Bigger than It Appears - The XL Pipeline Debate

23 Nov 2011 – Jeff Erikson

Earlier this month, the Obama administration decided to delay the decision on approval of the XL pipeline until 2013, ostensibly to further study the pipeline’s potential environmental impacts.

The fight over the pipeline, which would transport tar sands crude from Canada to US refineries in the Gulf of Mexico region, has become a symbol of a broader argument. Environmentalists have declared it a litmus test for President Obama’s commitment to environmental protection and climate change. Meanwhile, the oil industry and many Republicans have cast it as a jobs vs. politics decision. In any case, it is clear that the fate of the pipeline has as much (or more) to do with climate change as about protecting local water supplies and wetlands from oil spills.

Interestingly, activists proclaimed victory loudly and repeatedly, despite the fact that the action taken by Obama was to delay the decision rather than reject the plan. Why such a public display? The environmental community has been on the ropes lately, still recovering from the failure of COP15 in Copenhagen in 2009 and the collapse of federal climate change legislation last year, and fighting off ongoing attempts to de-fang the US Environmental Protection Agency. The XL Pipeline provided NGOs perhaps the last best chance to stop the bleeding, and consequently they made an enormous commitment to defeating it.

So is the project dead, or just “taking some time off?” Well, it depends on who you believe. TransCanada, the project owner, says it is still hopeful an agreement can be reached to take the project forward. The White House says the review is merely in response to concerns raised by the public, and the ultimate outcome is yet to be determined. 350.org and others say the decision effectively kills the project.

Why does all of this matter to the business community? In the short term anyway, there will continue to be outlets for oil sands crude. Canada is looking at ways to get the crude to Asia as an alternative market, and other existing pipelines crossing the border into the US will pick up much of the volume that XL would have taken. So the impact on both US and global crude supply – and consequently on the price of transportation fuel – will be imperceptible.

But stepping away from the details of the pipeline itself, businesses should recognize that, despite the political shift in Washington that appeared to have left climate change and environmental protections in the dust, companies that ignore the business risks these issues imply do so at their peril.

Recently, 285 investors representing more than $20 trillion in assets signed onto a statement urging governments to adopt policies to stimulate investments in technologies that will lower carbon emissions. Presumably these investors believe that their investments are at risk without strong public policies that address climate change. And last week the International Energy Agency (IEA), an arm of the OECD, warned that unless carbon emissions begin to fall in the next five years, we will miss the window of opportunity to avoid catastrophic climate change. Climate change matters, not just to environmental NGOs but also to hundreds of institutional investors, thousands of businesses and communities, and billions of citizens around the world.

So the oil sands have become the symbolic flashpoint, a measure of our collective concern (or ambivalence) over the global rise in temperatures. And while most of the oil sands activism to date has focused on limiting the supply, the XL Pipeline being just the latest example, lurking in the background is activity that is seeking to also reduce demand. Forest Ethics has spearheaded an effort to get companies to commit to avoiding oil sands and other high-carbon fuel sources, and numerous businesses and some local governments have taken their own actions. Central to this effort, of course, is traceability – the ability to trace back to the source the origins of the fuel we burn. At present, traceability in the oil sector is limited – stymied by the fungible nature of the product, the complex distribution networks for crude oil and finished products, and the lack of pull from commercial and retail customers.

But much as supply chain transparency and accountability reshaped what consumers expect of apparel, IT and food companies, we anticipate growing pressure on oil companies to be transparent about the origins of their products. We also anticipate that forward-thinking fuel suppliers will turn that pressure into a competitive advantage.

In fact, in early December, SustainAbility will be releasing a white paper diving deeper into the issue of traceability in the oil industry. We hope that it will generate a deeper conversation about how to enable consumers of transportation fuel to better understand and consider the societal impacts of their purchasing decisions.