A new study from the Stockholm Environment Institute (SEI) focuses on a greenhouse gas impact of the Keystone XL pipeline that hasn’t received much attention: how the pipeline could affect the global oil market by increasing supply, decreasing prices and therefore driving up global oil consumption.
Even if those effects are small in global terms, they could be significant in relationship to Keystone XL and U.S. climate policy, argue Peter Erickson and Michael Lazarus, senior scientists in SEI’s U.S. Center, in a new paper, Greenhouse gas emissions implications of the Keystone XL pipeline.
“The more suppliers there are in the market for oil, the more they compete and that drives down prices for consumers,” Erickson said.
Climate policy and analysis often focuses on energy production and consumption, but rarely considers how energy infrastructure might shape energy use and the resulting greenhouse gas emissions.
The Keystone XL pipeline proposal to connect Canadian tar sands production with the Gulf of Mexico’s refineries and ports have brought these questions to light. U.S. President Barack Obama has said he will only approve Keystone XL if it “does not significantly exacerbate the problem of carbon pollution.”
To gauge the pipeline’s potential impact, Erickson and Lazarus built a supply-and-demand model using publicly available supply curves and peer-reviewed demand elasticities (the extent to which changes in oil consumption respond to changes in oil prices).
They examined three possibilities — 1) That the Keystone XL permit is rejected, and the same amount of oil would reach the market by other means; 2) if half of the oil reaches the market anyway; and 3) that none reaches the market.
For the last two cases, the researchers found the pipeline’s impact on global oil prices, though modest (less than one percent), would be enough to increase global oil consumption by hundreds of thousands of barrels per day.