The Inspector General of the US Department of State announced on August 23 that his investigation of one of the lead contractors responsible for the State Department’s Environmental Assessment of the Keystone XL pipeline would not be completed until January 2014 at the earliest. The firm, London-based ERM (Environmental Resources Management), is accused of failing to declare a conflict of interest. It has, apparently, worked for some of the proponents of the pipeline in the past. ERM has a good reputation in the business and has been working on sustainability issues for years. There may well be a conflict of interest issue in this case, but there may be more to this investigation than meets the eye.

I suspect that the Obama Administration is “ragging the puck” on the Keystone issue. Although the arguments against the pipeline focus on its operational safety and the danger it presents to important aquifers, the project’s environmental opponents are using the Keystone XL pipeline as a surrogate for the lack of a coherent climate and energy policy by the US government and the Canadian government in particular.

All signs indicate that the US president believes in the importance of climate policy. John Holdren, his senior adviser on science and technology, is one of the world’s leading energy and climate experts, and his first Secretary of Energy, Steven Chu, is a Nobel Laureate with impressive experience in the field. The president will certainly have been well briefed. Obama helped to broker the final deal at the Copenhagen climate negotiations in 2009. Both his recent Inaugural Address and the State of the Union that followed it, devoted a good deal of space to the threats posed by climate change and to the opportunities that low-carbon technologies offer to American industry. Obama followed these references with a major speech on climate change in March 2013, which set out a plan for combatting climate change through regulatory and incentive changes.

The really critical change — pricing carbon properly through a carbon tax or cap-and-trade system lies beyond the president’s reach. The “do nothing” Congress will block any attempts to let the market do the job. So, Obama is left with exhortatory speeches and the regulatory changes set out in March. He can also signal his commitment by dragging his feet on Keystone XL. And this latest announcement is just the most recent example of a degree of inaction that is unusual even for a town famous for not doing much of anything. Do not be surprised if the State Department uses the Inspector General’s report as yet another excuse for bureaucratic delay.

There may be a way to break the Washington deadlock over Keystone. And it is not to resume the endless charm offensive by bureaucrats in Ottawa and Edmonton and politicians in Washington. What would work would be for either Canada or Alberta to announce a credible climate policy, preferably one that involves the kind of carbon pricing regime favoured by many in Canadian industry and the environmental community, and successfully implemented in British Columbia.

Alberta already has a modest cap-and-trade system that effectively prices carbon at CDN$10 a ton. Several months ago, a trial balloon was floated to increase this to CDN$30 or more, and adding a requirement that emissions intensity be increased by 30 percent. An official announcement of something similar might well do the trick in Washington. Similar action by Ottawa would have a greater impact.

Keystone XL will remain a major irritant in Canada-US relations if the Obama administration either finally turns down the proposal or simply continues to delay. There is, however, another foreign policy challenge to Canada waiting in the wings. In Copenhagen in 2009, Prime Minister Harper agreed to a 17 percent reduction in Canada’s 2005-level CO2 emissions by 2020, declaring his intention to march in lockstep with the United States. But herein lies the problem. Given the massive shift away from US coal-fired electricity production to natural gas, the United States might well make its target by doing very little. According to Canadian government figures, Canada will be no farther than halfway to its target, even if it implements every climate policy already planned. The ball is now in Edmonton’s and Ottawa’s court.

All signs indicate that the US president believes in the importance of climate policy.
  • David Runnalls is a distinguished fellow and was formerly acting director of the Environment and Energy Program at CIGI.