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November 17, 2015 Practice Points

Obama Administration Rejects Keystone XL Pipeline

TransCanada said it plans to reapply to build the pipeline and is confident the pipeline would eventually be built.

By Courtney Scobie

The Obama administration announced on November 6 that it has denied the presidential permit for the Keystone XL pipeline. The proposed pipeline would have connected the Hardisty, Alberta, oil terminal with the oil terminal in Steele City, Nebraska, facilitating the delivery of crude oil extracted from Canada’s tar sands to refineries in Illinois and Texas. However, the administration concluded that the pipeline was not in the national interest, stating that the negative environmental impact outweighed the economic benefit the pipeline would provide. In its statement on the rejection, the administration said the State Department’s findings showed the project would have a negligible impact on energy security, would not lead to lower gas prices for American consumers, and would have only a marginal impact on the long-term economy. It went on to note that studies show the project would have possible negative effects on local communities, water supplies, and cultural heritage sites, and would transport particularly dirty sources of fuel. The administration also noted the country’s duty to be a leader on acting against climate change, commenting that the United States could not ask other countries to make tough choices to address climate change if the U.S. is not willing to make them.

TransCanada, who runs the Keystone Pipeline System, said it plans to reapply to build the pipeline and is confident the pipeline would eventually be built. It called the decision a “disappointing choice” and said it would cost thousands of jobs in the U.S. and Canada and lead to increased oil imports from countries like Saudi Arabia and Venezuela. Congressional Republicans and Republican presidential candidates also criticized the administration’s decision, saying it would harm the country’s economy and cost jobs. Newly elected Canadian prime minister Justin Trudeau also expressed disappointment that the pipeline would not be built. However, while on the campaign trail, Trudeau pledged not to allow the construction of an alternative pipeline from Alberta to the Pacific Ocean, the plan touted by Stephen Harper’s government in the event the U.S. rejected Keystone XL.

The regulatory approval process for Keystone XL had a long and rather tortured history. TransCanada proposed the pipeline in 2008, but the U.S. Environmental Protection Agency and State Department studied the issue for several years. The Republican-controlled Congress tried to force the Obama administration to act on the permit request on multiple occasions, but the administration vetoed those efforts, saying the State Department needed more time to study the issue and that the permitting process was solely the province of the executive branch. The pipeline also faced court challenges in Nebraska from farmers who refused to grant easements for the pipeline and claimed that laws enacted by the Nebraska legislature to facilitate the pipeline’s construction violated the state constitution. The proposed pipeline’s impact on climate change was always at the forefront of the controversy surrounding the project. Many environmental concerns related to the pipeline also focused on its Nebraska location, due to some of the proposed routes for the pipeline winding through the environmentally sensitive Sand Hills area and over the Ogallala aquifer, a major source of drinking and irrigation water for much of the Midwest. TransCanada responded to this by rerouting the pipeline through less sensitive locations. Rerouting the pipeline could not resolve the concerns about climate change, though.

Keywords: energy litigationKeystone XL Pipeline, TransCanada, Nebraska, climate change

Courtney Scobie is with Ajamie LLP in Houston, Texas.

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