Keystone Report Said to Disappoint Pipeline Foes on Climate

Jan 30, 2014 10:23 pm ET

(Updates with context starting in fourth paragraph.)

Jan. 30 (Bloomberg) -- The U.S. State Department is preparing a report that will probably disappoint environmental groups and opponents of the Keystone pipeline, according to people who have been briefed on the draft of the document.

While the report will deviate from a March draft in some ways to the liking of environmentalists, the changes won’t be as sweeping as they had sought, several people familiar with the government’s deliberations over the review told Bloomberg News. Changes could still be made to the report before its release, which may come tomorrow.

The March report concluded that the Canada-U.S. oil pipeline would have only a minimal impact on carbon emissions, because the oil sands in Alberta will be developed anyway. Several people briefed on the findings, who spoke on the condition of anonymity to discuss private conversations, said they expect the final report will track that conclusion.

The State Department findings will influence whether President Barack Obama approves TransCanada Corp.’s $5.4 billion project, which supporters say will create thousands of construction jobs. Obama has said he will consider the report’s conclusions on climate change in making a final decision.

Release of the Supplemental Environmental Impact Statement will kick off a separate review in which Obama must determine whether building the pipeline is in the U.S. national interest.

“No matter what the SEIS says, it would be premature for either side to tear down the goalposts because there is still a long part of the game left to be played,” said Daniel J. Weiss, senior fellow at the Center for American Progress, a Washington- based research group opposed to the pipeline.

Additional Measures

TransCanada applied more than five years ago for a permit to build the pipeline through the U.S. heartland, connecting the oil sands with refineries along the coast of Texas and Louisiana. The project has spawned a multi-million lobbying fight and is forcing Obama to choose between angering an ally in Canada or his supporters in the environmental movement.

The updated report is likely to contain some changes, the people said. At the request of the Environmental Protection Agency, the State Department asked TransCanada to agree to additional measures to prevent leaks, which it did.

The agency is revising its analysis of how much greenhouse- gas emissions come from a barrel of tar sands compared to a barrel of heavy crude from Venezuela or Mexico. And the analysts are including new information about the constraints on railroads to move the same amount of oil if the pipeline weren’t built, another person said.

Obama Speech

The State Department is handling the review because the project crosses an international border. Its environmental assessment is important because Obama said in a June speech on climate change that he wouldn’t approve Keystone if it would “significantly exacerbate the problem of carbon pollution.”

The March draft said the heavy crude from Alberta would be developed and delivered to market by rail or through other pipelines if Obama rejected Keystone, which TransCanada first proposed in 2008 to link Alberta with refineries on the U.S. Gulf Coast. Environmentalists had focused their lobbying push on the capacity of trains to make up for the 830,000-barrel a day capacity of Keystone.

A State Department official, speaking on condition of anonymity, said today that the environmental review was in its final stages of preparation.

‘Reverse Course’

The EPA sent a letter last year to the State Department saying the final report should include a “more careful review” of the ability of trains to move the heavy crude out of Alberta.

“The question going into the State Department’s final environmental impact statement is this: Who will State listen to?” said Jim Murphy, senior counsel at the National Wildlife Federation, a Reston, Virginia-based environmental group. “Will State reverse course after listening to the Environmental Protection Agency experts who criticized the first draft as ‘inadequate’ and the second draft as ‘insufficient’ on climate impacts, oil spill risks, and threats to water resources?”

The national interest determination will weigh factors other than environmental risks, including its importance to the U.S.-Canada relationship, the economic benefits it offers to local communities and how it would improve U.S. energy security. Eight federal agencies have 90 days to give their views to the State Department.

Public Comment

The State Department has said it will also give the public another opportunity to comment during the national interest determination. The executive order that establishes the process for weighing international pipeline projects doesn’t set a deadline for the department to make a final recommendation.

Also expected any day is a report from the State Department’s Inspector General, on a complaint from Friends of the Earth that the department’s contractor reviewing the project is biased because of its ties to TransCanada and the oil industry. Critics say they hope that report would undercut any of the State Department’s conclusions, and force a re-start of the entire review process.

“We haven’t heard anything yet regarding the timing of an announcement, but we are hopeful the report on Keystone XL is released soon,” Shawn Howard, a TransCanada spokesman, said in an e-mail. “We don’t see how the final report would come to a different conclusion” than previous drafts.

Oil Sands

Production and refining of Alberta’s oil sands release more greenhouse-gas emissions than conventional forms of oil. Canadian supporters have argued that the oil will displace heavy crude from Venezuela and Mexico that has a similar carbon footprint and that the project will create thousands of construction jobs.

A decision by Obama to approve the pipeline will anger the thousands of activists who’ve held dozens of protests, written hundreds of letters, and are now pledging nationwide acts of civil disobedience in opposition to Keystone.

“Let’s be honest folks, if State Dep’t can’t get this right we will sue because ranchers’ water is more important then flawed status quo process,” Jane Kleeb, the head of Bold Nebraska, a local group fighting the pipeline, tweeted yesterday.

Credo Action, Rainforest Action, and the Other 98% have enlisted about 76,000 volunteers to sign a “pledge to resistance” to risk arrest if it looked like the State Department would recommend approving Keystone.

Keystone Consequences

Tom Steyer, the billionaire former hedge fund manager who opposes the pipeline, said in an interview earlier this month that it will be difficult for the State Department to reverse its position that the pipeline wouldn’t contribute to climate change.

“It’s really hard to believe that bureaucracies go back and say we did” a bad job, Steyer said while attending a United Nations climate conference in New York.

Rejecting Keystone carries its own consequences for Obama. It would anger Canadian officials and could hurt Democrats up for re-election in the Senate from oil states, including Alaska’s Mark Begich and Louisiana’s Mary Landrieu.

“The president has had five years of inaction on the Keystone XL pipeline,” Brian Straessle, a spokesman for the American Petroleum Institute, a Washington-based representative for the oil industry, said. “If 2014 is really his ’year of action,’ he should start by approving Keystone.”

--With assistance from Theophilos Argitis in Ottawa, Margaret Talev in Washington and Jim Efstathiou Jr. in New York. Editors: Jon Morgan, Craig Gordon