No Keystone XL? Christopher Flavelle

To hear the Canadian government tell it, Barack Obama's administration has yet to approve the Keystone XL pipeline because it won't stand up to environmental activists. Exhaustive new reporting offers a more persuasive explanation: The oil pipeline hasn't been approved because the Canadian government keeps screwing up.

Today's story by my colleagues at Bloomberg News bureaus in Toronto, Ottawa and Calgary, the result of more than 75 interviews, lays out how Canada's failure to secure a green light for Keystone can be traced to a series of miscalculations, missed opportunities and flat-out mistakes. (The story is worth reading in its entirety.)

-- In the months leading up to the pipeline's first big hurdle, Nebraska's 2011 rejection of its proposed route, the Canadian government was slow to realize the project was in trouble. "Unappreciated by Canada," the reporting team led by Edward Greenspon writes, "anti-Keystone storm clouds were gathering."

People in regular contact with the prime minister say that despite periodically talking up a need for greater trade diversity, he felt no major cause for alarm. His outlook seemed validated in late August when the State Department conferred its environmental seal of approval on the project. Foreign Affairs Minister John Baird maintained close contact with Secretary of State Hillary Clinton, viewed as pipeline friendly. Keystone looked set for approval.

Then just like that, or so it seemed in Canada, the emerging energy superpower got stopped in its tracks in Nebraska, America’s 37th-largest state by population and one crisscrossed by pipelines. The Canadians were surprised and stunned by the pushback, said a Canadian diplomat who worked on the file.

-- In response to that unanticipated setback, Prime Minister Stephen Harper failed to heed Obama administration warnings that an aggressive lobbying campaign would only make things harder, by making it look as if it was approving the pipeline under pressure.

Canada did the opposite, deciding "to refocus U.S. lobbying on vulnerable Democratic senators representing pro-oil states. The White House, State Department and embassy kept cautioning that making a fuss of any kind would merely taint a sensitive process subject to litigation. Harper demurred."

If that seems like a self-defeating strategy in hindsight, it's because Harper was also trying to appease his own domestic political constituency. "If Keystone was eventually turned down," Greenspon writes, "the Conservative base would know the government had gone to the wall. A squeaky wheel served that purpose, too."

-- Toning down the public campaign isn't the only advice Canada chose to ignore. The Obama administration told the Harper government that getting the pipeline approved would be easier if Canada would regulate its oil and gas emissions. Harper failed to impose those regulations, despite promises to do so.

What today's story reveals as the thinking behind that decision:

The regulations didn’t surface because Harper and his closest advisers were dubious they mattered. They had come to the conclusion that Obama swallowed concessions whole and gave nothing back. Without an administration commitment to a joint approach, they felt Canada would be digging itself into a competitive hole, according to people familiar with the back-and-forth of the discussions.

In other words, the Canadian prime minister blocked vital national environmental regulations out of spite: He didn't want to give Obama anything without getting something in return. That's not only the wrong way to set policy but also had the effect of setting back his cause. The result, writes Greenspon, was Canada "allowing itself to become stigmatized as an environmental laggard," and "leave Obama little to work with."

-- The Conservative government responded to Obama's vacillations by making things personal. "Harper couldn't let go," Greenspon reports. "Even his inner circle was a bit taken aback by the depth of his criticism for Obama and the frankness with which he expressed it."

Many long-time players in Canada-U.S. relations, including some of Harper’s own diplomats, also question whether Canada was wise to position itself as an equal partner and choose to irritate rather than accommodate. “We’re not the G-1, the U.S. is,” said Peter Harder, foreign affairs deputy minister during Harper’s first year in office. “We’re the ones who need to be working harder to have a good relationship.”

What's the takeaway from all this? What makes it more than just the story of a medium-size country run by an occasionally inept government? It's not Keystone, whose importance to climate change probably isn't as great as its opponents claim, as Jonathan Chait and others have argued. Whether it's approved or not, the climate movement has bigger problems to deal with, leaving this pipeline as a footnote in a much larger battle.

What seems more noteworthy, and more concerning, is the way a single project can rot the judgment of a government otherwise known for its shrewdness. Maybe the real lesson of Keystone is that debates involving shrill rhetoric, big egos and plenty of money can cause even the smartest people to lose their senses. The climate community will want to take note.

To contact the writer of this article: Christopher Flavelle at cflavelle@bloomberg.net.