How (and Why) Republicans Killed the Keystone Pipeline

 

One of my teaching duties at The University of Texas’ McCombs School of Business is to help oil company executives learn how to develop positive, productive relationships with “external stakeholders” -- governments, NGOs, neighbors, etc. A key lesson in that work is that the company's relationship with elected government officials is particularly fraught with risk. Business people can never fully trust an elected politician, no matter how close an ally he or she seems to be, because when the politician’s electoral interests diverge from shared policy goals, the former almost always trump the latter.

The recent history of the Keystone pipeline is a perfect example of this lesson.

As proposed, the Keystone pipeline would provide added capacity for the transport of oil from the oil sands of Alberta, Canada, to refineries in the United States, including Texas. Because the pipeline crosses an international border, its construction requires the approval of the Department of State. 

Environmentalists and most Democrats oppose the pipeline in large part because they oppose the development of the oil sands, which is a particularly pollution- and energy-intensive way to produce oil. Industry, unions and most Republicans, on the other hand, support the pipeline for economic and energy security reasons. On its face, the decision whether to approve the pipeline looks like so many other modern energy policy conflicts, pitting pro-development Republicans against pro-environment Democrats.  However, for the Administration the decision pits two of its core constituencies--unions and environmentalists--against one another. Presumably, it is that political conundrum that led President Obama last fall to postpone the decision until after the 2012 presidential election

At the time of the president’s decision, the pipeline was still undergoing an environmental review, one that had been delayed by opposition to the pipeline in the State of Nebraska. The pipeline was to pass over a sensitive aquifer in state’s Sandhills region. The Republican governor of Nebraska and the state's Republican-dominated legislature opposed the route for that reason. Last November, the State and the pipeline’s sponsor, TransCanada Corporation, agreed upon a new route around the sensitive aquifer. That new route has yet to undergo any formal environmental review.

Despite all this controversy, TransCanada had good reason to be optimistic about the pipeline's prospects. TransCanada knew that the Obama administration had already staked out a position to the right of most Democrats on several energy issues. For example, the administration had supported the lifting of the moratorium on offshore oil drilling, and had approved new offshore oil and gas development over the objections of environmentalists and Democrats in Congress. According to e-mail messages obtained by the environmental group Friends of the Earth, key State Department officials were coaching TransCanada on how to navigate the State Department approval process, and TransCanada's chief lobbyist had close ties to Secretary of State Hillary Clinton

There was good reason to expect that the pipeline might be approved after the election, particularly given the resolution of the Nebraska aquifer issue.

However, Republicans in Congress saw the postponement of the decision as a political opportunity. Last December, they inserted a provision requiring the President to make a decision about the pipeline within 60 days into an unrelated piece of legislation. Facing this deadline, the President rejected the pipeline, arguing that the deadline did not give the Administration sufficient time to conduct the necessary environmental, safety and other reviews.  Given recent high-profile pipeline leaks in the news, his argument may resonate with most voters.

For project supporters, the unsuccessful conclusion of the permitting process represents a significant setback, one that needn't have come to pass. Had Congress not forced the administration's hand, the review process would have continued through 2012, building on the work done to date while addressing the issues raised by the new route in Nebraska. Instead, any new attempt to secure approval for the pipeline must start over at the beginning.


And so, politics trumps policy again. It’s not that Republicans would prefer to kill the pipeline; to the contrary, they would prefer that a Republican president approve it in 2013. The problem, from TransCanada’s point of view, is that we don’t know now who will win in November. By fast-tracking the approval process, Republicans may score political points, but they have also handed a victory to the project’s opponents, whose environmental case against the pipeline (as distinguished from oil sands production) was always a fairly weak one.

Disclaimer

The views expressed are those of the author and not necessarily The University of Texas at Austin.

About The Author

David Spence

Professor of Business, Government and Society, McCombs School of Business

Professor Spence's research and teaching focuses on business-government relations and the regulation of business, particularly energy and...

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