Get Cheaper Gas by Raising the Price of Oil!

San Francisco -- Could we really make lower gas prices by raising oil prices? I think we could stop paying the salaries of most of America's economists if we managed to pull off that trick. But that's exactly the kind of voodoo economics (to borrow a phrase from an oil man) that lies at the heart of the current propaganda push over whether the United States should permit its territory to become a corridor and pollution dumping ground for the Keystone XL pipeline, which would bring 800,000 barrels a day of devastatingly dirty Canadian tar sands directly to oil refineries on the U.S. Gulf Coast for tax-free processing and export to Europe and Latin America.

Today, at San Francisco's Commonwealth Club. I debated Cassie Doyle, the Canadian consul general, along with Alex Pourbaix, a representative of TransCanada, the Canadian company that wants to construct the XL. Their arguments were essentially that the U.S. already imports oil -- it might as well get it from friendly Canada instead of Saudi Arabia; that tar sands oil is dirtier than other oil (but might get less dirty someday); and that if we don't accept this oil, someone else will.

Our debate came in the wake of the Obama administration's release last Friday of a scandalously misleading Environmental Impact Statement on the pipeline, so Consul Doyle and Mr. Pourbaix were treading on ground that the U.S. government has already tested. According to Doyle, Pourbaix, and the Administration, Keystone is a good deal for the U.S. economically -- and not quite as bad environmentally as its opponents have claimed.

But during the debate, it became clear that they really couldn't explain why Keystone XL is good for us economically, much less environmentally. They could only make assertions. I began my remarks by saying the XL is really a plan to export tar sands products from the U.S., not a plan to increase oil imports or U.S. supply. Pourbaix argued that this cannot be true because the U.S. imports lots of oil (true). But the Gulf Coast, where the XL ends up, is already exporting 1.8 million barrels of gasoline and diesel a day -- so the region doesn't need the 700,000 million barrels per day that the Keystone XL would pump. Nor does the Midwest need this additional oil -- in fact, there is already so much Canadian oil coming into the Midwest that producers are complaining about low prices. Where the U.S. has the big import problem is on the two coasts -- and Keystone won't help the supply situation there at all.

In fact, TransCanada admitted in its permit applications that the Keystone XL will increase oil prices in the Midwest by as much as $6.55/barrel. Pourbaix conceded that this was true -- the pipeline will mean higher oil prices. And that means bigger profits for Canadian tar-sands producers -- about $4 billion more in revenue. But, he stoutly asserted, this would mean cheaper gasoline in the Midwest. Now, in all of its documentation, TransCanada has promised to investors that building the XL will enable Canadian tar sands oil to fetch OPEC-level, global prices. How that would translate into cheaper gasoline in Kansas City, which for the past several years has enjoyed below-OPEC prices, Pourbaix could not really explain (although he tried).

Nor could he wave away the fact that the Obama administration's Environmental Impact Statement, flawed as it is, and hard as it tries to muddy the waters, concedes that building the pipeline will actually increase America's oil-imports bill by 1.5 percent (between $6 and $9 billion).

The reason for this increase, of course, is that once the Koch brothers, Shell, Valero, and the other tar sands players can offer their refined product for sale in OPEC-dominated markets, they will also be able to force Midwestern consumers to pay those same inflated, manipulated prices. In effect, Canadian oil producers get the economic benefits of OPEC without having to join. I asked Consul Doyle and Pourbaix if they would agree to prohibit the export of tar sands product from North America, so that all of the benefits of building the pipeline would flow to U.S. and Canadian consumers. They refused. Pourbaix kept insisting that exporting gasoline from the U.S. simply couldn't happen -- even though it already does.

And the Obama administration has endorsed this economic fiction, admitting in one of the documents attached to the EIS that the pipeline will raise prices, but saying that the low prices for oil in the Midwest today provide "a crude price advantage that is not justified by long-term transportation costs. Eliminating those constraints would produce a more competitive oil market."

So we have a proposed pipeline whose operators admit that their goal is to raise the price of their oil by more than $6/barrel; who are shipping it to the Gulf Coast, where there is no local demand but lots of export possibilities; who refuse to support a ban on exports; and who then have the gall to claim that this will lower gasoline prices for Midwestern consumers.

The Obama administration, like TransCanada, has declined to discuss the enormous environmental costs of mining the tar sands on the lands, waters, and peoples of Athabasca, Alberta, something my debating colleague, Jason Mark of Earth Island, laid out in great detail. The pipeline will pass through Nebraska's Sand Hills and over the Ogallala Aquifer, America's most important water resource. Conservative Republican Nebraska Senator Mike Johanns has warned that the project has not been adequately reviewed. And no one is looking at the environmental costs of refining this very dirty form of petroleum in dangerous and outmoded refineries under the scandalously lackadaisical supervision of Texas Governor Rick Perry.

If you think that having more Canadian tar sands oil will still, somehow, lead to cheaper gasoline, then consider that the moment oil drops below $80/barrel, the tar sands are no longer economical to develop. Tar sands simply cannot be part of the economic solution to our oil addiction.

Let's be blunt: Nothing about this pipeline is in our national interest. It's a costly, environmentally damaging, dangerous proposal that only encourages the fiction that we can continue our reliance on oil. The Obama administration should be ashamed that it has put out such a shoddy environmental analysis. And it will be interesting to see whether the members of Congress who claim that they want to help the American driver will stand by and allow oil companies to export U.S. and Canadian oil so that they can drive up domestic gas prices. We need to stop the Keystone XL, as the hundreds getting arrested this summer are saying so powerfully. If you haven't already, you can take action here.

 

Small Quakes, Big Impacts

Washington, DC -- By Japanese or California or New Zealand standards, the 5.9 earthquake that rolled through the East Coast yesterday was not a big seismic event. Even in a city like our nation's capital -- spectacularly unengineered for seismic risk -- damages were modest and fatalities and serious injuries nonexistent. But because it was unusual, the temblor drew tremendous attention. Many people initially assumed it was a repeat of the 9/11 terrorist attacks. Schools here were closed today, and closer to the Virginia epicenter they will stay closed until Labor Day. The Washington Monument is closed.

Similarly, by the standards of the Arab Spring, the civil disobedience at the White House this week over the proposed Keystone XL tar sands pipeline was statistically tiny, with none of the brutality that faces protestors in Syria.

But I hope the Keystone protest will attract serious attention in the Obama White House -- this was the largest act of civil disobedience in the history of the climate movement. More than 200 people have already been arrested; the number will keep growing -- perhaps into the thousands. The protest is around a project that, the more scrutiny it receives, the ranker its stench becomes.  For most of the D.C. protestors, the biggest threat posed by the XL pipeline is the massive increase in production of tar sands oil that it would encourage -- an increase that is utterly incompatible with the official climate positions of both the Canadian and U.S. governments.

North of the border, in Canada, public outrage is more focused on the devastating local impact to communities and ecosystems, with much of Alberta being turned into a moonscape to fatten the profits of the Koch brothers, Valero, and other oil interests.

But the shoe that has not yet dropped in much of the U.S. heartland is that the entire campaign to get the Obama administration to approve Keystone XL is based on an enormous lie -- that even though the oil the pipeline ships is devastatingly dirty, and even though the pipeline itself poses a catastrophic risk to the Ogallala Aquifer over which it will pass, that at least it might increase America's access to "friendly, secure" Canadian tar sands oil.

Not true.

The reality is that if you want to deliver more gasoline and diesel to drivers in the Midwest and Great Plains, you don't build a pipeline to Texas -- you use the existing pipelines that run to refineries in Illinois and Oklahoma. Why build to Texas? So you can refine on the Gulf Coast and export the resulting gasoline and diesel to Europe and South America. And why export? Because the Midwest and Great Plains already have as much tar sands crude as they need. In fact, oil in the American heartland has been selling for about $15.00/barrel less than the global price because of what oil companies privately describe as a "glut" of crude in the region.

But instead of pumping only as much oil as their American customers need, the companies want to increase volumes and raise prices to European levels -- simultaneously pumping more oil and making more money in the U.S. from the oil they are already pumping. They can only accomplish this trick by exporting more tar sands gasoline and diesel than the new supplies they bring in with the XL pipeline. Only by reducing U.S. access to tar sands oil (by selling more of it overseas) can they charge higher prices at home. Shell, one of Keystone's major customers, has just applied for permission to reverse a 300,000 barrel/day pipeline that currently carries oil from Louisiana to its Texas refineries -- it will now pump oil from the refineries to the Gulf Coast for export.

So here's the real proposition: Let Koch, Valero, and Shell use the U.S. as a transmission corridor to the Gulf. Threaten the Ogallala Aquifer. Expropriate the farms of thousands of landowners in the way. Refine the oil in Texas, and dump the resulting pollution into America's air and water. Then export the refined product to Europe and South America to increase Koch's profits.  And, finally, siphon off a sufficient amount of product from the Midwest and Great Plains to allow you to raise gasoline prices in Illinois and Montana to more appropriate "European" levels. Result? A huge environmental threat to the U.S., and a major increase in the price of gas.

And the Obama administration is on the verge of approving this scandal as being in the "national interest." Let's hope the protests outside the White House draw closer scrutiny to what's really happening. This project stinks.

Rays of Sunshine (and Gigawatts) in Asia

Mumbai, India -- India and China, with their rapid growth and extraordinary need for new energy, have been seen as the global drivers of future carbon pollution, particularly from coal-fired electricity. China today burns almost half of the world's coal, and India was projected to add almost two hundred new coal-fired power plants over the next five years.

Per capita emissions in both countries are far below U.S. levels, though, and India's are only a fraction of the global average. Both also have made considerably more-ambitious policy commitments to clean energy than has the United States. China spent $1.13 cents of every $10,000 of average income on clean energy between 2002 and 2008, India spent $0.43, and the U.S. spent only $0.19.

But regardless of how much more they were doing than the U.S, neither China nor India had found a pathway to commit to a solidly clean energy future (although China's recent announcement of a solar feed-in tariff is very exciting and could double that country's solar capacity by the end of the year).

What's changed is the outlook for coal. As my colleague Justin Guay has been pointing out in his blog, the financial assumptions and underpinnings of a coal-fired, rapid-growth future for Asia have fallen apart as it's become clear that, while some coal is cheap and (geologically speaking) coal is abundant, cheap coal is not abundant.

In India, skyrocketing prices for imported coal have devastated plans to grow the power sector, and one company that's been forced to adapt is Tata Power, which is part of the broader Tata Group. Tata Power was constructing one of the world's largest coal-fired power plants, Tata Mundra. When Tata announced that price increases for Indonesian coal meant that it would need to double electricity prices (and would still lose money for the next five years on Tata Mundra), its stock slumped.

But Tata moved quickly -- clearly it had seen the crisis brewing.

The Tata Group has no counterpart in this country. It combines under one broad management India's largest private power company, Tata Power; the country's major producer of solar cells, (in partnership with BP); a mobile phone company; and an automotive manufacturer (which makes both the world's cheapest car, the Tata Nano, and Jaguars and Land Rovers). Other business include steel and iron (along with the associated coal mining), hotels, and insurance. Most of its stock is owned by a series of charitable trusts. So Tata, in effect, is the Indian equivalent of American Electric Power, Ford, US Steel, Dow, First Solar, Marriott, and Sprint, with most of the profits going to equivalents of the Ford and Rockefeller Foundations.

So it was major news this week when the Tata Group announced that it was simultaneously going to increase its total electricity generation eightfold in the next six years, while providing 25 percent of that power from clean energy sources -- a stunning single firm commitment to 6 gigawatts of clean energy in six years! "The price of fossil fuel, be it coal, gas or oil, is heading northwards, which seems to be the trend in the foreseeable future. There are no signs to indicate that this will come down. This gives a huge opportunity for other renewable forms to pick up and gain ground," said Banmali Agrawala, who heads Tata's renewable-energy efforts.

To give a sense of scale, India's total current electrical capacity is 165 gigawatts, and the Indian government's 2020 goal for total solar power is 20 gigawatts. California Governor Jerry Brown's goal for distributed solar is 12 gigawatts by 2020, in an economy that has 60 gigawatts of capacity. By any standard, then, Tata's single firm commitment is very ambitious.

Now we need to find half a dozen other corporate champions to join Tata. Any nominations?