Why Joe Nocera Is Wrong About Keystone XL

Our guest blogger is Ed Dolan, an economist and author of TANSTAAFL (There Ain’t No Such Thing as a Free Lunch), a book that outlines the libertarian case for a cleaner environment.

I am usually a big fan of Joe Nocera, whether he is skewering Wall Street crooks or exposing the high-handed behavior of the NCAA, but he is all wrong about the Keystone XL pipeline. He claims that Obama, in his “centrist heart of hearts,” also favors KXL. If so, the President is wrong, too.

The first problem is that Nocera, like other pipeline proponents, frames the decision on KXL in isolation. Doing so leads to the following seductive line of reasoning: The United States needs a lot of oil now and for the foreseeable future. If we don’t get the oil from Canada, we will get it from other sources, like Venezuelan oil sands or Nigeria’s polluted delta, that are just as dirty. Therefore, we might as well buy our oil from our friends to the North.

But who says we have to use so much oil? Other countries do not. The United States has the highest oil consumption of any one of the advanced economies that make up the OECD. Why? Primarily because we have the lowest energy taxes and the cheapest oil prices. Low oil prices feed into an endless list of decisions we make. How far from work will we live? Is it worth buying an electric car, even with subsidies, when gas is so cheap? If we build a high-speed rail line, will enough people ride it when it costs so little to drive?

In case you think prices don’t matter, take a look at this chart, courtesy of Todd Litman of the Victoria Transport Policy Institute. The United States is the little diamond in the extreme upper-left-hand corner: Lowest oil prices, highest oil consumption.

Once the question is reframed — not as “KXL yes or no,” but as “what kind of an energy policy should we have” — the pipeline starts to look a lot less attractive. If we get the country on a downward trajectory of energy use, we can start to pick and choose which fuels to take. We don’t have to use the dirtiest ones just because they are the closest to hand.

Nocera’s second problem is that he falls hook, line, and sinker for the phony “energy security” argument in favor of KXL. True, as long as we have an every-growing appetite for oil, we do have a real security problem. The problem stems from the political instability, and often open hostility, of many oil producers.

The problem, though, is that getting our oil from Canada doesn’t help much. The world oil market operates as a single pool. Any event that interrupts supply from any source sends prices spiking everywhere. The price spike caused by last year’s conflict in Libya, a relatively minor supplier, contributed to a pause in the U.S. economic recovery that we are just now getting over. A really big crisis, like a closure of the Straits of Hormuz, would derail the recovery altogether.

Those global price spikes, not the danger of a physical disruptions to oil transport routes, are the real security threat. Would a pipeline to Canada protect us in case of a crisis? Not a bit—not unless Canada, in a fit of North American solidarity, decided to sell its oil to us at a big discount from prevailing world prices. I have seen no such clause in the proposed KXL pipeline agreement.

There are much more effective ways than KXL to protect ourselves from the very real security threat of dependence on imported oil. One, which I wrote about at the time of the Libyan crisis, is a price-smoothing oil tax. It would bring us more security at a lower cost to the environment than shifting our dependence to Canadian oil sands.

Nocera closes his argument by telling us that “at least one country in North America understands where its national interests lie. Too bad it’s not us.” Really? It all depends on what you mean by national interest.

If you mean a narrow focus on short-term economic gain at the expense of others, then yes, developing oil sands and exporting them to anyone who will buy them is in Canada’s national interest. The profits stay in Canada, while the resulting pollution spreads around the whole world. In much the same way, I could say it would be in my self-interest to shoplift a few CDs next time I’m in a music store, and sell them on the street corner. The gain would be mine, and someone else would bear the cost.

A better view of national interest, though, is cooperating with others to reach mutual goals. One of those goals is slowing global climate change. No one country can do that alone, but if major energy producers and consumers were to work together, they could enjoy mutual benefits, in the form of a healthier planet, that would greatly outweigh the short-term costs of lost profits for Canadian oil sands developers and continued cheap fuel prices for U.S. drivers. As our President likes to put it, it can be done.