Trucks wait in position and are loaded by shovel with oil sands in Fort McMurray, Alberta.
Trucks wait in position and are loaded by shovel with oil sands in Fort McMurray, Alberta. Flickr / EnergyTomorrow

The analysis applies a simple economic model to gauge the potential impact of the proposed Keystone XL pipeline on global greenhouse gas emissions, based on its potential impact on global oil supplies and prices.

The authors, Peter Erickson and Michael Lazarus, find that for every barrel of increased production, global oil consumption would increase 0.6 barrels due to incrementally lower global oil prices. Thus, depending on the extent to which Keystone XL led to greater oil sands production, its net annual impact could range from virtually none to 110 million tonnes CO2 equivalent annually. This spread is four times wider than found by the U.S. State Department (1–27 million tonnes CO2e), which did not account for global oil market effects.

Q: What led you to do this analysis?
ML: A year ago we launched a project to look at the emissions and other implications of further investment in fossil fuel extraction and trade. While every year, over US$700 billion is invested in increasing fossil fuel supply, climate policy and analysis have paid remarkably little attention to its long-term implications.

The idea of a Keystone XL case study arose from our participation in an effort to develop a new GHG Protocol Standard on Policies and Actions.  For years, we and others have developed and applied analytical methods to assess the emissions impacts of measures to reduce the use of fossil fuels. Why not, then, look in a similarly systematic fashion at the impacts of policies and projects that could increase their supply?  Keystone XL seemed an ideal place to start, given the considerable attention and available data.

Q: You started this analysis before the U.S. State Department’s final Environmental Impact Statement (EIS) came out. Did they consider your findings, and did the EIS influence your paper for Nature Climate Change?
PE: We posted a working-paper version of the analysis late last year. The final EIS discusses it in a footnote, but it only restates our findings. Neither the footnote nor the main EIS text discussed the main point that we are raising: that if an infrastructure investment (such as KXL) led to an increase in overall oil production, it could lower global oil prices and lead to higher global oil consumption. This is the main finding of our paper.

Our paper for Nature Climate Change also took into account the State Department’s final findings on the GHG-intensity of different crude oils, as well as their finding that if future oil prices follow a lower trajectory (in the range of $65–75 per barrel), then Keystone could likely increase oil sands production by as much as the capacity of the pipeline.

Q: What did you think of the Canadian government’s response , particularly that you didn’t analyse whether Keystone XL would encourage oil sands expansion?
ML: We are upfront about this in our paper. The connection between Keystone XL and oil sands production levels is a speculative question, and that there are different perspectives that should be considered, including capacity constraints on oil by rail. We find it interesting that the government has not actually critiqued the methodology or key finding – that every barrel of added oil sands production due to KXL might spur roughly 0.6 barrels of increased global oil consumption.

Q: This study has gotten a lot of attention. What do you hope will come out of it?
PE: Our hope is that our study will prompt decision-makers, researchers, and the public to take a closer look at the long-term implications of investments in fossil fuel production, not only locally but at the global scale. To look only at the local effects – the emissions of building or operating the infrastructure, or even of processing the oil handled by the infrastructure – misses the larger impact on global fuel supply.

Q: This study is part of a much bigger project – and a growing area of research for SEI. Why is fossil fuel infrastructure so important in your view?
ML: There is a growing recognition that to avoid dangerous climate change, we’ll need to leave most fossil fuel reserves in the ground. We recognize this is a huge challenge: for many countries, fossil fuel extraction and trade are central to energy security and economic development. But research by SEI and others makes it very clear that, for economic and political reasons, climate policy can’t focus just on fossil fuel consumption – we also need supply-oriented approaches.

We need to better understand how the institutions, investments and infrastructure that support fossil fuel production can lock in dependence on fossil fuels, and identify strategies to help societies move away from such dependency. Our goal with this research is to help policy-makers, international organizations, businesses and civil society to develop more effective climate strategies.

Q: Is it realistic to expect countries not to exploit their fossil fuel resources? And how might you bring the supply side of fossil fuel markets into talks under the United Nations Framework Convention on Climate Change (UNFCCC)?
ML: Countries have many reasons to further develop their fossil fuel resources – from energy security to revenues and royalties. The challenge is how to reconcile development needs with the reality of climate change. This issue has long simmered in the background of the UNFCCC process. It is a delicate question, but one that deserves greater attention. In future work with SEI and other colleagues, we plan to look at how equity principles, the role of international institutions, and specific policy options could affect the level and distribution of future fossil fuel supply.

Read the paper (external link to Nature Climate Change)