History on Repeat: Alberta’s Coming Stand-off with Trudeau

The Prairie provinces have had a complicated relationship with the federal government. The source of the West’s traditionally stormy relations with Ottawa can nearly always be traced back to jurisdictional control over the West’s natural resources. In similar fashion to Quebec’s neuroticism over issues of cultural identity, federal incursion into Alberta’s energy affairs has irrevocably shaped its political consciousness. The evolution of this feud can be encapsulated by three separate episodes.

The seeds of this dispute were planted from the moment Alberta and Saskatchewan were established as provinces in 1905. Both provinces were given admission, but not before Ottawa enshrined a federal prerogative over both entrants’ mineral rights (this measure was also applied as a condition for Manitoba’s admission dating back to 1870). This stood in marked contrast to the formula applied for the “Founding Four” and British Columbia upon their establishment as provinces.

This point of contention between Ottawa and the Prairie provinces festered quietly until it came to a head in 1923 when Alberta’s Premier Brownlee enacted legislation to tax firms extracting federally-controlled mineral resources. Alberta’s move precipitated a constitutional crisis, which it tactically employed to rally support to its banners. The pressure continued to mount until the federal government finally relinquished control to the provinces in 1930.

Second, greater exploration would later uncover the true size of Alberta’s vast oil and gas endowment. As these reserves were progressively developed, Alberta’s newfound wealth did not go unnoticed in Ottawa. In 1949, Louis St. Laurent’s Liberal government passed the Federal Pipeline Act. The bill asserted federal control over all oil and gas pipelines that crossed either provincial or international borders. Alberta premier Ernest Manning’s saw the bill for what it really was: a stalking horse for expanded federal control over Alberta’s energy sector. If left unchecked, federally-controlled pipelines would be extended into Alberta’s gas fields. This infrastructure would then give Ottawa the ability to ship these resources direct to larger markets in Eastern Canada and the United States. Alberta moved to maintain control over pipelines that fell within its provincial boundaries, thus ensuring Albertans had first priority over gas purchases. In a clever move devised to head off federal encroachment, Manning’s government commissioned a private-public venture called the “Alberta Gas Trunk Line” (AGTL).

The AGTL network gave Alberta full control over the movement of its energy resources from wellhead to market. It was intended to permit the collection of natural gas from wells throughout the province. The gas could then shipped to either local market, or to shipping terminals destined for both national and international markets. At its height the network comprised over 3,000 km of pipe. The venture gave the province exclusive control over all oil and gas shipped within its boundaries.

The third and most topical example for assessing Alberta’s situation today dates to 1980. This was the year Pierre Trudeau unveiled the much-maligned National Energy Program (NEP). It was also during this period that the natural decline in American petroleum production, incipient Arab nationalism, and the Iranian Revolution combined to create a global energy crisis. The resulting price shock threatened the economic stability of most oil-importing economies. At the time, despite Alberta’s production, Canada was far from energy self-sufficiency forcing it to rely on energy imports from the United-States.

Pierre Trudeau, spotting an opportunity, used the crisis as a pretext to justify federal intervention into Alberta’s provincial affairs. Despite the province’s long hard-fought battle for control of its natural resources, the NEP would go on to subjugate and plunder Alberta’s energy wealth for Ottawa’s own ends. The officially account argues that the program was crafted to reduce Canada’s dependence on foreign energy imports, redistribute the proceeds of Alberta’s energy to benefit the federal government and Canadian consumers, and to increase Canadian ownership in its domestic energy industry.

A variety of initiatives where nested within the NEP. One of these sought to encourage energy development in remote parts of the country, specifically offshore and northern fields. Trudeau also hoped to strike a greater role for Canadian firms in the country’s burgeoning energy industry. To this end, the NEP created the Petroleum Incentives Program that paid up to 80% for the exploration costs accrued by Canadian companies operating in these federally controlled lands. Any of these new frontier ventures were required to provide Ottawa with a 25% ownership stake. Albertans perceived this as an attempt to poach scare capital that might otherwise have been invested in its oil fields.

To Albertans’ eyes the NEP’s greatest sin was the introduction of new federal taxes on the energy industry. Tax rates were increased on energy exports and on corporate revenue from oil and gas activity. The expanded federal take came at the expense of both private and provincial interests. Canadian consumers were a direct beneficiary of the program because it also instituted a national oil price and limited energy export permits, thereby artificially depressing energy prices paid by Canadians while maintaining the market rate for exported energy.

Federal proceeds from the NEP were partly channeled toward capitalizing the Crown-owned energy consortium known as Petro-Canada. This state-owned firm was created by an act of Parliament in 1976 (four year before the introduction of the NEP). The legislation was introduced by a minority Liberal Government at the behest of the NDP, whose support was crucial for the Liberals to hold on to power. Voters restored Trudeau’s Liberals to majority in 1980. Reinvigorated by their electoral success, the Government embarked on a renewed plan to aggressively expand both the size and the scope of Petro-Canada’s operations. Although Petro-Can fulfilled Ottawa’s aim to increase Canadian participation in its domestic energy industry, the firm’s aggressive expansion meant that the federal government had entered into direct competition with private, mostly American-owned, firms in Alberta’s oil sands.

The economic trauma the program imparted unto Albertans would be etched in their collective memory for generations. Premier Loughheed struck back by applying the brakes to the development of the oil sands. This move was meant to decrease the province’s oil production thwarting the proceeds Trudeau hoped to reap. Political tensions were somewhat relieved in 1981 when Trudeau and Lougheed signed an agreement revising the taxation rates. The agreement implemented a two tier national oil price while providing some relief for Alberta by lifting the reviled export tax. The agreement would see both the provincial and the federal governments’ share of revenue increase, this time solely at the expense of private interests.

Fortunately for Albertans, the legal challenge to the program rose to be heard before the Supreme Court. The year after the new intergovernmental agreement was inked, the Court ruled in the province’s favour finding that the federal government had overstepped its bounds in taxing provincially-controlled oil and gas wells. The ruling severely curtailed the scope of the NEP. The rump of the program was dealt a final knockout blow by Brian Mulroney’s Progressive Conservative government after it came to power in 1984.

In spite the progressive dismemberment of the NEP, Alberta still suffered a particularly harsh economic contraction during the 1980s. The material hardship most Westerners endured cemented the irrefutable link between the NEP and the recession in Canada’s energy industry. The bulk of Alberta’s economic woes were in actuality a direct result of the precipitous drop in the global price of oil. However, the NEP contributed nothing to fortify the industry’s resilience for weathering the ensuing storm. The program actively discouraged private investment in Alberta by creating direct competition between the government and private firms. It reduced the economic feasibility of privately-funded projects by levying new taxes on oil and gas activity. It also spawned a climate of regulatory uncertainty by introducing tectonic shift in the national energy policy.

Now history seems to be intent on repeating itself. There is an increasing likelihood that another Trudeau, armed with another overreaching policy, will square off against a fresh provincial, conservative government.  Justin Trudeau’s proposed federal carbon tax strikes at the heart of Alberta’s energy industry mirroring his father’s NEP. In its current form, the proposed tax will apply to any province without a price equivalent to $10 per tonne of CO2e starting in 2018, and rising to $50 per tonne by 2022.

Alberta’s current NDP government has unilaterally enacted its own carbon tax in anticipation of the federal policy. The future of Alberta’s climate policy is uncertain given the widespread disaffection with both the Notley government and its interventionist climate agenda. Couple this with the increasing likelihood that Alberta’s NDP government will be facing a unified “free enterprise” party in the coming election. These two realities do not bode well for the NDP’s chances at electoral success come 2019. If a new unified, provincial conservative party is elected in 2019, Trudeau will be pitted against an opponent much the same as his father faced.  Peter Lougheed’s fresh, insurgent Progressive Conservatives party injected a renewed vigor into Alberta politics after it unseated the tired Social Credit Government whose interventionist policy lost favour with Albertans.

So what recourse do we as Albertans have?

Well, a united conservative party could adopt the tactic of stalling energy production as employed by Premier Loughheed. However, this strategy would only serve to inflict pain with little or no effect on the carbon tax (being that the policy is intended to discourage carbon intensive development). The sensible option is to challenge the policy through the courts. A recent paper titled Response to Federal Carbon Pricing: Equalization Reform by Dr. Ted Morton at the Manning Institute advocates a two prong approach. He outlines two mechanisms for change:

“The first is to hold a provincial constitutional referendum in Alberta (and other provinces) to remove the equalization program from the Constitution….The second option is to seek a judicial opinion on the constitutional validity of the inclusion of mineral royalties in the current equalization formula. This was the tactic used successfully by Lougheed against the National Energy Program in 1980.”

Dr. Morton sums it up perfectly when he says, “Alberta has never got anything from Ottawa without fighting for it.”