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Why Canceling the Outdated Keystone XL Project Was a Good Idea

When it was proposed in 2005, the Keystone XL pipeline may have seemed like the perfect solution to our then-increasing demand for crude oil. However, two decades later, tying the US energy supply to some of the dirtiest fuel is counterproductive in a time when green energy transitions are vital.

In 2005, US crude oil imports had been increasing for the previous two decades, according to data from the US Energy Information Administration (EIA). Seeking to take advantage of the ever-increasing demand for crude oil in its neighboring country, TransCanada proposed a pipeline capable of exporting 830,000 barrels of crude oil per day. However, in the two decades since its proposal, US total crude imports have fallen by nearly half while domestic oil production sharply increased. While Canada has seen gradual increases in exports to the US, thus replacing US imports from OPEC countries, the expected sharp increase in demand remains nowhere to be found. Today, constructing the Keystone XL is no different from attempting to sell to an ever-shrinking market for US oil imports. With the decreasing demand for imported oil within the US, the proposed profitability of the Keystone XL pipeline in 2005 would be a far overestimate. This is not to say that the pipeline would not be profitable. It would be, just not to the extent of the original estimate.

Had the pipeline been constructed, it would have increased the profit margins for tar oil producers, which would encourage an increase in production. This would have driven the prices of tar oil down, thus increasing consumer demand. Ultimately, constructing the Keystone XL would have made dirty tar oil cheaper and in higher demand in a time when demand should be shifting toward clean energy.

So what are the propagating effects of cheaper tar oil? The problem is not that the pipeline itself would cause significant emissions; it’s that investing in permanent infrastructure would have tied the US to the dirtiest type of crude oil for the coming decades. This may not have been a major consideration when the project was proposed in 2005, but today we are inching ever closer to the 1.5ºC warming threshold. Upon construction, the investment into the Keystone XL pipeline would be a sunk cost. As such, it will be operated as long as it is profitable. So, for the next several decades, the market would be implicitly bound to dirty oil driven by increases in demand and sunk cost.

From a climate change perspective, even though the Keystone XL’s direct emissions are less than 1% of all greenhouse gas emissions by the US, it remains a step back in progress towards emissions reductions. Here, we must examine relative effects rather than absolute quantities of emissions. In the electricity sector, the share of electricity generated from renewables has been continuously increasing. In the transportation sector, the share of electric vehicle sales has also been continuously increasing. Clean technology has become more prevalent in multiple sectors. Combined, this has led to the rate of increase in US emissions gradually slowing down. Had the Keystone XL pipeline project continued, its construction would be a large step backward. Instead of contributing to the decrease of US emissions, it would increase it. With US emissions increasing by 1.3% in 2022, a further 1% increase from the Keystone XL pipeline would be a significant impact.

The construction of the Keystone XL pipeline would cause propagating emissions for its lifetime, which would span decades. A commitment now to build a pipeline that could temporarily benefit the US economy with job creation will become a regret decades in the future as cheap oil remains prevalent in our energy supply

These negative effects can be seen with estimated impacts on US GDP. Emissions from oil transported by the Keystone XL has the potential to reduce US GDP by up to 2% each year. With the social cost of carbon dioxide currently priced at $51 by the US government, the collective harm from emissions will at least partially negate the economic benefits of constructing the pipeline.

Supporters of the Keystone XL pipeline argue that the same quantity of oil will be produced regardless of whether the Keystone XL pipeline is constructed. Since pipelines are the least polluting method of transportation compared to rail, building the pipeline will, in fact, produce environmental benefits.

However, this is an economically unreasonable argument. Without the increase in profitability of efficient pipeline transportation, tar oil producers would be faced with higher costs of production. Thus, relatively less tar oil will be produced, resulting in fewer emissions. This reasoning is supported by data from the EIA. Since the initial permit denial issued by Obama in 2015, oil imports by rail from Canada have increased by merely 100,000 barrels per day. This is significantly less than the proposed capacity of the Keystone XL pipeline.

Essentially, blocking the construction of the Keystone XL pipeline also blocked a significant portion of the production of tar oil.

In the current economy and climate, the Keystone XL project is no longer a reasonable investment. From the data presented above, we see that US GDP will be potentially reduced by emissions produced from oil made possible by the Keystone XL. To prevent this, Biden’s cancellation of TransCanada’s permit effectively hampered the production of dirty tar fuel. Most importantly, the US will no longer be investing in a binding agreement to import dirty oil with a pipeline proposed decades in the past.

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