Table of Contents
- EXECUTIVE SUMMARY
- I. INTRODUCTION
- II. PARTIES TO THE ARBITRATION
- III. FACTUAL BACKGROUND
- A. Background of the KXL Pipeline
- B. The Political Saga Leading to Revocation of the 2019 Permit
- In 2015, the United States Denied Keystone's Permit Application in Order to Promote the Perception that the United States Is a Leader on Climate Change, Prompting TC Energy to File a NAFTA Arbitration
- In 2017, the United States Reversed Its Position, Invited Keystone to Submit a New Application, and Granted the Permit on the Condition that TC Energy Withdraw Its NAFTA Claims
- In 2021, the United States Suddenly Reversed Its Position a Second Time, Revoked the 2019 Permit, and Once Again Asserted that Blocking the KXL Pipeline Would Promote the Perception that the United States Is a Leader on Climate Change
- C. Respondent Breached Its NAFTA Obligations by Revoking the 2019 Permit
- IV. JURISDICTION
- A. The Jurisdictional Requirements Under NAFTA 1994 and USMCA Are Met
- B. The Jurisdictional Requirements Under the ICSID Convention Are Met
- V. RESPONDENT'S BREACHES OF NAFTA 1994
- A. Respondent Has Breached Its Obligations Under Articles 1102 and 1103 of NAFTA 1994
- B. Respondent Has Breached Its Obligations Under Article 1105 of NAFTA 1994
- C. Respondent Has Breached Its Obligations Under Article 1110 of NAFTA 1994
- VI. RELIEF REQUESTED
- VII. CONSTITUTION OF THE TRIBUNAL
REQUEST FOR ARBITRATION
1. On September 19, 2008--more than 13 years ago--TransCanada Keystone Pipeline, L.P.
("Keystone") submitted an application to the United States Department of State ("State Department") for a Presidential permit to construct, connect, operate, and maintain the cross- border segment of the Keystone XL Pipeline ("KXL Pipeline" or "the project"), which would have carried oil from an oil supply hub near Hardisty, Alberta to delivery points in Oklahoma and Texas. In the years after Keystone's application, the United States took Keystone, its parent companies, and its subsidiaries (collectively, "TC Energy," formerly "TransCanada"1) on a regulatory roller coaster, first stating that it was "inclined" to approve Keystone's application, then rejecting the application, then inviting Keystone to apply for a new permit, then issuing the permit (twice), and then, finally, revoking the permit. All of these actions were taken on the basis of essentially the same factual record. The U.S. decision to revoke the permit was unfair and inequitable, discriminatory, expropriatory, and violated U.S. obligations under Chapter 11 of the North American Free Trade Agreement ("NAFTA 1994"). TC Energy hereby submits its claims to arbitration in accordance with Section B of Chapter 11 of NAFTA 1994 and Annex 14-C of the Agreement between the United States of America, the United Mexican States, and Canada ("USMCA").
2. The evidence substantiating TC Energy's claims is overwhelming and well documented in the administrative record, media reports, and U.S. Government statements. TC Energy Corporation and TransCanada PipeLines Limited (collectively "Claimants") will elaborate on the details in due course, but the basic facts are straight-forward. The drama leading to the U.S. decision to revoke the permit unfolded in three acts.
ACT ONE: The United States Rejects Keystone's Permit Application in Order to Promote the Perception that the United States Is a Leader on Climate Change, Prompting TC Energy to File a NAFTA Arbitration
3. The KXL Pipeline is arguably the most closely scrutinized pipeline project in U.S. history. Between 2008 and 2015, the State Department prepared five environmental impact statements (in draft, final, or supplemental form), each of which is hundreds of pages long and backed up by countless environmental and engineering studies, field surveys, and technical assessments, many conducted by independent third parties. These assessments all concluded that the KXL Pipeline would not result in increased production and consumption of crude oil, and therefore would not significantly increase global greenhouse gas ("GHG") emissions. In October 2010, six months after the State Department issued the very first of these assessments, then-Secretary of State Hillary Clinton publicly stated that the State Department was "inclined" to approve the permit. Despite the findings in these assessments, activist opponents of the project zealously sought to make opposition to the KXL Pipeline a symbolic centerpiece for the climate change protest movement in the United States and a litmus test for Democratic politicians.
4. In July 2011, faced with the threat that the U.S. Congress would pass legislation imposing a deadline for action on the application, the State Department committed to reach a decision before December 31, 2011. The State Department failed to meet its commitment.
5. In November 2011, the State Department said it would try to reach a decision by 2013. Unsatisfied with this timeline, in December 2011, the U.S. Congress passed, and President Barack Obama ultimately signed, legislation that required the President to decide within 60 days whether to approve the application. In January 2012, the Administration announced that it needed more time to assess the application, but that in the face of the legislated timeline for a determination, it had decided to deny the permit without prejudice. It also concurrently stated that if TransCanada reapplied for the permit, it would consider TransCanada's application as though it were a completely new application.
6. The United States' treatment of the KXL Pipeline contrasted sharply with the Obama Administration's policy at that time--announced just two months after it denied Keystone's first application for the KXL Pipeline--to embrace and expand domestic oil production. In March 2012, President Obama declared that domestic oil production "will continue to be a critical part of an all-of-the-above energy strategy" and boasted that, "[n]ow, under my administration, America is producing more oil today than at any time in the last eight years.. .. [T]hat's important to know. .. We've added enough new oil and gas pipeline to encircle the Earth and then some. .. [Y]es, we are going to keep on drilling. Yes, we're going to keep on emphasizing production. Yes, we are going to make sure that we can get oil where it's needed." On the same day, he issued a Presidential memorandum to expedite review and approval of domestic pipeline infrastructure. He also stressed that he was "directing [his] administration to cut through the red tape, break through the bureaucratic hurdles, and make [a domestic segment of the KXL Pipeline Project] a priority, to go ahead and get it done." And his administration did exactly that, permitting only the domestic segment of the project on an expedited basis.
7. Keystone submitted its second application for a Presidential permit for the KXL Pipeline in May 2012. Three years later, following submission of comprehensive assessments and extensive review--and seven years after Keystone's first application --the State Department issued a Record of Decision on November 3, 2015 ("2015 ROD") that once again recognized that the KXL Pipeline would be unlikely to affect the rate of extraction of, or U.S. demand for, oil. However, notwithstanding that determination, it concluded that the pipeline was not in the U.S. national interest. Accordingly, on November 6, 2015, President Obama announced that the United States would once again deny Keystone's application on grounds unrelated to the substantive merits of the project. After admitting that "for years, the Keystone Pipeline has occupied what I, frankly, consider an overinflated role in our political discourse," President Obama declared that "approving this project would have undercut. .. global leadership [on climate change]." At the same time, then-Secretary of State John Kerry candidly admitted "[t]he reality is that this decision could not be made solely on the numbers - jobs that would be created, dirty fuel that would be transported here, or carbon pollution that would ultimately be unleashed." In other words, the denial was not based on an objective, empirical assessment of the KXL Pipeline's impact on climate change, but was instead designed to create a perception that the United States was committed to addressing climate change.
8. By the time the United States denied Keystone's second application in 2015, TC Energy had already invested billions of dollars into the KXL Pipeline in the legitimate expectation that the United States would run a fair administrative process consistent with U.S. law and decades of previous U.S. practice and precedent. On June 24, 2016, TransCanada Corporation and TransCanada Pipelines Limited (Keystone's corporate parents) submitted a Request for Arbitration ("RFA") on grounds that the November 2015 decision to deny the permit violated U.S. obligations under Chapter 11 of NAFTA 1994.
ACT TWO: The United States Reverses Its Position, Invites Keystone to Submit a New Application, and Grants the Permit (Twice) on the Condition that TC Energy Withdraw Its NAFTA Claims
9. On January 24, 2017, President Donald Trump issued a Presidential Memorandum Regarding the Construction of the Keystone XL Pipeline that explicitly "invit[ed] TransCanada Keystone Pipeline, L.P. (TransCanada), to promptly re-submit its application" for a Presidential permit for the KXL Pipeline. Recognizing the U.S. vulnerability in the pending NAFTA arbitration, President Trump instructed his chief economic adviser to "[g]o back to [TransCanada] and tell them, if they don't drop the [NAFTA] suit immediately, we are going to terminate the deal." He went on to explain that forcing TransCanada to drop the arbitration is "easier. .. than settling for like $4 billion in seven years from now." TransCanada agreed to withdraw its NAFTA claims, believing and justifiably relying on the Administration's promise that its third application would be fairly considered by the United States, and it promptly resubmitted its application.
10. In March 2017, the Trump Administration granted the permit ("2017 Permit"). The accompanying Record of Decision ("2017 ROD") stated that the KXL Pipeline is "not likely to lead to a significant net increase in [GHG] emissions," a finding that was entirely consistent with earlier determinations. The 2017 ROD then reversed the politically-driven position the United States had taken during the Obama Administration, and concluded that issuing the permit would not undermine U.S. leadership on climate change. On March 29, 2019, the Trump Administration issued a new permit ("2019 Permit") in order to address issues that arose in domestic litigation surrounding the 2017 Permit.
11. The 2017 and 2019 Permits both were conditioned upon TC Energy commencing construction of the cross-border segment of the KXL Pipeline within five years after the permits were issued. Accordingly, TC Energy continued to invest billions of dollars into the KXL Pipeline to advance project development and obtain ancillary regulatory authorizations, with the full knowledge and encouragement of the U.S. Government, and entered into contracts with multiple customers to ship oil on the pipeline. These contracts would have filled the entire capacity of the KXL Pipeline.
ACT THREE (The Breaching Act): The United States Reverses Its Position a Second Time, Revokes the 2019 Permit, and Once Again Asserts that Blocking the KXL Pipeline Is Necessary to Promote the Perception that the United States Is a Leader on Climate Change
12. During the U.S. Presidential campaign in 2019 and 2020, activists opposed to the KXL Pipeline reinvigorated their opposition and, among other actions, demanded that Democratic presidential candidates take a formal pledge to revoke the 2019 Permit "no matter what." In 2020, the policy director of then-candidate Joseph Biden's campaign declared that "Biden strongly opposed the Keystone pipeline in the last administration, stood alongside President Obama and Secretary Kerry to reject it in 2015, and will proudly stand in the Roosevelt Room again as President and stop it for good by rescinding the Keystone XL pipeline permit.. .. Stopping Keystone was the right decision then and it's still the right decision now."
13. On January 20, 2021, within hours of being sworn in as President of the United States, President Biden issued Executive Order 13990 ("EO 13990"), which revoked the 2019 Permit in order to promote the perception that the United States was committed to taking action on climate change. The "Day One" revocation action was taken without any new analysis or assessment of the substantive merits of the project or any opportunity for TC Energy to respond to, or otherwise address, the new Administration's concerns. For example, there is no evidence that the Administration considered the significant engineering changes and commitments TC Energy had made to be able to operate the pipeline with net zero GHG emissions and to power the pipeline by renewable energy sources by 2030. Nor did the Administration update the previous environmental assessments to account for carbon tax policies Canada had recently put in place.
Rather, EO 13990 expressly hearkened back to President Obama's decision to deny the permit application in 2015, i.e., the very decision that led TC Energy to initiate the 2016 NAFTA arbitration. And it was that same arbitration that the United States had demanded TC Energy withdraw as a condition for granting the 2017 Permit.
14. On January 20, 2021, immediately after President Biden revoked the 2019 Permit, TC Energy suspended work on the project, and on June 9, 2021, TC Energy announced that it was terminating the KXL Pipeline project.
CONCLUSION: The United States Breached Its Obligations under NAFTA 1994
15. The United States revoked the 2019 Permit for the KXL Pipeline for purely political reasons. The U.S. revocation destroyed billions of dollars of direct and indirect investment by TC Energy in the project and upended the legitimate expectations held by TC Energy that the U.S. Government had itself created. When it signed NAFTA 1994, the U.S. Government committed to provide all Canadian investors with core investment protections, including national treatment (Article 1102 of NAFTA 1994), most-favored-nation treatment (Article 1103 of NAFTA 1994), treatment in accordance with international law, including fair and equitable treatment and full protection and security (Article 1105 of NAFTA 1994), and protection against uncompensated expropriations (Article 1110 of NAFTA 1994). The U.S. Government breached those commitments and, under NAFTA 1994 and Annex 14-C of USMCA, Claimants are entitled to full compensation.
VI. RELIEF REQUESTED
99. Claimants respectfully request an award of damages arising from Respondent's breaches of its obligations under NAFTA 1994 in an amount of more than U.S. $15 billion, plus interest calculated from the date of breach until the date of payment, and the costs of this arbitration including, without limitation, attorneys' fees and other expenses.
100. Claimants reserve the right to adjust the relief requested during the course of the arbitration.
VII. CONSTITUTION OF THE TRIBUNAL
101. Having regard to the agreement of the parties expressed in NAFTA Articles 1123 and 1124 and to Rule 3 of the ICSID Institution Rules, Claimants request the constitution of a Tribunal in accordance with Article 37(2)(a) of the ICSID Convention. The Tribunal shall be comprised of three arbitrators, with one arbitrator appointed by each of the disputing parties and the third, who shall be the presiding arbitrator, appointed by agreement of the parties. If the Tribunal has not been constituted within 90 days from the date of the receipt of this Request by the Secretary-General, the procedures set out in Article 1124(2) and (3) of NAFTA 1994 shall apply.
102. Pursuant to Article 1125 of NAFTA 1994, for the purposes of Article 39 of the ICSID Convention, and without prejudice to an objection to an arbitrator based on Article 1124(3) of NAFTA 1994 or on a ground other than nationality, Claimants and Claimants' U.S. enterprises hereby agree to the appointment of each individual member of the arbitration Tribunal to be established under Article 1120 of NAFTA 1994.