Professional environmentalists are cheering President Obama’s rejection of construction permits for the KeystoneXL Pipeline. They are the only ones cheering, aside from a few NIMBY groups and The New York Times Obama’s always-loyal damage control cohorts. Even The Washington Post voted against Obama in this struggle. The pipeline was a small, but important part of our energy infrastructure and none of the arguments put forth against construction of the KeystoneXL Pipeline are convincing.

1. An initial argument claims that the KeystoneXL Pipeline will somehow not provide energy security for the United States.

Because consumers from around the country (and the world) use oil, pipelines are necessary to transfer mind-bogglingly large amounts of it around the country each day. Imagine a scenario where we randomly begin shutting down oil and natural gas pipelines around the United States. The obvious result of decreasing our capacity would be decreased security, as we are less capable of moving oil around our country to deal with shocks, disasters, etc. Now think about what adding a pipeline does: it increases our capacity to transport oil around the country. Ultimately, this must increase to some extent our energy security.

One reason that environmentalists claim no ‘energy security’ benefits is because they believe (or claim to believe) that all of the oil is destined for export.  This is unlikely. As you may well know, the U.S. imports a good chunk of its oil from Canada/Mexico already, but also imports roughly 40% of our petroleum from countries outside the Western Hemisphere, including Saudi Arabia, Nigeria, Venezuela, Russia, etc. These non Canadian/Mexican imports must be transported across the Atlantic Ocean, and as Michael Levi notes, its unlikely that it will not ultimately be cheaper to decrease some of our imports from across the Atlantic Ocean, and increase our Canadian oil imports.

Finally, the pipeline would be a good idea even if all the oil is exported, as refiners in the Gulf will profit from the value they add as the oil is refined into gasoline, diesel, etc.

2. Environmentalists claim that gasoline prices will increase for Americans if the pipeline is approved.

This claim is ironic, as the ultimate goal of some of the more seasoned environmental veterans is to make energy (including gasoline) more expensive. Apparently this isn’t selling point for environmentalism has yet to resonate with Americans. So it’s clear that this is a bait-and-switch in terms of appealing to the average American who, at this point, does not want gasoline prices to go up.

Regardless, the effect that the pipeline has on the price of gasoline in the United States shouldn’t change the merits of the project. Some have argued that gasoline is a bit under-priced in the Midwest at the moment because there is a glut of supply and not a ton of outlets for the oil. If supplies tighten in the Midwest, they will loosen elsewhere, including hopefully refineries on the Gulf Coast. And if they happen to result in higher prices in the Midwest and lower prices globally, this is also not something we should attempt to stop. Americans generally understand that trade restrictions make us all worse off, and that free trade is beneficial. Blocking the pipeline is a form of economic protectionism, its just slightly more hidden in the form of a regulation rather than a tariff.

3. The environmentalists claim that job projections are vastly inflated.

Industries lobbying for certain policies or projects exaggerate their beneficial effects, news at 11. It’s obvious that increased economic activity will add jobs, quibbling over the numbers is pointless. I will also point out that the same groups don’t have issues with accepting obviously inflated jobs numbers when the jobs involve installing windmills, solar panels, or cleaning up power plants.

4. The pipeline is “game over” for the climate. This line came from our country’s esteemed scientist James Hansen, and was delivered by assuming (1) that the oil would sit in the ground without the pipeline, and (2) that the entirety of the oil sands will be developed. Neither premise is likely. The oil can quite likely find an additional route to Asia (there’s too much money for the Canadian government in this to leave it all in the ground). Ironically, the 2nd-best route chosen by TransCanada will almost certainly be less efficient than the original planned route, and could ultimately increase carbon emissions especially if they begin shipping it directly to China. Moreover, to get the carbon dioxide emissions Hansen described (2ooppm) would take until the year 3316. Even if that number is off by a significant amount, we don’t plan even 100 years into the future (for good reason, we have no idea the effects of new technologies, etc.).

Finally, even if you agree that it is in the world’s best interest to begin drastically scaling back carbon dioxide emissions (and that the international will-power exists to do this or that its a good idea to proceed without international agreement), the oil sands are still going to be developed. The oil sands are only 5-10% more carbon intensive than a standard baseline for oil production, and would proceed even with a moderate price on carbon. Cheap carbon reductions are more likely to come, initially, from electricity production rather than oil production. Carbon free alternatives to carbon-intensive electricity production are much closer to working on a scale that would be necessary when compared with substitutes for oil, which are mostly non-existent except for the ever-fledgling biofuels industry.

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Ultimately, the President kowtowed to a small special interest group that will play a pivotal role in his re-election, despite the conflict with other labor groups who supported construction of the pipeline. Somehow, environmentalists are happy, despite the high probability that this pipeline will still soon be built, perhaps even with President Obama’s blessings in 2013.

The Republicans may have screwed up by forcing Obama to decide on the pipeline (and giving him an excuse that he could sell to the public), though this issue will remain a large symbol in the 2012 campaign(s). Indeed, many centrist Democrats have already distanced themselves from the President’s decision.

The Administration’s reasoning for rejecting the permit is mostly bogus. They might have a legal excuse, but there are hundred’s of thousands of miles of pipelines around the U.S., and they cause no serious problems. If Obama is upset that Republicans have pushed him towards an “arbitrary” deadline, he must acknowledge that Republicans are upset that the President began this debacle by playing politics with our nation’s energy needs.

The pipeline is being routed away from what was claimed to be an environmentally sensitive area (which, many experts including the State Department, don’t really believe) to a safer area, yet we have to spend months and months studying the new route? It is overwhelmingly likely that there will be absolutely nothing wrong with the new route, and this is just a standard tactic to delay a politically tough decision.

We will see what happens in the months to come.

Writing in The Hill’s Congressional Blog, lobbyist in chief for the ethanol industry Bob Dineen waxes poetic about the historic nature of the ethanol industry voluntarily giving up losing one of its subsidies, the Volumetric Ethanol Excise Tax Credit (VEETC):

With growing concerns about gridlock in Washington and greed on Wall Street, Americans are wondering whether anyone with a stake in public policies is willing to sacrifice their short-term advantage for a greater good.

Well, someone just did.

Without any opposition from the biofuels sector, the tax credit for ethanol blenders (the Volumetric Ethanol Excise Tax Credit – VEETC) expired on January 1.

In fact, American ethanol may well be the first industry in history that willingly gave up a tax incentive. Facing up to the fiscal crisis in this country, industry advocates have engaged in discussions with the Administration, Congress and our own constituents in an effort to frame forward-looking policies that balance the needs for deficit reduction and the development of clean-burning, American-made motor fuels.

Incentives should help emerging industries to develop and grow, not to be forever subsidized by the nation’s taxpayers. The Volumetric Ethanol Excise Tax Credit — which actually accrued to biofuels blenders, not producers – has helped the renewal fuels industry to stand on its own two feet. So now it is time for this subsidy to be phased out.

As a colleague wrote in an e-mail regarding this work of fiction, “BWAHAHAHAHAHAHA!!!” The ethanol industry did not voluntarily give up this subsidy. Last year they fought to get it extended, but were only able to secure a 1 year extension due to stiff opposition by competing interests. Earlier this year, the industry — knowing that this subsidy was going away — attempted to terminate it halfway through the year and capture the remainder of the funds and use them to create ethanol pipelines (ethanol cannot be piped through the oil pipelines set up throughout the country).

Finally, this subsidy is small potatoes for the ethanol industry. The important subsidy is the Renewable Fuel Standard, which is still set in stone and getting more lucrative for the industry every year, as refiners are required to blend increasing amounts of ethanol into each and every gallon of gasoline purchased by Americans. This is conveniently left out of Mr. Dineen’s op-ed, as he hounds tax credits for fossil fuel industries (and we agree here, to the extent that some of these things are indeed subsidies, they should be ended. Unfortunately, he is assuredly referring to standard manufacturing tax breaks that hundreds of different industries take advantage of).

He also makes it clear that though this subsidy is gone, they would love help (read: money) to build out ethanol pipelines and blender pumps for higher blends of ethanol that consumers do not want.

H/T to Knowledge Problem.

The ethanol compromise did not make it into any debt ceiling negotiations and its future is now looking bleaker than ever before. The Congressional ‘super-committee’ established by the debt ceiling negotiations will have to decide by November 23rd some manner to reduce the deficit by $1.5 trillion or face potentially unpopular automatic spending cuts to defense and discretionary spending (though USA Today writes that these “threats” have failed in the past). None of the rumored super-committee members seem to be from regions that would require their support of the ethanol industry

The ‘ethanol compromise’ had legs because it funneled money into the domestic ethanol industry while still maintaining a facade of deficit reduction. It would have collected $2 billion in revenue from the ending of the domestic tax credit as of July 21 and used a small amount less than that to spend on items near and dear to the ethanol industry (mainly ongoing support for cellulosic ethanol and money for the installation of blender pumps at fueling stations), hence their support.

The deficit reduction from the ethanol tax credit is no longer possible because the ethanol tax credit is again set to expire at the end of the year (as it was extended for one year at the end of 2010). This means that any potential deficit reduction is slowly being eroded as the tax credit continues on towards the end of the year, and renewal of support for the industry will add to the deficit rather than reduce it, making it much more difficult for conservative politicians to support it (though, obviously, they have been willing to forget their supposed free-market ideology when it suits them).

So it seems likely that the tax credit and tariff will expire at the end of 2011. It is possible (though it is harder to get subsidies back once they’ve been gone) that future support for the industry will get stuck into a larger energy bill, especially support for ‘next generation’ biofuels which remains popular among those who have given up on corn based ethanol. The Renewable Fuels Association has high hopes:

Bob Dinneen, president and CEO of the Renewable Fuels Association said that because the debt deal includes a call for a future budget framework, the opportunity to discuss comprehensive energy tax policy still exists. This could include infrastructure support, tax incentives for second-generation ethanol technologies and feedstocks and the repeal of petroleum subsidies. “With the debt ceiling crisis looking as though it has been averted for now, we hope Congress and the administration are now prepared to address the nation’s worsening energy crisis, as oil and gasoline prices continue to rise and the nation’s investment in homegrown renewable fuels languishes,” he stated.

The much bigger problem with ethanol is still the renewable fuel standard. This fight will manifest itself in future years as virtually every related industry outside of those who produce ethanol revolt against higher blends of ethanol entering the fuel supply (this assumes that ethanol does not become cost competitive with petroleum, if it does, the government would do best to get out of the way).

With gas prices hovering near $4/gallon, Democrats are trotting out fanciful “solutions” to temper the price of oil.

On Saturday, President rolled out a three-part plan to relieve Americans’ pain at the pump. The third part was the elimination of Big Oil “subsidies” (in fact, they are tax breaks, not subsidies). This doesn’t make any sense. The point of the tax breaks to Big Oil is to decrease the cost of production. That is, they make oil cheaper to extract. Removing these “subsidies” will in no way decrease the price of gas.

Meanwhile, Senate Democrats are blaming evil “speculators” for bidding up the price of oil. This is utter malarkey. The price of oil is dictated by a global market.  Ill-defined “speculators” are a straw man.

Removing Big Oil’s “subsidies” and prosecuting “speculators” are empty political gimmicks of the sort that the 2008 version of Obama campaigned against. (So much for “Change,” right?) I suspect that the President and Senate Democrats are relying on these bogus non-solutions because, otherwise, they’d have to acknowledge that the price of oil is a function of supply and demand. And if they concede that the market, and not “subsidies” or “speculators,” is to blame for high oil prices, then they’d also have to acknowledge that increasing supply would decrease the price. That is, they’d have to admit that “drill, baby, drill” works. Of course, they don’t want to do that, because doing so would upset their environmentalist base.

This is why I’m suspicious of the President’s apparent pro-drilling posture during his Saturday address. In addition to prosecuting “speculators” and removing Big Oil “subsidies,” President Obama promised to expand domestic production. Here’s what he said,

Second, we should increase safe and responsible oil production here at home.  Last year, America’s oil production reached its highest level since 2003*.  But I believe that we should expand oil production in America – even as we increase safety and environmental standards.

To do this, I am directing the Department of Interior to conduct annual lease sales in Alaska’s National Petroleum Reserve, while respecting sensitive areas, and to speed up the evaluation of oil and gas resources in the mid and south Atlantic.  We plan to lease new areas in the Gulf of Mexico as well, and work to create new incentives for industry to develop their unused leases both on and offshore.

*[The President is being disingenuous. Expanded oil production in America has been driven primarily by production from the huge Bakken Formation in North Dakota.  And this was made possible by the fact that the oil is underneath private land. Were the Bakken Formation on federal land, it would have been locked up by the Obama Administration.]

The absence of specifics in the President’s pro-production plan gives me pause. I’m not the only one who harbors this concern. The pro-drilling editorial board at the New Orleans Times Picayune is also waiting to see real action before it believes the President.

In case you haven’t checked recently, gas prices are high again. Fear not, because the DoJ is on the case: “High gasoline prices prompt Justice department to eye energy industry.” From the article:

Attorney General Eric Holder made no secret the move is a direct response to public angst, not to current evidence of any illegal conduct.

…

While promising official vigilance, the attorney general acknowledged regional differences in gasoline prices, and said, “It is also clear that there are lawful reasons for increases in gas prices, given supply and demand.”

At least give them credit for admitting that they’re wasting taxpayer dollars on a bunch of nonsense. If public conern is the only metric for a DoJ bureaucratic task-force, there are a number of other issues American’s are inappropriately worried about. I’d be shocked if the Department of Justice was interested in wasting its time on those issues.

There was a good piece in Forbes explaining the (lack of) evidence that speculators have been driving the price of oil by Jerry Taylor and Peter Van Doren.

The most astonishing event this week was President Barack Obama endorsement of more oil production—in Brazil.  In a speech to a CEO Business Summit in Brasilia, the President said:

By some estimates, the oil you recently discovered off the shores of Brazil could amount to twice the reserves we have in the United States.  We want to work with you.  We want to help with technology and support to develop these oil reserves safely, and when you’re ready to start selling, we want to be one of your best customers.  At a time when we’ve been reminded how easily instability in other parts of the world can affect the price of oil, the United States could not be happier with the potential for a new, stable source of energy.

This is the same President who has spent the last two years doing everything he can to reduce oil production in the United States.  Cancelled and delayed exploration leases on federal lands in the Rocky Mountains; the re-institution of the executive moratorium on offshore exploration in the Atlantic, the Pacific, most Alaskan waters, and the eastern Gulf of Mexico; the deepwater permitting moratorium and the de facto moratorium in the western Gulf.  The result is that domestic oil production is about to start a steep decline.  An article on Red State by Steve Maley summarizes the future effects of the Obama Administration’s war against oil.

Maley quotes an authoritative summary (PDF) provided in a recent publication by the Department of Energy’s Energy Information Administration:

Off shore oil production in [the 2011 forecast] is lower than in [the 2010 forecast] throughout most of the projection period [through 2035] because of expected delays in near-term projects, in part as a result of drilling moratoria and in part due to the change in lease sales expected in the Pacific and Atlantic outer continental shelf (OCS), as well as increased uncertainty about future investment in off shore production. [page 8]

I’m all for more oil production in Brazil, but what’s good for Brazil would also be good for the United States.  Were the federal government to open some of America’s vast untapped offshore and Alaskan oil resources, it would lower our trade deficit by hundreds of billions of dollars, provide billions of dollars in royalties to the federal treasury, create hundreds of thousands of high-paying jobs not subsidized by taxpayer dollars, and contribute significantly to our long-term prosperity.  Given the economy’s current dismal long-term prospects, continuing to lock up our resources is detestable.

President Obama’s remarks in Brazil show that he understands this.  He clearly thinks prosperity is good for Brazil.  But it is something that he is working mightily to deny to Americans.  He and his administration have adopted policies that they know will reduce oil and coal production, raise energy prices, and make Americans poorer.  As the President said when gas prices reached $4 a gallon in the summer of 2008 when he was running for President, the problem wasn’t the price, but that prices had risen too suddenly. In fact, the Administration is full of senior officials who are on record supporting much higher gasoline and electricity prices, starting with Energy Secretary Steven Chu.

Victor Davis Hanson takes a stab at explaining the background assumptions that have led to the left’s insane war against energy:

The administration’s energy visions are formulated by academics and government bureaucrats who live mostly in cities with short commutes and have worked largely for public agencies. These utopians have no idea that without reasonably priced fuel and power, the self-employed farmer cannot produce food. The private plant operator cannot create plastics. And the trucker cannot bring goods to the consumer — all the basics like lettuce, iPads, and Levis that a highly educated, urbanized elite both enjoys and yet has no idea of how a distant someone else made their unbridled consumption possible.

I think that’s part of the explanation, but only scratches the surface.  At its core, the modern environmental movement (and the Obama Administration has been staffed with professional environmentalists) hates access to energy because it gives people power over nature.