Thursday, February 21, 2013

The Keystone XL Pipeline: Pyrrhic Victory Ahead?

Last weekend thousands came to Washington, DC to protest against the Keystone XL pipeline project, just a few days after a smaller protest in front of the White House resulted in a batch of arrested celebrities.   The State Department's decision on the cross-border permit is expected within a few months.  However, unless the President devises an unexpectedly Solomonic solution, one side or the other will come up short. That much is obvious, but I'd suggest that it's also worth considering the possible unintended consequences for the winning side.  Keystone could prove a Pyrrhic victory for either environmentalists or the energy industry.

That assessment starts with the fact that both sides have contributed to exaggerating the stakes out of all proportion, especially on the part of those concerned about the climate impacts of a new pipeline to carry crude derived from Canada's oil sands, or "tar sands."  With Nebraska having signed off on a new route avoiding the Sand Hills, the entire question now hinges on its global greenhouse gas (GHG) emissions, which would be far less than some claim. Without belaboring this point--not the aim of this posting--you needn't take the word of Transcanada, the pipeline's owner on this.  It's straightforward to demonstrate that any expansion of oil sands production would still account for a small share of Canada's GHG emissions, which are in turn a thin sliver of global emissions.  Such facts are easily overshadowed by pronouncements such as the oft-cited "game over" assertion from NASA's James Hansen, reminding us that even Ph.D.'s should be cautious when straying so far beyond their expertise.

Likewise, supporters of the pipeline have made numerous expansive claims about its potential economic and employment benefits.  Even if those are accurate, they're a lot less relevant at this stage of the debate than they were a year or two ago.  This issue has grown far beyond an argument about the facts, or even about a pipeline.  It has become a battle over a symbol, and the responsibility for that development rests with the administration, which declined multiple opportunities to issue a simple up-or-down decision, even when the Congress attempted to force the President's hand in late 2011.  Blame it on the election cycle, or unwillingness to disappoint one or another important constituency.  But extended this long, indecision turned the project into a giant version of Schr√∂dinger's Cat, existing in a sort of limbo that compels attention.

When the pipeline's fate is finally revealed, the consequences could match its inflated, symbolic stature, rather than its actual importance as an energy project. The possible blowback is probably easier to imagine if the pipeline were approved.  Outraged environmentalists would be unlikely simply to pack up their signs and go home.  Aside from seeking new ways to impede the project, they might turn their attention to other energy projects that are currently uncontroversial, or at least less so than Keystone XL.  They might also choose to vent their anger on an administration they were counting on to see this argument their way.  The resulting fallout in lost voter enthusiasm might hinder Democratic candidates in the 2014 mid-term elections. 

Now imagine what might happen if the pipeline were rejected.  As I understand the process, that would require the new Secretary of State to rule that the project is not in the US national interest.  That would constitute a serious snub to our largest trading partner and largest source of imported crude oil.  Canada won't cut us off, but its government and industry would certainly intensify their efforts to diversify their oil export destinations, by means of other options headed either west or east, by pipeline or by rail.  The oil would still get through, but the relationship between the US and Canada would suffer, and environmentalists would be seen as responsible.  In any case, what won't happen is the shutdown of oil sands development. If anything, making this oil harder to bring to market could lend further support to high oil prices, and paradoxically preserve the incentive to produce more of it or gain access to these supplies.

The outcome that should worry environmentalists most about that scenario is the prospect of up to 800,000 barrels per day of crude oil loaded onto rail cars--roughly 1,000 a day of them--and moving all over North America.  Aside from the increased emissions associated with that mode of transport, compared to pipelines, the risks of a serious accident or spill would multiply.  If such an event occurred, it would attract significant attention from media that wouldn't be shy about reminding viewers why this oil was in rail cars in the first place.  But even without an accident, opponents of the pipeline are placing an implicit bet that oil prices will stay flat or decline if the pipeline isn't built.  If they go up instead, they stand to bear part of the blame, whether accurately or not. 

Stopping the Keystone XL pipeline won't result in appreciably lower US or global oil consumption, or a material change in global GHG emissions.  The key to oil's emissions lies on the consumption side, where most of them occur, and thus in focusing on the hundreds of billions of dollars per year spent by developing and transitional countries on sheltering their industries and consumers from the price of oil, along with countries that still generate significant amounts of electricity from oil.  Nor would approving the pipeline restore the US economy to its pre-financial-crisis growth rate.  The energy security benefits that it would bring, like the climate benefits opponents seek, are more about reducing risk.  Yet whether or not you agree with the editors of Bloomberg that keeping "Canadian oil flowing to U.S. refineries in the most efficient way, within the bounds of safety" is the principle that should guide Secretary of State Kerry, no one has benefited from dragging the decision out this long.  The winners might end up regretting that as much as the losers. 


Anonymous said...

Why is it that we rarely see objective analyses such as this anymore? I'm guessing people prefer not to have to think too hard and would rather just stick to their existing biases. Whatever, thank you for a well thought out post.

Geoffrey Styles said...

I can't claim perfect objectivity all the time, but I'm happy to hear that I achieve it from time to time. Thanks.

Anonymous said...

I agree that this is both fair and objective, except:
1. Accurate, but less relevant than a year ago? You're right, but it doesn't count because the issue is so much bigger now? No.
2. Pipeline approval could just as easily galvanize the environmentalists.
3. "Nor would approving the pipeline restore the US economy to its pre-financial-crisis growth rate." Strawman. No one has made this claim that I'm aware of, but you're welcome to set me straight.
4. "... no one has benefited from dragging the decision out this long." And who, pray tell, might be responsible for this set of circumstances?

Geoffrey Styles said...

Thanks for your feedback. Always good to see that someone is reading my posts that carefully. Re your points 1 and 2, My intent wasn't to dismiss the predictable consequences of approval or rejection; my focus was on unintended consequences that I haven't seen discussed. The industry's case isn't irrelevant, but I do believe the fight is now much more about symbols than facts, so yes, less relevant than before. And sure, victory could galvanize environmentalists, though it would also expose them to new downside risks.

Re #3, Guilty of exaggeration to make a point, though of arguments being made, rather than introducing something entirely new. In any case, I have little doubt that Keystone XL construction and operation would result in additional direct and indirect jobs. However, I doubt we'd notice it as the level of national unemployment stats, nor should jobs be the main selling point of capital intensive energy projects. (I have been making that argument for the last 3 years about "green jobs" claims that only appeared out of expediency when the economy deflated other arguments for continued incentives for renewables.)

Re 4, I thought I was pretty clear where the responsibility for the delay rests: 1600 Pennsyvania Av. Poor issues management, in my estimation.