http://www.businessweek.com/articles/2013-08-02/calling-all-keystone-xl-cops-the-pipeline-hits-more-snags

Photograph by Julia Schmalz/Bloomberg

Steyer discusses his opposition to the Keystone XL pipeline during an interview in Washington
(Updates with response from U.S. Department of State’s Office of the Inspector General in the seventh paragraph.)

Three weeks back, when we last checked in on the lively, sometimes absurd fight over the Keystone XL pipeline, opponents of the project had just raised alarm about undisclosed conflicts of interest between ERM (ERM:LN), a U.K.-based company the U.S. State Department has relied on to assess the potential environmental impact of the proposed line, and TransCanada (TRP), the company that wants to build it. Previous conflict of interest allegations about the Keystone XL had led to congressional complaints and an investigation by the Office of the Inspector General. The new disclosures raised the prospect that the project might be further delayed by a new ethics inquiry.

Since then the saga has featured still more twists, including:

• President Obama chuckling (per the New York Times) as he low-balled the number of construction jobs the pipeline might create;

• revelations that a dozen or more state and federal Republican lawmakers apparently sent letters endorsing the pipeline that had been written by fossil fuel lobbyists;

• TransCanada’s announcement of a longer, 1,864-mile, $12 billion pipeline that, if completed, would certainly make good on the company’s name, and make the Keystone XL look more like the Keystone XS; and,

• Claims by the Washington-based Checks and Balances Project that a new U.S. government special investigation is underway over ERM.

As you’d expect, proponents of the pipeline were quick to dismiss the conflict-of-interest charges as a transparent ploy to derail the pipeline’s approval process. Guilty as charged, says Friends of the Earth’s Ross Hammond. His nonprofit engaged in opposition research, as it is called during election campaigns, to turn up the evidence that ERM had worked with TransCanada on projects that it had failed to disclose to the U.S. State Department.

Calling the conflict-of-interest charges tactical, however, doesn’t mean they lack merit. Here, (PDF), for example, is a 2010 document, cached online, in which ERM lists TransCanada as a client. Does this prove that ERM has been biased toward TransCanada in its Keystone assessment? No. But unless this document is a forgery, ERM appears not to have disclosed all it should have to the U.S. government. (ERM declined to comment.)

“The Keystone XL environmental review lost all credibility when ERM lied to taxpayers about what it was up to,” says Tom Steyer, president of NextGen Climate Action. “ERM’s hubris deprives the State Department and the public of the unbiased information they need. A large group of Americans will support Secretary Kerry if he insists on doing the review in a clean, straightforward way—this time, with an honest contractor.”

The State Department maintains that it has the situation well under control. “The selected contractor works directly with and under the sole direction of the Department of State while the applicant pays for the work,” says State official Jennifer Psaki.

Steyer, a semi-retired hedge fund billionaire, is a financial supporter of President Obama, and it’s not hard to imagine that Steyer encouraged Obama to nix Keystone’s development during the president’s most recent visit to Steyer’s home. (Could Steyer be where Obama got his low jobs-created number? Hard to say. Obama’s Keystone remarks have become political sport—”Kremlinology,” even; the Washington Post’s WonkBlog did terrific work fact-checking his figures).

The Office of the Inspector General confirms that it has “initiated an inquiry” into the ERM conflict of interest complaints, and whether or not that goes anywhere, the Keystone faces a second, straight-talking judge in Gina McCarthy, the new Environmental Protection Agency chief. Whether the pipeline proceeds is ultimately up to the President. But the EPA has a role to play: It is reviewing the environmental impact studies that contractors such as ERM have conducted.

When asked about Keystone XL recently, McCarthy first jokingly got up to leave, rather than be put on the spot. Then she replied that the EPA would strive to be “an honest commenter” on the XL plans. Up to now, that honesty (PDF) has been bracing, as the EPA has called the Keystone environmental impact statements insufficient and inadequate not once, but three times.
Wieners (@bradwieners) is an executive editor for Bloomberg Businessweek.