'The tale of the dead oil pipeline and the zombie trade agreement', 3 December 2021

"The Keystone XL (KXL) pipeline was back in the news last week for a couple of reasons. While “centrist” Democratic Senator Joe Manchin wants President Joe Biden to revive the defunct project to combat rising gas prices in the United States, the company behind it, Calgary-based TC Energy, instead firmed up its legal challenge to Keystone’s cancellation under the North American Free Trade Agreement (NAFTA).

In a surprising move, Alberta also signalled that it will launch its own challenge. Both cases will feed concerns that trade and investment agreements like NAFTA will make it harder for governments to meet their commitments to curb carbon emissions.

TC Energy filed a formal request for NAFTA arbitration with the U.S. government on November 22. Although, like the pipeline, NAFTA is dead—it was replaced by the Canada–U.S.–Mexico Agreement (CUSMA) in July 2020—the old deal’s “investment protections” in Chapter 11 are not quite buried. So-called legacy disputes can be launched by investors like TC Energy until July 2023. They are decided by a tribunal of three arbitrators in an ad-hoc and very controversial process called investor-state dispute settlement (ISDS).

Reporters covering TC Energy’s claim have adopted the company’s framing of the case as being about recovering its losses, following Biden’s cancellation of the pipeline in January. But TC Energy is not seeking compensation only for what it spent on developing the project.

It was reported in May that the company had an after-tax impairment of $2.2 billion from the cancellation of KXL, but that its net exposure would be reduced to about $1 billion thanks to the Alberta government’s investment in the project. Meanwhile, the NAFTA claim is reportedly for US$15 billion. As such, it must include demands for an award of speculative ‘lost future profits’: the money TC Energy believes it would have made had the project proceeded.

Alberta’s involvement further complicates the story. In 2020, the province announced a $1.5 billion equity investment in KXL as well as a $6 billion loan guarantee. After Biden’s decision to cancel the pipeline, Premier Jason Kenney said that the government believed it had “a very strong case for damages” under NAFTA and would be “continuing to work with TC Energy on that.” It seems TC Energy was not interested in a joint NAFTA claim, as Alberta is reported to be planning to initiate a separate ISDS case..."