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Keystone XL: Hidden Costs, Blatant Danger

Wednesday, September 28, 2011

On September 12, hundreds of low-income residents in Nairobi spotted a leak in the pipeline that runs adjacent to their slum. Hoping that they might be able to cash in, many began to pack close to the pipeline to collect the spewing gasoline. A stray spark ignited the fuel and generated an inferno strong enough to kill over 75 people and injure many more. Homes were destroyed, families were torn apart, and livelihoods were decimated. This tragedy is an illustration of the risks associated with long-distance fossil fuel transport.
Of course, this is an extreme example. Regulatory oversight and accountability are not exactly the same in a developing country like Kenya as they are in the United States. Still, there is a high degree of risk and exploitation in fuel transport programs here at home. Earlier this year, for instance, a pipeline owned by Exxon Mobil sprung a leak, sending 42,000 gallons of crude oil directly into the Yellowstone River. (Incidentally, Exxon is now reporting that it will resume operations along the Yellowstone.)
If scenarios like these seem isolated or unimaginable in your backyard, think again. TransCanada’s Keystone XL project is a risky $13 billion capital investment program that will connect crude, tar sands-derived oil from Canada to the American energy market. By bringing oil from tar sands in Alberta to refineries in Texas and Oklahoma, the pipeline poses a direct threat to the many ecosystems and communities that it will traverse. 
There is no doubt that the oil sands extraction, delivery, and processing mechanisms are extraordinarily injurious to the environment and to public health. High-profile protests have sprung up across the U.S. and Canada to fight the project’s execution, which environmentalists like Bill McKibben claim would pose a threat to potable water supply, Canadian boreal forests, and global climate.
TransCanada, which has recorded liabilities of approximately $84 million for remediation obligations and compliance costs associated with environmental regulations, estimates that its pipeline could reasonably leak 11 times within its first 50 years in existence. Others argue that this number is very conservative, especially given the existing infrastructure’s track record, and that a more honest estimate would be that the new stretch could leak more than 50 barrels close to 91 times within 50 years. 
But as TransCanada rightly admits on its website, “it is not possible for the Company to estimate the amount and timing of all future expenditures related to environmental matters.” With such immeasurable environmental and economic externalities to consider, risk assessment is more of a defensive posture than a display of corporate ethics.
Risk to an ecosystem is not a factor for which advance remedial funds are sufficient. Instead, given that the economy of a locality is so deeply rooted in its ecology, environmental risk should be integrated with economic risk in upfront cost-benefit analysis. A program’s potential effect on ecosystem services, such as potable water supply, waste detoxification, crop pollination, disease control, game and seafood supply, and carbon sequestration and climate regulation, should be internalized in calculating its lifetime cost.
After the oil spill in the Yellowstone, ranchers in the region reported a lossin biodiversity, a decrease in productivity, significant damage to their land, and contamination of their water supplies that will no doubt affect output. These long-term effects on land, a crucial factor of production for local farmers, must be considered when planning for risk.
Indeed, the EPA expects that several hundreds of acres of wetlands will be affected by the new stretch of pipeline, which will carry 830,000 barrels of oil from tar sands each day. A leak would also threaten water quality in the Missouri River, which provides for more than half of all Missourians’ drinking water, as well as services related to "recreation, power generation, water supply, river commerce, and fish and wildlife."
Water quality is in fact key to a number of ecosystem services, and with potable water supplies at heightened risk with the new project, local economies in these areas could suffer exorbitantly in the event of a leak. Moreover, a leak that affects water supply in otherwise productive rural regions of the country could prove disastrous to the entire country’s economy, which depends in part on agricultural markets.
Beyond the environmental risks, there is investor uncertainty. Development in the states that will be cut by the pipeline is already scarce. Montana, South Dakota, and Nebraska contain extreme pockets of rural poverty, the conditions of which will likely be worsened with the introduction of a volatile fuel pipeline. According to the EPA, Keystone XL will put low-income, tribal, and minority communities at particular risk. With the threat of a spill looming over these communities, one can be sure that any business will need a hefty incentive to build or grow in the area.
Still, these externalities have only begun to be internalized. Much of the cost to communities along the pipeline will be paid in uncertainty, not only for the ecosystems at risk, but for the prospect of development surrounding the pipelines. If TransCanada and the Canadian and U.S. governments viewed environmental costs as part of a larger picture--one that accounts for the relationship between ecosystem services’ reliability and private sector confidence in the surrounding region--there is no doubt that the company would have had a great deal more trouble proving that Keystone XL would be in the economic interest of the United States.
Picture taken from the Rainforest Action Network.