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Unintended Consequences of Canceling the Keystone Pipeline

As most people are aware, President Biden has canceled the permit for the Keystone pipeline with one of his first executive orders. While environmental interests certainly applaud this move, there will be consequences that politicians may not be taking into account.

First, without the pipeline, oil will need to be moved by railroad cars and trucks. Both of these methods involve a greater rate of accidents and spills than the pipeline.

Secondly, using rail and trucks to move oil will result in an increase in carbon emissions compared with the pipeline.

Third, the pipeline will be laying off an estimated 11,000 workers. If those workers don’t find other employment promptly, the ranks of the unemployed, and the pressure on state unemployment systems, will increase. The states will need to fund these obligations, no doubt through increased taxes.

Fourth, the oil that’s produced and sent to the pipeline results in royalties to thousands of mineral owners in a number of states. If oil producers don’t have a ready way to transport their oil, they will cut back production and that means a reduction in payments to royalty owners. Keep in mind that the vast majority of royalty owners are individuals for whom royalties may be a substantial part of their income for living expenses.

Fifth, according to a Congressional Research Service report, which you can read here, transporting oil by pipeline is much cheaper than rail. Transporting oil by pipeline cost about $5 a barrel. Transporting oil by rail costs between $10 and $15 per barrel. This is going to translate into much higher gasoline prices at the pump, and is going to hit lower income Americans hardest.

Sixth, shutting down pipelines is likely to make food prices increase. Agricultural economist Elaine Kub said in a legal filing last fall (reported here on Fox News) that shutting down the Dakota Access pipeline would cost Corn Belt farmers more than $1 billion in annual revenue and “drive up food costs for consumers” as oil would take space on railroad cars that would otherwise transport agricultural products long distances. For example, as she noted, shipping corn from Minneapolis to Portland costs $1.31 per bushel by rail, but would cost $3.84 by truck.

Finally, oil and gas infrastructure like the pipeline pay billions of dollars to local school districts in property taxes. In Texas, oil and gas property taxes have pretty much built and maintained the public school system, including grade schools, high schools and colleges. These school systems will need to find ways to replace that income and they will do that by increasing property taxes on individual consumers and property owners.

While at first blush, cancellation of the Keystone pipeline may appear to be an environmentally sound move, it may actually turn out to be a huge negative, both for the environment due to increased spills and emissions, and in increased taxes for all of us. It is unclear whether the President’s executive order is really taking all these factors into account.

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