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Column: The Keystone XL Pipeline: A Negotiated Third Way to Appease All

Last month, 11 Democratic senators pleaded with President Obama to approve the Keystone XL pipeline. A week later, the president postponed his decision until after the November elections. This week, Congress is likely to take up the issue again, which may force the administration’s hand.

Here’s the president’s dilemma: If he chooses to approve the pipeline, he 1) angers environmentalists, most of whom have been ardent political supporters; 2) appears to weaken his position on global warming; and 3) facilitates the production of Canadian tar sands which will produce vast quantities of carbon dioxide.

On the other hand, if he denies the Keystone application he 1) angers unions and voters in Midwestern states, both of whom are important in Obama’s effort to retain Democratic control of the Senate; 2) angers our largest trading partner; and 3) increases the likelihood that tar sand oil will be shipped by rail, which is certainly more dangerous and arguably more environmentally damaging.

When two apparent options in a negotiation are equally unappealing, it’s time to look for a third.

Pipelines are not inherently bad. Our energy infrastructure depends on pipelines for both oil and gas, and our economy would be crippled without them. Although pipeline accidents and leaks are not unheard of, experts on both sides of the Keystone debate acknowledge that pipelines are safer and more environmentally friendly than truck and rail alternatives. Pipelines are by far the most efficient way to transport large volumes of liquids and gases. If we were to try to replace our pipeline capacity with rail and truck traffic, our rail lines and roadways would grind to a halt, and the cost of our energy would skyrocket.

The problem with Keystone is not the pipeline, but rather the carbon intensive nature of the oil it will carry. The production of oil from Canadian tar sands requires large amounts of energy, produces vast quantities of contaminated water, and releases enormous amounts of carbon dioxide —approximately 20 percent more than that released by the extraction and production of conventional oil.

Those who promote Keystone argue that the pipeline will reduce pollution, since the alternative is to ship the oil by rail to the U.S. or by ship to China, both of which would incur more environmental damage, not to mention hazards to public safety. The State Department recently released an environmental impact statement that concluded that the alternatives would cause the emission of 8 percent more greenhouse gas per year than that emitted by the XL pipeline.

With strong arguments on both sides, what is the president to do? There is little doubt that the pipeline is cheaper and more efficient than rail, and therein lies an opening for negotiators. The State Department estimates the cost of transporting the oil by pipeline to be $7 a barrel, while the cost by rail is $31 a barrel. At full capacity, the pipeline would carry more than 800,000 barrels per day. At a cost differential of $24 a barrel, the savings associated with pipeline transport would be nearly $20 million a day, or more than $7 billion a year. This is more than all U.S. government incentives for renewable energy. It exceeds the U.S. government budget for renewable energy research by a factor of three. It exceeds our budget for global climate change international assistance by a factor of 15.

A solution that should appease both sides of the debate would be the following: The U.S. should grant a permit for the pipeline; the Canadian government should agree to a surcharge equal to 50 percent of the expected savings; the U.S. should agree to spend the surcharge on renewable energy research and deployment and global climate change mitigation.

Such a settlement would have the virtue of setting a precedent of charging imports for egregious climate impact without creating a trade dispute. The Canadian industry would benefit from a pipeline that is 30 percent cheaper than rail, even after the surcharge. American labor and local economies would benefit from thousands of new construction jobs. Greenhouse gas emissions would decline relative to rail transport and the public safety hazards of rail shipments would be eliminated. The U.S. and Canadian governments would avoid a trade dispute with their largest trading partners and potentially debilitating political fallout.

Scott Brown is the CEO of New Energy Capital Partners, a clean energy investment company based in Hanover. He was also a founding member of the Harvard Negotiation Project.