Policy: Environment & Energy

MANHATTAN MOMENT: Let's unleash the North American energy colossus on NAFTA's anniversary

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Twenty years ago this month, a bipartisan congressional majority passed the North American Free Trade Act, enshrining the special relationship between United States, Canada and Mexico.

Since then, all manner of goods have traversed the northern and southern borders without impediment, thanks to NAFTA.

But only if those goods are carried on planes, trains or automobiles. Moving oil or natural gas by pipeline or electricity by transmission line across America’s borders was not covered by NAFTA and instead requires specific and often capriciously delayed approval from a relevant federal agency — plus a presidential permit.

A presidential permit is needed to authorize activities ranging from a logical cross-border expansion of any of North America’s hundreds of thousands of miles of existing pipelines, to activities as simple as a change in ownership or as trivial as a corporate name change.

Perhaps leaving pipelines and transmission lines out of NAFTA made sense two decades ago when the extant paradigm was one of energy shortages. It makes no sense today.

The U.S. is now the world’s fastest growing producer of oil and natural gas. To imagine what might be possible if investment were unleashed and North America’s energy infrastructure rationalized and expanded, consider what has already happened.

Increased production has contributed $400 billion a year to the U.S. economy and attracted nearly $200 billion in foreign direct investment over the past five years alone.

It has driven a 45% reduction in oil imports, thus radically shrinking the GDP-robbing trade deficit. The U.S. is now a net exporter of refined hydrocarbons for the first time since 1949 and will soon become a major exporter of natural gas.

The new reality is epitomized by the literal physical reversals in flows of oil and gas pipelines that now carry fuel from the heartland to the coasts, instead of vice versa, the reversal in the mission of liquid natural gas terminals from import to export, a reversal from retirements to expansions for refineries, a reversal in shipyard construction, and the reversal in a dozen-plus states from shrinking to expanding tax receipts and jobs.

The certainty of long-term low-cost energy supply is spurring a renaissance in energy-intensive manufacturing from plastics to fertilizers.

The American Chemical Council identified $70 billion involving nearly 100 investments coming on line in just a few years that will generate over one million jobs and add $300 billion to the GDP.

This will catalyze other manufacturing upstream and downstream, taking advantage of proximity to low-cost high-reliability suppliers, the growth in local labor force skills and collateral investments in new underlying technologies.

This transformation means that much of the cross-border hydrocarbon infrastructure either needs to be expanded or modified.

It is inconceivable that the regulatory and legislative structures put in place over the past 40 years are still relevant for the new normal for North American energy.

The first logical step to complete NAFTA’s intent is now on the table in Congress with the North American Energy Infrastructure Act.

That measure would make approvals of energy projects that cross the Canadian and Mexican borders no more — and when it comes to environmental compliance, no less — difficult than projects that cross state borders.

Riding a bipartisan precedent, President Clinton was spot-on when he said in 1993 that “NAFTA is essential to our long-term ability to compete with Asia and Europe.” Today we can add the Middle East to the list.

With rationalized infrastructure, and more hydrocarbon resources than the entire Middle East, North America could become the world’s largest energy supplier.

The geopolitical implications are far-reaching and the economic opportunities unprecedented for the three NAFTA nations.

Mark P. Mills is a Senior Fellow of the Manhattan Institute and author of Unleashing the North American Energy Colossus. This piece was adapted from his prepared testimony for the House Committee on Energy and Commerce energy and power subcommittee.
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