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Emphasis on emissions gives Obama wiggle room on Keystone: Erica Alini

Rail and regulations back in the mix.

Daniel Acker/Bloomberg via Getty Images

Daniel Acker/Bloomberg via Getty Images

Canadian reporters had been assured President Barack Obama’s big climate change speech at Georgetown University on Tuesday would be Keystone-free. It wasn’t. Not only did the president mention the Canadian pipeline intended to transport oil sand crude from Alberta to Gulf Coast refiners, but he also indicated that the project’s net effect on carbon emissions would be “absolutely critical” to determining whether or not the White House would give it the green light.

“Our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution,” Obama said.

The statement leaves ample wiggle room for the president to approve or turn down the pipeline, and the cryptic phrasing left both Keystone opponents and supporters feeling optimistic. “The standard the president set today should lead to speedy approval of the Keystone pipeline,” tweeted Brendan Buck, press secretary for Republican house speaker John Boehner, just as green activists jubilantly thumbed 140-character missives about the supposed impending rejection of the very same pipeline.

What’s next, then, depends on whether the U.S. government will find that Keystone makes a significant difference to greenhouse gas (GHG) emissions. That is far from a foregone conclusion.

If you look at the State Department’s latest draft environmental assessment on Keystone, approval would seem guaranteed.

“If the proposed Project were to induce growth in the rate of extraction in the oil sands, then it could cause GHG emissions greater than just its direct emissions,” State wrote in March. Yet, it added, “the project is unlikely to have a substantial impact on the rate of development in the oil sands.”

Key to that conclusion was the finding that Alberta’s crude oil would find its way to market whether or not Keystone is built (or rather, completed). Interestingly, the finding wasn’t based on the assumption that Canada would pump its bitumen through other pipelines, such the the Northern Gateway in B.C., a prospect State deemed fraught with uncertainties. Rather, the agency believed at the time that rail would be able to absorb any increase in oil sands crude production—and without forcing major slowdowns in the pace of the development of the oil patch.

“If all such pipeline capacity were restricted in the medium-to-long-term, the incremental increase in cost of the non-pipeline transport options could result in a decrease in production from the oil sands, perhaps 90,000 to 210,000 bpd (approximately 2 to 4 per cent) by 2030,” State wrote. A 2-4 per cent output decrease over 17 years does not seem like much.

But State might not reach the same conclusion on rail’s ability to make up for missing pipeline capacity in its upcoming final environmental review. In a formal critique of State’s March draft, the Environmental Protection Agency seemed to take issue with the 2-4% output disruption estimate, suggesting the cost of shipping oil by rail could be much higher. “Further investigation” is needed, the EPA wrote, because of “the potential for much higher per barrel rail shipment costs than presented in the DSEIS [the State Department’s assessment].”

On emissions, the EPA also recommended that State’s final environmental evaluation of Keystone “complement the discussion” about what Canada has been doing to curb carbon dioxide from the oil sands with “an exploration” of ways to add further curbs, and how the U.S. might encourage its northern neighbour to step up its efforts.

That would seem to leave some leeway for approval of Keystone even if State reverses its initial finding on rail. In that case, everything would depend on how impressed the EPA will be by Ottawa’s upcoming emission regulations on the oil and gas industry, which, according to Environment Minister Peter Kent, should be out by “mid-year.”

Trains and federal emission regulations, in short, could seal Keystone’s destiny.

Erica Alini is a California-based reporter and a regular contributor to CanadianBusiness.com, where she covers the U.S. economy. Follow her on Twitter: @ealini.