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piss sth away

National Energy Program

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 did not apply to other commodities, such as gold and copper. The program would "... redistribute revenue from the [oil] industry and lessen the cost of oil for Eastern Canada..." in an attempt to insulate the Canadian economy from the shock of rising global oil prices. In short, the NEP was a national government's response to a national crisis. By keeping domestic oil prices below world market prices, the NEP was essentially mandating provincial generosity and subsidizing all Canadian consumers of fuel, primarily at Alberta's expense.

Reaction in western Canada

The program was extremely unpopular in western Canada, especially in Alberta where most of Canada's oil is produced. With natural resources falling constitutionally within the domain of provincial jurisdictions, many Albertans viewed the NEP as a detrimental instrusion by the federal government into the province's affairs.

Politically the NEP further fuelled talk of a 'western separatist party'. In western Canada – and Alberta especially – the prevailing tendency was to vilify Prime Minister Pierre Trudeau and asserted that the NEP was 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 likely has contributed to 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. As of 2008, Alberta is again experiencing an oil boom thanks to the record price of oil and the Athabasca Oil Sands.

Alberta Premier Peter Lougheed stopped development on several oil sands projects. 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.

Impact in western Canada

The key areas of GDP, per capita federal contributions (since this was a federal program), housing prices and bankruptcy rates during the years of the NEP (1980-1985) are examined in this section. For housing prices and bankruptcy rates, the experience of Alberta in particular is contrasted to the other regions of the country in an attempt to see whether the problems experienced due to the global recession were worse in Alberta perhaps due to the NEP.

Alberta GDP

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 is 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 did not 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 Alberta's economy from fully realising those prices.

Provincial Per Capita Federal Contributions

In inflation adjusted 2004 dollars, the year the NEP took effect (1980) per capita fiscal contributions by Alberta to the federal government increased 77% over 1979 levels - from $6,578 in 1979 to $11,641 in 1980. In the five years prior to the NEP (1975-1979), the per capita contributions by Alberta had approximated the fluctuations in the price of oil (see graph Fluctuations: Oil Prices & Alberta Per Capita Federal Contributions 1975-1981). In 1980, however, the inflation adjusted average price of oil was only 5% higher than the previous year yet the per capita contributions from Alberta rose 77% (see graph Fluctuations: Oil Prices & Alberta Per Capita Federal Contributions 1975-1981). Again in inflation adjusted 2004 dollars, the year the NEP was terminated (1986) per capita contributions to the federal government by Alberta collapsed to $680, a mere 10% of 1979 levels.

During the NEP years, 1980-1985, only one other province was a net contributor per capita to the federal government. It was Saskatchewan, another oil producer. In 1980 and 1981 Saskatchewan was a net per capita contributor to the federal government with their peak in 1981 at a mere $514 in comparison to Alberta's peak of $12,735 that same year, both values being 2004 inflation adjusted dollars. Thus, during the NEP years 1980-1985 the province of Alberta was the sole overall net contributor to the federal government while all other provinces enjoyed being net recipients.

North American Housing 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 1985, the years of the NEP. That same report presents information from the Canadian Real Estate Association (CREA) showing that during those years (1980–1985) most eastern Canadian markets fell 10%-15% and the Toronto market held relatively steady. 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, 1861-2007).

Bankruptcies in Canada

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. During that same time 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, 1861-2007).

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 1970s. However, in the late 1970s 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 1980s. Norway experienced an economic boom during the NEP years thanks to the historically high oil prices (see figure Long-Term Oil Prices, 1861-2007). The economic boom of the early 1980s in Norway lasted until the price of oil collapsed in late 1985 just before the NEP was terminated (see figure North Sea Oil Prices and Norway's Trade Balance, 1975-2000).

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, 1861-2007). 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 did not 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, 1861-2007). The conservative government's delay was a contributing factor to the creation of a new conservative party, 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 (except for Norway, ironically due to their petroleum industry) 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 did not fare as negatively in central Canada as in the rest of Canada and America during the NEP, it is 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. petroleum 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 is 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.

See also

References

External links

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