Updated: Mar 29, 2021
Opinion by Jami McElrea.
United States President Joe Biden made the early executive order to scrap the Keystone XL pipeline, an $8 billion pipeline project seeking to move oil from Alberta to Nebraska. This decision was a blow to the province of Alberta and the governing United Conservative Party who invested $1.5 billion in taxpayer money towards the project. The opposition to the pipeline is primarily environmental as the bitumen transported by the pipeline is more acidic, corrosive, and carbon intensive to extract. Jason Kenney, the premier of Alberta, is applying pressure on the Federal government to act against the decision and perhaps utilize trade sanctions to overturn it . He also believes that Alberta has a strong legal basis under Canada’s trade agreement to keep the project going . While 65% of Canadians agree that it is bad for Alberta, over 59% say it is time to move on. There is a lack of political will to push back against the American government. This issue is divided along party lines with four-fifths of Conservative voters wanting the government to apply pressure, and roughly the same proportion of NDP, Liberal, and Bloc Quebecois supporters ready to move on . Without the support of the Canadian public or a strong legal basis to demonstrate wrong-doing, there is no real pathway to reversing the decision, and doing so would make Canadians worse-off.
"The pipeline only began construction last July, but it has been in the works for over a decade. It was first proposed in 2008, but protests and conflicting legislative and executive orders have stalled progress ."
The Albertan government is falling prey to the sunk cost fallacy. The sunk cost effect is the general tendency to continue pursuing a course of action due to previously invested time, money, and other resources . This effect becomes a fallacy when it makes the actor continuously worse off. This is often seen in romantic relationships when the longer a couple has been together the harder it is to break up even if they have good reason to, because of the time, care, and attention they have previously invested in the partnership . In this case, Alberta has invested 1.5 billion dollars of taxpayer money and taken an additional 6 billion in loan guarantees . The pipeline only began construction last July, but it has been in the works for over a decade. It was first proposed in 2008, but protests and conflicting legislative and executive orders have stalled progress . Many expected that the project was over in November 2015 when the Obama administration vetoed the pipeline, acknowledging threats to climate and public health and as part of a commitment to decreasing reliance on dirty energy . However, immediately after Trump took office, he signed an executive order to advance the project. In contrast, Biden publicly made the executive order a political statement about his commitment to the environment and as an execution of the position he has maintained on the pipeline since 2015. Putting more resources towards Keystone XL and potentially facing the consequences of sanctioning the United States is a losing battle where the sunk cost effect becomes fallacy.
"Consequently, it is unlikely that Canada would receive international support for sanctions, and Kenney’s claims that there are strong legal grounds to challenge Biden are over exaggerated ."
In response to Conservative calls to sanction the United States, the natural resource minister Seamus O’Regan stated, “Madame Speaker, I have not yet heard a single argument that would convince me that a trade war is in the best interests of our oil and gas workers,” . The Liberal government intends to prioritize the relationship with America, considering they are the single largest consumer of crude and export $100 billion in energy products each year . While protecting domestic companies from harm may be important politically, it is not particularly relevant in terms of global trading laws. Consequently, it is unlikely that Canada would receive international support for sanctions, and Kenney’s claims that there are strong legal grounds to challenge Biden are over exaggerated . Additionally, retaliation proportionate for damage done is often sanctioned as a remedy following a successful arbitration, so this would require investing additional resources for a long legal battle with the United States, in which damages are given on the basis of whether they can win the case . Kenney justifies this expensive battle as protecting Canada against a precedent that could allow Americans to retroactively repeal other pipeline permits . While this concern is somewhat valid, Kenney’s suggestions will most likely be ineffective in reversing the decision, thus it will continue to cost taxpayers money that will not be recouped. Tariffs will also result in more taxes on Canadians consumers, so without a permit for the pipeline the benefits of tariffs are weak.
The legal basis of Kenney’s argument is also unclear. After the Obama administration blocked the Keystone permit, its owner, at the time TransCanada, used NAFTA’s investor-state dispute settlement process to seek $15 billion in damages, dropping it after Trump reversed the decision. The new NAFTA changes this process by enforcing stronger measures for the environment and weaker investor protections . However, Canada and America have agreed that the current process will continue for three more years offering legacy investors some protection . So, while Alberta has a $1.5 billion equity stake which they could try to recoup, it is uncertain how successful they could be since both TC energy and Alberta could have predicted and considered the election results and the subsequent revoking of the permit in their risk calculations . Seeing as Biden's executive order was not deterred by the legal risk case, even if the settlement leads to the compensation of some costs, it is extremely unlikely Biden reverses his decision.
Whether one is an ideological supporter of pipelines or not, the costs to the environment and to taxpayers far outweighs the benefits of a potential prolonged economic and legal battle with the US. The outcome is unlikely to change because of tariffs or sanctions and it is naïve to use the same strategies that have resulted in failure several times over, while risking even more resources. Most of the country wants to move past the Keystone XL. It is time Canada move on from the Keystone XL pipeline and focus on addressing more productive trade interests with the United States.
Angus Reid Institute. 2021. “Pipe (Line) Dream? Albertans Want Ottawa to Keep Fighting for Keystone XL; but Most Canadians Say It’s Time to ‘Move On’ - Angus Reid Institute.” Angus Reid Institute. January 26, 2021. http://angusreid.org/keystone-biden-trudeau/.
Ducharme, Jamie. 2018. “The Sunk Cost Fallacy Is Ruining Your Decisions. Here’s How.” Time. July 26, 2018. https://time.com/5347133/sunk-cost-fallacy-decisions/.
NRDC. 2021. “What Is the Keystone XL Pipeline?” NRDC. January 20, 2021. https://www.nrdc.org/stories/what-keystone-pipeline.
Seskus, Tony. 2021. “Alberta Braces for Biden’s Keystone XL Decision.” CBC. January 19, 2021. https://www.cbc.ca/news/business/seskus-keystone-analysis-1.5877103.
Jackson, Hannah. 2021. “O’Regan Rebuffs Calls to Impose Sanctions on U.S. Over Keystone XL Cancellation.” Global News. January 26, 2021. https://globalnews.ca/news/7598786/oregan-keystone-xl-tariffs/.
McGregor, Janyce. 2021. “Kenney Wants ‘Reprisals’ for Blocking Keystone — but What Are Canada’s Options?” CBC. January 21, 2021. https://www.cbc.ca/news/politics/thursday-keystone-legal-options-1.5882729.