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Protesters rally against the Keystone XL oil pipeline outside the White House in Washington on Feb. 3, 2014.

YURI GRIPAS/Reuters

The State Department's Inspector General has cleared the selection of consultants who prepared the department's environmental assessment of TransCanada Corp.'s proposed Keystone XL project, handing the Calgary-based company a victory in its ongoing battle with environmentalists.

In a report released late Wednesday, the Office of the Inspector General said departmental officials followed proper procedures, including the evaluation of whether the consultant, Environmental Resources Management Inc. (ERM), had a conflict of interest due to previous work for oil industry clients, including TransCanada.

Opponents of the proposed pipeline had hoped to derail the review process by launching their complaint to the Inspector General. They argued that ERM's previous work for TransCanada tainted the entire assessment and that it should be redone.

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Based on ERM's analysis, the State Department issued a report in late January that concluded the Keystone XL pipeline would not cause significant environmental damage. It said the project would not lead to increased greenhouse gas emissions from the oil sands because Alberta-based producers would get their crude to market with or without the Keystone XL line.

Other U.S. departments and agencies have 90 days to respond to the State's assessment, and then Secretary of State John Kerry and President Barack Obama must decide whether the project is in the country's national interest.

In his report, auditor Norman Brown said officials fully complied with all guidelines in selecting a consultant, but acknowledged that there was room for improvement in the guidelines themselves. In fact, he noted that the State Department had revised its selection process in order to comply with an auditor's suggestions following a similar complaint launched after the 2011 review of the initial Keystone XL plan.

TransCanada welcomed the ruling.

"This is the second time those opposed to the project have gone to the well with conflict of interest allegations and, once again, they have proven to be false," the company said in an e-mailed statement.

Natural Resources Minister Joe Oliver said the finding of no conflict should clear the way for approval of the project.

"We are confident that if the project is judged on the facts and the science it will be approved," he said.

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But environmental groups maintain their stand that the approving the pipeline would be a regressive step in the battle against climate change.

"The real scandal in Washington is how much is legal," Bill McKibben, co-founder of anti-pipeline grup, 350.org, said. "This process has stunk start to finish. It's good that its now in the hands of the Secretary Kerry and President Obama so there's at least an outside chance of a decision not based on cronyism."

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