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Pipes to be used for the Keystone XL pipeline are stored in a field near Dorchester, Neb., Dec. 18, 2020.

Chris Machian/The Associated Press

The Keystone XL pipeline project is dead. Right up to Tuesday, Prime Minister Justin Trudeau was saying he’d continue to make the case for it, but that was whistling past the graveyard. Now it’s a question of picking up the bones.

The political path for Keystone was set by U.S. President Joe Biden. Once he made a symbol of killing it on his first day in office Wednesday, he made it – in political terms – almost irreversible. The legal path, through a challenge in the U.S. courts, is a long, long long shot.

Realistically, all that’s left for the project’s promoter, TC Energy, and the Alberta government, which has sunk $1.4-billion into it, is to make a claim for compensation under the old North American free-trade agreement rules. Maybe – just maybe – they can get some of their money back.

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It’s an unusual quirk of fate that the first Canada-U.S. complaint of the Biden administration might end up in a claim for damages under NAFTA provisions which, thanks to Donald Trump, won’t be around much longer.

Keystone XL may be the end of Alberta’s risky investments

The new United States-Mexico-Canada Agreement, which replaced NAFTA last July, got rid of provisions that allow investors in Canada and the U.S. to claim compensation for unfair treatment from the government of the other country. Mr. Trump didn’t like them. But the USMCA included a transition clause that gave investors three more years, until 2023, to file a NAFTA claim. That’s Alberta’s best hope of getting some of its money back.

But even if they won a NAFTA case, it’s a consolation prize.

The governments of Mr. Trudeau and Alberta had tried to lobby the Biden administration not to revoke the permit for the pipeline – or, more accurately, they were trying to persuade him not to do it in a symbolic move on Day 1. They wanted to buy time to make a case.

Politically, Mr. Biden’s decision was a loss for Mr. Trudeau’s government, and it brings new tension from Alberta. Premier Jason Kenney called it an “insult” and a “gut punch.” He called for sanctions. But the Liberals are not going to keep fighting with the new U.S. President. Mr. Kenney said he would – but the options for actually changing the outcome offer faint hope at best.

Mr. Biden’s decision was a first-day political symbol of his climate-change cred. He’s still going to have a hard time getting climate legislation through the U.S. Congress, but this was something he could do with the stroke of pen. While the governments of Canada and Alberta argue it is not an effective way to address emissions, the green wing of the Democratic Party says it would slow the expansion of the “dirty” oil sands.

Mr. Biden chose his own political interests. He chose to please his own supporters, with a flourish. Why would he ever backtrack now?

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There are legal avenues that TC Energy might pursue in U.S. courts, but experts think they don’t offer much hope.

A tort-claim lawsuit, under federal legislation, that allows such suits against the U.S. government is “extremely unlikely” to find the government liable, said Jonathan Adler, a professor of environmental, administrative and constitutional law at Case Western Reserve University in Cleveland.

A legal challenge under the Administrative Procedure Act could, in theory, force the U.S. government to reinstate the permit, Prof. Adler said; several of Mr. Trump’s orders have been successfully challenged that way. But such a case turns only on whether the procedure followed in making the decision to revoke the permit was reasonable. If the Biden administration carefully constructs a solid rationale, it is unlikely to be overturned, he said.

A NAFTA challenge has more potential, in the view of Prof. Adler’s Case Western colleague, Juscelino Colares, a professor of business and international law. NAFTA’s Chapter 11 provisions allow investors to challenge a government over decisions that hurt their investments if they target a foreign company, or treat it differently from a domestic firm.

The Biden administration would presumably argue that it is within its rights to make a climate policy change, Prof. Colares said. But TC Energy and the Alberta government can argue they relied on the permit for Keystone XL that was issued by the Trump administration in making their investment – and that they should be compensated for the money down the drain.

With Keystone XL dead, that’s pretty much what’s left: grasping the remnants of NAFTA to recoup some losses.

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