Botched Again: EPA Tells State Department to Redo Its Keystone Analysis

Environmentalists say the EPA memo effectively tells Obama that the pipeline fails his climate test and paves the way for final rejection.

A new memo by EPA released on February 3, 2015, criticized the State Department for its conclusion that the Keystone XL pipeline would not significantly impact global warming, and told the department to reconsider that conclusion in the wake of low oil prices. Environmentalists said the memo effectively tells President Obama that the pipeline fails his test on climate change. Photo credit: EPA Administrator Gina McCarthy/EPA

The Environmental Protection Agency has called on the State Department to reconsider a key finding that led its Keystone XL review team to suggest that the pipeline wouldn't worsen climate change. The EPA said the recent sharp decline in oil prices makes it more likely that the project would significantly increase emissions of greenhouse gases.

In a memo filed Tuesday as President Obama's decision on the Keystone seemed to be drawing near, the EPA challenged the year-old environmental review's assertion that with oil prices relatively high, no single pipeline would significantly affect tar sands production or greenhouse gas emissions.

The EPA said that finding "was based in large part on projections of the global price of oil"—projections made a year ago that have not held up.

"Given the recent variability in oil prices, it is important to revisit these conclusions," the EPA said.

The EPA is charged by law with reviewing the environmental impact statements issued by other federal agencies, and each time it has reviewed the State Department's work on the pipeline, it has found weaknesses.

This memo arrived just as the issue has reached full boil.

Other agencies, as well as EPA, were weighing in for the last time on the administration's decision.

Meanwhile, Congress is about to pass a bill, approved by the Senate last week, which would sweep aside the prolonged review process and approve the project. President Obama has said he would veto that bill.

Obama has long declared that the single most important question in determining whether the pipeline is in the national interest is whether it would contribute significantly to global warming.

The EPA's memo, environmentalists said, effectively tells Obama that the pipeline fails his test.

The Keystone XL line would carry up to 800,000 barrels a day of tar sands crude oil from Alberta, Canada to refineries on the Gulf Coast. Producing fuel from the tar sands is one of the dirtiest forms of oil production, giving off far more carbon dioxide than most conventional oil.

"Until ongoing efforts to reduce greenhouse gas emissions associated with the production of oil sands are more successful and widespread compared to reference crudes, development of oil sands crude represents a significant increase in greenhouse gas emissions," the EPA noted. Even the State Department had recognized that, it said.

Then the agency, in its most potent message, confirmed what pipeline critics have been saying all along: that the State Department botched its analysis by concluding that at foreseeable oil prices, building the pipeline would not affect production from the oil sands.

The State Department's market analysis, conducted by industry consultants, found that the Keystone pipeline probably wouldn't matter to overall greenhouse gas emissions. The laws of oil supply and demand, it reckoned, meant that with or without this pipeline, crude from Canada's tar sands would continue to flow to world markets, perhaps by rail. This reasoning, the department said, would hold true as long as oil prices stayed above about $75 a barrel, which the department said was likely.

At lower oil prices, though, the Keystone would become much more important to tar sands producers, the State Department conceded. Keeping their transportation costs low would prop up their profits and stave off production cuts. That, in turn, would mean higher emissions.

Since the market analysis was published, prices have plummeted to near $50even lower for tar sands, which always sell at a discount to cleaner fuels. Many analysts expect prices to stay below $75 for at least a couple of years, and oil companies have already been postponing tar sands projects in light of the rapid collapse of prices.

Here's how the EPA spelled out its criticism of the State Department's finding, which was in the final supplemental environmental impact statement, or SEIS, published in January 2013:

Given the recent variability in oil prices, it is important to revisit these conclusions. While the overall effect of the project on oil sands production will be driven by long-term movements in the price of oil and not short term volatility, recent large declines in oil prices (oil was trading below $50 per barrel last week) highlight the variability of oil prices. The final SEIS concluded that at sustained oil prices of $65 to $75 per barrel, the higher transportation costs of shipment by rail "could have a substantial impact on oil sands production levels—possibly in excess of the capacity of the proposed project." In other words, the Final SEIS found that at sustained oil prices within this range, construction of the pipeline is projected to change the economics of oil sands development and result in increased oil sands production, and the accompanying greenhouse gas emissions, over what would otherwise occur. Given recent large declines in oil prices and the uncertainty of oil price projections the additional low price scenario included in the Final SEIS should be given additional weight during decision making, due to the potential implications of lower oil prices on project impacts, especially greenhouse gas emissions.

In response to the EPA memo, the American Petroleum Institute said the EPA is inventing new excuses to further delay the approval of the Keystone XL pipeline.

"Suggesting that the drop in oil prices requires a re-evaluation of the environmental impact of the project is just another attempt to prolong the KXL review," said API Executive Vice President Louis Finkel. "Keystone XL was put forward when oil was less than $40 a barrel so price has little impact on the project."

The builder of the pipeline, TransCanada, disputed that oil sands fuel is much dirtier than other varieties, saying that there are so many grades of oil that this is hard to analyze. And it said that the total emissions of the Keystone are trivial when compared, for example, to emissions from China.

The company also said in a statement that the EPA letter contained some comments that Transcanada viewed as favorable.

For instance, EPA noted it was "particularly important" that TransCanada had said it would be responsible for cleaning up groundwater or surface water in the event of a spill.

"Nonetheless," the EPA memo said, "the Final SEIS acknowledged that the proposed pipeline does present a risk of spills, which remains a concern for citizens and businesses relying on groundwater resources crossed by the route."

The EPA also said that the annual emissions of tar sands oil moving through the pipeline would be almost as much as six million cars or eight coal-fired power plants. "Over the 50-year lifetime of the pipeline, this could translate into releasing as much as 1.37 billion more tons of greenhouse gases into the atmosphere," it said.

Reading between lines like those, environmental groups could only welcome the EPA's perspective.

"From the risk of spills to a dramatic increase in greenhouse emissions, it's clear that tar sands oil should stay in the ground," said Tiernan Sittenfeld, vice president of government affairs at the League of Conservation Voters. "President Obama has all the information he needs to reject Keystone XL, and today's comments from EPA make us more confident than ever that he will continue to build on his incredible climate leadership by rejecting this dirty and dangerous pipeline once and for all."

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