Keystone XL: An Extra Large Test for Hillary Clinton and Barack Obama in Canadian-American Relations

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Appeared in the Financial Post

Since the proposed Keystone XL pipeline that would carry crude oil from Canadian oil sands to American refineries passes an international border, the U.S. Secretary of State must grant approval for its construction. This is a looming issue and it’s expected that Secretary of State Hillary Clinton will no doubt bring the president into this decision.

Seeing yet another opportunity to cram a radical environmental vision down American and Canadian throats, California Congressman Henry Waxman is calling upon Clinton to saddle the proposed pipeline with an environmental assessment. This, of course, is really an attempt to delay and ultimately, kill the proposed project, not really an assessment. Waxman happens to be the chair of the House Committee on Energy and Commerce. He has a powerful position in Congress. He is supported by 49 Democratic Congressmen and women who joined him in a letter sent to Clinton earlier this month.

Make no mistake about it: Waxman would like nothing more than to kill the Canadian oil sands. And he has allies. There are various American environmental watchdogs lobbying hard to have the U.S. government take radical action on energy. They know their timeline is running out in November when voters appear likely to thin or overthrow the Democratic majorities in Congress. These green lobbyists have no strategic vision about the interdependence of trade and energy between the United States and Canada, and do not care that an end to Canadian oil would mean that America must buy more oil from Saudi Arabia or Venezuela or any other dictatorship run by oil.

Your would expect that Americans would want the estimated 100,000 jobs the construction and operation of the line entails, as well as the stable supply of oil from a close economic ally. The idea that the oil sands is the enemy of environmental progress is unfounded. It is a bad conclusion drawn from the wishful argument that we can quickly and en masse move away from oil to wind, solar and other renewable energy sources. A balanced view would recognize that such big sectors cannot change quickly. Gradually, the production in the oil sands is moving towards more in situ methods that reduce the environmental impact. The industry is slowly improving the energy efficiency of recovering this oil.

Waxman’s method of strangling Canadian oil supplies to the United States will mean that the United States will have to import more oil from less stable sources of supply, most likely in the Middle East. Given years of inefficient state-run operations, neither Venezuela nor Mexico are in a position to increase production by a large margin.

If Keystone XL is not built and Waxman and company are able to hold up other pipeline proposals, Canada stands to lose out on income from a potential 600,000 barrels of crude oil exports per day.

Canadians need to consider the amount of export income we are talking about. Assume a heavy oil price of $80 a barrel and it comes to about $29 billion per year. Given the trend in recent years in which overall merchandise imports have grown stronger than Canadian exports, Canada is currently running a small, overall trade surplus. Also, our revenue from natural gas exports is falling because of declining production. Without the export income generated by increased oil exports to the United States, Canada could face the possibility of a trade deficit. This is not just an issue for Alberta; this is of vital economic interest for all Canadians.

Do politicians really want to punish ordinary citizens for their use of carbon-based energy? While there is no doubt genuine consumer interest in greener energy, producers will respond to these new opportunities and consumers will switch as they see fit. They do not need the heavy hand of Democratic Congressmen limiting their choices and making all our energy choices even more expensive.

The impact of the Obama-Clinton decision is so big, it may as well be a domestic Canadian issue. But are Canadians paying attention? And more importantly, what are we doing to inform our neighbours about their choices?

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