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The Real Costs of the Dakota Access Pipeline Shutdown

Oct. 2, 2020, 8:00 AM

It’s been a hard year for most Americans and it could get even harder for those in the Midwest. In July, a U.S. district court judge ordered the shutdown of the Dakota Access Pipeline over concerns that the U.S. Army Corps of Engineers failed to conduct sufficient environmental analysis before issuing construction permits.

The decision was appealed by the Corps, a nonpartisan government organization of career professionals tasked with ensuring the safety of major energy infrastructure. The appellate court reversed the shutdown order, citing a lack of “necessary findings” to validate the decision. But the Dakota Access Pipeline’s fate is still in limbo.

Thousands of Jobs and Millions of Dollars in Tax Revenue on the Line

By stopping short of upholding the easement granted by the federal government more than four years ago, the U.S. Court of Appeals for the District of Columbia Circuit left unanswered whether the pipeline will be allowed to continue normal operations, or ordered again to shut down. That’s a big question mark with thousands of jobs and millions of dollars of tax revenue hanging in the balance.

Capable of transporting 570,000 barrels of oil per day, the Dakota Access Pipeline is a critical piece of infrastructure connecting production on North Dakota’s Bakken shale reserve with consumer markets. Its shutdown would force those resources to be moved by rail, a less reliable and much more costly option. And the shift could take as long as two years, according to the head of the state’s Department of Mineral Resources.

The resulting backlog would force drillers to cut production. As many as 3,000 upstream jobs would be lost, according to research by the American Petroleum Institute. Another 1,900 jobs could be sacrificed in industries that support production. In total, a shutdown may cost 7,400 jobs when impacts down the line are considered.

The blow to state coffers would be equally costly. North Dakota and Montana stand to lose $832 million of production taxes, and another $69 million in income taxes paid by producers over 13 months, the time expected to complete a new environmental assessment. The loss in tax revenue will surely be felt by public services such as schools and state programs, as well as other public infrastructure projects, which are largely supported by state revenues from the oil and gas industry.

The potential consequences don’t stop there. As noted in a recent amicus briefing by 11 state attorneys general, a shutdown would force the region’s farmers to compete for train space with oil that was once transported by DAPL. As a result, food prices would increase, exacerbating food insecurity problems for vulnerable populations.

Dangerous Precedent for Future Infrastructure Permitting, Development

But perhaps the most concerning outcome of a DAPL shutdown is the dangerous precedent set for the future of American infrastructure development. As the Corps laid out in a recent filing, “the district court’s decision will create a new, heightened standard of judicial review that will be impossible for agencies to meet as they consider vital infrastructure projects that excite opposition from some sector of society.”

If developers meet or exceed all permitting requirements, receiving all necessary approvals from federal, state, and local agencies—the regulatory process should instill the certitude and consistency that their investment will indeed be able to operate and function as intended. Without this confidence, the incentive to invest in critical infrastructure quickly diminishes when there is a chance that legal challenges could prevail and permits may be pulled after more than three years of safe operation.

This new “heightened” standard creates concern for critical energy infrastructure like Dakota Access, and its application could extend far beyond oil and gas pipelines. Infrastructure from bridges and dams to railroads and telecommunications could face similar challenges should such drastic new criterion become commonplace.

Such a ruling, if not overturned, could undermine the credibility of our nation’s regulators and throw the entire infrastructure permitting process into disarray.

American Energy Independence at Risk

There is never a good time for job losses, increasing food and energy costs, and lost tax revenue—but especially not during an unprecedented global pandemic. A shutdown would hit hardworking men and women at a time when they can afford it least. And it could set back our country’s march toward increased energy security immeasurably.

Over the past two decades domestic production has wholly rewritten the U.S. energy outlook. Once reliant on foreign suppliers, U.S. total annual energy exports in 2019 exceeded total annual energy imports for the first time in 67 years, and the U.S. became a net total energy exporter. That achievement owes to robust production here at home unlocked by investment in infrastructure, notably pipelines.

As administrator of the U.S. Energy Information Administration, I observed the beginnings of our country’s shale renaissance. Our newfound energy net export position has provided a powerful geopolitical lever to support our allies and isolate our adversaries. As threats from China, Russia, and the Middle East mount, we can hardly afford to cede that advantage.

Now as much as ever we should be leaning into opportunities to invest in our country’s pipelines—not bending to anti-fossil fuel activists or regulation from the bench meant to advance their cause. Sadly, the ruling to shutdown the Dakota Access Pipeline falls in the latter category. The decision undermines our regulatory process, threatens good jobs and economic growth, and creates real uncertainty for infrastructure developers.

It is imperative that the D.C. Circuit uphold the Corps’ initial findings, which were grounded in evidence then and remain grounded in evidence now. Otherwise, many North Dakotans, and much of our country, may be in for an even worse year.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Guy F. Caruso is a senior adviser in the Energy Security and Climate Change Program at the Center for Strategic and International Studies. Prior to joining CSIS, he served as administrator of the U.S. Energy Information Administration (EIA) from July 2002 to September 2008.