On February 18, 2022, the Federal Energy Regulatory Commission (FERC) issued two Policy Statements (i) updating its 1999 Policy Statement on the certification of new interstate natural gas pipeline facilities (Certificate Policy Statement) and (ii) detailing how greenhouse gas (GHG) emissions will be considered as part of FERC’s review of natural gas infrastructure projects under sections 3 and 7 of the Natural Gas Act (NGA) (GHG Policy Statement).

While the Certificate Policy Statement is “final,” the GHG Policy Statement is an “interim” measure; FERC has invited comments on the GHG Policy Statement by April 4. FERC seeks comments on all aspects of the GHG Policy Statement including, in particular, on the proposed approach to assessing the significance of a project’s contribution to climate change.

At the same time, however, FERC intends to apply both the Certificate Policy Statement and the GHG Policy Statement to all pending and new project applications. The following are the most significant aspects of FERC’s Certificate and GHG Policy Statements:

I. Updated Certificate Policy Statement, 178 FERC ¶ 61,107 (2022)

  A.  Goals and objectives

• The Certificate Policy Statement’s goals and objectives remain consistent with those of the 1999 Policy Statement, including:

1. Appropriately consider the enhancement of competitive transportation alternatives, the possibility of over building, the avoidance of unnecessary disruption of the environment, and the unneeded exercise of eminent domain;
2. Provide appropriate incentives for the optimal level of construction and efficient customer choices; and
3. Provide an incentive for applicants to structure their projects to avoid, or minimize, the potential adverse impacts that could result from construction of the project.

• The Policy Statement intends to provide clarity on how FERC will evaluate all factors bearing on the public interest in determining whether a new interstate natural gas transportation project is required by the public convenience and necessity under the Natural Gas Act.
• The Policy Statement explains how FERC will balance economic and environmental interests in determining whether a project is required by the public convenience and necessity, thereby providing more regulatory certainty in FERC’s review process and public interest determinations.

  B.  Certificate Policy Statement highlights

• To demonstrate that a project is required by the public convenience and necessity, an applicant must first establish that the proposed project is needed. While FERC previously has relied almost exclusively on precedent agreements to establish project need, it now will consider evidence beyond precedent agreements.
• FERC now also will consider whether the agreements are between affiliates, as well as the circumstances surrounding the precedent agreements. Such circumstances could include (i) whether the agreements were entered into before or after an open season, (ii) the number of bidders, (iii) the results of the open season, and (iv) whether the agreements were entered into in response to LDC or generator requests for proposals.
• While evidence of project need remains the most important consideration in assessing project benefits, FERC also will consider evidence of other alleged benefits, such as whether the project will displace more pollution-heavy generation sources, facilitate the integration of renewable energy sources, and/or result in a significant source of jobs or tax revenues.
• In addition to assessing project need, FERC will consider four major interests that may be adversely affected by the construction and operation of new projects:

1. The interests of the applicant’s existing customers. The applicant must be prepared to financially support its proposed project without subsidization by existing customers.
2. The interests of existing pipelines and their captive customers. FERC will consider possible harm to captive customers from a new pipeline, whether or not there is evidence of unfair competition.
3. Environmental interests. FERC will consider environmental impacts and potential mitigation in both its environmental reviews under NEPA and its public interest determinations under the NGA.
4. The interests of landowners and surrounding communities, including environmental justice communities.

• FERC and its staff now will review the economic and environmental impacts of proposed projects concurrently, assessing the entirety of a proposal and balancing all its benefits against all of its adverse impacts. How FERC balances these considerations, however, will not be specified until it issues individual certificate orders.

  C.  Dissents

• While the three Democratic Commissioners supported the Certificate Policy Statement, the two Republican Commissioners (Commissioners Danly and Christie) issued vigorous dissents.
• Commissioners Danly and Christie expressed concerns that the Certificate Policy Statement exceeds FERC’s regulatory authority and jurisdiction under the NGA.
• These Commissioners argued that the Certificate Policy Statement’s vague directives will create uncertainty for project developers and inhibit the NGA’s core purpose: the orderly development of domestic natural gas supplies.

II. Interim GHG Policy Statement, 178 FERC ¶ 61,108 (2022)

  A.  Goals and Objectives

• The GHG Policy Statement sets forth FERC’s proposed procedures for evaluating climate impacts under the National Environmental Policy Act (NEPA) and describes how FERC will integrate climate considerations into its public interest determinations under the NGA. 
• FERC previously had maintained that, without an accepted methodology, it could not determine the significance of GHG emissions. The DC Circuit had increasingly challenged FERC to assess the significance of a project’s GHG emissions or their contribution to climate change. FERC’s GHG Policy Statement comes in response to these perceived judicial directives.

  B.  Determining the level of NEPA review

• Under NEPA, an agency must prepare an Environmental Impact Statement (EIS) for every “major [f]ederal action[ ] significantly affecting the quality of the human environment.”
• To determine whether an EIS is necessary, an agency may prepare an Environmental Assessment (EA) containing sufficient evidence and analysis to determine whether to prepare an EIS or issue a finding of no significant impact.
• To assess significance, FERC determines whether the impact “would result in a substantial adverse change in the physical environment,” which, in turn, is based on the severity of adverse environmental impacts.
• To determine the appropriate level of NEPA review, the GHG Policy Statement establishes a significance threshold of 100,000 metric tons or more per year of CO₂e.
• In calculating this emissions estimate, FERC will apply the 100% utilization or “full burn” rate for natural gas supplies delivered by the proposed project and will prepare an EIS if the estimated emissions from the proposed project exceeds the 100,000 metric tons per year threshold.
• An emissions threshold of 100,000 metric tons per year of CO₂e captures the majority of annual emissions generated by FERC-authorized projects
• The GHG Policy Statement declines to adopt use of the social cost of carbon (SCC) to determine the significance of project GHG emissions. The GHG Policy Statement notes, however, that to the extent permitted by law, FERC could consider using SCC in the future as a comparison tool to determine the significance of GHG emissions.

  C.  Quantifying GHG emissions

• Consistent with CEQ regulations, FERC will quantify a project’s GHG emissions that are reasonably foreseeable and have a reasonably close causal relationship to the proposed action, including those effects that occur at the same time and place as the proposed action and effects that are later in time or farther removed in distance from the proposed action.
• In determining the level of GHG emissions attributed to a project, FERC will estimate a project’s GHG emissions based on the projected amount of project capacity actually used (projected utilization rate), as opposed to assuming 100% utilization.
• The project’s projected utilization rate may be calculated using, for example:

1. Expected utilization data from project shippers;
2. Historical usage data;
3. Demand projections; and
4. An estimate of how much capacity will be used on an interruptible basis.

• In assessing a project’s GHG emissions, FERC will consider direct, downstream, and upstream emissions. To that end, FERC proposes to:

1. Consider direct emissions of a project a reasonably foreseeable effect;
2. Find that an NGA section 3 export facility project is not the legally relevant cause of upstream and downstream emissions;
3. Consider on a case-by-case basis whether downstream emissions are a reasonably foreseeable effect of an NGA section 7 interstate pipeline project; and
4. Consider on a case-by-case basis whether upstream emissions are a reasonably foreseeable effect of an NGA section 7 pipeline project.

• To calculate operational emissions, FERC directs project sponsors to continue following the existing guidance outlined in section 4.9.1.3 of FERC’s Guidance Manual for Environmental Report Preparation for Applications Filed under the NGA.

  D.  Mitigating GHG emissions

• The GHG Policy Statement encourages project proponents to mitigate the reasonably foreseeable upstream or downstream emissions associated with their projects to minimize climate impacts.
• FERC will consider any mitigation measures proposed by the project sponsor on a case-by-case basis when balancing the need for a project against its adverse environmental impacts.
• FERC may require additional mitigation as a condition of an NGA section 3 authorization or section 7 certificate.
• The GHG Policy Statement does not mandate a standard level of mitigation.
• To ensure that any GHG emissions reduction mechanisms achieve real, verifiable, and measurable reductions, any proposed mechanisms should be:

1. Real and additional – the emissions reductions would not have otherwise happened unless the proposed reduction mechanism was implemented, and the associated reductions occur beyond regulatory requirements;
2. Quantifiable – any emissions reductions must be calculated using a transparent and replicable methodology;
3. Unencumbered – seller has clear ownership of or exclusive rights to the benefits of the GHG reduction; and
4. Trackable – the project sponsor must propose means for FERC to monitor and track compliance with the proposed mitigation measures for the life of the project.

• Examples of mitigation mechanisms project sponsors may consider include:

1. Market-based mitigation, including use of renewable energy credits, mandatory compliance market participation, and voluntary carbon market participation; and
2. Mitigation and/or offset of GHG emissions through the use of physical, on- or off-site mitigation measures.

• The GHG Policy Statement permits pipelines to seek to recover the cost of mitigation measures through pipeline rates.

  E.  Dissents

• Similar to the Certification Policy Statement, the three Democratic Commissioners supported the new policy, while the two Republican Commissioners issued lengthy dissents.
• Here again, the dissenting Commissioners expressed concerns that the GHG Policy Statement exceeds FERC’s regulatory authority and jurisdiction under the NGA, created uncertainty rather than clarity for applicants, and will lead to more costly, time consuming and contested certificate proceedings.

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