The Politics of Energy

The Development and Implementation of the NEP

Bruce Doern, Glen Toner

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429560583
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Industria energética

Originally published in 1985. This in-depth analysis of federal energy policy and politics in the oil and gas sector critically evaluates the National Energy Program, one of the most controversial and wide-ranging policy initiatives in Canadian history - an import case study. Bridging Canadian politics and public policy, the book gives an historical overview of the development of energy policy since 1945, examining the shifts in the balance of power between public and private energy interests. It presents the NEP's positive and negative impacts on energy policy and the nature of political power.

PART I

THE FORGING OF THE NEP

1 Energy Politics and the NEP

2 The NEP: Anatomy of a Decision

CHAPTER 1

ENERGY POLITICS AND THE NEP

The Trudeau government’s 1980 National Energy Program (NEP) was first and foremost a political act intended simultaneously to change the structure of power between Ottawa and the provinces and between Ottawa and the oil industry. Like most significant national political decisions, it did not result in nor was it primarily intended to produce good economics. Economic issues were a part of the policy concern; but the nature of politics more often than not is that it must embrace a range of ideas beyond those of economic efficiency alone, particularly since even efficiency can be judged in either a short- or long-term time frame. Thus, to analyze the NEP only as economic policy is fundamentally to misunderstand its origins and nature.

This reality is evident when one recognizes the complexity of the issues facing those who govern Canada. By the time the NEP occupied centre stage in the fall of 1980, energy issues had long since ceased to be a matter of pure energy policy. They had acquired much of the political baggage inherent in Canadian politics. Energy policy was a summation of the Canadian body politic, embracing issues of nationalism, regionalism, foreign ownership of the economy, partisan conflict, theories and beliefs about Canada’s resource heritage, bureaucratic growth and state intervention, and the realities of international dependence and Canada-United States relations.

The NEP and energy politics belie the myth of dull, gray, pragmatic Canadian politics. In energy politics, ideas are central and personalities, egos and reputations are rampant. Powerful governmental and private sector interests marshal the full range of political weapons, including ploy and counterploy, threats and olive branches, as well as periodic mixtures of sweet reason and harmonious agreement in pursuit of their material and other objectives.

Few issues, including constitutional reform and Québec, have stimulated and maintained as high a level of political controversy in Canada throughout the 1970s and 1980s as energy issues have. Indeed, energy-related events have been among the most important issues on the global stage since 1973. In part, this is because energy, unlike other internationally traded commodities, “is an essential element of economic development and social progress in all countries. Without adequate, secure supplies of energy the objectives of economic and social development are unlikely to be met, thus straining the political cohesiveness of our societies.”¹ Clearly, Canada has not escaped the impact of dramatically higher oil prices and uncertain supplies. Canadians live in an intemperate climate, are separated by vast distances, and consequently require and use a lot of energy—more per capita, in fact, than any other nation in the world. It is not surprising, then, that the politics of energy, perhaps more than any other aspect of Canadian politics, expose the potentially conflicting constitutional, regional, partisan, intergovernmental, and government–industry relationships of power that underlie Canadian political and economic life.

Since the 1973 OPEC-induced energy crisis and the high-profile confrontation which followed in its wake, energy politics in Canada have been marked by conflict and controversy. In fact, Canada is unique among its western allies in the degree to which its governments and regions epitomize, within one country, the interests that, on the global stage, divide energy consumer and producer nations. October 1980 signalled a major escalation in this conflict, with the introduction of what has been referred to as a “radical” federal initiative, the National Energy Program. It must be stressed, however, that the conflict surrounding the 1980 Liberal budget and energy program was not new. Rather, it was a legacy of many years of confrontation over energy issues. Conflicts over specific energy policies, which each level of government has pursued since 1973, and generally conflicting objectives with respect to energy pricing, revenue sharing and resource management have at times provoked acrimonious confrontation, and indeed threatened the very foundation of Confederation. Moreover, it is not inconceivable that energy issues could become even more important in the last half of the 1980s, as energy developments move even closer to the heart of national and regional economic and political development in Canada.

Goals of the NEP

The official goals of the NEP announced on October 28, 1980 were:

To establish the basis for Canadians to seize control of their own energy future through security of supply and ultimate independence from the world market;

To offer to Canadians, all Canadians, the real opportunity to participate in the energy industry in general and the petroleum industry in particular, and

To share in the benefits of industry expansion; to establish a petroleum pricing and revenue-sharing regime that recognizes the requirement of fairness to all Canadians no matter where they live.²

All three of these stated NEP objectives—security (self-sufficiency in oil by 1990), opportunity (50 percent Canadian ownership and control by 1990), and fairness (made-in-Canada prices and a greater share of oil and gas revenues for the federal government) were separately desirable, but also partially in conflict with each other. The goal of security was to be achieved by both reducing the demand for oil and by increasing supply. On the demand side, “the centre-piece of the NEP was a drive to reduce oil consumption, through conservation efforts and the use of more plentiful fuels in place of oil.”³ More specifically, a massive new series of grants-based oil substitution and conservation initiatives, and increased incentives for the use of renewable sources were introduced. On the supply side, a generous grants-based petroleum exploration incentives program was designed to target oil exploration to the Canada Lands and the frontiers where, it was assumed, “major” new discoveries, which could have a significant impact on Canada’s supply–demand equation, were more likely to be made. Security was also to be pursued by expanding the domestic energy distribution system with a natural gas pipeline through Québec to Atlantic Canada. In addition, a more rigorous exploration program was to be demanded of land holders on the Canada Lands.

The goal of opportunity was to be pursued by instituting an exploration and development incentive program skewed to favour firms with high Canadian Ownership Rate (COR) and Canadian Control Status (CCS) levels; by forcing foreign operators to take on Canadian partners to the level of 50 percent before production licences would be granted for projects on the Canada Lands; and by providing for the growth of Petro-Canada through takeovers of foreign firms paid for by a special levy on consumers known as the Canadian Ownership Charge.

Fairness to consumers was to be achieved by restraining the pace and level of price increases and by redistributing the burdens and benefits among Canadians. Fairness was to be promoted by increasing the federal share of oil and gas revenues via several new taxes and by reserving for the federal government a 25 percent interest in all existing and future petroleum rights on the Canada Lands. For producing provinces, fairness would be secured by increasing the price paid for their oil and gas.

1979–80 Energy Politics: A Capsule View

One need only recall the immediate period leading to the introduction of the NEP. The decade of the 1980s arrived with Canada in the midst of a heated election campaign. Not surprisingly, with the baleful stare of the Ayatollah bearing down on Canadians nightly from their television sets, energy was the centre of attention. As one reporter observed, noting the importance of energy in partisan politics: “The basic differences in philosophy and approach of the three major political parties are reflected nowhere more clearly than in the energy policies they are presenting to the electorate in this campaign.”⁴

In fact, the 1980 election is often referred to as the “energy” election or the “eighteen cent” election, in reference to the eighteen cents per gallon increase in the excise tax on gasoline that was a key feature of the December 11, 1979 budget of Joseph Clark’s Conservative government. Despite having an Albertan for Prime Minister and an energy minister from Saskatchewan, the federal Conservatives failed to negotiate a new pricing and revenue-sharing arrangement with their Conservative counterparts in Alberta. Moreover, by the time the budget was defeated and they found themselves in another election race, the Tories had seriously misjudged the public mood over the Petro-Canada issue as well.⁵ These realities quickly outweighed, in political terms, some of the otherwise favourably viewed parts of the Conservative budget.

The Trudeau Liberals returned to power by recapturing most of twenty-three Ontario “swing” seats they had lost in the 1979 election, when Liberal support in Ontario had fallen from fifty-five to thirty-two seats. In 1980 they captured fifty-two seats. Together with their victory in seventy-four of seventy-five Québec seats, the Liberals returned to power with 86 percent of their parliamentary support in central Canada. The sudden defeat of a Conservative government with strong western Canadian representation, in effect by Toronto area voters on energy issues, only added to the historic build-up of western resentment and regional alienation. In their April 14, 1980 Throne Speech, the Liberals reiterated their election campaign promises about strengthening Petro-Canada, adopting as a specific goal at least 50 percent Canadian ownership by 1990 and generally strengthening the stake of Canadians in their own economic destiny.

In 1979–80, in the midst of the Iranian revolution and the doubling of the world price for oil, and renewed worldwide concern about energy supply and security, Alberta was experiencing a major exploration and construction boom. As a result of the major West Pembina oil and gas find in 1977 and the rather disappointing drilling results on the frontier, industry attention had been drawn back to Alberta in the late 1970s. In 1974 there were about 300 oil and gas companies in Calgary. By 1979 there were over 700. Many of the new ones were small operations headed by persons who had left the larger firms to go it alone. They had been willingly financed by the banks which had established themselves in Calgary in a major way. Debt funding was the norm for these smaller firms. Psychologically and ideologically, there was a contagious and invigorating spirit of free enterprise. Like all booms, it could not last, and the later fall was all the ...