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Thursday, January 19, 2012

Playing Politics on Keystone XL

President Obama continues to play politics with the economy and jobs. That was evident, once again, when it was announced on January 18 that the administration rejected the extension and expansion of the Keystone XL pipeline, which would transport Canadian sands crude oil to refineries on the Gulf Coast.

In order to avoid offending one of his key political constituencies - unions support the project while hard core environmental activists oppose it - the President wanted to put off deciding whether to approve the project or not until after the 2012 election. But legislation signed into law last month required a decision on the pipeline by February 21. So, the Obama White House sided with the environmental activists, and against the unions, not to mention against small business as well.

It's important to understand that opposition to this project stands solely on efforts by extreme green groups to stop the use of carbon-based energy. As summed up: "Environmentalists, who have made stopping Keystone a top priority, oppose it due to greenhouse gas emissions from Alberta's massive oil sands projects and other ecological concerns."

Meanwhile, supporting the project should have been obvious to anyone else, given the reality that the U.S., along with the rest of the world, needs to be able to access affordable, reliable sources of energy.

The global aspect of this need was made clear by comments from Canadian Prime Minister Stephen Harper on January 16. Harper made two critical points. The first was on the instability of oil coming from the Middle East, as exhibited of late with threats emanating from Iran. The second was that Canada has other options than bringing Canadian sands crude oil to the U.S.

Reuters quoted Harper observing the following on the Iran issue: "I think it's pretty obvious what the right decision is ... not just from an economic and environmental standpoint, but from an energy security standpoint... When you look at the Iranians threatening to block the Strait of Hormuz, I think that just illustrates how critical it is that supply for the United States be North American."

Various experts claim that Iran would not block the strait, as it would hurt itself and other oil producing nations in the region financially. That, of course, assumes Iranian leaders are acting and would act rationally - a dicey assumption. And it's not like we have not seen upheaval in that part of the world before.

As for other options, Harper noted the possibility of exporting oil to Asia, with a pipeline project from Alberta to British Colombia in the mix. As noted by, Harper was asked if the Asia markets would be under consideration if the Keystone project had already been approved. The prime minister said, "I think what's happened around the Keystone [pipeline] is a wake-up call [to] the degree to which we are dependent, or possibly held hostage, to the decisions in the United States and especially decisions that may be made for very bad political reasons."

There was nothing but upside for the U.S. on the Keystone pipeline project. We would have access to more secure sources of energy, boost our economy, generate tens of thousands of new jobs, improve energy affordability, and open new opportunities for small businesses in energy-related fields. Keep in mind, for example, that based on the latest Census Bureau data (2009), 98.7% of employer firms involved in supporting oil and gas operations have fewer than 500 workers, and 83.3% less than 20 employees. As for firms in the oil and gas pipeline construction industry, 94.9% have less than 500 employees, and 61.1% fewer than 20 workers.

Prime Minister Harper was spot on. The President's decision was all about bad politics, which translate into bad economics. No one should blame the Canadians if they now choose to go a different route because Mr. Obama chose to continue playing politics. Unfortunately, the Obama decision offers no alternative for U.S. consumers and businesses in need of affordable energy, and the firms and employees in the energy field seeking work.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

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