Today we have a lot of options for sizing our purchases. Small, medium, large, extra large, venti, grande, nano, and the list goes on. These qualitative words are relative to cultures and languages across the world. For instance, if I order a shirt from an American clothing brand, I might wear a small or medium depending upon the fit. However, if I travel to China and my luggage is lost by the airline, I would have to buy replacement garments at XL, XXL, or maybe even XXXL to actually be the same absolute size as my normal S or M. One label does not describe the same fit.
But I primarily concern myself with energy, not fashion (those who know me are chuckling). Considering the topic of the proposed Keystone XL pipeline to be built by TransCanada, just how “extra large”, or XL, is it? In analyzing this question, most analyses focus so much on the small question of the relative impact of the pipeline that they miss the extra large picture: more pipelines mean more shipping options, more options provide (possibly) cheaper options, and cheaper options enable more consumption. In short, more begets more, not less.
One of the major concerns regarding Keystone XL is whether or not it enables the world to produce and consume Canadian oil sands to such a degree as it undermines climate mitigation on the global scale. Usually economic and life cycle analyses come up with conclusions that GHG emissions changes related to Keystone XL will have little to no material impact on GHG emissions when considering alternative oil supplies (e.g., from Venezuela, as if somehow we can predict that economy) and transport options (e.g., other pipelines and rail). For proponents, Keystone XL is somehow a GHG rounding error. Using this logic, every oil well in the world is such a “small rounding error” that each one has no discernible impact on GHG emissions. Yet somehow, if we add up thousands of indiscernible quantities of oil production and GHG emissions, we get quantities that are much greater than zero (If the Canadian government didn’t think oil sands production had a material impact on GHG emissions, perhaps they would have stayed part of the Kyoto Protocol). The same goes for population: somehow couple by couple we reached over 7 billion of us on the planet even though each couple produced a “rounding error” in terms of a number of children.
More shipping options for oil from the oil sands means just that: more shipping options and more shipping capacity. See Maximillian Aufhammer’s discussion of the various proposed pipelines for oil sands for a good back-of-the-envelope quantitative discussion. Four options for shipping oil sands is cheaper (and more) or at worst equal in price to only three of the options. The same logic holds for three instead of two or two instead of one. Aside from the pure cost of each shipping option, each has to compete with each other, again lowering the price of shipping. It is possible that the Keystone XL as the next additional shipping option would be the cheapest option to get oil sands to refineries. If that is the case, then the worldwide marginal price of refined petroleum products would possibly decline. And if this price declines then people will be able to afford to produce and consume more, not less, petroleum as well as other goods and services. TransCanada understands this concept, as the website keystone-xl.com states “… the Keystone XL Pipeline will also support the significant growth of crude oil production …”.
This increase in consumption due to lower cost is due to the rebound effect, or Jevons Paradox. The Paradox is difficult to measure and model, especially in today’s globalized world. Small-scoped and short term analyses, like most of those employed in Keystone XL political battles, simply can’t pick up the concept, yet its effect is clearly shown in the long-run data. The world has continually become more efficient, and so far we humans have continually consumed more energy resources and at an increasing rate due to more people and consumption.
Thus, Keystone XL would be one more investment in long line of investments to enable further access to energy resources. Opponents of the pipeline are correct in stating that it acts against climate mitigation both physically and symbolically. Anyone claiming that Keystone XL is neutral or insignificant on aggregate GHG emissions is myopically deluding themselves. Preventing Keystone XL or any other oil sands transport option decreases GHG over the long-run by reducing the number of shipping options from one of the world’s largest fossil resource areas, and thus raising oil prices to some degree. In almost no instances does a single person have sole authority over a GHG prevention option as does President Obama on denying the northern leg of Keystone XL (from Canada to the U.S.). If the President actually believes in reducing GHG emissions, he has no choice but to prevent construction of Keystone XL.
So just how big is Keystone XL? Is it XL or is it small? It’s big enough for activists to rally around yet possibly too small for an economist to notice. It’s small enough to finance for TransCanada, yet too big to hide. Perhaps the Keystone XL debates have taught pipeline companies they must find Goldilocks so they can ask her about the appropriate size that is “just right”: not so small that they can’t make a profit due to high costs and not so large that they can’t even get it approved. My prediction, no company will again call their next oil pipeline “XL”.