National Energy Program Totally Explained

Everything about The National Energy Program totally explained

The National Energy Program (NEP) was an energy policy of the Government of Canada. It was enacted by the government of Prime Minister Pierre Trudeau in 1980, and administered by the Department of Energy, Mines and Resources. The NEP was introduced in the wake of the energy crises of the 1970s. Because of high oil prices, several economic problems that were beginning to manifest themselves through the 1970s were accelerated and magnified. Inflation was out of control and interest rates were through the roof. Unemployment was epidemic in the eastern provinces where the Trudeau government had much of its political support. The NEP was designed to promote oil self-sufficiency for Canada, maintain the oil supply, particularly for the industrial base in eastern Canada, promote Canadian ownership of the energy industry, promote lower prices, promote exploration for oil in Canada, promote alternative energy sources, and increase government revenues from oil sales through a variety of taxes and agreements. The NEP's Petroleum Gas Revenue Tax (PGRT) instituted a double-taxation mechanism that didn't apply to other commodities, such as gold and copper.

Reaction in western Canada

The program was extremely unpopular in western Canada, especially in Alberta where most of Canada's oil is produced. The NEP further fuelled talk of a 'western separatist party', and arguably legitimized Alberta's long-standing tradition of militancy within Canadian confederation. Unlike the culture-focused movement for separation in Quebec through the Parti Québécois, the impetus for Alberta's separatist movement was largely of provincial economic self-interest during a time when the Canadian people and economy suffered greatly under the burden of inflated energy prices.
By keeping domestic oil prices below world market prices, the NEP was essentially mandating provincial generosity and subsidizing all Canadian consumers of fuel, at Alberta's expense. In short, the NEP was a national government's response to a national crisis.
In western Canada – and Alberta especially – the prevailing tendency was to vilify Prime Minister Pierre Trudeau, and asserted that the NEP was really for the benefit of the eastern provinces. This casting of the eastern provinces, the federal government, and Liberal governance as 'the enemy' has persisted to the present day, and has made possible a decades-long Conservative provincial government. Petro-Canada, the government-established oil company headquartered in Calgary, was made responsible for implementing much of the Program. Petro-Canada was backronymed to "Pierre Elliott Trudeau Rips Off Canada" by opponents of the National Energy Program, and the Petro-Canada Centre in Calgary became known as "Red Square." A popular western slogan during the NEP – appearing on many bumper stickers – was Let the Eastern bastards freeze in the dark. Another popular bumper sticker that appeared was Please God, let there be another oil boom. I promise not to piss it away this time.

Impact in western Canada

It is estimated by various scholars that Alberta lost between $50 billion and $100 billion because of the NEP. Alberta GDP was between $60 billion and $80 billion annually through the years of the NEP, 1980 to 1986. While it's unclear whether the estimates took into account the decline in world crude oil prices that began only a few months after the NEP came into force, the graph of long-term oil prices show that prices adjusted for inflation didn't drop below pre-1980s levels until 1985. Given that the program was cancelled in 1986, the NEP was active for five years which are amongst the most expensive for oil prices on record and the NEP prevented the Alberta oil industry from fully realising those prices.
As cited in a report by Phillips, Hager and North, the U.S. Office of the Federal Housing Oversight (OFHEO) reported overall declines in real estate prices of between 10% and 15% from 1980 through to 1985, the years of the NEP. That same report presents information from the Canadian Real Estate Association (CREA) showing that during that same time period (1980 - 1985) in eastern Canada Toronto housing prices held relatively steady while in other parts of the east prices fell 10% - 15%. In contrast, the CREA historical data shows a decline from 1980 through to 1985 of approximately 20% for Vancouver, Saskatoon and Winnipeg while the drop approached 40% in the oil dominated economies of Edmonton and Calgary, yet through those years oil prices were still historically high (see figure Long-Term Oil Prices, 1861-2006).
For the period 1980 through 1985, government statistics show that while the overall number of bankruptcies per 1,000 businesses in Canada peaked at 50% above the 1980 rate, the bankruptcy rate in Alberta's economy rose by 150% after the NEP took effect despite those years being amongst the most expensive for oil prices on record (see figure Long-Term Oil Prices, 1861-2006). Alberta Premier Peter Lougheed stopped development on several oil sands projects. Given that oil sands production wasn't yet technologically or economically feasible, the gesture was largely symbolic. He went on national television to announce that oil shipments to the rest of Canada would be cut, forcing the federal government to import more expensive oil to compensate. After negotiations between Trudeau and Lougheed, the NEP was revised so that the price of so called "new" Canadian oil (discovered after December 31, 1980) would eventually rise to the world price but existing "old" oil would still be capped at 75% of the world price.

How did other oil based economies fare during the NEP years?

In around 1970 Norway started to become an oil dominated export economy comparable to Alberta. As with most of the world's manufacturing economies, Norway's manufacturing experienced recession beginning in the 1970's. However, in the late 1970's the rise in oil prices saw Norway's oil exports grow and provide the nation with a trade surplus (see figure North Sea Oil Prices and Norway's Trade Balance, 1975-2000).
"Norway saw deindustrialization at a more rapid pace than most of her largest trading partners. Due to the petroleum sector, however, Norway experienced high growth rates in all the three last decades of the twentieth century, bringing Norway to the top of the world GDP per capita list at the dawn of the new millennium."
Thus, not all oil based economies suffered as Alberta did during the global slowdown of the early 1980's. Norway experienced an economic boom during the NEP years thanks to the historically high oil prices (see figure Long-Term Oil Prices, 1861-2006).

End of the NEP

The rationale for the program weakened when world oil prices began to slowly decline in the early 1980s and then collapsed in late 1985 (see figure Long-Term Oil Prices, 1861-2006). A phased shutdown was commenced by Jean Chrétien while he was Minister of Energy, Mines and Resources. In the 1984 election the government of Brian Mulroney was elected with the support of western Canada after campaigning against the NEP. However, Mulroney didn't eliminate the last vestiges of the program until two and a half years later at which time world oil prices had dropped below pre-1980s levels (as adjusted for inflation - see figure Long-Term Oil Prices, 1861-2006). This was a contributing factor to the creation of western Canada's Reform Party of Canada.

Impact

The economic effect of the program is debated. After it was implemented, Canada, along with all of the economies of Europe and the economy of the United States, fell into a worldwide recession. It would turn out to be the worst economic downturn since the Great Depression.
   Given that bankruptcies and real estate prices didn't fare as negatively in central Canada as in the rest of Canada and America during the NEP, it's possible that the NEP had a positive effect in central Canada.
   Given that 1. bankruptcies and real estate did much worse in Alberta than in other parts of Canada and America; 2. economies like Norway performed well; and 3. the estimated loss of between $50 and $100 billion provincial GDP (at the time, an entire year's GDP for the province) during the NEP period it's possible the NEP had a negative effect in Alberta.
   Finally, politically the NEP heightened distrust of the federal government in western Canada, especially in Alberta where many Albertans believed that the NEP was an intrusion of the federal government into an area of provincial jurisdiction.

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