Big Oil is Hosing Canadians

The most important victory ever achieved by neo-conservatives in their assault against those who believe that Canada ought to exercise sovereignty in economic matters was the implementation of the energy clauses in the Canada-U.S. Free Trade Agreement and in NAFTA. Actually it was a double victory and it was won at a time when oil prices were low so that few people noticed or complained. Along with the NAFTA energy clauses was the propagation, and nearly universal acceptance, of the myth that the Trudeau government’s 1980 National Energy Program (NEP) delivered a near death blow to Alberta’s petroleum industry.

Today the world is in the grip of rising petroleum prices, and while there will be ups and downs, the prognosis is that the trend-line of global oil prices will be upwards over the foreseeable future. Higher gasoline prices and higher prices for the fuels used to heat homes is taking a bite out of the living standards of most Canadians, dramatically increasing the precarious situation of poorer families.

It is time to reopen the notoriously difficult and intersecting debates about energy supply and pricing, living standards, and environmental protection.

From the end of 1973 until the election of the Mulroney government in September 1984, Ottawa experimented with controlling the price of oil in Canada, at the same time as it pursued a policy of increasing domestic ownership of the petroleum industry. When the world price of oil quadrupled between December 1973 and June 1974, the Trudeau government froze the price of domestic oil well below the world level while selling oil to the U.S. at the world price. Under this scheme, on exports to the U.S., Ottawa collected the difference between the domestic and the world price in the form of an export tax. Meanwhile, Canadians paid less for gasoline than Americans who had to fork out the world price.

In tandem with price controls, the Trudeau government, under pressure from the NDP, established Petro Canada as a publicly owned petroleum company whose mandate was to operate as a vertically integrated enterprise in the exploration, production, refining, transportation and retailing of petroleum and petroleum products. An important motive for the creation of Petro Canada was that the Trudeau government had developed an intense distrust for the major foreign oil companies that controlled the industry in Canada. (Petro Canada was privatized by the Chretien government in the 1990s.)

The government had good reason to be suspicious of the industry. Led by Exxon’s subsidiary, Imperial Oil, the foreign owned companies pressured Ottawa to increase the flow of petroleum exports to the U.S. in the years before 1973. The oil companies told Ottawa that Canada had enough conventional oil and natural gas to meet domestic demand for several hundred years. That was before the oil price revolution of 1973-74.

By the end of 1974, the oil companies had changed their tune. In a complete about face, they advised Ottawa that Canada could face oil and natural gas shortages in the near future unless much more exploration was undertaken, and quickly. The motive of the companies, of course, was to force the federal government to drop price controls and allow the Canadian domestic price of oil to rise to the world level.

In 1980, the newly re-elected Trudeau government (after the Joe Clark interlude) systemized its petroleum strategy and announced the National Energy Program (NEP). In addition to price controls, the NEP set the goal of reaching fifty per cent Canadian ownership of the petroleum industry by 1990. This was to be achieved both through the expansion of Petro Canada and through the promotion of private sector Canadian petroleum companies. The mechanism was the Petroleum Incentive Program (PIP) grants. These taxed foreign owned oil companies at a higher rate than Canadian companies, using revenue from the foreign company taxes to buoy the rise of Canadian companies.

The Trudeau government’s policies provoked the wrath of the American administration which was furious at a system that enabled Canadian consumers and industry to pay less for oil than Americans paid. Also enraged were the oil companies and the governments of the oil producing provinces, Alberta and Saskatchewan.

The NEP was launched at a time of rising petroleum prices in the aftermath of the Iranian Revolution of 1979. That ended, however, with the abrupt crash of global petroleum prices in 1981, as a consequence of OPEC infighting, and the generation of a surplus supply due to the production of North Sea and Nigerian oil. The price crash had nothing to do with the NEP. In Alberta, boom turned to bust, unemployment soared and food banks opened. The crash hit Houston, Texas as hard as it did Calgary, but that did not prevent the birth of an urban legend. From the offices of Calgary oil companies, the provincial government in Edmonton and the media the message was trumpeted that Alberta’s slump was the result of the NEP. Albertans were taught to hate the NEP.

When Mulroney came to power in 1994, he quickly ditched the NEP, including price controls and the goal of increased Canadian ownership of the oil industry. Then the neo-con trump card was dealt in the form of the FTA negotiated with the Reagan administration, which came into effect on January 1, 1989. The FTA abolishes the right of Canada to embark on a future NEP. Not only does it, in the “national treatment” provision, specify that Canada cannot tax Canadian and foreign companies at different rates, thereby negating a repeat of the PIP grant scheme, it also provides that Ottawa cannot institute a two price petroleum policy with a higher price for foreigners and a lower price for Canadians. On top of these measures, the trade agreement stipulates that in the event of an interruption of global oil supplies, Canada will be required to continue its level of exports to the U.S., even if this means that eastern Canada (dependent on imported oil) has to go short.

What the hell kind of trade pact is this? Mexico did not sign on to a similar deal to supply the U.S. with oil no-matter-what for the simple reason that Mexicans never would have stood for it.

The invidious provisions in the NAFTA treaty constitute the greatest betrayal of Canadian sovereignty ever agreed to by a Canadian government. Those who are constantly on the look out for how the movement for Quebec sovereignty compromises Canada should take a close look at the NAFTA energy clauses. It is no exaggeration to say that Canadian sovereignty over our oil and natural gas has been effectively nullified. In countries less polite than ours, this would be described as an “unequal treaty” or a national disgrace.

Big Oil now has everything it wants from Canada: Canadians pay the world price for their oil; Albertans receive shockingly low royalties (compared to Norway for example) for the production of their petroleum; and the Klein and Harper governments are pushing ahead with the development of the Alberta oil sands as a new and secure petroleum source for gas guzzling America.

The consequence of the rapid development of the oil sands is that it will be impossible for Canada to meet its targets under the Kyoto Accord. Selling Canadians on the idea of taking expensive steps to clean up their own energy act while the inexorably filthy oil sands are geared up to ship ever more oil to the U.S. is a non-starter. (Using clean oil and natural gas to produce dirty oil is a perversely negative form of alchemy.) Big Oil is laughing all the way to the bank and their preferred political party is in power in Ottawa.

Can anything be done about all of this? First we have to recognize the sad fact that both the Liberals and the NDP have not thought these issues through and both are unwilling to take the steps needed to set things right. And we have to face up to the reality that emerging from our present prone position will provoke savage opposition from very powerful interests.

There is reason for hope, however. Canadians have never been fond of Big Oil and whenever they are polled, they express a preference for Canadian and public ownership of the oil industry, despite the fact that no political party now espouses such policies.

Our starting point should be to comprehend that energy is far too important to leave to the vagaries of a world market for petroleum that is set through great power rivalries, Middle East crises, and the machinations of the major petroleum companies. A classical free market, this is not.

A century ago, a remarkable Ontario Conservative politician, Adam Beck, came up with the idea that hydro-electric power should be produced and distributed by a public utility and provided for industry and individual consumers at cost. Energy was too important to be left in the hands of capitalist monopolists, he believed. (It should be noted that Beck was no socialist. He simply believed that business in general, as well as consumers, should not be held ransom to monopolists.)

Beck’s basic principle, the production of energy at cost, needs to be modified in the case of petroleum to meet Canadian requirements in the 21st century. Petroleum is a depleting resource and replacement costs for it need to be projected long into the future to include the costs of developing new technologies for the post-petroleum age which is fast approaching. Petroleum resources are owned by the governments of the producing provinces, not by the federal government, and the people of those provinces have a right to expect a decent return for the production of their depleting assets.

While the federal government ought not to interfere with the ownership of the resource by provincial governments, Ottawa has very real powers which also need to be respected and utilized. The federal government controls the marketing of petroleum across inter-provincial and international boundaries. That gives Ottawa the power to determine how much oil and natural gas is surplus to Canada’s long term needs and should be exported. It has been many years since Ottawa effectively exercised this latter power.

The most intelligent way to run Canada’s petroleum industry is to treat it as a public utility or rather as a set of public utilities. Such entities could combine community, cooperative, provincial and federal ownership. This industry is too basic to everything else to leave to the private sector, in particular to foreign owned giant monopolies.

What about the price of petroleum? We now have the ludicrous spectacle of many “environmentalists” taking the side of Big Oil in favouring the highest possible price for gasoline and other petroleum products in Canada. They argue that high prices put a brake on consumption and push industry and consumers to innovate in the development of energy saving technology. While there is some truth in this argument, the consequences of letting the price mechanism in a private market do the job utterly negate the meager benefits. The price mechanism allows the oil companies to make record high profits and expand their power in our economy. It also allows the very affluent to continue driving their gas guzzling SUVs. No brake is placed on their capacity to continue taking more than their share of the resources of the planet. On the other hand, the victims are workers in the non-energy sectors whose wages are held down by rising energy prices that must be paid by their employers. The hardest hit victims are average and poor families in regions such as Atlantic Canada who are being hit between the eyes by high gasoline and home heating prices. In small town and rural New Brunswick, for instance, there is no public transit to speak of, which makes automobile ownership a necessity for most families.

The energy issue is going to be a difficult one, no matter how we organize it. At least through public ownership, with the producing provinces getting a larger share of the take because it is their depleting resource that is being exploited, we can make the trade offs on the basis of social and economic equity. We dispense with the fantasy of a “free market”, which is patently unfree.

There was a time when the NDP favoured public ownership in the petroleum sector and up to a point so did the Liberals. And there was a time when both parties fought against the FTA and NAFTA. Public ownership needs to be put back on the table. And we need to make an urgent issue of the energy clauses in NAFTA. The demand must be that those clauses be dropped from the NAFTA treaty or else Canada will be forced to abrogate its membership in NAFTA.

On energy, the neo-cons have beaten progressive Canadians into incoherent timidity. It’s time to get back our sense of outrage on these questions.