If you’re talking jobs or GHGs, alternative scenarios matter

As seems to be the case with every aspect of the discussion of the Keystone XL pipeline, the claims with respect to job creation or lack thereof are all over the map. I’ve written at length about the right way to assess the GHG emissions implications of Keystone XL and the logic used there should also be applied to employment numbers tied to the project.

The API claims that “U.S. jobs supported by Canadian oil sands development could grow from 21,000 jobs today to 465,000 jobs by 2035” – ironically even a little higher than claims cited in this article by Kate Sheppard – while a couple of reports I found on TransCanada’s website cited numbers as high as 553,000 permanent jobs tied to the pipeline.  Sorry, TransCanada – the number which matters and on which decisions should be made is not how many people will be employed building the pipeline and supplying all of the services associated with building it, or the employment tied to the use of the oil transported. These gross employment figures are meaningless. As with GHG’s, only net impacts relative to the most likely alternative matter.

This document outlines the economic impact of the pipeline from TransCanada’s point of view on the economic impact of the pipeline, and the numbers are big:

“The Perryman study conservatively estimated the permanent increase in stable oil supplies the Keystone Gulf Coast Expansion pipeline creates will add more than 250,000 permanent jobs for U.S. workers and add more than $100 billion in annual total expenditures to the U.S. economy.”

If you take the time to read the Perryman study, you’ll find that many of the benefits tied to the project are really benefits tied to broader access to reliable (and/or cheaper) sources of oil, and not specifically to Keystone XL.  For example, the report states that:

“Under “normal” oil price assumptions equivalent to the average for all of 2007, The Perryman Group found the gains in US business activity stemming from a permanent increase in stable oil supplies to include $100.144 billion in total spending, $29.048 billion in output, and 250,348 permanent jobs.”

So, this naturally begs a couple of questions – first, where do their numbers come from? Second, what’s the alternative scenario against which these numbers are measured?  The answers to both are disappointing to say the least.

The numbers are based on multipliers which translate predicted expenditures on the transported oil itself and other related services (including the pipeline) into economic impact and employment.  So, if oil prices are $66 per barrel, the US economic impact tied to that oil is $100 billion dollars, and the employment impacts are impact multiplied by 2500 jobs per billion in expenditure, to yield 250 348.  Think high oil prices are a bad thing? Not in this case, since the pipeline would then be delivering a higher value product.  The high price case considers $147 oil (an increase of 220% over the low price scenario) and *poof* 220% more jobs are created by allowing the US access to this oil.

Given those numbers, I suppose we should double the price of all the oil we sell to the US…we could get rich and solve their unemployment problems all at the same time.

Sarcasm aside, this economic impact analysis implicitly assumes that, without this pipeline, the US would not have access to oil at world prices, and so any benefits of the oil which would be shipped through Keystone XL are purely incremental. In other words, the alternative to Keystone XL is a scenario in which US doesn’t get oil from somewhere else or obtain the oil which would travel through Keystone XL in some other way. The analysis assumes the US does not ever see this oil, or replace it with other barrels from somewhere else (or any other energy source at all, for that matter).

I have a real problem with this assumption, and let me tell you why.  The State Department Assessment of the Keystone XL pipeline, they found that the likely incremental GHG emissions resulting from the construction of the pipeline ranged from 3-21Mt (see page ES-15). This seems low, given that at 750,000 barrels per day, and .6 tons per barrel of average  life-cycle emissions from oilsands, the gross impact will be about 165 Mt/year. Like the gross employment impacts, the gross GHG impacts are meaningless because you have to consider GHG emissions relative to the most likely alternative should the pipeline not be built.

If you dig into the State Department Report, you will see that they considered 3 alternatives:

• No Action Alternative – potential scenarios that could occur if the proposed Project is not built and operated;
• System Alternatives − the use of other pipeline systems or other methods of providing Canadian crude oil to the Cushing tank farm and the Gulf Coast market;
• Major Route Alternatives − other potential pipeline routes for transporting heavy crude oil from the U.S./Canada border to Cushing, Oklahoma and the Gulf Coast market.

In each of these alternatives, some Canadian oil still reaches the US, some of the oil not shipped through Keystone XL is replaced by other sources (some of them domestic), and perhaps there are small price impacts which lead to substitution.  In none of these alternatives is the US left wanting for 750,000 barrels per day of oil and the economic activity tied to it.

Many proponents of the pipeline have been happy to see discussion from myself and Micheal Levi, among others, on the need to assess only the net impact of the pipeline on global GHG emissions. So, here’s the challenge for TransCanada and other proponents of the pipeline.  If you want the costs of the pipeline to be assessed only on the net increment relative to whatever else might occur, how about providing some analysis which puts the benefits of the pipeline under the same scrutiny?