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Berkeley Econ Study: No Keystone XL Pipeline Keeps a Billion Oil Barrels Underground

April 23, 2014
by Ben Christopher

For avid watchers of the political saga known as Keystone, it’s another cliffhanger.

Last Friday, the U.S. State Department announced it would kick the can on deciding whether to approve the controversial Keystone XL pipeline, blowing past its prior May deadline and ensuring that the project will endure as a partisan talking point until well after the November midterm election.

Ever since the Calgary-based oil and gas company TransCanada proposed constructing this final pipeline leg in 2008, the project—which will deliver North Alberta’s Athabasca tar sands to Texas refineries dotting the Gulf of Mexico—has also become an 875-mile-long political tightrope for President Obama. A few months ago, a State Department environmental review reported that any emissions resulting from the Keystone pipeline shouldn’t be the deciding factor because, with or without Keystone, that tar sands oil was destined to find its way to market.

Hold on—maybe not, suggests a new study by a UC Berkeley economist, not to mention recent localized resistance to Keystone alternatives within Canada itself.

The Cal study, by Maximilian Auffhammer, runs counter to the conventional wisdom in favor of Keystone approval. In a New York Times opinion piece last February, journalist Tony Horwitz compared any effort to block the flow of tar sands oil to the “futile” war on drugs: “If denied one delivery system, addicts will find another.” By focusing on Keystone—rather than, say, stronger regulation of coal plants—advocates say that the environmental movement is only delaying the inevitable.

Former Secretary of State George Shultz made that case in a New Yorker article last fall. Although he advocates for instituting a carbon tax and more federal spending on alternative energy research, Shultz insisted that the tar sands will be extracted and produced “whether or not there’s a Keystone pipeline.” His advice for those who think otherwise: “Get over it!”

But Auffhammer, an assistant professor of agricultural and resource economics, has decided not to get over it.

“One side screams ‘Tar sands are the end of the climate!’ The other side screams ‘It doesn’t really make a difference! It’s going to come out of the ground no matter what we do!’ ” he says. “So my question was ‘Does the timing of this project really matter here or not?’ ”

The Auffhammer study considered the various routes that Canadian bitumen could conceivably take out of landlocked Alberta to the refineries and consumers beyond. Those routes include the Keystone system, along with five other proposed pipeline projects: one that would span the length of the country to Canada’s economically torpid Maritime provinces; two pipelines, one planned and one due for expansion, that cut west to British Columbia; and one that currently runs to Wisconsin but for which two sequential expansion projects are now planned. Beyond that, there is the much more expensive (and arguably, much more dangerous) last-ditch alternative of rail transport.

He then compared this so-called “takeaway capacity” to the amount of bitumen that the Canadian Association of Petroleum Producers estimates will be extracted over the next 15 years.

And according to his findings, Alberta is going to need all the takeaway capacity it can get.

“They need everything to make their projections by 2030,” says Auffhammer. As soon as you start chipping away at those planned pipeline projects, production will bottleneck. That includes Keystone.

If Keystone XL is completed, TransCanada has estimated that it would bring out some 186 million additional barrels of oil per year. But Auffhammer estimates that without Keystone XL there to siphon diluted bitumen (endearingly nicknamed “dilbit”) to Texas, producers by 2030 would be forced to leave at least 1 billion barrels of the stuff in the ground by 2030.

That’s a different conclusion than the one reached by the U.S. State Department when it published its draft Environmental Impact Statement on the Keystone project last January. Though the federal report estimated that the annual flow of dilbit passing through the pipeline would—once refined, sold, and burned—release an additional 147 to 168 million megatons of carbon dioxide into the atmosphere, it also argued that that those emissions are destined to be emitted whether we build the pipeline or not.

“Approval or denial of any one crude oil transport project, including the proposed Project, remains unlikely to significantly impact the rate of extraction in the oil sands, or the continued demand for heavy crude oil at refineries in the United States,” the report concluded.

Asked why his results varied so much from those of the State Department, Auffhammer says that the latter “implicitly assumes that this stuff is coming out of the ground and then questions whether Keystone is effecting the production or not. I’m not sure that’s the right way to do it.”

Still, even if Keystone is rejected, it’s worth noting that the Alberta oil industry wouldn’t start to miss it until production outgrows every other possible channel. And according to Auffhammer’s calculations, that wouldn’t occur until 2024. In other words, environmentalists don’t need to “get over” Keystone, but any victory parties they have planned in the event of a State Department denial should be put on hold for the next decade.

“The only way it will make a difference in the short run is if none of these pipelines get approved,” says Auffhammer. That means no Keystone, but also no pipeline to British Columbia, to the Maritimes, and so forth, leaving the industry stuck with its current pipelines and the rail network. And if that were to happen—or if all of those projects were to be delayed for long enough—production in Alberta could start to outgrow its ability to move the stuff out of province as soon as next year.

“And that’s not out of the question,” he says.

In fact, a referendum held last weekend in a small town in British Columbia makes that scenario seem all the more likely.

Some 400 miles up the coast from Vancouver, the coastal town of Kitimat is slated to be the western terminus of the Northern Gateway pipeline, a project of the Calgary-based Enbridge energy company. One of the five alternate takeaway projects included in Auffhammer’s study, the $6.5 billion conduit is scheduled to deliver over half a million barrels of crude from Bruderheim, Alberta, to a proposed marine terminal in the Douglas Channel inlet every day starting in 2017.

But in a nonbinding vote, the residents of Kitimat rejected that pipeline, joining a handful of other towns across the province and dozens of First Nations tribes in their official opposition. Many see the votes as a significant public relations blow to Enbridge and a pointed message aimed at the provincial government, which along with the Canadian government will eventually decide the fate of the pipeline.

“It’s arguably the community with most to gain economically from [the Gateway pipeline], and yet there was still a clear majority opposed to the pipeline,” says Kathryn Harrison, a professor of political science at the University of British Columbia. That puts the provincial government “increasingly between a rock and a hard place.”

On the one hand, the public’s support for Gateway, along with similar projects like the Kinder Morgan Trans Mountain pipeline expansion project that terminates in the suburbs of Vancouver, is tepid at best. On the other, rejection would place the province’s premier in opposition to the Canadian federal government, much of Western Canada’s oil and gas extraction industry, and the provincial government of Alberta.

If British Columbia did reject either proposed pipeline, “I have no doubt there would be litigation to challenge the province’s constitutional authority,” says Harrison. Conversely, she adds, approving either the Enbridge or Kinder Morgan projects won’t go down smoothly either, given that First Nations are strongly united against the Gateway pipeline and have “powerful legal claims.”

An extended legal fight could delay the projects past 2017—and chances are the battle wouldn’t be fought just in court.

“The environmental community and First Nations have very clearly signaled that they would be prepared to mount a significant campaign of civil disobedience should these pipelines be approved,” says Harrison.

Meanwhile, cross-border opposition is also rising against the proposed back-to-back expansions of Enbridge’s Alberta Clipper pipeline, which terminates in Wisconsin.

And while a complete victory for the environmentalists is unlikely over every one of these projects, the delays themselves could prove significant.

“I think the chances are that most of [the bitumen] will come out,” says Auffhammer. “It’s just a question of how much and when. And timing does matter.”

If a decade from now a global carbon tax has been implemented, more cost-effective energy substitutes have been developed, and we’re all riding around in highly efficient vehicles, then “maybe the need won’t be there” for Alberta crude, he says. And in that imagined future, the decision to campaign against Keystone and to keep those 1 billion barrels of oil locked in the Alberta soil will look like a smart strategy for the opponents of the pipeline.

But according to Auffhammer, it would still look like a very limited victory. Because, he says, “the problem is just so much bigger than Keystone.”

In a response to a blog post that Auffhammer wrote describing his report, Tufts University energy economist Gilbert Metcalf performed a “back of the envelope” calculation to put the 1 billion barrels of oil that the Keystone approval represents in a global perspective.

“If global emissions are flat between 2011 and 2030 (an unlikely scenario),” he writes, the additional emissions enabled by Keystone would equal .02 percent of all global energy-related emissions. In other words, he says, “the Central African Republic represents [an] equivalent amount of emissions.”

Still, abstract quantitative analysis cannot capture the power of symbols, narrative, and emotion—that is, the stuff of politics. Keystone may or may not contribute significantly to greenhouse gas emissions but it’s far easier to rally people around a single pipeline project that will draw a visible, tangible scar across the face the country than anything as nebulous as the concentration of CO2 in the atmosphere or as bureaucratic as EPA regulations on coal combustion residuals.

In essence, the strategy choice hinges not on how many barrels of oil or megatons of carbon are on the line. Instead it’s a calculation as to whether political activism is a valuable momentum builder that propels the movement forward, or a zero-sum game that diverts precious political capital away from more cost-effective green goals for the sake of one high-profile win—and a long-term loss for the planet.

Auffhammer says he’s not sure where he comes down on that question.

“Over all, from an environmental perspective,” he says, “the priority has to be to just keep as much carbon in the ground as possible.”

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