27 Aug 2013

Resolving the Keystone XL debate

I support the Keystone XL, but some people do not.
In the escalating war of words, Alberta has said it will spend $5 billion on a pipeline to take its oil east, and Obama has pledged that Keystone can go ahead if it "results in no net increase in carbon emissions." These two statements indicate how the impasse may be broken.
  1. Let's ignore facts such as Keystone has nothing to do with US emissions (that's demand), Canadian oil sands are likely to be mined (releasing carbon) even without Keystone, and how Keystone could displace equally dirty Venezuelan or Nigerian oil
  2. Let's assume that "no net impact" means displacing additional emissions related to the production of oil in Canada (again, not its consumption, which emits the same carbon as oil from other places), which means that Keystone will add 4-21 million tons of carbon per year to emissions [pdf]. Let's call that 20 million tons, but let's assume that ongoing improvements will reduce that figure to 5 million tons in 40 years (the life of the pipeline)
  3. Let's note that you can buy carbon offsets in Europe for EUR 4.50 (=USD=CAD 6.30)***
Now, let's do the math, taking as "sunk" the Government of Alberta's pledge to spend $5 billion to get its oil to market.
  • 20 million tons will cost $125 million to offset (via EU ETS) in year one and $31.25 million in year 40
  • Using a straight average of these two ($125+31.25/2) times 40 years (ignoring discount rates, which don't matter), we get $3.125 billion, which is much less than the $5 billion on the table
So now we see how the Keystone can go ahead:
  1. TransCanada spends its money to build the pipeline
  2. The government of Alberta funds the offsets
  3. The oil goes to market
(2) may run into trouble if the price of offsets rises, which will mean that the pipeline is either shut down or that the government/TransCanada comes up with more money for offsets, but that's a much easier action to take since its regulatory trigger is known in advance.

Bottom Line: Build the XL based on "polluter pays" and stop the empty debates.
* Alberta gets about 30 percent of its $40 billion budget from oil [pdf]; most Albertans work (in)directly for the oil-gas sector.

** Pipeline spills on land routes are not a big deal compared to spills near water; natural gas leaks are not very environmentally harmful but an explosion can kill you. That said, the Keystone folks may be lying about controlling spills and leaks. I'll have post(s) on fracking and pollution related to oil & gas production (the real problem) soon. In the meantime, read this excellent analysis of drilling for oil off the coast of British Columbia -- note the author's statement that some blame for the Deepwater Horizon spill rests with poor regulation; I said the same, more strongly.

*** I think that carbon offsets are often BS, but they're widely used and abused -- as California will find.