The controversial Keystone XL approval process is back in the limelight, this time because of a probe into conflicts of interest.

The State Department's watchdog has opened an inquiry into whether the contractor the department hired to perform the environmental review of the Keystone XL oil pipeline had a conflict of interest. The charges are serious because the White House will use the State Department review to determine whether the pipeline will proceed. If the department is now investigating it's own review, it signals potential trouble ahead for the project.

The probe – which a State Department official stressed is a "fact-finding" mission, not a criminal investigation – comes weeks after President Obama said he'd approve Keystone XL only if it did not "significantly exacerbate the problem of carbon pollution."

The proposed pipeline is controversial because it would carry crude oil produced from Alberta's tar sands, a process that environmentalists argue is a particularly carbon-intensive method of producing oil. Canadian and industry officials counter that it would open Alberta's vast oil reserves to a much larger market. Those backers say the State Department's review proved that the pipeline did not significantly add to greenhouse gas emissions.

But environmental groups reject the review. The agency's March 2013 draft review vastly underestimates future carbon emissions, opponents say, and was authored by a contractor who did not disclose ties to TransCanada, the company behind Keystone XL. That the State Department is investigating its own contractor adds weight to these arguments.

"The president has said that he’s going to decide Keystone based on its overall impact on the climate in terms of carbon emissions," said Ross Hammond, senior campaigner for Friends of the Earth, an environmental group challenging the State Department report. "The report on which he’s going to base that decision is tainted – I think irrefutably tainted."

The accusations stem from the release of unredacted documents submitted to the State Department by Environmental Resources Management (ERM), the consultant hired to perform the environmental review. Those documents, released by Mother Jones in May, show that analysts who worked on the Keystone report had previously worked for TransCanada and "other energy companies poised to benefit from Keystone's construction."

If accurate, the documents may suggest bias, but likely fall short of a legal definition of conflict of interest, said Pat Parenteau, a professor at Vermont Law School specializing in energy and the environment.

The law governing conflict of interest in these environmental reviews is broad, Mr. Parenteau said in a telephone interview, and typically require more direct evidence that ERM stands to benefit from TransCanada in the future. There's a tricky logic behind that legal flexibility.

"There is a tension there between an overly strict conflict of interest rule that would disqualify the most qualified people for a job and one that’s so loose a contractor is bending information in favor of a project," Parenteau said.

In July, Friends of the Earth and the Checks and Balances Project, another advocacy group, said they uncovered publicly available documents online that show TransCanada, ERM, and an ERM subsidiary have worked together at least since 2011 on a separate pipeline project in Alaska. Last week, Bloomberg Businessweek posted a 2010 document in which ERM lists TransCanada as a client.

That would seemingly contradict the conflict-of-interest agreement ERM submitted to the State Department in June 2012. When asked if ERM had any direct or indirect relationship with any business entity that could be affected in any way by the proposed work in the three years leading up to the project, the company answered, "No. ERM has no existing contract or working relationship with TransCanada."

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ERM has not made public comments about the allegations and redirected press inquiries to the State Department.

“The Department will continue to review the Presidential Permit application for the proposed Keystone XL pipeline in a rigorous, transparent, and efficient manner," a State Department official wrote in an e-mail to the Monitor Monday. “Our rigorous conflict of interest procedures ensure that no contractors or subcontractors have financial or other interests in the outcome of a project. The Department required ERM to conduct an internal inquiry to ensure that it was free of any conflicts of interest regarding the proposed Keystone XL pipeline project.”