FERC commissioners at loggerheads over scope of greenhouse gas analysis in reviewing gas pipeline applications
October 2019 | SPECIAL REPORT: ENERGY & NATURAL RESOURCES
Financier Worldwide Magazine
October 2019 Issue
During the current US administration, a conflict has arisen at the Federal Energy Regulatory Commission (FERC) regarding the consideration of greenhouse gas (GHG) emissions and climate impacts in the natural gas pipeline approval process. This issue has become an environmental flashpoint as the FERC commissioners have staked out their positions by political party, and the Trump administration’s White House Council on Environmental Quality (CEQ) and the District of Columbia Circuit Court of Appeals (DC Circuit) each have weighed in with conflicting positions.
The Natural Gas Act (NGA) authorises the FERC to approve the construction and operation of interstate gas pipelines. As part of the approval process, the FERC must satisfy the National Environmental Policy Act (NEPA). Under the NEPA, federal agencies must assess potential environmental effects before taking a major action that may significantly impact the environment. The disagreement among the commissioners involves the scope of those NEPA reviews.
While the FERC has not hesitated to assess GHG emissions from the construction and operation of proposed pipelines, the manner in which a project’s lifecycle GHG emissions should be evaluated has become contentious. That conflict found its way to the courts in 2017 when the DC Circuit ruled in the Sierra Club case that the FERC had failed to adequately analyse the downstream impacts of GHG emissions in approving a pipeline project extending from Georgia to Florida (SMP Project) – in pipeline transport, emissions from the fuel’s end use are referred to as ‘downstream’.
The court noted that the NEPA review requires consideration of both direct and indirect effects, indirect effects being those caused by actions later in time or farther removed in distance from the project but still reasonably foreseeable. It found that downstream emissions from the SMP Project were a reasonably foreseeable indirect effect because the project’s entire purpose was to provide capacity to transport natural gas to electric generating plants in Florida. The court rejected the FERC’s argument that it was impossible to know the exact quantity of GHGs that would be emitted as a result of the project, opining that the NEPA necessarily involves some reasonable forecasting.
Thus, the FERC should either have provided a quantitative estimate of the downstream GHG emissions or explained specifically why it could not do so. The matter was remanded to the FERC, which completed an expanded NEPA analysis and reinstated the SMP Project approval.
Despite having performed a more fulsome NEPA review for the next few pipeline applications, in May 2018, the FERC majority rolled back its analysis in denying a rehearing of a certificate granted for Dominion Transmission’s New Market Project. The FERC noted that, in matters after SMP, it mistakenly had gone “beyond that which is required by NEPA by evaluating the potential impacts associated with unconventional natural gas production and downstream combustion of natural gas even though” the parties had not identified the end use of the gas and there were no reasonably foreseeable downstream GHG emissions. In contrast, the FERC distinguished the earlier SMP Project, the purpose of which was clearly identified and reasonably foreseeable.
The minority Democratic commissioners opposed the shift in how upstream and downstream emissions would be addressed thereafter in the NEPA process (in pipeline transport, the emissions from fossil fuel production are referred to as ‘upstream’). The commissioners criticised the new policy as ignoring what they had concluded were reasonably foreseeable upstream and downstream emissions in the vast majority of cases. They further contended that the claimed lack of foreseeability of emissions was due to the majority’s failure to ask applicants for necessary information regarding the origin and end use of the natural gas.
In June 2019, in the Birckhead case, the DC Circuit rejected the FERC’s effort to scale back its GHG analysis, emphasising that the Sierra Club ruling did not suggest that emissions are indirect effects only when the destination and use of the gas are clearly known; rather, indirect effects require a project-by-project determination of reasonable foreseeability. In Birckhead, the plaintiff challenged the FERC’s approval of Tennessee Gas Pipeline Company’s Broad Run Expansion Project, arguing that the FERC failed to adequately consider the environmental effects of the project’s increased gas production and consumption. Although the plaintiff’s petition ultimately was denied on procedural grounds, the court nonetheless criticised FERC’s “less-than-dogged” efforts to obtain information pertinent to the NEPA process.
In considering the Broad Run Expansion Project, the FERC stated: “the environmental effects resulting from [upstream] natural gas production are generally neither caused by a proposed pipeline project nor are they reasonably foreseeable consequences of our approval… rather, a number of factors, such as domestic natural gas prices and production costs, drive new drilling”. It further contended that asking applicants for information that may inform such a determination would be futile as applicants were unlikely to have it.
In court, the FERC also argued that downstream GHG emissions were not reasonably foreseeable because “the destination and end user (or users) remain a mystery; all that is known is that the gas is headed somewhere in the Southeast”. The FERC further claimed it could not assess whether the gas would result in increased or decreased (by reducing demand from other dirtier sources) emissions, thus making any attempt to quantify emissions meaningless.
The DC Circuit found the FERC’s position unconvincing: “the mere possibility that a project’s overall emissions calculation will be favourable because of an offset… elsewhere does not excuse the Commission from making emissions estimates… Sierra Club hardly suggests that downstream emissions are an indirect effect of a project only when the project’s entire purpose is to be burned at specifically identified destinations”.
Alternatively, the FERC suggested it was not obliged to assess downstream emissions because it was not a ‘legally relevant cause’ of such emissions due to its lack of jurisdiction over any entity but the pipeline applicant. This argument was premised on a 2004 Supreme Court ruling that a federal agency has no obligation to gather or consider information in a NEPA review if it has no statutory authority to act to prevent the environmental impacts. The DC Circuit rejected the assertion, clarifying that in the pipeline approval context the FERC has statutory authority to act. The FERC may deny a pipeline certificate because it would be too harmful to the environment; therefore, it is a legally relevant cause of the direct and indirect environmental effects of pipelines it approves. Accordingly, “NEPA also requires the Commission to at least attempt to obtain the information necessary to fulfil its statutory responsibilities”.
Also, in June 2019, the CEQ issued its ‘Draft NEPA Guidance on Consideration of Greenhouse Gas Emissions’, which seeks to narrow federal agencies’, including the FERC’s, duty to analyse GHG emissions as part of a NEPA review. The draft guidance acknowledges that GHG emissions with reasonably foreseeable indirect effects should be addressed during the NEPA process. However, the CEQ states that emissions only are reasonably foreseeable when a sufficiently close causal relationship exists between the proposed action and the effect. The draft guidance notes that a “but for” causal relationship is not sufficient, but fails to explain what constitutes a sufficiently close causal relationship in this context.
Although the draft guidance provides that agencies should try to quantify the projected direct and reasonably foreseeable indirect GHG emissions of a proposed action, it includes several broad-based exceptions that excuse federal agencies from quantifying, analysing or giving weight to GHG emissions and their climate impacts (e.g., information necessary for quantification is unavailable, not of high quality, or the complexity of identifying emissions would make quantification overly speculative). Similarly, the FERC previously has cited inadequate causal ties, unavailability of information and speculative assumptions as barriers to conducting GHG analysis and quantification during the NEPA process.
While the CEQ’s draft guidance supports the position of the FERC majority commissioners, nonetheless, it is not an agency promulgated rule; therefore, the CEQ’s draft guidance is not binding. Moreover, the draft guidance is inconsistent with the DC Circuit’s opinions, which place the onus squarely on the FERC to gather information regarding upstream production and downstream use of natural gas, analyse that information to make project-by-project determinations of reasonable foreseeability, and quantify the resulting project emissions. Given that the DC Circuit uniformly has rejected the FERC’s attempts to avoid or minimise the GHG emissions quantification step in the NEPA process, it seems unlikely that the court now would accept the FERC’s approach simply because it is articulated in the CEQ’s draft guidance.
Jeffrey Karp is senior counsel and Maxwell Unterhalter was a 2019 summer law clerk at Sullivan & Worcester LLP. Mr Karp can be contacted on +1 (202) 370 3921 or by email: jkarp@sullivanlaw.com.
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Jeffrey Karp and Maxwell Unterhalter
Sullivan & Worcester LLP