Keystone XL ISDS Case Explained: Oil Company Sues US for $15 Billion
This page will be updated as the case progresses.
The proposed expansion of the Keystone XL pipeline across the U.S. sparked a groundbreaking movement to prioritize the well-being of people, climate, and the planet over the interests of large, profit-hungry oil corporations. After over a decade of relentless protests and legal battles, President Biden halted the dangerous pipeline on his first day in office.
This was a huge victory, but the fight didn’t end there.
After halting the Keystone Pipeline’s expansion, the Canadian company behind the pipeline, TC Energy (formerly TransCanada), pursued legal action against the United States through a clandestine, extrajudicial tribunal. While it seems impossible, some trade and investment deals give multinational companies the power to sue governments and win taxpayer money as compensation, bypassing domestic courts altogether.
This secretive system, known as Investor-State Dispute Settlement (ISDS), can even order governments to pay for the loss of “expected future profits” that the corporation claims it would have earned in the absence of the public policy it is attacking. The
TC Energy’s lawsuit against the United States demanded $15 billion in taxpayer dollars for halting the expansion of the Keystone XL Pipeline, one of the largest ISDS lawsuits in response to climate policy.
In July 2024, the tribunal dismissed the case for lack of jurisdiction, a victory for the Indigenous land defenders, scientists, and environmental activists, who first stopped the pipeline back in 2015. Even though the case was dismissed, it still cost U.S. taxpayers hundreds of thousands of dollars (and likely much more) in tribunal costs and legal fees.
How did we get here?
The proposed expansion of the Keystone XL pipeline in 2008 would have pumped 830,000 barrels of tar sands oil per day across 1,200 miles of land, putting communities and the environment at risk of ecological disaster. The pipeline would have also undermined important climate goals and intruded on Indigenous sovereignty.
Tens of thousands of activists nationwide demonstrated that the pipeline was not in the public interest, posing serious health and environmental risks. In November 2015, the Obama administration responded to civil society’s public health and environmental concerns by rejecting the proposed pipeline. This historic rejection marked the first time a major fossil fuel project was halted due to climate concerns. The decision marked a significant win for the grassroots movement to keep fossil fuels in the ground in a global effort to address climate change.
The Keystone fight hit a major road bump when Donald Trump signed an executive order within his first week in office allowing the pipeline to move forward. Communities continued to lead the fight against fossil fuel expansion anyway, with demonstrations led by Indigenous leaders, farmers, ranchers, and environmental activists continuing to stall the project’s expansion.
Yet again, collective action made an impact. In 2021, Biden pulled the plug on the Keystone XL pipeline on his first day in office, responding to well-documented climate, environmental, and public health risks.
In retaliation, TC Energy commenced an Investor-State Dispute Settlement (ISDS) proceeding to sue the U.S. government for $15 billion even though the estimated cost of the project was to be $8 billion, and only $1.1 billion had been invested in the project. TC Energy claimed that preventing the expansion of the Keystone XL Pipeline into U.S. territory violated its special investor rights under the North American Free Trade Agreement (NAFTA).
This is where TC Energy hit a snag. NAFTA was replaced by the U.S.-Mexico-Canada Agreement (USMCA) in 2020, which eliminated ISDS between the U.S. and Canada. President Biden revoked the permit for the pipeline on his first day in office, long after Canadian companies lost the right to sue the U.S. government under NAFTA. The U.S. State Department was thus able to successfully argue for the $15 billion case to be thrown out on jurisdictional grounds.
Even though the United States “won,” according to documents released by the tribunal overseeing the case, the U.S. paid out at least $250,000 in taxpayer money to cover the initial tribunal members’ fees and expenses. The number is likely higher, though the full amount has not been disclosed to the public. This is in addition to paying the salaries of the many State Department attorneys who defended the U.S. in the case and the lost opportunity cost of other work they could be doing. On top of that, the Canadian province of Alberta still has a separate ongoing ISDS case against the U.S. over the Keystone XL Pipeline.
It is not all that surprising that the U.S. was able to avoid the worst, as it benefited both from its army of in-house attorneys and the shocking nature of the case, as highlighted by nearly 40 senators and representatives.
It remains to be seen if Canada and Mexico fare as well, as they both are currently battling legacy ISDS cases brought under the old NAFTA rules, with amounts sought totaling upwards of $3 billion.
ISDS cases pose serious threat to improving environmental standards
ISDS cases like Keystone put corporate polluters above the law, threatening to undermine global climate commitments.
This system allows foreign investors to bypass U.S. courts and challenge American laws in a corporate-rigged arbitration system.
ISDS has been taken advantage of by corporations in the past. ExxonMobil is a good example. The U.S. oil giant’s Canadian subsidiary, Mobil Investments Canada, sued the Canadian government for , which was settled in the company’s favor. In that case, Mobil Investments brought proceedings against the Canadian government challenging a provincial law that required the company to invest a small amount of earnings into research and development for environmental safeguards.
Many of these cases similarly target government efforts to address climate change and protect the environment, though they’re presented as “trade” issues. In fact, of the pending
ISDS also poses a particular threat to developing countries that pass laws in defense of community health, Indigenous rights, and environmental sustainability. These countries often do not have the resources to afford the exorbitant legal fees brought forward by ISDS lawsuits, which pressure governments to settle cases or refrain from passing public interest policies in the first place.
Future of ISDS
Once the world’s leading proponent of ISDS, the U.S. has started to recognize the problems with the system. This comes after decades of action from civil society groups raising the alarm on the threat of ISDS to global democracy.
As the Keystone case demonstrates, citizen health and environmental well-being will remain under threat from corporate polluters unless ISDS powers are completely revoked.
Phasing out ISDS in current trade deals is an important step in the right direction, and it should remain the standard for future trade deals. President Biden has promised that ISDS will not be included in future trade agreements.
This sets a powerful precedent. However, the U.S. still has ISDS-enforced pacts with more than 50 countries, and thousands of ISDS-enforced agreements are causing ongoing harm worldwide. To prevent fossil fuel companies from punishing taxpayers for sustainable climate safeguards, the U.S. must eliminate ISDS from all existing treaties in addition to leaving it out of future trade and investment agreements.
The Americas Partnership for Economic Prosperity (APEP) — an economic initiative between the U.S., Canada, and ten other countries in Latin America and the Caribbean — would be a great opportunity to limit ISDS liability with participating countries and a welcome first step towards eliminating ISDS across all U.S. treaties and agreements.