By Scott Malone and Timothy Gardner
BOSTON/WASHINGTON (Reuters) - A former hedge fund manager turned environmental activist who opposes the Keystone XL pipeline has waded into the Massachusetts Senate race, threatening to undermine a pledge by the two Democratic candidates to reject outside money.
California billionaire Tom Steyer has called on Democratic Representative Stephen Lynch to abandon his support for the proposed Keystone XL pipeline, which would transport crude from Canada's oil sands to refineries in Texas.
The Obama administration is expected to make a final decision on the TransCanada Corp pipeline late this summer. A permit has been pending for more than four years while environmental activists have staged protests against it. Pipeline supporters in Congress have introduced bills to push the project through more quickly.
Steyer, who stepped down last year from the hedge fund he founded to focus on encouraging alternative energy development, called on Lynch to reverse his stance on the pipeline by Friday. Otherwise, Steyer promised "an aggressive public education campaign" aimed at torpedoing Lynch's bid to win the Democratic Senate primary on April 30.
Lynch and other supporters say the $5.3 billion Keystone XL project - which would transport oil down the middle of the United States, nowhere near Massachusetts - would create jobs and unlock a valuable energy source.
Opponents blast the pipeline as a source of the greenhouse gases that are contributing to global climate change. Lynch's Democratic rival, Representative Edward Markey, the ranking member of the House Natural Resources Committee, is an outspoken opponent of the Keystone project.
But Markey has also urged candidates in the primary to reject money or support from interest groups outside the state. He has already drawn criticism for Steyer's pledge to go after Lynch, and has urged the billionaire to stay out of the race.
Markey, elected to the House of Representatives in 1976, is the longest-serving member of the New England Congressional delegation. Lynch, a former ironworker, has been in the House since 2001. The primary is a run up to the June 25 special election for the Senate seat left open when Senator John Kerry recently became Secretary of State.
"Climate change is on the ballot on April 30 as it never has been before," said the open letter signed this week by Steyer and four activists.
Steyer's letter urged Lynch to switch his position on Keystone or provide assurances from TransCanada and refiners that all oil shipped on the pipeline would stay in the United States. Environmentalists and some economists say much of the oil sent through the line could get exported because U.S. oil production has boomed while domestic demand has stagnated.
While Massachusetts is not an energy-producing state, environmental issues resonate with its liberal-leaning voters, especially those who vote in Democratic primaries.
Lynch's campaign dismissed Steyer's threat.
"This letter reads like something out of a James Bond film - a billionaire making threats and issuing ultimatums," said spokesman Conor Yunits. "Congressman Lynch supports an all-of-the-above energy strategy, and he is not going to respond to threats and ultimatums."
'PEOPLE'S PLEDGE' AT RISK
Last year, Steyer spent more than $30 million in his home state of California on Proposition 39, a measure to close a tax loophole and funnel money to projects that create clean energy jobs.
His involvement in the Massachusetts race could cause headaches for front-runner Markey, who early in the campaign called on all contenders to honor a "People's Pledge," intended to keep outside groups from funding attack ads.
That agreement was modeled on one that former Senator Scott Brown, a Republican, and his successor Elizabeth Warren agreed to in last year's Massachusetts' Senate race, which Warren won.
All three Republican contenders in the 2013 race -- former U.S. Attorney Michael Sullivan, state Representative Daniel Winslow and former Navy SEAL Gabriel Gomez -- rejected that proposal, noting that they not did have the established organizations and campaign war chests of their Democratic rivals.
Markey's political organization had $3 million in cash on hand as of December 31, while Lynch's group had $760,206, according to OpenSecrets.org, which tracks campaign finance disclosures. None of the Republican contenders have yet filed details of their campaign finances, according to the database.
If an outsider buys ads to attack Markey or Lynch, each candidate has pledged that his campaign will make a donation equal to half the value of the ads to a charity of his opponent's choice.
Steyer believes he can campaign against Lynch, without running afoul of the pledge, a spokesman said.
It "leaves plenty of room for field operations, for phones, for targeting voters for other types of non-conventional communications, for the release of reports, for activities on college campuses," said Chris Lehane, Steyer's spokesman.
Even that could look bad for Markey, who an early poll showed with a lead both in the primary and special election.
"I don't think that either Markey or Lynch want to be in the position of arguing technicalities," said Peter Ubertaccio, a professor of political science at Stonehill College, in Easton, Massachusetts. "If outside money is going to be spent against one of them then the other has to pay up."
Without specifically naming Steyer, Markey's campaign called on his supporters to honor the pledge.
"Ed Markey categorically rejects any third-party expenditure against Stephen Lynch that would violate the People's Pledge they both have signed, and urges groups and individuals on both sides to respect the pledge to keep outside advertisements off Massachusetts airwaves," said Campaign Manager Sarah Benzing.
CONGRESS SEEKS CONTROL OF KEYSTONE
Opposition by environmentalists like Steyer to the 800,000 barrel-per-day pipeline project have threatened further delays in the administration's decision on the pipeline. Bills in both the Republican-controlled House of Representatives and in the Democratic-led Senate would take the final decision on the project's future out of the administration's hands.
Previous efforts in the Senate to take control have fallen short, but sponsors say they have more votes now that TransCanada rerouted the line through sensitive ecological areas in Nebraska. Obama could veto any bill that passes, but he may find that difficult if senators add it to must-pass legislation.
Steyer's spokesman said his campaign planned to carry through with its threat regardless of the pledge.
"The campaign will focus on everything that is consistent within the parameters of the pledge, but I think you will see some innovative and creative activities taking place out there," said Lehane. "There are now a bunch of ways that you can get in front of a large number of eyeballs that will be completely consistent with the pledge."
(Editing by Barbara Goldberg and David Gregorio)