U.S. Senate Keystone Pipeline Defeat Shows The Hazards Of Over-regulation

The meek shall inherit the Earth, but not its mineral rights.  —J. Paul Getty

If the meek aren’t inheriting mineral rights, the strong aren’t necessarily getting them either.

Permitting restrictions and denial of access to resources characterize America’s energy economy today–and infect other sectors, too.

Top-down, nobody-can-move-or-do-anything regulatory blockage dominates infrastructure expansion in a United States that used to be more proud of carrying out big projects ever more safely. And weren’t we supposed to be doing the real shovel-ready projects by now?

The House has passed Keystone several times, but we saw Sen. Mary Landrieu’s (D-LA) struggle fail this week to garner the 60th vote for Sen. John Hoeven’s (R-ND) legislation. So blockage of the Keystone XL pipeline infrastructure for alleged environmental reasons continues.

Energy expansion may or may not be a magic pill, but this move still stalls billions in potential wealth creation. It also shifts crude transport to less efficient and environmentally riskier alternatives that perhaps even pose more hazards, as detailed by my colleague Marlo Lewis.

The U.S. State Department had issued an environmental impact statement regarding the Canada-to-Texas project, saying it “would pose ‘no significant impacts’ to most resources along its proposed corridor if the company follows through on environmental protection measures.” That didn’t mean it may not have “significant adverse effects to certain cultural resources,” but those can be addressed, too, or rerouting could have been negotiated.

Prominent as this issue is, when pondering regulatory overload it is misleading to speak of just the cost of Keystone, which should have happened long ago. There could be dozens of infrastructure projects underway, including perhaps water transport to drought-stricken areas, as well as liberalized telecommunications infrastructure instead of compulsory “net neutrality.”

Infrastructure industries suffer from being regulated in silos by various agencies, rather than working cross-sector to massively expand America’s wealth and GDP.

As for constant infrastructure NIMBY problems, those in the pathways could be given free energy, water, fuel, transportation, or communications for life in exchange for safe routing—negotiated easements without expropriation are not impossible. (Hey AT&T T -0.73%; I’d sure welcome a cell-tower at our farm in southside Virginia, where reception remains zero. Call me, maybe?)

Alongside state barriers, the federal government owns a huge portion of America’s lands—the bulk out west, and 28 percent of the total, according to the Congressional Research Service—and so access for resource extraction and other uses is a constant battle.

As CEI founder Fred L. Smith Jr. noted, alas, resources in government hands prior to the Progressive Era remain there (airsheds, watersheds, spectrum). That hasn’t necessarily improved or expanded those resources.

No one is working and jobs aren’t being created while awaiting permits for commercial access to resources, obviously. The Environmental Protection Agency’s interference with the Alaska Pebble Mine project is another prominent example of our day.

Costs of most energy and infrastructure restrictions do not appear in White House annual reporting to Congress on regulatory benefits and costs, however. But they are substantial; the United States Chamber’s “Project No Project,” for example, found that:

[I]n March 2010, 351 proposed new power plant projects were unable to secure permits. These projects alone, if constructed, would have resulted in a direct investment in our economy of $577 billion and would have created 1.9 million jobs per year during the seven years of construction.

Categories of debates over access and non-access to energy that dominate politics and create uncertainty include:

  • leases on federal lands (administered by the Interior Department’s Bureau of Land Management);
  • executive moratoria on offshore oil and gas exploration;
  • dampened arctic drilling and denied pipeline construction;
  • the Environmental Protections Agency’s emissions regulations and impending cross-agency regulation of hydraulic fracturing for natural gas;
  • steering of resources into allegedly but not necessarily “green” energy projects

I hinted at billions of dollars of wealth at stake as well as untallied jobs; but in a Wall Street Journal interview that touched on blockage of access to oil fields, energy entrepreneur Harold Hamm said it’s trillions just in terms of potential gains to the U.S. Treasury, let alone the private economy.

Agencies assess costs, in the rare instances they do it, of life under enactment of their rules. But they don’t properly acknowledge the uncertainty created by new regulatory adventures, the incentives changed that distort entire economic sectors. The late-2013 EPA rule to limit carbon emissions from all coal plants, even without enactment of the final rule, means that, as another colleague put it, “During the several years it will take to finalize the rule and then overturn it in federal court, no electric utility will invest in planning or building a new coal-fired power plant.”

Overall, regulatory costs approach $2 trillion annually. Not adequately captured is the cost to the economy of denial of access to energy/lands and the disruption of infrastructure projects that are already shovel-ready. Keystone is just the flavor of the month. The new Congress will revisit the matter, and give the President the opportunity to veto it and better explain the administration’s approach to expanding America’s resource economy.