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The Keystone oil pipeline is pictured under construction in North Dakota.

Reuters

TransCanada Corp. has played the sovereignty card in the escalating debate over the Keystone XL pipeline, arguing the U.S. Environmental Protection Agency is interfering on Canadian turf with its recommendation that Washington work on ways to reduce greenhouse gas emissions in the oil sands.

The Calgary-based pipeline company issued a sharp rebuttal to EPA on Tuesday, a day after the agency said the State Department's environmental review of the long-delayed pipeline was seriously deficient and urged considerable new analysis before any permit decision is taken.

In its comment letter, the U.S. environmental agency challenged the State Department's conclusion that the oil-sands producers would find new markets – with or without the pipeline – and that therefore the specific Keystone XL project would not contribute to oil sands' expansion and greater emissions of greenhouse gases. And it recommended that Washington should work with Canada to "promote further efforts to reduce GHG emissions associated with production of oil sands crude."

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Environmentalists welcomed the EPA intervention, which injects additional uncertainty in a long-running approval process that TransCanada had hoped to conclude this summer.

TransCanada issued a statement Tuesday that challenged the EPA's concerns over the Keystone XL pipeline, which would carry Alberta bitumen to refineries on the U.S. Gulf Coast, and it accused the EPA of overstepping its role with its suggestion that the U.S. government should involve itself with Canadian climate rules.

That recommendation "ignores the fundamental sovereignty of the Canadian government, as well as the significant steps that Canada and Alberta have taken in this direction," the company said in a written statement.

"Respectfully, this goes far beyond the mandate of the EPA, and legislators and other would not appreciate other countries interfering in issues of American federal or state sovereignty."

In the past, State Department reviews of cross-border pipelines have not analyzed environmental impacts at the point of oil production, just as Canada's National Energy Board has resisted calls from activists to consider whether proposed pipelines like Enbridge Inc.'s Northern Gateway would result in higher emissions in Alberta. But with the Keystone XL review, the State Department did include a discussion of "life cycle" impacts, and concluded approval of the pipeline would not lead to dramatically higher emissions. TransCanada also challenged the EPA's view – which is shared by State – that GHG emissions from the oil sands are 17 per cent higher than the average crude refined in the United States on a full "well-to-wheels" basis that includes vehicle emissions. The company said the comparison is faulty because Alberta bitumen would be displacing other sources of heavy oil from Venezuela and Mexico, which produce a similar volume of emissions.

Federal and Alberta politicians have travelled to Washington regularly in recent months to lobby for approval of the project, which is seen as a critical link to a vast refining market.

Natural Resources Minister Joe Oliver visits Washington on Wednesday, and will meet with U.S. Interior Secretary Sally Jewel; Robert Hormats, the Under-Secretary of State for Economic Growth, Energy and the Environment, and senior members of Congress.

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"Canada supports the Keystone XL project because it will enhance national security, create jobs and foster long-term economic prosperity for both of our countries," Mr. Oliver said in a statement Tuesday. "Strengthening our bilateral energy collaboration would displace oil from Venezuela and the Middle East with a stable continental supply and thereby enhance the energy security of North America."

TransCanada will lose a key congressional supporter of the pipeline as Montana's Democratic Senator Max Baucus announced he will not run for re-election in November, 2014. He has been a staunch proponent of the Keystone project from its early days. He will continue to serve for the next 20 months, but his influence will likely wane as a lame duck.

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