Obama's Keystone saga takes new turn

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A pair of legal challenges filed by the developer behind the Keystone XL pipeline could end up being a big headache for President Obama, who tried to put the issue to rest in November.

TransCanada Corp., which wanted to build the oil pipeline from Canada’s oil sands to Gulf Coast refiners, filed a dispute under the North American Free Trade Agreement (NAFTA) and a separate federal lawsuit Wednesday challenging Obama’s rejection of a cross-border permit.

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Experts say that the NAFTA challenge, in which TransCanada is asking for $15 billion to compensate for losses from the cancellation, is the more likely of the challenges to succeed, while the domestic lawsuit is a broad constitutional claim with longer odds. 

Nonetheless, the actions revive one of the most controversial environmental fights in recent memory. The issue pits environmentalists and Democrats against the oil industry and Republicans, with the sides sparring over whether the United States’s energy future is one of clean, non-fossil-fuel energy or one of increased use of oil from friendly trading partners. 

The State Department declined to comment on the challenges, citing a policy against commenting on pending litigation.

But White House press secretary Josh Earnest, while refusing to speak at length, generally defended the Obama administration’s seven-year-long consideration, and eventual rejection, of Keystone.

“We continue to be confident that the administration acted lawfully,” Earnest said, adding that the decision came “after extensive public outreach and consultation.” 

As for the NAFTA process, known as an investor-state dispute settlement, Earnest said he’s “confident that the decision that was made vis-à-vis the Keystone pipeline is entirely consistent with all of our international obligations, including our obligations under NAFTA.” He noted that the United States has never lost in any such dispute, NAFTA or otherwise.

But despite the United States’s history of success in investor-state disputes, the administration could still be at risk.

The dispute process allows companies from Mexico, Canada or the United States to be compensated from another government for a loss of the company’s investment that was due to a NAFTA violation by that country. TransCanada cannot force approval of Keystone, but it can get back the money it’s owed if it wins. 

TransCanada’s dispute will be considered by a three-person panel, with one person appointed by the company, one by the United States and one by both parties. 

The preliminary complaint filed Wednesday charges that the United States, through the Keystone rejection, discriminated against TransCanada for being a Canadian company, improperly took something that belongs to the company and did not subject TransCanada to “fair and equitable” treatment, a vague term that is often left to the tribunal panel to define. 

The “fair and equitable” piece is where the Obama administration is most vulnerable, said David Gantz, a trade law professor at the University of Arizona College of Law.

“The issue becomes, if there is a very detailed procedure for approval or disapproval of pipelines, whether the U.S. followed those procedures or whether it went beyond the criteria or procedures,” Gantz said.

“I would say the U.S. is pretty vulnerable on that one issue,” he said, “in part because the White House staff and others essentially said, ‘We know we’re doing this politically and to make a statement,’ but the regulations don’t say you can make a statement in the most blatant sense.”

The fight will likely center on a 2004 executive order that governs how presidents judge cross-border energy infrastructure, which prescribes certain steps for public consultation and due process.

In its filing, TransCanada highlighted Obama’s statement that the primary reason for rejecting the pipeline was to show a strong United States climate policy in the run-up to the United Nations climate agreement negotiations in Paris.

“Stated simply, the delay and the ultimate decision to deny the permit were politically-driven, directly contrary to the findings of the administration’s own studies, and not based on the merits of Keystone’s application,” the company wrote. “The administration’s actions violated U.S. obligations under [NAFTA].”

The entire NAFTA process can take four to six years, and a recent United Nations report said governments spend an average of $8 million defending each claim.

As for the compensation, Gantz doubts that TransCanada could get anywhere near the $15 billion it seeks, since the total likely relies on speculation about future earnings. 

But Robert Stumberg, an international law professor at Georgetown University Law Center, said NAFTA disputes can also serve important political and lobbying purposes that, in some ways, can be more important that the legal process itself.

He said TransCanada has important advocacy tasks both in Canada, with its new liberal government led by Justin Trudeau, and in the United States, with a Republican Congress and an upcoming presidential election. 

“It could be understood as a campaign to rally the troops for the oil companies vis-à-vis the new government in Canada,” Stumberg said.

“Within the United States, having a claim like this and a big dollar amount attached to it, it’s a chance to rally the troops within the United States,” he continued, pointing out the impact the issue could have in the 2016 presidential campaign, where all the GOP contenders want to approve the project and all the Democrats oppose it.

The challenges also have the effect of keeping Keystone in the public eye, Stumberg said.

Canadian politics could play a big role in the issue as well. Trudeau said he was “disappointed” with the rejection, but he and Obama have pledged to move forward and cooperate on energy and climate more than Trudeau’s conservative predecessor, Stephen Harper, did.

Canada’s embassy in Washington declined to comment on TransCanada’s filings. The country could file a brief with the NAFTA panel if it chooses.

But the federal court challenge, filed in Houston, is more of a long shot attempt to force approval of Keystone, said Pat Parenteau, a law professor at the Vermont Law School. 

It challenges the president’s authority to reject any cross-border oil pipelines at all, saying that the executive order dictating the process intrudes on a realm reserved for Congress.

“Basic principles of constitutional law establish that the president exceeds his authority where, as here, he purports to act without statutory authority and contrary to the expressed will of Congress to resolve an issue of domestic and international commerce that the Constitution authorizes Congress to address,” the company wrote. 

Parenteau acknowledged that the Supreme Court has not reviewed such questions before, though other federal courts have affirmed the president’s authority, he said. 

“Based on the law that we have so far, I don’t see a serious constitutional issue here,” Parenteau said. “But we don’t have a definitive word from the Supreme Court on the president’s foreign relations authority to require permits for pipelines.”