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Debunking the New Keystone XL Study



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The alarmists were pretty excited a few days ago when a new study from Nature Climate Change found that building Keystone XL “could be worse for global warming than previously believed.” Via the Toronto Star:

The world’s most debated pipeline could be worse for global warming than previously believed, a new economic analysis says.

Keystone XL could produce four times more greenhouse gases than the U.S. State Department calculated in January — those estimates did not take into account that the added oil from the pipeline is likely to decrease prices and increase consumption — which would probably create more pollution, researchers say.

“There is no indication that the State Department took the market implication into consideration,” said lead author Peter Erickson.

In the study, published in the journal Nature Climate Change, Erickson and Michael Lazarus, of the Stockholm Environment Institute in Seattle, Wash., evaluated how building Keystone XL could affect oil prices: they found that for every barrel of oil obtained from Alberta’s oilsands as a result of the pipeline, global oil consumption would increase by 0.6 barrels because the surplus oil would lower oil prices and encourage people to use more.

“This is our analysis, and we believe that it could have the greatest emissions impact of the pipeline,” said Erickson in an interview.

Or not. Andrew Leach writes in Macleans:

A paper on Keystone’s climate impacts would fail Econ 101

The claim that Keystone will lead to lower oil prices and thus higher consumption is based on a faulty model

Well, most of what the alarmists believe is based on what we consider incomplete and faulty models. Why should Keystone XL be any different? Here’s Leach’s opener:

An article published this week in Nature Climate Change (article via Nature paywall) is making the rounds of the headlines because it makes some pretty bold claims—namely that the US State Department under-estimated the emissions impact of the Keystone XL pipeline by up to a factor of four.

The paper’s authors apply a simple model of the world oil market to reach their conclusions, which are driven by the potential for the pipeline to increase global oil supply, thus lowering oil prices and increasing consumption.  If this is true, then the increased consumption induced by the pipeline should be treated as a consequence of the project, and accounted for in a broad analysis of its costs and benefits (of course, so too should the benefits of increased oil consumption at lower prices).

This paper attempts, basically, what those of us who teach or have taught undergraduate economics often try to do—the authors take a simple model of a market, in this case oil, and apply that model using a real world example, in this case, KXL.  What’s important, however, is to get the basics of the example correct. If you miss that, you’ll reach a conclusion or generate a set of numbers, but they won’t really mean much.  It’s also, of course, important to discuss what you miss in building your simple model.  There’s a lot left out of the basic model used in this paper, but I think they also get the basic model wrong.

The rest of Leach’s analysis here.

 


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