Keystone Pipeline: To Build or Not to Build

by Benjamin Studebaker

An interesting new report is out from the US state department about the Keystone XL pipeline, a proposed oil pipeline running from Canada’s tar sands to the United States. Key to the report is this line in particular:

Project is unlikely to have a substantial impact on the rate of development of the tar sands, or on the amount of heavy crude oil refined in the Gulf Coast area.

This may have some interesting implications for the question of whether or not the pipeline ought to be built. Let’s discuss them.

First, it is important to see how precisely the report challenges the argument against the pipeline. The argument goes something like this:

  1. The Keystone XL Pipeline is instrumental in making tar sand drilling in Canada economically viable.
  2. Therefore, if we do not elect to build the Keystone pipeline, less tar sand oil will be drilled.
  3. Therefore, in order to reduce the supply of oil, raise oil prices, and encourage alternative energy so as to defeat climate change, the Keystone pipeline should be opposed.

The report represents a rejection of the first premise. If it is true that the tar sand oil is going to be drilled whether or not it is piped to America, then the global oil supply is going to increase and prices are going to fall, alternative energy is going to be undermined, and climate change will not be thwarted. The result of refusing to drill the pipeline would, at that point, be entirely negative for the United States. The oil would either be send to the US via trucks and trains or sent to other countries over the ocean on tankers, jobs would not be created, and other countries would be more likely to benefit directly from the oil (say, China).

However, it must be noted that the state department report is not universally accepted–it is alleged that the report was written by industry insiders, not by the government itself. This opens up two possibilities:

  1. The report is true, so we might as well build the pipeline.
  2. The report is false, so debate on the subject remains open until further evidence is provided.

If the report is true, declining to build the pipeline does nothing to diminish emissions and only serves to divert the economic benefits of said emissions to other countries. One of the key features of carbon emissions is that no matter where in the world the emissions are produced, the effect is the same everywhere. If oil is burnt in China, it will have the same influence on climate change in the United States as it would have if it were burnt in the United States.

This is one of the special difficulties with solving climate change–any emissions restrictions or taxes tend not to reduce total emissions, but to divert them. Consider, for instance, Rick Perry’s recent radio advertisement in California:

In the ad, Perry attempts to convince Californian businesses to relocate to Texas to escape California’s stricter regulations, higher wages, and so on. In our increasingly globalised economy, the tendency is for political entities that attempt to combat climate change (or to raise wages, raise taxes, or do any number of other potentially helpful things) to be undermined in the endeavour by neighbouring entities.

So if say, California were to put in place a serious carbon tax designed to contribute to a global solution to climate change, global emissions would remain unlikely to fall, because rather than cut emissions companies could move to Texas.  Typically, the proposed solution to this federal law–if the entire country has serious carbon taxes in place, the tough policies of one state cannot be undermined by the lenient policies of another. This however does not solve the problem, it merely changes its location. For instead the United States as a whole becomes the California, and foreign states with lax regulations become Texases. China, Brazil, India, and so on, respond to higher wages, higher taxes, or tougher regulations in developed countries by attempting to steal away the affected businesses. There are two primary results of this process:

  1. Emissions are not reduced; they are merely transferred.
  2. Countries that try to do the right thing and solve the problem are screwed over economically, creating a disincentive against helpful behaviour.

Consequently, it is against the national interest of any country to attempt to do anything about climate change. All emissions “reductions” are merely diversions, so all climate policy achieves is a worsening of the economic position of the country in question. It might be good PR or award some “moral high ground”, but those are hardly good reasons for states to engage in policies that encourage businesses to move abroad, especially given current economic conditions.

So what can we do? The solution to climate change (a real reduction in emissions, not merely their transfer) cannot be achieved at the individual or national levels. What would really be ideal is a global superstate with the power to issue a global carbon tax from which no business could escape. However, no such global superstate exists or is likely to exist in time to solve the climate change problem. This leaves us with international treaties–voluntary agreements among large numbers of states to simultaneously reduce emissions. But even this has problems:

  1. If any major emitter refuses to sign up to the treaty (as, say, the United States did with the Kyoto Protocol), the treaty’s strength is greatly undermined because it sets up the non-participants to gain economically at the expense of those that have signed on.
  2. Even if all major economic powers sign up to the treaty, without a superstate it is difficult, if not impossible, to enforce compliance. For instance, the United States and China may in the future both sign up to a climate treaty, but neither has any way of knowing for certain if the other will really comply, and a classic prisoners’ dilemma arises in which it remains rational for both countries to cheat each other.

With even the very comprehensive international treaty so many have hoped for in vain for so long posing severe difficulties, the likelihood that climate change can be prevented with cuts in emissions is not very high. It may end up being the case that the best means of attacking the problem is for states to devote resources to coping with the effects of climate change technologically. But even then, states are only likely to work on their own problems, those that effect them directly, which means that the problems of rich countries will be dealt with more efficaciously than the problems of poorer countries. No matter how you slice it, the prospectus is not good for the world’s poor, who have not only been cut out of much of the economic benefits of industrialisation, but will receive its deadliest negative consequences.