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U.S. May Face $15 Billion Penalty for Rejection of Keystone XL Pipeline

Public Citizen News / November-December 2022

By Alex Durham and Sally King

This article appeared in the November/December 2022 edition of Public Citizen News. Download the full edition here.

The Keystone XL pipeline sparked a movement of activism to put people and the climate over Big Oil. After more than a decade of relentless protests and legal battles, President Joe Biden halted the dangerous pipeline on his first day in office.

That was a huge victory. But the fight isn’t over.

The company behind the pipeline, TC Energy (formerly TransCanada), is now suing the U.S. government in a shady tribunal that could leave U.S. taxpayers on the hook to pay $15 billion – the equivalent of installing solar panels for 400,000 individual American homes.

How did we get here?

The Keystone XL pipeline, proposed by TC Energy in 2008, would have pumped 830,000 barrels of tar sands oil per day across 1,200 miles of U.S. land and native territories, putting people and the environment at risk. The pipeline also would have undermined important climate goals.

In November 2015, after tens of thousands of activists nationwide demonstrated it would pose serious health and environmental risks, the Obama administration rejected the proposed pipeline. This historic rejection marked the first time a major fossil fuel project was denied over climate concerns. It also sparked a 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 to allow the pipeline to move forward. Protests and demonstrations continued to stall the project, led by native tribes, farmers, ranchers, and environmental activists.

Biden pulled the plug on the Keystone XL pipeline on his first day in office given longstanding climate, environmental, and health concerns of the crude oil project.

TC Energy is now using a little-known provision in the North American Free Trade Agreement (NAFTA) to sue the U.S. government for $15 billion from U.S. taxpayers for “lost profits.” The Canadian company claims that blocking the construction of the pipeline violates its rights under NAFTA’s Investor-State Dispute Settlement (ISDS) provisions, , even though the estimated cost of the project was to be $8 billion, and only $1.1 billion had been invested in the project.

The ISDS case has recently progressed to a key step, in which the three arbitrators have been selected.

ISDS cases pose serious threat to improving environmental standards

ISDS cases like Keystone allows foreign investors to bypass U.S. courts and challenge American laws in a corporate-rigged arbitration system.

ISDS has been abused by corporations like the U.S.’s ExxonMobil subsidiary Mobil Investments Canada, which sued and won $26 million from the Canadian government in 2014. It refused to follow a Canadian law that required the company to invest a small amount of its earnings in R&D for environmental safeguards for offshore extraction and alternative energy, and ISDS provisions in NAFTA allowed it to be rewarded for doing so.

Many of these cases similarly target government efforts to address climate change and protect the environment. In fact, of the 35 pending ISDS cases filed under U.S. free trade agreements , nearly all relate to environmental, energy, public health, financial, land use, and transportation policies.

The huge price tag of ISDS cases is especially daunting for developing countries that want to act on climate but cannot afford the legal fees of fighting a case, let alone vast amounts of taxpayer money if they lose.

Future of ISDS

Once the world’s leading proponent of ISDS, the U.S. has begun eliminating it from its trade agreements after decades of civil society groups like Public Citizen raising the alarm on the threat of ISDS to global democracy.

NAFTA was the first U.S. trade deal to include ISDS, granting an unprecedented amount of power to corporations that enabled TC Energy to bring its case against the U.S. The revised NAFTA  is set to phase out ISDS between the U.S. and Canada by July 2023, giving TC Energy and others a last window to launch cases. But a lingering U.S.-Mexico annex allows U.S. firms to retain access to the original NAFTA ISDS.

As the Keystone case demonstrates, citizen health and the environment will remain under threat from corporate polluters unless ISDS powers are completely revoked.

President Biden has promised that ISDS will not be included in future trade agreements and the Americas Partnership for Economic Prosperity (APEP), an economic initiative with Latin America and the Caribbean announced in June, would be a great venue to put this promise into practice.

At the same time, more needs to be done to weed ISDS out of existing pacts. There are dozens of U.S. treaties with countries across the globe that contain ISDS provisions, which leaves U.S. environmental policy vulnerable to lawsuits. Corporations like TC Energy have shown the lengths they will go to defend their actions, no matter how environmentally damaging, and the U.S. should not continue to give them the tools to do so.