Environmentalists Don’t Get Economics, and That’s Dangerous for Everyone

From the Toronto Star

From the Toronto Star

The Keystone Pipeline has enraged many people since it was first announced. Traditionally framed as a conflict between environmentalists and oil executives, the Keystone Pipeline is 1897 km of 36 inch pipe running from Hardisty, Alberta to Steel, Nebraska and for several years it has existed in limbo. Caught in the cross hairs of politicians, environmentalists, various national interests and corporations, it has been six years of waiting and becoming more unlikely that it may ever get built. A definitive win for the champions of the environment.

Or is it? In simple terms, NOT having a Keystone Pipeline does indeed impede the growth of Tar Sands industry, hampering the longer term ability to send extracted oil to be refined. But it doesn’t stop it. In fact, not building doesn’t stop the oil companies from shipping at all. The Keystone Pipeline has become a symbol of social angst about the environment, but in its place a number of much more terrible and dangerous options have been pursued. For instance, if you live int he city of Toronto you may have noticed that the CP Rail line that runs through the heart of many residential neighbourhoods is actually carrying hundreds of thousands of oil tankers destined for the same location as the proposed pipeline.

In response to constant deferral Canada’s rail lines have picked up the slack, moving as much oil around as the proposed pipe would have. This first came to my attention around a year ago at a lunch where a portfolio manager for an energy fund was explaining that even though Keystone had stalled, a new pipeline had indeed opened. The difference was that it was actually the railway system. Since then it has slowly been gaining wider acknowledgement that in place of a relatively safe oil pipeline we instead now have hundreds of trains travelling through neighbourhoods and schools and towns carrying vast amounts of highly toxic oil, among other dangerous things.

All this leads to the hard truth about difficult economic decisions. Sometimes the big bad business is still making the best decision. Opposing development, no matter how well intentioned, rarely changes the underlying needs that feed those projects. Worse still, not recognizing the economic drivers behind controversial projects like this only leads to the kind of unintended blowback that creates future messes. For environmentalists the likely outcome will have been to have slain a largely symbolic dragon, while in reality they have set the stage for future environmental disasters on a much greater scale than they had ever intended. They haven’t changed the direction of the energy market, or the need for oil. But they have undermined a good economic proposal in favour of a bad one.

Crude Oil YTD

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