The legitimacy of TransCanada Corporation’s $15-billion compensation claim for cancellation of the Keystone XL pipeline depends “on whether you view fossil fuel use as normal and inevitable or if you recognize the billions of dollars of harm, and loss of life, that Keystone XL pipeline would have caused,” staff counsel Andrew Gage argues this week on the West Coast Environmental Law blog.

The Canada-U.S. Free Trade Agreement was the first in a series of international deals that gave companies the right to sue governments for decisions that ran counter to their interests. “West Coast Environmental Law has long expressed concern that environmental regulations could be viewed as expropriation or discriminatory by foreign corporations,” Gage writes. “But the issue becomes still more problematic when dealing with climate change, which requires that large amounts of fossil fuels be left in the ground and a massive shift of investment from fossil fuels to renewable energy.”

While most trade agreements explicitly allow governments to set environmental regulations, “the climate impacts of pipeline projects, drilling, and other fossil fuel projects are in most cases being considered on a case-by-case basis, without clear standards about what types of climate pollution, if any, are acceptable,” Gage explains. “There is the real possibility that a panel of trade lawyers appointed under a trade agreement to judge corporate claims for compensation will be unsympathetic to ad hoc efforts to rein in fossil fuel infrastructure.”

He argues that companies like TransCanada shouldn’t be compensated “for being told that they can’t harm communities around the world.” The 92.6 megatonnes of carbon dioxide released annually as a result of the Keystone pipeline would have translated into US$3.3 to $6.4 billion per year in economic harm, based on U.S. government calculations of the social cost of carbon.

“Seen from this point of view, the claim that TransCanada is entitled to compensation is ridiculous,” Gage writes. “Why should a corporation receive compensation for being prevented from transporting a product that causes billions of dollars in economic harm each year when used in accordance with the instructions?”