TC Energy’s US$15B Keystone XL claim thrown out by trade tribunal

CALGARY — TC Energy Corp., the Canadian company behind the ill-fated Keystone XL pipeline, has suffered a major blow after a trade tribunal tossed out its claim to US$15 billion in damages.

The Calgary-based company launched the claim in 2021 to seek compensation after its proposed Keystone XL pipeline project was scuttled by U.S. President Joe Biden.

The claim was made under the legacy rules tied to the old North American Free Trade Agreement, or NAFTA, because of what TC Energy said was the U.S. government’s breach of its free trade obligations.

Keystone XL was a proposed crude oil transportation pipeline, roughly 1,900-kilometres long, which would have carried oil from the oilsands of northern Alberta to the major U.S. crude storage hub at Cushing, Okla. and then on to Gulf Coast refineries.

But the project became a lightning rod for controversy and environmental and Indigenous activism, in addition to being subject to government flip-flops.

TC Energy first proposed the Keystone XL project under the Obama administration, which ultimately rejected it on environmental grounds. U.S. President Donald Trump revived the project, but Biden then killed it again by revoking the pipeline’s permit on his first day as president in 2021.

In its claim, TC Energy said it was due more than US$15 billion in damages as a result of the years it spent navigating legal and regulatory challenges before the Biden administration officially spiked the project by revoking a key permit. Construction on the pipeline had already begun when the project was cancelled.

But the International Centre for Settlement of Investment Disputes (ICSID) tribunal sided with the U.S. government in the matter last Friday by refusing to hear TC Energy’s case.

The tribunal said the legacy provisions tied to the old NAFTA only permit claims based on breaches that allegedly occurred while NAFTA was in force.

Biden revoked Keystone XL’s permit a year after NAFTA was terminated and the new US-Mexico-Canada Agreement (USMCA) took its place.

In an email Tuesday, TC Energy expressed its dismay over the tribunal’s decision.

“We are both disappointed and frustrated with the Tribunal’s decision to deny our right to bring a legacy NAFTA claim,” said Patrick Keys, executive vice-president and general counsel for TC Energy.

“This ruling does not align with our expectations and views of the plain interpretation of the protections NAFTA and the USMCA were designed to offer. TC Energy was treated unfairly and inequitably in the revocation of the permit, which was driven by political considerations.”

The tribunal’s decision was hailed by environmental activists, who interpreted it as evidence that fossil fuel companies will not be able to successfully sue governments for policy changes made for the good of the environment or to mitigate the effects of climate change.

“This is an important precedent, because governments need to be able to take action to protect people (from climate change) and corporations shouldn’t be able to sue them for it,” said Keith Stewart, senior energy strategist at Greenpeace Canada.

“The threat of these types of lawsuits has actually been giving governments cold feet about taking bold action (on climate) and I think we should recognize this decision as saying, ‘full speed ahead.'”

But Heather Exner-Pirot, special advisor to the Business Council of Canada, said the decision could have a chilling effect on businesses of all types, not just the fossil fuel sector.

“This undermines certainty for industry, and they will be less likely on the whole to invest in long-term projects,” she said.

“What (this decision says) is, you don’t know what the political winds will bring in 10 years, or in five years, but there’ll be no protection for the investment decisions you make today.”

Exner-Pirot added that while she’s not surprised by the tribunal’s decision to reject TC Energy’s claim, she understands why the company felt they had to make it.

“I’m guessing that for them it was some kind of line in the sand,” she said.

“For a company, they can’t have these political decisions affecting their business, this flip-flopping between left and right. I’m sure they felt that at some point, someone had to say, ‘This is not the way to go.'”

The government of Alberta also has a complaint pending before the ICSID panel.

In 2020, the Alberta government agreed to invest about $1.5 billion in equity in the Keystone XL project in an effort to get the stalled pipeline project moving.

On Tuesday, a spokesman for Alberta’s Energy and Minerals Minister Brian Jean said the province expects the tribunal to make a decision in its matter by fall of this year.

“As to the arbitration decision on TC Energy’s claim, we are reviewing the tribunal’s decision for information purposes, but Alberta Energy will not comment on a third party’s legal proceeding,” said spokesman Benji Smith in an email.

This report by The Canadian Press was first published July 16, 2024.

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Amanda Stephenson, The Canadian Press