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Oil price differentials, not emissions, the key to Keystone

James Hansen, NASA's lead climate scientist, says if TransCanada Pipeline's Keystone XL mega-project connecting Alberta tar sands producers to Gulf Coast refineries is approved, it is game over for the planet.

It certainly won't be game over for Alberta's oil patch or the thousands of North American steel workers who will build the massive pipeline. And I rather doubt it will be game over for the planet. If Mr. Hansen is worried about emissions growth, he just has to look at where the global economy is heading these days.

Lest Mr. Hansen forget, recessions are good for emission reduction. In fact, they're the best things for them. The deeper the recession, the better it is for the atmosphere.

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When the former Soviet Union crumbled and the Russian economy de-industrialized and shrank, its emissions fell by a staggering 30 per cent - and emission reduction wasn't even a goal of the Russian government. As well, the emission reduction during the recent U.S. recession was greater than what would have been mandated by the now defunct Waxman-Markey Climate Change Bill.

Considering the vast majority of emissions from gasoline come not with its extraction and processing but when you turn on your car's ignition and start burning the oil in your engine, maybe we should be more concerned about the number of cars on the road as opposed to the source of their fuel.

Here there is reason for real optimism. While there are 240 million oil guzzling vehicles still on the road in America, the number has plateaued and it will soon start to decline. Annual U.S. vehicle sales, once over 17 million units, are now running around 12 million, and they were running below the scrappage rate during the last recession. When that happens, there will be fewer cars on the road. Fewer cars, in turn, translate into fewer emissions no matter where they are getting their gasoline.

There are still some basic issues about the pipeline project. But the real issues are not so much environmental as they are economic.

Will the pipeline connection to the Gulf Coast simply be a conduit for Canadian oil to be trans-shipped to foreign markets and capture more favorable world pricing? If so, how does that help America?

Or will the flow of 500,000 to 900,000 barrels a day through the Keystone XL pipeline to the Gulf Coast be sufficient to bring down bulging inventories of stranded, land-locked oil in Cushing, Oklahoma and eliminate, or at least substantially reduce the huge price spread between Brent and West Texas Intermediate?

If it doesn't, and the over $25-per-barrel spread between U.S. domestic oil prices and world oil prices persists, new pipelines will be built in Canada to provide a more direct connection to global oil markets.

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One way or another, it is oil price differentials, not James Hansen's concerns, which will ultimately determine the flow and direction of oil from Canada's tar sands.

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