The rejection of the Keystone XL pipeline by the Obama administration represents a very significant economic loss to Canada, and especially to the province of Alberta, whether measured in terms of cheaper transportation to expanded markets, better safety and operational performance, and the capacity to accommodate increased production volumes over time. Canada’s best transportation infrastructure option for making the most of its oil sands has now been lost. Prospects of its being resurrected are unclear.
By rejecting XL, the Obama administration squandered an opportunity to advance a more enlightened approach to climate change policy through carbon pricing. Obama had real leverage over Canada. The Keystone XL project was obviously keenly desired by Canada. Ultimately, it was solely the President’s decision whether the pipeline would be allowed to cross the border into the United States, with no recourse for appeal after a decision had been made. It’s disappointing that he failed to take advantage of his strong position to negotiate concessions from Canada and show real leadership on climate change.
Obama said in a 2013 speech that Keystone XL should be evaluated by the standard of whether it would “significantly exacerbate carbon emissions.” Other issues that came up during the debate over the project—routing, operations conditions, emergency response plans, direct employment benefits, impacts on American crude markets—would be subordinated to the question of attributable incremental climate emissions.
Three separate environmental assessments carried out by the Department of State, the latest of which was released last year, ascribed no “significant” carbon-related impact from the pipeline, despite the fact that the oil sands are one of the world’s most carbon-intensive sources of crude oil, in terms of emissions generated per unit of oil produced.
U.S. carbon emissions are slightly in excess of 7000 million tons a year. The incremental emissions ascribable to the oil to be carried on XL are within the range of 2 to 25 million tons per year. Could such a small incremental increase ever been seen as “significant”? Recall that the Chinese annually emit more than 17000 million tons per year.
If Obama was really serious about the standard he set out at Georgetown, how could he not approve Keystone XL?
But Obama’s rejection was never about an objective standard related to incremental carbon emissions. It was a symbolic victory demanded by the U.S. environmental movement—how could an administration that identified with meaningfully dealing with the risk of climate change not seize the opportunity to reject a pipeline that would facilitate the importation of one of the world’s most carbon-intensive sources of crude oil, regardless of materiality?
Ignore that Canada still has the capacity to produce and market the oil that might have been transported on XL. Ignore that comparable carbon-intensive crude oils form part of the existing U.S. supply mix. Ignore the demonstrable economic benefits to the United States through supply security, construction, refinery optimization, and improved transportation access for U.S. Bakken oil.
Obama could have taken advantage of his unique leverage to pressure Canada to adopt carbon taxes as a way of accounting for the climate-related costs of the incremental emissions that would be produced by oil sands production transported via Keystone XL.
Canada would have won greater capacity to access markets, improved transportation economics, and better social acceptance for its oil sands resource. Over time, those gains would offset the increased costs created by the carbon tax negotiated with the Obama administration. Canada should have been imposing such a carbon tax on itself in any case to economically internalize with the risk of climate change in its hydrocarbon production. XL could have been the catalyst for that to have finally occurred.
If the Obama administration had tried to negotiate a quid pro quo, it would have demonstrated genuine leadership in dealing with the risk of climate change via carbon taxes, rather than devolving to its current array of regulatory interventions. Bargaining an accommodation on the XL pipeline via appropriate Canadian carbon pricing might well have revived political momentum for a carbon tax in the U.S. as well. It certainly would have been a gesture of cooperation and goodwill to the U.S.’s most longstanding ally and most significant trading partner. As it actually unfolded, Canada couldn’t even receive expeditious due process, having to endure various extensions and procrastinations, stretching over seven years.
Obama’s rejection of XL was a fatuous political gesture, even when measured by his own avowed decision criteria. But, even worse, it was an opportunity missed to advance a genuinely enlightened climate policy approach via carbon taxes for both countries.
Dennis McConaghy is a former Executive Vice President of TransCanada Corporation.