The National Energy Program (NEP) was a Canadian government policy created under the Prime Minister Pierre Elliott Trudeau, who came into power in 1968 (Hale, 2006). Trudeau was a different politician who was extremely charismatic. He believed that the social, economic, and political interests of Canada were of the first priority.
The program was established in 1980 by the Minister of Energy, Marc Lalonde. The Energy, Mines and Resources department administered the National Energy Program (Hale, 2006). The NEP was introduced as a result of the 1970’s energy crisis which brought about 160% increase in oil prices globally; in addition to, the prolonged stalemate between Alberta and the federal government over the revenue sharing and energy pricing (Clarkson & McCall, 1994). Economic problems were magnified and accelerated due to the high oil prices that were experienced. Inflation reached 10 percent annually; the prime interest rates were above 10 percent, and the unemployment was widespread in eastern provinces of Canada (Clarkson & McCall, 1994). The National Energy Program was designed for various reasons: to maintain oil supply, to promote oil self-sufficiency and ownership on energy industry by Canadians, to promote alternative energy sources, to lower prices for energy sources, and lastly to increase government revenues from the taxes on oil sales.
Various measures were taken to reach the NEP objectives: grants were offered to consumers and to drilling companies in order to promote oil drilling in places that were remote, 25% government shares to all gas and oil discoveries, and new taxes were imposed to the oil industry (Tuohy, 1992). The program instituted a double taxation mechanism in petroleum gas. This was aimed to redistribute the income from the oil industry. The federal government set oil and natural gas prices. The consumers and the producers were not charged the full world prices. Domestic oil prices were kept below the world’s market prices. The subsidies, however, had side effects like larger trading deficits, higher inflation rates, higher real interest rates, and larger federal budget deficits.
The program had various elements. The natural gas prices were to increase at a slower rate than oil prices, but a rise in the federal tax on gas liquids and natural gas. Canada made price of oil that would never be higher than 85 percent, of the world’s price (Clarkson& McCall, 1994). Another element was a gas and oil revenue tax of about 8% to operating systems before any other expense deductions (Clarkson & McCall, 1994). A direct incentive payment system was introduced to replace depletion allowances for the gas and oil development and exploration. The petroleum production income was to increase in the federal government. In addition, incentives on energy conservation were to be added, particularly in Eastern Canada. Lastly, financing the Canadian operations on acquisition of multinational oil companies was to be assisted by the Canadian ownership levy.
The program had three main goals: a secure supply and independence in energy from the word’s market; a fair revenue-sharing system recognizing Canadian rights; provision of the opportunity for Canadians to benefit and participate from the energy industry (Doern & Toner, 1985). The Prime Minister, Pierre Trudeau, found it difficult the goals to be achieved. There were two significant challenges in creating the program. The first challenge was the fact that Canada was both an exporter and importer of oil. Canada imports oil from the Middle East and Venezuela into its eastern provinces (Tuohy, 1992). Canada exports oil to the United States from its western provinces. The second challenge was the provincial government who had constitutional jurisdictions over natural resources, whereas the federal government had little to say concerning the resources.
In addition to this, the NEP had other disadvantages. The program was grounded on a world price gradually cumulatively to $100 per barrel. In the following years, the world prices decreased to as little as $10 for every barrel (Tuohy, 1992). The federal government centred its spending on large numbers; therefore, its subsidies could not be recovered by the taxes. Another disadvantage is that the NEP made assumptions that the future oil finding would only be made in regions which were under the federal jurisdiction. To their surprise, most of oil discoveries in Canada had been made already. This rendered subsidies offered to companies exploring the oil in the federal jurisdiction unproductive. These disadvantages resulted into an increase in the federal budget deficit.
The NEP reduced oil dependency in Canada from the foreign countries, but its legacy was cynicism of the federal government. The distrust was felt from the western provinces. The provincial governments in Canada reacted in a negative way to the NEP implementation. They that felt the government was commanding the federal powers over the energy resources.
The reaction was adverse in western provinces of Canada, especially Alberta. There was no consent from the western provinces on the prices and the revenue sharing systems. The national energy program was hugely unpopular in these regions. Alberta is a province where Canada’s oil is produced in large quantities. Most Albertans viewed the program as an intrusion into their affairs by the government. The program was considered to benefit the eastern provinces in expense on the western ones.
An oil company established by the government known as Petro-Canada was responsible for the program implementation. The company increased the involvement of the federal government in the oil industry. The NEP opponents referred to the company as “Pierre Elliot Trudeau Rips Off Canada;” the Petro Canada center, whose headquarters were located at Calgary, was known as “Red Square” (Tuohy, 1992). There was a popular western slogan that appeared on many bumper stickers during the NEP that went like -“let the eastern bastards freeze in the dark” (Tuohy, 1992).
The provincial government had the constitutional authorities over the natural resources. Most of oil is found in Alberta, and this brought conflicts between the federal and the Alberta governments. The oil price reductions came directly from Alberta’s incomes revenues. Alberta had constitutional powers to remove oil from the federal taxations, and this further worsened the conflicts.
The provincial and federal relations deteriorated when Trudeau tried to amend Canada’s constitution with New Brunswick and Ontario support. Following this, Alberta cut oil flow to eastern Canada by 5% (Clarkson & McCall, 1994).
The NEP had various impacts on Western Canada. The impacts were felt in the Gross Domestic Product (GDP), housing prices, per capita federal contributions, and bankruptcy rates. The research shows that, between $50 billion and $100 billion were lost in Alberta because of the NEP. It further shows that, for an average Albertan, the cost was about $18,000 (James & Michelin, 1989). The annual GDP for Alberta was between $60 billion and $80 billion; these were results for the period from 1980 to 1986 (James & Michelin, 1989).
Per capita federal contributions by Alberta increased 77% to $11,641 in 1980 from $6,578 in 1979 (James & Michelin, 1989). This greatly contributed to inflation. There was a decline in the real estate prices. The research shows that, during the years in the NEP, which is from 1980 to 1985, the real estate prices went down by almost 15% (James & Michelin, 1989). In Canada, bankruptcies per 1,000 businesses increased by 50%; in Alberta alone, the rate rose by 150% after NEP was implemented (James & Michelin, 1989). The economic effects were adverse due to the NEP. The United States, Canada, and other Europe economies experienced a worldwide recession. The program’s failure to deliver revenue was probably the worst and the greatest impact for the federal government.
The oil industry did not take the implementation of the program well. They claimed that they were not consulted on the energy price negotiations with Alberta. The oil industry felt that the NEP was exerting the federal control or power over the oil industry. American based energy companies in the U.S were not satisfied with the program (Hale, 2006). The companies claimed that the investment had been killed in the oil industry by the NEP. They further claimed the Trudeau’s government was nationalizing the oil industry. Foreign companies in reaction to the NEP started to sell off energy assets in Canada, thus eliminating many jobs. Thousands of Albertans lost their jobs, and they were unable to pay their mortgages. Consequently, the real estate market collapsed.
The National Energy Program was pulled to pieces by the Progressive Conservatives. Dismantling of the program was done after the party had won the elections. The NEP started to collapse in 1985 when the world oil prices began to weaken. The shutdown of the program was started by the Minister of Energy Jean Chrétien (Hale, 2006). After campaigning against the NEP, Brian Mulroney, the member of the Progressive Conservative Party was elected in the House of Commons. However, Mulroney eliminated the program after two and half years later when the oil prices were below pre-1980 levels (Doern & Toner, 1985).
It is no doubt that the introduction of the NEP was partly responsible for skyrocketing of oil prices. The program managed to reduce Canada’s dependency on oil from other countries and foreign ownership of its oil industry. Its pronounced achievement was the establishment of the substantial split between the federal government and the oil-rich west. However, the program did not fully accomplish its intended purposes. As a result, Canada does not have a coordinated energy plan. This is not acceptable, especially in the numerous energy challenges that the world has been facing.
Canada should not continue to rely heavily on oil and coal products to fuel its energy systems. This increases Canada’s chances of being left behind in the clean energy economy that is emerging. After all, there are resources in Canada that can enhance the clean economy which includes technology, skilled and educated people. Oil, coal, and uranium are increasingly becoming dangerous to extract. Eventually, they will be depleted with time (Hyne, 2001).
An energy plan should be implemented by learning from the mistakes of the NEP, which will benefit Canadians. Engineers and environmentalists must work together in order to realize solutions that will not affect the environment. The solutions should also consider social and economic well-being of Canadians.
The conventional reserves in its western regions will be depleted with time, and dependency on oil will rise. With the rising cost of energy in electricity, gas and oil, emphasis should be put on the alternative sources of energy, particularly the renewable form of energy such as solar, biomass, and wind (Hyne, 2001). However, there are some worries of using these forms of energy. Wind power harms bats and birds, while solar panels are expensive to get and maintain. To a large extent, they cannot be compared to the harmful effects of using fossils and nuclear powers which include wilderness destruction, and all forms of pollution.