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Powering Down

Federal regulation is killing energy development.

Nov 21, 2011, Vol. 17, No. 10 • By ADAM J. WHITE
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American energy policy is increasingly defined in terms of what is prohibited, not what is promoted. Coal, nuclear, and natural “shale” gas all have been hampered by the current administration. And the last three weeks have offered two more examples of how America’s byzantine energy laws and policy deter innovation.

River in valley

Last Thursday, President Obama and the State Department announced that they would delay indefinitely the president’s final decision on the proposed Keystone XL pipeline to transport Canadian oil to American markets, despite the State Department’s thorough report and conclusion that the project would cause no improper environmental impacts. And on October 28, a federal court of appeals dealt a surprising setback to Cape Wind, the long-awaited Cape Cod offshore wind farm, which will further delay a project that has been pending before federal regulators for over a decade.

At first glance, these two examples might seem an odd couple. Keystone XL is oil infrastructure denounced by climate-change activists; Cape Wind is clean power championed by the Sierra Club and others as an alternative to fossil fuels. But in fact the two projects are manifestations of the same worrisome trend. The nation’s ability to foster large-scale energy innovation is severely undermined by a regulatory process that is too convoluted and rife with opportunity for partisan manipulation.

Of the two embattled projects, Keystone XL has dominated headlines in recent months, especially after opponents drew thousands of protesters to the White House in early November. The pipeline project could bring up to 830,000 barrels of Canadian crude oil daily—i.e., more than 4 percent of U.S. daily oil consumption—across the Saskatchewan-Montana border, through several other states en route to Oklahoma and Texas.

The pipeline’s economic benefit to the United States is impressive: The Canadian Energy Research Institute estimates that construction and operation of the Keystone XL pipeline would increase our gross domestic product by more than $200 billion between 2010 and 2035, and support close to 85,000 U.S. jobs in 2020.

What has aroused protests is not the pipeline’s immediate effect on the states it crosses; rather, the controversy is due to what lies at the Canadian end of the pipe: “oil sands,” a combination of clay, sand, water, and bitumen, from which crude oil is extracted. Oil sands—or “tar sands,” the detractors’ preferred name despite the actual lack of tar—face two main criticisms: First, there are the surface effects of the mining, including the removal of landscape and the creation of “tailing ponds” where sludge is deposited. Second, oil sands result in more greenhouse gas emissions than conventional oil drilling—perhaps 5 to 15 percent more carbon dioxide, according to Daniel Yergin’s new book, The Quest.

The responsibility for approving or rejecting this pipeline project ultimately falls to the president, under the peculiar legal framework governing international oil pipelines. No statute assigns a federal agency jurisdiction to approve or disapprove international oil pipelines, and since 1968 presidents have filled Congress’s silence by asserting their own authority over this form of international commerce.

The president (or, by delegation of his power, the secretary of state) ultimately determines whether an international oil pipeline will receive a “presidential permit.” The State Department, in turn, reviews the pipeline’s environmental impacts, preparing a detailed “environmental impact statement.” For Keystone XL, the State Department prepared an eight-volume report after consulting with 11 federal “cooperating agencies” (ranging from the EPA and the National Park Service to units of the Agriculture and Energy departments), various state agencies, Indian tribes, and Canadian officials, and after opportunity for public comment.

Keystone XL filed its permit application in September 2008. Three years later, the State Department issued its final environmental impact statement, recommending that the project be approved—or, in the parlance of environmental impact statements, declaring that State “does not regard the No Action Alternative to be preferable to the proposed Project.” And on the greenhouse gas question specifically, State conducted “a thorough review of recent scientific literature on greenhouse gas life-cycle emissions for Canadian oil sands crude” and concluded that the project would result in an additional 3 to 21 million metric tons of carbon dioxide emissions annually—i.e., no more than one third of one percent of the annual U.S. carbon emissions.

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