A new study from the Stockholm Environment Institute (SEI) focuses on a greenhouse gas impact of the Keystone XL pipeline that hasnโt received much attention: how the pipeline could affect the global oil market by increasing supply, decreasing prices and therefore driving up global oilย consumption.
Even if those effects are small in global terms, they could be significant in relationship to Keystone XL and U.S. climate policy, argue Peter Erickson and Michael Lazarus, senior scientists in SEIโs U.S. Center, in a new paper, Greenhouse gas emissions implications of the Keystone XL pipeline.
โThe more suppliers there are in the market for oil, the more they compete and that drives down prices for consumers,โ Ericksonย said.
Climate policy and analysis often focuses on energy production and consumption, but rarely considers how energy infrastructure might shape energy use and the resulting greenhouse gasย emissions.
The Keystone XL pipeline proposal to connect Canadian tar sands production with the Gulf of Mexicoโs refineries and ports have brought these questions to light. U.S. President Barack Obama has said he will only approve Keystone XL if it โdoes not significantly exacerbate the problem of carbonย pollution.โ
To gauge the pipelineโs potential impact, Erickson and Lazarus built a supply-and-demand model using publicly available supply curves and peer-reviewed demand elasticities (the extent to which changes in oil consumption respond to changes in oilย prices).
They examined three possibilities โ 1) That the Keystone XL permit is rejected, and the same amount of oil would reach the market by other means; 2) if half of the oil reaches the market anyway; and 3) that none reaches the market.
For the last two cases, the researchers found the pipelineโs impact on global oil prices, though modest (less than one percent), would be enough to increase global oil consumption by hundreds of thousands of barrels perย day.
โThe cheaper oil and fuels are, the more people will consume them,โ Erickson said. โThe cheaper it is, the more people drive. The more expensive it is, the less people drive. In economic terms, thatโs called an elasticity ofย demand.โ
The scientists looked at these variations in demand over the longerย term.
โPeople donโt tend to, on a day-to-day basis, pay a lot of attention to gas prices in terms of how much they drive,โ Erickson said. โBut over time, if prices go up, people make bigger decisions about the type of vehicle theyโll buy or where theyโre going toย live.โ
What they found was that if none of the oil would otherwise reach the market, Keystone XL could increase global oil use by as much as 510,000 barrels per day, or 62 per cent of Keystone XL capacity. Including those price effects, the pipelineโs annual emissions impact would be 93 million tonnes of carbon dioxide equivalent per year, four to five times greater than the greenhouse gas implications of simply displacing average crude imported into the U.S. with tar sandsย crude.
โWhile the State Department has considered how Keystone might affect overall levels of Canadian oil sands production, it is not clear if and how they considered how such increases in production would affect global consumption โ an effect we found could be significant,โ Erickson said. โThis is an important gap that needs to be addressed if President Obama is to make a fully informed decision about theย pipeline.โ
The GHG implications of Keystone XL can also be looked at in the context of the U.S. pledge to reduce emissions to 17% below 2005 levels by 2020, Lazarusย said.
โThe potential impact on global GHG emissions could be as high as 1โ2% of current U.S. emissions,โ he said, โand greater than the emission reductions that several proposed federal climate mitigation policies could achieve in 2020, such as U.S. Environmental Protection Agency performance standards on industrial boilers, cement kilns and petroleumย refineries.โ
The authors conclude by noting that the answer to the question of whether Keystone XL will โsignificantly exacerbate the problem of carbon pollutionโ is likely to hinge upon how much the pipeline increases the global oil supply, and through its price effects, global oilย consumption.
Some have argued that if Keystone XL is not built, then other modes, particularly rail, would be used to transport an equivalent amount of oil.ย However, there is far more prospective Canadian tar sands production (4.5 million barrels per day) than the 830,000 barrels per day that Keystone XL can carry, so rail routes may be needed and used whether or not the pipeline is built, Ericksonย said.
Additionally, Brian Ferguson, CEO of major oilsands producer Cenovus, was quoted this week as saying: โIf there were no more pipeline expansions I would have to slowย down.โ
So, whichever way you slice it, Keystone XL will have a significant climate impact โby enabling more development of Albertaโs oil industry, but also by increasing the global oil supply and consumption.
Image credit: Tail pipe exhaust via Shutterstock.
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