At What Point Do We Leave It In The Ground?

06.20.14 Post by Ian Kantonen


Last week, State Administrative Law Judge, Eric Lipman recommended that state regulators allow the expansion of Enbridge Energy’s Alberta Clipper pipeline. The pipeline carries the heavy and very dirty tar sand product roughly 1,000 miles from Alberta through northern Minnesota to Superior, WI. If approved, no new pipe would be added, but the existing pipeline’s capacity would be increased by 40% to carry 800,000 barrels a day. Judge Lipman, who was reviewing the project on behalf of the state’s Public Utilities Commission (PUC) concluded that the pipeline upgrade would ultimately benefit consumers of petroleum products. There had been a public comment period, but Judge Lipman was not persuaded by the environmental arguments of increased C02 emissions or the potential damage that would result from bringing more of the tar sands oil to market through the pipeline. This is unfortunate because history has shown that when pipelines burst, the damage can be devastating. In any case, this recommendation will now go to the PUC, which will use the ruling to make a decision on the project. Even if the expansion is approved, since we are transitioning away from fossil fuels, state and Federal regulators should adopt assessment methods and use incentives that promote alternative energy sources in the future.

Is it inevitable that all of this tar sand oil—or any fossil fuel—be brought to market? Or is there a point where we decide to just leave it in the ground and choose better alternatives? Economists would say something like, we leave it in the ground when it is no longer profitable to produce an additional barrel of oil and there are less expensive substitutes. And I would argue that the formula changes if we modify how we determine the true costs and benefits of fossil fuels. One way of approaching it would be the following. First, the risk of environmental damage and other externalities should be factored into the true cost of these kinds of projects. By using a form of true cost accounting, criterion such as environmental/health costs and benefits would be used to assess a proposed project. Second, an excise tax should be levied as a condition of approval. In this case, a tax would be applied to every barrel of oil that travels through the pipeline. The tax would make alternatives more competitive; it could also provide dedicated funding for developing cleaner energy sources.

It could be argued that we are already moving in this direction. And contrary to conventional wisdom, alternatives are already becoming cost effective. In fact, a few months back Judge Lipman had recommended that Xcel Energy invest in solar power instead of natural gas to meet increased demand. Due in part to the volatility of the natural gas market, solar power was determined to be more reliable and a better deal for consumers. In this example, if the externalities related to the fracking process would have also been included in the equation, the cost would go up and natural gas would be even less attractive.

The oil market is also likely to be more volatile in the future. Like most Americans, I would prefer to invest in energy sources from North Dakota or Canada, rather than in conflict zones overseas. However, the goal of energy independence in many ways, still seems to be moving forward with little attention being paid to the negative externalities associated with the drilling, transport and consumption of the product. One of Enbridge’s pipelines in MI burst a few years ago, resulting in one of the largest onshore oil spills in US history. Cleanup is still ongoing with a total cost exceeding $1 billion, which is a very expensive mess.  But I would argue that the $1 billion doesn’t include the true cost of the spill.  I will spare the reader a discussion of the futile Peak Oil discussion. But it does seem as though (for now) much of the easily extractable, sweet, light crude oil has been harvested over the last hundred years, which is why we are so interested in the very dirty tar sands oil. But we do have choices: we can either continue to subsidize the oil and gas, or create incentives that promote alternatives. And if we decide to invest in alternatives some of this oil will eventually stay in the ground.



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