By Jennifer Danis and Romany Webb
The Federal Energy Regulatory Commission (FERC)—i.e., the federal agency responsible for approving interstate gas pipelines—yesterday announced two major statements explaining how it proposes to: (1) realign its fossil fuel infrastructure approval process with the Natural Gas Act (NGA)’s mandate to only approve projects that serve the public interest; and (2) factor climate change into this framework for pending and future decisions. While neither statement is final, their impending release still represents a major step for FERC, signaling a shift in its approach to approving new pipeline projects.
FERC’s authority to approve interstate pipelines stems from the NGA which was passed in 1938–a time when gas was a limited resource to be conservatively rationed. Under section 7 of the NGA, any person wishing to construct or extend an interstate natural gas pipeline must apply to FERC for a certificate of public convenience and necessity which, as the name suggests, can only be issued if FERC determines that the pipeline “is or will be required by the present or future public convenience and necessity.” FERC has long taken the view, and the courts have confirmed, that it must consider “all factors bearing on the public interest” when making its determination. This necessitates a broad-ranging review in which FERC must consider the need for pipeline development and weigh its benefits and costs.
FERC’s newly announced draft Certificate Policy Statement proposes a shift in the Commission’s approach to assessing the need for new pipelines to ensure it is aligned with the requirements of the NGA. In the wake of significant legal challenges to FERC’s practice of approving projects based exclusively on affiliated gas shipper contracts with the pipeline developer, like those in Spire and PennEast, and even arms-length projects for which FERC failed to require developers to demonstrate rather than just claim market demand, like City of Oberlin, FERC is now committing to truly assess project need.
FERC yesterday stated that “[p]recedent agreements . . . will no longer be the sole factor the Commission considers.” It signaled that project proponents would be asked to “provide specific information detailing how the gas to be transported by a proposed project would ultimately used, why the project is needed to serve that use, and the expected utilization rate of the project.” This will better enable FERC to assess both demand and the real impacts from overbuilding capacity to areas that have enough infrastructure and capacity. This represents a major shift in FERC practice, although not a major shift from its existing Certificate Policy. That policy, which was adopted in 1999, had provided that FERC should consider additional indicators of need beyond private shipping contracts. Together with its commitment to reviewing “demand projections underlying the capacity subscribed, estimated capacity utilization rates, potential cost savings to customers, regional assessments, and statements from state regulatory commissions or local distribution companies,” FERC will resume its role as an arbiter of what additional gas infrastructure is needed versus simply contracted with developers who profit from construction even when their shippers are turning back capacity on existing pipelines.
FERC is also proposing to change its approach to evaluating the environmental impacts of pipeline development. FERC’s newly announced Interim Greenhouse Gas Emissions Policy Statement represents its first attempt to tackle climate change, which FERC’s Chair Richard Glick has rightly described as “an existential threat to our security, economy, environment, and, ultimately, the health of individual citizens.” Chair Glick has further recognized that, “[u]nlike many of the challenges that our society faces, we know with certainty what causes climate change: It is the result of [greenhouse gas] emissions, including carbon dioxide and methane, which can be released in large quantities through the production and consumption of natural gas.”
Despite this, until relatively recently, FERC had largely avoided discussing the climate change impacts of its decisions, with past Commissioners often emphasizing that FERC is an energy regulator, not an environmental one. While that is true, the nation’s energy mix is inextricably intertwined with its environmental well-being, and FERC has long recognized that environmental impacts are important “costs” of pipeline development, which must be weighed against its benefits. Indeed, the 1999 Policy Statement described the goals of pipeline certification as being to “foster competitive markets, protect captive customers, and avoid unnecessary environmental and community impacts.” In the 1999 Policy Statement, FERC indicated that it would “balance demonstrated market demand against potential adverse environmental impacts . . . in weighing whether a project is required by the public convenience and necessity.” However, a 2020 Sabin Center study found that FERC often bases its decisions solely or primarily on economic factors, and gives little consideration to environmental impacts. The study noted that FERC conducts environmental reviews for pipeline projects under the National Environmental Policy Act (NEPA) but found that those reviews typically have “no or little bearing on [FERC’s] decisions.”
In recent years, many of FERC’s pipeline decisions have been challenged by environmental groups and others, often for failure to comply with NEPA and/or the NGA. Many of the challenges centered on FERC’s assessment of the greenhouse gas emissions associated with pipeline development. In many cases, FERC has limited its assessment to the emissions arising directly from pipeline construction and operation, and refused to consider indirect emissions from the upstream production and downstream consumption of natural gas transported via the pipeline. On the rare occasions that upstream and downstream emissions have been considered, FERC has often failed to quantify the extent of such emissions, assess the significance of their contribution to climate change, or monetize the climate-related damages they cause.
This has prompted criticism from the courts. For example, in a 2017 decision–Sierra Club v. FERC–the D.C. Circuit Court of Appeals held that FERC is required to consider downstream greenhouse gas emissions, at least in some circumstances. This was confirmed in another decision in 2019–Birckhead v. FERC–in which the D.C. Circuit Court of Appeals said that it was “troubled” by FERC’s claim that it could not consider downstream emissions because it lacked the information needed to do so. The court noted that FERC could have requested the information from the pipeline developer but chose not to and stated: “It should go without saying that NEPA also requires the Commission to at least attempt to obtain the information necessary to fulfill its statutory responsibilities.”
Yesterday’s announcements begin to rectify these problems but leave many unresolved questions. In announcing the new Interim Greenhouse Emissions Policy Statement, FERC indicated that it will quantify the “reasonably foreseeable” greenhouse gas emissions associated with pipeline projects, including “emissions resulting from construction and operation of the project.” Notably, however, FERC did not indicate when upstream and downstream emissions will be considered “reasonably foreseeable” and stated that this will be considered on a “case-by-case” basis. The D.C. Circuit Court of Appeals has already held that, where the gas carried by a pipeline is intended to be combusted in power plants or other facilities, the emissions associated with combustion are “reasonably foreseeable.” So, presumably, FERC will quantify downstream emissions where it knows that the gas carried by a pipeline is intended for combustion. But what about in other situations? Hopefully this will be addressed in the policy statement, which is yet to be publicly released by FERC.
FERC has also indicated that it will consider a gas infrastructure project to have a significant impact on climate change if it emits 100,000 metric tons of carbon dioxide-equivalent per year or more. That is notably higher than the significance thresholds proposed by other government entities and outside groups. For example, the Sabin Center has previously recommended setting the significance threshold at 25,000 tons of carbon dioxide-equivalent, which is the level at which facilities are required to report their emissions to the Environmental Protection Agency.
FERC has not yet clearly explained how it will determine whether a particular pipeline project meets the significance threshold. It appears that FERC will consider downstream greenhouse gas emissions when making its determination. In announcing the Interim GHG Emissions Policy Statement, FERC indicated that, in calculating downstream emissions, it would assume a “100% utilization rate” or “full burn” of the gas to be transported via the pipeline. FERC did not, however, give any indication of whether and how it will account for upstream emissions in its significance determination.
FERC has also said nothing about whether and how it will measure the damage caused by project-related emissions. To do that, other federal agencies typically use the so-called “social cost of carbon,” which reflects the cost, expressed in dollars per ton, of current and future damage caused by carbon dioxide emissions. However, FERC has previously refused to use the SCC, arguing that it “has methodological limitations” that undermine its usefulness. (Incidentally, a federal court in Louisiana last week issued a preliminary injunction preventing federal agencies from using an interim SCC, adopted by the Biden administration. That could make FERC even more hesitant to use the metric.)
Despite these lingering questions, the new policy statements send a clear signal that FERC will take a harder look at proposed pipeline projects, and no longer serve as merely a “rubber stamp.” Some have suggested that this is inappropriate. At yesterday’s meeting announcing the policy statements, FERC Commissioner Mark Christie described them as “legal weapons” that will be “wielded against every single natural gas project, making the costs and uncertainties of even pursuing a project exponentially more daunting” and thus leading to fewer pipelines being built and less reliable gas supplies. Commissioner Christie, along with a second Commissioner, James Danly, argued that adopting the approach proposed in the policy statements will result in FERC violating its statutory obligations. According to Commissioner Christie, FERC “doesn’t have an open ended license under the U.S. Constitution or the Natural Gas Act to address climate change.”
While Commissioner Christie is correct that the NGA does not mention climate change, it does require FERC to ensure that any new pipeline project serves the “public convenience and necessity.” FERC cannot do that without considering the full range of benefits and costs–including environmental costs–associated with each project. That was true when the NGA was passed and it remains true now. Indeed, over the last nearly 100 years, the public convenience and necessity standard has consistently been viewed–by both FERC and the courts–as encompassing environmental considerations. While the idea of considering climate change might be new, it is entirely consistent with the statutory regime, and the way FERC and the courts have applied it.