[* This column is a lightly edited version of my post earlier this week on National Journal's Energy Experts Blog.]

You know we’re deep into the silly season when ‘progressives’ champion reverse protectionism – banning exports – as a solution to America’s economic woes. Congress should reject proposals to ban exports of petroleum products and natural gas for at least six reasons.

(1) Export bans are confiscatory, a form of legal plunder.

As economist Richard Stroup has often pointed out, property rights achieve their full value only when they are “3-D”: defined, defendable, and divestible (transferable). A total ban on the sale (transfer) of property rights in petroleum products or natural gas would reduce the asset’s value to zero (assuming no black market and no prospect of the ban’s repeal). To the owner, the injury would be the same as outright confiscation. A ban on sales to foreign customers would be similarly injurious, albeit to a lesser degree.

The foregoing is so obvious one is entitled to assume that harming oil and gas companies is the point. I would simply remind ‘progressives’ that the politics of plunder endangers the social compact on which civil government depends. Why should others respect your rights when you seek to deprive them of theirs? Every act of legal pillage is precedent for further abuses of power. Do you really think your team will always hold the reins of power in Washington, DC?

(2) The proposed bans would violate U.S. treaty obligations under the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA).

Let’s start with the proposals, sponsored by Rep. Ed Markey (D-Mass.) and Sen. Ron Wyden (D-Ore.), to prohibit the export of tar sands crude shipped via the Keystone XL Pipeline and petroleum products made from that oil. This policy violates the two most fundamental principles of the global trading system: national treatment (treat foreigners and locals equally) and most-favored-nation (treat all trading partners equally).

The national treatment principle prohibits importing nations from discriminating against a foreign commodity, service, or item of intellectual property once it has entered into domestic commerce. The moment Canadian crude crosses the border, whether via Keystone XL or any other mode of transport, it becomes part of U.S. commerce. Thus, under both GATT (Article III) and NAFTA (Articles 301, 606), it must be accorded national (equal) treatment. Since Congress does not ban petroleum product exports made from U.S. crude, the Markey-Wyden proposals are discriminatory and in conflict with U.S. treaty obligations.

The proposals also flout the most-favored-nation principle (GATT, Article I), which holds that if you grant a privilege to one trading partner, you must grant it to all. Markey and Wyden would not require OPEC crude and products made from it to “stay here.” The restriction would apply only to Canadian crude and the associated products. Wittingly or otherwise, Markey and Wyden would grant most-favored-nation status to OPEC but deny it to Canada! A more foolish way to treat our closest ally and biggest trading partner would be hard to imagine.

The rejoinder to this criticism is that Wyden and Markey don’t go far enough – Congress should ban all petroleum product exports (and natural gas exports, too). Democratic strategist John Podesta’s American Oil for American Soil proposal, for example, would ban exports of petroleum products made from oil produced on U.S. public lands and offshore.

Proposals of this sort would place domestic and national commerce and all trading partners on the same, non-discriminatory footing. Nonetheless, such policies would still be unlawful under GATT.

Article XI: 1 of the 1994 GATT states:

No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party . . . on the exportation or sale for export of any product destined for the territory of any other contracting party.

Although “duties, taxes or other charges” on exports are permissible, quantitative export restrictions such as quotas and bans are “prohibited,” argue Lode Van den Hende, Jennifer Paterson, and Herbert Smith in Bloomberg Law Reports.

There are exceptions. Under Article XI: 2, export “prohibitions or restrictions” may be “temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party.” However, America is not facing “critical shortages” of finished petroleum products or natural gas. Natural gas is cheap today because it is plentiful, and gasoline is pricey not because it is in short supply but because crude oil prices are high.

Article XX(g) permits export restrictions “relating to conservation of exhaustible natural resources.” However, note Hende, Paterson, and Smith, “if there is evidence that an export restriction is designed to protect or promote a domestic processing industry, then Article XX(g) cannot be used as a justification.” Promoting domestic manufacturers who use petroleum as a feedstock is Rep. Markey’s leading rationale: “I make the amendment because I want a low price for the oil for toothbrushes, for steel, for pantyhose, for anyone that makes that product here in the United States.” Similarly, Markey argues that DOE should reject license applications to export natural gas so that feedstock prices will be lower and domestic manufacturers more competitive.

(3) Banning exports will discourage production, investment, and job creation. This is too obvious to require elaboration. The smaller the market U.S. companies are allowed to compete in, the smaller their potential sales volume, revenues, and profits. An industry crippled by exclusion from the global marketplace will attract less investment, create fewer jobs, and generate smaller tax receipts. Banning exports restricts wealth creation and undermines U.S. prosperity. Not good!

(4) Banning exports will increase the U.S. trade deficit. Indeed, how could it not? Petroleum products are now America’s leading export, with sales abroad reaching about $88 billion last year. Economists disagree on whether (or why) trade imbalances matter (see e.g., here, here, here, here, and here). Be that as it may, Wyden and Markey decry the U.S. trade deficit with China and urge policymakers to do more to ‘level the playing field.’ Yet they want to kneecap America’s biggest, fastest-growing export sector. The only ‘logic’ operating here appears to be political (that which harms oil and gas companies is good).

(5) Banning energy exports would expose America to charges of rank hypocrisy. Rep. Markey is a leading critic of Beijing’s export restrictions on rare-earth elements. Rare earths are used to manufacture the ‘clean tech’ products of which he is so fond, including hybrid and electric vehicles, solar panels and wind turbines. In March, the U.S., Japan, and EU launched a WTO case against China’s restrictions on rare-earth exports. We cannot flout the same treaty obligations and trade principles we invoke without looking ridiculous and duplicitous in the eyes of the candid world.

(6) Banning energy exports would backfire, harming those the policy supposedly aims to help. Proponents claim banning energy exports will increase domestic supply, which will lower price, which will then ease pain at the pump and make U.S. manufacturers more competitive. But if this is such a great idea, why don’t we do it for agricultural products, automobiles, or any other product made in the USA? Or, as in the anti-Keystone legislation, why don’t we insist that if U.S. products (e.g. computers, confections, pharmaceuticals) are made with imported parts or materials, those products must “stay here” for the benefit of U.S. consumers? It’s because if we banned exports from those other industries, it would bankrupt them.

For the same reason, energy export bans would backfire, harming the very consumers and manufacturers such policies are ostensibly intended to help. In the short term, banning exports might lower prices by producing temporary gluts in domestic markets. But the policy’s adverse impacts would be severe and lasting.

Cut off from global demand for their products, producer and refiner profit margins would decline. Oil- and gas-related capital, production, and jobs would migrate to countries that do not wage political warfare on hydrocarbons. U.S.-based producers would drill and frack less; domestic refiners would idle capacity and invest less in efficiency upgrades. Domestic prices would rise as domestic output fell. Domestic prices would also rise because consumers would depend more on foreign suppliers who face less competition from U.S. producers.

Conclusion

Banning energy exports makes no sense except as a strategy to harm those who frack gas and refine oil for a living. The logic behind such policies is that of party and faction, not economics. Proponents seek to deprive fellow citizens of property rights essential to their survival and success in the global marketplace. It is a sign of how far America has strayed from the constitution of liberty envisioned by the founders that Congress is debating such policies today.

The Senate just voted down two highway bill amendments on the Keystone XL Pipeline: the Hoeven amendment to permit the pipeline (56-42) and the Wyden amendment prohibiting exports of Keystone crude and petroleum products made from it (34-64). Both amendments required 60 votes for passage. Hoeven’s amendment missed by four votes, Wyden’s by 26.

Eleven Democrats voted for Hoeven’s amendment: Kay Hagan (N.C.), Joe Manchin (W.Va.), Mary Landrieu (La.), Jim Webb (Va.), Claire McCaskill (Mo.), Mark Pryor (Ark.), Jon Tester (Mont.), Mark Begich (Alaska), Bob Casey (Pa.), Kent Conrad (N.D.) and Max Baucus (Mont.). Bottom line: There is now clear majority support in both the House and Senate for expeditious approval of the Keystone XL Pipeline.

As this blog has argued previously, proposals like Wyden’s to ban exports of U.S. petroleum products would violate U.S. treaty obligations under the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA).

Wyden claims an export ban would increase domestic supplies of gasoline and diesel fuel and, thus, lower prices, benefiting consumers. But the ban would likely backfire, increasing pain at the pump. It would drive refining-related investment, production, and jobs out of the USA, curbing production at home while making higher-priced foreign imports more competitive.

Banning petroleum product exports is also just plain dumb if you’re one of those people – like Wyden — who deplore America’s trade deficit with China. Well, okay, what Wyden deplores most (or only) is America’s trade deficit in “environmental goods” like solar panels. If you don’t understand the economic logic behind this selective indignation, it’s because there is none.

Gross self-contradiction is not uncommon in politics, but the angst and handwringing over Keystone XL as an “export pipeline” by many self-styled trade hawks is material suitable for a Monty Python skit. In the meantime, sober commentary will have to do. ExxonMobil’s Ken Cohen hit the key points in a recent post.  

From Cohen’s article:

What is a surprise is that commentators like [Bill] O’Reilly would choose to criticize the export of gasoline and diesel instead of treating them like any other U.S. exports – exports that are typically celebrated by policymakers and commentators as examples of U.S. economic capacity and strength in a competitive global economy.

In fact, in 2010 President Obama set a national goal of doubling exports of products “Made in America” by 2015. One of the reasons that the nation is still on track to achieve this goal is that petroleum products were a top U.S. export in 2011.

“More exports mean more jobs,” President Obama said just last week in his weekly address at a Boeing plant in Washington. “We know what we need to do. We need to strengthen American manufacturing. We need to invest in American-made energy and new skills for American workers.”

Furthermore, in the Economic Report from the President released a few days ago, the White House touted the fact that “the growth of U.S. exports over the past year has been a particular bright spot” in the economy – and it recognized the positive role petroleum product exports have played in this growth.

“Many factors are contributing to this fast pace of growth, including continued productivity growth in manufacturing, a shift in unit labor costs that favors U.S. businesses over those in other advanced countries, and technological innovation in the energy sector, which is improving America’s trade balance in petroleum products,” the report said.

In every sector of the U.S. economy, you hear about the importance of exports and trade balances. You certainly don’t hear calls to restrict the export of U.S. cars as a means to reduce the price of buying a new car; so why apply such flawed logic to gasoline and diesel?

 

What is fast-becoming the main talking point against the proposed Keystone XL Pipeline is the claim that greater access to Canadian crude oil would not enhance U.S. energy security.

According to pipeline opponents, most of the petroleum products made from Keystone crude would be exported by Gulf Coast refiners to Europe, South America, and Asia rather than sold in U.S. domestic markets. Thus, opponents contend, Canadian oil coming through the pipeline would displace little if any oil imported from unstable, undemocratic, or unfriendly countries like Nigeria, Saudi Arabia, or Venezuela.

Rep. Ed Markey (D-Mass.) made a media splash with this talking point at a House Energy and Commerce Committee hearing last month. Keystone, he said, would not “back out” any oil we import from the Middle East if it simply turns the USA into a “middle man” for exporting diesel fuel and other finished petroleum products made with Canadian crude. He noted that nothing in TransCanada company’s long-term sales contracts with Gulf Coast refiners ensures that products made from Canadian crude would be sold to U.S. consumers.

Markey challenged TransCanada exec Alex Pourbaix to support legislation prohibiting Gulf Coast refiners from exporting petroleum products refined from Keystone crude. Clever! Pourbaix could not support Markey’s proposal without jeopardizing the sales contracts on which the pipeline project’s commercial viability depends. Yet he could not reject Markey’s proposal without appearing to confirm that Keystone is a plot by TransCanada and Gulf Coast refiners to export more oil overseas. Pourbaix did reject Markey’s proposal, but without explaining why an export ban would be a mischievous ‘solution’ to a non-existent problem.

For openers, a ban on exports of petroleum products made from Keystone crude would violate one of the basic principles of the international trading system, known as “National Treatment.” The World Trade Organization (WTO) provides a succinct explanation:

National treatment: Treating foreigners and locals equally.  Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle of “national treatment” (giving others the same treatment as one’s own nationals) is also found in all the three main WTO agreements (Article 3 of GATT [General Agreement on Tariffs and Trade], Article 17 of GATS [General Agreement on Trade in Services] and Article 3 of TRIPS [Trade Related Aspects of Intellectual Property Rights], although once again the principle is handled slightly differently in each of these.

National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.

Under the National Treatment principle, once Canadian oil has entered the U.S. market via Keystone XL, it must be treated the same as oil produced from U.S. wells. Only if Congress were to ban exports of petroleum products sourced from Texas, Alaska, California, North Dakota, New Mexico, Oklahoma, Louisiana, other oil-producing states, and the U.S. Outer Continental Shelf would Markey’s proposal pass muster under the GATT, a treaty ratified by the U.S. Senate in 1994.

If enacted despite violating GATT, Markey’s plan would put U.S. refiners at a competitive disadvantage, functioning as a kind of reverse protectionism. U.S. refiners could not sell oil sands-derived petroleum products in overseas markets, but their foreign competitors could do so. Our refiners would operate under a partial export ban, foreign refiners would not.

In his written testimony, Pourbaix made the common-sense point that “Keystone XL encourages domestic U.S. oil production by connecting areas with increased supply in Montana, North Dakota, and Cushing, Oklahoma, with the United States’ largest refining center in the Gulf Coast.” By the same token, Markey’s policy, tantamount to a declaration of war on the Gulf Coast refining hub, would discourage investment, production, and job creation throughout the U.S. petroleum industry. That would probably suit Markey just fine.

Indeed, given the reality of a global marketplace, is there a more effective way to destroy a domestic industry than to hinder its ability to export? And if exporting that which was previously imported is objectionable, why limit the policy to the oil industry? U.S. auto, pharmaceutical, telecommunications, and renewable energy companies use foreign-sourced parts, chemicals, and commodities. Why not ban their exports too? Markey’s policy would set a dreadful precedent.

Markey claims that without an export ban, Keystone crude will bypass rather than supply the domestic U.S. motor fuels market. That is implausible. Of the more than 2 billion barrels of finished petroleum products refined in the Gulf Coast region (PADD III) from January through October 2011, approximately 26% was exported. New supplies of crude from Canada might bump up the share of exports but not dramatically unless Keystone created a crude oil surplus in PADD III. That is unlikely, because PADD III imports of Mexican and Venezuelan crude are declining.

As a June 2011 DOE analysis observes:

Taken together, U.S. imports of crude oil from Mexico and Venezuela are about 1 million barrels/day lower than their previous peak levels. With an expected decline of Mexican crude oil production of 500,000 barrels per day and the likelihood of increased exports of Venezuelan crude to Asia, current heavy imports to PADD III are likely to decrease by a significant amount within the next five years.

Ironically (but perhaps intentionally), Markey’s proposal could increase U.S. petroleum imports from Saudi Arabia and OPEC. As the U.S. Energy Information Administration notes, total U.S. exports of finished petroleum products “increased more than 60% since 2007 as markets have become more globally integrated.” U.S. exports are bound to increase as global demand for liquid fuels increases.

So if Congress were to forbid PADD III refiners from using Keystone crude to meet growing global demand for finished petroleum products, they would have to import more crude from somewhere else. Like Saudi Arabia. As an energy security measure, Markey’s policy is nuts.

The real logic behind it is political. As this blog noted previously, Canada’s oil boom threatens two-long established pillars of anti-oil agitation: the claim that oil is a dwindling resource from which we must rapidly decouple our economy before supplies run out, and the notion that most of the money we spend on gasoline ends up in the coffers of unsavory regimes like Saudi Arabia. In reality, more than half of all the oil we consume is produced in the USA, and we get more than twice as much oil from Canada as from Saudi Arabia.

If Keystone is approved, our self-reliance on North American energy will increase and fear of “peak oil” will recede. That’s why oil haters are desparate to block it.

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.

**

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.

Last week, after three years of environmental review, public meetings, and public comment, President Obama postponed until first quarter 2013 a decision on whether or not to approve the Keystone XL Pipeline — the $7 billion, shovel-ready project to deliver up to 830,000 barrels a day of tar sands oil from Canada to U.S. Gulf Coast refineries. Obama’s punt, which Keystone opponents hope effectively kills the pipeline, is topic-of-the-week on National Journal’s Energy Experts Blog. So far, a dozen ”experts” have posted, including yours truly.

Now, if you’ve been paying attention at all over the past 40 years, you may suspect that most Keystone opponents want to kill the pipeline just because they hate oil and oil companies — even as they fill up their tanks to drive to the next demonstration. Bill McKibben, lead organizer of the anti-Keystone protest rallies outside the White House, lives in Vermont. On the Colbert Report, host Stephen Colbert asked McKibben: ”You’re from Vermont? Did you ride your bicycle down here? Or did you ride ox cart? How did you get down here? Or do you have a vehicle that runs on hypocrisy?”

If we take them at their word, McKibben and his climate guru, NASA scientist James Hansen, oppose Keystone because they believe it will contribute to global warming. How? The cutting-edge method for extracting oil from tar sands is a process called steam assisted gravity drainage. SAGD uses natural gas to heat and liquefy bitumen, a tar-like form of petroleum too viscous to be pumped by conventional wells, and burning natural gas emits carbon dioxide (CO2). So their gripe is that replacing conventional oil with tar sands oil will increase CO2 emissions from the U.S. transport sector. Maybe by only 1% annually,* but to hard-core warmists, any increase is intolerable.

Enter the Law of Unintended Consequences. If McKibben and Hansen succeed in killing the pipeline, petroleum-related CO2 emissions might actually increase!

Charles Drevna of the National Petrochemical & Refiners Association (NPRA) made this point on the aforementioned National Journal energy blog:

A study last year by Barr Engineering found that shipping more Canadian oil to Asia and shipping more oil from other parts of the world to the United States would increase greenhouse gas emissions, because of the long sea voyages. Barr Engineering called this the crude oil shuffle. So using more Canadian oil in the United States would reduce greenhouse gas emissions.

The Barr Engineering study analyzes the impacts on CO2 emissions of a low-carbon fuel standard (LCFS) that effectively bars U.S. imports of Canadian tar sands oil. Because global petroleum demand is growing, Canada would continue to produce tar sands oil even if the USA adopts an LCFS. However, instead of shipping the oil to the USA, Canada would ship the oil to China. At the same time, to meet U.S. demand that the LCFS does not allow Canada to fill, Middle East countries would ship oil to the USA that would otherwise go to China. The Canadian oil re-routed to China and Mideastern oil re-routed to the USA would travel by tankers, which burn fuel and emit CO2. Longer transport routes mean higher CO2 emissions. From the report:

Under the base case, crude is transported approximately 8,500 to 9,000 miles from Edmonton [Canada] to Chicago and from Basrah [Iraq] to Ningbo [China]. Under the crude shuffle case, total transport distance nearly triples, with crude transported approximately 22,300 to 22,700 miles from Basrah to Chicago and from Edmongton to Ningbo. Resulting GHG emissions are approximately twice as high on a total basis (for any of the crude displacement scenarios considered). . . .Under all scenarios considered, the crude shuffle results in emissions that are approximately twice as great as the emissions associatd with current base-case crude transport patterns.

The figure above shows U.S. petroleum-related greenhouse gas emissions in a “base case” and a “crude shuffle case.” PADD II refers to the Midwest petroleum market.

Although killing Keystone would not ban imports of Canadian tar sands oil, as would an LCFS, it would effectively block much of the forecast 830,000 daily barrels of tar sands from reaching U.S. refineries. That, in turn, would induce similar re-routing of international oil flows. Each barrel “shuffled” to more distant markets would have a bigger carbon footprint than a barrel of Canadian crude shipped via Keystone to the USA.

* The State Department estimates that full operation of the Keystone pipeline would produce incremental greenhouse gas emissions of 3 million to 21 million metric tons of CO2 annually (ES-15). For perspective, the U.S. transport sector in 2009 generated 1,854.5 million metric tons of CO2.

For President Obama, approving the Keystone XL Pipeline should have been a no-brainer. All the State Department had to do was conclude the obvious – the pipeline is in the U.S. national interest.

What other reasonable conclusion is possible? Building the 1,700-mile, shovel-ready project would create thousands of construction jobs, stimulate tens of billions of dollars in business spending, and generate billions of dollars in tax revenues. Once operational, the pipeline would enhance U.S. energy security, displacing oil imported from unsavory regimes with up to 830,000 barrels a day of tar sands oil from friendly, stable, environmentally fastidious, democratic Canada. Canada already ships us more oil than all Persian Gulf states combined, and Keystone would significantly expand our self-reliance on North American energy.

Obama had only two policy choices. He could either disapprove the pipeline on the grounds that environmental concerns over incremental greenhouse gas emissions and oil spill risk outweigh the substantial economic, fiscal, and energy security benefits of the pipeline. Or he could approve the pipeline on the grounds that its benefits outweigh potential environmental impacts.

He did neither. Instead, he punted a final decision until after the November 2012 elections. The timing of Obama’s decision not to decide – just days after 10,000 anti-Keystone activists formed a protest circle around the White House – strongly suggests that Obama’s waffle was politically-motivated.

If Obama approves the pipeline, he risks alienating the green wing of his political base. ”Sierra Club executive director Michael Brune told reporters recently that Obama’s decision on the pipeline would ‘have a very big impact’ on how the nation’s largest environmental group funnels resources toward congressional races rather than the race for the White House,” Politico reported last week. A constant theme of protest rallies since August is that Keystone is a “litmus test“ for Obama. As one green blogger put it, “if the president cannot stand with the environmental community against the pipeline, some say, why should they stand with him at all?”

If, on the other hand, Obama disapproves the pipeline, he risks alienating union labor, such as the AFL-CIO-affiliated United Association of Plumbers and Pipe Fitters. In addition, disapproval would make candidate Obama more vulnerable to GOP criticism that he cares more about green ideology than about job creation and energy security.

Former Shell Oil exec John Hofmeister nailed it: ”It’s much easier to avoid a decision than to make a decision,” and delay allows Obama to dangle the hope before each group that he’ll eventually decide in their favor.

This accountability-avoidance strategy might even induce environmentalists and labor to work harder for Obama’s re-election, the implicit deal on offer being that Obama will approve or disapprove the pipeline in 2013 depending on which group delivers more campaign contributions and votes in 2012.

All the more reason, then, for friends of affordable energy to lampoon Obama’s indecision as playing politics with the nation’s economic and energy future.

Blocking the Keystone XL Pipeline – the $7 billion, 1,700-mile project that could create 20,000 construction jobs and eventually transport 830,000 barrels of tar sands oil from friendly, stable, democratic Canada to hubs in Oklahoma and Texas — has become the environmental movement’s top agenda item.

This is not surprising, because Canada’s booming oil sands industry demolishes two popular narratives of green ideology — the claim that oil is a dwindling resource from which we must rapidly decouple our economy before supplies run out, and the notion that most of the money we spend on gasoline ends up in the coffers of unsavory regimes like Saudi Arabia. In reality, more than half of all the oil we consume is produced in the USA, and we get more than twice as much oil from Canada as from Saudi Arabia.

Much of the anti-Keystone agitation is vintage ’60s stuff. In late August, during a weeks-long protest rally outside the White House, 800 demonstrators (including celebrities Margot Kidder and Daryl Hannah) were handcuffed and bused to local police stations. In late September, more than 100 demonstrators were arrested trying to enter Canada’s House of Commons. In October, 1,000 protesters showed up outside President Obama’s $5,000-a-head fundraiser in San Francisco, and organizers claim 6,000 demonstrators will encircle the White House on Sunday, Nov. 6.

Meanwhile, oil bashers on Capitol Hill are engaging in some political theater of their own. Last week, Sen. Bernie Sanders (I-Vt.), two other senators, and 11 congressmen requested that the State Department’s inspector general (IG) investigate an apparent conflict of interest in the preparation of State’s Environmental Impact Statement (EIS) for the Keystone XL Pipeline.

Sanders et al. point out that Cardno/Entrix, the firm State commissioned to conduct the EIS, listed TransCanada, the corportion proposing to build the pipeline, as a “major client.” This “financial relationship,” they suggest, could lead Cardno/Entrix to low-ball the project’s environmental risks. They even insinuate that Cardno/Entrix may have understated oil spill risk just so it could later get paid by TransCanada to clean up the mess.

Earlier this week, State responded to Sanders et al. As far as I can see, there’s no there, there.

First, though, some background on the procedural issues.

Because the proposed pipeline is “international” (crossing the U.S.-Canada border), State is the agency tasked with granting or denying approval, known as a “Presidential Permit,” based on a “National Interest Determination.” That is, Secretary Clinton must determine whether or not the pipeline is in the national interest.

State’s EIS is a key step in the overall review process. Such analyses are mandatory under the National Environmental Policy Act (NEPA), which obligates agencies to consider all significant environmental impacts of a major action before undertaking it. However, notes the Congressional Research Service, NEPA ”does not require federal agencies to elevate environmental concerns above others.” An agency may decide that ”other benefits outweigh the environmental costs of moving forward with the action.” That is widely expected to happen with Keystone, and it is driving the warmists bonkers. Keystone foes’ last desparate hope is that a scandal over the EIS will turn things around and doom the pipeline.

As State explains in its letter to Sanders, the EIS — over 1,000-pages long and three years in the making — was quite thorough. State conducted two rounds of public meetings, more than 40 in total, along the proposed route, the first after publication of the draft EIS and then again after release of the final EIS, “to inform the national interest determination.” This was the first time State ever convened a second set of public meetings in connection with an EIS. In addition, State worked closely with the Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) “to identify a set of 57 conditions, with which the applicant agreed to comply should the permit be granted, that go above and beyond the safety requirements of other pipelines.”

Of course, many protesters — and even some congressmen – may feel that any oil spill risk is intolerable and disqualifying. But by that standard, no pipeline should ever be built, all existing pipelines should be dismantled, and all commerce in petroleum should stop. And then we could all live in Medieval squalor — planet saved!

As to alleged conflicts of interest, when Cardno acquired Entrix, the new firm, Cardno/Entrix, did issue a press release listing TransCanada as a “major client.” However, TransCanada was a client only in the sense that “the federal government had selected Entrix to do third-party contract work for four TransCanada permit applications — two with the Federal Regulatory Commission (FERC) and two with the Department of State” (emphasis in original).

State’s letter continues:

Under NEPA regulations, this does not constitute a conflict of interest; the federal government is the client — the federal government is selecting and directing the work of Entrix (now Cardno/Entrix) — not TransCanada (whose projects were being assessed). While the pipeline applicant pays the contractor — in this case Entrix (now Cardno/Entrix) – the contractor (Entrix) takes direction from, and reports solely to the Department in accord with NEPA’s regulations, which prioritize the taxpayer over the applicant company by ensuring the taxpayer does not bear the financial burden of the assessment.

So yes, Sanders is correct, Cardno/Entrix had a “financial relationship” with TransCanada. But only because Entrix had conducted environmental reviews of other TransCanada projects for State and FERC. If Sanders considers that to be an ethically compromising conflict of interest, then logically he should oppose all other NEPA-mandated environmental reviews as similarly tainted!

To avoid such alleged conflicts of interest, will the Sanders gang advocate that taxpayers fund environmental reviews when corporations seek federal agency approval to drill oil wells, dig mines, inject fracking fluids, construct pipelines, build dams, harvest timber, etc.? But wouldn’t that (according to their worldview) be giving corporate welfare to “polluters”?

State’s letter does not say whether Cardno/Entrix has a contract to provide oil spill response for the Keystone pipeline. Until the IG investigates this, I will assume that Cardno/Entrix’s expertise in spill response is one of the reasons the company was well qualified to conduct the EIS.

It’s a trick employed by rhetoricians from time immemorial. When their case against an opponent is unpersuasive on the merits, they invoke the image of something their target audience fears or hates. Thus, for example, political pleaders have asserted that money, Dick Cheney, or Zionism ”is a cancer on the body politic.”

Perhaps the most influential use of this tactic in modern times is the attack on carbon dioxide (CO2) as “global warming pollution” and on CO2 emitters as “polluters.” Many who know better, including highly credentialed scientists, routinely couple the words “carbon” and “pollution” in their public discourse.

In reality, CO2 — like water vapor, the atmosphere’s main greenhouse gas — is a natural constituent of clean air. Colorless, odorless, and non-toxic to humans at 30 times ambient concentrations, CO2 is an essential building block of the planetary food chain. The increase in the air’s CO2 content since the dawn of the industrial revolution — from 280 to 390 parts per million – boosts the water-use efficiency of trees, crops, and other plants; helps protect green things from the damaging effects of smog and UV-B radiation; and helps make food more plentiful and nutritious. The many health and welfare benefits of atmospheric CO2 enrichment make CO2 unlike any other substance ever previously regulated as a “pollutant.”

A closely related abuse of the English languge is the oft-repeated claim that America is “addicted to oil.” Although popularized by a Texas oil man, former President G.W. Bush, the phrase is a rhetorical staple of the same folks who inveigh against “carbon pollution.” NASA scientist James Hansen, arguably the world’s most famous carbonophobe besides Al Gore, recently denounced the Keystone XL Pipeline as a “dirty needle” that, if approved, would feed our supposed oil addiction.

President Obama is expected later this year to approve or deny a permit allowing construction of the proposed 1,700 mile pipeline that would bring oil from Canada’s vast tar sands reserves to U.S. refineries in the Midwest and Gulf Coast. As reported in The New York Times, Hansen said that Obama has a rare opportunity, by denying the permit, to show that he is not a “hopeless addict.”

“If Obama chooses the dirty needle it will confirm that Obama was just greenwashing all along, like the other well-oiled coal-fired politicians, with no real intention of solving the addiction,” Hansen said.

Why does anyone listen to Hansen? Because he’s a highly credentialed scientist. But when he says stuff like this, he is only pretending to speak as a scientist. He is actually speaking as a political advocate, and with scant regard for facts or reason.

America is no more addicted to oil than our ancestors were to horse fodder. We use oil, as they used fodder, to get us where we want to go. What consumers care about is not the oil or the fodder, but the mobility it provides and the associated costs. Yes, those costs include environmental impacts. But, mile for mile, a horse is a far more polluting ‘technology’ than an automobile. As soon as an alternative fuel comes along that delivers more bang for our transportation buck than gasoline does, Americans will demand it, and competition will drive profit-seeking firms to supply it.

Yes, we depend on oil to fuel most of our cars, marine vessels, and aircraft. But dependence is not addiction. We also depend on electricity to power our lap tops, iPods, and cell phones, and we depend on food and water to sustain life. No sane person would say we are addicted to those things.

One quality of a typical addiction is that it is an appetite that grows with feeding. Nationally, our long-term oil consumption is growing. But that’s  due to population growth, which increases the number of motorists, and economic growth, which increases the supply of goods to be moved and expands opportunities to travel for business, education, and recreation. The long-term increase in “vehicle miles traveled” is not the result of some narcotic-like effect that gasoline consumption induces in motorists. It is a consequence of healthy development — more abundant life and more economic activity.

As my colleague Myron Ebell once said, nobody in America wakes in a cold sweat, sneaks out of the house late at night, and pays a road side pusher top off the tank with regular unleaded.

The State Department is expected as soon as today to release its final environmental impact statement (FEIS) on the proposed 1,700-mile Keystone XL pipeline to bring up to 850,000 barrels per day (bpd) of Canadian heavy crude from Alberta’s oil sands down to refineries on the U.S. Gulf Coast.

According to anonymous sources at State, the FEIS will confirm the agency’s earlier finding that construction and operation of the pipeline will have ”limited adverse environmental impacts,” reports Juliet Eilperin in the Washington Post. This will remove a key obstacle to State issuing an assessment that the pipeline is in the U.S. national interest. Then, presumably, this $7 billion, shovel-ready project could start creating thousands of high-wage jobs.

In July, the House passed H.R. 1938, the North American-Made Energy Security Act, by 279-147. The bi-partisan bill would require President Obama to issue a final order granting or denying a permit to construct Keystone XL by no later than November 1, 2011. The Center-Right is putting pressure on Team Obama, in the run-up to an election year, to expand U.S. access to oil from our friendly, democratic, politically stable neighbor to the north.

At the same time, Eilperin notes, Keystone XL “has strained President Obama’s relationship with his environmental base and become a proxy for the broader climate debate. Protesters from across the country have gathered daily in front of the White House since Saturday, resulting in 275 arrests so far.”

First to be arrested was Canadian actress Margot Kidder, who played Lois Lane in several Superman films. Her top reason for opposing the pipeline: “It’s bound to leak, there’s no way it’s not going to…. They always assure us these things are safe, and they never are.” By that logic, no pipeline should ever be built, and all should be dismantled. And then we could all live in Medieval squalor. Planet Saved!

I’ve been a Keystone booster for some time, but the fracus at the White House has taught me new reasons to love the pipeline.

Here are my original reasons for loving Keystone XL:

1. Keystone XL is totally market-driven. This $7 billion shovel-ready project will be funded entirely by private investment. Taxpayers will not be on the hook for any new government spending or loan guarantees.
2. Keystone XL will help alleviate pain at the pump. As the Perryman Group explains, a stable expectation of “incremental supplies from reliable sources leads to lower costs, thereby putting downward pressure on prices.” Or, as James Burkhard of IHS Cambridge Energy Research Associates puts it, “A more flexible and robust supply system is better able to manage supply and demand developments, which is a big positive for the U.S. economy and consumers.”
3. Keystone XL will help stabilize gasoline prices. As former Canadian Energy Minister Murray Smith observes, unlike tanker oil, which may be traded several times and marked up by speculators, the price of pipeline oil is mostly fixed at the start of its journey to the refinery.
4. Keystone XL will stimulate the ailing U.S. economy. The Perryman Group estimates the pipeline will induce $20.9 in new business expenditures, add $9 billion to U.S. GDP, increase personal incomes by $6.5 billion, generate $2.3 billion in retail sales, and create 118,935 person years of employment.
5. Keystone XL will enhance U.S. energy security. It will deliver up to 850,000 bpd of crude from a friendly, stable, democratic neighbor. Every barrel of oil we import from Canada is a barrel we don’t have to import from despotic, unfriendly, or volatile countries like Saudi Arabia, Venezuela, or Nigeria.

Here are my new reasons:

1. A win for Keystone XL is a defeat for the global warming movement. Green groups view Keystone as an opportunity to regain momentum and offset their losses after the death of cap-and-trade. If friends of affordable energy win this fight, which seems likely, the greenhouse lobby will take another hit to its prestige, morale, and influence.
2. Keystone XL strains relations between Obama and his environmentalist base. If Obama approves the pipeline, greenies will be less motivated to work for his re-election. If he disapproves, Republicans and moderate Democrats will hammer him for killing job creation and increasing pain at the pump. Either way, the prospects for new anti-energy legislation should be dimmer.
3. Keystone XL is bringing aging, New Lefties out of the woodwork, where they can misbehave and get themselves arrested.

I’ve long suspected that Rep. Henry Waxman (D-Beverly Hills) keeps Brawny paper towels in his kitchen cabinet. Brawny paper towels are the best—they’re the quickest, thickest picker-uppers—and Rep. Waxman lives in one of the richest Congressional districts, so it makes sense that he uses them, right? I think it does. Rep. Waxman’s logical affinity for Brawny paper towels is troubling, because they are manufactured by Georgia Pacific, which is owned by….KOCH INDUSTRIES!!! Possibly, every time Rep. Waxman wipes spilled caviar off his marble countertops, he’s funding the insidious KOCHTOPUS!!! I doubt his far-left base would appreciate this apparent financial link to a company reviled by liberals for supporting conservative causes. Why, it’s as if Rep. Waxman is contributing to the Tea Party!

I know what you are thinking: These are baseless and ridiculous claims. Indeed. Yet they are no more baseless and ridiculous than the stunt Rep. Waxman pulled yesterday at a House Energy and Commerce Committee hearing on the Keystone XL Pipeline. I explained in detail the politics of the pipeline in a previous post. Suffice it to say, it would double U.S. imports of Canadian tar sands oil, and it is staunchly opposed by environmentalist special interests. The focus of yesterday’s hearing was a Republican bill that would speed up the pipeline approval process, but Rep. Waxman wanted to take the panel in a different direction. Namely, he wanted to fabricate an association between the Keystone Pipeline and the left’s favorite piñata, Koch Industries, a.k.a, the Kochtopus.

According to a write up in today’s ClimateWire (subscription required),

At yesterday’s hearing, Waxman continued to press for investigation of the Keystone-Koch connection. He said his staff had contacted Koch representatives to learn more about its investments in the oil sands, but that they had not been willing to answer basic questions alongside other oil companies such as ConocoPhillips Co. and Royal Dutch Shell PLC. “The representatives would not discuss whether Koch would export oil from Canada through the new pipeline, whether Koch holds tar sands leases, or whether Koch has plans to produce oil from tar sands,” he said.

While I disagree with everything he does, I nonetheless esteem Rep. Waxman as a master tactician. More than once, I’ve wished that the other party had someone as cunning as the Congressman from Beverly Hills. However, in this instance, he sounded foolish. Koch Industries has denied any link to the pipeline, but even if they stood to gain, what does that have to do with expanding and diversifying our energy supply? If the Keystone XL Pipeline is good for America, and it is, then why does it matter if the Koch’s profit?

In any case, Rep. Waxman didn’t have the goods. He wanted to tar the pipeline with an association to the Kochtopus, but he didn’t have any evidence, and he threw it out there, anyway. In fact, it’s as silly and unfounded an association as the Rep. Waxman/Koch connection I describe in the opening paragraph of this post.

Fortunately, Rep. Waxman’s tom-foolery didn’t go without rebuke. Energy and Power Subcommittee Chair Rep. Ed Whitfield (R-KY) said he could care less about George Soros’s (the right’s version of the Kochtopus) documented investment in Suncor, a company that is actively involved in Canadian tar sands oil production.