Policy Documents

Obama's Cost-Benefit Calculation Goes Awry

Bernard Weinstein –
November 14, 2011

Dr. Bernard L. Weinstein is the associate director of the Maguire Energy Institute and an adjunct professor of business economics in the Cox School of Business at Southern Methodist University.

Close followers of Canada-US relations were likely disappointed by the Obama Administration’s decision to delay the Keystone XL pipeline past the 2012 election. The announcement, which caught the Canadian government off-guard, represents the latest setback in bilateral relations (another recent example was the ‘Buy America’ provision<http://www.ctv.ca/CTVNews/Canada/20110913/buy-american-in-obama-job-bill-110913/> in President Obama’s jobs bill this September).

It may be easy to brush off the impact of this decision as primarily affecting the giant landmass north of the 49th parallel, but Stephen Harper and the Canadian energy industry are not the only ones who lose from Keystone XL’s delay.

This capricious U-turn is a slap in the face to thousands of working families in the United States. President Obama’s decision has significant opportunity costs – more than 20,000 shovel-ready jobs and 118,000 thousand local jobs thereafter, in addition to meaningful economic and infrastructure investments.

It’s clear the cost-benefit calculus for President Obama was purely political. Facing a tough reelection battle, he couldn’t afford to risk losing any portion of his base – not least the extreme environmentalists who oppose any expansion of North America’s fossil fuel output.

On the flip side, he now is ignoring the real world concerns of labor, a major stakeholder in his 2012 success. Unlike millionaire celebrities, skilled pipefitters in Nebraska and others in the construction industry – facing a painful 13.3 percent unemployment rate – cannot afford to fly halfway across the country to protest in front of the White House. That doesn’t mean they don’t matter.

As for beyond 2012, it’s anyone’s guess what will happen to Keystone XL should Obama be reelected. This reversal comes after more than three years of public meetings and exhaustive environmental assessments. As noted by several media outlets, the State Department has already considered 14 alternative routes<http://www.marketwatch.com/story/us-delays-keystone-pipeline-until-after-2012-2011-11-10?link=MW_story_latest_news>. Perhaps more foot-dragging will ensue until a point when the mounting costs of delay mothball Keystone XL indefinitely. While this is the ultimate aim of Washington’s environmental lobby, it won’t impact the environment, as Canada’s natural resources will definitely be developed and likely shipped to Asian markets if the U.S. refuses them.

Most importantly, we should acknowledge that this is a Pyrrhic victory for Obama as he has once again allowed politics to trump economic opportunity and energy security.