The 1980 National Energy Program (NEP) was a sweeping attempt by the federal government to gain greater control over the Canadian petroleum industry, secure Canadian oil supplies, and redistribute Alberta's oil wealth to the rest of the country. Introduced by the Liberal regime of Prime Minister Pierre Trudeau, the now defunct program angered many Albertans and led to decades of resentment throughout the West against the federal Liberal Party.
World oil supplies had been tightening, and prices skyrocketing, throughout the 1970s, as political and military turmoil in the Middle East and Iran made importing oil from these large oil-producing areas more difficult and expensive. At the same time, the United States, once the world's largest oil producer, was experiencing production declines and had become an importer of oil (which limited global supplies further).
Canada also imported oil, and had its own domestic supplies, most of which came from Alberta. The bulk of Alberta's production was exported to the US, or shipped to Canadian consumers and industries, mostly in Ontario and Québec. Amid worldwide fears about future oil supplies and rising prices, the federal and Alberta governments had been locked in a long and stalemated negotiation over what price should be charged for Alberta oil (the world price, or a lower price to benefit Canadian consumers), and which level of government should benefit the most from the lucrative royalties and taxes paid for its production.
In 1980 the Liberals under Trudeau were elected with a new majority government in Ottawa. On 28 October that year, in the first budget since the election, the Trudeau regime introduced the National Energy Program (NEP), one of the most ambitious, unilateral attempts ever made by the federal government to intervene in the economy.
The NEP had three main objectives: reduce Canada's dependence on foreign oil, by encouraging greater self-sufficiency in domestic supplies; redistribute oil wealth via taxes and resource royalties, from Alberta towards the federal government and consumers; and gain greater Canadian ownership of the oil industry.
The federal government adopted a wide set of measures to reach these goals. It issued grants to encourage oil drilling in remote areas, especially the North, where Ottawa, not the provincial governments, had jurisdiction over natural resources and the right to earn revenue from them. It gave grants to consumers to convert away from oil to gas or electric heating. And it imposed a 25 per cent federal ownership share on all oil and gas discoveries made by private companies in the North, and offshore.
These measures – aimed at shifting control of Canada's oil resources away from the provinces and private industry, and toward the federal government – irked Alberta and its oil industry players and workers. But what upset the NEP's critics most were new federal royalties and taxes imposed on the industry, some of which were used to fund the energy company Petro-Canada, a federally owned crown corporation (now privatized). These fees increased the federal share of government revenues collected from the oil industry and thereby shifted wealth from Alberta to the federal government.
Another controversial measure was the imposition of a national oil price, which was lower than the world price. The lower Canadian price benefited industrial manufacturers, and also consumers of fuel, the majority of which were located in central Canada.
The NEP's supporters said the federal government was merely trying to protect Canadian consumers from high and volatile global oil prices. They also said Ottawa wanted to secure national oil supplies at a time of great global economic and political uncertainty.
However, the program sparked an outcry in the West, especially Alberta. Many saw the NEP as a blatant money grab by Ottawa – yet another example, in the critics' minds, of central Canada plundering the West for valuable economic resources.
Polls showed Albertans opposed the NEP by a ratio of 5-1. On one radio call-in show, an angry caller even vowed to take-up arms against the federal government. Some said Alberta should fight back by stopping all shipments of oil to Québec and Ontario, and bumper stickers appeared on cars in the West saying, "Let the Eastern Bastards Freeze in the Dark."
The Alberta government, under Progressive Conservative premier Peter Lougheed, responded by trying to cut Alberta oil production by delaying developments in the oilsands. Lougheed also vowed to contest the NEP's provisions in court. Meanwhile, American and other foreign oil companies sold off Canadian oil assets, and Alberta's energy industry was subsequently hard hit in the early 1980s with heavy job losses.
Not all the industry's woes could be attributed to the NEP. Much of the decline at this time was caused by a severe global recession, and an unexpected fall in global oil prices starting in 1982.
The NEP had been put in place on the expectation that world oil prices, and demand, would continue to rise indefinitely. When they didn't, the justification for the NEP evaporated, and the program itself was shown to have been ill conceived.
In the fall of 1981, even before global oil prices began falling, Ottawa and the Alberta government had signed a new agreement that changed the NEP's revenue sharing provisions between the two levels of government, and eliminated the hated federal export tax on Alberta oil. The following year the Supreme Court of Canada ruled that the federal government could not tax provincially owned oil and gas wells, prompting a further reduction in Ottawa's revenues from the oil industry.
The NEP did reduce Canadian dependence on foreign oil, and foreign ownership of the oil industry. However, its chief legacy was one of distrust of the federal government in the western provinces. It created fierce resentment against Ottawa among western Canadians, fed feelings of western alienation and fueled the political movements – such as the Reform Party – that these attitudes inspired. It poisoned the federal Liberal brand in western Canada for decades.