Foes of the Keystone pipeline should face reality

 

Opponents of the Keystone XL oil pipeline warn of its potentially catastrophic consequences. Building it, climate scientist James Hansen says, would mean “game over” for the climate.

New York Times columnist Thomas Friedman hopes that, if it’s given a green light, “Bill McKibben and his 350.org coalition go crazy.” And he means “chain-themselves-to-the-White-House-fence-stop-traffic-at-the-Capitol kind of crazy.”

Are they all just crying wolf and using Keystone XL as a proxy battle against oil?

I hope so, because the economics behind laying a pipeline from Alberta, Canada, to the Gulf Coast would make it difficult for the pipeline to have any effect on greenhouse-gas emissions. I trust that if opponents dug a little deeper into the issues and the market for oil, they would agree — at least privately.

Three things would need to be true for Keystone to lead to more emissions. Otherwise, the pipeline could actually reduce them.

First, in the absence of this pipeline, Canada would need to not build an alternative one (and not use rail) to transport crude from the Alberta tar sands. Two western-route pipeline proposals exist: One would lead from the tar sands to southern British Columbia, the other would take a more northern route. A pipeline to eastern Canada has also been discussed.

Perhaps environmentalists believe that if they win the fight against Keystone, they would have the momentum to defeat all three Canadian alternatives as well. But let’s calculate how much such a pipeline is worth to tar-sands producers, a major Canadian industry. Considering that just more than 1.6 million barrels of tar-sands crude is extracted each day and that a pipeline would add roughly $20 a barrel to the price of that oil (without a pipeline, tar sands crude has to be sold at a discount ), a pipeline would bring producers $32 million a day. That is a very large incentive to get pipes in the ground. Good luck stopping them.

Second, Keystone’s existence would have to cause a significant increase in production from the tar sands. The question here is, would that extra $20 a barrel cause producers to extract a lot more crude? Normally, when the price of something rises, the amount companies are willing to produce also increases. In the case of oil, however, this supply response is often fairly small. So any production increase in response to Keystone would probably be minimal.

Finally, the oil displaced by crude from the pipeline would need to be cleaner than what comes from the tar sands. We’ve all heard how dirty tar-sands crude is. Measured throughout the well-to-wheels life of the oil, greenhouse-gas emissions from tar-sands crude are 14 percent to 20 percent greater than those from the average type of oil used in the United States. What really matters, however, are the emissions from the kind of oil that tar-sands crude would replace.

There is good reason to think that the tar-sands oil would displace additional extra-heavy oil coming from Venezuela. If this is the case, tar sands might actually be good for the climate. A recent Cambridge Energy Research Associates study found that gasoline refined from the average tar-sands crude sold to the U.S. is actually cleaner than that refined from either Venezuelan Petrozuata oil or California Kern River oil. There is no tar-sands oil dirtier than Venezuelan Petrozuata oil.

It may very well be that any additional tar-sands oil brought to the United States via Keystone XL — again, assuming there is additional oil — would be significantly dirtier than what is sold to the United States now. But this possibility is what the debate should focus on, not unsubstantiated talk of doom and gloom.

Maybe the opponents of Keystone XL understand all of this and oppose the pipeline merely for symbolic reasons. Maybe the politics of climate change require hyperbole. My hope, however, is that policy will be driven by facts.

Christopher R. Knittel is a professor of energy economics at the Sloan School of Management and the co-director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology.

© 2013, Bloomberg News

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