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J.D. Foster Keystone XL Pipeline

The U.S. Senate recently voted not to overcome the Administration’s intransigency and thus clear a path for the Keystone Pipeline to transport crude oil from Canada to refineries in Louisiana. That leaves the decision with President Obama, who has managed to avoid making a decision on Keystone for six years now and seems fully capable of avoiding a decision for two more.  But what does the Keystone Pipeline mean to the energy sector and the economy?

Opponents of the pipeline typically assert that Keystone would just further entrench the petroleum-based economy for little or no benefit to Americans.  President Obama recently captured this sentiment, “I won’t hide my opinion about this, which is that one major determinant of whether we should approve a pipeline shipping Canadian oil to world markets, not to the United States, is does it contribute to the greenhouse gases that are causing climate change?”

The assertion regarding where oil would be shipped is, of course, simply incorrect.  The Canadians are not going to leave a valuable resource untapped just because Americans can’t build a pipeline. The oil is going to flow, if not to Louisiana then probably to Canada’s west coast.  And when President Obama asserts the oil would go to world markets, not to the United States, this is only true if the oil flows to Canada’s west coast.  If the oil is refined in Louisiana, the products are overwhelmingly likely to remain in the United States.

This also means the question about greenhouse gases resulting from the oil is entirely mute.  The oil is going to flow either way. 

Opponents also make the point that Keystone would not be that important to the American economy.  Considered narrowly, they have a point, but as usual they miss the big picture. The specific numbers are in dispute, and ultimately don’t matter much. The Pipeline’s construction phase will provide employment to a sizable number of Americans. When the pipeline is in operation, the number of employees will be much smaller. In a $17 trillion economy, it’s a drop in the bucket, which by the way is true of every single project currently in operation or planned.  A $17 trillion economy doesn’t pop into existence.  It is built up over time through billions of smaller projects – like Keystone.

But it is the big picture which the President and his fellow Keystone opponents miss most.  Keystone is a national symbol now built up and embraced as such by many. One group watching the Keystone drama includes the leaders of America’s businesses from largest to smallest, and the entrepreneurs with dreams, and the venture capitalists looking to fund the next big thing.  These are also the people whose defensive inclinations in light of sustained overt antipathy from Washington have hamstrung the economic recovery. The real economic power of Keystone is as a symbol to the job creators and risk takers of America that maybe there is hope Washington policymakers may finally “get it” if just a little.  The Senate’s decision, and the President’s attitude, suggests the contrary, so the recovery is likely to run in fits and starts for some time to come.  Hope?  Nope. 

Sean Hackbarth  Sanjit Das/BloombergWorkers wait to begin their shift as they stand beside piles of coal at the Haldia Dock Complex (HDC) in Haldia, India. Photo Credit: Sanjit Das/Bloomberg

There’s been plenty of talk about the unenforceable U.S. – China greenhouse gas agreement. Let's look at India, a major greenhouse gas emitter with no desire to give up coal as its economy develops. From the New York Times:

“India’s development imperatives cannot be sacrificed at the altar of potential climate changes many years in the future,” India’s power minister, Piyush Goyal, said at a recent conference in New Delhi in response to a question. “The West will have to recognize we have the needs of the poor.”

Mr. Goyal has promised to double India’s use of domestic coal from 565 million tons last year to more than a billion tons by 2019, and he is trying to sell coal-mining licenses as swiftly as possible after years of delay. The government has signaled that it may denationalize commercial coal mining to accelerate extraction.

As you can see from this chart, Indian coal consumption has been increasing rapidly so far this century.

 2000-2011Indian Coal Consumption: 2000-2011

Here are two other points from the story. First, India has increased coal-fired generating capacity by 73% in the last five years. “India’s coal use is expected to more than double by 2035,” writes Robert Bryce at the Manhattan Institute.

Second, the average Indian uses 7% of the energy the average American uses. With nearly as many people in India without electricity (300 million) as live in the United States, that percentage will go up, with coal being the source of much of that electricity. “The [Energy Information Administration] projects that India’s coal-fired capacity will increase by about 100 gigawatts by 2040,” Bryce writes.

Todd Stern, climate envoy for the State Department, isn’t sure what India will do in upcoming greenhouse gas negotiations in Paris. It’s unrealistic to think that India will suddenly give up increasing power access through low-cost coal. No one should blame it for striving to improve the lives of its people, especially its poorest.

However, demanding that the United States abandon its abundant supplies of coal—like EPA’s carbon regulations will do--while competing against a growing economy like India’s is also unrealistic.

Thomas J. Donohue Thomas J. Donohue, U.S. Chamber of Commerce

Americans sent the clear message to lawmakers on Election Day that they want a new direction. The 114th Congress, which will convene in January, has the opportunity to show them that it can get things done—and do the right things for our economy and our country.

Trade would be a good place to start. President Obama and leaders in Congress have signaled that trade is ripe for bipartisan progress. Priority one should be passing Trade Promotion Authority (TPA), which would strengthen the hand of U.S. negotiators and help them get a good deal for American companies and workers.

We need to be ready for the major trade deals that are moving forward, including the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership. These deals would boost our economy and add millions of jobs for U.S. workers—but we won’t be able to secure them without TPA. Congress must also extend the Export-Import Bank’s charter so that more businesses can sell their goods abroad.

Energy should be another area of focus. It has been one of the few bright spots in our economy. Congress and the administration should take the needed legislative and regulatory steps to produce more American energy in all forms and in an environmentally responsible manner—and sell this energy around the world.

The long fight for approval of the Keystone XL pipeline hit the six-year mark this fall. Last week the House passed a bill to force the president to authorize the pipeline, but the Senate defeated it. The incoming Senate majority has vowed to revive these efforts, and we’re counting on these lawmakers to finish the job.

Writing and passing a fiscally responsible budget would also help restore Americans’ confidence in the ability of lawmakers to govern. It’s one of the most basic but important duties that Congress holds. The next budget should lay the groundwork for entitlement reform, tax reform, and long-term surface transportation and aviation bills.

Lawmakers can smooth the way for a new direction in the next Congress by addressing some immediate priorities during the lame-duck session now under way. They should take a government shutdown off the table by passing appropriations bills to fund government operations. And they should move quickly to renew critical policies that are due to sunset at the end of the year, including expiring tax provisions and the Terrorism Risk Insurance Act.

Unless lawmakers heed the voters’ call for responsible action on the right policies, they will deepen public distrust and squander a rich opportunity to do good things for our country. It’s time to get down to business.

Sean Hackbarth Drilling for oil and natural gas in Texas' Eagle Ford Shale.Drilling for oil and natural gas in Texas' Eagle Ford Shale. Photo credit: Eddie Seal/Bloomberg.

The shale energy boom continues to drive improvements in America’s energy security risk, but federal policies attacking coal will lead to future declines, a new report finds.

The U.S. Chamber’s Institute for 21st Century Energy annually releases its Index of U.S. Energy Security Risk, a collection of 37 different energy metrics such as energy prices, price volatility, net energy imports, energy expenditures, and energy efficiency. America’s energy security risk dropped to 87.4 in 2013, its lowest level since 2004 and 5% below 2012.

Index of U.S. Energy Security Risk, 2014Index of U.S. Energy Security Risk, 2014

The shale oil and natural gas boom get much of the credit. In 2013, the U.S. experienced the largest annual percentage increase in oil production since 1940, and there was a record-level of natural gas production.

America's energy security risk has improved.America's energy security risk has improved.

“Given continued geopolitical uncertainty, rising U.S. oil and gas output couldn’t come at a better time, and has helped insulate our nation from instability,” Karen Harbert, president and CEO of the Energy Institute said in a statement.

U.S. oil production.U.S. oil production.

However, not all the shale energy news is positive. Oil and gas production on federal lands is expected to continue to fall, the report notes:

Consider that all of that additional production is coming from, and will continue to come from, on federal onshore lands. In fact, the Energy Information Administration’s (EIA) 2014 forecast shows lower oil production from federal offshore areas and Alaska than its 2008 forecast. The trends are similar for natural gas. What this means is that while the rest of the country will enjoy an oil and gas boom, federal lands will continue to experience an oil and gas bust because of federal policy that locks out four-fifths of them from exploration and production. Under these kinds of restrictions, energy-rich public lands won’t contribute as much to U.S. energy security as they should.

As you can see in the first chart, the report warns that while energy security risk is falling, it’s expected to climb upwards in the next few years as the effects of EPA’s attacks on coal-fired power plants are felt:

Unprecedented levels of regulation covering fossil fuel-fired power plants and changing market dynamics are expected to increase electric power sector risks by decreasing generation diversity.

Federal environmental regulations targeting coal plants and to a lesser extent greater competition between natural gas and coal in the power sector are primarily responsible for the loss of generation diversity.

For instance, EPA’s mercury regulation is expected to shut down nearly 50 gigawatts of coal-fired electricity production, reducing energy diversity and making the power grid less resilient. Power grid reliability organizations have warned that EPA’s proposed greenhouse gas regulations will increase the risk of power outages.

This chart below on electricity generation diversity shows how reduced diversity affects energy security risk. Steve Eule, the Energy Institute’s vice president, said in a statement, “Our index found that risks related to electricity generation diversity will rise to an all-time high by 2040, due largely to planned federal regulations targeting coal plants."

U.S. electricity diversity capacityU.S. electricity diversity capacity

The Energy Institute has an interactive tool to see how the Index of U.S. Energy Security Risk has changed over the years.

Index of U.S. Energy Security Risk

Sean Hackbarth Blackout in New York City's East Village.New York City's East Village. Photo credit: Dan Nguyen. Licensed under a Creative Commons Attribution 2.0 Generic license.

The more power reliability experts look at EPA’s proposed carbon regulations the more they don’t like what they see.

The Electric Reliability Council of Texas (ERCOT), the Lone Star State’s power grid watchdog, warns that by driving out coal-fired power plants EPA's carbon regulations “could result in transmission reliability issues,” such as an “increased risk of rotating outages as a last resort.”

ERCOT estimates that proposed carbon regulations and other proposed EPA regulations, could mean the retirement of “between 3,300 MW and 8,700 MW of coal generation capacity.” That’s “up to half of the existing coal capacity” in the region.

Natural gas will replace coal as the primary fuel for producing electricity. Such a reduction in energy diversity threatens the power grid:

Though ERCOT is not currently affected by natural gas supply issues, the increased use of natural gas nationally could lead to increased market dislocations, such as seen in the winter of 2013-2014. Depending on the magnitude of these issues, there could be implications for maintaining reliable natural gas supply in ERCOT.

As for adding more solar and wind, ERCOT finds that EPA's plan “will require major improvements to ERCOT’s transmission system, posing significant costs not considered in EPA’s Regulatory Impact Analysis.”

Simply put, it takes significant time, money, and land to build electrical towers and other infrastructure. “It takes at least five years for a new major transmission project to be planned, routed, approved and constructed,” the report states. In one instance, a project to connect renewable generation to the grid took 10 years to construct at a cost of $6.9 billion dollars. Under EPA's plan, states must submit plans for reducing carbon emissions by June 30, 2016.

A similar analysis by the North American Electrical Reliability Corporation (NERC) warns that the carbon regulations increase the “potential for wide-scale, uncontrolled outages.”

In addition to worries about electricity reliability, the ERCOT report finds that EPA’s carbon regulations “will also result in increased energy costs for consumers in the ERCOT region by up to 20% in 2020, without accounting for the costs of transmission upgrades.”

Driving coal out of America’s energy mix will result in less-reliable and more-costly electricity. That’s not good for creating jobs or generating economic growth.

The deadline to submit your comments on the EPA’s proposed carbon regulations is December 1. Click here to add your voice to the debate.