TransCanada Corp.’s US$15-billion appeal of President Barack Obama’s rejection of the Keystone XL pipeline raises an important question: Who pays for social licence?
TransCanada Corp launches US$15-billion lawsuit against U.S. government for rejecting Keystone XL
TransCanada Corp. said Wednesday it intends to file a challenge under the North American Free Trade Agreement (NAFTA) seeking US$15-billion in damages from the United States government over President Barack Obama’s denial of the Keystone XL pipeline.
So far, the cost of accommodating the new political priority has been borne by private entities and their shareholders, who despite their efforts to accommodate and meet higher and costly regulatory requirements, are increasingly stuck with worthless or challenged energy projects.
On Wednesday, Calgary-based TransCanada became the first Canadian company to say ‘enough.’
It put in motion a pair of lawsuits – one under the North American Free Trade Agreement (NAFTA), the other in a Texas court — to recoup the real and lost opportunity cost of Obama’s Nov. 6 rejection of KXL, and to challenge whether he even had the constitutional authority to kill it.
The US$8-billion project’s rejection, the company argues, was arbitrary, unjustified and aimed at pleasing environmental advocates.
It could be just the beginning of corporate pushback.
Canada’s new Liberal government pulled a fast one on Enbridge Inc. over its proposed Northern Gateway pipeline, when it took steps to formalize a ban on tankers in northern British Columbia, effectively making the project to export Alberta oil to Asia worthless. The announcement came after the company and its shippers had already spent $500 million on regulatory expenses, after the project was improved to meet higher expectations, and after it was approved by regulators and by the former Conservative government’s cabinet.
In addition, the federal Liberals want to reform environmental reviews of other pipelines, even though the review of Kinder Morgan’s TransMountain pipeline expansion has been under way for more than two years, at a cost more than $300 million, and TransCanada’s proposed Energy East pipeline expects billions in additional costs to accommodate route changes and higher environmental standards.
Alberta’s NDP government made big promises to establish itself as a global climate change leader, while sweeping under the rug the cost of stranding energy assets, many of them already approved or planned under previous rules. The list goes on.
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In a recent paper, Michal Moore, professor of energy economics at the University of Calgary and at Cornell University in New York, calls it “ad hoc policy making” that responds to perceived crisis instead of well-thought energy strategy.
The fact is that environmental advocates are in the business of making ever-increasing demands. Those expectations might be more realistic if they were offset by a cost, such as no pension or a salary cut or higher taxes. It’s up to politicians to be rational, rather than promising to please, which is what so many of them are doing to win votes.
So far, corporate players alone have paid the cost of those rising expectations. With oil prices falling, the era of largesse is over.
In its NAFTA claim, TransCanada says the rejection of Keystone XL was symbolic and based on the desire to make the U.S. appear strong on climate change, not on the merits of the project. TransCanada argues it is “inexplicable” that it took seven years of review to come to that conclusion.
“This … was the administration’s reasoning: Keystone’s application should be denied so that the United States could show leadership on climate change by … appeasing those who held a view on the environmental impact of the Keystone XL pipeline that the administration itself concluded on six different occasions was wholly unsubstantiated … In short, the decision elevated perceptions over reality, which is the hallmark of a decision tainted by politics.”
TransCanada also argues that the pipeline’s politicization was of Obama’s own making, “as the administration allowed the controversy over the pipeline to fester and become even more virulent for seven years.”
It was the first time such a rejection was made, even though similar pipelines were approved, based on factors that if applied to Keystone would have resulted in approval, TransCanada argues in its notice of intent to submit the Chapter 11 NAFTA claim. The US$15 billion in compensation it is seeking includes billions in assets that are now useless as well as lost economic return.
The Chapter 11 challenge seems to have merit, said Bennett Jones partners and trade law experts Matthew Kronby and Milos Barutciski. It “seems designed to pre-empt criticism that it is using NAFTA Chapter 11 to circumvent environmental policy; discourage the delay or denial of other pipeline applications and provide cover to the next U.S. administration to reverse the decision,” they said in a statement.
In the lawsuit against the U.S. administration, filed in U.S. federal court in Houston, TransCanada argues Obama exceeded his constitutional authority because no president before him ever prohibited the development of a major oil pipeline and no other president prohibited a cross-border commercial facility to enhance his influence in foreign affairs. With the lawsuit, TransCanada is seeking an injunction against the permit’s denial.
It’s bold and risky for a Canadian company to take on the U.S. government, and in a statement TransCanada said it’s preparing for a long and costly legal fight.
Win or lose, the company is sending a message to politicians that their environmental priorities come at a cost – and that they better be prepared to pick up the tab.