The Real Deal On The Keystone Pipeline

The State Department released its long awaited report about the Keystone Pipeline Friday, a proposal for a 1,700 mile pipeline from Alberta’s tar sands to refineries in the Gulf of Mexico. The 2000 page report suggests that the pipeline will have little impact on climate change. This came as a surprise to environmentalists and likely the President himself who has rejected previous proposals from TransCanada, and who has increased energy efficiency standards and been a big proponent of renewable energies. The president asked the State Department to make this assessment in order to better determine the environmental impact, and in the coming months it will make a determination about whether or not it’s in our nation’s interest. Obama is expected to make a decision in the summer.

The State Department, in arriving at the conclusion that the U.S. joining the extraction process at the tars sands wouldn’t make climate change any worse, gave a realistic, but indirect answer. Realistic because Canada is eager for a heavy consumer, and if we don’t extract it someone else will.  We are the obvious option, as we already buy nearly all of Canada’s oil exports. The Alberta tar sands are the third largest pocket of oil in the world and Canada is incapable of absorbing that market alone. The answer is indirect because, tapping into the third largest oil deposit in the world will undoubtedly increase global CO2 emissions.

The main problem with the positions both liberals and conservatives have staked out is that each overestimates the amount of change that either building or choosing not to build the XL Pipeline will bring about.

The problem with the liberal argument is that demand for oil isn’t going down whether or not we build the pipeline. As long as America represents 5% of the global population, but consumes 20% of the world’s oil, our demand for petroleum will remain high. And no matter how niggling the argument that ‘if we don’t get it, someone else will’ is, it is unlikely that more remote and developing nations (China, India) will let oil sit in the ground.

In fact, some make the argument that there is an environmental case to be made for the U.S. developing the XL pipeline. We aIf one assumes that TransCanada is determined to acquire more contracts for the tar sands, and if CEO Russ Girling’s words are to be taken to mean anything, that assumption is correct, then the U.S. should develop it, and transport it by pipeline.

The process of both extracting and refining bitumen is extremely energy intensive. Coral Davenport figures it is 37% more energy intensive than conventional oil production. However, as Girling notes, the oil will find its way to the market, and whether we or other nations get it, the cost of transport by means other than the pipeline (rail, barge, truck) will make the returns of developing there all the more diminished, and therefore produce more CO2.

The cost of production is also better than that of offshore drilling. It is nearly twice as costly to produce oil offshore than it is on land, which means that it is also less energy intensive. Although the benchmark for this estimate is conventional onshore drilling, even with the added 37%, the tar sands are marginally, a better option.

The liberal riposte, which is one I share, is that these uncomfortable rationalizations are all the more reason to shift the gears toward more sustainable energy infrastructure. The sad reality is that we can’t force Canada to keep it in the ground, so the cost to the local environment as well as the global environment seems inevitable, but this may be one of the cases where personal and global interests coincide, and building the pipeline is making the best of a bad situation.

The local land and water pollution involved in extraction is not a point to be diminished either. Approximately 2 tons of dirt is displaced for every barrel of oil produced. The process of extraction is not unlike fracking, in that hot water is injected into the ground until the bitumen surfaces. TransCanada has revised its proposal for concerns raised about aquifers in the U.S., but as Bill McKibben notes, “the precursor pipeline, Keystone 1, managed to leak a dozen times in its first year.” So the best intentions of a oil exploration company are just that, and as with most environmental suits, nature always takes the hit when it comes to indemnification. The true extent of the negative externalities of extracting and burning oil are still quite unknown.

The conservative argument overestimates the amount of jobs that will be produced as a result of the pipeline, as well as the effect that it will have on gas prices. While in this economy any job is a good job, and the construction sector could use jobs more than most, the production of a pipeline has a limited production scope and a limited amount of time it will need workers.

TransCanada estimates that the pipeline could be built in 2-3 years (other estimates have gone as high as 10 years). The vast majority of the work will be for excavation crews and pipefitters. It will transport the bitumen to existing refineries in the Gulf of Mexico. Because American refineries are already running at maximum capacity, the pipeline will not add to the amount of oil imported in the U.S., but rather gives us the option of importing from Canada rather than Venezuela. Therefore, the likelihood that we will see any dip in gas prices is low. This decision will do more to help relations with Canada and bolster the position of oil companies than anything. It is also difficult to see how the argument that we will instead import oil from friendly nations holds much water. Because while our relationship with Venezuela may not be as cozy as the one with Canada, this says nothing of what we import from the Middle East. The better argument for shrinking trade ties with Iraq still seems to be cutting down on our consumption.

One reason why oil infrastructure has the edge is that the human capital is low in comparison to other energy sectors and the cost of investment is low compared with output. The estimated cost of the XL pipeline is about 7 billion dollars. It will make much, much more than that, and while the profit margins are less impressive than one might think, because of the volume it produces and because it is not a labor intensive product, it will be a boon to the biggest multinational corporations on the planet. It also has standing infrastructure. Wind and solar energy are not only more labor intensive, they are also new and the cost of infrastructure development is high, especially compared to energy produced.

The potential energy of a barrel of oil is high. Until Obama imposed better fuel efficiency standards on vehicles and home appliances, companies had little incentive to improve efficiency. Gas was abundant and cheap, and until not that long ago we saw no reason not to burn it with abandon–and some still don’t. It is worth appreciating oil’s value as a fuel, but knowing the harm it does and knowing we have viable alternatives which are renewable and sustainable, should lead us to making the inconvenient, but necessary choices. The technology of our batteries has yet to match the energy potential of oil. But the infrastructure needed to capture a commensurate amount has barely been tapped. Astronomy 101 will tell you all you need to know about the energy potential of the sun and result of global temperature change (wind), and how what oil we have here (very much) pales in comparison. We have the benefit (in fact we are the benefit) of nuclear reactions occurring 100,000,000 miles away, and all we need to do is catch it.

NPR estimates that “while the pipeline is being built, it will support 42,000 jobs bringing $2 billion in wages.” It could also spur many multiplier jobs, “as many as 250,000 jobs [] associated with [] bringing the oil into the United States and supplying it to businesses in the United States,” said Matthew Koch of the U.S. Chamber of Commerce . He also admits, that those estimates are harder to model. Sarah Ladislaw of the Center for Strategic and International Studies called those estimates “voodoo science” and said that it’s very difficult to estimate what will constitute growth in the American economy and what jobs created will go to American workers. As Michael Brune of the Sierra Club points out, jobs in sustainable energy sectors are not only equally good jobs, but they have the benefit of being those that “cut greenhouse gas emissions.”


The moderate conservative solution to curbing U.S. oil consumption is a carbon tax. Meagan McCardle and Reihan Salam have endorsed the idea repeatedly, and while I wholeheartedly endorse it, they as well as I know how politically unviable such a tax would be. Contrary to conservative talking points, global markets determine gas price, and the U.S. has a flat gas tax of 18.4 cents a gallon federally and an average of 30.4 cents for state and local taxes. Obama has taken a different approach: incentivizing businesses and consumers to modernize rather than punish drivers who can neither afford higher gas prices nor a shiny new hybrid. Obama has a graduated demand for greater efficiency for cars, but rather than punish companies who may crumble trying to meet new restrictions, he has given those with the ability, a reason to cut down on pollution and produce more energy efficient products and consumers tax breaks for buying them.

McCardle characterizes Obama’s approach to the Keystone a “quixotic crusade,” for curbing emissions, but offers in it’s place a carbon tax. The Keystone does present all sorts of complicated problems, but our penchant for game theory eventually has to take a backseat to our climate. Every circumstance in which we compete for resources will offer excuse not to change the tide, but if cooking the Earth isn’t a deterrent, what is?

If the pipeline does end up going through, Coral Davenport thinks Obama might be after bigger game:

“Right now environmental groups are pushing the president to use his executive authority to enact through the environmental protection agency, a very aggressive rule that would force coal-fired power plants to cut their carbon pollution today. That is a controversial rule. The president will have the authority to use it. It will have big political pushback. It will also have tremendous environmental impact.

My guess is that [the administration] wants to expend their political capital on — get the biggest bang for the buck in terms of climate change. They want to — they want to make the biggest climate move they can. And that’s going to be through these EPA rules. The Keystone Pipeline is highly symbolic but it’s not going to have as much of an impact on climate change as these EPA rules. So I would guess that there’s a chance that they might approve the Keystone and move forward on these even more controversial EPA rules.”

Author: The Blue Route

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