Keystone XL, the Usual Suspects and the Blame Game

Keystone XL was great for Canada - US $573-billion in longterm benefits. For the US? Not so much: $3.4 billion in pipeline jobs for the U.S. & only a few dozen long-term new jobs.

There is something interesting about blame, and how it works. A lot of the way we think and talk in politics drifts away from responsibility - the actual decisions and actions taken by actual people - to assigning blame. In trying to explain how something happened - especially when a whole string of events led to a final result, people will talk about deciding moments, or who was “really” to blame - society, bad parenting, religious ideology, etc. It usually quickly degenerates into political finger-pointing.

Now, I am myself a political partisan, so you can take what I say here with a grain of salt. On November 6, 2015, President Obama chose to turn down the Keystone XL pipeline today which has environmental and climate activists (as well as a few ranchers and landowners) pleased, and a lot of oil industry folks angry. Among those being immediately blamed are the NDP government in Alberta (elected in spring 2015) and Prime Minister Justin Trudeau, elected October 19, and only sworn in on November 5.

Now, there is often plenty of blame to go around, and I have a lot of sympathy for the many people in Alberta who faced tough times as the oil industry faltered.

However, when it comes to how this file was handled there are a couple of very interesting articles about the Keystone pipeline that suggest that, ironically, it was mishandled by people who most wanted it built - U.S. Republicans and Canadian Conservatives.

One was a long piece for Bloomberg. It was revealing in many ways. One of its more surprising revelations is that in 2006 even as he was delivering a speech in the UK describing the potential of the oilsands to convert Canada into an “energy superpower” Harper had never actually been to see them.

The other is that Harper, and many of those around him who were tied to the oil industry, were stuck in the mentality that environmentalists and climate change activists were basically cranks and a threat to their own business.

To some extent, perhaps they believed their own PR. In Alberta, the oil industry so dominated politics and politicians - in a province that had single-party rule for over 40 years - that there was never any need to compromise.

So instead of making efforts to be conciliatory, or make environmentally friendly gestures that could have balanced oil development and pipelines, and provided the Obama administration with a fig leaf of “sustainable development” the Conservatives withdrew from Kyoto, put a thumb on the scale of pipeline approvals in favour of development, and gutted environmental regulations that had been in place since 1867.

This ran completely against advice that Obama and the Americans had given Harper.

“Obama and the State Department had offered Harper some advice – toning down Canada’s aggressive Washington lobbying would let the regulatory process play itself out without the appearance of unseemly outside pressure… Instead of toning it down, Harper chose to make Keystone a “bilateral irritant” that Obama couldn’t ignore, according to these insiders. Two months before Obama’s heads up call, Harper, during a swing through New York, called approval of Keystone a “no brainer” – a zinger aimed at challenging the judgment of Keystone opponents while goading Obama into action. He hasn’t hesitated to repeat similar digs.”

Harper also said, during a visit in New York, that he “wouldn’t take no for an answer.” That was in September, and in October, the Republican Congress was gearing up for a shutdown of government. One of the conditions of lifting the shutdown was approval of the Keystone XL pipeline - but the shutdown failed.

There problem with Keystone XL is that while its financial benefits were so unevenly spread: it was a very big deal for Canada and Alberta, but relatively small for the U.S.

How much of a difference? One calculation was that economic benefit for Canada was 169 times greater than the economic benefit to the U.S.

An energy research group in Calgary had run the math: If Keystone died, it could cost Canada C$632 billion ($573 billion) in foregone growth over 25 years – 94 percent of it from the economy of Alberta, the province Harper calls home.

Of course, much has changed since then - especially the cost of oil, which no one thought was going down. But contrast this with the possibilities for the U.S.

The stakes are high in the U.S. too. Building the pipeline would create 3,900 jobs over its two-year construction period, contributing $3.4 billion in economic growth, according to the State Department. On the Gulf of Mexico, refiners from Total SA to Royal Dutch Shell Plc have spent more than $25 billion to upgrade U.S. refineries so they could process what they thought would be an avalanche of heavy oil from Canada.

In the context of the U.S. economy, those are not high stakes.

The contrast - US $573-billion in longterm benefits for Canada vs US $3.4 billion in relatively short-term temporary pipeline jobs for the U.S., with only a few dozen long-term new jobs in the U.S.

Add to that that the Keystone XL became a symbol of climate evil for activists and progressives who were Obama’s supporters. Add to that the some of the people who would benefit most from the pipeline were people who funded Obama’s and the Democrats’ opponents, and you have a lot of reasons for the Obama to say no, without paying much of a political price for it.

But the negotiation was also messed up by Republicans.

In 2013, the New Yorker wrote a story about John Podesta, who opposes the pipeline and who now works for Obama.

Shortly after the 2012 election, John Podesta was invited to speak at a board meeting of the American Petroleum Institute.

Taking advantage of the unique opportunity to address his political opponents, Podesta told the oilmen that Republicans had made a “horrible error” in how they handled the controversial Keystone XL pipeline, which would carry oil from Alberta, Canada, to refineries in the Gulf of Mexico.

Podesta argued that Keystone XL had been “rolling toward approval” before the G.O.P. put pressure on Obama. Their forceful efforts to get it approved, he argued, had backfired spectacularly on A.P.I.

“The Republicans did the President a humongous favor by forcing a decision that he could only say no to, which was in fact their intention,” he told me, recapping his remarks at A.P.I. “They wanted to force him to say no, so they could campaign against him. And they spent a ton of fucking money in 2012 running advertising against [Democratic] members and against the President on this question, to no effect. All they did was put off the decision long enough so that you could mount a serious campaign against it.”

As I reported in September, in an article about the billionaire anti-Keystone activist Tom Steyer, Podesta helped organize that campaign.

“I told them that changed the odds from a virtual certainty—ninety-five to five—that he’d approve it, to probably fifty-one to forty-nine that he would not approve it,” Podesta said. “And so the blood drained from their heads! I probably said that for effect. I probably didn’t quite believe what I was saying. It probably actually had been reduced to sixty-forty that he’d approve it. But I think now it’s a fifty-fifty proposition.”

At the time this happened, in 2015, many of the assumptions that drove the idea of “Canada as an energy superpower” had gone up in smoke.

One is that Canada would be uniquely placed to supply oil to the U.S. This has been challenged by the massive development of fracking technology. In 2012, for the first time in 50 years, the U.S. was a net oil exporter. The price of oil has plummeted, also in part because of fracking technology that has opened up access to oil and natural gas at lower cost (and contrary to what people might suspect, has been hugely supported by the Obama administration)

Just what will happen now is not clear. Canada has had a massive increase in shipping oil by rail, which, ironically, is more prone to accident and safety problems than pipelines, and runs right through the centre of major cities.

There’s no doubt the responsibility for cancelling Keystone XL is Obama’s. It’s silly to blame either the incoming Liberal government and difficult to blame the NDP in Alberta. The file was on the Conservatives’ desk for years.

Ironically, the scramble to get Keystone XL approved - including reducing environmental approvals - was driven in part by a previous failure by the Conservatives:

The government had been horrified that approval for the C$16 billion Mackenzie Valley pipeline that would transport natural gas from the Beaufort Sea had taken about seven years, almost all on their watch, according to people with knowledge of the thinking. By then, fracking in the U.S. had decimated the export market and the Mackenzie line wasn’t built.

In the 1980s in Alberta, there was a famous bumper sticker “Lord, give me another oil boom - I promise I won’t piss it away this time.”

It’s hard not to wonder whether that’s just what happened - again.

Today, people are still talking about Keystone XL, and oil, and tariffs. The fundamental problem for Alberta is geography, not just politics. They are landlocked. When they sell to the U.S., they sell at a discount. But if it’s possible to get it to the oil to a Canadian port, it can be sold at the global price.

But the nature of pipelines is that - as the figures for Canadian vs US Benefits show, they aren’t much of a benefit to any of the communities they run through. In fact, they can present risks to those communities which may be unrecoverable in, say, damage to drinking water, spills and so on. They may not be common and they may not all be huge, but they are pretty much inevitable.

For political reasons, there are always outrageous and exaggerated claims that environmentally friendly policies threaten the way of life of people working in oil and gas.

First of all, despite anyone’s claims, realistic politicians in Canada don’t seriously want to shut down the oil and gas industry. The debate around it has often been clumsy, and part of the issue is that it has been treated in debates as if the government is shutting down one industry entirely, and just shuffling people over to work in another.

What we need to recognize is that while the benefits of oil and gas are undeniable, so are the drawbacks, and one drawbacks is the massive financial shocks that are associated with a major dependence on just one kind of energy where our industry and the communities and governments are at the mercy of global cartels who use price fixing and collusion as economic weapons.

Even if we set aside all the drawbacks of all environmental costs. (We don’t have to fight about climate change - we can take the example of an undeniable cost everyone can agree exists: cleaning up abandoned wells.)

Canada as a whole and oil-producing provinces in particular have faced major economic shocks because of OPEC crashing oil prices in 2014, then causing inflation with them in 2022-23.

The political promises of “low cost energy” and “drill baby drill” are both incompatible with a profitable and stable energy sector. When you increase the supply of oil and the price drops, that means that workers and the business are working harder for less money.

What’s more, these policies are being driven by politics, because Donald Trump and some of his advisors favour low cost oil, which also tends to be politically popular - with consumers.

The issue - and our current political madness of oligarchs and the hyperconcentration of ownership, is that concentrated ownership makes for oligopolies and monopolies.

What is happening with oil is not that people are setting out to destroy it, but that people want an alternative and oil is trying to maintain its monopoly.

The assumption is that there is a zero-sum game happening, because of the idea that electric is replacing oil and gas when it may be adding to it, and that having consumer and individual choice and competition between different types of energy is important, especially if that energy markets is not subject to wild swings the way global oil prices are. It’s an alternative and an addition, not a substitute.

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