Open question if Alberta can be considered investor as part of Keystone XL dispute: lawyer

Law360 Canada (February 22, 2022, 2:17 PM EST) -- Alberta is seeking $1.3 billion in damages from the United States over cancellation of the permit for the controversial Keystone XL pipeline, but a legal expert is saying it is questionable whether the province can even be considered an investor under trade rules contained in the old North American Free Trade Agreement (NAFTA).

The compensation being sought is related to the investment Alberta made in the project through its petroleum marketing commission. The Keystone XL project would have transported crude oil from Alberta to existing pipelines in Nebraska, which link to refineries on the U.S. Gulf Coast. It was blocked by former U.S. president Barack Obama in 2015, and then revived by his successor Donald Trump in 2017. But on his first day in office last year, current President Joe Biden revoked the permit once again.

Alberta launched its challenge under legacy rules tied to NAFTA, which was replaced by the Canada-United States-Mexico Agreement (CUSMA) in 2020. Alberta Energy Minister Sonya Savage said a legacy claim is the best avenue to recover the province’s investment.

“The Keystone XL pipeline would have provided a number of economic benefits on both sides of the border. As we have seen with recent global events, energy security for North America is critical to our shared economic growth and prosperity,” she said. “It remains Alberta’s position that our resource sector can and should be a responsible and reliable energy source for North American markets in the years to come.”

But international trade law expert Lawrence Herman said “it is a good question” whether Alberta qualifies as an investor under NAFTA rules and noted the province’s move is the first time a government has brought a NAFTA dispute against another government.

“NAFTA’s investor-state dispute settlement provisions define an investor as an individual — meaning a person, a corporation or an enterprise of a party,” he said. “Whether Alberta has standing as an investor is likely to be a highly contested point. I’m pretty certain that the U.S. will say Alberta cannot be an investor, because NAFTA does not say that another government, or a subunit of a government like a province, can use these investor-state dispute settlement provisions.”

But Herman also said there are good arguments to be made that the Keystone cancellation was politicized, and not just based on pure science and environmental considerations. TC Energy, the Calgary-based company behind the pipeline, has also filed a NAFTA trade challenge, seeking $15 billion in compensation.

“The fact that it was a such a hot potato lends itself to the suggestion that the cancellation was politically motivated, and the fair and equitable treatment required under NAFTA to investors was not provided,” he said.

Representatives of the United States Department of Commerce did not respond to a request for comment by press time.

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