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Keystone XL: Pyrrhic Victory Ahead?

pipelineLast 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 Schrödinger’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. 

Geoffrey Styles's picture

Thank Geoffrey for the Post!

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Rick Engebretson's picture
Rick Engebretson on Feb 22, 2013 11:40 am GMT

When those on the far right and far left shoot arrows at each other, the only ones getting hit are those in the middle. Until nobody is left in the middle.

I think Shakespeare said that.

Geoffrey Styles's picture
Geoffrey Styles on Feb 22, 2013 1:51 pm GMT

Intriguing idea!  Might be just the kind of "out of box" solution California's protracted water problems need.  Might also ease deep-seated political tensions between the halves of the state over moving the north's water south. 

John Miller's picture
John Miller on Feb 22, 2013 4:33 pm GMT

Geoffrey, when a politician has a ‘lose-lose’ decision to make what do you expect them to do?  ‘Kick the can down the road’, of course, and delay the decision as long as feasibly possible.  In the case of the Keystone XL pipeline it’s hardly a ‘game over’ decision, but those who want to stop the project will try to raise its environmental risks to new emergency-catastrophe highs.  Although TransCanada has adequately addressed all local in-state environmental issues the focus has now tilted more towards climate change and global warming.

What the recent Washington demonstrators may not be aware of is that developing and bringing the Canadian Bitumen syncrudes into U.S. markets increases (total lifecycle) carbon dioxide greenhouse gas emissions by only about 5 million metric tons per year (MMT/yr.).  This may sound like a lot, but when compared to U.S. total carbon emissions (2012 projected) of 5,300 MMT/yr. and the world total carbon emissions of about 32,000 MMT/yr. the impact of the Keystone XL is not very significant.  Also compared to China’s recent annual carbon emission increases of about 1,000 MMT/yr. (they have been building a new coal power plant almost every few weeks), the significance of the Keystone XL on a world basis is statistically insignificant.

As you state, the Canadian’s have options.  The most likely option is to bypass the U.S. and move syncrudes into world markets; most likely Asia.  This alternative disposition of the syncrude will further increase the 5 MMT/yr. carbon emissions due to using more energy intensive transportation modes and processing the syncrudes in international refineries that are much less efficient (and environmentally sound) than U.S. Refining.

Regardless of the pros (including U.S. energy security) and the cons (many strongly believe all fossil fuels are bad, period), the Administration has a no-win political decision to make.  Based on these factors the Administration will possibly try to delay (kick the can again) the decision well beyond the second quarter of this year.

Geoffrey Styles's picture
Geoffrey Styles on Feb 22, 2013 7:19 pm GMT

John,

You raise some excellent points.  However, I'd argue that the delays have made the "no wins" bigger, and additional delays could inflate them further.  The fallout on either side would have likely been less severe in 2011, and would have been overtaken in the news cycle by other events, in plenty of time for the election. Hindsight today, but surely someone's foresight at the time.

Wilmot McCutchen's picture
Wilmot McCutchen on Feb 22, 2013 11:06 pm GMT

It is about symbols.  Not CO2, although KXL proponents would prefer to join battle there, against strawmen.  Symbols of national pride and corporate arrogance.  A battlefield Big Oil would be wise to avoid.  

So, back to the issue of national interest: is it good to EXPORT fuel when gas prices are high?  Is Canada glad about the sludge ponds?  Are the people of the United States happy with the technology stagnation in manufacturing, and the condition of the old refineries?  More generally, what are the people of the US and Canada going to do about multinational companies?  Upstream is where Big Oil makes money, and angry people upstream is not a good thing.

At least, now that the intent to EXPORT gas from the US is clear, we can dispose of the drill,baby,drill argument for the North Slope.  Win or lose, Big Oil comes out of this with a black eye.

Geoffrey Styles's picture
Geoffrey Styles on Feb 23, 2013 2:38 pm GMT

Wilmot,

By your logic, we shouldn't export anything, including food and airplanes.  In fact, whether net importers or net exporters, the US is part of a global energy market, paticularly for oil and refined petroleum products.  The benefits of participating in that market, from increased flexibility, back-up, and outlets for byproducts that can't be sold here, outweigh the costs.  If you're worried about the price of gasoline, I can assure you it would be higher if the refineries now exporting surplus product (due to much lower US demand since the financial crisis) shut down and their domestic customers had to rely on imports.  That's based on my long experience in that market.

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