DAPL Doesn’t Make Economic Sense

The Dakota Access Pipeline imposes huge environmental and health costs, creates few jobs, and generates little government revenue.

By Mark Paul | February 2017

Last week, Donald Trump signed an executive order to advance approval of the Keystone and Dakota Access oil pipelines. This should come as no surprise, as Trump continues to fill his administration with climate deniers, ranging from the negligent choice of Rick Perry as energy secretary to Scott Pruitt as the new head of the Environmental Protection Agency. Pruitt, a man who stated last year that “scientists continue to disagree” on humans role in climate change may very well take the “Protection” out of the EPA, despite a majority of Americans—including a majority of Republicans—wanting the EPA’s power to be maintained or strengthened.

As environmental economists, my colleague Anders Fremstad and I were concerned. We crunched the numbers on the Dakota Access Pipeline (DAPL). The verdict? Annual emissions associated with the oil pumped through the pipeline will impose a $4.6 billion burden on current and future generations.

First and foremost, the debate about DAPL should be about tribal rights and the right to clean water. Under the Obama administration, that seemed to carry some clout. Caving to pressure from protesters and an unprecedented gathering of more than a hundred tribes, Obama did indeed halt the DAPL, if only for a time. Under Trump and his crony capitalism mentality, the fight over the pipeline appears to be about corporate profits over tribal rights. Following Trump’s Executive Order to advance the pipeline, the Army Corps of Engineers has been ordered to approve the final easement to allow Energy Transfer Partners to complete the pipeline. The Standing Rock Sioux have vowed to take legal action against the decision.

While the pipeline was originally scheduled to cross the Missouri River closer to Bismarck, authorities decided there was too much risk associated with locating the pipeline near the capital’s drinking water. They decided instead to follow the same rationale used by Lawrence Summers, then the chief economist of the World Bank, elucidated in an infamous memo stating “the economic logic of dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that.” That same logic holds for the low wage counties and towns in the United States. The link between environmental quality and economic inequality is clear—corporations pollute on the poor, the weak, and the vulnerable; in other words, those with the least resources to stand up for their right to a clean and safe environment.

In 1994, President Bill Clinton signed Executive Order 12898, which ordered federal agencies to identify and rectify “disproportionately high and adverse human health or environmental effects of its programs, policies, and activities on minority populations and low-income populations.” Despite this landmark victory, pollution patterns and health disparities associated with exposure to environmental hazards by race, ethnicity, and income remain prevalent. Researchers at the Political Economy Research Institute (PERI) released a report identifying the toxic 100 top corporate air and water polluters across the country, finding the ‘logic’ of dumping on the poor and racial and ethnic minorities persists.

We do not accept this logic, and nor should any branch of the U.S government. As the Federal Water and Pollution Control Act makes clear, water quality should “protect the public health.” Period. Clean water and clean air should not be something Americans need to purchase, rather they should be rights guaranteed to all. The Water Protectors know that and are fighting to ensure their right to clean water, a right already enshrined in law, is protected.

The Numbers The Dakota Access Pipeline is a bad deal for America, and should be resisted. Our findings indicate that the burden of pollution associated with oil passing through the pipeline amounts to $4.6 billion a year—a number none of us should accept. This was arrived at using conservative estimates, and numbers provided by Energy Transfer Partners and the EPA.

According to Energy Transfer Partners, the company responsible for the Dakota Access Pipeline, the pipeline will transport 570,000 barrels of Bakken oil a day once the project is fully operational. It turns out, a barrel of oil is not a barrel of oil. Oil from the Bakken oil fields, which is where the pipeline originates is substantially dirtier than average—containing almost a quarter more CO₂ per barrel. (A full breakdown of the numbers is available here.)

The CO₂ content of the oil matters tremendously. After all, it’s the leading GHG contributing to global warming—the largest test we have collectively faced as a species. To think about this in economic terms, we need to take a few more steps. While Energy Transfer Partners hired its own economics firm to provide an economic impact study of the pipeline, they left out crucial information. Substantial negative externalities from burning the fossil fuels transported by the pipeline are not priced into the analysis. While the private profits of the pipeline certainly look good, we are concerned about the greater social costs associated with the pipeline, in particular pollution.

To calculate the cost, we need to think about the cost of CO₂ emissions. The EPA. and other federal agencies use the social cost of carbon (SCC) to estimate the climate benefits and costs of rulemaking. The EPA’s estimate of the SCC for 2015 is $36 (in 2007 dollars). The SCC is an estimate of the economic damages associated with a small (one metric ton) increase in CO₂ emissions in a given year (i.e., the damage caused by an additional ton of carbon dioxide emissions). Applying the SCC to the oil transferred via the pipeline provides the estimated $4.6 billion (2016 dollars) in annual burden from pollution associated with the pipeline. But won’t that simply be a burden on future generations? No.

The case for climate policy is frequently made on the grounds of “intragenerational equity”; intragenerational equity is also critical. The immediate net benefits for people living in polluted communities must be taken into consideration. Co-pollutants and co-benefits are necessary to take into account, as the marginal abatement benefits will vary across carbon emissions sources due to the presence of co-pollutants, such as particulate matter, sulfur dioxide, NOx, and air toxins released during the burning of fossil fuels. The U.S. National Academy of Sciences has calculated that premature deaths attributed to co-pollutant emissions from fossil fuel combustion impose a cost of $120 billion a year in the United States, while Taylor and Boyce find that the co-pollutants result in the deaths of thousands per year.

OK, how about the jobs? Trump after all has vowed to bring back jobs—“a lot of jobs.” Not so fast. According to Energy Transfer Partners’ own estimates, the Dakota Access Pipeline will employ just 40-50 permanent workers along the entire route. Surely those jobs matter for the folks that get them. They’ll likely be well-paying jobs with benefits—the types of jobs the economy needs. But with 7.5 million Americans currently unemployed, and millions more underemployed, this won’t make a dent. The pollution associated with the pipeline and the risk of contaminated drinking water, on the other hand, will. Putting Americans back to work through the fossil fuel industry simply doesn’t make sense. According to research by Professor Robert Pollin at the Political Economy Research Institute, investing in a green-energy economy provides three times more jobs than if the money were invested in the fossil fuel economy. Want jobs? How about a green New Deal?

The financial crisis and ensuing banking bailouts ensured private profits while socializing losses. Trump is bringing the same logic to the table, socializing costs associated with pollution—and not counting them—while privatizing profits from the pipelines. Sure, there will be some tax revenue associated with the pipeline, an estimated $56 million annually in state and local divided between four states, but that pales in comparison to the $4.6 billion in annual burden. The economics don’t add up, but let us be clear—the economics shouldn’t necessarily come first. People should have a right to clean water and respect of their ancestral lands.

Mark Paul is a postdoctoral associate at the Samuel DuBois Cook Center on Social Equity at Duke University. He holds a Ph.D. in economics from the University of Massachusetts Amherst.

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