(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON Jan 19 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.
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
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
"No chief executive likes to be painted into a corner by
anybody," according to John Engler, head of the pro-pipeline
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
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
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"
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)