The State Department is Wrong, and so was I: Building the Keystone XL Pipeline Would Increase Greenhouse Gas Emissions

Three years ago, I first became interested in energy politics and policy when I wrote a column arguing that the opposition to the Keystone Pipeline was of questionable symbolic and practical value.

I was wrong.

As often happens when a college sophomore takes some 200-level economic classes, my argument rested on an incomplete understanding of global oil markets. “As oil supplies diminish, prices will eventually soar even higher,” my first Keystone column argued. So does the State Department’s final environmental impact statement, which argues that the pipeline will not produce increased carbon emissions because the oil sands will be developed either way, driven by high demand and rising oil prices. Their report relies on an assumed oil price of $130 per barrel in 2030, a number wildly higher than that called for by many financial experts. At $130/bbl, oil from tar sands would absolutely find its way to market – by rail, by truck, or concealed in the bodies of oil mules.

But the realities of the oil market have changed since the issue first started making headlines in the summer 2011. While we may live in a world of peak oil, that peak has shifted from supply to demand. There are more alternatives than ever to tar sands oil from Albert. Solar and wind are ever rising, cars go further on fewer gallons of oil – or run on batteries, and even within the market for fossil fuels, the revolution in shale oil has provided a marginally cleaner, marginally cheaper supply just south of the Canadian border. Increasing regulation, higher efficiency, and more alternatives have all led experts to predict that oil prices will not rise, but rather fall between now and 2030. Last summer, Deutsche Bank (not exactly a hippie publication) wrote that

The oil market is discounting that we are in a peak oil environment, and that demand efficiency and a stronger US dollar will offset geopolitical risk and inflation, leading to steady downward pressure on nominal prices … we have seen the all-time peak oil price…

Some have even predicted that oil will fall into the $70 range, a price at which even the State Department concedes that

Oil sands production is expected to be most sensitive to
increased transport costs in a range of prices around
$65 to $75 per barrel. Assuming prices fell in this
range, higher transportation costs could have a
substantial impact on oil sands production levels—
possibly in excess of the capacity of the proposed
Project.

Outside investors are more concerned about the effects of falling prices on the output and profitability of the tar sands projects. HSBC and Wood Mackenzie research has shown that many new projects of this type are profitable at prices above $85-105 per barrel, assuming they have an easy pathway to the market. Last summer, a group of investors including Boston Common Asset Management (BCAM) and Norwegian investment giant Storebrand wrote a letter to Statoil urging them to withdraw from several tar sands projects because

Even on a standalone basis, the economics of many oils sands projects are questionable given project execution risks,
transportation bottlenecks, and uncertainty about future oil prices. We also see additional threats in the negative externalities of oil sands projects: future carbon regulation, water scarcity, local environmental damage, and impairment to traditional livelihoods.

Proponents of the pipeline (or those who say it doesn’t matter either way) often argue that the pipeline merely will replace the inevitable rail and road transport of the product. But these alternatives are more expensive, lowering the effective price that oil suppliers can get by as much as $8 per barrel. By any understanding of the laws of supply and demand, when a commodity (or a good, or a service) will command a lower market value, its supply shrinks. This basic theory also assumes that the supply of tanker cars and trucks are entirely elastic – that the moment the oil is discovered, fleets spring into existence with its transport as their sole raison d’être. This, too, is overly simplistic: the State department’s own report finds that it would take until 2030 for alternative methods of transport to replace the capacity of the pipeline if President Obama does not approve its construction.

This is not to understate the many other issues with the pipeline. Chief among these is the right of landowners to determine what happens on their own property. The pipeline is wildly unpopular among Nebraska landowners, who worry that a spill could contaminate the Ogalla aquifer, the source of their livelihood and much of America’s agricultural dominance. When diluted bitumen spills into a water supply, the chemicals used to liquefy it separate out and it reverts to its original form, making it almost impossible to clean up. In terms of its impact on climate change, the State Department does not consider the refinement of petroleum coke, a byproduct of tar sands refinement that is both cheaper and dirtier than the cheapest and dirtiest coal, and is now being shipped to China in record amounts where it goes from the furnace of power plants straight into the atmosphere.

This past Saturday, hundreds of students from around the country including my former coeditor (and future boss), Middlebury’s own Hannah Bristol, zip-tied themselves to the fence around the White House in yet another protest demanding that the President refuse to allow the construction of the Keystone XL pipeline.

Those protests have held off a massive infrastructure for several years. It is time to kill it entirely. The evidence clearly suggests that regulatory uncertainty over the fate of the pipeline created by the forcefulness of the opposition to its construction has slowed the development of the Alberta tar sands. A refusal to allow the pipeline will mean that more of the asphalt-like substance that has to be heavily diluted with caustic chemicals to even resemble oil would stay locked away in the ground forever; that the forest and marsh the currently covers that fossil remnant of previous life might be preserved to serve as a habitat for animals and a sink for atmospheric carbon dioxide. The State Department’s report ignores this reality by resting its analysis on oil price benchmarks higher than anyone else paying attention to the oil market. But they concede that at lower prices – e.g. those predicted by other experts – stopping the Keystone XL pipeline will slow the development of Albertan Tar Sands and slow the rate of climate change. The time has come to put this issue to rest and move on to the next battle in the long war against the threat of man made global warming. 

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Three Reasons Appointing Max Baucus Ambassador to China was Political Genius

Whoever in the West Wing dreamed up the idea of appointing Senator Max Baucus (D-MT) as Ambassador to China is probably patting themselves on the back today. The Chinese post has a history of providing a solution to various political headaches; no sane politician or elder statesman could pass on the opportunity to serve as America’s representative to the world’s most populous nation. In 2009, the Obama administration viewed Jon Hunstman as a dangerous rival for the presidency in 2012, so they appointed him to the position. Upon his return, he took flak from the conservative base for daring to serve a President they viewed as radical. The choice of Baucus might prove to be even more of a masterstroke: it allows the Democratic party to shore up not one, but two vulnerable Senate seats for 2014 and reduces the chance that the White House will be pigeonholed into dealing with tax reform that would provoke fits of rage from their base.

1. Making Montana less vulnerable in 2014

Appointing Baucus to a diplomatic post means that his vacant seat will be filled by somebody appointed by Montana Governor Steve Bullock, a Democrat. It appears likely that Bullock will choose Lieutenant Governor John Walsh, who will have a year to build his profile and fundraising network from Washington and have the opportunity to run as an incumbent Senator, which could dramatically improve his chances in a race that the Cook Political Report currently categorizes as leaning Republican.

2. Ending Baucus’ tax-reform plans

As a moderate senator from a state that swung to Romney by 14 points in the 2012 Presidential election with the ability to control the agenda in the Senate on tax reform, Baucus’ endorsement of lowered corporate tax rates and proposal to replace the current patchwork system of renewable energy tax credits with just two measures made some on the left nervous. Packing him off to China means that while his proposals are circulating through the media, the Senate Committee on Finance will now be chaired by Ron Wyden (D-OR), who is more in line with the party on taxation and less likely to accept compromises from the Republicans – or author them himself – that would make the White House uncomfortable.

3. Bolstering Mary Landrieu

Wyden’s impending departure to greener pastures on the Committee on Finance means that the chairmanship of the Energy and Natural Resources Committee will fall to Mary Landrieu (D-LA) who, despite her embrace of the Affordable Care Act and other Democratic priorities, is significantly more pro-drilling and oil development than Wyden. Landrieu wholeheartedly supports the Keystone XL pipeline, voted against cloture on the Lieberman-Warner Climate Security Act in 2008, and has a lifetime score from the League of Conservation Voters of 49 percent. Wyden, by contast, has a score of 89 percent. Landrieu’s assent to the chair of the committee will help increase her chances in a tough reelection battle in a deep-red state in the deep-red south by allowing her to point to the fact that she will have significantly more control over oil development in Louisiana than would a comparable freshman Republican, theoretically making her a much more valuable ally to the oil industry in the state.

Abenaki Condemn 9/11 Flag Removal Incident; Student Involved has History of Arrest

The flags vanished over a period of half an hour. But it took several hours longer before the Middlebury community learned where they had gone.

Four women and one man – one a Middlebury College student, one a member of the Haudenosaunee nation brought to campus by that student – plucked all 2977 of them from the grass around Mead Chapel in the middle of the afternoon, where they had been planted in memory of the victims of the terrorist attacks of September 11, 2001. The group worked efficiently, assembling the flags in small piles and then dumped them into opaque black garbage bags.

Credit: Rachel Kogan

Credit: Rachel Kogan

Julia Madden ’14 was passing on the way to the gym when she realized that something was wrong. After first passing by the scene, she turned to accost the five. They informed her that the site was an “Abenaki burial ground” and that they were acting to counter “American colonialism.” Madden was struck by the disrespect of this action. “I should have gotten a little more aggressive,” she says. “I was just dumbfounded.” Continue reading

How to Make Keystone XL a Political Winner

Yesterday I talked about how the Keystone Pipeline will have no effect on reducing or preventing global climate change. Beyond that, though, it’s a political loser for the Left. A recent poll by the Pew Research Center found that among people who have heard of the issue, 66 percent support the pipeline while only 23 percent believe that it should not be built. Although another poll was funded by industry groups it actually ended up finding similar events. In short, this is an issue that resonates extremely with a small group at the political margins but does not have the type of broad public support that might sway the Obama administration’s decision. Indeed, by allowing themselves to be arrested multiple times for protesting outside the White House, opponents of the pipeline risk being labelled as radical and losing public sympathy with an American public that does care about global climate change but would prefer to see it addressed in a more harmonious fashion.

While comparisons to the civil rights movement have been bandied around on environmental blogs, it seems unlikely that the majority of Americans will see the comparison between the construction of a single pipeline and the systemic oppression of an entire race. To compare the two feels artificial and insulting. Global warming does have the possibility of denying opportunities to future generations, especially in the developing world. But the pipeline has little to do with this because Canada is determined to get the oil sands to market. Paradoxically, if activists succeed in raising the price of oil it will make this development even more inevitable.

The best way for the President to benefit from the Keystone XL pipeline is to withhold approval of the project just long enough to trade for something. Maybe he could put it in part of a larger infrastructure in the Midwest, getting some more stimulus in the form of construction jobs. Or maybe he could use it as part of a larger energy plan, exchanging his approval for Republican support of long-term (instead of annual) production tax credits for wind, solar, and offshore sources of renewable energy. It would be more than a fair trade. The states that the pipeline would run through have overwhelmingly Republican elected delegations eager for jobs. They, too, stand to benefit from spending on renewable energy production in states rich in wind and solar resources. The President would get to look both bipartisan and pro-job.

If he doesn’t approve the pipeline, on the other hand, he would be seen as capitulating to a vocal, radical majority who prefer arrest to the democratic process. He would be seen as anti-job throughout the Midwest and would be throwing away a valuable bargaining chip. It’s possible that anti-pipeline activists would attempt to withdraw future support for his agenda. But they have no other alternative within the political system. They’ll find little sympathy in the opposition. The President is not up for reelection. Maybe they’ll motivate to push liberal candidates in the midterms, but that could only have a positive effect. An environmental movement that got more Democrats elected to Congress would gain much more political clout. And that, after all, is how democracy is supposed to work.

KXL has no link to climate change

More than a year ago I wrote a column for The Campus arguing that we should build the Keystone XL pipeline, and that it had none of the links to climate change that the protests appeared to be based on:

Would the planet and the atmosphere be better off without the additional emissions of carbon dioxide currently locked in the sands of Northern Canada? Absolutely – but that’s just not realistic; Canada has a huge pool of black gold within their national boundaries, and like anyone holding onto a valuable resource, they’re going to sell it … If the activists and protesters succeed, and Obama does not approve the extension of the pipeline, Canada will simply load the oil into supertankers and send it across the Pacific, where China will happily take it off their hands.

Not to mention the fact that a pipeline is a far safer method for moving oil than the other alternatives.

If anything, [rejecting the pipeline] will only heighten the risk of a catastrophic accident, for a spill would now be dispersed throughout the ocean, killing marine life and giving countless photogenic baby seals a new coat of oil. Meanwhile, the United States will continue consuming oil at ever-higher levels – we’ll just have to buy it from Hugo Chavez’s government in Venezuela, or our new friends in Libya.  Rejecting the Keystone XL pipeline will not lower America’s demand for oil by a single barrel. It will just restructure the world oil market to require more trips by tanker ships through fragile aquatic ecosystems.

With another round of protests, the pipeline is back in the news. The issue is no less of a distraction now, the kind of sideshow that poisons the well of compromise towards actual solutions. I’m impressed by the level of support that these activists – people like Bill McKibben who I know and deeply respect – have been able to gain. But it’s time to find a new cause. The way to reduce our oil consumption is not by restricting the ways that oil companies can bring their product to the market. They will find a way, and a buyer. The way to reduce oil consumption is by lowering demand through more efficient cars, increased mass transit, and alternatives to the internal combustion engine like hydrogen fuel cells. Let’s increase funding and research for that instead and make sources of oil like Tar Sands irrelevant. Continue reading