Shearman & Sterling LLP multinational law firm headquartered in New York City, United States.

balance scale

Aug 28, 2017

D.C. Circuit: FERC Must Consider Potential Pipeline Downstream GHG Effects

Subscribe

Jump to...

 

On August 22, the US Court of Appeals for the District of Columbia Circuit, in a 2-1 decision,[1] vacated and remanded orders of the Federal Energy Regulatory Commission (FERC) authorizing the construction and operation of three natural gas pipeline projects to serve Florida and southeastern markets[2] because FERC’s environmental impact statement (EIS) issued in connection with FERC’s environmental review of the pipelines did not contain enough information on greenhouse gas (GHG) emissions that will result from burning the natural gas carried by the pipeline projects.

The FERC pipeline decision represents a victory for environmental groups—in particular, the Sierra Club—that have in recent years opposed FERC authorization of pipeline facilities and LNG terminal facilities and Department of Energy (DOE) authorization of long-term, large scale exports of liquefied natural gas (LNG) on the ground that FERC and DOE have not adequately considered the effects of such facilities and exports on climate change.

Under Section 7 of the Natural Gas Act (NGA), FERC has jurisdiction over and authorizes pipeline facilities used for the transportation of natural gas in interstate commerce where it finds that construction and operation of such pipelines “is or will be required by the present or future public convenience and necessity.” When exercising this authority, FERC also must comply with the National Environmental Policy Act of 1968 (NEPA), which requires that “major Federal actions” “significantly affecting the quality of the human environment,” include a “detailed statement” discussing the environmental impact of that action. NEPA “directs agencies only to look hard at the environmental effects of their decisions, and not to take one type of action or another.”[3]

In the FERC pipeline decision, the Court said that, to satisfy its obligations under NEPA, FERC must consider not only the direct effects, but also the indirect effects of its authorization of pipeline facilities under Section 7 of the NGA. The Court explained that “[i]ndirect effects” are those that “are caused by the [project] and are later in time or farther removed in distance, but are still reasonably foreseeable”[4] and, further, that effects are reasonably foreseeable if they are “sufficiently likely to occur that a person of ordinary prudence would take [them] into account in reaching a decision.”[5]

The Court found that “reasonably foreseeable” effects of authorizing a pipeline that will transport natural gas to Florida for use in power plants include that natural gas will be burned in those power plants and that burning natural gas in power plants will release into the atmosphere the sorts of carbon compounds that contribute to climate change,[6] and concluded that, at a minimum, FERC should have estimated this amount of power plant GHG emissions that the pipeline will make possible.[7]

The Court distinguished the FERC pipeline decision from three cases the D.C. Circuit decided last year challenging FERC orders issued under Section 3 of the NGA authorizing the construction of liquefied natural gas (LNG) terminals.[8] Under Section 3 of the NGA, FERC authorizes the siting, construction and operation of onshore LNG terminals, while the Department of Energy (DOE) authorizes the export of LNG. In the FERC LNG decisions, the court found that FERC was not required to evaluate the climate change effects of exporting natural gas in authorizing the construction and operation of LNG terminal facilities because FERC does not have jurisdiction to authorize LNG exports under Section 3 of the NGA and, consequently, had no legal authority to prevent the adverse environmental effects of natural gas exports.[9] In the FERC pipeline decision, the Court interpreted this ruling to mean that FERC is not required to consider the environmental effects of the natural gas exported over facilities authorized by FERC because FERC could not rely on the effects of natural gas exports to justify denying authorization of the construction of LNG export facilities under Section 3 of the NGA.[10]

In contrast, according to the Court in the FERC pipeline decision, because under Section 7 of the NGA, FERC could deny a pipeline certificate because the pipeline would be too harmful to the environment, FERC is a “legally relevant cause of the direct and indirect environmental effects of pipelines it approves,”[11] and concluded that FERC’s EIS for the three pipeline projects should have either given a quantitative estimate of the downstream GHG emissions that will result from using the natural gas transported by the pipeline to generate electricity or explained more specifically why it could not have done so.[12]

The Court vacated FERC’s orders authorizing the three Florida pipeline projects and remanded them to FERC for the preparation of an EIS that either quantifies and considers the pipeline projects’ downstream carbon emissions or explains in detail why it cannot do so and, further, explains whether GHG emissions estimates can be converted to particular climate impacts, such as sea level rise or increased risk of severe storms.[13]

In making this ruling, the Court clarified that quantification of GHG emissions is not required every time they are an indirect effect of an agency action,[14] acknowledging the D.C. Circuit opinion issued one week earlier, in which, among other things, the court found that, in some cases, such quantification may not be feasible.[15]

In the DOE LNG decision, the D.C. Circuit rejected Sierra Club’s challenge to DOE’s orders under Section 3 of the NGA authorizing Freeport LNG Expansion, L.P. to export LNG to countries with which the US has free trade agreements providing for the national treatment of natural gas. Sierra Club argued that DOE did not sufficiently examine the indirect effects of LNG exports, including those related to the likely increase in natural gas production and use. The court in the DOE LNG decision, however, found that DOE offered a reasoned explanation for its conclusion that the indirect effect of increased natural gas production was not reasonably foreseeable.[16] The court found reasonable DOE’s explanation that it is difficult to predict the increase in natural gas production in response to LNG exports because the link between natural gas production and LNG exports depends on the price of natural gas which, in turn, depends on numerous facts. The court also found reasonable DOE’s conclusion that it could not predict the locality of natural gas production in response to LNG exports.[17] With respect to downstream indirect effects of exporting LNG, the court in the DOE LNG decision accepted DOE’s conclusion that the potential for the US power sector to switch from natural gas to coal in response to higher gas prices caused by increased LNG exports was not reasonably foreseeable.[18]

The FERC pipeline decision will add another layer to FERC’s environmental review of proposed pipeline facilities. Because the FERC pipeline decision involved pipeline facilities constructed to provide natural gas for the generation of electricity, the Court did not identify other “reasonably foreseeable” downstream indirect effects of authorizing pipeline construction and operation. It is unclear how far FERC will have to go in future environmental reviews to identify the downstream indirect effects of pipeline facilities constructed to transport natural gas for other uses other than electricity generation, as well as the extent to which FERC may rely on reports prepared by other federal and state agencies, such as DOE, examining the potential climate change effects of natural gas transportation and utilization.

More immediately, the practical effect of the Court’s decision in the FERC pipeline decision to vacate and remand FERC’s orders authorizing the construction and operation of the three pipeline projects—as opposed to simply remanding FERC’s orders for further explanation—is unclear. This summer, FERC allowed at least some of the authorized pipeline facilities to be placed into service over Sierra Club’s request that FERC not do so, pending resolution of the case before the D.C. Circuit.

Footnotes

[1]  Sierra Club, et al., v. FERC, __ F.3d. __, No. 16-1329 (2017)(the “FERC pipeline decision”).
[2]  Florida Southeast Connection, LLC, et al., 154 FERC ¶ 61,080, order on reh’g, 156 FERC ¶ 61,160 (2016). In these orders FERC granted, among other things, authorizations under Section 7(c) of the Natural Gas Act to (1) Florida Southeast Connection, LLC for the construction and operation of the Florida Southeast Connection Project; (2) Transcontinental Gas Pipe Line Company, LLC for the construction and operation of the Hillabee Expansion Project, and (3) to Sabal Trail Transmission, LLC for the construction and operation of the Sabal Trail Project, a 516.2-mile, 36-inch-diameter pipeline from Tallapoosa County, Alabama, to Osceola County, Florida.
[3]  Slip op. at p. 11, citing Citizens Against Burlington, Inc. v. Busey, 938 F.2d., 190, 194 (D.C. Cir. 1991).
[4]  Slip op. at p. 19.
[5]  Slip op. at p. 19.
[6]  Slip op. at p. 19.
[7]  Slip op. at p. 19.
[8]  Slip op. at p. 21, citing Sierra Club v. FERC, 827 U.S. F.3d 36 (D.C. Cir. 2016)(“Freeport”), Sierra Club v. FERC, 827 F.3d 59 (D.C. Cir. 2016) and EarthReports, Inc. v. FERC, 828 F.3d 949 (D.C. Cir. 2016) (collectively, the “FERC LNG decisions”).
[9]  Slip op. at pp. 21-22, citing Freeport at p. 47.
[10]  Slip op. at p 22.
[11]  Slip op. at p 23.
[12]  Slip op. at p 24.
[13]  Slip op. at pp. 26-27.
[14]  Slip op. at p 25.
[15]  Slip op. at p. 25, citing Sierra Club v. U.S. Dept of Energy, __ F.3d. __, No. 15-1489, slip op. at p. 22 (D.C. Cir. Aug. 15, 2017) (the “DOE LNG decision”).
[16]  DOE LNG decision, slip op. at p. 15.
[17]  DOE LNG decision, slip op. at p. 16.
[18]  DOE LNG decision, slip op. at pp. 20-22.

Authors and Contributors

Donna J. Bobbish

Counsel

Project Development & Finance

+1 202 508 8089

+1 202 508 8089

Washington DC