Finding the Silver Pipelining in the Keystone XL Decision

November 6, 2015

Today President Obama, after seven long years of study and deliberation, rejected TransCanada’s request for a Presidential Permit for its Keystone XL pipeline – a 1,179 mile pipeline designed to bring up to 830,000 barrels per day of Canadian oil to an integrated pipeline system in the United States. Despite the Obama administration’s protestations to the contrary, the decision to deny the permit is rumored to have been made for quite some time and the timing of today’s decision appears to be a calculated step to win the president and the administration additional support from the environmental community before heading off to Paris for the UN climate negotiations at the end of this month. The president asserted that approving Keystone XL would undercut the U.S. role as a climate leader, when in reality the decision likely carries more weight in domestic rather than international circles. Indeed, U.S. leadership on climate is more firmly supported by the suite of action it has taken as part of the Climate Action Plan.

Few pieces of energy infrastructure share the symbolic significance that Keystone XL has come to represent in U.S. politics. Support or denial for Keystone XL serves as a litmus test for environmental or energy industry bona fides. Industry and environmental groups will no doubt have strong responses and political operatives will be scrambling to find a way to turn the denial into a fundraising plea for the upcoming presidential campaign. The political fallout or noise resulting from today’s decision is likely to be the most significant impact for several key reasons.

First, the Keystone XL pipeline does not make or break oil sands development in any significant way. In the time that Keystone XL has been pending, periods of high production and high prices effectively moved large amounts of oil sands crude out of Alberta to the North American market. In addition, significant new pipeline capacity serving almost precisely the same function as Keystone XL has also been approved and expansion is underway. The strong headwinds facing oil sands production come from the low oil price environment and the potential for stricter local environmental regulation and royalty costs.

Second, the pipeline denial does not in and of itself reduce emissions in a material way. Yes, it is possible to calculate the emissions from oil sands development, transport and combustion in vehicles but it is not clear that the lack of a pipeline to deliver the crude materially changes any portion of that equation. Low oil prices have increased oil demand in the United States in the near-term (and the emissions profiles of those sources is even less well understood than that of oil sands) and only stricter vehicle efficiency standards can be credited with reducing the impact of the most potent part of the oil value chain – consumption.

It has been seven long and strange years since the approval for this permit was first requested – many of us who have been following it the entire time would like to find a silver lining (pipelining if you will) to today’s decision. Whether she meant it this way or not, Hilary Clinton called the Keystone XL pipeline a “distraction” from dealing with the issue of climate change – a charge President Obama echoed in his statement denying the permit. For those of us who recognize the urgent need to deal with climate change and get about the business of making tough choices and crafting clear policies to lead to balanced and plausible outcomes, the time, energy and attention that has gone toward Keystone XL has indeed been a distraction. One potential silver lining from today’s decision is the idea that we can finally move beyond an overemphasis on symbolic infrastructure projects and have more serious energy and climate policy discussion. Whether that is ultimately possible remains to be seen.

Today’s decision raises a number of really important questions going forward – some of which will matter for the nature of our energy and climate policy debate.

First, in response to the permit denial, TransCanada released a statement saying it will continue to support the Keystone XL pipeline project and is evaluating all its options. By law, it seems they have every right to do so, and, quite frankly, a new project may afford them time to wait out the low oil price environment of today until prices have recovered and investment picks up again. If this is true then the debate about cross-border pipelines bringing oil sands to the United States is far from over.

Second, the permit was denied on the grounds that the pipeline was not in the national interest of the United States. The National Interest Determination is a veritable black box compared to the environmental impact statement processes that preceded it but one can only surmise from the President’s statement that most influential reason is because of the environmental impacts of oil sands production. If this is true the United States has taken a bold step in imposing extra-territorial evaluation of emissions on trade with the United States in accordance with some of the early executive orders on National Environmental Policy Act (NEPA) guidance. Under this logic there is now at least some internal U.S. government understanding of acceptable versus unacceptable emissions increments that we are willing to accept from infrastructure projects and that standard might now also be more readily applied to other projects as well.

If this second point is reading too much into the details and implications of this opaque decision, then a less analytical reality may be that this permit decision was primarily political in nature. The implications of a purely political decision are even more uncertain for anyone wishing to invest in a fossil based energy project requiring federal government approval in the United States.

Keystone XL is not the first cross-border pipeline and it is not likely to be the last. Here’s to hoping that one silver lining from today’s decisions is that both the administration and Republicans in Congress have a new opportunity to focus on something a bit more productive than just saying no.

Sarah Ladislaw is a senior fellow and director of the Energy and National Security Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Frank Verrastro is senior vice president and holds the James R. Schlesinger Chair for Energy and Geopolitics at CSIS.

This Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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