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Inquiry clears State Department in Keystone review

Demonstrators call for the cancellation of the Keystone XL pipeline during a November rally in Washington. President Barack Obama has since put the project on ice for further environmental study.

Joshua Roberts/Reuters/Joshua Roberts/Reuters

A U.S. special inspector has rejected allegations of conflict of interest and bias in the State Department's review of TransCanada Corp.'s proposed Keystone XL pipeline, removing a potential hurdle to future approval of the project.

After complaints from environmental groups and some members of Congress, the State Department's Inspector-General conducted an inquiry into the environmental assessment process which concluded last August with the State Department declaring there were no major concerns about the pipeline's impacts.

However, critics argued that the department had shown favouritism toward TransCanada, and that a consultant hired by the government to help with the environmental assessment had a conflict of interest because it had done work for TransCanada in the past.

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With the project caught up in U.S. presidential campaign politics, TransCanada must reapply for a cross-border construction permit once it agrees with the state of Nebraska on a new route that bypasses the environmentally sensitive Sand Hills region.

The Obama administration rejected the initial application last month after being forced by Republicans in Congress to make a ruling before the company had concluded the rerouting work. However, the administration made it clear it was not rejecting the project on its merit, essentially inviting TransCanada to reapply and the company has confirmed it will do so.

Company officials are hopeful that the State Department will make use of all the material from the previous application – including the consultant's report – to expedite the decision-making, but that would have been unlikely had the Inspector-General ruled the consultant's work was tainted.

"When claims made by opponents of Keystone XL were brought forward, we welcomed an independent review by the Inspector-General's office so that they could be addressed," TransCanada's chief executive officer Russ Girling said Thursday.

"At TransCanada, we conduct ourselves in an open, honest, transparent and ethical fashion, and this independent investigation confirms we followed all of the procedures and practices established by the Department of State and other federal agencies."

The inspector said that the State Department should have exercised greater diligence in ensuring there was no conflict of interest on the part of consultant Cardno Entrix, and that the department lacked properly trained staff to efficiently conduct the review. But the department said it was addressing those shortcomings and neither should affect the outcome of the new review.

The industry lobby group, American Petroleum Institute, said the report from the Inspector-General should allow for a speedy approval of the process. The group has condemned the Obama administration's insistence that no decision will be made until early 2013, after the November presidential vote.

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The environmental group Friends of the Earth, which helped instigate the inquiry, insisted the report shows serious flaws in the State Department's environmental assessment, and should disqualify work done in the initial application from being used in the next round.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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