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Keystone XL Remains Empty Pipe Dream for America
By Joshua Axelrod
When he turned the proposed Keystone XL tar sands pipeline from dead and gone into a reawakened zombie, President Trump claimed that his doing so would mean new construction jobs, steel manufacturing jobs and money for the U.S.
Before he was elected, he used the pipeline to show how he was going to enrich America, promising that we'd get 25 percent of TransCanada's profits. All in all, the basic message continues to be: This is a great deal for America. But what, actually, is the "deal?"
The short answer is: What deal?
The real deal here is a bad one. Just like the last time around, Keystone XL is not in our national interest. It would lock in decades of increased climate pollution driven by expanded tar sands production in Alberta. It would threaten our waterways and drinking water sources with the toxic legacy of a spill that can't be fully cleaned up. And it would serve Gulf Coast refineries who are exporting growing volumes of both refined products and crude oil to international markets. In other words, this is a pipeline that creates major environmental risks all to carry tar sands oil that America doesn't need and wouldn't use.
And what TransCanada has offered in "round three" doesn't improve on anything they've offered before, despite President Trump's bluster. Here's the rundown:
The application submitted by TransCanada to the State Department on Jan. 26, is basically the same application they submitted to the State Department back in 2012. The big change really comes down to what looks like the loss of the so-called "Bakken on-ramp" or Bakken Market Link project.
The Bakken on-ramp was added to the Keystone XL proposal in 2012 after outcry from U.S. oil producers forced TransCanada to add a "feeder" pipeline that could bring up to 100,000 barrels per day (bpd) of U.S. oil into the Keystone XL pipeline system in Montana. The Bakken Market Link addition allowed Keystone XL's advocates to build support for the project from the U.S. oil industry. Now, it looks like they're doing what they can to make that gift to U.S. producers disappear.
In 2012, TransCanada wrote in its application:
"The related Bakken Market Link Project will include the construction of 'on-ramp' facilities in Fallon County, Montana to allow Bakken crude oil to access the pipeline system for delivery to Steele City and then to the Gulf Coast."
Note the use of the word "will" in that sentence. This on-ramp pipeline was part of the plan, as in, they were going to build it and Bakken producers were the planned beneficiaries from the added pipeline capacity. But in 2017, their application says:
"Subject to commercial demand, the related Bakken Market Link Project would include the construction of 'on-ramp' facilities in Fallon County, Montana to allow Bakken crude oil to access the pipeline system for delivery to Steele City and then to the Gulf Coast."
But the market case for pipelines in North Dakota and Montana has deteriorated since Keystone XL was proposed in 2008—the region now has more pipeline capacity than production and more is on its way. According to the North Dakota Pipeline Authority, more than one million bpd of new pipeline capacity has been built since Keystone XL was first proposed, with more expected. Meanwhile, low oil prices have blunted once projected increases in Bakken oil production.
TransCanada's injection of uncertainty into their new Keystone XL application allows them to avoid a commitment they were previously willing to make. And it's likely they'll do so—as they may have a difficult time finding U.S. producers interested in signing long-term shipping contracts on Keystone XL without an easy way of getting their oil into the pipeline. In 2014, the key proponent of the Bakken on-ramp, Harold Hamm, said of Keystone XL, "It's not critical any longer… They just waited too long. The industry is very innovative and it finds other ways of doing it and other routes." If U.S. producers already admitted Keystone XL wasn't useful in 2014, you can bet it's even less useful to them now.
In the meantime, their new application is mum on President Trump's repeated demand that new pipelines be built from U.S. steel, his promise that the U.S. is going to get a big share of profits or his promise of tens of thousands of new construction jobs.
Then there's the strangely weak case TransCanada has submitted for why Keystone XL is in America's national interest. Last time around, TransCanada provided significant detail about the ways in which the pipeline fulfilled the State Department's criteria for making National Interest Determinations.
This time around, they've boiled their case down from 29 pages to seven bullet points. In sum, these points basically say that Keystone XL gives the U.S. access to more Canadian oil and allows Canada to get its oil to U.S. refineries more cheaply. What they don't mention is that these refineries—and the Gulf Coast region in general—are exporting more and more refined products and crude oil as U.S. demand weakens.
The same job and financial benefits that were highlighted the last time around are there and then there's the sweeping statement that approving Keystone XL will send a signal that large infrastructure projects can happen in America. These bullets obfuscate a few critical factors:
1. Keystone XL is, in part, about increasing the profits of Canadian tar sands producers (TransCanada talked a lot about this in 2012, but has since deleted that section).
2. Oil demand in the U.S. is slowing, meaning the long-term access to new oil reserves promised by TransCanada is a red herring—a majority of the oil processed by the refineries potentially served by Keystone XL is currently exported and that trend is growing (TransCanada is also mum on this topic in 2017, even though they acknowledged this reality in 2012).
As recently as his speech before Congress on Feb. 28 and his speech to the Conservative Political Action Conference on Feb. 24, President Trump has continued to claim that the Keystone XL pipeline, if approved, will be built from U.S. steel. This promise is empty for many reasons, the biggest being that TransCanada has already purchased most of the steel pipe it would use to build Keystone XL.
What's more, only 50 percent of that steel was produced in the U.S., meaning his promise would require TransCanada to re-purchase hundreds of miles of new pipe. This would dramatically increase the cost of the project, which in 2014 stood at $8 billion (and is likely higher today, given five years of inflation since TransCanada last figured its costs).
Then there's the jobs claim. President Trump can't seem to keep his numbers straight on this one, but we'll give him a pass on that fact this time around. When he signed the memo bringing Keystone XL back from the dead, he claimed 28,000 jobs. At the Conservative Political Action Conference he claimed 42,000. They're both big numbers that obscure the underlying facts. In terms of full time employment, the numbers are actually:
- 1,950 construction jobs (lasting two years)
- 35 full-time jobs (associated with running the pipeline after it is built)
These are well established numbers and have been for years. To be generous, you could claim a higher number—the State Department found 10,400 seasonal jobs—but each of those jobs would last four to eight months and then end. While there's no question that there are benefits to these short-term positions, if President Trump's job creation promises amount to short-term contracts spread across multiple states over two or more years, the benefits to local workers may be minimal indeed.
The last time I posted on this subject, I concluded with this thought: everything that was wrong with Keystone XL when it was proposed in the past is still wrong today. It's an environmental disaster waiting to happen, a climate-wrecking project with no place in today's energy mix and it's not in America's national interest. There are easier, less contentious and less expensive ways to create jobs—jobs that will outlast the inevitable decline of our dependence on fossil fuels and the boom and bust cycle of the environmentally destructive oil industry.
That sounds about right. A "better deal" in terms of what President Trump has laid out would kill Keystone XL. And Americans are starting to catch on to the fact that the pipeline, no matter how you slice it, just isn't a project in our country's interest: Polls now show that a majority of Americans—up to 51 vs. 38 percent in some polls—don't think the pipeline should be built. The raw deal TransCanada has offered up yet again isn't a salve for any of the challenges facing America's future energy needs, the need for stable employment in rural areas or the very real environmental impacts caused by global climate change.
EcoWatch Daily Newsletter
By Randi Spivak
Slashing two national monuments in Utah may have received the most attention, but Trump's Interior Department and U.S. Forest Service have been quietly, systematically ceding control of America's public lands to fossil fuel, mining, timber and livestock interests since the day he took office.
A new report by Greenpeace International pinpointed the world's worst sources of sulfur dioxide pollution, an irritant gas that harms human health. India has seized the top spot from Russia and China, contributing nearly 15 percent of global sulfur dioxide emissions.
By Sue Branford and Thais Borges
Ola Elvestrun, Norway's environment minister, announced Thursday that it is freezing its contributions to the Amazon Fund, and will no longer be transferring €300 million ($33.2 million) to Brazil. In a press release, the Norwegian embassy in Brazil stated:
Given the present circumstances, Norway does not have either the legal or the technical basis for making its annual contribution to the Amazon Fund.
Brazilian President Jair Bolsonaro reacted with sarcasm to Norway's decision, which had been widely expected. After an official event, he commented: "Isn't Norway the country that kills whales at the North Pole? Doesn't it also produce oil? It has no basis for telling us what to do. It should give the money to Angela Merkel [the German Chancellor] to reforest Germany."
According to its website, the Amazon Fund is a "REDD+ mechanism created to raise donations for non-reimbursable investments in efforts to prevent, monitor and combat deforestation, as well as to promote the preservation and sustainable use in the Brazilian Amazon." The bulk of funding comes from Norway and Germany.
The annual transfer of funds from developed world donors to the Amazon Fund depends on a report from the Fund's technical committee. This committee meets after the National Institute of Space Research, which gathers official Amazon deforestation data, publishes its annual report with the definitive figures for deforestation in the previous year.
But this year the Amazon Fund's technical committee, along with its steering committee, COFA, were abolished by the Bolsonaro government on 11 April as part of a sweeping move to dissolve some 600 bodies, most of which had NGO involvement. The Bolsonaro government views NGO work in Brazil as a conspiracy to undermine Brazil's sovereignty.
The Brazilian government then demanded far-reaching changes in the way the fund is managed, as documented in a previous article. As a result, the Amazon Fund's technical committee has been unable to meet; Norway says it therefore cannot continue making donations without a favorable report from the committee.
Archer Daniels Midland soy silos in Mato Grosso along the BR-163 highway, where Amazon rainforest has largely been replaced by soy destined for the EU, UK, China and other international markets.
An Uncertain Future
The Amazon Fund was announced during the 2007 United Nations Climate Change Conference in Bali, during a period when environmentalists were alarmed at the rocketing rate of deforestation in the Brazilian Amazon. It was created as a way of encouraging Brazil to continue bringing down the rate of forest conversion to pastures and croplands.
Government agencies, such as IBAMA, Brazil's environmental agency, and NGOs shared Amazon Fund donations. IBAMA used the money primarily to enforce deforestation laws, while the NGOs oversaw projects to support sustainable communities and livelihoods in the Amazon.
There has been some controversy as to whether the Fund has actually achieved its goals: in the three years before the deal, the rate of deforestation fell dramatically but, after money from the Fund started pouring into the Amazon, the rate remained fairly stationary until 2014, when it began to rise once again. But, in general, the international donors have been pleased with the Fund's performance, and until the Bolsonaro government came to office, the program was expected to continue indefinitely.
Norway has been the main donor (94 percent) to the Amazon Fund, followed by Germany (5 percent), and Brazil's state-owned oil company, Petrobrás (1 percent). Over the past 11 years, the Norwegians have made, by far, the biggest contribution: R$3.2 billion ($855 million) out of the total of R$3.4 billion ($903 million).
Up till now the Fund has approved 103 projects, with the dispersal of R$1.8 billion ($478 million). These projects will not be affected by Norway's funding freeze because the donors have already provided the funding and the Brazilian Development Bank is contractually obliged to disburse the money until the end of the projects. But there are another 54 projects, currently being analyzed, whose future is far less secure.
One of the projects left stranded by the dissolution of the Fund's committees is Projeto Frutificar, which should be a three-year project, with a budget of R$29 million ($7.3 million), for the production of açai and cacao by 1,000 small-scale farmers in the states of Amapá and Pará. The project was drawn up by the Brazilian NGO IPAM (Institute of Environmental research in Amazonia).
Paulo Moutinho, an IPAM researcher, told Globo newspaper: "Our program was ready to go when the [Brazilian] government asked for changes in the Fund. It's now stuck in the BNDES. Without funding from Norway, we don't know what will happen to it."
Norway is not the only European nation to be reconsidering the way it funds environmental projects in Brazil. Germany has many environmental projects in the Latin American country, apart from its small contribution to the Amazon Fund, and is deeply concerned about the way the rate of deforestation has been soaring this year.
The German environment ministry told Mongabay that its minister, Svenja Schulze, had decided to put financial support for forest and biodiversity projects in Brazil on hold, with €35 million ($39 million) for various projects now frozen.
The ministry explained why: "The Brazilian government's policy in the Amazon raises doubts whether a consistent reduction in deforestation rates is still being pursued. Only when clarity is restored, can project collaboration be continued."
Bauxite mines in Paragominas, Brazil. The Bolsonaro administration is urging new laws that would allow large-scale mining within Brazil's indigenous reserves.
Hydro / Halvor Molland / Flickr
Alternative Amazon Funding
Although there will certainly be disruption in the short-term as a result of the paralysis in the Amazon Fund, the governors of Brazil's Amazon states, which rely on international funding for their environmental projects, are already scrambling to create alternative channels.
In a press release issued yesterday Helder Barbalho, the governor of Pará, the state with the highest number of projects financed by the Fund, said that he will do all he can to maintain and increase his state partnership with Norway.
Barbalho had announced earlier that his state would be receiving €12.5 million ($11.1 million) to run deforestation monitoring centers in five regions of Pará. Barbalho said: "The state governments' monitoring systems are recording a high level of deforestation in Pará, as in the other Amazon states. The money will be made available to those who want to help [the Pará government reduce deforestation] without this being seen as international intervention."
Amazonas state has funding partnerships with Germany and is negotiating deals with France. "I am talking with countries, mainly European, that are interested in investing in projects in the Amazon," said Amazonas governor Wilson Miranda Lima. "It is important to look at Amazônia, not only from the point of view of conservation, but also — and this is even more important — from the point of view of its citizens. It's impossible to preserve Amazônia if its inhabitants are poor."
Signing of the EU-Mercusor Latin American trading agreement earlier this year. The pact still needs to be ratified.
Council of Hemispheric Affairs
Looming International Difficulties
The Bolsonaro government's perceived reluctance to take effective measures to curb deforestation may in the longer-term lead to a far more serious problem than the paralysis of the Amazon Fund.
In June, the European Union and Mercosur, the South American trade bloc, reached an agreement to create the largest trading bloc in the world. If all goes ahead as planned, the pact would account for a quarter of the world's economy, involving 780 million people, and remove import tariffs on 90 percent of the goods traded between the two blocs. The Brazilian government has predicted that the deal will lead to an increase of almost $100 billion in Brazilian exports, particularly agricultural products, by 2035.
But the huge surge this year in Amazon deforestation is leading some European countries to think twice about ratifying the deal. In an interview with Mongabay, the German environment ministry made it very clear that Germany is very worried about events in the Amazon: "We are deeply concerned given the pace of destruction in Brazil … The Amazon Forest is vital for the atmospheric circulation and considered as one of the tipping points of the climate system."
The ministry stated that, for the trade deal to go ahead, Brazil must carry out its commitment under the Paris Climate agreement to reduce its greenhouse gas emissions by 43 percent below the 2005 level by 2030. The German environment ministry said: If the trade deal is to go ahead, "It is necessary that Brazil is effectively implementing its climate change objectives adopted under the [Paris] Agreement. It is precisely this commitment that is expressly confirmed in the text of the EU-Mercosur Free Trade Agreement."
Blairo Maggi, Brazil agriculture minister under the Temer administration, and a major shareholder in Amaggi, the largest Brazilian-owned commodities trading company, has said very little in public since Bolsonaro came to power; he's been "in a voluntary retreat," as he puts it. But Maggi is so concerned about the damage Bolsonaro's off the cuff remarks and policies are doing to international relationships he decided to speak out earlier this week.
Former Brazil Agriculture Minister Blairo Maggi, who has broken a self-imposed silence to criticize the Bolsonaro government, saying that its rhetoric and policies could threaten Brazil's international commodities trade.
Senado Federal / Visualhunt / CC BY
Maggi, a ruralista who strongly supports agribusiness, told the newspaper, Valor Econômico, that, even if the European Union doesn't get to the point of tearing up a deal that has taken 20 years to negotiate, there could be long delays. "These environmental confusions could create a situation in which the EU says that Brazil isn't sticking to the rules." Maggi speculated. "France doesn't want the deal and perhaps it is taking advantage of the situation to tear it up. Or the deal could take much longer to ratify — three, five years."
Such a delay could have severe repercussions for Brazil's struggling economy which relies heavily on its commodities trade with the EU. Analysists say that Bolsonaro's fears over such an outcome could be one reason for his recently announced October meeting with Chinese President Xi Jinping, another key trading partner.
Maggi is worried about another, even more alarming, potential consequence of Bolsonaro's failure to stem illegal deforestation — Brazil could be hit by a boycott by its foreign customers. "I don't buy this idea that the world needs Brazil … We are only a player and, worse still, replaceable." Maggi warns, "As an exporter, I'm telling you: things are getting very difficult. Brazil has been saying for years that it is possible to produce and preserve, but with this [Bolsonaro administration] rhetoric, we are going back to square one … We could find markets closed to us."
- Brazil's New President Could Spell Catastrophe for the Amazon ... ›
- Amazon Deforestation Increase Prompts Germany to Cut $39.5M in ... ›
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