The Keystone XL pipeline project has been in the news recently. The $7.6 billion

Question

The Keystone XL pipeline project has been in the news recently. The $7.6 billion pipeline would create a new way to carry Canadian imports outside the Midwest and reduce an oil surplus that’s depressing prices in the central U.S.

At a recent American Fuel & Petrochemical Manufacturers conference in San Diego, former president George W. Bush expressed his support for the government approving the pipeline, saying that the project is a “no-brainer” because it would create jobs and bolster the economy. Other supporters, such as Sen. Orrin Hatch (R-Utah), argue that the pipeline will ”stop a dangerous dependency on foreign oil.” Given that the two-party transaction here is between the oil companied and the oil buyers, what is the economic justification that these supporters are implicitly citing in their arguments in favor of the government green lighting this project? Explain.

Critics of the pipeline argue that it represents a significant environmental risk. A report from the National Wildlife Federation warns that “the massive 2,000 mile, five state proposed pipeline would use safety shortcuts, substandard materials and unsafe practices, creating a high risk of ruptures that would endanger rare species, water supplies, and rancher livelihoods.” What is the economic argument that these opponents are implicitly citing in their arguments against the government green lighting the project? Explain.

Explanation / Answer

Proponents

* One of the biggest advantage is dependency on foreign country . Middle East is unstable these days. ISIS and Islamic spring has created a lot of tensions in this area. Similarly OPEC cuts production any time and increses price . So with new project coming up dependency on foreign country will be less.

* The new project will create jobs, boost economy . This is because new project will create new jobs , this will increase employment in economy . This means increased aggregate in economy , producers will undertake more investment , this will increase GDP in economy.

* Increased home production means lower cost to buyers as transportation cost of carrying it from middle East will be reduce. Similarly this means more profits to producers.

* Lower oil prices means increased demand for automobiles . This means more production of automobiles , more investment by firms, increased output and increased GDP.

Opponents

* New project means laying of Forest, trees , greenery for construction of pipelines. This will create damage to environment, biological balance will rupture.

* New project will harm the wildlife , livelyhood of tribals who depends upon the cattle flocks etc.

* Creating new project will create soico-economic problem with laying of rural areas more people will shift to urb as n areas for livelyhood and home. This will create problem of inequality in country . With given resources we have to feed more people .

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