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Why Tom Steyer’s Keystone strategy will (hopefully) flop

Economic sense vs political sway.

Tom Steyer, environmental activist and former hedge fund manager extraordinaire, has fully embraced the new anti-Keystone mantra, which goes something like this: the U.S. is going to be simply a conduit for Alberta’s oilsand crude, which would flow to Gulf of Mexico refineries and then be promptly exported, with Canadians pocketing most of the profits.

On Monday Steyer unexpectedly descended onto the Massachusetts Democratic primary race ordering Congressman Stephen Lynch to renounce his pro-Keystone stance or else see a mountain of campaign cash flow over to rival Edward Markey, who opposes the pipeline. The race is meant to fill the Senate seat left vacant by newly appointed Secretary of State John Kerry. Steyer’s ultimatum reads as follows: “Either act like a real Democrat and oppose Keystone’s dirty energy. Or get a sworn, binding statement—with securities law enforcement—from TransCanada and the refiners that all of the Keystone-shipped oil will stay here.”

It’s hard to see how the fate of Alberta’s crude once it reaches the Gulf Coats affects climate change, but the San Francisco billionaire has obviously bought into that argument. So has Minority House Leader Nancy Pelosi. And, judging from recent comments, President Barack Obama is seriously weighing it.

That’s unfortunate, because the argument makes little sense. From the point of view of America’s energy security, it doesn’t make much of a difference whether Canada’s oil feeds demand in the U.S. or elsewhere. As Michael Levi, an energy and climate policy expert at the Council on Foreign Relations, noted in his Congressional testimony last week, “During times of severe turmoil in global oil markets, the price of Canadian oil generally rises just as much as the price of Middle Eastern oil does; that inflicts the same pain on U.S. consumers and similar (though slightly less) damage on the U.S. economy.” (Of course, that goes also against the bogus pro-Keystone claim that Canada’s crude could insulate the U.S. from volatility in the energy markets and temperamental oil-rich dictators.)

From an economic point of view, the Keystone XL is in America’s interest regardless of whether most of the oil it carries is exported or not. The pipeline or any other way to bring Western Canadian Crude to Tex refiners would speed up oil extraction in Alberta and increase world supplies, which would bring down oil prices for all Americans, by about a dollar a barrel according to Levi. That might not sound like much but, spread across the entire economy, it adds up. Besides, Gulf refineries, which are geared toward heavier kinds of crude, will continue to need Canada’s thick bitumen regardless of whether domestic U.S. production—think the shale boom—will be able to meet most of America’s demand in a few years. Exporting gasoline products made from Alberta’s will bring healthy profits for U.S. refiners: so where’s the sneaky Canadian ploy?

That’s the evidence-based reason why Steyer’s Massachusetts stunt should  flop. There’s also a political reason why it might.

The exports argument is so plainly alien to climate change concerns, one might think environmentalists have embraced it for purely tactical reasons, as a way, that is, to mend the Democratic split over the Keystone. The party has notoriously been divided on the issue, with its environmental wing pitted against the unions, which backed the project in hopes it would produce a significant amount of American jobs (which it won’t). Painting the Keystone as something that would simply enable Canadian exports with no obvious economic benefit for Americans has a better chance of resonating with blue-collar Democrats than anything to do with green-house gas emissions. Steyer’s attempt to strong-arm Lynch into falling in line with environmental Democrats, in particular, lends credence to this hypothesis. (As the Globe and Mail notes, the threat might be symbolic, since Massachusetts has rather strict limits on campaign donations and Markey was the Democratic front-runner anyway. Still, even a symbolic threat from a someone as deep-pocketed and well connected as Steyer might have far and wide echoes.)

But upping the ante on Keystone and trying to present a united Democratic front opposed to a compact Republican front wouldn’t fit very well with President Obama’s current effort to strike a more conciliatory tone and promote across-the-aisle cooperation on tax reforms and deficit reduction. Hopefully, if the economics of the Keystone aren’t enough to ensure the White House doesn’t listen to Steyer, the politics of it will.

Erica Alini is a California-based reporter and a regular contributor to CanadianBusiness.com, where she covers the U.S. economy. Follow her on Twitter: @ealini.

 

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