One U.S. Court Battle Could Reshape The North American Energy Economy

“If every locality traversed by an existing or proposed pipeline project were empowered to enact similar ordinances to prevent the operation of that pipeline through its boundaries, pipeline commerce could come to a halt.” - Lawyers for the Portland pipeline operator
Published on August 9, 2023

Executive summary

A court battle in a small port city in Maine has the potential to significantly impact energy pipeline commerce in both Canada and the United States. It all began when the Portland Pipeline Corporation sought to reverse the flow of an underutilized Second World War-era pipeline linking Montreal and Maine. The city council of South Portland passed a zoning ordinance banning the bulk loading of crude oil tankers, claiming it was to address local air quality concerns.

Evidence suggests that this local ordinance is part of a coordinated effort by U.S. and Canadian environmentalist groups to prevent “dirty” Canadian oil sands oil from entering the United States. The pipeline company filed a lawsuit, arguing that the ordinance violated the U.S. Constitution, which grants powers over interstate and foreign commerce to Congress.

However, in 2018, a federal court dismissed the challenge, stating that the ordinance did not violate the U.S. Constitution, despite evidence of a broader campaign by environmentalist NGOs to keep Canadian oil out of the U.S. The company withdrew its legal challenge, leaving the lower court judgment unchallenged and potentially influencing other judges in similar cases.

The case in Maine is seen as part of a larger effort by environmentalist groups to obstruct the energy sector, as documented in various investigations, including the Allen Inquiry in Alberta. The theory of “Baptists and Bootleggers” highlights how seemingly opposing parties can find common ground on certain issues, such as U.S. economic nationalists and environmentalists joining forces to limit Canadian oil.

On the Canadian side, courts have ruled otherwise in protecting the federal government’s authority over inter- provincial and foreign commerce against local bylaws and regulations. Thus, there is hope for Canada in protecting energy projects.

The unchallenged U.S. court ruling may embolden environmentalists on both sides of the border to advocate for more local ordinances in America to restrict energy infrastructure. As a result, both American and Canadian energy producers need to be prepared for potential challenges ahead.

One U.S. Court Battle Could Reshape The North American Energy Economy

A court battle involving a small port city in Maine may end up upending energy pipeline commerce in Canada and the United States. In fact, one federal court legal precedent could embolden environmentalists to push for a floodgate of anti-energy ordinances to stop oil sands oil from reaching U.S. Ports. Canada’s Energy producers and policymakers should prepare to adapt to the new reality.

The whole matter began in the early 2000s when Portland Pipeline Corporation (PPLC) – a subsidiary of Suncor Energy with operations in Canada and the United States – developed a reverse flow for a 378-kilometre (236 miles) Second Word War-era pipeline linking Montreal and Maine that was underutilized. The pipeline at the time was pumping imported crude to Canadian refineries.

The reverse flow plan would involve getting Canadian oil sands crude to an Atlantic deepwater port in the United States. At the time, landlocked Canadian energy producers – largely based in Alberta – were desperate to get Canadian crude to tidewater.

American environmentalists and local conservation organizations became apoplectic and initiated a long-term campaign to counter the pipeline operator’s plans. For years, U.S. environmentalist campaigners have fought so-called “tar sands” oil. Despite its minuscule carbon emissions differential from other crude sources, these deep-pocketed environmental interests set their targets to prevent Canadian oil sands crude from entering the U.S., which they presented as “dirtier” than any other source.

To kill dirty “tar sands” oil, American environmentalists would have to find a way to make the issue local instead of an international or trans-state, given that Canadian crude was being transported across the Canada- U.S. border and often crossed over multiple state borders, thus qualifying as coming under the authority of Congress under the jurisdiction of the dormant Commerce Clause and the Foreign Commerce Clause.

The U.S. environmental lobby found their cause celebre in a small southern Maine port city called South Portland. With a population of just under 27,000, the community was anxious about a pipeline operator in Canada bringing “dirty” foreign oil into their harbour.

The South Portland Planning Board approved the energy company’s reverse flow plan twice (in 2009 and 2012), but the city council found a way to bypass the planning board by passing a zoning ordinance that banned the bulk loading of crude oil tankers in South Portland.

Realizing they could not outright ban oil commerce, they adopted this local ordinance and claimed it was all about local air quality. The problem is much of the rhetoric going on around the ordinance’s passage was filled with bellicose anti-oilsands (that term was never used, only the negative “tar sands”), with evidence showing that the ordinance had attracted the interest of environmentalists across the Eastern Seaboard. The other argument raised by the pipeline operator during later court hearings was that these local environmental issues were addressed through other local and Maine state laws.

The ordinance began as a citizens-led initiative to build a city-wide ordinance called the “Waterfront Protection Ordinance” which aimed to ban future Canadian oil sands products coming in from the reversed pipeline from being exported through the city’s port. [i] That was a clearly targeted attack on Canadian oilsands oil.

There was also evidence that fighting “tar sands” oil was part of a co-ordinated campaign involving both Canadian and American environmentalists to prevent oilsands oil from reaching the United States.

To avoid this appearance, city politicians in South Portland passed an ordinance in 2014 called the ‘Clear Skies Ordinance’ with the ostensible intent to protect the community’s waterfront and prevent air pollution that resulted from storing bulk crude oil.

Concerned about the implications of such ordinances blocking national commerce, the pipeline operator filed a legal complaint that the ordinance violated the U.S. Constitution’s so-called dormant Commerce Clause, which bars states from disrupting interstate commerce. The complaint was – and with evidence of a co-ordinated campaign involving environmentalists – that the ordinance was about controlling commerce beyond the boundaries of South Portland. The company’s lawyers argued – with evidence – this was not just about local health and the environment.

However, in an eventual ruling in 2018, a Portland federal court judge found that the ordinance did not violate the U.S. Constitution. The judge also curiously found that the ordinance was only concerned with local pollution, despite the evidence pointing to a co-ordinated campaign beyond the community and that the ordinance initially began in a fight to keep Canadian oil out of the port.

The operator and other proponents of pipeline commerce expressed an interest in appealing this ruling because they understood that if this precedent were allowed to stand, it would impact national pipeline commerce.

They astutely argued in court: “If every locality traversed by an existing or proposed pipeline project were empowered to enact similar ordinances to prevent the operation of that pipeline through its boundaries, pipeline commerce could come to a halt.”

In other words, what would prevent other localities from enacting similar ordinances if South Portland got away with this challenge? Is it possible the judge in the case did not see the cumulative effect of many similar ordinances acting together to affect a national industry that is normally overseen by the U.S. federal government?

Even some in-state business interests saw how this kind of precedent could put a choke-hold on regional commerce. “That’s a dangerous precedent to have a small minority of people control interstate commerce,” said Jamie Py, president of the Maine Energy Marketers Association. [ii]

The appeal eventually made its way to the Maine Supreme Court to interpret some aspects of the case that dealt with Maine law. The court sided with the City of South Portland, and the case eventually went before the 1 st U.S. Circuit Court of Appeals in Boston.

The environmentalist community and the locality were delighted when that court received an amicus brief from the Biden administration supporting the city’s stance that the ordinance did not violate the Constitution, federal laws, or foreign policies. [iii]

Given the Biden administration’s hostility towards fossil fuel development – especially if it happened to come from Canada – this move was not surprising. But this clearly showed where the Biden administration stood and – given the administration’s backing – emboldened environmentalists to push for more local ordinances.

Things all came to a head shortly after when the company withdrew its appeal after announcing the abandonment of the reversal plan. After six years in a legal battle, the company decided to withdraw before the circuit court could finish its deliberations.

So, in a legal context, the arguments in favour of localities against the federal government were upheld in one federal court decision. The case did not go further than that, although some legal observers believed the circuit court would have ultimately upheld the lower court ruling.

But given the persuasive power of the precedent and the Biden administration’s backing, this kind of ruling could help inspire localities elsewhere to push for local ordinances limiting energy infrastructure. [iv]

Not surprisingly, environmental activist groups were ecstatic. In speaking with the local Portland Press Herald, one activist said: “The dismissal of this case affirms that local leaders have the legal authority to take appropriate measures to safeguard their communities’ clean land, water and air from harmful fossil fuel infrastructure projects that threatened public health and the environment,” said Jim Murphy of the National Wildlife Federation.

The problem, however, was that the pipeline operator, by all accounts, was a good environmental steward and had few leaks and spills throughout its long history. Nevertheless, environmentalists – both local and regional – seem more fixated on this project because it involved ‘dirty’ Canadian oil.

Green Anti-Oilsands Campaigning

It is not a ‘conspiracy theory’ to suggest that forces throughout Canada and the United States are determined to prevent Canadian oil sands oil from reaching the United States. Many activist groups are upfront about their goals. In 2019, a public inquiry was held in Alberta to document the level of money that was going into campaigning to attack the oilsands. [v]

Led by Steve Allen, a Calgary forensic accountant, the inquiry, while finding no specific laws were broken, documented how millions of dollars were being funnelled through U.S. donors into Canadian environmentalist organizations with the expressed purpose of stalling and obstructing energy projects. The inquiry documented the money as follows:

Total foreign funding of “Canadian-based” environmental initiatives was $1.28 billion between 2003 and 2019. The commissioner stated that these figures are likely significantly understated. This includes: $925 million in foreign funding reported by Canadian charities for “environmental initiatives”; $352 million in foreign funding of “Canadian-based” environmental initiatives, such as anti-pipeline campaigns, that remained in the U.S.; of this funding, grant descriptions specifically prescribing funds for “anti-Alberta resource development activity” was $54.1 million.

Vivian Krause, a long-time researcher into foreign money being used to sabotage Canada’s energy sector, has documented how much of this money was explicitly directed at keeping Canadian crude oil out of the United States. [vi] One such campaign called the “Tar Sands Campaign” was funneling money to many environmentalist groups in the United States to stop oil sands expansion into the United States. A lot of this money was given to a group called Corporate Ethics.

Here is what Corporate Ethics said was its primary job. “From the very beginning, the campaign strategy was to land-lock the tar sands so their [Canadian] crude could not reach the international market where it could fetch a high price per barrel,” said Michael Marx, the executive director of Corporate Ethics. [vii] These well-organized and well-funded interest groups know exactly what they are doing. There are even Canadian-based environmentalist groups that were working with American partners to sabotage the sale of oil sands oil.

Equiterre – a Quebec-based activist group – was a part of the Tar Sands Campaign and received funding multiple times through the Tides Foundation to subvert Canada’s oil interests in the United States. [viii] At the time, Steven Guilbeault, currently the federal environment minister, was deputy director of that organization. “Ultimately, what we’re trying to do is to prevent tar sands from coming to Quebec and going on to Maine,” Guilbeault said at the time. “We feel that a signal needs to be sent to the federal government and oil companies that what they are doing is unacceptable.” [ix]  Interesting that a member of the federal Cabinet was actively trying to sabotage Canada’s economy in his former career.

Prior to the appeal, other environmentalists were also explicit in their goal.

One activist news site read: “Provided the ruling survives an appeal, it slams the door on a significant plan to ship Canadian tar sands oil, one of the most carbon-intensive fuels on the planet, to the East Coast for export to international markets, and it could offer a guide for other communities to block energy projects.” [x]

With this legal precedent now set, this is likely what they are going to do – block the export of oil.

But some may wonder how much damage this combination of forces can do to the energy sector. Surely, these organizations can’t have such a significant impact?

That, however, would be the wrong conclusion to reach. Over the last several years, research has pointed to the substantial influence of environmentalist organizations within our political system, especially in financial institutions. As the left likes to say when the “oil lobby” is involved, let’s follow the money. In 2019, Robert Lyman – an Ottawa energy policy consultant – compiled a study for the Friends of Science Association in Calgary. [xi] Looking at the period from 2000 through 2018, he found that environmentalist organizations and environmental law foundations have grown exponentially in terms of revenues. For perspective, environmentalist organizations – most of which are charitable organizations – had more money than all four main federal political parties and all the main market-oriented think tanks (such as this one).

Let’s not be naïve about the influence and reach of the environmental lobby in this country and the United States. These lobby groups have deep pockets of foreign money to co-ordinate campaigns and influence politicians and policymakers. Consequently, this legal precedent in the United States could represent an invitation to target localities at the state level to adopt policies targeting Canadian oil infrastructure.

A few years ago, environmentalists were using the South Portland case to fundraise. [xii] How much more will they use this case study to increase their activism?

Baptists and Bootleggers

Beyond environmentalists, who else would be happy with this development?

Looking at long donor lists for the Tar Sands Campaign, one finds the names of large American foundations financed by wealthy U.S. industrialists and business interests.

But what interest could U.S. environmentalists have with business, many of whom are actively involved with developing American energy resources?

The surprising answer is that both oppose Canadian energy coming into the United States, but for different reasons.

Public choice economists have long identified a phenomenon known as the “Baptists and bootleggers” problem. [xiii] Looking back to the historic days of Prohibition, the problem was identified in the building of unlikely allies as coalitions. Here is how one classical economic source committed to public choice theory put it:

The story goes like this: While the churchgoers normally wouldn’t deign to associate with moonshiners, the two groups share a common interest and political end. They both want to shut down liquor stores on Sunday. But they have very different reasons for doing so. Baptists provide moral support for the policy, while bootleggers receive bottom-line benefits. When combined, the two groups tend to form winning coalitions in a variety of contexts. [xiv]

The same source identified this phenomenon in more modern contexts where unlikely allies were forming a coalition – in the setting of international climate change policy.

During the ratification of the 2015 Paris climate agreement, some big names in U.S. business were working with environmentalists on lobbying the United States to remain in the agreement despite the Paris Accord’s commitment to reducing emissions and industrial activity. These business interests wanted everyone to be facing the same restrictions and regulations.

Or, as the same public choice source put it:

These environmental bootleggers love command-and-control regulations that raise rivals’ costs and limit the entry of new competition. They welcome taxpayer subsidies and government-guaranteed loans for developing new solar cells, improved batteries, emission-free automobiles, and other forms of clean energy, and they perhaps smile at the prospect of cartelizing world markets with coordinated rules and higher prices that may result from global emission-reduction agreements that they help design. [xv]

U.S. business interests, it seems, wanted a business environment they can control while taking advantage of the government benefits that would come with a “green shift.” So, there is much self-interest behind their desire to support the Paris framework. Thus, they chose to ally with organizations that normally detest businesses and with whom they would never work with in other contexts.

Similar interests and alliances have formed in the context of the anti-oil sands campaign. U.S. businesses want to limit the entry of new Canadian-based oil to maintain their own competitive edge in the American market.

Thus, business-backed funders are pouring money into foundations that are financing anti-oil sands campaigns. The environmentalist groups welcome the new money while perhaps trying to downplay where it is coming from and why it is being given in the first place.

The public needs to look beyond the purported environmental motives of these actors to their naked self- interests. For example, evidence shows that Russia has been funding anti-fracking (hydraulic fracturing and horizontal drilling to access oil and natural gas) campaigns in order to maintain its market share in the natural gas market. [xvi]

Russia is a dominant supplier of natural gas and has been acting to reduce natural gas exploitation amongst its competitors under the cover of environmentalism. In this case, reduced natural gas resources in certain European countries made these countries much more vulnerable to Russian energy domination, especially after Russia invaded Ukraine. It can easily be said that the environmentalists have been “useful idiots.” Although donors to the environmental cause may think they are helping the environment, they are, in fact, assisting self-interested parties to maintain their market share and cutting out rivals. Or, in the case of Canada and the United States, we are helping the invading party get stronger.

Canadian Courts – Vive La Difference!

Given all the doom and gloom regarding the U.S. courts, it is important to add that there is hope coming from Canada’s judicial system. The potential silver lining is Canada’s judicial precedents that might point in another direction. Canada has seen local municipalities trying to curb pipelines and other energy infrastructure projects. The Canadian federal government has paramountcy over inter-provincial commerce and national infrastructure, similar to the U.S.

One precedent from Canada may help Canadians interested in ensuring that Canadian oil does not remain landlocked and can be transported to markets around the world.

In a case involving the Trans Mountain pipeline expansion (which is nearing completion), a city in British Columbia attempted to delay construction by delaying municipal permits and licenses. The case eventually went to the National Energy Board, which ruled that the municipality could not obstruct the project. In this case, the federal government’s objective was declared paramount.

It seems that within Canada’s regulatory and legal systems and under clear precedents, the doctrines of inter-jurisdictional immunity and federal paramountcy give the federal government sole authority over inter- provincial infrastructure such as pipelines and other infrastructure and it is difficult for municipalities, provinces, and territories to interfere with that.

Or, as renowned Canadian constitutional law expert Peter Hogg said:

It is now well settled that undertakings engaged in interprovincial or international transportation or communication, which come within federal jurisdiction under the exceptions to s. 92(10) of the Constitution Act, 1867, are immune from otherwise valid provincial laws which would have the effect of “sterilizing” the undertakings. On this basis, … an interprovincial pipeline has been held to be immune from provincial mechanics liens legislation. [xvii]

Because municipalities are creatures of the provinces and territories, and their bylaws derive from provincial legislation, it would be difficult to envision how local laws could trump federal power. Thus, Canada has a strong case for disallowing municipal laws from affecting inter-provincial pipelines and other projects.

In the United States – based on our understanding of the South Portland case – it seems that although the American system has a robust doctrine of protecting federal power over inter-state commerce, certain legal tests to interpret these doctrines are allowing lower bodies to interfere with federal authority.

The Future Of The Energy Economy

With a legal precedent being set, this will inevitably mean that local politicians and local and regional environmentalists will form an unholy alliance to push for stricter local ordinances seeking to limit oil and gas infrastructure from Canada. This means courts will side with local environmental controls over attempts at cross-border pipeline commerce, even at the expense of federal power over foreign and inter-state commerce.

Given the impressive fundraising abilities of large ENGOs, more donations will flow to local campaigns seeking to undermine pipeline commerce from Canada. Given the “bootleggers and Baptists” theory discussed above, U.S. energy producers will support environmentalists in their quest to curb Canadian oil sands oil because, in part, it benefits U.S. domestic production. American economic nationalism and protectionism will work closely with environmentalists in supporting these local regulations.

In other words, transporting oil and gas exports from Canada to tidewater in the United States will become even more difficult. Some companies will avoid sending oil and gas through the United States. Absent new legal precedents in the future, Canadian energy producers and politicians will have to adjust to the new reality. This new state of affairs will make it even more critical that Canada find new and better ways to get her oil and gas exports to tidewater in this country.

As noted above, Canada has a regulatory and legal structure where local bylaws and regulations cannot easily overcome the federal government’s power over inter-provincial infrastructure and commerce. The federal government still has more robust powers to overrule local laws and regulations that seek to thwart federal pipeline commerce. Given this situation, we need a federal government and especially the co-operation of provinces and territories to better facilitate pipeline commerce.

What Can Be Done?

This potential reality must be addressed head-on. Neglecting the situation won’t stop this shotgun marriage of green activists and U.S. businesses trying to keep Canadian oil and gas out. Here are some potential steps forward for both American and Canadian actors.

In the United States, the local scene will become much more important. With this precedent, there is, in fact, the possible flood of local ordinances and policies that will seek to undermine Canadian energy infrastructure. Pro-energy advocates need to be prepared to defeat these local ordinances. They need to inform the public, both the U.S. and Canada, about an orchestrated campaign to curb Canadian oil and gas from U.S. markets.

Pro-energy sources also need to better inform the American public on how self-interested economic parties are playing such an outsized role in restricting Canadian oil in the United States. This is about protectionism and market share for some important actors, not about protecting the environment. They should also not be apologetic for ‘fossil fuel’ energy, which is not replaceable for all energy applications any time soon.

For both Americans and Canadians, the legal battle is far from over. There is still ample time for energy advocates and environmentalists to develop novel arguments to defeat transporting Canadian oil and gas through the U.S. Supporters of Canadian oil and gas need to develop new avenues of their own to prevent local ordinances from defeating the federal power over interstate and foreign commerce. The sad reality is that the White House is currently acting against this.

Energy advocates in both the U.S. and Canada need to remind American consumers that Canadian oil is environmentally better than many other sources. They must remind them that oilsands oil continues to reduce its emissions intensity. This means getting the correct information to American consumers and countering anti-oil sand voices.

Americans need to understand what alternative sources mean. Specifically, oil sands oil is crucial for ensuring adequate feedstock for U.S. refineries on the Gulf Coast and elsewhere, or some refined products, such as jet fuel, will become scarce. If Canadian heavy oil is diminished, it will have to be replaced by foreign product from less savoury regimes, such as Venezuela, which along with being oppressive, have far worse environmental and carbon emissions records.

Canadians must continually seek ways to get oil and gas to Canadian tidewater ports for the European and Asian markets.

Canadians must take advantage of the legal precedents that provide robust protection for energy infrastructure against local lawmaking.

Finally, the federal government must reverse course on its energy policies. Ottawa needs to roll back its anti-energy policies and legislation, including its ‘Just Transition’ plans, and Bills C-69 and C-48. Reducing emissions is not the same as reducing oil production or exports. Canada must realize that producing and shipping more Canadian oil and natural gas overseas is a net positive for the world.

 

 

[i] Harry, David (2013, June 20). “Tar sands ban goes to November ballot in South Portland”. Natural Resources Council of Maine. The Forecaster.

[ii] Fox Business (2015, March 24). Lawsuit expected after Maine city bans so-called tar sands oil from western Canada. Fox Business.

[iii] South Portland wins pipeline lawsuit over local clean air rule (2021, July 16). Press Herald.

[iv] Biden administration backs South Portland in fight against pipeline (2021, July 3). Press Herald.

[v] Government of Alberta (2021). “Public inquiry into anti-Alberta energy campaigns final report: Key findings.” Alberta.ca.

[vi] Corbella, Licia (2019). “Corbella: Researcher exposes money trail behind U.S.-based campaign to kill the oilsands. Calgary Herald.

[vii] Ibid

[viii] Krause, Vivian (n.d.) The Tar Sands Campaign: >400 Payments via Tides to 100 Organizations in Canada, USA & Europe. Rethink Campaigns.

[ix] Climate-Admin (2020, December 5). Plan to Build East Coast Gateway for Canada’s Oil Sands Hits Legal Snag – Inside Climate News. Inside Climate News.

[x] Quesnel, Joseph (2019, August 30). A new U.S. front in the war on the oil sands: Joseph Quesnel for Inside Policy. Macdonald-Laurier Institute.

[xi] Lyman, Robert (2019). Money-ENGO Political Advantage | Friends of Science Calgary. Friends of Science Calgary | the Sun Is the Main Driver of Climate Change. Not You. Not Carbon Dioxide.

[xii] Conservation Law Foundation (2021, August 20). Stopping Big Oil – Conservation Law Foundation.

[xiii] Yandle, Bruce (2017, August 7). Greens and Big Industry Are the Baptists and Bootleggers of Climate Policy. Foundation for Economic Education.

[xiv] Ibid

[xv] Ibid

[xvi] Harvey, Fiona (2018, February 14). “Russia’ secretly working with environmentalists to oppose fracking.’” The Guardian.

[xvii] Secretary of the National Energy Board (2017, October 26). Notice Of Motion and Constitutional Question Of Trans Mountain. Board File: OF-Fac-Oil T260-2013-03-03.

 

Joseph Quesnel is a Senior Research Associate with the Frontier Centre for Public Policy. He is the author of the newly revised Canadian Property Rights Index.

View backgrounder (PDF): FB131_NAEnergy_AG0723_F1  (15 Pages)

 

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