to cook the planet — or an unmanaged green energy transition that will result in a chaotic oil industry collapse, with attendant negative social consequences.

If we are going to tackle climate change, reviving the NEP of forty years ago simply won’t do. It is far too late for Canada to try and extract greater public benefit from our fossil fuel industry — the sector needs to be wound down. What the history of the NEP demonstrates is that a Green National Energy Program is possible. Energy is a key part of any green transition and deciding who controls energy is central to any democratic left-wing political project. Government intervention can ensure that new green energy sources are treated as a public good.

State planning can develop green energy resources in coherent and rational ways rather than leaving it to the anarchy of the market. With strong government intervention, oil workers do not have to be left to fend for themselves in the event of a green transition — we can fight for them to be retrained. The NEP and Petro-Canada were good models for their time. Now, they provide useful prototypes for future green energy, public ownership, and the winding down of fossil fuel production.