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Escaping Mandatory Oil Exports: Why Canada needs to dump NAFTA’s energy proportionality rule

When Donald Trump approved the proposed Keystone XL oil pipeline to bring Alberta bitumen to U.S. Gulf Coast refineries he said it would “reduce our dependence on foreign oil.” Given that the pipeline, if built, would mainly ship Canadian oil to U.S. Gulf coast refineries, Trump showed, perhaps inadvertently, that he considers Canadian oil to be American. Unfortunately, his assumption is based on fact.

The North American Free Trade Agreement’s (NAFTA’s) energy proportionality rule (Article 605) gives the U.S. virtually unlimited first access to most of Canada’s oil and natural gas. According to the NAFTA rule, Ottawa must not reduce oil exports to the U.S. like it did during international oil shortages in the 1970s to divert these supplies to Eastern Canadians who relied on imported oil then, as they still do now. Under NAFTA Article 605, Ottawa must continue to export the same proportion of oil (and natural gas and electricity) as it has in the past three years even if eastern Canadians are running short and freezing in the dark.

The proportionality rule will likely hinder, postpone, or even prevent Ottawa and the provinces from phasing out the production of oil and natural gas in Canada’s transition to a low-carbon future. This is a serious impediment because the production of oil and natural gas, mainly undertaken for export to the U.S., is Canada’s largest and fastest growing source of greenhouse gas emissions. It is also a major cause of habitat destruction and the trampling of Indigenous rights.

It’s unlikely that Canadians can be convinced to seriously reduce their carbon energy use if their efforts do not result in cutting Canada’s carbon emissions. Unfortunately, NAFTA’s proportionality rule means that the more oil Canadians conserve, the more Big Oil can, and almost certainly will, export the same amount Canadians save. If that oil is sent to the U.S., as almost all of Canadian oil currently is, our oil export obligation under NAFTA’s proportionality rule will grow.

NAFTA’s proportionality rule is unique in the world’s treaties. According to Cyndee Todgham Cherniak, a Toronto trade lawyer, no other agreements have NAFTA-like proportionality clauses.1 It’s unclear how many other countries the U.S. has tried to impose an energy proportional sharing obligation on, but none have bitten. Richard Heinberg, a noted California energy expert, wrote that Canada has every reason to repudiate the proportionality rule, and to do so unilaterally and immediately.”2 The reach of energy proportionality clauses in “trade” agreements will grow if the current round of NAFTA talks ends Mexico’s exemption from it. As well, energy proportionality could be inserted into a Canada-China trade agreement, currently in the early stages of rather secretive negotiations.3

This report examines NAFTA’s energy proportionality rule in light of the urgent need to drastically reduce carbon emissions and ensure that all Canadians have access to a sufficient amount of energy as a human right in a post-carbon, energy-constrained future.4

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