Barack and a Hard Place: President’s Decision to Kill Keystone XL Pipeline Pleases Environmentalists, Riles Unions

0 January 20, 2012  Transportation & Infrastructure

This week the Obama administration killed Phase 3 and Phase 4 of TransCanada’s Keystone XL pipeline project (for now), which would have connected Phase 1 and Phase 2 of the existing pipeline to new pipeline that would carry crude oil 1,600 miles from Alberta, Canada, to Gulf Coast refineries.  The State Department’s denial of the Keystone XL Pipeline permit prevented the creation of an estimated 20,000 direct jobs (13,000 construction jobs and 7,000 manufacturing jobs) and an unclear number of indirect jobs resulting from the $7 billion project.

Of interest to readers, the estimated 13,000 Keystone XL pipeline construction jobs would be created exclusively for labor union members, as TransCanada required a union-favoring project labor agreement (PLA) on this privately financed project, which forces contractors to use union labor and follow inefficient union work rules.

UPDATE: A TransCanada representative contacted and stated the Southern portion of Phase 3, about 120 miles worth of pipeline, was not subject to the PLA and was awarded to a contractfrom firm in Eunice, LA. He said some of the pumping stations are not subject to the PLA as well. We asked for proof of this claim and an executed copy of the PLA but have not received any supporting evidence.

Did Politics or Policy Kill the Project?
Controversy surrounding the project created a schism in the Democrat party’s political base. Environmentalists oppose the project, characterizing it as gift to Big Oil that would destroy farmlands, aquifers and sensitive ecosystems in the pipeline’s path; increase reliance on dirty fossil fuels; and contribute to global warming.

Meanwhile, construction trade unions support the pipeline expansion because the PLA would create new construction jobs exclusively for union members as the construction industry suffers from a 16 percent national unemployment rate.

Congress and some in the business community point to this stalled project as an example of how President Obama and onerous government regulations stand in the way of job creation and decreasing our reliance on foreign energy supplies.

For more than three years, the State Department conducted a “transparent, thorough and rigorous review” of the privately financed project. After increased pressure by all parties to make a decision, the State Department announced on Nov. 10, 2011, that it needed more time to explore alternative pipeline routes prior to approving TransCanada’s permit application. In response, Congress inserted a provision in the temporary payroll tax cut bill passed in December giving the administration until Feb. 21 to decide the fate of the pipeline.

On Jan. 18, the State Department recommended that President Obama deny the permit, but left the door open for future project approval, stating “it could complete the necessary review to make a decision by the first quarter of 2013.” The White House issued a statement and submitted a report to Congress following the denial of the permit, providing some insight into the reasoning behind the decision.

Political pundits characterize this decision as a political calculation by the Obama administration to shore up environmentalist support prior to the election, but keep the side window open for union job creation pending the results of the 2012 presidential election and additional studies.

Keystone XL Pipeline Creates Union-Only Construction Jobs
In September 2010, TransCanada announced it was requiring contractors interested in working on Phase 3 and Phase 4 of the Keystone XL pipeline to sign a PLA with various construction trade unions.

Typical PLAs force contractors to hire construction workers from local trade union halls in each craft, follow pro-featherbedding union work rules, and pay into union pension and benefit programs.  Nonunion contractors are discouraged from competing for contracts to build taxpayer-funded projects when a PLA is mandated by a government entity, such as a local, county, state or federal government in charge of a project, because the terms of the PLA discriminates against their existing nonunion workforce and makes them less competitive against unionized firms.

The anti-competitive and discriminatory nature of government-mandated PLAs is why the merit shop contracting community was outraged when President Obama signed Executive Order 13502. The order, signed just a few weeks into President Obama’s term on Feb. 6, 2009, encourages federal agencies to mandate PLAs on a case-by-case basis on projects exceeding $25 million in total cost.

On privately financed projects like the Keystone XL pipeline, a PLA can prohibit nonunion firms from bidding or prevent all nonunion workers from being hired, even if they have the necessary qualifications and experience. In some instances, a PLA allows a limited number of nonunion workers, but forces them to pay union dues and fees and/or join a union as a condition of employment. In short, private sector PLAs can take discrimination to a whole new level compared to PLAs mandated by the government in the public sector of the construction market.

The project’s owner, TransCanada, voluntarily mandated a PLA on this private project. There is no evidence to suggest the Obama administration or federal officials forced TransCanada to mandate a PLA on this private project, nor is there evidence suggesting labor unions extorted TransCanada into requiring a PLA through typical tactics attacking construction owners to secure more work for union members.

It is unfortunate that TransCanada elected to needlessly discourage competition from qualified merit shop contractors and discriminate against nonunion employees. It is a shame TransCanada’s PLA is telling 87 percent of the U.S. construction workforce they are not welcome to build the pipeline because they don’t have a union card, even if they have the necessary skills and experience.

The possible reasons why TransCanada mandated a PLA are numerous. Perhaps TransCanada needed Big Labor as an ally to shore up Democrat support at the local, state and federal levels of government. It wouldn’t be the first time a corporation hoped to exploit Big Labor’s cozy relationship with the president and his party, knowing that Big Labor donated hundreds of millions of dollars to Democrats during prior election cycles.  Or perhaps TransCanada felt a PLA gave its project the best chance at all-around success.

Whatever the reason, it is clear construction trade unions are irate at President Obama for his job-destroying decision. Mark Ayers, president of the Building and Construction Trades Department, issued a statement critical of President Obama, as did Laborers’ Union President Terry O’Sullivan.

Despite Big Labor repeatedly attacking Republicans in the 112th Congress, House Speaker John Boehner says the fight for jobs is not over, and even mentioned they have been working with labor unions to get this project back on track:

What Next?
BNA Bloomberg’s Construction Labor Report says (“President Obama Rejects Keystone Pipeline But TransCanada Plans to File New Request,” 1/19/12):

TransCanada President Russ Girling said he is “disappointed,” although the decision was not unexpected.“TransCanada remains fully committed to the construction of Keystone XL,” Girling said. The company has spent, or is committed to spend, about $1.9 billion so far on the project.Girling said the company will reapply for a presidential permit, and he hopes that a new application will be processed “on an expedited basis” that would allow an in-service date by late 2014.However, State Department Assistant Secretary Kerri-Ann Jones said in a media briefing that a new application would require a new review process. She would not speculate on how long such a review might take and whether existing analysis could shorten the environmental review process.The original TransCanada permit application was filed in September 2008 and has been under review by the State Department for the past three years.

News reports also indicate Canada may build a new pipeline from Alberta to the West coast of Canada and sell this oil to China and the world.

While it is interesting to see the odd political bedfellows created by this controversy, it is important to remember that the Keystone XL pipeline would not offer any direct benefit to the merit shop contracting community due to the discriminatory PLA voluntarily mandated by TransCanada. will be following this project closely.

UPDATE: The Laborers’ International Union Jan. 20 announced it will leave the Blue Green Alliance, a coalition of labor unions and environmental groups that advocates for environmentally friendly green jobs, over disagreements with other coalition members on the proposed Keystone XL pipeline.

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