Max Fawcett: The NEP might have been good for Alberta
If kept in place, the prices and terms negotiated in 1981 would have been a comparative boon for Alberta's oil producers
Forty years ago, the federal government embarked on one of the more disastrous policy initiatives in Canadian history. After two oil market shocks in less than a decade, it became clear to all western governments — including the ones in Ottawa and Washington — that they needed to cultivate energy independence and insulate their economies from the whims of the OPEC cartel. And so, in October 1980, the National Energy Program was born. Its goals were clear: to promote security of supply, increase Canadian ownership in the industry, and share the benefits more equally across the country.
In the process, the federal Liberals resigned their candidates to defeat in Alberta for the better part of a generation, and lit the fuse of western alienation, which still burns strong to this day. Many Albertans still remember that announcement, and the impact it had on their lives, with deep reserves of bitterness and anger. As the Calgary Herald’s Licia Corbella said in a recent piece, “we must learn this history if we are to avoid repeating it.” But there’s just one problem with that: the history people like Licia Corbella want Albertans to remember is not the one that actually happened.
Yes, the National Energy Program, as it was originally conceived and announced, was an effort to transfer some of Alberta’s growing oil and gas wealth to the rest of the country, and protect eastern Canada’s manufacturing base from the threat posed by ever-increasing oil prices. But its worst aspects, including the export tax on Canadian gas, were quickly amended after fierce resistance from Alberta Premier Peter Lougheed, who sealed the revised NEP with a toast to Pierre Trudeau in 1981.
As Nickle’s Energy Group wrote in 1981, “the agreement sets a series of price increases for old oil starting with a $2.50 a barrel increase on October 1, 1981 and ‘generous’ near world prices for new oil, effective January 1, 1982, which will see an estimated wellhead price of $49.22 per barrel by July 1, 1982. New oil is defined as oil from pools initially discovered after December 31, 1980. It includes new conventional oil found in Alberta, synthetic oil, including existing production from the Suncor and Syncrude plants, and new oil from Canada lands.”
Much of the economic damage attributed to the National Energy Program was actually the result of falling global oil prices and rising interest rates — neither of which fell under the purview of the Canadian government. “The high oil prices of the previous years and a global recession in the early 1980s brought about declining oil demand,” wrote Samantha Gross, the director of the Brookings Institute’s Energy Security and Climate Initiative, in a 2019 piece on the impacts of the 1979 Iranian Revolution. “World oil demand fell by about 10 per cent from 1979 to 1983. Because of growing supply and shrinking demand, oil prices crashed in the 1980s, declining 40 per cent between 1981 and 1985 before collapsing another 50 per cent in 1986, down to $12 per barrel.”
And while the NEP is widely regarded as a deliberate attempt to injure western Canada, it actually contained provisions that were highly supportive to the continued development of Alberta’s oil sands. As University of Alberta economics professor Andrew Leach noted in a 2013 blog post, “the National Energy Program offered what, in hindsight, would have been a boom-inducing price for oil sands products.” According to his calculations, and assuming that the program had been maintained and production levels were the same, the difference between what oil sands producers earned and what they would have been paid under the NEP is “approximately $160 billion in today’s dollars.” Oh, and Alberta’s oil sands would also be connected to eastern markets by the kind of major east-west pipeline project that Albertans have wanted to see built for nearly a decade now.
None of that happened, of course. Instead, the program was dismantled by Brian Mulroney’s Conservative government, and then subsequently blamed for the economic woes that Alberta and Saskatchewan endured for the remainder of the 1980s. But the NEP still abides, both in the memories of many western Canadians and as a textbook example of spurious correlation — one that conservative politicians have been more than happy to exploit.
“I feel that the NEP became a kind of whipping boy, in part, for a much broader problem, which was radical change in the evolution of oil prices, compared to what was expected by everybody — governments and the oil industry,” Trudeau-era energy minister Marc Lalonde told the CBC’s Allison Dempster during a recent podcast. “Everybody got caught with their pants down when the price of oil started going down rather than going up."
His suggestion that people “stop bitching about the National Energy Program” is almost certainly not going to be heeded in Calgary. If anything, it will pour more fuel onto the fire that his government helped create back in 1980. But if Alberta is going to meet the challenges that lie in its future, as the world continues to shift from higher-carbon sources of energy to lower-carbon ones, it will need to be honest about — and with — its past. And being honest about the NEP means acknowledging that it was neither as bad, nor as influential, as some still want to believe.
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A major factor in the NEP was to provide Canadian oil to the rest of Canada at lower prices than the world market. Yes, it could have been beneficial for the west if the NEP has been kept in place through the low prices of the ‘80s and ‘90s. However, it beggars belief that Ontario and Quebec voters would have agreed to pay significantly higher energy prices after the energy shock receded - the NEP was going to founder on the realities of electoral politics.
Very interesting and counter-intuitive article. More like this please!