I will be the first to admit that I am not a politician. I have always felt that we tend to elect the person who can most convincingly promise a free lunch. So we often end up with the most effective panderers in charge of the country, instead of courageous leaders. After all, courageous leaders sometimes have to point out that there is no free lunch — something many don’t want to hear.

This isn’t a partisan observation. I think both major political parties are guilty, it’s just that they pander to different groups. But I wanted to preface today’s column with my view on the political process, because it is through this lens that I watched the Keystone XL pipeline debate play out over the past seven years. My preferences have been guided by technical and practical issues, but I watched the controversy play out mostly based on political and emotional arguments.

Just in case you aren’t fully informed on the issue, let’s briefly review. The Keystone Pipeline is owned by TransCanada (TSX, NYSE: TRP). Phase 1 of the pipeline began operating in 2010, and had the capacity to move 590,000 barrels per day (bpd) of crude oil from the Athabasca oil sands in Alberta to hubs and refineries in the US. In 2011, Phase 2 of Keystone connected Steele City, Nebraska to the major oil hub in Cushing, Oklahoma. Phase 3 connected the Cushing hub to Gulf Coast refineries with a capacity of 700,000 bpd and began operating in January 2014.

The Phase 4 expansion of the Keystone Pipeline is the one everyone came to know as the Keystone XL (“XL” stands for export limited.) Like Phase 1, this expansion would add pipeline from Alberta and cross the US-Canadian border. The pipeline would have a capacity of up to 830,000 bpd, and terminate in Steele City, Nebraska. Because the proposed route crossed the international border, the State Department was required to determine that the project was in the national interest in order to grant a permit (as the agency did with Phase 1).

Opposition to the Keystone XL turned into an environmental movement. The pipeline project became the most controversial one in the U.S. since the Trans-Alaska pipeline of the mid-1970s. Opponents of the Keystone XL believed that stopping the pipeline would slow the rate of oil sands development, and thus limit greenhouse gas emissions into the atmosphere. Proponents argued that it would strengthen our relationship with Canada at the expense of more hostile oil suppliers like Venezuela, enhancing U.S. energy security and creating jobs in the process.

Books could be written on the nuances of each side, and I have probably written a dozen articles on the pipeline in the past five years. As an engineer, I wanted to know the projected economic and environmental impact with or without the pipeline. This is what the State Department attempted to do in its assessments. It issued its Draft Environmental Impact Statement and opened a 45-day comment period on April 16, 2010.

The State Department’s draft findings were consistently challenged by the EPA and pipeline opponents. State kept updating its findings, but each time it reevaluated the project it continued to lean toward approval.

For example, the State Dept. determined that the project was unlikely to have a significant impact on oil sands development or global greenhouse gas emissions, and further that an estimated six people per year would be killed on average if the oil was instead transported by rail. In a 2010 interview, then-Secretary of State Hillary Clinton responded to a question about the project with “We’ve not yet signed off on it, but we are inclined to do so and we are for several reasons.” (She was recently forced to pivot to the left on the issue in response to the surging presidential campaign of Sen. Bernie Sanders.)

The Obama Administration, which could have ruled on the pipeline in 2010, would delay making a decision for five more years. As evidence mounted in support of the project,  there were protests in front of the White House to push the administration to oppose it.

Viewing this from my engineer’s perspective, it seemed to me that the decision would require courage either way, but it came down to two choices. The decision could be “I am going to make a stand along with my environmentalist allies who voted me into office and reject a continued expansion of fossil fuel infrastructure.” That would be a courageous stand, albeit one more steeped in symbolism than in measurable climate impact.

Or, the decision could be “We have run the numbers, and our own State Department says there won’t be a significant impact on climate if Keystone XL is built. Further, it will back out Venezuelan crude from Gulf Coast refineries in favor of a friendly supply to the north.” That would also be a courageous stand, as it would force President Obama to say “I am making a decision that you won’t like” to one of his major constituencies.

I always considered the years of foot-dragging a symptom of the lack of leadership on the issue. It was an attempt to appease everyone, a political equivocation forced by issues of symbolism rather than substance. But last week, after years of indecision, the Obama Administration finally rejected the application for the pipeline. In rejecting the project, the president cited the need for global leadership ahead of a Nov. 30 meeting in Paris where world leaders will attempt to reach an agreement on binding cuts in greenhouse gas emissions. Of course that Keystone XL decision could have been made five years ago but that would have required more courage given that the President was facing reelection.

I have previously described how I would have decided the issue. Many issues would have factored into my decision, but at the end of the day I believe I can make a convincing case that Keystone XL would make zero difference to the environment, for many reasons, provided you aren’t evaluating the project in a vacuum. Here we have a private company willing to sink billions of dollars into the U.S. economy, with no net cost — environmental or otherwise in my opinion — to the U.S.

The real risk in my opinion was the financial risk to TransCanada. If it built the pipeline but then oil prices slumped for an extended period of time, that would definitely chill the pace of oil sands development — and in turn reduce demand for shipments on the pipeline. Oil prices pose the real risk to oil sands development over time, so by stalling a decision on this project the president may have unwittingly saved TransCanada a lot of money on a project premised on high oil prices. Likewise, crude oil producers who may have signed up for volumes on the pipeline with take or pay contracts could have found themselves forced to pay for unused pipeline capacity if low prices kept their production in check.

In the aftermath of the president’s rejection of the pipeline, environmentalists will rightly claim victory. Canada will likely continue to seek other market outlets for its oil — and this decision is likely to spur those efforts. A number of construction workers will miss out on jobs they would have otherwise had. The effect on TransCanada will ultimately hinge on the future direction of oil prices, but at today’s price I don’t believe this project would have much impact on its bottom line.

But the real carbon dioxide emission problem will continue to stem from coal. All of the world’s proved oil reserves make a miniscule climate impact relative to the world’s coal reserves, so this was always about a small piece of an issue that itself was a small piece of a much bigger issue. Unless pipeline opponents can leverage this victory into getting China to consume much less coal — and this week Beijing admitted China has been consuming even more than previously thought — the victory, like the controversy around the pipeline itself, will be purely symbolic.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Portfolio Update

Dark Days for SunEdison        

It’s hard to write about a stock in freefall (though admittedly not as hard as owning it.) Regardless of the progress of the underlying business or its prospects, regardless of apparent value, the focus stays on the plunging share price and the linear extrapolation that it might soon be worthless.

That’s certainly the case with SunEdison (NYSE: SUNE), which topped out above $31 a share in July, hit $9 barely a month later in late August and is now below $5 on a second day of heavy selling following the renewable power developer’s quarterly results.

These were mixed, with project completions running ahead of schedule but a loss wider than estimates as the company continued to retrench in the wake of its capital markets drubbing. SunEdison still expects to produce positive cash flow next year even as it races to get more power plants built ahead of the expiration of a key solar tax credit at the end  of 2016.

Management also still expects to complete the pending acquisition of rooftop panel marketer Vivint Solar (NYSE: VSLR), the unpopular deal that precipitated SunEdison’s downfall.

“We have signed an agreement with Vivint; we intend to abide by it,” CEO Ahmad Chatila said on yesterday’s conference call. As for the stock’s precipitous slide, “we are cautiously optimistic that the current dislocation will normalize,” just as past selloffs have for master limited partnerships and real estate investment trusts, Chatila said in his prepared remarks.

So the company line is that it’s almost business as usual thanks to secured financing for the entirety of next year’s heavy project slate adding up to at least $6 billion, and bright long-term vistas of fast growth backed by rapid advances in technology driving down the cost of renewable power.

The expiration in a year of the 30% federal investment tax credit on solar installations does loom large, though, with Chief Financial Officer Brian Wuebbels acknowledging that “there are many U.S. solar utility projects that clearly the economics make much more sense to build them in 2016 than it would be to build them in 2017,” and CEO Chatila noting later that “solar is a little bit more challenged” than wind power beyond 2016.

In addition to the tax credit expiration, solar sentiment has dimmed in the wake of Hawaii’s decision to scale down a net metering program allowing customers with solar panels to sell surplus power back to the utility at the retail rate. There are fears of similar pushback in other states in response to lobbying by utilities.

But SunEdison has more pressing concerns after clearly squandering much investor confidence, to the point where the stock is now a plaything for daytraders.

Chief among these is how to rationalize the project pipeline beyond the 2016 bulge in light of its sharply higher cost of capital now that the two affiliated yieldcos are trading at yields precluding further fundraising. As a result, the pace of new projects added to the to-do pile has already begun to slow.

If the results were mixed and commentary beyond 2016 somewhat downbeat, the market’s reaction has been unequivocally withering. Shares slumped 22% Tuesday and are down another 15% so far today.

The silver lining in this F5 tornado is that the market’s reaction should be demonstrating conclusively to the many large hedge funds still invested that value can only be preserved under new management, and perhaps new ownership. There’s a ton of long-term value already under construction that’s been discounted completely by the sellers at this point. But it will only be realized if SunEdison continues to be seen as a secure and reliable partner for outside investors in its projects as well as power offtake customers. And that’s not at all what the equity market keeps signaling. SUNE remains an Aggressive Portfolio Buy below a reduced limit of $7.     

— Igor Greenwald