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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

November 19, 2014 at 11:15 AM

What’s missing from the Keystone XL debate

The Senate voted down the pipeline proposed to bring tar-sands oil from Alberta to the U.S. Gulf Coast. Don’t worry, it will be back and is likely to be among the first measures passed when Republicans take over the Senate in January. They can probably peel away enough Democrats to override a veto, should Mr. Obama choose to use it.

Here are four economic factors that get little attention in the debate:

1. Keystone is not about our Canadian friends bringing us oil so we can keep driving everywhere cheaply. Canada intends to sell this oil on world markets, as is the case with most petroleum. No law requires it to be sold in the United States. So some of the refined tar-sands might make it to U.S. buyers but this is not about ensuring our “energy independence.” Most of it is likely to go overseas, including to oil-hungry China. The Gulf refining, logistics and shipping complex — including the Houston Ship Channel terminal — was built for global reach.

2. Tar sands are not like light sweet oil. The petroleum extracted from the environmentally damaging processes in Alberta is “heavy” and “sour.” This makes it much more difficult and expensive to refine it into most petroleum products, especially gasoline. Thus, the Harper government wants to send it more than a thousand miles (across a vital aquifer) to hook up with the U.S. pipeline system and reach the Houston area. Its Refinery Row, which is to oil what the Puget Sound region is to airplanes, is critical to making the Canadian tar sands salable on world markets. This is a risky play beyond danger to the environment because lower oil prices make tar sands even less profitable.

3. Keystone is not a big U.S. job engine. Once construction is complete, the pipeline is estimated to create 35 permanent positions. If we want an infrastructure project that would create far more operating jobs, try high-speed rail, renewable energy, retrofitting suburbia with clean transit options, rooftop solar, etc.

4. External costs are not priced in. Every discussion of Keystone XL must include its consequences for climate change. The Obama administration has tried to dance around this by saying the tar sands will end up on the world market anyway. Because of point No. 2, this is not a given. Anything we can do to keep carbon in the ground, including tar sands, prevents the planet from crossing a threshold that the vast majority of climate scientists say would be catastrophic. “Game over,” as NASA’s James Hansen wrote.

Without a carbon tax, Keystone XL is a classic market failure. All the  tar sands refined and dumped into the global commons called the atmosphere will bring huge costs, in species extinctions, ecosystem destruction, drought, extreme weather events, mass migrations, expansion of tropical diseases and geopolitical and stateless conflict. If the externalities were applied to Keystone XL, it would never make economic sense. Mouthpieces of the fossil-fuel industry talk about the jobs killed if we don’t extract and burn every molecule of carbon. What isn’t investigated more widely is the jobs lost to climate change. And the jobs that could be created by clean energy, trains, transit, etc.


Today’s Econ Haiku:

Tar sands and Byron

Mad, bad, dangerous to know

Tar is no poet



Comments | More in Climate change | Topics: Energy, Keystone XL, Tar sands


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