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The Birth and Death of the NEP

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The consensus of economists is that the NEP was not economic policy, it was a political document. . . . The energy policies hit the petroleum industry by the dis­criminatory measures that discouraged the investment of foreign capital; by the federal-provincial squabbles over revenue that squeezed the industry's revenues; and by the "Canadianization" measures which wound up bankrupting the Canadian-owned firms they were intended to help.

It was more conflict in the Middle East that set the stage for the National Energy Program. The Iranian revolution that started in December 1978 overthrew the autocratic regime of Shah Muhammad Reza Pahlavi only to replace it with an even more oppressive theocratic regime. The effects of the revolution on the world of oil were, at least temporarily, as profound as the impact of the 1973 Israeli-Arab war. That earlier war had strengthened the rise of world, or OPEC, oil prices from $2.45 to $17 in 1973. Now, with production from the world's second largest oil exporter slashed, the price zoomed to $26 in 1979 and nearly $45 in 1980. Once more, there was a great increase in the latent wealth of oil to argue about.

Despite this, a measure of peace prevailed in Canada with the May election of Joe Clark's seven-month Conservative government. Even so, Energy, Mines and Resources' Energy Policy sector was urging tough fed­eral action. In a paper prepared for new energy minister Ray Hnatyshyn, Background to Energy Policy Choice, EMR argued once more that Alberta was getting too big a slice of the oil pie revenue while the federal government was getting only 10 percent. Big oil companies were holding up development of the oil sands. To increase Canadian oil supplies, even stronger direct federal government action was urged: the establishment of Petro-Canada, with a mandate to find more oil, was not enough.1

The advice mostly fell on deaf ears. The Conservatives reached an accord with Alberta to peg oil prices closer to the now much-higher OPEC price. It was sweet music to the ears of Alberta and the oil producers.

The notes sounded less harmonious, however, when Finance Minister John Crosbie brought down his ill-fated budget in December. Like the Liberals, the Conservatives too wanted a bigger federal slice of oil revenues, espe­cially with the big increase in the controlled price. The export tax was to be abolished but replaced by an alternative tax on sales of crude oil to both American and Canadian refiners, plus an 18-cents-per-gallon ($6.30 per barrel) tax on gasoline and diesel fuel. None of it came to pass when the Conservative government fell on a budget vote on December 11.

Trudeau outlined the Liberals' energy policy, and the main features in the coming National Energy Program, in an election speech in Halifax on January 25, halfway through the campaign. There would be a continuation of made-in-Canada oil prices, with lower rates for Canadian consumers and OPEC prices for American buyers; an expanded role for Petro-Canada; greater Canadian ownership of the petroleum industry; measures to pro­mote energy conservation and substitution of oil with alternative forms of energy. It was politically sexy. The Liberals won the election, just 68 days after they had defeated Joe Clark's government in the House.

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