Keystone Oil Pipeline Poses No-Win Situation for Obama

Obama's decision on a lengthy oil pipeline through the Midwest will come with major political costs, Daniel Stone reports.

It was, almost literally, a political straitjacket for President Obama. On Sunday afternoon, as many as 10,000 protesters encircled the White House to persuade the president to cancel a controversial oil pipeline that would connect Canadian tar sands with the U.S. Gulf Coast.

For more than a year it was a political no-brainer. The State Department oversaw the planning process, and close to $2 billion had already been spent in siting and administrative paperwork for the proposed 1,700-mile-long oil tube. State officials even issued a preliminary approval for the project, opening it up to public comment in the spring. And Obama had been content staying entirely out of the process, nearly vowing to rubber-stamp whatever Secretary of State Hillary Clinton—the senior official on the project because the pipeline crosses national borders—decided to do.

But the project has become a growing headache for the Obama White House. The rising visibility of the pipeline and its costs has put administration staffers on the defensive and Obama squarely in charge of making a decision bound to come with a major political price.

The complex choice boils down to two main options. Either Obama approves the construction of the pipeline—an economic boon and substantial move toward energy security and stability. Or he could call off the project to appease the demands of environmentalists who are incensed that the U.S. would encourage even more large-scale fossil-fuel production and the spewing of more greenhouse gases into the atmosphere.

The project, pushed by Canadian energy giant TransCanada, has its defenders in the U.S., including the American Petroleum Institute (API) and members on Capitol Hill from Midwest and Gulf states. All would see benefits, both in jobs and economic activity, from the pipeline.

“There’s really no reason why that pipeline should not be approved,” said Jack Gerard, president of API. API and other energy groups have estimated that the project would create 1 million new jobs in the next seven years and bring in $127 billion in revenue without raising any taxes. Other proponents have noted that were the U.S. to withdraw, the Canadians would still produce the oil and just sell it to Asian countries, including China, which has laxer environmental regulations, resulting in a situation that could be even worse for the planet.

Environmentalists say the jobs number is wildly inflated and have even alleged corruption in how the State Department handled the pipeline’s initial application. A study at Cornell University last month found the number of jobs to be unsubstantiated, and said most jobs would disappear after the construction phase. An analysis by Philip Verleger, who sat on the White House Council of Economic Advisers during the Carter administration, found that the pipeline could actually allow Canadian speculators to manipulate the U.S. oil market and suck billions of dollars more out of American consumers. Meanwhile, State’s inspector general has launched an investigation into whether conflicts of interest clouded the government’s review.

With unemployment still at 9 percent, Obama’s choice may already be made for him. A White House official, speaking under the usual rules of anonymity, said that Obama is focused on jobs and believes there’s a way to build the pipeline and scrupulously protect the environment at the same time. “He doesn’t see it as an either/or,” said the official.

Obama himself has already tried to stake the middle ground. "We need to encourage domestic oil and natural-gas production, and we need to make sure that we have energy security and aren’t just relying on Middle East sources," he told an interviewer in Omaha last week. "But there’s a way of doing that and still making sure that the health and safety of the American people and folks in Nebraska are protected, and that’s how I’ll be measuring these recommendations when they come to me."

The administration is keen to point out Obama’s other environmental accomplishments, which haven’t gotten the attention the president’s aides would like. The Recovery Act funded considerable leaps in renewable energy and efficiency research. A mandate on fuel standards will nearly double mileage efficiency by 2025, in turn reducing fossil-fuel consumption. And the percentage of oil the U.S. imports has dropped sharply—from about 60 percent in 2005 to 48 percent now—mostly because of the recession, but also because of expanded exploration and production in places like the Gulf.

But for the president’s band of environmentalists—vocal supporters who rallied around candidate Obama in 2008 to mark a change from the Bush administration—those arguments don't quite fly. The constant sentiment at Sunday’s protests was that Keystone is Obama’s last chance to show his green chops. "If the U.S. government goes ahead and makes it easier to develop [the pipeline], then there is no credible way to insist that they're working hard on climate change," environmentalist and organizer Bill McKibben said on Sunday.

The escape hatch for the administration may be to run down the clock. A decision was initially expected from the White House by Nov. 1 before it got pushed to the end of the year. Now the White House is mulling a proposal to require project managers to reduce the pipeline’s environmental risks before they get the green light. Doing so could reasonably delay Obama’s decision, conveniently, until after next year’s election.