Obama's Keystone Delay Flouts the Law

The president's decision to stop the project for further environmental review contravenes legislation he signed in December.

By MARY ANASTASIA O'GRADY

Banana republics have trouble attracting capital because of a reputation for arbitrarily changing the rules whenever it suits the populist in power. With last week's decision to block TransCanada's Keystone XL pipeline, President Obama stunned investors by demonstrating that he doesn't see anything wrong with the banana republic way of doing things.

The administration seems to think that it can use environmental claptrap to convince the American public that it is behaving ethically and legally in denying the TransCanada permit, even after the company has spent $1.9 billion over 40 months carefully adhering to the federal regulatory process. And a lot of Americans will not have the time or inclination to get into the weeds on this issue.

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Associated Press

A Keystone XL Pipeline protest at the White House, Sept. 2, 2011.

Yet what is unseen by the public is likely to be more dangerous to the well-being of the society than what is seen, as the 19th-century journalist and political philosopher Frédéric Bastiat famously warned. In this case, the unseen is the effect that Mr. Obama's unmitigated cynicism and abuse of power is likely to have on investors. Unlike the general public, those who have ready capital to deploy to infrastructure projects like Keystone will fully analyze this decision. Seeing how our president has behaved, they are not likely to come away feeling confident about the rule of law.

To understand how Mr. Obama is thumbing his nose at the law, recall the State Department's decision in November to delay permit approval based on a complaint from the state of Nebraska about the pipeline route there. State had already issued three environmental impact statements over three years finding that there would be "no significant impact" on the environment from the pipeline. But as it prepared to issue its final ruling, the environmental lobby descended on the White House with protests.

Within days, State announced that a rerouting in Nebraska was necessary, which implied yet another round of environmental impact studies. It was a "green" victory because it meant delaying the permitting at least another three years, not counting the inevitable litigation and notwithstanding State's forecast that it would be done in 15 months.

It was an absurd proposition. Keystone XL will run more than 2,000 miles. The disputed segment is about 100 miles and by late November the company had already begun working with Nebraska on a rerouting plan. With some 20,000 new direct construction jobs and more than 100,000 indirect jobs along the pipeline route hanging in the balance, Republicans decided to give Mr. Obama a way out of the problem he faced of having to do another long, drawn-out environmental impact study. They attached a rider to the Dec. 23 payroll-tax bill that instructed the president to rule within 60 days on whether the oil pipeline crossing the U.S. border is in the national interest.

In making the determination, the rider said, the president should consider factors like the economy, energy security, foreign policy, employment, trade and even, notably, the environment. For example, Mr. Obama could have said that oil from Canada's oil sands is bad for the global environment. Perhaps that's what he wanted to say. It is, after all, the position of some of his most generous campaign contributors.

But with unemployment at 8.5%, Iran threatening to close off the Strait of Hormuz and Hugo Chávez jailing dissidents, denouncing Canadian energy isn't a winning campaign slogan. It may also be discriminatory, and thus a violation, under the North American Free Trade Agreement and U.S. membership in the World Trade Organization.

Out of options, Mr. Obama concluded last week that it is not in the national interest to grant the permit because of the State Department's view that further environmental studies are required due to the Nebraska rerouting. It's a nice try. But it directly contravenes the rider, which specifically states that the one thing Mr. Obama need not concern himself about—indeed could not consider—is any new environmental impact studies.

The three bullet points that cover this point in the rider couldn't be much clearer: First, "the final environmental impact statement issued by the Secretary of State on August 26, 2011, satisfies all requirements of the National Environmental Policy Act of 1969 . . . and section 106 of the National Historic Preservation Act." Second, "any [my emphasis] modification" to the route "shall not require supplementation of the final environmental impact statement . . ." Third, "no further Federal environmental review shall be required."

Congress anticipated that Mr. Obama would try to use the complex process of environmental study as a fig leaf for further delaying the pipeline. But if the law is to be followed, since the president failed to make a national interest determination as specified in the rider, it means that "the permit for the Keystone XL pipeline . . . shall be in effect by operation of law." The only question is whether Mr. Obama can be made to obey the letter and the spirit of that law and whether Republicans will try to enforce it. Investors will be watching.

Write to O'Grady@wsj.com