Trump’s Keystone Renegotiation Promise: A Bunch of Hot Air?

When President Trump signed his executive memorandum bringing the Keystone XL tar sands pipeline back from the dead, he stated that it would be “subject to a renegotiation of terms by us.” Unfortunately, the memorandum itself doesn’t say this—in fact it doesn’t contain the word “negotiate” or “renegotiate” or any other derivative that would make clear what President Trump is actually talking about. Last time TransCanada made an offer to the American public it was for a project that had huge risks of water contamination, accelerated climate change, created a small number of jobs, and passed oil through the U.S. for shipment to other countries. Even if President Trump delivers on his promises to make TransCanada use American steel and the creation of some mythical number of jobs, this project is still an environmental catastrophe waiting to happen that will damage public health and further wreck our global climate. So, President Trump, how are you going to keep your word and get this great deal for all of us?

Show me the money?

The last time President Trump talked about renegotiating “the deal” on Keystone XL, he was talking about the U.S. somehow getting a portion of TransCanada’s profits. He even put a number out there: 25% of their profits.

Okay, so how does President Trump get a piece of the action and what would that action look like? There’s no great way to tell, but considering that TransCanada has an ongoing suit against the U.S. requesting $15 billion in damages (i.e., lost profits) due to President Obama’s rejection of Keystone XL, let’s start there. If President Trump wants 25% of those profits, that’s around $3.8 billion total. So, TransCanada, how about it?

Their first response the last time he brought this up: “Yeah right.”

But there are massive hurdles for President Trump achieving any kind of “deal” with TransCanada that’s better than what was offered the first time around. Aside from state taxes and economic activity surrounding construction, foreign pipeline companies don’t “share” their profits with the U.S. government.  TransCanada, the owner of the pipeline, makes its money by charging pipeline tolls that are regulated by the Canadian government. Those tolls are subject to Canadian taxes, but not U.S. taxes.

In other words, TransCanada’s current offer is just to pay the usual costs of operation where those costs arise. Nothing special, no sweeteners to make the project more attractive to states or the federal government. With an $8 Billion price tag, you can be sure TransCanada is actually looking for ways to cut costs and maximize profits. But President Trump wants something gosh darn it, he wants those profits! At least $3.8 billion of them, to be precise.

The Great Big Beautiful Wall in front of President Trump getting what he wants is the absence of a legal mechanism to do this. If he attempted to impose some sort of border tax or other premium on oil coming from Canada, he’d be violating both NAFTA and the WTO principle of “national treatment” which prohibits countries from taxing imported and domestic goods via different systems. President Trump has threatened to renegotiate NAFTA or leave it, so there’s always that avenue, but then there’s the fact that constitutional authority for taxation resides with Congress, not the President.

All that aside, the biggest problem with President Trump’s plan is TransCanada itself. The Keystone XL pipeline was last projected to cost $8 billion, but that was back in 2014, so the price tag is almost certainly higher today. Add in a U.S. steel requirement, low oil prices, and slowed production growth in Alberta’s tar sands, and this project is probably a loser for TransCanada anyway. They might talk about how excited they are to work with President Trump to get this pipeline built, but the likelihood of them doing so gets lower by the day.

So is President Trump going to secure $3.8 billion from TransCanada under the renegotiation? Why not get an even better deal and make it a 60-40 split? After all it is a Canadian company seeking permission to use American land, so clearly they should offer more than a mere one-quarter share of the benefits.

More jobs?

In announcing the new memo on Keystone XL, President Trump falsely claimed that the Keystone XL pipeline would create 28,000 jobs. That number doesn’t come from TransCanada’s applications or from the State Department’s extensive study of the Keystone XL tar sands pipeline (calling it an alternative fact is being nice, it’s more like hot air driving climate change). The actual number is more like 35 full-time permanent jobs, up to 15 temporary contractors, and 1,950 full time construction jobs lasting for the two year timeline of the project’s construction.

But maybe our negotiator in chief is hiding his cards: why not require TransCanada to create 28,000 permanent jobs instead of the 35 they offered the last time? That would be 800 times as many as they offered last time, so it would be good to TransCanada’s take on the economics of that kind of deal. And of course, any of these deals had better be in a legal contract enforceable in U.S. courts.

More American steel?

In announcing the renewal of Keystone XL, President Trump promised that pipelines in the U.S. would use American steel. Presumably he would apply this requirement to Keystone XL, since he made these remarks after signing the memo on Keystone XL. As he said: “We are – and I am – very insistent that if we're going to build pipelines in the United States, the pipe should be made in the United States.” So let’s take him at his word and assume that he will get a deal that will only use American steel in the new Keystone XL pipeline.

The last offer from TransCanada on this point involved building the pipeline using 50 percent American steel, with 24 percent coming from Canada, 16 percent from Italy, and 10 percent from India. So will President Trump actually get TransCanada to use 100 percent American steel in the new Keystone XL pipeline? Requiring that all of the steel in the pipeline comes from the U.S. may run afoul of other trade rules so President Trump has no way to enforce this desire. But again, why don’t we just wait and see the cards President Trump seems to think he has and let him ask TransCanada what it thinks about adding some more costs to its project so that it can use 100 percent American steel. And let’s see if President Trump can get a legal contract from TransCanada that enshrines this requirement so that the U.S. could go after them in court if they don’t comply.

Will President Trump get a better deal for the American public?  

Any deal President Trump can secure on Keystone XL would still be a net loser for the American public. After all, this project is going to bring huge risks of water contamination from an inevitable oil spill, environmental damage to America’s breadbasket, more climate pollution, a small number of jobs, and oil that will be shipped to other countries. Maybe President Trump should ask TransCanada to help pay for all of that as well? In the meantime, let’s all look forward to the better deal for America that President Trump has promised. We know what the old deal looked like: pretty much a free pass to use American land to force an environmentally destructive project through our heartland so that Canadian oil can be shipped overseas. 

About the Authors

Josh Axelrod

Senior Advocate, Nature Program

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