Lessons from the Demise of ANWR and Keystone XL

Two iconic North American oil projects, federal leasing in Alaska’s Arctic National Wildlife Refuge (ANWR) and the Keystone XL pipeline carrying Canadian crude to U.S. refineries, are both currently dead thanks to the Biden administration. The president recently announced plans to suspend ANWR lease sales that had been held under President Trump pursuant to 2017 legislation (though litigation is likely), and the company behind Keystone XL recently said that it has given up the legal fight  against Biden’s Inauguration Day disapproval of the project. The implications go well beyond the loss of these two projects:

1. The Chilling Effect. The federal government’s on-again, off-again process for evaluating Keystone XL has gone on for more than a decade. The project developers, TC Energy and the Government of Alberta, would have been better off had they gotten a timely rejection early on in the Obama administration rather than spending tens of millions of dollars across three administrations on an ultimately unsuccessful effort to secure approval—not to mention millions more on initial construction work when they thought the project had finally received a green light during the Trump administration. The lesson for other pipeline project developers is that they will face a long and costly permitting ordeal and that even approvals are subject to subsequent reversal.

Similarly, those investing in energy leases on federal lands—assuming such sales resume after the Biden administration’s suspension of them—must look at ANWR and wonder if the rug could be pulled from under them even after the lease sales are finalized.

The demise of both projects, though very large in scale, may not have a noticeable impact on the global price of oil or the price Americans will pay for gasoline, but that could change if they are part of a trend preventing other domestic oil production and transport projects.

2. Lost Jobs and Revenues. Slanted media coverage aside, both projects enjoyed local support. In Alaska, enthusiasm for oil production is strong and is not even a partisan issue, except for the occasional Alaska Democrat who accuses his Republican opponent of not being pro-ANWR enough, and vice versa. And a clear majority of elected leaders along the path of Keystone XL—Senators, Representatives, and state and local officials—have been solidly pro-pipeline. Given the thousands of construction jobs created by such projects, the smaller but not insignificant number of permanent jobs thereafter, and the tax revenues that would fill state and local coffers, it is easy to see why the citizens most directly impacted support such projects. The cumulative impact of blocking these and similar projects will be particularly devastating for the many communities that depend on oil and gas production.

3. Questionable Environmental Benefits. If the goal is a wholesale shift away from gasoline-powered vehicles to electric vehicles (EVs) in order to reduce greenhouse gas emissions, killing off ANWR and Keystone XL won’t work. Only a dramatic improvement in the affordability and convenience of EVs can do that, and even then there are serious questions regarding where the necessary critical minerals will come from, not to mention the additional electricity. The only real change will be that the oil that would have been produced in ANWR will come from somewhere else, quite possibly nations that impose far less stringent environmental measures than the U.S. And the oil that would have traversed the Keystone XL pipeline will be transported instead by less safe and less energy efficient methods such as rail or through older pipelines much more susceptible to spills than new ones. These environmentally counterproductive impacts would only grow if other new projects are also blocked.

4. Energy Security Backsliding. No other major oil producing nation is imposing such self-inflicted harm as the U.S. by blocking domestic oil production and infrastructure. The petroleum not produced in the U.S., or brought in from allies like Canada, will come from nations whose interests are hostile to ours and who have no compunctions about maximizing their petroleum production and exports. And the push for EVs to replace gasoline vehicles, to the extent it does occur, would only serve to increase reliance on unfriendly nations. As documented in a report by the International Energy Agency, the U.S., should it pursue a transportation decarbonization agenda, would be giving up a dominant market position in petroleum production for one of substantial dependence on China to provide many of the minerals necessary to make EV batteries.

Both ANWR and Keystone XL have long been the targets of environmental activists, and they certainly are pleased by the Biden administration’s the actions. Nonetheless, the impact on the environment as well as the economy and energy security will be decidedly negative.