2/3/21 - Insights
The Keystone XL Pipeline: What Happens Next?
By Andrew S. Hicks, Adam M. Dinnell, and Fatima Aslam
On January 20, 2021, President Joe Biden signed an executive order revoking the presidential permit for the Keystone XL pipeline border crossing. While this is not the first time a U.S president has issued such a directive, it may be the final blow for a project that has been in progress for more than a decade.
Both TC Energy and the Canadian government quickly censured the move. TC Energy stated in a press release that it was “disappointed with the expected order,” which overturns “an unprecedented, comprehensive regulatory process that lasted more than a decade and repeatedly concluded the pipeline would transport much-needed energy in an environmentally responsible way.” Similarly, Canadian Prime Minister Justin Trudeau said in a statement, “While we welcome the president’s commitment to fight climate change, we are disappointed.”
TC Energy and the province of Alberta (which took an ownership stake in the pipeline in 2020) are currently evaluating their legal options. According to Alberta Premier Jason Kenney, “Alberta will work with TC Energy to use all legal avenues available to protect its interest in the project.” Indeed, Kenney has indicated that his government would file lawsuits seeking damages from the United States for cancelling the pipeline.
These avenues for recovery likely will be limited due to the president’s broad power to issue or revoke permits. In fact, Article 1 of the Amended Presidential Permit signed by President Donald Trump in 2019 explicitly states that “[Keystone’s] permit may be terminated, revoked, or amended at any time at the sole discretion of the president, with or without advice provided by any executive department or agency.”
Kristen van de Biezenbos, an associate professor at the University of Calgary’s Faculty of Law, noted, “President Trump could have revoked Keystone XL’s permit…at any time. Similarly, once he becomes president, Biden can revoke it at any time.” According to Biezenbos, Alberta could only recoup its investment if the loan guarantee explicitly stated that TC Energy must compensate the province if it was unable to complete the project. “But if you’re talking about damages from the U.S. government, I don’t see how,” she added.
Nevertheless, there are two potential legal options available to TC Energy/Alberta:
- File suit in U.S. federal court. In January 2016, TC Energy (through certain of its affiliates) filed suit in the U.S. District Court for the Southern District of Texas in Houston, claiming that the executive branch violated the Constitution by rejecting the pipeline. TC Energy did not seek monetary damages but sought a declaration that the permit denial was unconstitutional and to enjoin the executive branch from any further efforts to give effect to it. TC Energy voluntarily dismissed the case in March 2017 after President Trump issued a presidential permit allowing cross-border construction of the pipeline. While this case may be refiled, the language contained in President Trump’s 2019 Amended Presidential Permit expressly granting the president “sole discretion” to terminate, revoke, or amend the permit likely complicates such an action.
- File an arbitration claim under Chapter 11 of NAFTA. In 2016, TransCanada Corporation filed a complaint under North American Free Trade Agreement (NAFTA) Chapter 11. TransCanada Corporation claimed that the rejection of the Keystone permit by the Obama administration discriminated against the company, denied it fair and equitable treatment, and expropriated its investment under NAFTA Chapter 11. Hence, the company sought to recover $15 billion in damages. Like the federal lawsuit, NAFTA claims were dropped once President Trump granted the permit in 2017.
TC Energy may file a similar claim in 2021, arguing that the United States breached provisions under NAFTA’s Chapter 11, citing obligations related to non-discrimination, minimum standard of treatment, and expropriation and compensation. But if history is any guide, the company faces an uphill battle. The United States has never lost a NAFTA Chapter 11 case and been required to pay damages. Further, Article 1114 of NAFTA states:
Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns.
While TC Energy has immediately suspended work on the project, it has not yet announced what legal options it will pursue in response to the executive order. Even if the Keystone pipeline project is shelved, TC Energy has indicated a willingness to pursue other projects: “Our base continues to perform very well and, aside from Keystone XL, we are advancing $25 billion of secured capital projects along with a robust portfolio of other similarly high quality opportunities under development.” Considering the amount of money invested in Keystone XL, it would be surprising to see the company (and Alberta) fail to at least try to obtain some form of redress.
Andrew S. Hicks, Adam M. Dinnell, and Fatima Aslam are trial lawyers with the Houston trial firm Schiffer Hicks Johnson PLLC. The firm regularly represents parties in complex disputes, including oil and gas pipeline disputes, in international and domestic arbitrations, and in federal and state courts across the country. Clients have ranged from major industry players to independents—including upstream, midstream, and downstream entities—as well as power plant operators, oilfield service companies, state-owned energy companies, landowners, trading and marketing companies, private equity firms, and other energy industry investors. For more information, please contact firstname.lastname@example.org or +1 713 357 5152.
 TC Energy Disappointed with Expected Executive Action Revoking Keystone XL Presidential Permit, TC ENERGY (Jan. 20, 2021), www.tcenergy.com/announcements/2021-01-20-tc-energy-disappointed-with-expected-executive-action-revoking-keystone-xl-presidential-permit.
 Statement by the Prime Minister of Canada on the United States’ Decision on the Keystone XL Project, PRIME MINISTER OF CANADA (Jan. 20, 2021), www.pm.gc.ca/en/news/statements/2021/01/20/statement-prime-minister-canada-united-states-decision-keystone-xl.
 Biden to Rescind Keystone XL Permit, Work Suspended, ARGUS MEDIA (Jan. 20, 2021), www.argusmedia.com/en/news/2178778-biden-to-rescind-keystone-xl-permit-work-suspended?backToResults=true.
 TC Energy and Alberta Face Long Odds if They Sue U.S. Government Over Cancelled Keystone XL, FINANCIAL POST (Jan. 20, 2021), www.financialpost.com/commodities/tc-energy-and-alberta-face-long-odds-if-they-sue-u-s-government-over-cancelled-keystone-xl.
 Authorizing TransCanada Keystone Pipeline, L.P., To Construct, Connect, Operate, and Maintain Pipeline Facilities at the International Boundary Between the United States and Canada, FEDERAL REGISTER (Apr. 3, 2019), www.federalregister.gov/documents/2019/04/03/2019-06654/authorizing-transcanada-keystone-pipeline-lp-to-construct-connect-operate-and-maintain-pipeline.
 Kirby Borne, Show Canada Respect: Kenney Prepared to Defend Keystone XL as Critics Slam Project, GLOBAL NEWS (Jan.19, 2021), www.globalnews.ca/news/7583289/jason-kenney-joe-biden-keystone-xl-permits/.
 Case No. 4:16-cv-00036; TransCanada Keystone Pipeline, LP and TC Oil Pipeline Operations Inc. v. John F. Kerry, et al, In the United States District Court for the Southern District of Texas, Houston Division; TransCanada Takes Two Separate Legal Actions after Keystone XL Rejection, AMERICAN BAR (Feb. 2, 2016), www.americanbar.org/groups/litigation/committees/environmental-energy/practice/2016/020216-energy-transcanada-takes-two-separate-legal-actions-after-keystone-xl-rejection/.
 Presidential Permit, Energy & Environment (Mar. 29, 2019), trumpwhitehouse.archives.gov/presidential-actions/presidential-permit/.
 TransCanada Corporation and TransCanada PipeLines Limited v. The United States of America, ICSID Case No. ARB/16/21; (June 24, 2016), Request for Arbitration, www.state.gov/wp-content/uploads/2019/05/Notice-of-Arbitration.pdf.
 Order of the Secretary-General Taking Note of the Discontinuance of the Proceeding, icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C5646/DC10192_En.pdf.
 Although NAFTA was replaced in July 2020 by the United States-Mexico-Canada Agreement (USMCA), Chapter 14 of the USMCA includes a transition clause that extends the time for investors to file legacy-related NAFTA claims through 2023.
 The Investment Treaty Arbitration Review, 4th Ed. 2019, Editor, Barton Legum, NAFTA in Transition: The Current State of Play and What Comes Next by Lisa M. Richman, Chapter 31 at p. 361, https://d1198w4twoqz7i.cloudfront.net/wp-content/uploads/2019/06/20201043/NAFTA-in-Transition.pdf.
 TC Energy Disappointed with Expected Executive Action Revoking Keystone XL Presidential Permit. TC ENERGY (Jan. 20, 2021), www.tcenergy.com/announcements/2021-01-20-tc-energy-disappointed-with-expected-executive-action-revoking-keystone-xl-presidential-permit/.