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Keystone XL: What’s the Business Case?

Submitted by: RP Siegel

Posted: Jan 16, 2015 – 02:17 PM EST

Tags: keystone xl pipeline, energy, environment, oil, energy east, tar sands


The new Republican majority in both houses of Congress has made it clear that one of their first orders of business will be to pass a bill authorizing the completion of the Keystone XL pipeline. The bill has passed the House, 266-153, and has enough votes to pass the Senate. It will surely land on President Obama's desk in the near future. (The Nebraska Supreme Court has now ruled to approve the plan.) Obama has already said he will veto it based on the fact that it is not in the best interests of the American people. His primary reason is because of the carbon emissions that will be produced as the result of tar sands production and their impact on climate change.

Supporters tend to minimize, if not outright deny, the climate change issue. They claim that the pipeline will create jobs and contribute to American energy independence.

“It will indeed be a day for celebration when both the House and Senate approve the long, unnecessarily delayed Keystone XL Pipeline. It has passed six environmental reviews; it will create thousands of short- and long-term jobs; it will mean that the Canadians will rely on us to move their oil rather than send it overseas; and it will free up railcars transporting oil from North Dakota, which will allow more grains to move by rail. What’s not to like?"

So says, Jay Lehr, Science Director for the Koch-funded Heartland Institute.

The President clearly disagrees. According to Josh Earnest, his Press Secretary, "The fact is this piece of legislation is not altogether different than legislation that was introduced [and defeated] in the last Congress. And you would recall that we put out a Statement of Administration position indicating that the president would have vetoed [it], had that bill passed.

That’s the political argument. What are the economic facts, and what do they say about the business case for or against the project?

Given the economic facts, the issue is as much symbolic as anything else. According to  Robert N. Stavins, director of the environmental economics program at Harvard, “The political fight about Keystone is vastly greater than the economic, environmental or energy impact of the pipeline itself. It doesn’t make a big difference in energy prices, employment, or climate change, either way.”

The jobs it would create are almost entirely temporary. The State Department estimates that the pipeline construction would employ roughly 3,900 construction workers during the two years that it will take to build the pipeline, along with some 38,000 indirect workers providing food and other supporting services. All of those jobs except about 35, will disappear when the pipeline is completed.

To put that in perspective, some 241,000 jobs were created nationally in December alone. So the jobs impact of Keystone would be less than one-tenth of one percent of national job growth.

The pipeline carries additional costs including the devastation of pristine boreal forests and wetlands surrounding the operation; vast amounts of water usage (400 million gallons/day); potential contamination of rivers and streams, (not to mention the vast Ogallala aquifer); and the displacement of native settlements from their ancestral lands. These people are also experiencing high rates of rare cancers, renal failure, lupus and hyperthyroidism. Indigenous groups continue to protest to stop the expansion of tar sands operations.

Additionally, new and expanded pipelines currently allow the U.S. to import more than three million barrels daily from Canada, according to the latest data from the federal government.

So if the fight is mostly symbolic, what exactly does it symbolize?

Tar sands are not the largest source of carbon emissions, coal is. But the fact is, their production emits three times more carbon dioxide than traditional oil drilling. Encouraging their expanded development, which the pipeline will surely do, will be moving in the wrong direction if the goal is to reduce global emissions. That's why among those that recognize the risk of climate destabilization, a group that now includes the US Department of Defense, many are so adamantly against it. The expansion of tar sands production negates a number of hard won initiatives to reduce emissions, some of which have raised concerns over increasing costs to world economies.

So for one thing, the deal represents a huge investment in the continued growth of fossil fuels at a time when many factions around the world are trying to put the brakes on.

The Canadians are clearly not among those most concerned. Based on current projections, while U.S. coal emissions are expected to drop 30% by 2030, Canadian emissions from tar sands are expected to grow by 250%. Canadian Prime Minister Stephen Harper has said that if the U.S. pipeline is not approved, they will build their own Energy East pipeline from Alberta to New Brunswick, although that option will be more expensive.

When all is said and done, the cost factor alone may be enough to justify the president's move. With oil prices already hitting lows not seen in years, it may soon cease to be profitable to extract oil from the tar sands, at least until prices go back up.

It's worth asking why, at a time when these prices are so low due to excess supply, that we would be taking on the kinds of cost-benefit risks that are associated with this pipeline to bring more oil onto a glutted world market. It's not out of the question that the pipeline could be approved and built, only to sit idle, which would, of course, be a monumental waste of money and human endeavor.

That's not as outlandish a proposition as it might seem. Oversupply from fracking and other sources will not be the only drivers of a failed business model. As more and more car owners move to high efficiency vehicles and cars that are fully or partially powered from the electric grid or rooftop solar panels, demand will for oil will continue to drop.

Also to be considered: oil price drops are not the only financial threat this pipeline faces. As awareness of the economic impacts of climate change become more and more clear and more widespread over the years it takes to complete it, many jurisdictions will increase restrictions on the consumption and use of fossil fuels. A study published in the journal Nature, says that in order to meet the target that has been established of restricting carbon emissions to a level that will produce no more than a two-degree Celsius increase, most of the tar sands slated for extraction must remain in the ground, along with roughly two-thirds of all fossil fuel reserves.

This is the landscape that President Obama will be looking at when he makes his decision in the weeks to come, and I believe he will make the right choice.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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