Dec 01, 2014 - 10:45am

The Keystone Pipeline Really is Important to the US Economy

Former Senior Vice President, Economic Policy Division, and Former Chief Economist

The U.S. Senate recently voted not to overcome the Administration’s intransigency and thus clear a path for the Keystone Pipeline to transport crude oil from Canada to refineries in Louisiana. That leaves the decision with President Obama, who has managed to avoid making a decision on Keystone for six years now and seems fully capable of avoiding a decision for two more.  But what does the Keystone Pipeline mean to the energy sector and the economy?

Opponents of the pipeline typically assert that Keystone would just further entrench the petroleum-based economy for little or no benefit to Americans.  President Obama recently captured this sentiment, “I won’t hide my opinion about this, which is that one major determinant of whether we should approve a pipeline shipping Canadian oil to world markets, not to the United States, is does it contribute to the greenhouse gases that are causing climate change?”

The assertion regarding where oil would be shipped is, of course, simply incorrect.  The Canadians are not going to leave a valuable resource untapped just because Americans can’t build a pipeline. The oil is going to flow, if not to Louisiana then probably to Canada’s west coast.  And when President Obama asserts the oil would go to world markets, not to the United States, this is only true if the oil flows to Canada’s west coast.  If the oil is refined in Louisiana, the products are overwhelmingly likely to remain in the United States.

This also means the question about greenhouse gases resulting from the oil is entirely mute.  The oil is going to flow either way. 

Opponents also make the point that Keystone would not be that important to the American economy.  Considered narrowly, they have a point, but as usual they miss the big picture. The specific numbers are in dispute, and ultimately don’t matter much. The Pipeline’s construction phase will provide employment to a sizable number of Americans. When the pipeline is in operation, the number of employees will be much smaller. In a $17 trillion economy, it’s a drop in the bucket, which by the way is true of every single project currently in operation or planned.  A $17 trillion economy doesn’t pop into existence.  It is built up over time through billions of smaller projects – like Keystone.

But it is the big picture which the President and his fellow Keystone opponents miss most.  Keystone is a national symbol now built up and embraced as such by many. One group watching the Keystone drama includes the leaders of America’s businesses from largest to smallest, and the entrepreneurs with dreams, and the venture capitalists looking to fund the next big thing.  These are also the people whose defensive inclinations in light of sustained overt antipathy from Washington have hamstrung the economic recovery. The real economic power of Keystone is as a symbol to the job creators and risk takers of America that maybe there is hope Washington policymakers may finally “get it” if just a little.  The Senate’s decision, and the President’s attitude, suggests the contrary, so the recovery is likely to run in fits and starts for some time to come.  Hope?  Nope. 

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About the Author

About the Author

Former Senior Vice President, Economic Policy Division, and Former Chief Economist

Dr. J.D. Foster is the former senior vice president, Economic Policy Division, and former chief economist at the U.S. Chamber of Commerce. He explores and explains developments in the U.S. and global economies.