By Steve Holland and Roberta Rampton
WASHINGTON (Reuters) - President Barack Obama might be open to using the Keystone pipeline as leverage with Republicans if they cooperate on other aspects of his long-stalled domestic agenda, such as investing in infrastructure, closing tax loopholes or reducing carbon emissions.
After years of fighting over TransCanada's crude oil pipeline from Canada, a Keystone deal is not entirely out of the question, sources inside the administration and others close to the White House told Reuters on Tuesday.
With the Senate's narrow defeat of a Keystone bill on Tuesday, Obama avoided the awkward position of possibly vetoing a bill supported by members of his own Democratic party. But the issue will come up again soon after the new year when Republicans, who already control the House of Representatives, take charge of the Senate as well.
Any deal would have to yield concrete gains for Obama on his agenda. Obama also likely would insist on making an executive decision on the $8 billion pipeline from Canada, rather than letting Congress approve the permit, sources said.
"Whatever the president decides, I expect it will be driven by the bottom line on carbon pollution, not by symbolism," one former administration official told Reuters.
Obama wants to make headway on slowing climate change during his last two years in office, but he has made it clear that new rules to curb carbon emissions from power plants and a global agreement on climate change are far more meaningful in the big picture than the fate of the pipeline.
Sources close to the White House say Obama believes that both pipeline opponents and proponents have exaggerated the significance of their claims about the pipeline, turning it into a political symbol.
But Republicans have vowed to take another run at forcing approval early in 2015. Assuming support from at least a handful of Democrats, Republicans likely would have enough votes to pass it but not enough to override a veto.
Republicans could try to attach the measure to a government funding measure to make Obama's veto decision more difficult.
A compromise would give Republicans a win on Keystone, a politically popular issue. But the White House would need to extract a win, too.
Timing could be a hurdle to any potential deal. Obama has said he will wait for the Supreme Court of Nebraska to rule on a pipeline challenge from landowners in that state, a decision expected sometime between Friday and January.
If the court sides with the landowners, the Keystone route would need to be approved by the state's Public Service Commission - a process that could take most of 2015.
Obama has said he will approve the project if it does not hike carbon emissions, a standard cheered by green groups.
"Ultimately, we believe that the Keystone pipeline would significantly exacerbate climate pollution, and therefore would flunk his test for approval," said Dan Weiss, senior vice president for campaigns at the League of Conservation Voters.
But a State Department review found that blocking the pipeline would not stop Canada from developing its oil sands. Canada and the oil industry took that as a sign Obama could ultimately approve the pipeline.
(Additional reporting by Valerie Volcovici, Timothy Gardner and Amanda Becker; Editing by Ken Wills)