Keystone about to be built?... Don't bet on it...

The Keystone XL pipeline issue was thrust onto the Washington political agenda again this past week, scarcely a week after the drubbing at the polls suffered by Democrats in the Congressional midterms. In a series of twists and turns that can only really be understood inside the Washington beltway, the Keystone XL pipeline project suddenly seems to have new life.... or does it?

I may have to eat some humble pie six months from now, but I don't think everyone should be getting too excited about this. Shovels are no closer to going in the ground this week than they were last week.

In fact, I predict that Keystone XL will still be on the next president's desk when he or she assumes office in January 2017.



I'd like to point to four big points in support of my prediction:

1) Keystone XL is no longer about a pipeline.
Keystone long ago ceased to be anything that resembled a long tube through which energy flowed. Instead, it has become a political football used by everyone to score points; and I mean everyone. I wonder if this pipeline has become so radioactive politically, that it can no longer be built by anyone. The political and environmental stew that is now Keystone XL may permanently preclude its construction. It's worth noting that the Alaska Pipeline was also hotly contested, but the 1973 Oil Crisis altered the economics and politics of that debate significantly in favor of construction (see point 4 below). No such luck for proponents of Keystone.

2) The Switch in Time That Saved Landrieu?
The heading here alludes to the 1937 Court Packing scheme in which Franklin Roosevelt threatened the U.S. Supreme Court with the nomination of new justices, and a larger Court with a majority that would look more favorably upon his New Deal programs. The Court effectively backed down and began issuing favorable rulings. It was henceforth referred to as "the switch in time that saved nine." In other words, the Court's change of heart about the New Deal essentially saved the nine justices on the bench.

Something similar has just happened in Louisiana with the hotly contested U.S. Senate seat there. Headed for a runoff election in December, the incumbent Democrat Mary Landrieu is in an uphill battle to save her seat from a challenge from Republican Bill Cassidy. Sensing defeat, Landrieu has somehow convinced some of her recalcitrant Senate Democratic colleagues, notably Senate Majority Leader Harry Reid, to consider legislation approving Keystone XL (see story). The idea here is to allow Landrieu to distance herself from President Obama in a conservative state in which the oil and gas sectors are major employers. It's worth noting that while Obama isn't a big fan of Keystone XL, any serious examination of his policies toward the oil and gas sector would suggest he has been rather friendly.

The House passed a new measure approving Keystone XL on Friday. The Senate will consider its version of the bill early next week. Saving Landrieu's seat is an other question since it has been precisely this kind of political gamesmanship in Washington that has so frustrated the American public. Votes on the Hill and a Presidential Veto are not going to help. Landrieu is headed for certain defeat.


3) Obama Just Got More Serious About Climate Change
As I have already argued in the pages of this blog, Obama may be a lot of unflattering things, but he is serious about climate change. He just got more serious about it with a major initiative inked with China at last week's APEC Summit (link). The boo-birds are already out taking about how unrealistic he is being about the U.S. capacity to meet it's targets under the agreement, as well as how China is going to be held accountable for its commitments (see link). 

That said, this is a big deal, if for no other reason than its symbolism. It lays down a marker for the rest of the world going into the COP 21 climate change meetings in Paris at the end of 2015. It puts significant pressure on other major industrial emitters, including Canada, to step up to the plate. How can Obama be expected to approve a pipeline project that, rightly or wrongly, has been so intimately tied to the debate over climate change? I've already suggested that one way for Canada to change the dynamic on Keystone XL would be to make a serious climate change proposal to the United States.

4) At $80/barrel, Approving Keystone Gets Obama Nothing
In part thanks to the Obama Administration's policies on oil and gas exploration, the United States is awash in oil and gas. What's the short- or medium-term rationale for approving Keystone XL? What does Obama get in return? At the moment, there is very little to animate a quick presidential decision here. At present, Obama seems to think approving Keystone XL would really be about allowing Canada to transport it's oil across the United States for export; not many benefits to Americans themselves (See article in the New Republic). On one side, TransCanada's Russ Girling continues to perpetuate the idea that tens of thousands of jobs will be created (link to transcript). On the other is Obama during his press conference in Burma last week:

"And I have to constantly push back against this idea that somehow the Keystone pipeline is either this massive jobs bill for the United States, or is somehow lowering gas prices. Understand what this project is.  It is providing the ability of Canada to pump their oil, send it through our land, down to the Gulf, where it will be sold everywhere else.  That doesn't have an impact on U.S. gas prices." (link to transcript).

Obama's veto pen has not been used often, but it most certainly will be used on any House and Senate bill that lands on his desk. I would not be surprised to learn that Senate Democrats consulted with the White House on a veto before allowing this "save Landrieu" measure to be put forward. In other words, the White House gave its blessing to the introduction of the Senate measure and Senate Democrats know it will be vetoed. Keystone XL is a bargaining chip Obama will be unlikely to part with in the absence of some kind of quid pro quo on another set of issues.