Keystone XL: Haste And Inexperience Hampered State Department's Environmental Review

This is the first of two articles about the controversy surrounding the development of the Keystone XL oil pipeline.

Earlier this year, top officials with the Environmental Protection Agency, the Department of Energy and the Department of Justice hauled a handful of senior State Department officials into a White House meeting.

The gathering was the governmental equivalent of being called into the principal's office. The energy regulators wanted to know why State -- which had the power to approve a controversial oil pipeline project called Keystone XL -- hadn't demanded the completion of an important task: the evaluation of alternative pipeline routes between Canada and the Gulf Coast that would avoid the Nebraska sand hills, a hotbed of environmental concern and local outrage.

A Canadian company, TransCanada, planned to use Keystone to deliver "tar sands" crude through the American heartland and -- as with nearly every major interstate infrastructure project -- the pipeline's approval hinged on its ability to pass an environmental review. Because this pipeline crossed an international border, oversight for that process fell to State.

Environmental groups and other government agencies had already panned the first draft environmental impact statement (EIS) that the State Department had produced, nearly a year earlier. Now State, under fire for its handling of Keystone XL, hoped to mollify the pipeline's critics by issuing a rare supplemental draft of the review.

But as word of the new study spread to the other agencies, according to a person familiar with the White House meeting, it became apparent that the review wouldn't propose any serious alternative routes for the pipeline. Gathered at the offices of the White House's Council on Environmental Quality, the energy regulators attempted to strong-arm State into ordering such a study, despite the fact that it would likely cost several million dollars and delay the project another year.

State listened politely to the regulators' concerns and just as politely went about its business. The study never happened.

Hillary Clinton's State Department has now spent more than three years considering whether to greenlight Keystone, far longer than any previous similar projects. From the start, the process has been driven more by haste than cautious study, numerous government officials who participated in the process say. Officials there took far too long to recognize that Keystone XL would become a touchstone for so much controversy, choosing to focus on diplomatic reasons why the pipeline was 'in the national interest,' while overlooking environmental reasons why it might not be. Indeed, the department initially passed responsibility for the environmental review, now the focus of most of the uproar, into the hands of a single, inexperienced staffer and a contractor with ties to the energy industry, while -- as the meeting at CEQ showed -- disregarding other, more experienced agencies.

"They were in this mode of rubber-stamping these projects, just assuming they're great for energy security, they're great for Canadian relations," says a congressional staffer who was involved in Keystone XL and who requested anonymity because of the extraordinarily sensitive nature of the project. "By the time we got involved, they were all about getting it approved and not wanting to slow it down. It seemed to have been their mindset all along. The fact that this was going to be controversial? They had no idea."

In the meantime -- spurred on, no doubt, by the election season -- Keystone XL has grown into one of the most hotly contested energy projects in recent memory and has become a proxy for many of the essential decisions now facing the country about its energy future.

The department's early failure to pursue a more rigorous study of Keystone has left it exposed to criticism that it panders to the oil industry or is simply derelict in carrying out its regulatory responsibilities, however complex those duties might be. Environmental groups in particular have taken this tack, pointing to recently released emails that show an apparently cozy relationship between officials at State and representatives of TransCanada.

Familiar emails between a former Clinton campaign staffer named Paul Elliott, who went on to become a lobbyist for TransCanada and a diplomat at the U.S. Embassy in Ottawa have drawn particular scrutiny . Elliott, whose job on the campaign was less significant than some environmental groups initially made it out to be, did not respond to requests for comment.

Nevertheless, the controversy over State's impartiality has been intense -- especially after Clinton declared last October that she was "inclined" to approve the project, despite the lack of a completed environmental review.

On Tuesday, President Obama announced for the first time that he would personally make the final decision, using State's report as guidance.

State Department officials defend their approach to Keystone.

"As we have always said, the State Department is committed to a transparent, thorough and rigorous process," Principal Deputy Assistant Secretary Daniel Clune, who has been directly in charge of the project since early last year, told The Huffington Post.

The debate over Keystone comes at a pivotal moment for the world's energy and climate future. With revolution sweeping the Middle East, bountiful and dependable oil supplies from the Persian Gulf are less certain, even though America's demand for oil remains strong.

While the United States consumes a quarter of the world's oil, it only possesses a mere three percent of the total conventional reserves. And so the nation faces a difficult choice: either find a new, more efficient way to function, or rely on oil from harder-to-reach and more polluting sources, like shale oil deposits in North Dakota and Montana or the "tar sands" of Alberta.

State has pointed out that its primary charge is to decide if the project is broadly "in the national interest" and says the drawn-out process, and all of the criticism directed at it, are evidence of the seriousness with which it takes this responsibility. Environmentalists say that in subordinating environmental considerations to political and diplomatic ones, the department has done a disservice to the country, and not just environmentally. The stakes, they say, couldn't be higher.

'INTERNAL CHAOS'

If State Department officials were initially unaware of the trouble that Keystone XL would bring, they couldn't ignore the outcry by early summer of 2010. In mid-April of that year, Clune's division completed its preliminary review into the environmental impact of the pipeline, opening a standard 45-day period for public review and comment.

The draft review noted a number of potentially serious concerns, including risks to groundwater and wetlands, wildlife impacts and even greenhouse gas emissions, but ultimately concluded that "the proposed Keystone XL Project would result in limited adverse environmental impacts during both construction and operation."

From there, the process was expected to be pro forma. The State Department does not often oversee environmental reviews; had the pipeline proposal not crossed an international border, no federal review would have been required at all. By and large, the review of interstate energy projects -- natural gas pipelines, transmission cables -- falls to the Federal Energy Regulatory Commission.

But recent projects for which State has done a environmental review -- a TransCanada project called Keystone 1, approved in 2008, and the Alberta Clipper , a conduit between the tar sands and Wisconsin -- have faced relatively little public notice.

Keystone XL, however, has been anything but a quiet affair, and State's review of the project's environmental impact could not have come at a worse time.

Four days before its release, an explosion on a BP oil rig in the Gulf of Mexico set off one of the largest environmental disasters in the nation's history, renewing debate about the wisdom of piping oil through America's backyard. Then a few weeks later, TransCanada began moving oil through Keystone 1 to Illinois and Oklahoma, and within days the pipeline sprung a leak.

The Keystone 1 leak was just five gallons of sludge, but it was enough to alarm environmentalists, many of whom were already worried that the company's initial State-approved estimate of only 2.2 leaks per decade was overly optimistic. Two weeks later, a second small leak occurred farther down the line. (At the end of a year of operation, Keystone 1 had leaked a dozen more times; this past June, regulators were forced to shut down the pipeline briefly after TransCanada failed to satisfy safety concerns.)

The early problems with Keystone 1 were an embarrassing setback for TransCanada, but also for officials at the State Department, whose environmental review of the Keystone XL proposal was starting to show its own cracks.

On July 1, the Department of the Interior posted a 33-page evaluation of the State report that faulted, among other things, its "minimal" discussion of important protections for endangered species. The next day, the Energy Department released its appraisal, which challenged some of the study's fundamental economic assumptions .

Two weeks later, the EPA published the most damning assessment yet, deeming the analysis of the Keystone XL's necessity "unduly narrow" and asserting that the environmental impacts had not been "fully analyzed." EPA also charged that the State Department had not fully considered the impacts of a potential oil spill along the pipeline or proposed sufficient alternative routes.

"As with all projects that have not addressed potentially significant impacts, this proposal is a potential candidate for referral to [CEQ]," the report concluded. The EPA's final grade for the draft EIS: "Inadequate."

By that point, with oil still flooding into the Gulf of Mexico, the State Department had already extended the public comment period twice, to 75 days. Officials briefly considered asking TransCanada to delay the pipeline by two years, though they just as quickly abandoned the idea. But the moves made little difference. By the end of July, when a State Department official at the U.S. Embassy in Ottawa emailed an old friend -- now a lobbyist for TransCanada -- her agency, she reported, was in a state of "internal chaos."

KEYSTONE'S KOPS

The State Department's Bureau of Oceans and International Environmental and Scientific Affairs (OES), where the presidential permitting process takes place, has never been a highly sought-after posting. For the most part, OES staff are responsible for negotiating international treaties that involve natural resources, generally involving uncomplicated projects far from high-level eyes: a fiber optic cable in Tijuana, a bridge over the Rio Grande. Diplomats and political appointees often arrive there with no clue that the permitting responsibility falls to them.

And unlike the half-dozen other federal agencies that conduct environmental surveys, OES doesn't have any professional scientists on staff. That's atypical: When FERC recently evaluated a proposed natural gas pipeline that would run through Manhattan into New Jersey, a team of eight experts from its compliance division contributed to the draft environmental impact statement, including a geologist, a chemical engineer, an anthropologist, even a rocket scientist, plus input from an outside consulting firm.

By contrast, the environmental reviews by State -- including all the drafts for Keystone XL -- rely solely on the expertise of a contractor with ties to TransCanada. The firm, CardnoEntrix, also worked on the State Department's review of Keystone 1 and ran the EIS process for Alberta Clipper.

But where some have seen signs of complicity or conflicts of interest , others say the problem was simply that without comparable expertise, the State Department was ill-equipped to adjudicate technical disagreements between the contractor and other government agencies.

"It's not the business they're in, quite frankly," a federal environmental compliance official from another agency that consulted on Keystone XL said of the State Department.

"The people I worked with at State were good, honest people, and they were very inexperienced and naive about environmental laws," said the official. "They did not have a senior expert on their environmental impact study, and I've never seen that before."

Indeed, for the first stages of Keystone XL -- as well as the entirety of Alberta Clipper and Keystone 1 -- the vast majority of responsibility for coordinating the environmental review fell to Elizabeth "Betsy" Orlando, a young member of the foreign service with no scientific background and little institutional support.

A lawyer by training, Orlando was technically a diplomatic courier, a job that normally entails shuttling classified materials around the globe, not delving into policy matters.

But according to several people familiar with the matter, Orlando -- whose name appears on just about every technical document associated with the Keystone 1, Alberta Clipper and Keystone XL projects -- was initially assigned to be the sole individual working full-time on the pipeline reviews at State. At a public hearing in Oklahoma during summer 2010, Kimberly Demuth, a vice president at CardnoEntrix, described the State Department's capacity as "a staff of one person, Betsy Orlando, who's in charge of this project."

In October 2010, when her tour was over, Orlando was posted to the U.S. Embassy in Nigeria. Reached by email, she declined to comment and referred questions to the State Department.

A senior State Department official, authorized to speak only on background, acknowledged the paucity of scientific minds at OES but disputed the notion that the department lacked expertise.

"We feel we're very qualified to do this," he said in a recent phone interview, citing in-house experts on "energy markets and economic issues" at the Economic and Energy Bureau and legal advisers on National Environmental Protection Act case law, as well as numerous interagency consultations.

"We realized that we need to work with others to bring in all the expertise that's required, which is why we reach out beyond the State Department to other agencies within the U.S. government, and bring in contractor expertise when necessary," he said. "So the expertise is there. I guess the trick for us as managers was just bringing all that team together and getting them to focus on this, because of course everybody's already very busy."

Still, a review of publicly available documents and conversations with numerous government officials who interacted with State on Keystone XL suggest that the agency was often too busy or uninvolved to take other input.

Fish and Wildlife Service officials were particularly concerned that their warnings went unheeded, especially regarding the pipeline's possible effects on migratory birds and the habitats of a rare American beetle. For months after the draft EIS came out, emails obtained via a Freedom of Information Act request show officials from FWS and other agencies trying to make their case to officials with CardnoEntrix -- often even with the contractor's consultant, Trow Engineering. (The FOIA request, filed by the National Wildlife Federation, resulted in the emails being posted to a public portion of the FWS website.)

At one point this past January, a Nebraska field supervisor got fed up. "I have a real concern that the Department of State (DOS) is not engaged in the discussions and negotiation of the Keystone XL Pipeline Project," he wrote in an email that was made public on a government website in response to an earlier FOIA request. "I feel pretty strongly that meetings here on out need a DOS decision maker involved and engaged."

This spring, when an Interior Department NEPA compliance manager named Lisa Treichel realized she had missed a phone call offering her a "brief window" of time to offer comments on the supplemental draft, she wrote to one of her superiors, "I requested an extension but received no input back which to me equals 'denied.'" (Spokesmen for Interior and Fish and Wildlife declined to comment on the interactions. An EPA spokesman told HuffPost that the agency "has worked closely with the State Department" through the process and was "actively reviewing" the final EIS.)

Larry Svoboda, a retired EPA official who helped oversee his agency's NEPA compliance review for Keystone 1 from a field office in Colorado, said he thinks one reason the State Department had been taken aback by the uproar over KXL was because the EPA had altered its approach under the Obama administration.

"There was a huge policy shift to look intensively at the climate change issues," Svoboda said. "I don't blame State for being astounded. They didn't change, we did."

For their part, State Department officials say they have changed, at least in the past year or so. After the feedback on the draft EIS, they drew up a list of 57 safety conditions -- with help from the Department of Transportation -- that TransCanada would agree to follow. The Natural Resource Defense Council, however, has dismissed all but a few of the 57 points as symbolic.

State has also ordered a pair of new studies: one, by a firm called ICF International, to look into EPA concerns about greenhouse gases; the other, by Department of Energy contractor Ensys, to investigate whether the pipeline is truly necessary. And inside the department, officials say, more staffers have been assigned to work on Keystone XL and consultations have expanded, growing to include a weekly Friday staff meeting with top officials and relevant experts.

"The most important thing, for us, is to do a comprehensive, transparent and thorough review, and make the best decision that we can," the senior State Department official said. "We think we're still on track to do that by the end of the year, but the most important thing for us is to do the thorough review and make sure that we've covered all the bases, and that the decision is the best one for the country."