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Killing Keystone Won't Reduce Oil Demand

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PIPELINE
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Oil from Canada offers the United States energy security into the indefinite future.

The proposed Keystone XL pipeline from Alberta to refineries on the Gulf of Mexico coast offered the immediate promise of 20,000 American construction jobs and many more jobs in oil refining and distribution.

Yet this week, the Obama administration delayed approval of the Keystone pipeline into 2013 -- a delay that may well kill the project altogether, at great financial loss.

Why? One theory credits local opposition in the state of Nebraska, by Nebraskans who worry that a fractured pipeline might spill oil and contaminate the state's aquifer. Nebraska is one of two states that splits its electoral votes, and in 2008 Nebraska contributed one to Barack Obama's 365 electoral-vote landslide. Supposedly, Obama is eager to protect that single vote.

However, this Nebraska theory does not seem a very plausible explanation of the administration action. Even a very close election won't turn on one electoral vote -- especially since safety concerns can be assuaged by hardening and doublecasing the pipeline.

The true locus of opposition to the pipeline is not Nebraska, but California, where big liberal environmentalist donors have seized on the pipeline as a talismanic cause. These California environmentalists do not want to redirect the pipeline. They want to stop it altogether, so as to leverage an end to further Canadian oilsands development.

What will curtailing oilsands accomplish for the environment? Nothing. This is a big planet full of oil, and if the United States does not buy its oil from Canada, it will buy its oil from somebody else.

So long as demand runs high, oil will be imported and burned. And it's not like pumping the oil from the Gulf of Mexico, or transporting oil from the Middle East in tankers, is exactly environmentally risk-free.

Getting off oil means changing the way Americans use oil. That change requires a change in incentives: A permanently higher oil price that will encourage Americans to live closer to work, to build their cities denser, to prefer more fuel-efficient vehicles, to convert their bus and truck fleets to natural gas, and so on.

Price incentives work. The oil shocks of the 1970s cut American oil use dramatically. As late as 1995, Americans were still using less oil than they did in 1978 -- even as they drove many more miles.

High prices persuaded homeowners to switch to gas heat. High prices and well-timed deregulation shifted U.S. freight transportation from truck to rail. High prices jolted U.S. utilities to stop burning heavy oil to power electrical generators.

But after 1996, low prices ended this conservation era. Oil use surged for the next decade.

Yet markets continue to work. Higher prices since 2006 have again changed behaviour. Americans are driving fewer miles. They are retiring more cars than they buy. They are opting again for smaller, fuel-efficient vehicles. They are buying smaller homes, with a new emphasis on central city living. The recession has of course intensified all these trends.

They won't become ingrained, however, until and unless Americans accept that oil prices will remain high indefinitely. Which, in turn, means until and unless the United States adopts some system of standby energy taxes or carbon taxes.

Putting a price on carbon, however, is a concept the Obama administration and the Democrats in Congress indefinitely postponed all the way back in 2009. Such a step would have imposed costs on voters, and in bad economic times, the politicians flinched.

And hey, flinching from adding costs in bad times is a pardonable reflex -- if you are a politician. What is unpardonable is the willingness of environmentalists to accede to the political imperatives of their Democratic chums, and to join with the Obama administration in pretending that the United States can move off oil at zero cost. You see, it's only "big oil" that craves cheap gasoline -- the actual voters are the victims of the machinations of sinister corporations selling products that people want at prices that people can afford.

There are serious carbon tax proposals that would mitigate the costs upon non-affluent voters by rebating the proceeds in one or another kind of tax cut. But if you want to use less oil, then you must ensure that oil costs more. Ad hoc gestures like the Keystone cancellation change nothing -- except to sustain the status quo, with its dependence on oil drilled and carried from across the ocean.

Environmentalists have become adept at stopping things. A greener future requires the advanced countries to build things -- including pipelines.

This originally appeared in the National Post.

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