Environmental and Energy Law Blog

Thursday, July 14, 2016

TransCanada Sues U.S. for Rejecting Keystone XL Pipeline

Why did The US reject the Keystone XL pipeline project? 

In November 2015, President Obama rejected the Keystone XL pipeline proposal, claiming it would not help the U.S. economy or enhance the Nation's energy security and that the project would expand carbon emissions. Now, TransCanada has filed a $15 billion arbitration claim under the North American Free Trade Agreement (NAFTA) to recoup costs and damages the company allegedly suffered.

TransCanada contends that denying the Keystone XL permit was politically motivated and that the decision lacked validity. The company is claiming the U.S. breached NAFTA rules in a number of ways that ultimately deprived TransCanada of the multi-billion dollar return on its investment after it made significant capital expenditures on the project based on initial expectations that the pipeline would be approved.

In short, TransCanada is claiming the President did not have the  authority under NAFTA to reject the pipeline. The company has also filed a separate lawsuit in US Federal Court in Houston, Texas arguing the Obama Administration exceeded its powers under the U.S. Constitution.

The pipeline system was slated to transport as much as 830,000 barrels of tar sands crude oil from Alberta, across the border, through the Midwest  into Nebraska and eventually wind its way down to refineries on the Gulf of Mexico, where it would be sold into international markets. The pipeline drew opposition from a coalition of environmental groups, landowners and farmers.

In sum, this lawsuit sheds light on controversies over energy policy the commitment by the NAFTA trading partners to a low-carbon economy. Further, opponents of Keystone XL are also voicing concerns about the tribunal systems under trade arrangements like NAFTA and the pending Trans-Pacific Partnership (TPP). These groups argue that TransCanada's NAFTA claims run counter to the will of millions of people who voiced their opposition to Keystone XL. For its part, TransCanada denies that the pipeline would result in an expansion of crude oil extraction operations in the Alberta tar sands and increased greenhouse gas emissions.

At this juncture, it is unclear whether the company will prevail in its challenge under NAFTA, and the case will probably take years to resolve; however, the US has yet to lose a NAFTA claim. In the final analysis, controversies over energy production are likely to continue, and these disputes require the legal and scientific know-how of an experienced oil and gas transactions attorney.

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