President Obama is expected to make a decision on the northern extension of the Keystone XL pipeline in early June. As the date of the decision approaches, Obama is faced with the difficult choice of deciding between Canada and the environment.

Image courtesy of the Embassy of Canada - Washington DC, ©2012, some rights reserved.

Image courtesy of the Embassy of Canada – Washington DC, ©2012, some rights reserved.

TransCanada Corp’s Keystone XL pipeline, if approved, will transport oil from the Albertan oil sands to refineries along the Texas gulf coast. It has yet to be built due to President Obama’s temporary rejection of the building proposal in January 2012, a decision that was met with wrath from House Republicans. As Keystone XL crosses an international border, the American State Department must give its approval of the project dependent upon its role in promoting the American national interest.

Ultimately, Keystone XL does little to advance the US national interest.

President Obama kicked off his second term through a commitment to an environmental agenda during his inaugural address in January. His new Secretary of State, John Kerry, is seen as a leader on climate change and other environmental issues. Kerry’s first meeting with a foreign representative as Secretary of State was with Canadian Prime Minister Stephen Harper. This represents a the first step in a difficult decision-making process during which the secretary will try to maintain America’s closest alliance without betraying his environmental values.

This may prove difficult. Environmental groups such as Greenpeace, the Sierra Club and the National Resource Defense Council oppose the proposal because they believe it could lead to increase imports of oil sands crude, which has a high greenhouse gas emissions rate. Extraction has led to the destruction of large parts of Alberta’s boreal forest. To make matters worse, Keystone XL will pass through environmentally sensitive areas such as Nebraska’s Ogallala aquifer. Advocates of the pipeline, however, point out that coal, which dominates American electric power generation, has greater and more detrimental impact on the environmental. They remind us that it is hard to think of any energy generating proposal that does not have an environmental impact – it is always about choosing the lest bad option.

However, Canada and American proponents of Keystone XL claim that the pipeline’s benefits are worth the environmental risk. They claim to have found the solution to America’s energy insecurity: oil from Canada, its strongest ally. This ‘safe’ oil could potentially replace sources from Venezuela or the Gulf region.

This increased importation, however, is largely unneeded in the States. In the age of fracking, the US is projected to become the world’s largest oil producer by 2017. Due to increased efficiency standards and the economic recession, US demand for oil is expected to remain flat for the next two decades. The problem for Canadian oil companies is not a need to export more oil to the U.S., but the current lack of export diversification. Canada currently exports 97% of its energy to the US. With the construction of Keystone XL, oil companies will have access to the refining capacity along the Gulf of Mexico, where many Texan refineries are in tax-free zones. They will then be able to fetch high prices for refined oil products on the international market, taking advantage of high demand in Asia and South America. Harper also supports the proposal for the Enbridge Northern Gateway Pipelines, which would also serve to diversify Canadian exports to the British Columbia coast from which it could be shipped to Asian markets.

It is therefore difficult to see why expanding US import capacity is in the American interest.

A rejection of Keystone XL could, however, endanger US-Canada relations. The Canada-US relationship has been compared to a marriage evolving into an open relationship. The two countries are known for their highly integrated economies  – they are in fact the world’s greatest trading partners, with US goods and services traded with Canada totaling at $680 billion in 2011.[1]  In terms of energy, the economies are also interdependent, sharing an interconnected North American electricity grid.

However, while the US and Canada traditionally share many interests, their relationship is marked by divergences. While the US tends to defend free market principles, Canada is more willing to use the help of the government to advance and protect its own industry. With a large economic powerhouse next door, it is no wonder. Prime Minister Trudeau, a Liberal who governed in the 1970s and 80s, compared Canada to a mouse sleeping next to an elephant. It is therefore easy to see why Canada would go to great lengths to ensure its own interest. This outlook helps to explain Prime Minister Harper’s backing of Canadian oil interests.

However, Stephen Harper is not satisfied with the mouse and elephant analogy. Alternatively, Harper, an Albertan with big ambitions for Canadian oil, has proposed comparing Canada and the US to a wolverine and a grizzly bear. Canada – the fierce, though small wolverine – is now turning towards rising Asian powers, particularly the Chinese, in an attempt to diversify its trade. Keystone XL, if constructed, may prove an effective way for Canada to do so.

In terms of environmental policy, Canada and the US may be undergoing a strange reversal. Known as an environmental renegade under the Bush administration, particularly, the US is now projecting the image that it hopes to refocus its energy on climate change related issues. Canada, on the other hand, became the first country to withdraw from the Kyoto Protocol in 2012, pointing to the sway of business interests over the Harper government. For the past five years, Canada’s climate change policy has been to match that of the US. It has been lucky for Canada’s Conservatives considering that Obama has had little luck pushing measures through Congress. If Obama begins to pass stringent climate legislation in his second term, will Canada continue to match its policies? In contrast, it seems the Harper government would be happier to take advantage of the competitive advantage associated with a dirtier energy sector.

With all the hype surrounding Keystone XL, the media gives the impression that the future of all energy relations and environmental efforts on the North American continent depend upon President Obama’s decision. Many analysts predict that Obama will approve the proposal. This choice would be advantageous for neither the Ogallala Aquifer nor Obama’s climate policy. Approval of Keystone XL, however, does not necessarily need to be equated to the failure of President Obama’s environmental effort. Instead, he will need to prove himself in other ways. Environmental groups need to remember that a rejection of Keystone XL cannot be equated to a fix-all cure to climate problems.  It is a lot easier to oppose a pipeline than to focus on reducing on domestic demand through carbon taxes and increased efficiency measures. If we are lucky, Obama will find a diplomatic way to protect the environment without alienating his northern neighbors.


[1] http://www.ustr.gov/countries-regions/americas/canada