‘Better deals’ on pipelines will not make America rich again, Mr. Trump

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Appeared in the Toronto Sun, June 11, 2016

From a Canadian perspective, Donald Trump’s recent energy policy speech was both interesting and troubling. On one hand, Mr. Trump’s commitment to approve the Keystone XL pipeline—a key piece of continental energy infrastructure that became an unfortunate victim of political posturing—is a plus for Canada, which faces pipeline constraints that cause Canadian oil to sell for lower prices than it would command with greater access to world markets.

On the other hand, we’re a bit confused by some of Mr. Trump’s rhetoric surrounding the pipeline. When referring to Keystone XL, Mr. Trump said “I would absolutely approve it, 100 per cent, but I would want a better deal… I want it built, but I want a piece of the profits… That’s how we’re going to make our country rich again.” We’re afraid that this is a “build a pipeline and make Canada pay for it moment.”

Mr. Trump’s assertion that he wants “a better deal” to get a “piece of the profits” in order to “make America rich again” appears to convey a misunderstanding of both the benefits currently derived from the Canada-U.S. energy relationship and of how the pipeline would benefit all parties.

While the development of unconventional oil and gas through hydraulic fracturing has certainly unleashed an energy renaissance in the United States, America still imports almost as much oil as it produces. For example, in 2015, the U.S. produced 3.44 billion barrels of oil and imported 3.43 billion barrels of oil. Crucially, Canada provided 40 per cent of all oil the U.S. imported in 2015—in stark contrast to the 31 per cent of oil imports from all OPEC countries combined.

Subsequently, the relationship between Canada and the U.S. on energy already provides an excellent “deal” for Americans by giving refiners and consumer’s access to the third largest oil reserves in the world. They also come from a secure developed country with some of the world’s best human rights and environmental protections.

Mr. Trump also seems to have overlooked the State Department conclusion that Keystone XL would result in “substantial” increases in property tax revenues for counties with facilities related to the pipeline. So, greater access to abundant and secure supplies of oil, and revenues for counties along the pipeline. Sounds like a pretty good deal for Americans. But the deal is even better when safety is considered.

In the absence of new pipelines, one of the ways markets move oil into the U.S. is by rail. Studies in both Canada and the United States found that transporting oil by pipelines is less likely to result in oil spills than transporting oil by rail. In fact, our research found that rail is more than 4.5 times more likely to experience an accident when compared to pipelines.

Mr. Trump should also recognise that when two parties engage in voluntarily exchange, both parties benefit. A scenario where the president essentially extorts foreign companies by possibly holding back permits until they agree to fork over more money will benefit no one, while also setting a dangerous precedent and possibly upsetting relations with America’s number one trading partner and closest ally.

Mr. Trump frequently cites his business acumen and ability to make “good deals” for America as his primary qualifications for the presidency. But he should recognize when a great offer is already on the table, as is the case for Keystone XL.

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