On January 24th, 2017, President Trump issued an executive order inviting TransCanada Keystone Pipeline LP to re-submit its application to the State Department for a Presidential Permit for the construction and operation of the Keystone XL Pipeline, and directing the State Department to expeditiously review and reach a final determination, using much of its previous analysis, within 60 days of TransCanada's application. If the Presidential Permit is granted, President Trump's executive order also directs the Department of the Army, the Department of the Interior, the Bureau of Land Management, and Fish and Wildlife to expeditiously review and approve as warranted, water crossings, rights of way and other permits required for the pipeline. This is encouraging news for TransCanada (which has already indicated that it intends to re-submit its application for the Presidential Permit), and for the US$8B, 830,000 bbl/d project that has been frustrated by regulatory and political delays since 2008. President Trump's executive order is not a Presidential Permit, however, and significant legal and commercial issues still lay ahead.
What is an Executive Order and Presidential Permit?
An executive order is a presidential prerogative derived from Article II of the US constitution. It essentially declares government policy and provides direction to government agencies and departments. It is legally binding, but it cannot reverse a law passed by Congress. In fact, Congress can influence executive orders by passing laws which restrict funding for certain programs, or which explicitly prevent an executive order from taking effect.
Similarly, a Presidential Permit is an exercise of the executive branch's constitutional powers, considered to be part of the president's "inherent constitutional authority to conduct foreign affairs." Presidential Permits are intended to provide executive branch review of trans-border facilities and commercial activities. This authority has been exercised since the late 1880's with respect to telegraph and communications facilities, electric transmission facilities, and pipelines. In 1968, permitting authority for cross border oil pipelines was delegated by executive order 11423 to the State Department1, which order was subsequently amended by executive order in 1994 to require the State Department to consult with various federal departments. In 2004, an executive order established the State Department procedure for reviewing Presidential Permit applications for oil pipelines. The State Department is directed to determine whether a proposed project would serve the "national interest," and in doing so, it often considers impacts on the environment, economy, energy security, foreign policy, and culture.
Third time the charm?
While the protracted history of the Keystone XL project has been well documented elsewhere, it may be worth recalling some significant steps in its application for a Presidential Permit. The first application for a Presidential Permit occurred in September 2008. As a result of a revised route, stemming from Nebraska's new 2011 siting requirements, the State Department announced that it needed additional time to review the application. Congress then passed a law requiring the State Department to issue a decision on the Presidential Permit application within 60 days, causing the State Department to deny the permit citing insufficient time to meet the deadline. The second application for a Presidential Permit was made in May 2012, based on a new route and new stated purpose, but following extensive review, the State Department ultimately denied the Presidential Permit in November 2015.
The Path Forward
President Trump's executive order offers encouragement to reconsider the Keystone XL project in light of the new policy direction. It seems to signal that the application for a Presidential Permit will not be subject to the same regulatory and political delays as in the past. However, complicated issues remain ahead. In a concurrent executive order, President Trump directed the Department of Commerce to require domestically produced materials and equipment in US pipeline projects. While TransCanada has previously stated that 50% of the pipe for Keystone XL would come from US sources, it is not clear what effect that executive order will have on the project cost or timing. President Trump also made vague references to renegotiating "some of the terms" of the project, presumably as conditions to the Presidential Permit and perhaps including increased financial returns to the US, without providing further details. Finally, hurdles remain with Nebraska state approvals, and with potential and ongoing challenges related to tribal matters, environmental issues, and even the reviewability and constitutionality of any issued Presidential Permit. Nevertheless, supporters of the Keystone XL project have reason for renewed optimism.
1. The Federal Energy Regulatory Commission (FERC) issues presidential permits for natural gas pipelines, and the Department of Energy (DOE) issues presidential permits for electric transmission lines.
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