Obama’s War on Keystone XL: High Costs, Tiny Benefits

November 11, 2015 Topic: Economics Region: Americas Tags: Keystone XLBarack ObamaEnergy

Obama’s War on Keystone XL: High Costs, Tiny Benefits

A bad call: the move will stifle economic growth for little, if any, climate benefit.

President Obama’s rejection of the Keystone XL pipeline exemplifies the main problem with the administration’s push to build a legacy of combating climate change. This decision—like previous decisions to block energy infrastructure, prohibit construction of new coal-fired power plants and impose deep carbon emission reductions on the states—will stifle economic growth for little, if any, climate benefit.

Fresh off rejecting the permit application to construct Keystone XL, the White House officially announced President Obama would participate in the international climate talks this December in Paris. In denying Keystone XL, Mr. Obama said, “America is now a global leader when it comes to taking serious action to fight climate change, and frankly, approving this project would have undercut that leadership.”

Make no mistake, the administration is taking serious action in the name of climate change. But it is action that will yield negligible changes in global warming. Take the pipeline project, for instance. Even if one assumes we are facing catastrophic warming, the carbon emissions from Keystone XL would be 0.2 percent of the “carbon budget” allowable to prevent such warming. Even Obama’s own State Department’s final environmental impact statement says Keystone XL wouldn’t increase CO2 emissions significantly, because Canadian oil is coming out of the ground whether Keystone XL is built or not. In fact, rejecting the pipeline could increase greenhouse gas emissions as companies find less efficient means—such as rail—to transport the oil.

While the climate benefits are negligible, the economic opportunity lost is very real. Rejecting the project denies the opportunity for thousands of construction jobs and the flow of up to 830,000 barrels of oil to Gulf Coast refineries. In fact, the southern portion of the pipeline running from Oklahoma to Texas, which did not require President Obama’s approval, created nearly 5,000 construction jobs. That project generated $5.7 billion in economic activity for Texas and Oklahoma.

President Obama has repeatedly scoffed at the economic value of the pipeline. First, he dismissed the number of permanent jobs the project would create, even though that’s how construction projects work. When rejecting the permit application, Mr. Obama said, “The pipeline would not make a meaningful long-term contribution to our economy.”

Keystone XL could very well make a meaningful contribution to America’s long-term economy. TransCanada projected that Keystone XL would last approximately 100 years and deliver $5.2 billion in property taxes to the states it would have run through. And assuming the pipeline carried “only” 500,000 barrels per day (instead of operating at full capacity), it would have delivered 182.5 million barrels per year. That’s more than nine billion barrels of oil during just half the operating life of the pipeline. One could argue that’s pretty decent long-term contribution for a single pipeline.

But even if the pipeline stood a good chance of flopping, that’s not something a president should consider in deciding whether or not to grant a permit. Likelihood of success shouldn’t be a criterion for the federal government’s decision-making vis-à-vis a pipeline construction project, any more than it should be a consideration of a zoning board vetting a construction permit application for a new office building or flower shop.

In its environmental impact assessment, the State Department correctly concluded that the pipeline would pose no threat to public health or safety. The federal government’s determination should begin and end on those considerations. It has no business making arbitrary decisions about the likely economic value of privately funded projects.

Obama’s decision on Keystone XL is emblematic of his entire climate agenda: high costs and little, if any, climate benefit. The Obama administration has proposed and implemented a series of climate change regulations, pushing to reduce greenhouse gas emissions from vehicles, heavy-duty trucks, airplanes and hydraulic fracturing.

The meat of the president’s climate agenda, which he intends to parade around Paris, is the set of Environmental Protection Agency regulations on new and existing power plants. Collectively known the Clean Power Plan, they will effectively prohibit the construction of new coal-fired power plants, shifting America’s energy economy away from affordable, reliable sources to expensive, politically preferred ones.

Since conventional carbon-based fuels provide more than 80 percent of America’s energy, these restrictions on using abundant, economical energy sources will only inflict economic pain on households and businesses. They will produce no discernable climate benefit, at the cost of hundreds of thousands of jobs and trillions of dollars of gross domestic product.

As President Obama heads to Paris next month to call for tough action on climate change, let’s remember what it’s costing. And let’s also remember what little, if anything, we’re getting in return for it.

The Heritage Foundation’s Herbert and Joyce Morgan Fellow, economist Nicolas Loris specializes in energy and environmental policy.

Image: Flickr/shannonpatrick17