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The Net Impact of President Obama's Keystone XL Decision
US President Barack Obama speaks on the Keystone XL pipeline, flanked by Secretary of State John Kerry (R), and Vice President Joe Biden, on November 6, 2015 in the Roosevelt Room of the White House in Washington, DC. (MANDEL NGAN/AFP/Getty Images)

The Net Impact of President Obama's Keystone XL Decision

Christopher Sands

U.S. president Barack Obama formally refused a presidential permit for the Keystone XL pipeline today, after seven years of consideration and several State Department reviews. Trans Canada sought the permit (necessary for cross-border infrastructure since an executive order issued by President Lyndon Johnson in 1968) for an extension of an existing pipeline network that would have conveyed oil from Alberta to the U.S. Gulf Coast for refining. The U.S. Congress passed a bipartisan amendment to a bill in 2011 that called on President Obama to make a final decision, which prompted a rejection of the initial 2008 Trans Canada permit application. The subsequent 2012 permit application by Trans Canada was the one that was refused today.

For President Obama, the decision on KXL was necessary to shore up his environmental legacy. He did not get a global deal on climate change at Copenhagen, and whatever comes out of Paris will be vulnerable to criticism because so many countries are hedging, and because the US-China deal only binds China if the US acts first. Other parts of Obama’s legacy claim, such as the Clean Power Plan, are being challenged in court by half of the U.S. states. In short, Obama needed to put some points on the board and this was an opportunity.

For Trans Canada, this gives them the pause that the company requested in a letter to U.S. Secretary of State John Kerry earlier this week, just not on their preferred terms. Trans Canada can still reapply when there is a new U.S. president in 2017.

For the new Liberal government of Prime Minister Justin Trudeau in Canada, this is a lucky break. Now Prime Minister Trudeau can focus on making a bold Canadian commitment to act on climate change at the upcoming United Nations conference in Paris and shore up Canada’s environmental credentials for the next 12 months. Then, in 2017, he can say to the new U.S. president that Canada is no longer just part of the problem on climate change, but is part of the solution too, and this project deserves a second look. Even President Hilary Clinton might agree to that, and a Republican president certainly would.

For markets, the best time for this to happen is now when alternative supplies are ‎available and prices are low. More analysts had anticipated this outcome (nothing happening) through 2017 anyway, given Obama’s rhetoric on Keystone so far. 

We will return to this debate “already in progress” in a year or so.

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