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Will FERC Consider Cumulative GHG Impacts of New Pipeline Projects? It’s Complicated

30 Jan 2019, Posted in All Posts, Blog Posts

Will FERC Consider Cumulative GHG Impacts of New Pipeline Projects? It’s Complicated

The Federal Energy Regulatory Commission (FERC) made a little noticed determination over the course of 2018’s summer that modified how the commission performs environmental reviews moving forward – specifically, how and if they consider cumulative greenhouse gas (GHG) emissions impacts. These new methodologies invited litigation and created massive uncertainty around pipeline certifications.

More specifically, FERC made it known that it would no longer consider speculative upstream and downstream GHG emissions impacts of pipeline projects as part of its mandatory National Environmental Policy Act (NEPA) review process when determining whether to issue a project’s certification under the Natural Gas Act (NGA). However, FERC continued to incorporate cumulative GHG impacts into its environmental review process when upstream and downstream impacts are known, or knowable. For example, if FERC knows the end use of the gas passing through the pipeline, as was the case with the Sabal Trail pipeline (Sierra Club v. EPA), it will asses how this specific end use would impact the project’s GHG footprint.

This determination, reinterpreting FERC’s responsibilities under NEPA, put FERC in direct conflict with the U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit), which ruled in late 2017 such a comprehensive assessment would be required for future pipeline certificates. For its part, FERC pointed out that its determination was not in conflict with the DC Circuit’s finding in Sierra Club v. EPA (Sierra Club). Rather, FERC claimed that because the natural gas’ end use was known while the certificate was under consideration, the court was correct in requiring further analysis, but in circumstances where quantifying GHG impacts would be wholly speculative, such an analysis would not be required.

At the time, the Sierra Club case was yet another in a string of concerning data points for pipeline developers who just years a few years ago were accustomed to FERC-approved projects being built on schedule with limited judicial intervention. This is because in recent years anti-pipeline advocates ramped up protests both on the ground and in the courtroom. More frequently, judges across the country began siding with the advocates’ claims, issuing costly and time-consuming injunctions against ongoing pipeline projects. Then, in 2017, the court went further in Sierra Club finding FERC has an obligation to consider the cumulative impact of greenhouse gases (GHG), meaning both the pipeline’s upstream (i.e., production) and downstream (i.e., consumption) impacts prior to issuing a certificate.

Prior to that ruling, FERC would need only analyze the emissions impacts of the actual project being certificated (i.e., the pipeline itself), not the way the gas is produced or later consumed, which FERC – and the courts – had previously found to be outside the scope of what is legally required under NEPA and the NGA. Sabal Trail’s owners appealed, and earlier last year, the court refused to review its decision. Apparently, FERC determined that the DC Circuit stepped too far out of its lane and was willing to elevate the conflict to reclaim its pipeline certification authority. FERC took advantage of an opportunity to do just that when a third party challenged FERC’s issuance of a pipeline certificate for a Dominion pipeline project.

The Dominion Decision

In the Dominion case, a third party challenged FERC’s order with several claims, one of which was that FERC did not evaluate the upstream and downstream GHG impacts of the project. FERC disposed of all the petitioners’ claims, but not before defining a clear change in policy regarding the need to consider cumulative GHG impacts. FERC made a very compelling case as to why it is not required to consider upstream and downstream GHG impacts when making such determinations would be purely speculative. FERC’s reasoning relied on legal precedent, administrative guidance, and practical constraints. In summary, FERC determined:

1) FERC is not required to consider environmental impacts that fall outside of NEPA requirements when determining whether to issue a certificate

FERC claims it was not aware of any court precedent, statutory provision, or legislative history that indicates it is required to consider environmental effects beyond those which are required by NEPA. According to FERC, natural gas producers, consumers, and shippers respond freely to market signals about location-specific supply and location-specific demand. For its part, FERC simply approves or denies project applications to transport natural gas between those locations. Environmental effects that are not effects of the project subject to the application are not relevant to FERC’s analysis of whether the operation, construction, or extension of the project is or will be required based on market supply and demand. In short, FERC does not create supply or demand, it just determines whether or not a specific project is suitable to transport the commodity being exchanged.

FERC concluded that to avoid confusion as to the scope of its obligations under NEPA and the relevant factors to consider under the NGA, the commission would no longer consider the upstream production and downstream use of natural gas if they are not known impacts directly attributable to the proposed pipeline project. In a way, this is a major concession, as FERC acknowledged they will consider cumulative GHG impacts of a pipeline project when the project’s impacts on production or end use are known. On the other hand, FERC was clear that it will not speculate as to how a specific project might impact overall GHG emissions. Again, in most cases, the existence of a pipeline won’t create new production or change demand; it just facilitates the transport from the producer to the consumer.

In short, FERC wanted to be clear that if cumulative GHG impacts are not known and/or not attributable to the pipeline, i.e. emissions would occur whether or not the pipeline is built, these impacts fall outside the scope of the requisite NEPA analysis. However, FERC continues to analyze upstream and downstream environmental effects when those effects are sufficiently causally connected to and are reasonably foreseeable effects of the proposed project.

2) Cumulative, i.e. upstream and downstream impacts GHG impacts, fall outside of NEPA requirements in most cases

FERC pointed to Council on Environmental Quality (CEQ) guidance in claiming “NEPA requires agencies to consider indirect impacts that are ‘caused by the action and are later in time or farther removed in distance, but still are reasonably foreseeable.’ It would be very difficult to determine that potential increase in [GHG] emissions associated with production, non-project transport, and non-project combustion are causally related to a specific pipeline certification. The commission believed it likely the production and consumption of natural gas will remain unchanged irrespective of an individual pipeline certificate.” FERC also claimed that in most cases, interpreting NEPA to require upstream and downstream impacts that are not foreseeable would be akin to engaging is speculative analysis; a concept courts have rejected in the past.

FERC pointed to additional CEQ guidance, which specifies that it is not practical to consider cumulative impacts on the universe, but rather only those that are truly a meaningful result of the project. CEQ guidance also stated that where FERC lacks meaningful information about potential future natural gas production within the geographic scope of a project-affected resource, then production-related impacts (i.e. upstream GHG emissions impacts) are not reasonably foreseeable so as to be included in the requisite NEPA analysis. This same reasoning applied to potential future downstream impacts – if FERC does not have meaningful information about future power plants, storage facilities, or other end uses, downstream impacts are not reasonably foreseeable so as to be included in a NEPA analysis. In short, if these impacts are not foreseeable, NEPA does not require they be included in an Environmental Assessment.

Finally, FERC concluded that providing a broad analysis based on generalized GHG assumptions rather than reasonably specific information is not meaningful to a project-specific review and that to do so confuses the scope of FERC’s obligations under NEPA and the factors that should be considered under the NGA. NEPA requires that FERC analyze upstream and downstream environmental effects when those effects are indirect or cumulative impacts as contemplated by CEQs regulations. When those effects are not indirect or cumulative effects, and thus are not environmental effects of the proposed action, the Commission is not required to consider them under NEPA.

3) FERC is not bound by legal precedent, and overarching precedent supports FERC’s position

While seemingly challenging the DC Circuit Court’s findings in Sierra Club, FERC claimed they were actually distinguishing the case. According to FERC, Sabal Trail – the pipeline at issue in Sierra Club – was unique and the circumstances not universally applicable. In that case, according to FERC, the court found that because the pipeline delivered gas to identifiable gas-fired power plants, the downstream use of the gas was foreseeable (i.e. not speculative), and as a result FERC should include the projected GHG emissions for that particular use in its NEPA analysis. However, nothing in that case broadens the scope of what NEPA required when impacts are not foreseeable.

FERC also cited the Supreme Court in NAACP v. FERC (NAACP) to support the proposition that just because FERC is required to consider the public interest when issuing a pipeline certificate, that does not require FERC to consider impacts outside the scope of the project. In NAACP, the court held  “‘public interest in a regulatory statute is not a broad license to promote the general public welfare.” In short, FERC determined that it is not required to consider speculative upstream and downstream impacts, that this finding was not inconsistent with Sierra Club (or any other precedent), and that the Supreme Court held that neither a petitioner nor a lower court can use the term “public interest” as a weapon to cover any and all speculative outcomes from a specific regulatory finding.

So what’s Next for Pipeline Developers?

FERC announced in April 2018 that it would undergo a wholesale review of its pipeline permitting process – a process that has not been reviewed since 1999. Environmental advocates cheered FERC’s decision. Most environmental groups believe that FERC acts as a rubber stamp on pipeline applications, and the numbers bear that out. There were high hopes in the environmental community that cumulative GHG impact assessments would play a larger role in the updated process. This decision seemed to conflict with that narrative, with FERC essentially saying they’ve now put the issue to bed. Add to this the fact that FERC was operating one commissioner down with an even 2-2 split between Republican and Democrat appointees.