DC Circuit Holds FERC Must Analyze Downstream Greenhouse Gas Emissions in Approving Interstate Gas Pipelines

by WilmerHale

Last week, the United States Court of Appeals for the District of Columbia Circuit issued an opinion in Sierra Club v. FERC, No. 16-1329 (D.C. Cir. Aug. 22, 2017), concluding that the Federal Energy Regulatory Commission (FERC), when analyzing the environmental effects of an interstate natural gas pipeline under the National Environmental Policy Act (NEPA), is required to analyze the greenhouse gas emissions from power plants that burn the natural gas to be transported in the pipeline. The court held that FERC must analyze downstream emissions because such emissions are reasonably foreseeable. 


This decision is a departure from DC Circuit precedent holding that FERC was not required to analyze downstream emissions in authorizing the construction and operation of export terminals for liquefied natural gas (LNG). See Sierra Club v. FERC (Freeport), 827 F.3d 36 (D.C. Cir. 2016); Sierra Club v. FERC (Sabine Pass), 827 F.3d 59 (D.C. Cir. 2016); EarthReports Inc. v. FERC, 828 F.3d 949 (D.C. Cir. 2016). The court went to great lengths to distinguish these cases, on the grounds that FERC has a more limited authority to approve (and review the environmental effects of) LNG export terminals as compared with interstate natural gas pipelines.

This interpretation is difficult to square with FERC's authorities under the Natural Gas Act, as discussed in Judge Janice Rogers Brown's dissent, asserting this case was “virtually identical” to the LNG export terminal cases. The LNG export terminal cases relied on the fact that the Department of Energy (DOE) had the “sole authority to license the export” of natural gas, and as a result, FERC's approvals were not the “legally relevant cause” of the downstream emissions. Freeport, 827 F.3d at 47 (citing Dep't of Transp. v. Pub. Citizen, 541 U.S. 752, 771 (2004)). Similarly, as discussed in Judge Brown's dissent, Florida state agencies must approve building and expansions of power plants, resulting in a break in the chain of causation between FERC's approval of the pipeline and the eventual downstream emissions. However, the difference in FERC's authority to approve export terminals and pipelines is “doctrinally invisible” and does not justify requiring the agency to analyze the indirect effects of downstream greenhouse gas emissions in approving the export terminals but not pipelines.

The decision seems to read into the Natural Gas Act (NGA) a limitation on FERC's authority to approve export terminals. This act does not explicitly limit what FERC may consider in approving export terminals (as compared with pipelines) such that the agency could not consider environmental impacts in denying a license. Section 3 of the NGA addresses FERC's role in approving export terminals and provides that FERC must authorize the terminal unless it finds the application “will not be consistent with the public interest.” 15 U.S.C. § 717b(a). Similarly, FERC has a broad authority to consider environmental impacts in its determination that a pipeline is necessary for “the present or future public convenience and necessity.” Id. § 717f(e). The court did not analyze the statutory language in concluding that FERC had a diminished authority to analyze indirect environmental impacts in approving construction and operation of the export terminals.

Implications for Project Approvals Going Forward

The court acknowledges that this opinion does not oblige all agencies to quantify downstream greenhouse gas emissions in every case where those emissions are an indirect effect of an agency action. It provides a limited exception if quantification is not possible, in which case the court notes that an agency must provide a detailed explanation as to why quantification is infeasible. Thus, the general rule going forward seems to be that an action agency is required to either include an estimate of indirect, downstream emissions or provide a detailed explanation as to why such quantification is not possible. In so holding, the court found unsatisfactory several arguments that quantification was not required, including: (1) that any estimate would necessarily be based on assumptions due to several uncertain variables; (2) that the downstream emissions would be partially offset by reductions elsewhere, including the possibility of retiring dirtier, coal-fired power plants; and (3) that the power plants will be subject to additional state and federal permitting processes in the future.

As a result of this decision, agencies, particularly FERC, will likely take steps to ensure that downstream greenhouse gas emissions are addressed in NEPA documents for pending and future gas pipelines and other projects. This can take one of two forms: (1) providing a detailed explanation of why such an analysis is infeasible or (2) estimating the level of downstream greenhouse gas emissions. In addition, the court ordered FERC, on remand, to consider whether the Social Cost of Carbon may be an appropriate tool to “convert emissions estimates to concrete harms” in a NEPA analysis despite the agency's argument in previous litigation that the method is inadequately accurate and is contested. Although the court did not decide this issue in this case, it is likely that FERC's explanation will make this issue ripe for the court to decide in the future.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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