Economic Analysis of Keystone XL: Jobs, the Environment, and Long Term Outcomes

Published on August 1st, 2013 | by

John Kerry, Secretary of State, is tasked with making some high level recommendations to President Obama regarding the construction of TransCanada’s controversial oil pipeline known as Keystone XL. Environmentalists have weighed in firmly against the project, citing the “dirty” nature of tar sands oil and the high probability that the pipeline will leak and be a target for terrorists. Labor unions are split on the issue. Some, like the Laborers International Union of North America, reported being repulsed and disgusted that President Obama has so far not approved the pipeline. Other unions, like the Service Employees International Union, the United Autoworkers, the United Steelworkers and the Communications Workers of America, came out against the Pipeline. On the other end of the spectrum, oil industry allies are firmly in favor of construction of the pipeline.

A cold economic analysis of the situation shows that jobs will be created by approving the Keystone XL pipeline. But how many, and for how long? The short answer is that the pipeline will create a relatively small number of jobs during construction, but in the long term, the net job growth due to the pipeline is likely to be negligible, and may even be negative, when you account for other economic impacts of the pipeline.

President Obama’s take

In his recent speech on energy and the environment, President Obama cited the job growth in clean energy as a way Republicans and Democrats can work together. Wind energy, for instance, is primarily produced in Republican districts (75%), and several Republican governors bucked their party to help assure wind continues to create long-lasting jobs in their states.

Oil pipeline2Said Obama: “And that means jobs, jobs manufacturing the wind turbines that now generate enough electricity to power nearly 15 million homes, jobs installing the solar panels that now generate more than four times the power at less cost than just a few years ago.”

President Obama talked to the New York Times about Keystone this past weekend, showcasing some of the dilemma around job creation at any cost. Setting aside the environmental repurcussions and the possibility that the pipeline will leak and damage agricultural jobs by polluting precious groundwater in the nation’s breadbasket, Obama spoke candidly about job creation:

NYT: A couple other quick subjects that are economic-related. Keystone pipeline — Republicans especially talk about that as a big job creator. You’ve said that you would approve it only if you could be assured it would not significantly exacerbate the problem of carbon in the atmosphere. Is there anything that Canada could do or the oil companies could do to offset that as a way of helping you to reach that decision?

MR. OBAMA: Well, first of all, Michael, Republicans have said that this would be a big jobs generator. There is no evidence that that’s true. And my hope would be that any reporter who is looking at the facts would take the time to confirm that the most realistic estimates are this might create maybe 2,000 jobs during the construction of the pipeline — which might take a year or two — and then after that we’re talking about somewhere between 50 and 100 [chuckles] jobs in a economy of 150 million working people.

NYT: Yet there are a number of unions who want you to approve this. 

MR. OBAMA: Well, look, they might like to see 2,000 jobs initially. But that is a blip relative to the need.

So what we also know is, is that that oil is going to be piped down to the Gulf to be sold on the world oil markets, so it does not bring down gas prices here in the United States. In fact, it might actually cause some gas prices in the Midwest to go up where currently they can’t ship some of that oil to world markets.

Rising gas prices and macroeconomic effects?

Looking at economic development in the U.S., or what you might think about as job creation, economists regularly look at consumer spending as one of the big economic indicators, if not the biggest. It’s an aggregate figure of what consumers are spending in the U.S. on things like restaurants, retail, and, yes, gasoline. It’s an imperfect indicator (as they all are), since the more someone spends on gasoline, the less they can spend at their dentist’s office, with their plumber, or at their local grocery store. However, that figure is not pulled out of the overall measurement of the economic indicator known as consumer spending. But buying gasoline at $5 per gallon does not create more jobs than spending $4 for gasoline and spending that extra dollar somewhere else. In fact, it may be just the opposite.

So taking that into consideration, Keystone XL may actually kill jobs in the U.S. in the net sum equation, since it will raise gas prices in the Midwest. By further burdening Midwestern consumers with higher gasoline prices, it effectively decreases the amount of money available in that community for local job creation. To make matters worse, much of gasoline money leaves the national economy for foreign markets, so effectively, spending more money on gasoline is a double whammy for long term job growth.

Business groups have called for President Obama to reject the pipeline based on the idea that Keystone won’t create long term jobs, with some reports putting the long term job creation figure at between 500 and 1400. It’s a far cry from the sustainable job growth that is being seen in wind, solar, geothermal, and energy efficiency, with some estimates putting the figure at 60,000 long term jobs being created by other energy projects being approved at the Federal level.

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About the Author

Scott Cooney (twitter: scottcooney) is an adjunct professor of Sustainability in the MBA program at the University of Hawai'i, green business startup coach, author of Build a Green Small Business: Profitable Ways to Become an Ecopreneur (McGraw-Hill), and developer of the sustainability board game GBO Hawai'i. Scott has started, grown and sold two mission-driven businesses, failed miserably at a third, and is currently in his fourth. Scott's current company has three divisions: a sustainability blog network that includes the world's biggest clean energy website and reached over 5 million readers in December 2013 alone; Pono Home, a turnkey and franchiseable green home consulting service that won entrance into the clean tech incubator known as Energy Excelerator; and Cost of Solar, a solar lead generation service to connect interested homeowners and solar contractors. In his spare time, Scott surfs, plays ultimate frisbee and enjoys a good, long bike ride.