Obama’s Keystone Options Shrink as State Downplays Impact

Photographer: Brett Gundlock/Bloomberg

The TransCanada Corp. Hardisty Terminal 2, currently under construction in anticipation of the Keystone XL pipeline approval, stands in Hardisty, Alberta on Dec. 6, 2013. Close

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Photographer: Brett Gundlock/Bloomberg

The TransCanada Corp. Hardisty Terminal 2, currently under construction in anticipation of the Keystone XL pipeline approval, stands in Hardisty, Alberta on Dec. 6, 2013.

President Barack Obama is in no hurry to decide whether construction of TransCanada Corp.’s $5.4 billion Keystone XL pipeline serves U.S. national interests, the next step in measuring its worthiness.

Even so, an environmental report released yesterday by the U.S. State Department finding limited impact on climate-changing carbon emissions from the project is diminishing the rationale the president could use to reject it.

“I can’t imagine the president standing up and saying, ‘I don’t see a problem on climate change, but I notice something else’,” Michael Levi, a senior fellow on energy at the Council on Foreign Relations in New York, said in an interview yesterday. “This fight is about climate.”

Tar Sands Fuel Angry Debate on Environmental Impact

The proposed conduit from the oil sands of Western Canada to Gulf Coast refineries in Texas offers a job-creating economic engine, in the eyes of pipeline proponents in Washington, or an environmental nightmare as politically active protesters see it.

Related: This Is Not the Keystone Decision That You Think It Is

Yet the White House faces more than political calculations in the ultimate decision, as several agencies now start a 90-day study of factors beyond the State Department’s environmental review. Obama confronts global matters as weighty as the distribution of oil from the nation’s biggest foreign supplier, Canada, and the readiness of competitors such as China to slake their industrial thirst for crude with bitumen from Alberta.

Photographer: Daniel Acker/Bloomberg

Welders work on a joint between two sections of pipe during construction of the Gulf Coast Project pipeline in Prague, Oklahoma. Close

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Photographer: Daniel Acker/Bloomberg

Welders work on a joint between two sections of pipe during construction of the Gulf Coast Project pipeline in Prague, Oklahoma.

Mutes Obama

The State Department’s report mutes the environmental concern that Obama voiced seven months ago and increases domestic pressure on the White House for approval.

As the agencies examine other questions of national interest, the 2014 midterm congressional elections in which the president’s party is fighting to maintain control of the Senate may also play into any decision before November.

Obama has said the Keystone project “will be in the national interest only if it does not significantly exacerbate the problem of carbon pollution,” White House spokesman Matt Lehrich said in a statement last night. “Careful consideration” will be given to “other pertinent information, comments from the public, and views of other agency heads,” he said.

Related: Keystone XL Won’t Worsen Climate Change, U.S. Says

The State Department document “does not and will not represent a decision, but rather another step in the process,” said Jay Carney, Obama’s press secretary, said yesterday. Pointing to a speech Obama delivered last year focusing on the climate-change aspect of the decision, Carney said Obama “spoke very clearly about the national interest.”

Local Economics

The national-interest determination includes issues beyond the environmental impact such as diplomatic relations with Canada, local economics and U.S. energy security. The State Department, overseeing the study because the project crosses an international border, isn’t under any deadline to make its recommendation to Obama, who has said he will make the final decision.

Obama has “a lot of flexibility,” said Lowell Rothschild, a Washington-based environmental attorney at Bracewell & Giuliani LLP. The process is “very open-ended.”

At the same time, the president’s options for rejecting the project are shrinking with the State Department report that the pipeline wouldn’t be as detrimental to the environment as an alliance of opponents say it is.

Obama is “going to be in a position to not have a lot of independent rationale to distinguish Keystone from all the other pipe that gets laid in this country,” Rothschild said.

Eight other federal agencies including the Environmental Protection Agency have 90 days to weigh in. The public will have 30 days to comment starting on Feb. 5, according to a House aide briefed by the State Department yesterday.

TV Ads

The American Petroleum Institute, lobbying for congressional support of the pipeline and airing TV ads promoting it, maintains that the question of national interest answers itself in the Keystone case.

“When you add all that up, if they can’t show this project is in our national interest, what is?” Cindy Schild, senior manager for refining and oil sands policy at the Washington-based institute, said in an interview yesterday. “The only thing left is for the president to decide that this project is in our national interest.”

Environmental groups, a significant bloc within the Democratic Party’s political base, are allied against the pipeline. One of the leading opponents, 350.org, pledged yesterday to pressure Obama to make good on a promise of balancing environmental concerns with commerce.

“He’s about the only person who hasn’t weighed in on Keystone XL,” Bill McKibben, 350.org co-founder, said in a statement. “Now we’ll see if he’s good for his word or if the fossil fuel industry is so strong they control even the president of the United States.”

Jobs Plan

In a town where partisan feuds prevent Congress from acting on much of anything else, advocates portray Keystone as something on which all parties should agree.

“One jobs-plan brings both sides together,” says the narrator of a petroleum institute ad running since last summer. Picturing two smiling former presidents close to embracing one another, the narrator notes: “Bill Clinton and George Bush both say build the Keystone XL.”

The American public sees more benefits for energy security than environmental risks in the pipeline, a Bloomberg National Poll found in December. In the survey, 56 percent viewed Keystone as a chance to reduce dependence on oil imports from less reliable nations, while 35 percent saw it as a potential source of oil spills and harmful greenhouse-gas emissions.

The State Department’s environmental report could benefit several embattled Senate Democrats in Republican-leaning states where approval of the pipeline is popular.

Senate Fight

The Republicans’ strategy for winning Senate races this year in seven states that Republican presidential nominee Mitt Romney carried in 2012 hinges largely on tying the Democratic candidates to Obama.

Democratic political operatives say the State Department report provides a marginal boost to centrists facing tough re-election fights, particularly in light of the damage they would have incurred had it dealt a blow to Keystone’s prospects.

“It’s time to build the pipeline,” Democratic Senator Mary Landrieu, seeking a fourth term in oil-rich Louisiana, said in a statement released shortly after the report.

Senate Democrats

Landrieu, Mark Pryor of Arkansas and Mark Begich of Alaska, all Democrats, have urged Obama to approve the pipeline, and the new report makes it harder for Republicans to use Obama’s reticence on the issue against them.

Landrieu is in line to become chairman of the Energy and Natural Resources Committee if Senator Max Baucus of Montana is confirmed as U.S. ambassador to China. The pipeline reinforces her message as a champion of her home state’s hallmark industry.

The study also could give a boost to Democratic candidates for open seats in Montana and South Dakota, Republican-leaning states where party incumbents are retiring.

Brad Dayspring, spokesman for the National Republican Senatorial Committee, said: “It is a no-brainer, a bipartisan, safe, common-sense measure to create thousands of jobs.”

To contact the reporter on this story: Mark Silva in Washington at msilva34@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net

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