TransCanada initiates NAFTA arbitration against the United States over rejection of Keystone XL pipeline

On January 6, 2016, TransCanada initiated arbitration against the United States for “unreasonably delaying approval” of the proposed Keystone XL pipeline and ultimately denying, in November 2015, the company’s application for the required Presidential Permit. Alleging the United States breached its non-discrimination, expropriation, and fair and equitable treatment commitments under the North American Free Trade Agreement (NAFTA), the Canadian company seeks damages of over US$15 billion.

The Keystone XL pipeline, which would carry crude oil from the Canadian province of Alberta to U.S. ports in the Gulf of Mexico, became a contentious political issue in the United States. Environmentalists pointed to the carbon-intensity of extracting oil from the Alberta tar sands, and argued that the pipeline would run counter to the country’s efforts to reduce fossil fuel reliance. Meanwhile, Republican lawmakers and several U.S. states supported the project.

In its Notice of Intent, TransCanada highlighted that the application review lasted significantly longer than the average for such a pipeline. The Obama Administration admitted the review lasted longer because the pipeline became politicized. In a statement after rejecting the application on November 6, 2015, President Obama explained: “America is now a global leader when it comes to taking serious action to fight climate change. And frankly, approving this project would have undercut that global leadership.”

On the same day it initiated arbitration, TransCanada also filed suit against U.S. federal authorities in a U.S. court, claiming Obama’s rejection of the application exceeded the president’s constitutional powers and lacked authorization by Congress. This U.S. court case is in addition and parallel to the NAFTA case, which is expected to take several years to resolve. The United States has never lost a challenge under NAFTA’s investment chapter to date.

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*The editorial team acknowledges, with many thanks, the contribution of Jacob Greenberg, Geneva International Fellow from University of Michigan Law and an intern with IISD’s Investment for Sustainable Development Program.