TODAY’S STUDY: THE TRUTH ABOUT THOSE KEYSTONE PIPELINE JOBS – THEY’RE NOWHERE NEAR WHAT THE COMPANY CLAIMS

Pipe dreams? Jobs Gained, Jobs Lost by the Construction of Keystone XL
September 2011 (Cornell University Global Labor Institute)

Introduction

The purpose of this briefing paper is to examine claims made by
TransCanada Corporation and the American Petroleum Institute that, if constructed, TransCanada’s proposed Keystone XL (KXL) pipeline will generate enough employment to kick-start important sections of the US economy through the creation of tens of thousands—perhaps even hundreds of thousands—of good, well-paying jobs for American workers.

This briefing paper raises a number of questions regarding the jobs claims promoted by the industry, questions that are serious enough to generate a high level of skepticism regarding the value of KXL as an important source of American jobs. With national unemployment levels presently (September 2011) around 9%, and the real unemployment figures considerably higher, jobs are desperately needed both to sustain families and to help the broader economy. However, it is our assessment—based on the publicly available data—that the construction of KXL will create far fewer jobs in the US than its proponents have claimed and may actually destroy more jobs than it generates.

The results presented below should also cast doubt on the recent claim made by American Petroleum Institute that the oil industry could create more than a million jobs over the next decade—if the US government would open public lands, beaches, oceans, to unlimited oil drilling. If the industry’s jobs estimates made in the context of KXL are any indication, then this broader claim should be scrutinized very carefully indeed.

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Main Findings

The main points in this briefing paper can be summarized as follows:

» The industry’s US jobs claims are linked to a $7 billion KXL project budget. However, the budget for KXL that will have a bearing on US jobs figures is dramatically lower—only around $3 to $4 billion. A lower project budget means fewer jobs.

» The project will create no more than 2,500-4,650 temporary direct construction jobs for two years, according to TransCanada’s own data supplied to the State Department.

» The company’s claim that KXL will create 20,000 direct construction and manufacturing jobs in the U.S is not substantiated.

» There is strong evidence to suggest that a large portion of the primary material input for KXL—steel pipe—will not even be produced in the United States. A substantial amount of pipe has already been manufactured in advance of pipeline permit issuance.

» The industry’s claim that KXL will create 119,000 total jobs (direct, indirect, and induced) is based on a flawed and poorly documented study commissioned by TransCanada (The Perryman Group study). Perryman wrongly includes over $1 billion in spending and over 10,000 person-years of employment for a section of the Keystone project in Kansas and Oklahoma that is not part of KXL and has already been built.

» KXL will not be a major source of US jobs, nor will it play any substantial role at all in putting Americans back to work. Even if the Perryman figures were accurate, and all of the workers for the next phase of the project were hired immediately, the US seasonally adjusted unemployment rate would remain at 9.1%—exactly where it is now.

» KXL will divert Tar Sands oil now supplying Midwest refineries, so it can be sold at higher prices to the Gulf Coast and export markets. As a result, consumers in the Midwest could be paying 10 to 20 cents more per gallon for gasoline and diesel fuel. These additional costs (estimated to total $2–4 billion) will suppress other spending and will therefore cost jobs.

» Pipeline spills incur costs and therefore kill jobs. Clean-up operations and permanent pipeline spill damage will divert public and private funds away from productive economic activity. In 2010 US pipeline spills and explosions killed 22 people, released over 170,000 barrels of petroleum into the environment, and caused $1 billion dollars worth of damage in the United States.

» Rising carbon emissions and other pollutants from the heavy crude transported by Keystone XL will also incur increased health care costs. Emissions also increase both the risk and costs of further climate instability.

» By helping to lock in US dependence on fossil fuels, Keystone XL will impede progress toward green and sustainable economic renewal and will have a chilling effect on green investments and green jobs creation. The green economy has already generated 2.7 million jobs in the US and could generate many more.

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A Note on Energy Independence and “Ethical Oil”

This paper is primarily concerned about jobs, but the findings below also shine light on another claim made by the industry—that KXL will get the US further on the road to energy independence. The idea of energy independence clearly resonates with the American public, and the paid advertisements depicting Canadian Tar Sands as the source of “ethical oil” (and therefore a better option than oil from dictatorships like Saudi Arabia) plays to that sentiment. But KXL is a global project driven by global oil interests. Tar Sands development has attracted investment capital from oil multinationals—with Chinese corporations’ stake getting bigger all the time.1 If approved, KXL will be almost certainly be constructed by temporary labor working with steel made in Canada and India. Much of the Tar Sands oil will be refined in Port Arthur, Texas, where the refinery is half-owned by Saudi Aramco, the state-owned oil company of Saudi Arabia.2 And a good portion of the oil that will gush down the KXL will, according to some studies, probably end up being finally consumed beyond the territorial United States.3 Indeed, the oil industry is also trying to build another pipeline, Enbridge’s proposed Northern Gateway, to carry Tar Sands oil across British Columbia for export to Asian markets, although this pipeline also faces serious public opposition. Clearly, Tar Sands oil and energy independence really do not belong in the same sentence.

TransCanada Will Spend $3 to $4 Billion in the US, Not $7 Billion as Claimed…KXL Will Generate 2,500-4,650 Construction Jobs…Most Jobs Created Will Be Temporary and Non-Local…KXL Steel Manufactured Outside the United States…KXL Will Have Minor Impact on Unemployment Levels…

Four Ways Keystone XL Could Be a Job Killer

The industry-generated jobs data are highly questionable and ultimately misleading. But this is only part of the problem. These industry-generated data attempt only to tell the positive side of the KXL jobs story. There is evidence to suggest that the effects of KXL construction could very well lead to more jobs being lost than are created. In this section, we show four ways that jobs can be destroyed or prevented by KXL—higher petroleum prices, environmental damage such as spills, the impact of emissions on health and climate instability, and the chilling effect KXL approval could have on the emerging green economy.

Higher Fuel Prices in 15 States

According to TransCanada, KXL will increase the price of heavy crude oil in the Midwest by almost $2 to $4 billion annually, and escalating for several years…It will do this by diverting major volumes of Tar Sands oil now supplying the Midwest refineries, so it can be sold at higher prices to the Gulf Coast and export markets. As a result, consumers in the Midwest could be paying 10 to 20 cents more per gallon for gasoline and diesel fuel, adding up to $5 billion to the annual US fuel bill.73 Further, the KXL pipeline will do nothing to insulate the US from oil price volatility…

Even one year of fuel price increases as a result of KXL could cancel out some or all of the jobs created by KXL, based on the (more accurate) $3 to 4 billion budget for KXL (the remaining cost to build within the US). Higher fuel prices due to KXL would have broad adverse impacts. Gasoline is a significant cost for most Americans, and especially for those with lower incomes and/or residing in rural areas. Moreover, refined oil products (notably gasoline and diesel) are very widely used throughout the economy (especially in agriculture and commercial transportation). So higher fuel prices due to KXL would ripple through the economy and impact a very broad range of people and businesses.

The benefits of KXL construction and operations would be narrowly concentrated. A relatively small number of workers and businesses would be directly involved in providing labor and other inputs to pipeline construction and operations. Likewise, the other potential costs and benefits from KXL would not be shared equally across US regions and states. In particular, the Midwest region could be a loser due to KXL, while the Gulf Coast (and particularly Texas) could be a winner.

The impact of higher Midwest fuel prices due to KXL would be concentrated in that region. But there will certainly be some spillover of effects to other regions, especially since the Midwest is a large region with strong economic linkages to other areas of the US.

KXL would deliver Tar Sands output (and other crude oil) to the Gulf Coast. In contrast to potential impacts in the Midwest oil market, KXL is less likely to increase Gulf Coast fuel prices and could even lead to somewhat lower prices. Overall, the potential costs and benefits from KXL would not be shared equally. Higher fuel prices due to KXL would result in a broad set of losers, while KXL construction and operations would mainly benefit a much narrower group of winners.

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Jobs Lost Through Environmental Damage

The industry has ignored or dismissed fears that the KXL pipeline will have a serious impact on our environment through inland spills or spills into fresh water supplies (principally the Ogallala Aquifer) or through increases in greenhouse gas emissions (GHGs) and other forms of pollution. In so doing, it has no need to acknowledge that environmental damage is invariably a job killer. Cleaning up spills and other environmental damage may create some jobs, but only at the expense of jobs in other parts of the economy.

The Cost of Oil Spills

The economic and non-economic damage caused by oil spills are given scant attention by TransCanada or supporters of KXL. But they need to be considered as part of the hefty price our economy and our environment would have to pay if KXL is constructed. In 2010, pipeline spills and explosions in the US killed 22 people, released more than 170,000 barrels of petroleum, and caused $1 billion dollars in damage…The history of other pipelines indicates that spills from KXL are inevitable. Over thirty spills have occurred with the Keystone pipeline (Phase 1 and 2) in its first year of operation in Canada and the United States. 76 According to the State Department’s FEIS, Keystone has experienced 14 leaks on US territory in just its first year of operation…This is despite the fact that the Keystone pipeline was described as meeting or exceeding “world-class safety and environmental standards.”78 In Canada, 19 spills had been reported from Keystone as of June 2011.

Concerns generated by the actual spill history of Keystone and similar pipelines are further reinforced by an independent study conducted by Dr. John S. Stansbury of the University of Nebraska. Stansbury’s study examined the likely frequency, magnitude and consequences of spills from KXL. It concluded that TranCanada’s claim that spills would be rare—just 11 significant spills over a 50 year period—was not consistent with the available historical data pertaining to pipeline spills (which point to a much higher spill rate).

Moreover: (A) more realistic assessment of expected frequency of significant spills is 0.00109 spills per year per mile (from the historical data (PHMSA, 2009)) resulting in 91 major spills over a 50 year design life of the pipeline…

Concerns regarding spills could be even further heightened by the fact that TransCanada is contracting with a company (Welspun) that has been found to produce substandard steel.80 TransCanada used imported Welspun steel for Phase 1 of the Keystone project and, as noted above, the pipeline has had 14 spills in its first year of operation. Prior to building Phase 1, TransCanada assured landowners and government officials that a spill would only occur once every 20 years. The latest leaks in Keystone Phase 1 spurred the PHMSA to order a shut down of the pipeline until a “corrective action order” was addressed. PHMSA ordered this “corrective action order” due to pipe expansions it had detected.

Pipe expansions occur when low strength, low integrity, or poor quality steel is used. Under normal circumstances, it takes about 46 years of use before pipe expansions occur…Welspun’s use of substandard steel has also been an issue in other pipeline projects. Welspun is currently being sued by two Kinder Morgan Energy Partner subsidiaries for fraudulent sales practices and the sale of defective steel pipe…PHMSA has ordered Boardwalk Pipeline Partners and Kinder Morgan Energy Partner to replace hundreds of pipe joints along their pipelines after an investigation revealed numerous “expansion anomalies” indicating the use of low quality steel. Approximately 80 percent of the steel Boardwalk Pipeline Partners and Kinder Morgan Energy Partner used in their pipelines was purchased from Welspun…

Certainly, the environmental damage of a “worst case scenario” spill from KXL would be very extensive, particularly affecting Midwest residents’ livelihoods in agriculture, tourism, and many other economic sectors. Stansbury’s study notes, “(T)he benzene released by a Keystone XL worst-case spill to groundwater in the Sandhills region of Nebraska would be sufficient to contaminate 4.9 billion gallons of water at concentrations exceeding the safe drinking water levels.” Such a spill “would pose serious health risks to people using that groundwater for drinking water and irrigation.”
…

Pipeline spills are also known to carry with them a hefty price tag. Cleaning up spills creates jobs, but few would maintain that this is a good way to fight unemployment. Moreover, the costs to the companies and to the public purse will simply divert money from other parts of the economy. For example, the costs of an 800,000 gallon oil spill (July 2010) into the Kalamazoo River from the Enbridge pipeline are expected to exceed $500 million, excluding the costs of insurance payments and compensation…And the clean-up operation itself has yet to be completed.86 At the height of the Kalamazoo clean-up effort, more than 2,500 EPA, state, local and Enbridge personnel and contractors worked on cleanup efforts along 35 miles of impacted river and shoreline. Over one year later the EPA has more than 500 people deployed on cleanup efforts in the area…

In addition to the spill into the Kalamazoo, Enbridge spent an additional $45 million on costs related to a spill in Romeoville, Illinois, in September 2010. Enbridge’s 2010 annual report states that the company lost $16 million in revenue from the transfer of oil while the pipelines were shut down. Both spill cleanups and pipeline repairs contributed to an overall operating loss of $24.7 million, according to the company’s 2010 Annual Report…

According to the EPA, the July 2011 rupture at ExxonMobil’s Silvertip oil pipeline spilled at least 1,000 barrels of crude oil into the Yellowstone River. More than 1,000 people were involved in cleaning up the spill, an effort that is estimated to cost $42.6 million…

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Economic Costs Related to Air Pollution and Carbon Emissions

It is a well-known fact that if emissions rise, air quality deteriorates, and health problems increase. Respiratory and other illnesses reduce both labor productivity and labor market participation, as well as the educational performance of those exposed to airborne particulates. The American Lung Association has documented how the health impacts from oil-generated NOx, SOx, Hg and other air toxics are a serious drain on the US economy.90 People who are sick underperform as workers and suffer economically. These negatives also ripple through the economy in the form of increased costs for health care and rehabilitation.

If constructed, KXL will clearly add to these health-related costs and social problems. KXL is part of an industry plan to make Port Arthur into an international refining hub, where heavy sour crude from tar sands is processed for export. The processing of tar sands crude emits more toxic chemicals than processing of conventional sweet crude, and this will take place in an area where residents are already exposed to high levels of pollution. High rates of asthma and cancer and other illnesses in the Port Arthur area act as a drain on the economy and cause suffering for thousands of residents.

Aside from the human and economic costs of increased emissions related to poor air quality, it is now widely accepted that rising emissions lead to climate instability and this, in turn, results in an increase in economy-damaging, extreme weather events. As the Stern Review91 made clear five years ago, if emissions continue to rise according to a “business as usual” scenario, climate change is likely to have an impact on the global economy equivalent to the combined effect of the two World Wars of the 20th Century and the Great Depression. According to Stern, as much as 20 percent of global GDP could be wiped out.

Extreme weather events are already having a serious impact on jobs and livelihoods in many parts of the world. In 2011, killer tornados, droughts and forest fires, record-breaking temperatures and rainfall have wreaked havoc across the US. There are those who believe that these events have nothing to do with GHG emissions, but no one can deny that climate scientists have warned that rising emissions will lead to climate disruption, and climate disruption is today increasingly obvious. The damage caused by just one event—Hurricane Irene—has been estimated to exceed $7 billion…The drought in Texas—the worst one-year drought in the history of the state—has inflicted damage thus far totaling $5.2 billion.

How will KXL increase the level of GHG emissions? Firstly, KXL is an important part of an industry plan to expand the oil industry’s exploitation of dirty, unconventional high carbon fuels. This planned expansion will have a very serious impact on emissions levels.

Indisputably, the energy used in the Tar Sands extraction process has already made a huge contribution to Canada’s CO2 emissions. Producing one barrel of oil from the Tar Sands produces three times the amount of GHGs produced from conventional oil, making the overall GHG lifecycle of a barrel of tar sands oil considerably higher than conventional oil…KXL will connect the Tar Sands to heavy crude refineries in the Gulf and open the Tar Sands to more extraction to meet the rising global demand for oil. This will lead to more “upstream” GHG emissions in Alberta. Furthermore, emissions generated from the manufacture of more than 800,000 tons of steel for the KXL pipeline are also significant.

As a rule of thumb, one ton of steel produces one ton of CO2, which adds up to more than 800,000 tons of CO2—more than the annual national emissions levels of scores of smaller countries.95 And because Tar Sands oil is difficult to upgrade and refine, it will generate more emissions from refineries than regular crude oil. Lastly, if fully utilized, the KXL pipeline would add an additional 27 million metric tons of carbon dioxide equivalent (MMTCO2e) annually to emissions from average U.S crude…

It is important to note that KXL is being proposed at a time when, given the scientific evidence, the public discourse should be about how to reduce emissions substantially.

Slowing down the levels at which GHGs are being released into the atmosphere is simply not enough. US transport emissions presently total around 27 percent of national CO2 emissions, and emissions from transport are growing faster than emissions from any other economic sector (this is true both globally and nationally).97 The US will never be able to make the kind of emissions reductions that the scientific evidence suggest are necessary without aggressively tackling the rising levels of emissions from its transportation sector.

If US transport emissions were viewed as a separate country, emissions from this sector would rank number four—behind China, the US and Russia…

However, there are alternatives for transport and the economy as a whole. The President’s own Blueprint for a Clean Energy Future describes how the US can reduce oil use by about 3.7 million barrels a day by 2025.99 From the perspective of both job creation and environmental protection, this is a far better choice and consistent with the national interests of the US

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Keystone XL’s Impact on the Green Economy and Green Jobs

It is also important to consider the jobs that may not be created as a result of KXL. Many believe its approval will likely have a chilling effect on those in the private sector and in public policy who have positioned themselves on the cutting edge of the green economy. Small business organizations such as the Green Chamber of Commerce and the Green Business Network (representing more than 5,000 enterprises) agree that KXL will impede progress toward green and sustainable economic renewal…The level of green investments is also influenced by the degree of political will to reduce global warming pollution. The approval of KXL and an acceleration in the use of Tar Sands oil sends a clear and disturbing message: not only is Canada not serious about reaching its (already unachievable) Kyoto targets, but the US Administration is reneging on its stated commitment to provide leadership in the global effort to combat climate change.

The possibility of KXL construction amounts to a sword hanging over the prospects of a vibrant green economy and green jobs. The approval of the project will send a clear signal that North America will build its economic future economy on dirty fuel, and not on clean energy. The negative impact on jobs is potentially enormous. A string of studies have been released that point to the growth and future potential of green jobs and other economic and social dividends resulting from climate and environmental protection policies.101 However, the prospect of green businesses flourishing in the future is to a large extent contingent upon how private investors and public officials interpret which way the economic winds are blowing. If the world’s largest economy locks in a long-term dependence on fossil fuels—and exceptionally dirty fuels at that—then green investments (and therefore green jobs) will surely suffer.

Moreover, a recent study conducted by Political Economy Research Institute (PERI) at the University of Massachusetts concludes that oil generates barely one fourth of the number of jobs created by green investments for the same amount of investment…

Green infrastructure programs create more jobs per dollar spent because they are less capital intensive, are more labor intensive, and stimulate domestic industries and services. A post-recession study conducted by the Brookings Institute, Sizing the Clean Economy: A National and Regional Green Jobs Assessment,103 details how today the clean economy employs 2.7 million American workers across a diverse group of industries. This figure is already greater than the number of people employed by the entire fossil fuel sector. In the past year clean-tech has outperformed the national rate of job creation by some distance. The clean economy also offers more opportunities and better pay (13 percent higher) for low- and middle-skilled workers than the national economy as a whole.

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Conclusion: Employment Potential from KXL is Little to None; Decision should be based on other factors

Of this writing, TransCanada, the American Petroleum Institute, and other proponents of KXL are touting the job-creation potential of the pipeline. Jobs have thus become an important part of the case for Presidential approval of KXL. The data presented in this briefing paper should put this issue to rest. The industry’s capacity to frame the KXL decision as a jobs issue has been amply demonstrated in recent months, but decision makers should be absolutely clear that the industry’s job numbers are not based on reliable research; not informed by past experience; and completely fail to consider the large number of jobs that could be endangered by the construction of KXL.

To highlight some of the main points made in this paper:

» The construction of KXL will create far fewer jobs in the US than its proponents have claimed and may actually destroy more jobs than it generates.

» The industry’s US job claims, and even the State Department’s analysis, are linked to a $7 billion KXL project budget. However, the budget for KXL that will have a bearing on US jobs figures is dramatically lower—only around $3 to $4 billion.

» The claim that KXL will create 20,000 direct construction and manufacturing jobs in the US is unsubstantiated. There is strong evidence to suggest that a large portion of the primary material input for KXL—steel pipe—will not even be produced in the US

» The industry’s job projections fail to consider the large number of jobs that could be lost by construction of KXL. This includes jobs lost due to consumers in the Midwest paying 10 to 20 cents more per gallon of gasoline and diesel fuel. These additional costs ($2 to $4 billion) will suppress other spending and cost jobs.

Furthermore, pipeline spills, pollution and increased greenhouse gas emissions incur significant human health and economic costs, thus eliminating jobs. Put simply, KXL’s job creation potential is relatively small, and could be completely outweighed by the project’s potential to destroy jobs through rising fuel costs, spill damage and clean-up operations, air pollution and increased GHG emissions.

As noted above, it is unfortunate that the numbers generated by TransCanada, the industry, and the Perryman study have been subject to so little scrutiny, because they clearly inflate the projections for the numbers of direct, indirect, and long-term induced jobs that KXL might expect to create. What is being offered by the proponents is advocacy to build support for KXL, rather than serious research aimed to inform public debate and responsible decision making. By repeating inflated job numbers, the supporters of KXL approval are doing an injustice to the American public in that expectations are raised for jobs that simply cannot be met. These numbers—hundreds of thousands of jobs—then get packaged as if KXL were a major jobs program capable of registering some kind of significant impact on unemployment levels and the overall economy. This is plainly untrue.