Keystone Foes Seek Climate Measures in Case They Lose

President Barack Obama is being pressed by opponents of the Keystone XL pipeline to tie any approval to measures that would curb climate change, reflecting mounting pressure on the administration to mitigate the project’s impact if it goes forward.

Senator Sheldon Whitehouse, a Rhode Island Democrat, is among those urging new steps to limit greenhouse-gas emissions in the U.S. if TransCanada Corp. (TRP)’s petition to build the $5.3 billion pipeline is approved. Other lawmakers say the administration could extract concessions from Canada, such as a higher carbon tax in Alberta, where the pipeline to carry tar-sands oil to U.S. refineries originates.

“He touted himself as the environmental president, and he’s going to have to make sure that if he decides to go with it that there is some kind of balance,” said Representative Elijah Cummings, a Maryland Democrat.

Most congressional Democrats, including leaders in the House and Senate, have joined environmentalists in fighting the project backed by the oil industry, labor unions, the Chamber of Commerce and Canadians. Some lawmakers who oppose the pipeline say it appears probable Obama will sign off, triggering their calls to mitigate environmental and political fallout.

“I think it’s going to happen,” said Representative Jim Moran, a Virginia Democrat and member of the House’s Sustainable Energy and Environment Coalition. “The odds look pretty strong right now.”

Four Years

In a deliberation that has stretched over four years, Obama first rejected the pipeline because its original route took it through Nebraska’s Sand Hills region, a national natural landmark. Calgary-based TransCanada changed the route and filed a new application, now under review by the State Department, which must act on pipelines crossing an international border.

Environmental groups dismiss the State Department’s March 1 draft assessment that said the pipeline won’t raise the risk of global warming, because the oil from Alberta would find its way to market with or without the line. They say Keystone will show whether Obama will fulfill an inaugural-address vow to tackle global warming.

A decision is expected by year’s end. The administration hasn’t said whether it could try to offset any approval with other environmental policy changes.

Kerry’s Mark

Secretary of State John Kerry, who fought for climate change legislation during 28 years in the Senate, may seek green offsets as part of the decision, although such action may be modest and unlikely to spark resistance from pipeline advocates, said two officials with knowledge of his thinking.

In Canada, Natural Resources Minister Joe Oliver has said his government isn’t designing oil and gas emissions rules to appease the U.S. on Keystone, although Alberta provincial officials say they’re discussing the possibility of tougher emissions standards.

Obama may have some offset options, said Daniel Weiss, director of climate strategy at the Center for American Progress, a Washington policy institute with ties to the administration. That includes making a firm commitment to issue new U.S. rules on limiting carbon emissions from existing coal-fired power plants, said Weiss, who opposes the pipeline.

Coal Rules

The U.S. Environmental Protection Agency will soon issue a standard that will effectively bar construction of new coal-fired power plants that lack carbon-capture technology. The rule, opposed by companies such as Southern Co. (SO) and American Electric Power Co. (AEP), won’t cover older plants, with the administration saying such rules likely will come later.

Meanwhile, the administration could seek environmental concessions from Canada, with the government agreeing to “adopt real and steep reductions” in carbon pollution from tar sands oil production and other sources, Weiss said.

Alternatively, the U.S. could push Alberta for changes, including adopting a tougher carbon tax than the C$15-per-metric-ton levy for companies that emit above current limits. The money goes into a fund that invests in emissions-reducing technology.

Industry groups backing the pipeline say linking approval to climate-change initiatives isn’t appropriate.

“We really do believe that the Keystone project stands on its own and is fully justified on its own,” said John Kerekes, Midwest regional director for the oil-industry-backed American Petroleum Institute. “We don’t think that the greenhouse gases issue is as big as some have made it out to be.”

Executive Powers

Whitehouse says the administration can best achieve its goals by using executive powers to force changes in U.S. climate policy. That’s because Obama’s efforts in Congress to combat greenhouse gases or aspects of the pipeline project have been stymied at a time when Republicans control the House and some Democrats from oil producing states side with industry.

“If you were to count on Congress to pass it, it’s not going to happen because polluters own the place,” he said.

He’s seeking some carbon emission changes that would “more than offset” increased pollution from the project.

Moran says the U.S. should press Canada to take some actions of its own.

“This will benefit Canada a great deal, and it will benefit those involved in shipping the exporting oil and gas a great deal,” he said. “What benefit it has for the United States in the long term is more questionable.”

‘Tough Negotiators’

“We should be tough negotiators,” Moran added. “Even though we’re close allies, they would do the same if they were in our position.”

In Canada, where the government last year imposed a carbon cap for coal-fired power plants, officials have said that while they now are working on new rules governing emissions by the oil and gas industry, there will be no proposed carbon tax. They haven’t ruled out other environmental policies that could be politically helpful to Obama if he approves the project.

Canadian Prime Minister Stephen Harper today announced C$82 million ($81.3 billion) in funding for 55 clean-energy projects, part of an initiative announced in 2011 to curb emmissions through technological innovation. Among the projects receiving aid under today’s announcement is one to capture carbon dioxide from oil sands operations, according to a statement from Harper’s office.

Alberta Action

Alberta is weighing further action. Wayne Wood, spokesman for the province’s environment minister, Diana McQueen, said the government is reviewing policy for the oil and gas sector and is in “very early discussions” with the federal government and industry.

“We certainly are aware of the fact that we do need to do this review, and we do need to probably set some new targets,” he said in a telephone interview.

The Alberta government may be able to allay concerns about the environmental effects of the pipeline, said Michal Moore, professor of energy economics at the University of Calgary.

“It neutralizes some of the critique and it offers a tremendous amount of cover for the political institutions to say, ‘See, we are capable of causing change on the part of the principal producer,’” said Moore, former commissioner of the California Energy Commission. “That’s the right message.”

At the same time, some analysts in the U.S. said pressing Canada to take concrete environmental steps risks adding more time to the lengthy approval process. It’s more realistic for the Obama administration to seek changes in policy at home, said Christine Tezak, managing director of ClearView Energy Partners LLC.

Power Plants

“This project has been under a tremendous amount of pressure,” Tezak said. “It’s been rerouted. It’s been restudied. I don’t know how much blood you can get out of a turnip at this point.”

If the project is approved, the administration may simply want to marry any future pipeline approval with the promise of power-plant rules for existing generators, said Michael Levi, a senior fellow at the Council on Foreign Relations and author of “The Power Surge,” which examines the fight over the future of U.S. energy policy.

“I really doubt the administration wants to invest a lot of time in trying to change Canadian energy policy,” Levi said, adding that China and India have far-higher carbon emissions. “To the extent that there’s a trade to be done domestically, it’s not about the companies that would be affected directly by the pipeline. It’s not about oil companies so much as changing how we use energy -- changing our power plants or our cars or trucks.”

Border Tax

Still, the potential for other approaches remain, including a U.S. border tax on Canada’s heavy crude, said Richard Dixon, executive director of the Alberta School of Business. The State Department may already have laid the groundwork for that in its analysis of the project when it compared the impact of Canadian oil to other crudes used in the U.S., he said.

Such work would have to precede the creation of a border tax, Dixon said.

“This is exactly the kind of modeling and statistical analysis that needs to be done to provide for doing that type of taxation system,” Dixon said in an interview. “They want to avoid the political bias and say okay, if we’re going to use hard numbers, what do those numbers look like?”

To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net; Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.