TransCanada Files Suit Over Keystone XL: Does It Have Merit?

This week TransCanada announced that it will seek damages against the Obama administration under the North American Free Trade Agreement for blocking the construction of the Keystone XL pipeline. This raises a crucial question: Does a nation (and its constituency for that matter) have the right to decide whether to block industry from crossing its border to do something that will appreciably increase the country's carbon emissions?

And, just as importantly, does a federal agency have the right to change its policies with international business interests based on evolving climate change research?

On Wednesday, Canada's leading energy company said it planned to file two lawsuits against the Obama administration. Under NAFTA, it would seek $15 billion in damages for what it called "arbitrary unjustified" actions that it alleges were based on political motives.

It also filed a lawsuit in U.S. federal court in Houston alleging that the administration overstepped its constitutional powers when it denied TransCanada's application to construct its pipeline on U.S. soil.

The Calgary-based corporation says it has lost billions from the federal government's rejection of Keystone XL, and expects see losses in the fourth quarter specifically due to the rejection of the project.

“TransCanada has invested billions of dollars in assets that have now been rendered useless for the intended purpose, specifically the transportation of Canadian and American oil,” the company said.

According to a company statement regarding the lawsuits, the U.S. State Department "acknowledged" in its decision that "the denial was not based on the merits of the project." The company asserts that the decision was, instead, a "symbolic gesture based on speculation about the perceptions of the international community regarding the administration's leadership on climate change and the president's assertion of unprecedented, independent powers."

The loss of the Keystone project, however, isn't the only financial woe the corporation has experienced in recent years. A Globe and Mail article published in September 2015 (prior to the U.S. administration's formal announcement of its plan to reject the pipeline's construction) notes that TransCanada was already feeling the pinch from slowing oil and gas markets.

Reporter Allison McNeeley noted that the energy company's investment-grade bond was trading at that time "in line with companies rated in the lowest portion of junk, which usually signals that credit raters are expecting a default." By September investors were already backing away from fossil fuel energy investments, concerned "that oil and gas companies may not be able to shore up their balance sheets any time soon," McNeeley wrote.

The question that will likely be tested in U.S. federal court and under the strictures of NAFTA, however, is what bearing decisions such as those that emerged from COP21 should, and do, have on a nation's right to respond to its constituents' calls for climate action. Should a government that supports and is attempting to encourage clean energy have the right to act on research that shows that oil sands production is significantly contributing to climate change? And now that we can better measure the environmental impacts of unexpected oil leaks, should the federal government be able to act on those concerns?

With slumping oil prices and debates over quarterly losses, the question that really should be asked is whether federal governments, such as those of Canada and the U.S., should incentivize industry leaders to transition to more financially and climate-sound strategies. TransCanada's admission that it is feeling the effects of declining investments and, yes, government policies should herald not more lawsuits, but rather new strategies that will meet tomorrow's sustainable energy needs and low-carbon goals.

Images: Fibonacci Blue; Shannonpatrick17