Contrarian Wisdom Isn’t Necessarily Better Than Conventional Wisdom

For years, many observers (including myself) have argued that — from an environmental perspective — it is preferable for energy prices to be higher, so as to (1) discourage consumption of energy, mostly from fossil fuels which generates significant environmental impact, and (2) make various forms of energy efficiency and cleaner (if not zero-emission) alternative sources of energy more economically attractive to customers, which in turn will produce a virtuous cycle of further improvement in energy efficiency and alternative energy to penetrate markets in an ever-increasing fashion.

Recently, Carl Pope (formerly CEO and Chairman of the Sierra Club) penned an article that aims to turn this wisdom on its head.  In “The Road To Climate Heaven Is Paved With Ever Cheaper Oil”, Pope makes the point that the most environmentally-damaging forms of oil — such as the oil sands in Alberta — are intrinsically the most expensive to produce.  As a consequence, if oil prices were consistently at $70/barrel or less, production from these resources would be unprofitable and would relatively quickly cease, which in turn would (paraphrasing here) save the planet from future horrible devastation.

Pope notes that — of world oil demand at levels around 85 million barrels per day — about 80 million barrels per day can be sourced from relatively-clean conventional oil resources that are economically recoverable at much lower prices, rather than the dirty stuff which are economically viable only at higher prices.  In other words, the world supply curve for oil is pretty flat and low up to about 80 million barrels per day, and then goes vertical beyond that.

Assuming that his analysis of global oil supply is approximately accurate, Pope asserts that we just need the largest consumers of the world to somehow reduce demand levels by about 5 million barrels per day — permanently — and then the dangerous sources of marginal supply will be shut out of business.

It’s an interesting argument.  But I am not persuaded.

First of all, let’s consider how we got here:  World oil prices have consistently been hovering in the $80-120/barrel range since mid-2007 (except for a brief period in 2009 during the absolute trough of the global economic meltdown).  Why is this?  Except during the economic standstill, global oil demand has been robust at (as Pope says) around 85 million barrels per day — even in the face of high (and generally increasing) prices.  Note that U.S. demand has essentially been declining, so the rest of the world (especially China) has been picking up the slack.  (Imagine for a moment how much more demand there would have been had prices not increased so substantially!)

Put aside for a moment the question of how to achieve a demand reduction of 5 million barrels a day from the developed economies.  (Pope himself fudges on this point by stating that the developed economies could “encourage transportation efficiency and fuel diversity” in some unstated way.)  What would happen if Pope’s dream were somehow to be achieved?

At first, as Pope would hope, world oil prices would no doubt fall.  I don’t know if they’d fall by tens of dollars of barrel, but it’s possible.  If that were to happen, it almost certainly would cause a significant increase in demand within not-too-much time, which in turn would spur prices upward again.  Eventually, this force of increased demand would push prices back into the range that again makes viable production from the dreaded dirty marginal resources.

This is the notion of an equilibrium, central to free-market economic thought:  that any exogenous shock to the system will produce a response from the market that will tend to bring the system back into balance.

For Pope’s fantasy to play out, there would have to be not only an immediate reduction in developed-world demand for oil on the order of 5 million barrels per day (thus dropping oil prices to a significantly lower level), but an ongoing reduction from the developed-world to offset the faster growth in oil demand that would be generated by much lower oil prices that would somehow need to be maintained by ever-shrinking demands from the developed world.

I simply don’t see this happening.  Efficiency won’t be enough; it requires a massive shift off of oil for transportation — the “fuel diversity” for which Pope argues.  Low-cost natural gas (largely due to fracking, another environmental bete noire) for compressed natural gas vehicles and better (higher performance and lower cost) batteries for electric vehicles will help, but daunting investments in fueling/recharging infrastructure would be required for either (or especially both) to achieve mass-penetration — and I don’t see the money for these laying around.

With his recent article, Pope reaches for a similar conclusion, but coming from a different angle, as those who are seeking to forestall the construction of the Keystone XL pipeline to thwart access to markets for oil sands from Alberta and thereby prevent their development as a means of protecting the planet.  They share a supply-oriented mindset:  curtail supply by whatever means necessary (in Pope’s case, taking actions to depress market prices; for pipeline opponents, fighting legal/regulatory battles) to prevent consumption of a particular source of oil.

In my mind, this is not the way the modern economic world works.  In the market-oriented economy that generally prevails around the world, it is demand — not supply — that drives all the mechanisms.  World oil markets are fungible:  pushing down in one place will cause counterbalancing forces elsewhere, mostly negating the initial restriction.  Trying to control markets by somehow altering supply is futile, as the forces of demand will insidiously work around any inhibitions.

To see an example of this, look at the ineffectiveness of the so-called war on drugs:  demand may be lowered from unfettered levels but nevertheless remains abundant, against all social wishes.  The market is not destroyed; be assured, the market remains — it’s just been driven underground to all sorts of illegal and nefarious suppliers.

Similarly, the lack of a Keystone XL pipeline will not prevent the tapping of the Alberta oil sands (as long as oil prices are high enough).  Participants in the market are too nimble and inventive.  Oil sands output is already being shipped to the U.S. not only over existing pipelines, but as they approach capacity, by an increasing number of rail cars.  In addition, the Canadians may build their own pipelines to the Atlantic or the Pacific Coasts, allowing oil sands to reach world markets even with constrained access to the U.S. if Keystone XL is never built.  So the opposition to the pipeline will mainly have ended up being for naught — other than to drive up oil prices a little bit, due to the extra costs introduced into the market by denying an economically-attractive project from being built.

I respect Pope for all he has done in his career for the environment, building awareness of the critical issues our planet faces and generating urgency for action.  But, at least in his most recent writing, his unconventional economic wisdom does not ring true to me.  I’m often a contrarian myself, but in this case, I believe that Pope’s out-of-the-box thinking should probably be put back in the box.

Reporting from Omaha

Over the weekend, I attended the annual shareholder’s meeting of Berkshire Hathaway (NYSE:  BRK.A, BRK.B) in Omaha to hear the wit and wisdom of CEO Warren Buffett and Vice Chairman Charlie Munger.  For five hours on Saturday, Buffett and Munger fielded questions from panelists and investors on a wide range of topics.  A good synopsis of the often amusing banter was provided by an ongoing blog operated by the New York Times.

During the marathon Q&A session — quite impressive for a pair of octogenarians to endure — Buffett and Munger thrice touched upon topics of relevance to the cleantech sector.

First, Buffett commented on the excellent performance of Berkshire’s railroad, BNSF, which experienced a very strong first quarter of 2013, with much higher growth in volumes than other U.S. railroads.  Buffett noted that it was very fortunate for Berkshire to have “lots of oil discovered next to BNSF’s tracks”:  BNSF is able to take advantage of the oil boom in western North Dakota associated with the Bakken shale, due to its extensive route network in the area.   A side implication is that BNSF is well-positioned to ship oil imported from Canada, whether or not the Keystone XL pipeline gets built.

Of course, BNSF also has a large exposure to coal hauling.  However, it’s important to recognize that BNSF’s coal business is mainly centered on production from the Powder River Basin, which is both incredibly cheap and low-sulfur.  As such, it remains competitive with low-cost natural gas, and is not being displaced as much from the power generation sector as is coal from Appalachia, so BNSF is unlikely to be as hard-hit by the shale bonanza as other railroads.

Second, an investor asked about the potential effects of the increasing competitiveness of solar energy on the future financial performance of Berkshire’s utility business unit, MidAmerican Energy.  The question was likely prompted by a recent report issued by the Edison Electric Institute raising the concern that solar and other forms of distributed generation may lead to reduced revenues and profitability of grid-based electric utilities as customers source a greater share of their electricity needs from on-site sources.

Buffett and Munger noted that Berkshire was aware of the declining cost of solar energy and correspondingly saw good investment opportunities in the sector, as evidenced by three very large projects acquired by MidAmerican with over $5 billion in capital requirement.  However, they noted that these plants were central-station generation, as opposed to on-site distributed generation.  Moreover, they are located in the deserts of the southwestern U.S., not in MidAmerican’s utility territories.

Extrapolating from Berkshire’s entry into solar — central powerplants in deserts — Munger was particularly skeptical that rooftop solar would pose much of a cannibalization threat anytime soon in MidAmerican’s not-so-sunny locales in the Pacific Northwest, Iowa and the United Kingdom.

Buffett asked MidAmerican’s CEO Bill Fehrman to stand in the audience and comment further.  Fehrman opined that MidAmerican’s relationships with their regulators were sufficiently positive that tariffs would be restructured if/as rooftop solar penetrates their customer base and leads to reduced revenues/profitability associated with the grid services that MidAmerican provides to its regions.

Personally, I agree with these assessments — insofar as MidAmerican’s current portfolio of territories is concerned.  For electric utilities in far sunnier locales, and with regulatory regimes that are generally more populist in their leanings, rooftop solar may sooner pose more of a downside.

Third, another investor asked about the potential impacts of climate change and of climate change policy on Berkshire’s businesses.

Buffett began his response sarcastically by noting the unseasonably warm weather that Omaha was enjoying (which it most definitely wasn’t, as attendees had to prevail against a cold windy rain to enter the auditorium).  After this Fox-worthy cheap-shot, Buffett cautiously offered that — though he certainly wasn’t an expert — he believed that there was a real chance that man-made climate change was occurring, because most of those who really understood the issue and were worried were quite compelling in their logic.

However, he was less concerned that climate change would represent a major negative force against Berkshire — especially their insurance businesses.  At several points during the day, Buffett extolled the excellence of the pricing discipline and risk assessment of Berkshire’s insurance businesses, and Buffett indicated that he didn’t think that the risk profiles of the insurance businesses had changed materially due to climate change, at least so far.

Munger then chipped in with some commentary on climate policy.  He was pessimistic that any global policy on carbon would be effective, due to the massive coordination problems between all of the various countries that would need to be signatories.  However, Munger was supportive of higher taxes on carbon fuels, which “Europe stumbled into” for reasons other than climate change.  This suggestion prompted some applause from the audience, which surprised Munger.  Buffett then noted to Munger that far from everyone applauded, which drew laughter and a much louder burst of applause from the crowd — indicating that the Berkshire shareholder base on average is probably not as concerned with this issue as is your intrepid reporter.

2011 In The Rear-View Mirror: Objects May Be Closer Than They Appear

It’s that time again:  sifting through the detritus of a calendar year to sum up what’s happened over the past 12 months. 

Everybody’s doing it — for news, sports, movies, books, notable deaths…and now even for cleantech:  here’s the scoop from MIT’s Technology Review, and here’s a post on GigaOM.

So, my turn [drum roll, please], here’s my top 10 take-aways from 2011:

  1. Solyndra.  The utter failure of Solyndra, and the messy loan guarantee debacle, has been a huge black-eye to the cleantech sector.  It’s a political football that will be kicked around extensively during the 2012 election cycle, further widening the schism of support levels by the two major U.S. political parties for cleantech.  In other words, cleantech is becoming an ever-more polarizing issue — with Solyndra serving as the most visible tar-baby.
  2. Shale gas and fracking.   A chorus of ardent proponents of natural gas development, most vocally Aubrey McClendon, the CEO of Chesapeake Energy (NYSE: CHK) — the largest player in the shale gas game — is repeatedly chanting the mantra that shale gas is so plentiful that it can very cheaply serve as the major U.S. energy source for the next several decades.  And, recovery of this resource will create a bazillion jobs for hard-working Americans in rural areas.  In this view, who needs renewables?  Interestingly, this view also poses increasing threats to coal interests as well.  On the flip side, of course, the concerns about the use of fracking techniques, and the implications on water supplies and quality, are constant fodder for headlines.  Clearly, shale and fracking will continue to be hot topics for 2012.
  3. Keystone XL.  The proposed pipeline to increase capacity for transporting oil from the Athabasca sands of Alberta to the U.S. is the current lightning rod for the American environmental community.  Never mind that denying the pipeline’s construction will do very little to inhibit the development of the oil sands resources — Canadian producers will assuredly build a planned pipeline across British Columbia to ship the stuff to Asia.  Never mind that blocking the pipeline will do nothing to reduce U.S. oil consumption — which is, after all, the source of the greenhouse gas emissions that opponents are so concerned about.  This has become an issue of principle for NRDC and other environmental advocates:  “we must start taking concrete steps to wean ourselves from fossil fuels.”  Nice idea in theory, but this action won’t actually do anything to accomplish the goal, and will only further paint the environmental community in a damaging manner as being anti-business and anti-economics.  In my view, we have to work on reducing demand, not on curtailing supply; if we reduce demand, less development of fossil fuels will follow; the other way around doesn’t work.  The Obama Administration has punted approval for the pipeline past the 2012 election, but Keystone XL — like Solyndra — will be a major framing element in the political debates.
  4. Fukushima.  The terrible earthquake/tsunami in Japan in March killed over 20,000 people — and sent the Fukushima powerplant into meltdown mode in the worst nuclear accident since Chernobyl in 1986.  As costly and devastating as Fukushima was to the local region, it pales compared to the damages caused by the natural disasters themselves.  Even so, the revival of the perceived possibility that radioactive clouds could spew from nuclear powerplants put a severe brake on the “nuclear renaissance” that many observers had been predicting.
  5. Chevy Volt.  Released after much anticipation in 2011, sales of the plug-in electric hybrid Volt have been well below expectations.  Furthermore, as I recently discussed here, a few well-publicized incidents of fires stemming from damaged batteries have been a huge PR blow to gaining widespread consumer acceptance of electric vehicles.  Clearly, Chevy and others in the EV space have their work cut out for them in the months and years ahead.
  6. Challenges for coal.  As I recently wrote about on this page, the EPA has been working on promulgating a whole host of tightened regulations about emissions from coal powerplants.  These continue to move back and forth through the agencies and the courts, and coal interests continue to wage their battles.  But, between this set of pressures and low natural gas prices (see #2 above), these are tough days for old King Coal.  Not that they couldn’t have seen these challenges coming for decades, mind you, and not that some of their advocacy organizations don’t continue to tell their pro-coal messages with some of the most heavy-handed and dubiously factual propaganda outside of the recently-deceased “Dear Leader” Kim Jong Il
  7. Light bulbs.  One of the most absurd and petty dramas of 2011 unfolded over the planned U.S. phase-out of incandescent light bulbs, as provided for in one of the provisions of the Energy Independence and Security Act of 2007Representative Joe Barton (R-TX) led a backlash against this ban, arguing that it was an example of too much government intrusion into consumer choice — and succeeded in having the ban lifted at least for a little while, tucked into one of the meager compromises achieved as part of the ongoing budgetary fights.  This was accomplished against the objections not of consumers, but the objections of light bulb manufacturers themselves, who had already committed themselves to transitioning to manufacturing capacity for the next-generation of light bulbs:  CFLs, LEDs and halogens.  Now, the proactive companies who invested in the future will be subject to being undercut by a possible influx of cheap imported incandescent bulbs.  Way to go, Congress!  No wonder your approval ratings are near 10%.  Is it possible for you guys to focus on the big important stuff rather than on small bad ideas? 
  8. PV market dynamics.  Solyndra (#1 above) failed in large part because the phovoltaics market has become much more intensely competitive over the past year.  Module prices have fallen dramatically — no doubt, in large part because the market is now saturated by supply from Chinese manufacturers, who are sometimes accused of “dumping” (i.e., subsidizing exports of) PV modules into the U.S. marketplace.  This is stressing the financials of many PV manufacturers, including some Chinese firms and other established players.  For instance, BP (NYSE: BP) announced a few weeks ago its exit from the solar business after 40 years.  However, the stresses are falling mainly on companies that employ PV technology that cannot be cost-competitive in a lower pricing regime, whereas some of the new PV entrants — not just Chinese players, but some U.S. venture-backed players like Stion (who just raised $130 million of new investment) — are aiming to be profitable at low price levels.  And, after all, the low prices are what is needed for solar energy to achieve grid-parity, which is what everyone is seeking for PV to be ubiquitous without subsidies. 
  9. Subsidies.  Ah, subsidies.  In an era of increasing fiscal tightness (see #10 below), pro-cleantech policies are under greater scrutiny.  In particular, renewable portfolio standards are being threatened by state legislators of a particular philosophy who are opposed to subsidies in all forms.  The philosophy is understandable, but the lack of understanding or hypocracy is less easy to defend:  the status quo is almost always subsidized too, especially during its early days of development and deployment — and often remains subsidized well after maturity and commercial profitability.  Fortunately, there’s an increasing body of high-quality work that assesses the energy subsidy landscape in a generally objective manner, such as this analysis released by DBL Investors in September.
  10. Europe.  Although not a cleantech issue per se, the vulnerability of the European economy, the European Union, and the Euro in the wake of the various debt crises unfolding across the Continent is a major negative factor for the cleantech sector.  Europe is the biggest cleantech market, and many of the leading cleantech investors and corporate acquirers are European, so a recession (or worse, depression)  in Europe will be a very big and very bad deal for cleantech companies.

In all, 2011 was not a great year for the cleantech sector, and I don’t see 2012 being much better.  But, that’s not to say that good things can’t happen, or won’t happen.  Indeed, there will always be rays of sunshine among the clouds…or, to use another metaphor, you’ll always be able to find a pony in there somewhere.

Happy New Year everyone!

Keystone Cops

As mentioned in a prior posting, I recently traveled to Canada as part of a delegation convened by the Chicago Council on Global Affairs to consider energy trade issues of importance to Canada and the U.S. – especially in the Midwest.

The second stop on our journey, after a day and a half in Manitoba to gain a deeper appreciation of Manitoba Hydro, was northern Alberta, which has become the epicenter of one of the largest energy opportunities and simultaneously one of the most controversial environmental issues facing those of us in the cleantech sector.

Of course, I’m writing about the Athabasca oil sands, one of the largest reserves of commercially-recoverable oil (using currently-available practices) on the planet. 

The main attraction of the Alberta leg of our trip was a visit to the operations of Suncor Energy (TSX: SU), one of the largest producers operating in the Athabasca, about 20 miles north of the boom-town of Fort McMurray.

Several indisputable facts are important to lay out concerning the oil sands in Alberta before addressing the issues at hand.

  • The Athabasca oil sands resource is massive:  an estimated 1.7 trillion barrels theoretical maximum, or about 170 billion barrels assuming a 10% recovery rate.  The only larger set of proven oil reserves in the world is in Saudi Arabia.  Significant portions of these reserves are economically-recoverable at oil prices of $75/bbl or even lower.
  • Current production levels from the Alberta oil sands are about 1.5 million barrels per day, mainly using surface mining techniques.  Surface mining imposes significant environmental scars upon the landscape for many years.  Most future production growth will be from parts of the resource that are deeper underground and thus not amenable to surface mining approaches, and will be accessed by in-situ recovery methods such as steam-assisted gravity drainage (SAGD) that impose far less environmental impact.
  • Because the resource is inferior in innate quality to so-called “sweet crudes” of West Texas that have become the oil industry benchmark, significant energetic inputs are required to “upgrade” recovered oil sands into a grade of oil that can flow easily through pipelines and be processed by refineries into transportation fuels.  As a result of all the extra pre-refining efforts, the carbon footprint of using fuels from oil sands is higher than from other sources around the world.  According to a report by IHS CERA, producing a gallon of gasoline or diesel from oil sands unleashes about 40-70% more greenhouse gases than for the average fuel burned in the U.S.
  • The U.S. consumes over twenty percent of annual world oil production, yet has only a couple percent of the world’s proven reserves.  Consequently, the U.S. needs to import about 40 percent of its day-to-day oil requirements.  Canada is the largest source of U.S. oil imports, mainly oil sands production from Alberta.  Without the Alberta oil sands, the U.S. would surely need to import much more oil from Saudi Arabia and other Middle Eastern countries.
  • World oil demand is on the order of 85 million barrels per day, and lacking an widely-scaled substitute for oil to supply ever-increasing transportation demands, almost every observer of the energy markets expects that number to only increase.  This is due to the rise of the developing world into 20th and 21st Century standards of living. 
  • Nowhere is this more true than China.  Given rapid economic expansion on its huge population and industrial base, China is the largest driver of future growth in global oil demand.  Sometime in the next 20 years, China will likely overtake the U.S. in world oil consumption.  Yet, like the U.S., China has only a tiny share of the world’s oil endowment.  As a result, China is mobilizing around the world to acquire rights to oil resources – and is especially active in investing in Alberta oil sands projects.
  • Between potential Chinese and American demands, private investment in the oil sands is exploding.  About $10 billion per year is pouring into the Athabasca oil sands, with an aim to boost production to 3.5 million barrels per year by 2020. 
  • Two major pipeline construction projects are proposed to correspond to the increased planned production in Alberta:  to refineries in the U.S. via an expansion of the Keystone Pipeline System called Keystone XL being proposed by TransCanada (TSX: TRP), and to the British Columbia coast via the Northern Gateway Pipeline under development by Enbridge (NYSE: ENB),  for shipment by tankers plying the Pacific Ocean to refineries in Asia and America.

And herein lies the rub:  the Keystone XL project has quickly become one of the most contentious environmental battlegrounds in recent memory.  The issue has become a national cause.  Over the past few weeks, protesters have camped out in front of the White House demanding that the U.S. to deny construction of Keystone XL.  The New York Times has come out squarely against Keystone XL.

Environmental advocates hope to stop Keystone XL for three primary reasons:

  1. Climate change.  James Hansen of NASA, one of the pre-eminent voices leading the charge for addressing the threat of climate change, has said that it’s “game over for our planet” if the Keystone XL pipeline is developed.  A good part of this claim arises from the fatter carbon footprint associated with oil sands relative to other sources of oil:  that using oil sands for our transportation fuels will imperil the climate more rapidly.  Directionally, this is correct.  However, while oil sands may have a 40-70% larger carbon footprint on a “wells-to-pump” basis, on the more relevant “wells-to-wheels” basis, oil sands is “only” 5-15% worse.  Far and away, most of the greenhouse gases associated with petroleum use are associated with actually burning the fuel in our vehicles, not in producing and refining it.  In other words, improving auto efficiencies by 20% is more important to climate change than the choice of oil sands vs. other crudes.
  2. Environmental degradation.  No question, mining oil sands is ugly and damaging, as documented by such observers at Andrew Nikiforuk.  But, the boreal forests of northern Alberta, while beautiful, are massive in their extent and mining operations operations are taking only an infinitesimal fraction of it.  Reclamation techniques being developed by Canmet (Canada’s national energy R&D institute) and employed by operators like Suncor are cause for cautious optimism that the land can be remediated back to a healthy ecosystem, albeit with a several-decade time horizon.  And, in-situ SAGD operations will likely comprise a significant share of the incremental production from the Athabasca, imposing much less negative impact on the local environment.  Finally, we should note that there are lots of no-less-ugly and no-less-damaging operations in strip mining for coal in the Powder River Basin and mountaintop removal in Appalachia — both of which are happening right here in the U.S. of A., and both of which entail a fuel that is higher-carbon than oil and can more easily be displaced by many other more-environmentally friendly substitutes.  
  3. Risk of oil spills.  Between the Exxon Valdez spill in Alaska, the BP Deepwater Horizon fiasco in the Gulf of Mexico, and this year’s Yellowstone River leak, oil companies don’t have anywhere near a perfect record at ensuring oil doesn’t end up in pristine places where it shouldn’t be.  Governor Dave Heinemen of Nebraska, a Republican whose party is more than occasionally associated with the “drill, baby, drill” mantra, has come out in opposition to Keystone XL for fear that any leaks will taint the Ogallala Aquifer.  However, it should be noted that oil pipelines already cross the aquifer — and these older lines are probably more subject to failure than any newer ones that might be built.

While I am sympathetic to these concerns at a conceptual level, I frankly think they’re a bit overblown.  Accordingly, I don’t think that stopping or even delaying Keystone XL will yield much environmental benefit. 

As noted above, the Alberta oil sands are vast and economic to produce — and continued robust demand in the world oil markets, especially from China, will drive these resources to be developed promptly.  If the resources are developed promptly, then all of the climate change and environmental degradation that protesters hope to avoid by blocking Keystone XL will happen anyway. 

OK, granted, if Keystone XL isn’t built, there wouldn’t be any additional oil spills in the Midwestern Great Plains of the U.S. (beyond what already might occur from the existing oil pipeline network).  However, the size of Northern Gateway would probably be expanded to scoop up the volumes that would have gone south to the U.S. via Keystone XL — and there would be at least an equivalent if not greater risk of spills along the Northern Gateway pipeline route across the Canadian Rockies or in the Pacific Ocean or along the pristine B.C. coastline.

In other words, if the opposition succeeds and the U.S. doesn’t allow Keystone XL to happen, it probably won’t end up helping the environment anyway.

Instead, all it would do is piss off our friendly neighbor:  note that Alberta has enacted the only binding carbon emission reduction program in North America, and standing in Canadian shoes for a moment, it would be more than a little annoying to be scolded by Americans for climate malfeasance when the U.S. hasn’t done jack-squat on the issue.

In addition, denying Keystone XL would only cause the U.S. to import more oil from other less-friendly and farther-flung places — perhaps at higher net out-of-pocket costs to American consumers to boot.  Although I suspect the estimated impacts are overblown, there would also be the foregone economic development benefits to the U.S. associated with constructing and operating the Keystone XL pipeline if it’s installed.

So, notwithstanding the good intentions of those who are against Keystone XL, I respectfully can’t agree with their position.  As I recently wrote to my good friend Stefanie Spear, publisher of EcoWatch Ohio, even if I don’t like the facts, I can’t dismiss them.

I can’t see any way around concluding this:  since it’s probably about a wash from an environmental standpoint, the U.S. should allow Keystone XL, so that we can at least obtain the economic and geopolitical benefits that trading with our preferred partner Canada (instead of, say, Venezuela or Saudi Arabia or Nigeria) affords.

Based on recent statements by Secretary of Energy Chu and insider rumors about the leanings of the State Department (which is the lead agency in reviewing the Keystone XL proposal), I suspect the Obama Administration will grant approvals for Keystone XL, because they sense the calculus of these tradeoffs.  A final decision is due by the end of 2011.

The problem is not Keystone XL.  Our problem is actually quite simple, although completely different:  we — especially the profligate U.S., but the whole world as well — need to stop using anywhere as much oil as we do. 

Only when we reduce the consumption of oil in a meaningful way will we meaningfully reduce emissions from oil burning, environmental degradation associated with oil recovery, and risk of oil spills in transportation.  

Arresting the development of a new oil pipeline is merely re-arranging the deck chairs on the Titanic.

We need to kick our “addiction to oil”, as acknowledged by President Bush way back in January 2006, not worry about where the oil is coming from.  Only when we start weaning ourselves off oil will projects like these not happen — because they won’t provide good financial returns as demand for the stuff falls. 

Getting off oil in a big way very quickly would only happen if there were  large/rapid shifts in non-petroleum (electric, natural gas or biofuel) vehicle penetration, massive expansion of public transportation, and/or major reconfiguration of 21st Century  live/work/shop/play patterns.

I would rather the protesters turn their energy towards rerouting the pipeline around the Ogallala — perhaps the most well-grounded concern.  

Otherwise, I would like to see more outrage directed towards the more useful aim of actions to reduce oil demand for transportation — higher fuel taxes, carbon emission reduction requirements, public transportation, smart growth zoning, R&D programs for biofuels and batteries.  And, towards reducing coal demand for power generation too.

Without major declines in world oil demand, stopping Keystone XL really won’t matter much from an environmental standpoint, no matter how much James Hansen and others wail.  The protesters can win at best a symbolic victory.