Obama’s Climate Change Impact Test for the Keystone Pipeline

Jul 3, 2013

Both the proponents and opponents of the Keystone Pipeline were encouraged by President Obama’s recent statement that he would approve that pipeline as long as it did not “exacerbate” greenhouse gas emissions.

Those supporting this pipeline, that would carry the bitumen from Alberta tar sands to American oil refineries on the Gulf Coast, claimed that the U.S. Department of State had already concluded that there will be no significant increases in greenhouse gas emissions.  So the President must have been saying he will approve the pipeline.         Critics of the carbon-intensive character of extracting petroleum-like liquid fuels from these tar-sands say that producing and burning these especially carbon intensive fossil fuels could force climate change past a tipping point. To them, the President was just warning that he was not going to approve the Keystone Pipeline.

The dispute here is not primarily centered on whether producing petroleum products from the tar sands is more carbon-intensive than conventional petroleum production. The fossil fuels contained in those sands, as the tar sand name makes clear, coat the sands with a sticky tar-like substance. One cannot just pump it out of the ground and send it to an oil refinery to make liquid fuels for our automobiles. Instead, two steps have to be taken first.  The thick and sticky bitumen has to be separated from the sands, water, and clay materials in which it is embedded. This is done by burning other fossil fuels to heat up the tar sands so that the bitumen runs off.

But that does not produce a petroleum-like product. It is too thick to move through a pipeline and not ready to be used at existing oil refineries. The bitumen has to be processed, again using heat, to turn it into something that can travel through existing pipelines ready to be refined into the usual mix of products such as gasoline, diesel fuel, and fuel oil.  These extra steps burn up energy and boost greenhouse gas emissions.

The energy companies that are mining and processing the tar sands are well aware of this problem and have formed a consortium to develop new technologies to reduce the energy intensiveness and, therefore, the greenhouse gas emissions, of their current tar sands processes.

So the debate is not over the energy intensiveness of different ways of obtaining petroleum-like products, although there are some interesting problems to resolve there. The debate is primarily over what will happen if the Keystone Pipeline is not approved. The impact of the proposed pipeline is the difference in the outcomes if the pipeline is approved compared to what is likely to happen if it is not.

Strangely enough, the proponents of the pipeline assert that not much will change from an energy perspective if the pipeline simply is not build. They assert that tar sands bitumen will reach commercial markets and be used whether or not the pipeline is build. Since they expect the same amount of tar sands bitumen to reach energy markets even if the Keystone pipeline is not built, they claim that the greenhouse gas emissions will be the same with or without this pipeline.  So the President should approve it.  There is a worldwide demand for more petroleum, they argue, and one way or another Alberta’s tar sand bitumen will flow into it.

Something seems left out of this position. Why would the energy companies push so heavily to build the Keystone pipeline if there are lots of alternative ways to get the bitumen too market that could be used instead?

The environmental critics of the Keystone Pipeline answer that question: They assert, as you would expect the energy companies sponsoring the Keystone Pipeline to to have asserted, that this particular pipeline is crucial to the low-cost distribution of the tar sands bitumen to world markets. Without that low-cost transportation route, the tar sands operation would not be able to expand anywhere near as much as producers hope, because they would face a much more limited market if they have to sell to local Canadian refineries and local Canadian markets. The Keystone Pipeline is the least cost, most secure, and most profitable way to connect the tar sands to world energy markets.

That in turn suggests that any alternative such are shipping by rail or building a pipeline to the east coast through Canada would be more costly, less reliable, and less profitable. The market accessible to the tar sands bitumen would shrink.

As a result, less of the tar sand bitumen will reach world markets, petroleum products on the world market will be more expensive than they would have been if this “new Canadian Saudi Arabia” does not flood the world with additional petroleum-like products. In a world of higher bitumen costs and petroleum prices, less petroleum and tar sand products will be consumed.  And greenhouse gas emissions will be lower.

There is no doubt that facilitating the delivery of a large new petroleum supply to world markets will tend to have that outcome. Put the other way around, building the Keystone Pipeline will “exacerbate greenhouse gas emissions.” That is, it will fail President Obama’s test, and he will have to reject the pipeline.

But no one is likely to be satisfied with the purely conceptual analyses of the proponents and opponents of this pipeline given how much is at stake. That is why EPA has insisted that more careful and detailed study, analysis, and modeling be done to lay out exactly how the construction and operation of the Keystone Pipeline will impact national and world energy markets and associated greenhouse gas emissions. Obama should support EPA in demanding that such a real economic analysis be carried out.