Cost / Benefit Analysis Macro cost/benefit analysis #2 The peoposed Keystone X1.
ID: 2565202 • Letter: C
Question
Cost / Benefit Analysis
Explanation / Answer
KEYSTONE PIPELINE PROJECT
Answer 1.
There are 12 points given in the question. The same have been segregated into 2 columns COSTS and BENEFITS.
Note- The serial no. of the point has been mentioned in the columns along with the reason for the same
COSTS
BENEFITS
Point. No.
Reason
Point. No.
Reason
1
Job creation will add to salary related costs
1
Will create jobs and address employment concerns
2
Pollution and emissions adds to social costs
3
Carrying stranded crude to American refineries can lower the costs as costs of transportation will be shared
5
Oil spills cause long-term damage to flora & fauna, local economy and ecosystem
4
Safe mode for transportation vis-à-vis tankers, trucks or rail as it helps in preventing accidents
6
Clean up costs for oil spills is a cost. Secondly spending on advanced technology for maintaining and monitoring pipelines is an expenditure
9
Reduced dependence on oil imports, increasing use of home- country resources and reduction of costs of importing
7
Spills in environmentally sensitive areas is damaging
11
Will prevent China from becoming a customer of oil
8
Increased dependence on oil and lesser dependence on cleaner energy alternatives adds to long-term costs
12
Public policy benefits
10
Excessive water consumption during oil extraction process plus dumping the polluted water in ponds eventually tends to pollute the clean water supplies
Answer 2. Priority list of costs and benefits (from most important to least important):
RANK
COST Serial. No./ Point No.
BENEFIT Serial. No./ Point No.
1
5
1
2
7
4
3
2
12
4
10
9
5
8
11
6
6
3
7
1
Answer 3.
Analysis:
Top two costs (point 5 & 7): The top two costs relate to oil spills because oil spills have long term damaging effects. It damages the flora & fauna, local economy and ecosystem. Oil spills in environmentally sensitive areas has irrevocable negative impacts on the environment. Even though occurrence of an oil spill is just a threat, in case it happens it exposes the people to toxic chemicals causing health damages. It also affects the wildlife and the marine ecosystem. Since, the pipeline will run across 2000 rivers and wetlands, the exposure risks to these bodies are very high. Though companies take initiatives for clean ups, the damage once done cannot be undone.
Top two benefits(point 1 & 4): The most important benefit will be creation of numerous job opportunities across various departments in the oil sector. This will help in tacking the employment issues which is a growing concern. Increasing employment will eventually have many related benefits e.g. Increase in per capita income, reduction of disguised employment etc. Another important benefit is that oil pipeline is a safe mode for transportation vis-à-vis tankers, trucks or rail as it helps in preventing accidents e.g. train derailments, fire, explosions and property destruction. Though trains, trucks or tankers prove to be a cheaper mode of transport, they are not considered as safe as pipelines.
Final Analysis: Though on the face of it we can see that costs outweigh the benefits in number, in the long run the pipelines will prove to be more beneficial considering the growing needs of the ever- expanding economy. The biggest threat from pipelines is of oil spills and pollution concerns which can be taken care of if stricter regulatory controls and modern technologies are emplaced. Though the environmental impact of pipelines is difficult to estimate, appropriate measures will ensure that the growing energy needs are met safely. Apart from providing employability to a large number of people (15000- 50000 jobs), building a pipeline also increases the reachability of oil to numerous delivery locations and in sufficient quantities (830000 barrels per day).
COSTS
BENEFITS
Point. No.
Reason
Point. No.
Reason
1
Job creation will add to salary related costs
1
Will create jobs and address employment concerns
2
Pollution and emissions adds to social costs
3
Carrying stranded crude to American refineries can lower the costs as costs of transportation will be shared
5
Oil spills cause long-term damage to flora & fauna, local economy and ecosystem
4
Safe mode for transportation vis-à-vis tankers, trucks or rail as it helps in preventing accidents
6
Clean up costs for oil spills is a cost. Secondly spending on advanced technology for maintaining and monitoring pipelines is an expenditure
9
Reduced dependence on oil imports, increasing use of home- country resources and reduction of costs of importing
7
Spills in environmentally sensitive areas is damaging
11
Will prevent China from becoming a customer of oil
8
Increased dependence on oil and lesser dependence on cleaner energy alternatives adds to long-term costs
12
Public policy benefits
10
Excessive water consumption during oil extraction process plus dumping the polluted water in ponds eventually tends to pollute the clean water supplies