Why Obama will ultimately say no to Keystone XL

(Photos: Canadian Press; iStock; Shutterstock)

(Photos: Canadian Press; iStock; Shutterstock)

At a meeting of the Canadian American Business Council in New York a few months ago, Prime Minister Stephen Harper vowed to keep campaigning for the Keystone XL oil pipeline even if the U.S. rejected it. "My view is that you don't take no for an answer," he insisted.

This year, he will have to. U.S. President Barack Obama will render a decision on the cross-border stretch of the pipeline, which will funnel crude from Alberta to Nebraska. The odds of approval are not looking good. "It is less than 50-50 that President Obama approves it," says Daniel Weiss, the director of climate strategy at the Center for American Progress, a think-tank in Washington, D.C. There are early signs Obama is leaning toward nixing the pipeline, including his assertion in a July interview with the New York Times that the pipeline would only create between 50 and 100 permanent jobs.

The president made it clear his decision ultimately comes down to the pipeline's effect on carbon emissions. That would seem to be a boon for Keystone, since a preliminary assessment by the U.S. State Department concluded its effect on carbon emissions would be negligible. Canada's oil will be extracted and marketed regardless of Keystone, the report contended, and could be shipped to the U.S. by rail, which has higher emissions.

But there is no guarantee the State Department will reach the same conclusion in its final analysis, due in the coming months. The Environmental Protection Agency, for its part, questioned whether rail is economical enough to meet production estimates. If rail can't replace Keystone, then Canadian oil won't necessarily reach the U.S. in the same quantities. Emissions could theoretically be lower if the pipeline is never built. "Because of this, it wouldn't meet the president's own criteria," Weiss says.

Despite Obama's clear signal that the pipeline's fate rests on carbon emissions, the Canadian government still hasn't implemented regulations on the oil and gas sector. The Conservatives promised way back in 2006 that every industry would be subject to mandatory emissions requirements, but nearly eight years later, little progress has been made.

In this context, rejecting the project would be better for Obama politically. "What people in Canada don't seem to fully understand is the amount of private money being put into influencing Obama to not approve it," says Lionel Conacher, a Canadian who now works at Roth Capital Partners, an investment bank in California. Billionaire Tom Steyer's aggressive anti-Keystone advertising campaign has kept the issue in the public eye. It also reminds Obama's environmental supporters that he spent his first-term focused on health care instead of global warming. This public shaming is problematic for a final-term president interested in building his legacy. During the 2008 election, Obama promised his presidency "will mark a new chapter in America's leadership on climate change." Denying Keystone gives him a chance to fulfil that promise. He'll take it.

THREE MORE PREDICTIONS

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Northern gateway won't break ground: The federal cabinet will likely give its blessing to Northern Gateway in a few months, but many First Nations groups are opposed to the pipeline. It's almost guaranteed some groups will challenge Northern Gateway at the Supreme Court.

Trans mountain will spark controversy: Kinder Morgan Canada is seeking to triple the capacity of its pipeline from Edmonton to the coast of B.C., and the National Energy Board is conducting a 15-month review carrying into next year. The project hasn't generated nearly as much controversy as Northern Gateway, but environmental and native groups are beginning to voice opposition. Expect the pushback to intensify this year.

The East will demand a piece of the pipeline pie: TransCanada and Enbridge are seeking ways to move oil from Alberta to refineries and export terminals in the east. Ontario ordered public hearings into TransCanada's Energy East, and Quebec did the same for Enbridge's Line 9. Both provinces will likely flex their muscles by submitting a list of conditions the pipelines have to meet in order to win approval.

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