Keystone and the trouble with US energy policy

Instead of promoting the development of clean affordable energy, the US regulatory process has led to a permitting system that is slow, arbitrary and hampers investment.

WASHINGTON (Reuters) - President Barack Obama's decision to block Keystone XL is an illustration of everything that is wrong with US energy policy.

There are strong arguments for and against the project. But leave them to one side for the moment ("This announcement is not a judgement on the merits of the application", according to Obama) to focus on the decision-making process itself.

Like regulatory approvals needed for a wide range of other energy projects, the permitting process for Keystone subjected it to years of delay, maximised uncertainty for investors and the oil industry and was ultimately influenced by extraneous factors that were not relevant to the pipeline extension itself.

The approval process should enable the federal government to balance competing economic and environmental interests in a timely manner and set a clear, coherent and consistent framework to enable investment in long-lived capital projects, but instead it is being abused for narrow political point-scoring.


In his statement, the president complained about the "rushed and arbitrary deadline" for reaching a decision on the permit application imposed by congressional Republicans as part of the Temporary Payroll Tax Cut Continuation Act at the end of 2011.

The artificial deadline "prevented a full assessment of the pipeline's impact, especially the health and safety of the American people, as well as our environment", according to Obama. As a result, the State Department and president concluded they could not state the pipeline was in the national interest and it had to be rejected.

But TransCanada originally applied for a permit in 2008. The federal government has had three years to consider the pipeline's impact including on health, safety and the environment.

Last November, the White House indicated it had no problem with the route except for a small section across Nebraska's Sand Hills region. It then announced it would take another 15 months to do a new review of that one section.

At some point careful study becomes procrastination. For outside observers, it was a cynical attempt to push a controversial decision beyond the date of the next election, adding yet more years of delay and uncertainty to the project.

The president's apologists blame Congress. They claim the line would probably have been approved after the elections if Congress had not intervened. By accelerating the process, Congress backed the president into a corner and made rejection inevitable.

"No chief executive likes to be painted into a corner by anybody," according to John Engler, head of the pro-pipeline Business Roundtable.

None of these arguments is true. There is no guarantee the line would have been approved after the elections. The project would still be fiercely opposed by environmental groups, who would continue to treat it as a symbolic test of the president's commitment to clean energy.

Nor did Congress force the president to make a simple yes/no choice about the pipeline. The statute specifically allowed him to approve the line subject to "the reconsideration of routing ... within the State of Nebraska" (Section 501(d)(1)). It provided for a further "review period" for that section of line (Section 501(d)(2)) and instructed the president to coordinate the review with the state (Section 501(d)(3)).

The president was not forced to reject the whole line. He made a conscious decision to do so because he judged it was more politically expedient to block the project than disappoint the environmental lobbying groups who form a key part of his political base.


The president was not entirely accurate when he blasted congressional Republicans for forcing the decision on him. The language expediting the Keystone review passed the House of Representatives on a largely party-line vote of 234-193 but was approved in the Senate by a lopsided bipartisan margin of 89-10.

Granted, it was bundled with the extension of payroll tax cuts, which many legislators considered a must-pass item. But in the Senate the Keystone language was offered as part of an "amendment in the nature of a substitute" by none other than Democratic Majority Leader Harry Reid.

In a bid to pre-empt criticism, the president emphasised "my administration's commitment to American-made energy that creates jobs and reduces our dependence on oil".

He also sought to take credit for rising domestic fossil fuel production and a reduction in energy imports. "Under my administration, domestic oil and natural gas production is up, while imports of foreign oil are down."

That claim is likely to ring hollow among oil and gas companies. Growing domestic production is largely the result of hydraulic fracturing.

The administration has yet to take a position on fracking, which is fiercely opposed by the same groups that forced the administration to block Keystone. It is not clear whether the White House will stand up for the technology.


For anyone interested in a coherent energy strategy, perhaps the most dispiriting aspect of the president's decision was the influence played by extraneous factors that should have been (strictly) irrelevant to the immediate policy decision.

The president cited environmental, health and safety concerns specifically related to the Sand Hills area. But the real hostility to the project is rooted in concerns about the global warming impact of developing Canada's oil sands resources and a belief that anything that helps develop new fossil fuel resources must be bad for clean energy and the environment.

If the president was concerned about the development of Canada's oil sands, he should have said so and rejected the pipeline outright on substantive grounds, not invoked a procedural problem with completing a new set of environmental impact studies on the Sand Hills section.

Instead of promoting the development of clean affordable energy, while mitigating adverse impacts on the environment, the regulatory process and the ever-present threat of lawsuits have led to a permitting system that is slow, arbitrary and hampers investment in energy resources the economy needs.

In a generally sympathetic review of the impact of environmental campaigners on energy policy, Columbia Professor Michael Graetz wrote: "Like so many environmental organisations born in the 1970s, the Sierra Club's Legal Defense Fund resorted to litigation as a means to slow, discourage or halt energy projects, but it also learned quickly to exert its muscle to influence legislation and administrative decisions via the National Environmental Policy Act's requirement of environmental impact statements and other means.

"Environmental activists had mastered techniques that at a minimum served to delay energy projects and make them more costly, but that in many instances also succeeded in killing the projects altogether. They succeeded in hindering or halting offshore oil drilling, new oil refineries, production and gasification of coal, importation of liquid natural gas, and electricity plants of all sorts," ("The End of Energy", 2011).

It is no way to make a coherent energy policy.

Obama's decision to block Keystone will inevitably prove controversial, praised by environmental groups and damned by the oil industry, and is set to be a prominent theme in the election campaign. But regardless of whether or not he should have given the go-ahead, the way in which the decision was reached will justifiably open the administration to criticism.

Among America's leading opinion-setting newspapers, both the Wall Street Journal and the Washington Post have published editorials condemning the decision. Only The New York Times supported it.

Criticising the way the president made his decision, the Post wrote: "There are far fairer, far more rational ways to discourage oil use in America, the first of which is establishing higher gasoline taxes. Environmentalists should fight for policies that might actually do substantial good instead of tilting against Keystone XL, and President Obama should have the courage to say so."

They are right. (editing by Jane Baird)

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