MORGAN STANLEY: A New Emissions Law Is 'Quid-Pro-Quo' For Approving The Keystone XL Pipeline

The State Department will likely decide on a permit for Transcanada's Keystone XL Pipeline within a week or two.

The odds seem to be in favor of the controversial project.

Today, Morgan Stanley's Adam Longson provides more evidence.

The province of Alberta, where the pipeline would originate, has just proposed a tax on carbon production that would cut greenhouse gas emissions by as much as 40 percent on each barrel of production, according to the Globe and Mail.

Here's what Longson makes of it:

While initial reactions interpreted the law as a headwind for investment, we are less skeptical. We view the move as a quid pro quo for a Keystone XL approval. Alberta is unlikely to penalize its growth engine unless the cost of non-compliance is less than the amount of relief received. If Keystone XL is built, long run [Canadian crude] diffs may improve by more than $10/bbl, exceeding the implied ~$6/bbl fine.

Transcanada is trading slightly lower this morning.