EPA Keystone Review Links Oil Sands to Carbon Emission Jump

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Oil sands mining operation near Fort McMurray, Alberta, Canada.

Oil sands mining operation near Fort McMurray, Alberta, Canada.

Photographer: Ben Nelms/Bloomberg

The U.S. Environmental Protection Agency said developing Canadian oil sands would significantly increase greenhouse gases, a conclusion environmental groups said gives President Barack Obama reason to reject the proposed Keystone XL pipeline.

“Until ongoing efforts to reduce greenhouse gas emissions associated with the production of oil sands are more successful and widespread,” developing the crude “represents a significant increase in greenhouse gas emissions,” the EPA said Tuesday in a letter to the State Department, which is reviewing the project.

The proposed pipeline has pitted Obama’s allies in the environmental movement against the U.S. energy industry. Obama has said he’ll reject TransCanada Corp.’s Keystone if it would lead to a significant increase in carbon pollution.

Proposed in 2008, Keystone would deliver Alberta oil sands to U.S. Gulf Coast refineries. The Republican-led House next week probably will pass a Senate bill to approve the pipeline and circumvent the State Department review. Obama said he will veto the measure and continue with his administration’s review. Supporters don’t appear to have the votes to override a veto.

‘Taken Apart’

“The EPA, in polite, knife-sharp Washingtonese, has taken apart the State Department on” Keystone “and shown it to be a climate disaster,” Bill McKibben, who has led protests against the project, said in a message on Twitter.

Shawn Howard, a TransCanada spokesman, didn’t return telephone and e-mail messages seeking comment on the EPA report. TransCanada rose as much as 2.8 percent in Toronto trading, to C$59.05 ($47.53), after the letter was released.

The Natural Resources Defense Council said the assessment means the pipeline fails the standard Obama has said he’ll use to judge the $8 billion project.

“There should be no more doubt that President Obama must reject the proposed pipeline once and for all,” Danielle Droitsch, Canada project director for the NRDC, said in a statement.

The State Department in an environmental impact statement released a year ago said Keystone probably wouldn’t increase emissions, even though oil sands are more carbon intensive, because the crude would be produced with or without the project.

Lower Prices

The 11-volume analysis included a scenario under which Keystone could play a larger role in spurring oil sands development. If oil fell below $75 a barrel, the extra cost to ship using alternatives such as rail may no longer be viable, the 2014 report concluded.

The “low-price scenario” should be given “additional weight during decision making, due to the potential implications of lower oil prices on project impacts, especially greenhouse gas emissions,” the EPA said. Benchmark U.S. crude last week fell to $44.45, the lowest since March 2009.

The American Petroleum Institute, an industry lobbying group based in Washington, said the EPA’s letter was just an excuse to put off a decision.

“Suggesting that the drop in oil prices requires a re-evaluation of the environmental impact of the project is just another attempt to prolong the KXL review,” Louis Finkel, API’s executive vice president, said in a statement.

Emissions Increase

In the letter, EPA said the crude oil carried by Keystone could lead to the release of more than 27 million metric tons of carbon annually compared with other, less carbon-heavy crude.

That’s the equivalent of emissions from 7.8 coal plants, the EPA said. But it’s just one-half of one percent of total greenhouse gases released annually in the U.S., according to government data.

The EPA letter “continues to give the president a rationale if he wants to reject it,” Lowell Rothschild, a Washington-based environmental litigator at Bracewell & Giuliani LLP, said in a phone interview.

The EPA also calls the State Department analysis comprehensive and says it responded to concerns the agency had voiced to a draft.

Kevin Book, an analyst at Clear View Energy Partners LLC, said in a note today that the general tenor of EPA’s comments was positive.

“But the agency’s arguments could create additional headwinds for the project,” Book wrote.

Book said that it’s possible the State Department could take additional time to study the impact of low crude prices on the project.

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