Opening Remarks

The Petro States of America


Behind this week’s coverPhotograph by Adrian Gaut for Bloomberg BusinessweekBehind this week’s cover

The Keystone XL pipeline should be an open-and-shut case from a climate perspective, the criterion President Obama has set for judging it. In a speech in June, he said he would approve the pipeline “only if this project does not significantly exacerbate the problem of carbon pollution.” By that standard, this should be an easy, data-driven call to make. It hasn’t been. And the core reason the Keystone saga has dragged on inconclusively for years has little to do with the well-aired talking points both sides of the debate trot out on cable TV talk shows.

The oil industry says Obama should stop stalling. The U.S. Department of State’s latest environmental impact report concluded that the Keystone XL pipeline that would transport 700,000 barrels of carbon-heavy tar-sands oil per day from Alberta, Canada, to refineries on the Gulf Coast is unlikely to significantly worsen carbon emissions. Even if the $5.4 billion, 1,700-mile pipeline were not completed, the report determined, the oil would still be extracted and transported to world markets. That’s all the rationale Obama needs to say yes. Climate advocates and parts of the Democratic base, on the other hand, deride the department’s report as exactly what one would expect from a document written by the industry itself; they’re calling on Obama to show some guts for once and reject a pipeline that would connect a massive amount of carbon to the world oil market and most certainly expand greenhouse gas emissions.

But there’s a deeper explanation for Obama’s caution on Keystone that rarely gets acknowledged. He is the president of a petro state, a country that ranks as an OPEC nation in all but name. And in a petro state, saying no to Big Oil is never easy.

“The United States is as much of an OPEC nation as most OPEC nations are,” Everett Ehrlich, an undersecretary of commerce for economic affairs in the Clinton administration, once told me in an interview. Ehrlich, who chaired the administration’s interagency deliberations on climate change, was explaining why a government that boasted Al Gore as vice president was nevertheless much more timid about cutting greenhouse gas emissions than were the European and Japanese governments. “The U.S. is an energy producer,” he added, “while the Europeans and Japan are energy consumer nations. Our natural resource industries are very powerful, and their executives saw dealing with climate change as punitive to their interests.”

Every producer wants to sell more product, but the oil industry has been able to pursue that desire more fully than most, thanks to its special relationship with the U.S. government. Oil companies have worked closely with the White House and State Department since the 1920s, when Big Oil persuaded Washington to help gain it access to the vast petroleum deposits of the Middle East, which in those imperial days were controlled by the British and Dutch governments.

The relationship between Washington and Big Oil began changing in the 1930s, when discoveries of massive deposits in Texas, Oklahoma, and California made the U.S. the world’s largest oil producer. This development conferred on Washington a huge advantage: Unlike any of the Axis and Allied powers, the U.S. had its own oil to fight World War II. Abundant domestic supply also transformed the postwar U.S. economy as Americans bought cars and commuted from rapidly expanding suburbs. Building all those cars and interstate highways propelled a decades-long economic boom that ranks among the most spectacular in human history.

Oil companies made buckets of money, but they were hardly the only ones that profited. The auto, steel, and construction industries also did well (as did politicians who aided them). Others benefited, too: unions whose workers found steady jobs; farmers whose petroleum-based fertilizer boosted crop yields; and owners of gas stations, fast-food outlets, and the other drive-in establishments whose outlets mushroomed across the American landscape.

All these developments called forth a pro-oil constituency within the U.S. political economy that extended far beyond the industry. For nearly a century now, broad swaths of the populace and powerful individuals in government, finance, and other key sectors have seen oil as indivisible from national interest. That presumption has arguably deepened with the current shale oil and gas boom that the International Energy Agency forecasts will turn the U.S. into the world’s biggest oil producer by 2015—and may have already by some estimates.

This mindset, almost as much as the matchless wealth and political power of Big Oil, is what makes the U.S. a petro state. Washington has showered the oil and gas industries with far more tax breaks and other subsidies than any other energy source. Oil and gas received roughly two-thirds of all such subsidies from 1918 to 2009, averaging $4.86 billion a year (in 2010 dollars), according to an analysis by DBL Investors, a venture capital firm in San Francisco. These numbers exclude the cost of deployment of U.S. aircraft carriers in the Persian Gulf to ensure that the industry’s product can reach the U.S. market. This subsidy alone had a $235 billion a year price tag from 1976 to 2007, according to Roger Stern, an economic geographer at Princeton University.

To maintain these lucrative policies, Big Oil has long been among the largest corporate campaign contributors. With ExxonMobil (XOM) and the Koch brothers leading the pack, the industry contributed $365 million to congressional and presidential candidates from 1990 to 2014, according to the Center for Responsive Politics. To make sure that lawmakers didn’t forget its priorities, the industry has spent an average of $140 million a year on Washington lobbying since 2008.

So is it really surprising that Obama has found it hard to rule on Keystone or make progress against the larger climate problem? When is the last time a Saudi sheik or petro state strongman opposed his own country’s oil industry? Obama already possesses all the authority he needs to tackle global warming. In fact, the federal Clean Air Act obligates the president to limit pollutants, such as carbon dioxide, that endanger public health; the verb that the act repeatedly employs is “shall,” as in “must.”

Yet in a petro state, Big Oil’s agenda can trump such considerations. The Keystone episode is an almost comical example. Environmental Resources Management (ERM), an oil industry consultant that wrote the long-awaited report for the State Department concluding the pipeline project would have a negligible impact on climate change, was proposed for the job by none other than TransCanada (TRP), the company that wants to build the pipeline. (TransCanada spokesperson Shawn Howard confirmed in an e-mail that the oil company provided a list of four potential consultants, including ERM, to the State Department and assured the department that it hadn’t worked with ERM—which declined to comment—in the previous five years.) Environmental groups allege ERM failed to disclose several business ties to TransCanada in the conflict-of-interest forms it filed when it won the contract in 2012. On Feb. 26, an internal State Department review said ERM’s business ties to TransCanada had no impact on the consulting firm’s findings.

Most media coverage of Keystone XL has treated the State Department report as settling once and for all the crucial question of whether the pipeline would significantly exacerbate global warming. Yet the findings simply defined the problem away. Reflecting the worldview of its oil industry authors, the report proceeded from the self-serving but hardly self-evident assumption that Canada’s tar-sands oil will eventually reach the world market no matter what. It then largely confined its analysis to evaluating whether a pipeline would be a less carbon-intensive method of transportation than alternatives such as rail.

Obama promised in his recent State of the Union address to leave our grandchildren “a safer, more stable world.” But in a petro state, it’s difficult, even for a president, to take on Big Oil. Obama can only do so if he is given political cover by a large, insistent, popular movement. Ironically enough, Keystone has given rise to just such a movement: If the pipeline gets approved, 77,000 people have pledged to occupy building sites and block bulldozers to prevent its construction. Further complicating matters is a Nebraska court ruling that struck down a 2012 law that gave Republican Governor Dave Heineman authority to single-handedly approve the pipeline’s route through his state. Ultimately, Obama’s decision will reveal much about what comes first in today’s Washington: the prerogatives of the petro state or common sense against climate change.

Hertsgaard is the author of HOT: Living Through the Next Fifty Years on Earth.

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Companies Mentioned

  • XOM
    (Exxon Mobil Corp)
    • $94.48 USD
    • -0.30
    • -0.32%
  • TRP
    (TransCanada Corp)
    • $49.82 USD
    • 0.44
    • 0.88%
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