The review process for Keystone XL might have hit—you guessed it—yet another bump. This time the snag is allegations that Environmental Resources Management, an environmental consultancy that helped the U.S. State Department write its latest draft environmental assessment of the pipeline, has inappropriate ties with TransCanada. The conflict of interest accusations, which come from environmentalist groups that oppose Keystone XL, have triggered an internal inquiry at the U.S. State Department that, we learned late week, will likely take until January 2014 to conclude, potentially delaying a final decision on the project.
The charge levied against ERM is that some of its employees who worked on the Keystone report had previously worked for TransCanada or for industry players that would benefit from the construction of the pipeline. That, green groups such as Sierra Club seem to believe, is proof that ERM’s loyalty lies with the oil and gas industry. The issue, though, seems to be more complicated than that. On the one hand, you would want a contractor evaluating the environmental impact of a pipeline to have worked with the majors in the industry: How else would they develop the necessary expertise? On the other hand, ERM was being asked to judge the hand that feeds it.
“It’s a bit of an intractable problem,” says Patrick Parenteau a professor at Vermont Law School and former director of the school’s Environmental Law Center. Legally speaking, he says, a conflict of interest in this case is defined as having a direct financial stake in the project under review. Put in those terms, ERM will probably pass the test, he says, but that doesn’t mean a conflict doesn’t exist. It is conceivable that ERM employees might have had, in the back of their minds, concerns about how the consultant’s take on Keystone would affect its ability to win future contracts with the industry.
And back-of-the-mind concerns become particularly important when contractors are assessing relatively new scenarios where there is no broad consensus. “What you’re buying,” notes Parenteau, “is a very nuanced kind of judgement.” A spill of diluted bitumen (dilbit) from Keystone would probably fit the scenario Parenteau described. Although there is no reason to believe that dilbit is more likely to cause a pipeline leak, as some environmental groups have alleged, the evidence on whether a dilbit spill requires a different cleanup response than for conventional types of crude is much less clear cut.
None of this, of course, tells us anything about ERM’s actual conduct, but it does highlight just what a conundrum the State Department faces. No wonder the agency, which has been chastised once before over its vetting process for contractors advising on Keystone, is treading carefully.
Complicating things further is the fact that environmental assessments aren’t exactly State’s bread and butter, notes Parenteau. The agency is in charge of reviewing the northern leg of Keystone because it crosses national borders, but its expertise on all things environmental is, to use a euphemism, limited, which is why it has to rely on external contractors.
The risk for Keystone is that a nervous, out-of-its element State Department might opt to retrace its steps—not because of the existence of an actual conflict of interest—but because of the appearance of one.
Erica Alini is reporter based in Cambridge, Mass., and a regular contributor to CanadianBusiness.com, where she covers the U.S. economy.