Climate policy and analysis often focus on energy production and consumption, but seldom consider the role of energy transportation infrastructure in shaping energy systems, energy use and related greenhouse gas emissions. The proposal to extend the Keystone XL pipeline, to connect Canadian oil sands production with refineries and ports in the Gulf of Mexico, has brought these issues to the fore.
This paper looks how the pipeline might affect global GHG emissions, with particular focus on its potential to affect global oil consumption by increasing supply and thus decreasing prices – an aspect that has received remarkably little attention among existing Keystone assessments.
The authors consider a range of possible outcomes, if the Keystone XL pipeline were not completed: 1) that the same amount of oil (100% of Keystone capacity) would reach the market anyway by other means; 2) that half of it would; or 3) that none would. For the latter case, they find that the pipeline’s impact on global oil prices, though modest (less than 1%), could be enough to increase global oil demand by 510,000 barrels per day, or 62% of Keystone XL capacity. Such an increase could boost global GHG emissions by as much as 93 million tCO2e per year in 2020. If only half of the oil were to otherwise reach the market, the impact would be roughly half that size.
These findings suggest that the U.S. government should more closely examine the pipeline’s potential effect on oil markets before making a final decision. An advantage of a simple model such as the one SEI constructed – using publicly available supply curves and peer-reviewed demand elasticities – is that it is highly transparent, and allows one to gauge the magnitude of possible effects. Similar approaches could also be used to analyze other proposed fossil-fuel infrastructure projects.
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Note: A new version of this article was published in Nature Climate Change in August 2014. The latter represents both an update (e.g. to reflect the final Environmental Impact Statement issued in January 2014), and refinement of the preliminary analysis provided in the working paper (e.g. added sensitivity analysis).
About SEI Working Papers:
The SEI working paper series aims to expand and accelerate the availability of our research, stimulate discussion, and elicit feedback. SEI working papers are work in progress and typically contain preliminary research, analysis, findings, and recommendations.
Many SEI working papers are drafts that will be subsequently revised for a refereed journal or book. Other papers share timely and innovative knowledge that we consider valuable and policy-relevant, but which may not be intended for later publication.