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Why The Keystone XL Tar Sands Pipeline Issues For Climate

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Following the shut of the thirty day public remark period, the Nationwide Interest Dedication (NID) course of will continue as federal companies consider over 2 million comments concluding that the Keystone XL tar sands pipeline is not the nation’s curiosity. At the same time, the environmental group submitted its personal feedback regarding the project, by which NRDC included an in-depth analysis of Keystone XL’s essential function in enabling high price tar sands enlargement projects to maneuver forward. NRDC’s evaluation comes shortly after a report launched the former head of research for Deutsch Financial institution finding that many tar sands initiatives will not be economic with out Keystone XL and a Reuters investigation showed that tar sands shipments to the Gulf by rail have fallen far short of predictions, knocking more holes within the argument that oil prices last 20 years rail can substitute for Keystone XL. Experts throughout the Administration may have an opportunity to evaluate the mounting evidence that a tar sands industry with Keystone XL will probably be bigger and extra carbon intensive than one with out it and reach their very own conclusions. As they do, they’ll consider how the approval of Keystone XL will undermine U.S. climate management and its credibility in negotiating strong worldwide local weather commitments. Furthermore, they will consider how the approval of Keystone XL will undercut Canada’s means to honor its existing local weather obligations in addition to reducing its capability make future emissions reductions. An objective consideration will show that the Keystone XL pipeline is a long run commitment to infrastructure which would allow and lock in the growth of tar sands manufacturing and the related local weather emissions and as such, will not be in the nation’s interest.

The function that the proposed Keystone XL tar sands pipeline plays in enabling tar sands growth continues to be central in answering whether the project fails the President’s climate take a look at. Keystone XL’s Final Supplemental Environmental Impression Statement (FSEIS) acknowledged that the tar sands transported by the pipeline are more carbon intensive than the conventional crude it might exchange and that Keystone XL provides the most cost effective transport choice for tar sands producers.

Nevertheless a close evaluation of the report’s assumptions reveals the State Division likely underestimated the extent to which Keystone XL would facilitate the expansion of the tar sands oil prices last 20 years and associated carbon emissions. The FSEIS gives choice makers with a ample basis to search out that Keystone XL fails the test President Obama laid out last 12 months – that the pipeline should not considerably exacerbate carbon emissions. The important thing findings that result in oil prices last 20 years rejection of Keystone XL within the FSEIS on climate grounds include:

– Tar sands crude is significantly extra carbon intensive than standard crude.[1]
– Tar sands crude from Keystone XL is most more likely to displace the lightest, least carbon intensive crudes from the worldwide market.[2]
– Sure market situations (described in Part 5) prevent some tar sands projects from transferring ahead with out Keystone XL. Beneath these circumstances, Keystone XL would result in 27.4 million metric tons of further CO2 emissions per year, a determine larger than the tailpipe emissions generated by 5.7 million automobiles over a year. For the project’s estimated fifty year lifespan, that adds as much as 1.Four billion metric tons of extra carbon emissions.[Three]
– According to the Administration’s social price of carbon estimates, Keystone XL’s further emissions would generate up to $128 billion in climate associated costs.[Four]

Regardless of these findings, the FSEIS does make several important errors in its market evaluation which leads it to underestimate Keystone XL’s position in increasing tar sands production. As you’ll see, the environmental overview makes numerous unreasonable assumptions and in many instances, ignores its personal evaluation to craft its conclusion that Keystone XL is unlikely to impression tar sands growth.

Environmental review assumes global failure to address climate change
While the FSEIS did discover significant local weather impacts from the pipeline, the market analysis depends on energy consumption scenarios which assumes a global failure to address local weather change. The FSEIS makes use of models that are all predicated on a “business as usual” power consumption patterns by way of 2035 resulting in a catastrophic 6 degree Celsius increase in world temperatures. This is important as a result of the assumption that our world financial will continue to guide us toward catastrophic levels of climate change for the following quarter century assumes substantially larger demand for crude oil and better oil costs that feed a tar sands business unfettered by carbon taxes.

By distinction, International Vitality Agency (IEA) fashions of power consumption necessary to restrict climate change to 2 degree of warming forecast decreased oil consumption and considerably lower oil costs by 2035 than the scenarios the FSEIS used. Even in a much less ambitious and extra dangerous situation where nations solely honor the climate commitments they’ve already made, IEA exhibits decrease demand results in a $30 decrease in oil costs. Should international efforts to address climate change strengthen at all from present levels – a aim the United States is dedicated to – tar sands enlargement will be considerably extra dependent on cheap pipeline infrastructure than in this excessive carbon, excessive oil costs scenarios used in the FSEIS.

Determine 1. Comparing carbon emission assumptions in EIA eventualities assuming excessive global oil consumption used in the FSEIS with fashions targetting a stable target (chart by Barry Saxifrage).

Moreover, a extremely visible failure by the United States to contemplate either the “450 scenario” or the “New Policy scenario” as plausible options when evaluating vitality infrastructure selections will undermine the nation’s credibility as it negotiates global efforts to realize those climate safe eventualities. If the State Division approves Keystone XL primarily based on evaluation assuming a complete failure to enact policies addressing carbon emissions over the subsequent quarter century, it will hamstring U.S. credibility moving into the 2015 local weather talks. As Secretary Kerry ought to know, the world is watching.

Nonetheless, even after assuming global failure to stabilize the climate lead to greater oil consumption and costs, the FSEIS made a number of unreasonable assumptions that allowed it to craft conclusions based mostly on a scenario through which Keystone XL’s climate influence will solely be felt if oil prices decrease. In many circumstances, these conclusions ignored vital evaluation in the environmental review itself and presents for a distorted forecast of future enlargement – notably on condition that tar sands growth initiatives are already being delayed by an absence of pipelines. If corrected, any one of those assumptions would drive a dramatic shift within the FSEIS conclusions. Taken collectively, they lead to a conclusion that Keystone XL is the critical linchpin for a carbon intensive trade that’s on the ropes.

Let’s examine every in turn.
The FSEIS assumes that even when industry gets high oil costs and all the proposed pipelines it wants, progress might be a fraction forecast by business or seen during the last decade. The FSEIS assumed that Western Canadian manufacturing would solely improve by 2.2 million bpd by 2035 – half the growth price seen during the last decade and a 3rd of that forecast by the tar sands trade (Figure 2). It’s also decrease than the expansion rates projected by the Vitality Data Administration (EIA), the IEA, Canada’s Nationwide Power Board (NEB) and the Alberta Power Regulator (AER). By assuming such a “slow tar sands expansion” the FSEIS makes it extra doubtless that alternate options could fill the gap if Keystone XL just isn’t authorised and subsequently considerably underestimates Keystone XL’s affect on tar sands enlargement.

Figure 2. Comparability of tar sands manufacturing growth estimates. The FSEIS’s reference situation for tar sands growth underestimates Keystone XL’s impression on tar sands enlargement assuming greater development projections.

The FSEIS eliminates from its evaluation almost 2 million bpd of excessive value tar sands initiatives of new tar sands mines – most of which have already been approved by the Canadian government. The evaluation assumes that over 2 million bpd of proposed tar sands mines are economically infeasible regardless of whether Keystone XL or different tar sands pipelines are constructed. There is a excessive likelihood approved mining initiatives can be developed if pipelines like Keystone XL are accepted. However by excluding these greater cost initiatives – many of which already have authorities approval – it eliminates the tasks most prone to be affected by Keystone XL’s rejection.

The FSEIS assumes that larger cost tar sands mines will be prevented from transferring ahead counting on its arbitrarily low manufacturing forecast relatively than by their financial feasibility. This is not a rational assumption, notably in an business in which there are numerous corporations competing. Quite, it is the anticipated price of oil that may dictate entry. As famous by Canadian economist Andrew Leach:

“If you want to know what the break-even price for brand spanking new oil sands projects is (a minimum of for the marginal undertaking), look on the forecast of future oil costs. The break-even value will at all times be at or close to this level so long as open entry to the useful resource is allowed – it’s basic economics.”

It’s worth observing that the financial analysts at Carbon Tracker reached an identical conclusion, which used the FSEIS’s own analytical framework to show that the report excluded about 2 million bpd of proposed projects that would not be economically possible without Keystone XL.

While the FSEIS acknowledges that Keystone XL’s rejection will result in lower tar sands costs as supplies develop in Western Canada and the Midwest, it doesn’t consider the impression of those decrease prices on tar sands growth. Considered one of the biggest components currently affecting the profitability of tar sands enlargement is that a scarcity of transport capacity is resulting in a glut of heavy crude oil, lowering costs. The FSEIS recognizes this dynamic, stating that in a “pipeline constrained” scenario where Keystone XL is rejected, tar sands crude would promote at a bigger discount relative to global oil prices. This low cost – approximately $15 a barrel greater – would directly influence the profitability and feasibility of latest tar sands production projects. Nonetheless, the FSEIS doesn’t that low cost in its evaluation of Keystone XL’s impression on tar sands expansion. In response to a latest analysis by the Pembina, had the FSEIS factored its decrease price estimates into its conclusion, it could have found Keystone XL would affect tar sands growth at costs below $a hundred per barrel.

The FSEIS wrongly assumes decrease oil prices are unlikely. The FSEIS assumes higher oil prices which would make tar sands challenge more worthwhile and more probably use dearer transportation choices like rail. Alternatively, decrease oil prices would put even the most cost effective tar sands expansion tasks in jeopardy. The proof suggests lower oil costs are more possible. Each the futures markets at the Chicago Mercantile Exchange and the International Power Agency (IEA) predict the oil prices will decline sufficiently by 2020 to realize the FSEIS’s ‘low oil price’ situation. Moreover, the adoption of climate insurance policies necessary to stabilize international warming would drive crude oil costs down even further.

The FSEIS overestimates the capacity of rail to serve as a substitute for Keystone XL. A vital query surrounding the Keystone XL debate is whether rail can function a low value substitute for the huge tar sands pipeline. The FSEIS has now acknowledged that transporting tar sands by rail is likely to be more expensive than transporting tar sands by pipeline. Nonetheless the FSEIS underestimated the relative costs, logistical obstacles and regulatory complications associated with expanded tar sands by rail.

Furthermore, recent authorities information shows that tar sands by rail to the Gulf Coast is only a fraction of that estimated by the earlier environmental evaluate. An investigation by Reuters found that Canadian crude shipments by rail to the Gulf were a fifth of what the draft SEIS forecast. In truth, despite a 30% increase in Canadian crude imports to the U.S. since 2010 and the tar sands industry’s desperate must access the Gulf refinery market, Canadian crude shipments to the Gulf have actually declines by 18%. So much for Ambassador Doer’s assertion that it’s a alternative between rail or pipeline. It’s not – it’s a selection between investing in a clear energy future or one based on backside of the barrel tar sands.

In addition, the FSEIS didn’t account for current common sense safeguards to enhance the safety of crude by rail. The truth is, latest measures adopted by the rail industry have already triggered North Dakota producers to take their product off the rail and put it into pipelines. If rail is a much less attractive possibility for producers of light crude, it will definitely change into even much less possible for tar sands producers, who haven’t had the same success with it to begin with.

In direct conflict with the FSEIS conclusions, current tar sands pipeline bottlenecks are already constraining funding in tar sands enlargement. The FSEIS’s conclusions, primarily based on the flawed assumptions above, counsel that rejection of Keystone XL would only constrain tar sands expansion when oil prices fall beneath $eighty five a barrel.[5] Nonetheless, present pipeline constraints have already effected capital spending on tar sands enlargement and resulted in the suspension of new mining projects regardless of current oil costs in excess of $a hundred per barrel. Capital spending in the tar sands trade has declined precipitously, declining in 2013 to little greater than half spending ranges in Kinetic Energy Petroleum Refinery 2012. In the meantime, Shell’s a hundred,000 bpd Pierre River mine was recently suspended, as effectively as the Aurora Hill’s expansion proposals. This illustrates the fact that tar sands enlargement is already being constrained by a lack of pipelines at oil prices effectively above the FSEIS’s low oil worth situation.

Tar sands producers themselves recognize that they won’t notice their expansion plans without new pipelines. Recently CEO of major tar sands producer Cenovus advised reporters that his company’s plan to triple manufacturing in coming years was contingent on more pipeline capability. Meanwhile financial giants, together with RBC Capital, Goldman Sachs, Barclays and CIBC, have all publicly acknowledged that a tar sands business without new pipelines can be smaller than one with them.

Because the Nationwide Interest Willpower continues, Administration officials contemplating the mounting evidence that Keystone XL is a linchpin for tar sands growth will attain their very own conclusions and resolve whether a pipeline seemingly to extend carbon emissions by 27.Four million metric tons is within the national curiosity. Secretary Kerry recognizes that climate change poses a threat as pressing as “terrorism, epidemics, poverty and the proliferation of weapons of mass destruction” and that every main infrastructure decision we make dictates whether our nation slides down the path of enterprise as regular insurance policies resulting in climate catastrophe.

[1] State Department, Complement Closing Environmental Impression Assertion (SFEIS), Section Jan. 31, 2014, 4.14.30-31

[2] The FSEIS recognizes that in the quick to medium term, mild crude balance world oil supplies – which means that whichever crude is offset from the Gulf Coast market, tar sands from Keystone XL would offset lighter, much less carbon intensive crudes. State, SFEIS, 4.14.25.

[3] State, SFEIS, four.14.41.
[Four] In 2007 dollars, the social price of Keystone XL’s incremental 1.Four billion metric ton carbon affect is between $80.6 billion and $114 billion using the administration’s SCC figures as a low cost rate of two.5% to three%. Adjusting to 2014 dollars, that determine rises to between $ninety billion to $128 billion. Interagency Working Group on Social Cost of Carbon, U.S. Authorities, Technical Assist Document: Technical Replace of the Social Price of Carbon for Regulatory Affect Analysis Underneath Government Order 12866 (Could, 2013) (www.whitehouse .gov/sites/default/recordsdata/omb/inforeg/social_cost_of_carbon_for_ria_2013_replace.pdf) (all dollar quantities in 2007$); Bureau of Labor Statistics, Inflation Calculator, Accessed February 28, 2014,