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Keystone symbolizes what is wrong with U.S. policy

By John Kemp

President Barack Obama’s decision to block Keystone XL is an
illustration of everything that is wrong with U.S. 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.

ENDLESS DELAYS
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.

POLITICAL EXCUSES

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.

EXTERNAL FACTORS

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.

© Thomson Reuters 2011