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The Rejection of Keystone XL and its Effect on North America's Economy

Article by Laura Collins November 19, 2015 //   4 minute read

North America is a dynamic, thriving, and competitive entity on the world stage.  But to remain competitive, further integration among the North American countries, particularly in energy, is necessary.  That’s why the Obama Administration’s recent rejection of the Keystone XL pipeline permit application, after seven years of slow-walking the decision process, is disappointing.  This rejection is bad economic policy and a setback in strengthening North American integration.

North America is fortunate to have abundant energy resources, and new technology has enabled producers to extract oil and gas from areas that were not productive even a few years ago.  These resources are most beneficial to North America in an integrated energy market, which can only be accomplished with significant additional investment in energy infrastructure.

Further energy market integration is important to the regional North American economy. Barriers to the flow of energy across borders contribute to wide variations in the cost of energy to consumers and businesses.  Petroleum products are significantly cheaper in the southern U.S. compared to the northern U.S. Electricity rates in Mexico are significantly higher than what Americans pay, hampering industrial competitiveness and burdening households.  Industrial users pay more than double the U.S. rate, and the average household pays almost 50% more.  We can begin to resolve these issues through additional energy infrastructure.  The Keystone XL pipeline would have been a much-needed addition.

There are alternatives for transporting oil, such as rail.  In fact, a volume of oil comparable to what Keystone would have transported is currently moving by rail to the U.S. and to Canada’s Pacific and Atlantic coasts.  But pipelines are superior – safer, more reliable, less costly and less carbon-intensive – to other infrastructure for oil transport.  With over 100 transmission facilities for oil, gas, and electricity crossing either Mexican or Canadian border, this infrastructure is a well-established part of the North American energy market.

A recent report from the Fraser Institute highlights the safety advantage pipelines offer over rail transport.  The study found that rail was 4.5 times more likely to experience an occurrence—an accident or incident that results in the release of the product the pipeline is transporting.  Rail occurrences were also more severe than pipeline occurrences.  Further, only 17 percent of pipeline spills occurred on the actual line.  The remainder occurred in facilities along the pipeline, lessening the chances of large-scale environmental impact.

Rejecting the Keystone XL pipeline hurts the U.S., particularly the northern states.  The southern portion of the pipeline is already operational and has boosted the economies of Oklahoma and Texas by nearly $6 billion, according to the Institute for Energy Research.

This rejection hurts Canada, too.  The Canadian oil industry will continue to produce, but with pipeline capacity already strained, it will be difficult to transport oil efficiently to the many U.S. refineries that are purchasing the oil.  Producers are already being forced to utilize rail transport, a far more dangerous option.

Keystone XL is just one piece in what needs to be a large-scale, tri-national infrastructure plan, but its rejection is symbolic of a failure to cultivate our North American neighborhood.  The long-term strength of the U.S. depends on the economic health of our neighbors.  North American energy integration can be achieved through a commitment to enhancing our energy infrastructure.  Denying the Keystone XL pipeline is a short-sighted move that does not advance the economic interests of our region.