The Keystone XL Pipeline: The President's Political Puzzle

When he delayed a decision on permitting the contentious Keystone XL oil pipeline in November of 2011, President Barack Obama effectively sidestepped a divisive issue that had no political upside as he entered his 2012 reelection race.

Approving the project -- which aims to transport a diluted form of extra-heavy oil known as bitumen from vast mines in Alberta, Canada, across the U.S. border in Montana and down to refiners on the Gulf Coast -- would have alienated the president's environmental base. Rejecting it outright would have given Republican supporters of the pipeline, including his eventual opponent, Mitt Romney, a rhetorical jobs-and-energy cudgel for the duration of the campaign.

Instead, Obama set aside the decision all together, offering him the ability to support the project in principle, but only if a thorough federal review -- conveniently extended to post-election 2013 -- demonstrated that it was in the national interest. Early in 2012, Republicans in Congress attempted to force a decision, but with leaders in Nebraska, including its Republican governor, expressing concerns about the path of the pipeline through sensitive areas of that state, Obama could reasonably argue that a decision ought not to be rushed.

The original permit application was then denied and the KXL project -- once a potential flashpoint for Obama -- was reduced to background noise in a presidential race that focused, for the most part, on other things.

How time flies. After last year's rejection, the company behind the pipeline project, TransCanada, quickly agreed to work with leaders in Nebraska to tweak the pipeline's route and applied for a new permit with the State Department, which is burdened with the project's appraisal because it crosses an international border. That review is expected to wind up this spring, and the president, now safely installed for a second term, faces what might be an even more difficult reckoning on the contentious project, as forces on both sides appear to be itching for a fight.

For opponents, rejection of the pipeline would, at the very least, represent a vital and historic break with the era of fossil fuels. But for supporters of the pipeline -- including TransCanada, which says delays have added $1 billion to the cost of the $7 billion project -- denying a pipeline permit would run counter to Obama's stated commitment to job creation and an "all of the above" energy policy that includes continued development of oil, gas and even coal resources.

"I don't know the easy answer," said Frank Maisano, an energy specialist at the law firm Bracewell & Giuliani, which represents a wide portfolio of both conventional and renewable energy companies. "Rejecting it would set in place an antagonistic political battle that will consume the entire energy space for the remainder of his term, and I don't think Obama wants that."

Still, at his inaugural speech on Monday, Obama appeared to elevate the issue of climate change to the top of his second-term agenda, giving groups agitating for swifter and bolder transition away from fossil fuels some hope that a rejection of the KXL project was in the offing. Obama's selection of Sen. John Kerry (D-Mass.), a vocal advocate for aggressive climate policy, to replace Hillary Clinton as head of the State Department, has also fueled speculation that the stars are aligning in favor of KXL's environmental opponents, who argue that the pipeline would lead to the rapid expansion of a carbon-intensive energy source at precisely the moment in history when rapid reductions in carbon emissions are what's needed.

Kerry, who gave no indication of his personal view of the project during his confirmation hearing on Thursday, will have to render a recommendation on the permit -- almost certainly by this spring, after State Department officials have completed a new impact review.

The decision, however, ultimately rests with Obama.

Which is why earlier this month, 18 of the nation's most prominent climate scientists sent a letter to the president, calling for a summary rejection of the pipeline. "We hope, as scientists, that you will demonstrate the seriousness of your climate convictions by refusing to permit Keystone XL," the assemblage, led by NASA scientist and climate expert James Hansen, wrote. "To do otherwise would be to undermine your legacy."

Bill McKibben, the environmentalist and founder of the climate action group, said in an email earlier this week that the president must turn his words into action by rejecting the KXL project. "You can't be a foe of climate disaster and then greenlight a project that the country's best climate scientists have told you is a global warming machine," he said.

Next month, McKibben and other activists are planning to up the ante with a major demonstration at the National Mall in Washington, D.C. In a historic move that has raised the symbolic stakes of that event considerably, the board of directors of the Sierra Club, a co-sponsor of the demonstration and the nation's oldest and largest environmental organization, voted to break with 120 years of tradition and engage in an as-yet unspecified act of peaceful civil disobedience in protest of the proposed pipeline next month.

Just what that might end up looking like remains to be seen, but if environmental opponents of the pipeline are angling to raise pressure on Obama to reject it, the project's supporters are lobbying just as hard for its approval. This includes a number of the president's Democratic allies in the Senate, rendering the politics of the decision more complicated than it might seem.

In a letter sent to the president on Wednesday, a group of 53 senators, including nine Democrats, urged Obama to approve the pipeline, which, they said, represented "thousands of good-paying union jobs and millions of dollars in economic development for our country."

The letter landed on the same day as a Washington Post editorial that made roughly the same case, in addition to noting that Nebraska's Gov. Heineman had now signed off on a new route that skirts the state's delicate Sand Hills region -- a key stumbling block that helped give Obama cover for rejecting the permit the first time around.

"Mr. Obama should ignore the activists who have bizarrely chosen to make Keystone XL a line-in-the-sand issue, when there are dozens more of far greater environmental import," the Post's editorial board wrote. "He knows that the way to cut oil use is to reduce demand for the stuff, and he has begun to put that knowledge into practice, setting tough new fuel-efficiency standards for cars and trucks. That will actually make a difference, unlike blocking a pipeline here or there."

Last spring, TransCanada began assembling the southernmost section of the pipeline's route, connecting Cushing, Okla., to the Houston area while it awaited a new round of deliberations -- the accumulation of which, said company spokesman Shawn Howard, had added as much as $1 billion to the project's final cost. Much of that, Howard said, was tied to increased carrying and interest costs for funds borrowed to pay for the pipeline's construction, along with the increased value of the Canadian dollar, increased labor and materials costs, and expenditures related to modifying the route and storing already-purchased pipe and other equipment.

"We still believe this project will be approved," Howard said, adding that American refiners on the Gulf coast are clamoring for the Canadian oil, given that their supplies of Mexican and Venezuelan crude are drying up. "The longer it's delayed, the more important Keystone becomes, and we continue to believe that if you ask the question, 'Is this in America's national interest?' -- in terms of energy security and good jobs, the answer is yes."

Michael Levi, a senior fellow and director of the Program on Energy Security and Climate Change at the Council on Foreign Relations has long argued that the employment and energy-security virtues of KXL are often grossly overstated by project supporters -- but that so, too, are the claims of opponents who say allowing the project to go forward will render the battle against climate change all but hopeless. "There is no math that shows whose political strategy makes the most sense here," said Levi, who leans in favor of approving the project, in part because there are bigger and better targets for cutting emissions on the demand side of the issue.

"You just can't deal with the United States' contribution to climate change without going after consumption in a big way," he said.

For their part, investors seem convinced that TransCanada will ultimately get its permit, with stock in the company reaching its highest price in nearly 30 years of trading -- $49.64 on the New York Stock Exchange -- one day after Obama's stirring climate speech.

Maisano is betting the project will be approved, too -- though he thinks that will by no means signal the end of the Keystone XL debate.

"Look for a final decision that leaves loose ends that can foster litigation," he wrote in an email to reporters earlier this week. "The President gets his cake and the enviro-lawsuit machine eats it too."