Keystone XL — Crossing borders

by Lauren Marijnen and Catherine Corriveau

Climate change is a topic that is becoming increasingly present in everyday life as well as in the political, economical and legal spheres. Governments’ decisions to adopt certains policies or to endorse projects are often tainted by the ever so present reality that every move can or has an environmental footprint. Many countries claim to progress towards cleaner forms of energy and practices and see themselves as leaders in the field. This is the case of Canada and the United States. Nevertheless, these claims are often questioned because of the adoption of controversial projects such as the Keystone XL pipeline. This pipeline will be the topic of this research study as well as its’ legal transnational nature.

What is the Keystone XL project?

Brief explanation

In 2008, former President George W. Bush granted a Presidential Permit for the Keystone Pipeline project going from Hardisty, Alberta (Canada), to Steele City, Nebraska (United States), in order to run oil sands products from Canada to the United States.

The Keystone XL project would be an extension of this already existing project, linking both locations with a more direct route (see map).

http://www.bbc.com/news/world-us-canada-30103078

The Keystone XL pipeline is represented here with the dotted line. It would be financed privately through shares from the Alberta Energy Company, TransCanada, as well as other oil companies. Keystone XL would allow for the first direct link from Canada’s oil sands to refining facilities on the US Gulf Coast.

Purpose

The purpose of the Keystone XL project was to increase the volumes of oil shipped, expand oil markets on both the Canadian and American sides, and decrease US’ dependence on Middle East oil. Additionally, the presence of more producers would lead to lowered oil prices, in accordance with the philosophy of a competitive market.

Oil sands are considered to be a form of unconventional oil, with crude oil being a conventional form. As conventional forms are being depleted, producers are trying to find the next best solution which currently seems to be oil sands. One of the most cost-effective methods for transporting the product from oil sands is pipelines (Mirkovic, 2013).

The project would also potentially allow for the creation of an important number of jobs during the construction of the actual pipeline, but this number would drop drastically after construction is finished.

Canadian and American positions

§ On the Canadian side

TransCanada got approval from the Canadian National Energy Board in 2010. While Canadians are divided on the issue, for reasons which will be explained in another section, both federal and provincial governments have endorsed the project. Canadian Prime Minister Justin Trudeau described the importance of Keystone XL shortly after his election:

“We know that Canadians want a government that they can trust to protect the environment and grow the economy. The government of Canada will work hand in hand with provinces, territories and like-minded countries to combat climate change, adapt to its impacts, and create the clean jobs of tomorrow.” (Trudeau)
http://www.ctvnews.ca/polopoly_fs/1.2646324.1447336665!/httpImage/image.jpg_gen/derivatives/landscape_960/image.jpg

According to the federal government, the construction of such pipelines can go hand in hand with its other goal of reducing the country’s emissions of greenhouse gases, a claim disputed by many environmental experts. Recently, Minister Trudeau announced the Canadian government’s approval of another pipeline, Kinder Morgan, which would tranport oil between two Canadian provinces, that is, from Alberta to British Columbia, increasing the oil sand production and market. Just as with Keystone XL, this decision is creating much controversy and dividing the population. Mr. Trudeau stands by this decision, claiming it will not affect Canada’s environmental goals.

§ On the American side

Projects such as Keystone XL require a Presidential Permit, which in this case was denied by the Obama administration in 2015. While this may or may not change under the upcoming Trump administration, the current American position does not allow for the implementation of the project which has been put on hold since President Obama’s refusal to grant permission. The new president elect, unlike his predecessor, seems to be more inclined to allow the project to go ahead.

President elect Donald Trump’s take on Keystone XL
http://media.cagle.com/95/2015/01/30/159342_600.jpg

President Obama’s decision was in part due to the Environmental Protection Agency’s recommendation not to go ahead with the project as it would not contribute to lowering oil prices, creating long-term jobs or changing the US’s energy dependence on Middle-East petrol production. This decision was also part of his efforts to lead America towards greener energy:

“Now, the truth is, the United States will continue to rely on oil and gas as we transition — as we must transition — to a clean energy economy.” (President Barack Obama)
Obama’s statement on Keystone XL

Reasons for opposition

§ General environmental concerns

  • There would be an increase in pollution, a high risk for oil spills, and possible damage to environmental and economic communities.

§ Ecosystems at risk

  • The Keystone XL pipeline crosses fragile ecosystems and important agricultural areas (e.g., the Nebraska’s Sandhills and the Ogallala Aquifer).

§ Greenhouse gases

  • The approval of Keystone XL would mean a major increase in oil sands production (36%) and therefore global greenhouse gas emissions (comparable to the annual emissions of 4.6 million cars). Pipelines are a key determinant of oil sands growth — and therefore of an increase in greenhouse gases. Oil sands are much more damaging than traditional crude oil, because their emissions are 200–350% higher.
  • For Canada, the project could mean the country would fail to reach its carbon reduction targets (Lemphers, 2013). It does not appear that Canada’s environmental and climate goals can go hand in hand with projects such as the Keystone XL pipeline.

§ Social dimension

  • This pipeline would cross the tribal homelands of various indigenous communities.

Key Players

The Keystone XL project is an example of a transnational issue, not only because of its geography but also because of all its legal, political and social implications. Various key players are involved and the implementation of such a project ultimately depends on their jurisdictional impact.

Government

As will be explained in the section on jurisdiction, cross-border projects such as Keystone XL need to be approved by all the countries involved. Because of the nature of the project, in some cases, decision-making also rests with provinces and states. Different levels of government have a role and can have different impacts (e.g. federal, provincial, state, municipal…). This also means that different levels of legislation, regulations and jurisdictions come into play. In this particular case, one political entity cannot act without the approval of the other, a reality which brings in a factor of international law.

In addition to this, one must consider that within governments, there are many agencies, ministries and independent bodies involved, to name but a few: the Ministry of Transport, the Ministry of the Environment and Climate Change, the Ministry of Foreign Affairs, and so on.

Market players

Obviously, the biggest drive for a project like Keystone XL is economic. Here is an overview of the project’s economic role.

The most important players in this project are the companies designing and funding, including TransCanada and Valero Energy Corporation. Banks and investor groups, for example, also represent major financing players of similar pipeline projects (such as ING for example). It is also interesting that some market players could be those financing protests and manifestations against projects such as Keystone XL (as did billionaire Tom Steyer).

Governments can also be counted among market players, because national gross domestic products (GDP) are affected by such projects. The oil and gas industry is a very big part of the economies of Canada and Alberta. It represents 8% of the national GDP and is the country’s largest private sector activity. Canada is a net exporter of oil, while the US is a net importer. This creates a dependency relation between the two nations.

Canada is also extremely vulnerable in that it depends on its capacity to export oil. Infrastructure is therefore vital and as a direct result, so are pipelines. Projects such as Keystone XL and Kinder Morgan are therefore facilitators and extremely beneficial to Canada’s economy. Additionally, Keystone would help open up the market, establish ways to the coasts and other countries, and increase revenues from the product sold.

It is interesting to note that this pipeline could not be taxed under the North American Free Trade Agreement (NAFTA) and Alberta would essentially be the one making the most revenues from this arrangement. For president elect Donald Trump, this is a problem: according to his protectionist economic plans for America, Canada should not profit the most, as it currently does. He has stated in the past that he would require a bigger share of the profit to be directed into the US economy. In this light, Keystone is more of a political than an economic issue.

https://si.wsj.net/public/resources/images/BN-LB371_KEYSTO_J_20151102184108.jpg

Non-governmental organizations

Non-governmental organizations (NGOs) usually have personnel, tools, knowledge and information, and the credibility it takes to challenge decisions of governments. Hence, environmental and indigenous NGOs were — and are — very present during demonstrations and they offer resources to civil society and governments on the problems posed by projects such as Keystone XL.

The NGOs that were and are very active regarding this issue include, among others, Greenpeace, 350.org, and the Indigenous Environmental Network.

https://s3.amazonaws.com/s3.350.org/images/keystone-xl-march_640px.jpg

Civil society

As awareness of and about climate change is growing, so is the breadth of challenges against projects such as Keystone XL. Throughout the years since this project has been announced, strong opposition from the general public has been heard and seen. Protests, demonstrations, public letters and petitions, as well as appearances by important and popular figures, campaigns and strong use of social media have been used as ways to stop Keystone XL and similar projects.

One good example of the role of civil society would be the efforts to stop the North Dakota pipeline from being built.

Be it thanks to famous singers, actors and politicians, such as Democratic nominee Bernie Sanders, going to Standing Rock to show their support for the protesters, or through a wave of Facebook users from all over the world tagging their location at Standing Rock to confuse the police, or by the actions of veterans shaming the military for their actions against the protesters, civil society succeeded in halting the construction.

Also, individuals everywhere are organizing rallies and regrouping to protest against the corporate powers who finance project such as the North Dakota and Keystone XL pipelines. On 8 December 2016, a group of peaceful protesters rallied in front of an ING building in Amsterdam in order to raise awareness concerning the role of banks in financing projects such as the North Dakota pipeline.

We had the opportunity of conducting interviews with some of the participants. These interviews, we think give relevant insight on the impact that civil society can have on projects such as Keystone XL.

How is this a transnational law issue?

Human rights

Indigenous and Environmental Law Rights

Following a series of legal battles, indigenous peoples in Canada succeeded in having their concerns regarding environmental protection written into Canadian law. For example, the government is under an obligation to consult and accommodate First Nations when a pipeline passes through or near their territory. These consultations are done through the National Energy Board (NEB). While these consultations are not necessarily very effective or helpful in achieving goals benefiting the respect First Nations’ lands, they consists of the only real legal framework for the opposition.

Unfortunately, the Constitutions of Canada and the United States do not provide real language to guarantee environmental protection. The existing legal frameworks still need to be developed in order to provide stricter and clearer rules regarding the environment.

Cross-border law

When crossing different jurisdiction whose goals and priorities differ, pipelines may give rise to disputes . As Mirkovic puts it “cross-border pipelines disputes are indicative of a problem of coordination of laws, interests and regulations” (Mirkovic, 2013).

§ On the Canadian side:

Pipeline projects located within the confines of a single province are subject to the jurisdiction of that province. Otherwise, they becomes interprovincial or international concerns, for which jurisdiction lies with the federal government, under the Constitution.

The NEB establishes the relevant regulation around it, overseeing aspects such as the construction, the regulation of pipeline tariffs or tolls, and more. In approving such projects, the Board takes in account economic, environmental, social factors as well as assessing whether such projects are in the public interest.

An environmental assessment is also done under supervision of the Canadian Environmental Assessment Agency. Provinces can enable jurisdiction through legal actions such as taxation or laws “pertaining to the environmental assessment procedures” for things such as legislation “safeguarding environmentally sensitive Crown lands, forests and wildlife” over which they have jurisdiction (Mirkovic, 2013).

§ On the American side:

International pipelines fall under federal jurisdiction while inter-state pipelines fall under state jurisdiction. The President therefore has the power to approve this project but States could technically block the route through their territory. In this case, the pipeline would fall both under the foreign affairs and foreign commerce umbrellas, and ultimately become a decision of both the President and of Congress.

The decision must also consider the Environmental Impact Statement (EIS) that examines all the environmental impacts of the proposed pipeline. A decision will then be taken based on whether such a pipeline is deemed, or not, to serve the national interest (Mirkovic, 2013). The report consists in the process of identifying, predicting, evaluating and mitigating the biophysical, social and other relevant effects of development proposals before major decisions are taken and commitments made (Sassman, 2012). One of the major criticisms against EIS is its inability to make an accurate and complete analysis of trans boundary environmental harms. This leads to inability to fully inform the decision-maker on environmental concerns.

According to Professor Robert Socolow, Mechanical and Aerospace Engineering at Princeton University, “the US should recognize the costs that its energy decisions impose outside its borders” (Sassman, 2012). It therefore becomes important, with that approach, to internalize the international cost. The problem becomes the jurisdiction’s borders, which is where international law comes in (Sassman, 2012).

International Trade and Investment Law Perspective

The claim

In September 2008, TransCanada filed an application for a Presidential Permit to build the Keystone XL pipeline. Nearly seven years — and many discussions, protests and promises later — the permit was denied.

On 24 June 2016, TransCanada filed a request for arbitration seeking to recover costs and damages. The company attempts to seek more than 15 billion dollars in compensation under the Investor-State Dispute Settlement (ISDS) clause of NAFTA. Under this clause, it is possible for investors to bring directly before an arbitration tribunal a case against a country in which they have invested.

https://www.uschamber.com/above-the-fold/sen-heitkamp-has-great-response-obama-administration-s-keystone-xl-hypocrisy

In principle, every state is sovereign, including as regards decisions on investment law. However, in international law, states usually give in a part of their sovereignty by signing treaties or investment agreements. This has many reasons, notably to create a reciprocal system wherein investments in foreign states are protected and at the same time stimulate investments on their own territory.

Nearly every similar agreement includes open standards like “fair and equitable treatment” (FET). This standard can be seen, and has been seen by many scholars, as a logical expression of customary law between states, meant to grant a minimum level of treatment for foreign investors. NAFTA also contains a FET clause, in Article 1105:

Article 1105: Minimum Standard of Treatment (NAFTA)
1. Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security. (...)

Despite the fact that the FET standard is very vague and leaves much room for interpretation, and that its true meaning is a subject of discussions in various forums, it does commonly grant the basis for general prohibitions and obligations as regards a minimum standard of treatment.

In its request for arbitration, TransCanada claims that the US Administration contravened NAFTA, including the FET standard. The request compromises, among other things, a claim of discrimination by the US Administration and the claim that the US Administration did not process the application fairly and consistently with previous actions. Coherent with this argument is the claim of the company that the decision was politically driven and arbitrary.

The feasibility of the claim

For the purpose of this blogpost an interview was conducted with Professor Erik Denters, who teaches International Trade and Investment Law at the Vrije Universiteit Amsterdam.

TransCanada argues that in similar situations, but with national American companies, the US government did approve similar applications, which means it discriminated against the company in the case at hand .

“Not a single project is identical. There are all kinds of different considerations and different risks. The risks of this pipeline could be bigger than any other project, so there can be all kinds of considerations. Therefore, it’s very difficult to prove discrimination.” (Professor Erik Denters)

As Professor Denters points out, this is not the strongest argument. In fact, especially with projects as extensive as the Keystone XL, this argument is very hard to prove.

TransCanada also accuses the Administration of making a decision that was not consistent with previous actions and therefore contrary to the reasonable expectations TransCanada had. This would mean breaching the good faith principle, which compromises a few elements: respect of basic expectations, lack of arbitrariness and transparency.

President Barack Obama visiting Cushing, Oklahoma, on 22 March 2012

Indeed, everything seemed to a favourable decision for TransCanada. In the seven years during which the application was being processed, many aspects of the behaviour of the US Administration implied approval. For example, in 2012, President Obama visited Cushing, the place where the southern construction began and made a speech where he emphasized the importance of the pipeline. 
Also, the US Administration indicated several conditions the pipeline had to meet. Subsequent, studies by the Administration itself showed that those criteria were met. Nonetheless, the application was rejected. We asked Professor Denters how feasible he thought this claim would be.

“That is of course the strongest point of TransCanada. So the whole procedural aspect of these seven years, were not properly handled by the American Administration. (...) What you can argue is that there were made some expectations, there were given some expectations, and TransCanada has invested a lot in preparatory work. That would be an argument for TransCanada to begin the arbitration: improper administrative procedure.” (Professor Erik Denters)

Predicting the outcome of this case is tricky, as many factors have to be taken into account and many variables have an influence. Considering that the US has, up to now, never lost an ISDS case, the result may be even more interesting because there is a chance that TransCanada could win.

Altogether, the last argument is the strongest, but the outcome of the case is unsure, as it could go either way.

The consequences for future climate change decisions

An interesting problem is the discrepancy between international investment law, mostly used by profit-driven companies, and environmental law. The US Administration had two opposing choices: either making the environmentally sensitive decision, but (probably) breaching NAFTA, or avoiding a breach of NAFTA but upsetting the community even more and making it look as if the USA was actually not a leader in climate change solutions, just as Secretary of State John Kerry concluded himself:

“[t]he critical factor in my determination was this: moving forward with this project would significantly undermine our ability to continue leading the world in combating climate change.” (Secretary of State John Kerry)

However, the problem is not NAFTA itself. The problem is the Agreement’s ISDS clause. Because independent companies can sue a state at an arbitration tribunal, a decision made by any administration in order to fight climate change can result in having the country pay billions of dollars in compensation. Keystone XL is a perfect example of this risk.

Yet, times are changing. Governments, and also people around the globe, are becoming more aware of climate change and the necessity of fighting against it. Also, the interpretation of treaty clauses is a dynamic process, tribunals are influenced by many things, one of them being state practice.

“There are rules for interpretation. Not only what the text says, but also subsequent state practice and subsequent agreements. They are important for the interpretation of clauses.” (Professor Erik Denters)
“The way tribunals work is that they will adopt customary law developments. If you talk about FET or indirect expropriation, of course this is just a term, that you have to interpret. You interpret it in the context of time.
So there will be change.” (Professor Erik Denters)

Conclusion

This research has allowed us to come to a few conclusions:

  • There is a need for a permanent court overseeing international investment law to remove the possibility for big investors to turn to an arbitrational tribunal. And therefore to bring global unity in investment law, with good standards and more consideration for fighting against climate change.
  • One cannot underestimate the importance of market players, as they have tremendous influence on decisional powers for such projects.
  • Keystone XL is a perfect example of how a geographically transnational issue becomes global because of its overall environmental, social and political implications. Climate change is only one of these aspects.
  • When comparing Keystone XL to similar pipeline projects, it is possible to see that civil society does have a say regarding their implementation. North Dakota serves as an example, as it shows the importance and value of social movements.
  • Our predictions for the future of Keystone XL, are that this project can go either way. But we can only hope that if it does move forward, it is completed in a way which protects both environmental and social rights.

Extra Material

  • Here you can find more detailed maps related to the Keystone project. These were made in order to point out the important sites the pipeline would cross as well as the most critical points on the route.
  • And here, you can find ways in which communications and the media have an impact in such an issue and how their impact can affect outcomes.

Acknowledgements

We would like to thank all those who participated in this research project, in particular Professor Erik Denters and the people from NL Stands for Standing Rock & in gesprek met ING. Additionally, special thanks to all those who, through their stories allowed us to get better insight on the issues at stake.

We would also like to thank Thomas Bachand for allowing us to use his mapping material.

Bibliography

Scholarly

Lemphers, N. (2013). The climate implications of the proposed Keystone XL oilsands pipeline. Pembina Institute.

Mirkovic, N. (2013). The Northern Gateway and Keystone XL Pipelines: A Framework for Analyzing Interjurisdictional Pipeline Disputes (Doctoral dissertation, Faculty of Graduate Studies)

Sassman, W. (2012). Grass Is Always Greener: Keystone XL, Transboundary Harms, and Guidelines for Cooperative Environmental-Impact Assessment, The. Vand. J. Transnat’l L., 45, 1489.

.