Keystone and China, again

Matthew Kahn at UCLA discusses the debate among economists, environmentalists and businesspeople over Keystone XL:

If Canada doesn't sell us their fossil fuel, will it really sit in the ground and not be consumed?   Global GHG emissions would be lower if such natural resources weren't tapped.  This is really an issue of transportation costs and economic incidence.  If the pipeline had been built connecting Alberta, Canada to U.S consumer destinations, what would have been the gains to trade?  In the absence of this pipeline, will this natural resource now be shipped to Asia?  At what transportation cost and what are the gains to trade?  So, does not building the pipeline have a causal effect on the dirty resource staying in the ground?  China smells an arbitrage opportunity here and is stepping in.  Have well meaning greens defended their "line in the sand" or have they merely diverted oil that will be consumed anyway?  World trade poses a challenge to the boycotters.

I addressed this issue a few months ago, but it's important to point it out again, especially as the debate intensifies in light of Obama's Keystone XL hold-up.  China would love to get its hands on all that oil (although one commenter on Kahn's post rightly notes that British Columbia would put up a fight if TransCanada tried to bisect it with an oil pipeline).

I agree with Kahn that opponents of Keystone XL - and environmentalists in general - should focus more on ways to incentivize innovation in the clean technology sector.  Economic theory tells us that we will use a resource either until it runs out or until the marginal cost of that resource exceeds the marginal cost of some alternative.  Making clean energy more efficient and less costly is the only way to go, but until then, it's important to weigh the costs and benefits of letting other countries exploit Canada's oil sands.