How the Canadian energy pact ended non-violent civil war

Observers call it an "energy treaty" between Edmonton and Ottawa, as though the two governments represented sovereign states. In fact, the governments represent Canada, and the Canadian province of Alberta. But September's energy agreement did end what amounted to a non-violent Canadian civil war.

As a result, Canadian energy prices will rise to about 80 percent of world levels -- and Alberta will become the richest political jurisdiction in the industrialized world.

Indeed, Ottawa (with an annual deficit of $11 billion) worries that Alberta may challenge the national government's role, simply through its wealth. Alberta already has loaned $1.5 billion to other Canadian provinces over the past few years, and is now considering investments in private companies on the Toronto Stock Exchange.

Alberta Premier Peter Lougheed says he just want to "bring Alberta into the mainstream of Canada." In fact, over the next decade, Alberta will greatly change the balance of power in the country, and the character of Canada itself.

The energy agreement will give the government of Alberta (population two-million people) up to $64 billion in energy revenues over the next five years. Since 1976, 30 percent of Alberta's petroleum revenues have been socked away in a "Heritage Savings Trust Fund" which now holds about $9 billion. By December, 1986, the Fund could be worth $40 billion -- a tidy nest egg for the day oil runs low.

Still, that leaves Alberta awash with money for its yearly operating budget -- now almost $7 billion. The province spends more per capita on its citizens that any other provincial government in Canada, at the same time that it maintains the lowest taxes.

Alberta has no sales tax, no gasoline tax, the lowest personal and corporate income taxes in Canada, and the lowest property taxes. In 1979, Alberta wiped out the municipal debts of its cities and hospitals. In 1980, it allocated $1 billion to "fund" its public pension plan.

None of this money came from the Heritage Fund; it was

None of this money came from the Heritage Fund; it was loose change, a surplus on the operating budget. In fact, a major problem for the provincial treasurer is cutting taxes further without stimulating the rage of Canadians in other provinces. Ontario and Otawa are already talking rather loudly about new ways to "share Alberta's wealth."

Provincial statisticians estimate Alberta's population will grow by 50 percent over the next nine years to three million. In addition to oil, there is a burgeoning petrochemical industry, the net income of farmers topped $1 billion this year for the first time (up 30 percent over last year), coal exports are booming and the forest and paper industry is just getting off the ground.

The Alberta-Ottawa dispute started with an election promise by Pierre Trudeau in Feb. 1980 to keep Canadian energy prices low. However, under Canada's constitution, provinces own the natural resources within their borders.Ottawa can set the price of these resources when they cross provincial boundaries, but provinces retain the power over production. The Western province of Alberta produces 85 percent of Canada's oil.

Last October, after perfunctory, unsuccessful negotiations with Alberta, Mr. Trudeau announced a price schedule for Alberta's oil, keeping it down to about 50 percent of world levels. The national government also levied substantial new taxes on Alberta's natural gas and the petroleum industry located in the province.

The material impact of these policies on Alberta was sharpened by the fact that Mr. Trudeau's Liberal had elected no members from the province in the 1980 election, and held only two seats among 77 in Western Canada.

Alberta retaliated by cutting oil exports to the rest of Canada by 15 percent (180,000 barrels a day) in three stages starting last March. This forced Canada to import more expensive foreign oil, and the national government to subsidize the consumer price of that oil by about $20 barrel.

Alberta also froze any further construction of oil-sands plants (there are now two), which will be essential to Canada's oil self-sufficiency in the 1990s.

It was a "war" where Ottawa brandished the weapons of prices and taxes against Alberta's weapon of production control. With this background, and national security itself at stake, negotiations between Edmonton and Ottawa resumed over the summer resulting in an agreement Sept. 2.