Obama speech provides no clues on Keystone pipeline

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U.S. President Barack Obama urged Congress to pass sweeping "market-based" climate legislation – code for a cap-and-trade system or a carbon tax – and threatened to regulate aggressively if it did not.

In his annual State of the Union speech Tuesday night, Mr. Obama said the United States must step up its efforts to reduce greenhouse gas emissions that he blamed for extreme weather that plagued the country last year.

"For the sake of our children and our future, we must do more to combat climate change," he said.

But the President gave little indication that his renewed focus on climate change will doom TransCanada Corp.'s plan to build the Keystone XL pipeline that would bring Alberta bitumen to refineries on the Gulf Coast.

He did warn that without congressional action, he will undertake executive action, "now and in the future, to reduce pollution, prepare our communities for the consequences of climate change and speed the transition to more sustainable sources of energy."

Activists preparing to mount large protests in Washington this weekend against the Keystone pipeline took some comfort in that pledge.

"I'm glad to see the President after the long, odd silence of the [election] campaign, ratcheting up the rhetoric about climate change," said Bill McKibben, co-founder of 350.org, one of the organizers of the coming demonstration.

"The test of that rhetoric will be what he does about the purest, simplest test: the Keystone XL pipeline."

Canadian producers – and the Alberta and federal governments – are keen to see Mr. Obama approve the long-stalled project, which would be a critical link to new markets and help drive up sagging Canadian crude prices. And they moved quickly to emphasize their own green credentials. TransCanada chief executive Russ Girling, for example, said on Tuesday night that his company agrees "with President Obama when he said we need to transition toward more sustainable sources of energy and greater energy independence. That's why TransCanada has invested over $5-billion in emission-free energy."

But he argued that a clean-energy transition will take time, meaning the U.S. will continue to depend on oil for "decades." Keystone XL, he said, "offers Americans a choice of receiving that oil from a friendly nation in Canada, or the U.S. continuing to import higher-priced foreign oil from nations that do not share American values."

Early in Mr. Obama's term, the House of Representatives passed a massive cap-and-trade bill that would force industries to lower their emissions of greenhouse gases, but that bill died in the Senate.

With the Republicans now in control of the House, there is little likelihood Congress will pass a sweeping climate bill.

Instead, the Environmental Protection Agency is already preparing regulations to force new and existing coal-fired power plants to rein in their emissions.

While coal-dependent regions will lobby hard to water down new rules, environmentalists hope for aggressive regulations as well as a thumbs-down on Keystone.

Even as Mr. Obama promised tougher action on climate change, he reiterated his support for an "all of the above" energy policy – meaning continuing to boost domestic oil and gas production, support for renewable energy sources, and working to reduce U.S. dependence on fossil fuels generally.

Brenda Kenny, president of the Calgary-based Canadian Energy Pipeline Association, said she heard nothing in the State of the Union address that boded ill for TransCanada Keystone or future pipelines.

Instead, the President talked about the importance of producing more domestic oil and gas. And he mentioned energy pipelines only in reference to the need to modernize America's aging infrastructure.

The President did not look to be "leaning against the pipeline," said Leo de Bever, chief executive of the Alberta Investment Management Corp., which oversees some $70-billion in provincial funds.

"My sense is he will try and stimulate growth where he can get it … Yes, they've increased the amount of energy they produce themselves, but there is still a lot of benefit to getting it from Canada rather than places that are much less reliable."

Rather than focus on the production of oil in his fight against climate change, Mr. Obama pledged to reduce the country's overall appetite for crude, a worrying message for the Canadian industry, which sends 98 per cent of its oil exports south of the border.

Building on plans to dramatically boost fuel efficiency in vehicles, he proposed to increase funding for research and technology "to shift our cars and trucks off oil for good."

Such "off oil" talk will serve to strengthen the Harper government's resolve to access growing Asian markets with pipelines through British Columbia to export terminals on the Pacific coast.

With a report from Nathan Vanderklippe in Calgary