Matthew Engel

National Resource Defense Council Loses Legal Battle Against US Government

The National Resource Defense Council, local state environmental advocacy groups and Native American tribes have been protesting the construction of a new $12 billion pipeline which stands to stretch from Alberta, Canada to Wisconsin, US. On August 20th, the U.S. State Department approved permits for Enbridge Energy to begin construction. The pipeline will allow for 450,000 barrels of heavy crude to be pumped from tar sands in Canada, transported, ultimately to be refined in Wisconsin, as reported by the Associated Press. Tar sands, or oil sands, are extra heavy deposits of “unconventional crude oil” stored as bitumen deposits – a substance similar to tar, or asphalt. Bitumen contains lead, arsenic, selenium, mercury and many other toxic elements. Until recently bitumen recovery had not been considered profitable to extract due to the necessary mining process. Since this material is nearly solid, harvesting this material requires heating the tar until it is nearly boiling deep underneath the earth, and then separating out the sand and water. Some of the world’s largest tar sands reserves are in Canada, which produced 44% of its oil from this source in 2007.

Affect on US Oil Consumption

As of 2000, the US was consuming 19.6 million barrels of oil per day, one quarter of the world’s consumption at an annual rate of 7.2 billion barrels. This rate of consumption is increasing by 2% annually. It is estimated that Canada contains roughly 1.7 trillion barrels of tar sands oil, and at the aforementioned rate, is enough to last the US 237 years. However, it should be noted the cost of extracting the resource is very high – both financially and environmentally. This type of oil, referred to as unconventional oil requires surface mining or other in situ techniques that require massive amount of water and energy. Therefore, the economic benefit of mining this unconventional oil source was non-existent with the relatively cheap cost of fuel until 2005. The chart below illustrates the price of light crude oil on the NYMEX from 2001 through 2009.

Here we can see that crude oil peaked at over $140/barrel in early 2008. Economists may consider the correlation of these record high costs as a precursor to the current recession seen in the US right now. It is difficult to calculate if this was an example of correlation or causation – i.e. did the record high prices of oil spur on the recession? or did a recession cause the price of oil to collapse? This link provides historical charts tracing the price of crude oil back to 1983. The massive monetary and industrial investment in tar sands oil production and transportation infrastructure is a sign of an important trend to come in the near future – the probable increase in costs of crude oil. Since Q1 09 there is a clear rise in the cost per barrel, and this trend is likely to increase, barring unpredictable political events abroad. This commitment and investment in construction could only be worthwhile if the price of crude was expected to rebound with a dramatic increase in price. At $75/barrel, the intensive energy required for tar sands oil mining is not economically profitable. The NRDC case described above was dismissed by a federal judge on procedural grounds, claiming the NRDC lacked the proper authority to challenge the pipeline’s environmental impact permit.

Future of alternative energy at stake

With all the government pledges and political talk about alternative energy investment, technology development, and job creation, the presidential approval of this project to go forward was a massive disappointment. Economists and environmentalists alike agree that the current long-term strategy of investing in oil production is a major step in the wrong direction (see Thomas Friedman Hot, Flat and Crowded). Sierra Club Executive Director Carl Pope says ”This project will lock our nation into a dirty energy infrastructure for decades to come”. “Instead of increasing our reliance on oil and piping in pollution, the State Department should support clean, American energy and the jobs that come with it.” The decision by the federal government to allow this construction and old polluting technology infrastructure to go in place is a significant blow to the alternative energy industry. Instead of supporting the research, development, and commercialization of alternative energy technologies i.e. cleantech, the federal government is tacitly approving the influx of billions of barrels of oil, the carbon monoxide that is produced as a biproduct and released into the atmosphere, not to mention the destruction of the natural environment from which this tar sands oil came from. From an economic standpoint, this project will produce jobs in the short term, but threaten a nancesent industry from burgeoning in the long term which ahs the opportunity to transform our country and our world. This project will cost American jobs that could have been created in the high-technology industry which sustains long term financial growth, opposed to short term construction projects that do not add to any new industry.

Essentially, this is a major victory for big oil sanctioned by our own government which is acting as a mouth piece for the clean energy industry while doing literally nothing to practically support it. The rise of cleantech is not an if, but when. If it not now, it will be in the future when petroleum resources are no longer economically or politically viable or people realize that burning oil for fuel is not sustainable. And if America is not a leader in this innovation, surely China and India will step up to the plate.