On March 22, 2021, the U.S. Federal Energy Regulatory Commission ("FERC") issued an order authorizing Northern Natural Gas Company ("Northern") to abandon-in-place a segment of its natural gas pipeline running from Nebraska to South Dakota. Northern Natural Gas Co., 174 FERC ¶ 61,189 (2021) (the "March 22 Order"). The March 22 Order also granted a certificate for Northern to construct and operate new pipeline in order to replace the capacity associated with its abandoned facilities. While the outcome of the March 22 Order is mostly inconsequential, the order contains a potentially significant change in how FERC will consider greenhouse gas ("GHG") emissions in its review of natural gas pipeline certificate applications going forward. Specifically, the March 22 Order explains that FERC will now "consider all appropriate evidence regarding the significance of a project's reasonably foreseeable GHG emissions and those emissions' contribution to climate change." This is a significant departure from FERC's previous restrained stance on considering GHG emissions, in which it held that it was unable to make that assessment. What this means for the natural gas industry is still unresolved, though interested parties may consider either commenting on a February 18, 2021 FERC Notice of Inquiry ("NOI") that covers the GHG issue, or intervening in open proceedings that may further clarify how FERC intends to consider GHGs in its review of natural gas pipeline certificate applications.
FERC's Previous Approach to Considering GHG Emissions
A certificate of public convenience and necessity ("CPCN"), issued by FERC, is required to construct and operate an interstate natural gas pipeline under Section 7 of the Natural Gas Act. As part of issuing a CPCN, and in furtherance of FERC's obligations under the National Environmental Policy Act ("NEPA"), FERC conducts an environmental analysis of proposed projects. In two recent decisions in the D.C. Circuit Court of Appeals, Sierra Club v. FERC, 867 F.3d 1357 (D.C. Cir. 2017) and Birckhead v. FERC, 925 F.3d 510 (D.C. Cir. 2019), the court clarified how FERC must consider GHGs in issuing CPCNs under NEPA. In Sierra Club, the D.C. Circuit held that FERC must estimate the amount of power-plant carbon emissions that pipelines make possible when those indirect emissions are reasonably foreseeable, or explain why it could not make such an estimate. In Birckhead, the D.C. Circuit explained, in dicta, that a project's indirect GHG emissions are not just foreseeable when FERC knows the destination and end-use of the natural gas; instead, the decision to estimate indirect GHG emissions should be made on a case-by-case basis.
Despite the D.C. Circuit's directives in Sierra Club and Birckhead, FERC continued to be restrained in its consideration of GHG emissions throughout the remainder of the Trump Administration. For example, in Tennessee Gas Pipeline Co., 169 FERC ¶ 61,230 (2019), FERC held on to its reasoning that GHG emissions should not be considered when the end-use of the natural gas was unknown. Moreover, in El Paso Natural Gas. Co., 169 ¶ 61,133 (2019), FERC reasoned that generalized statements regarding the end use of gas delivered by a project are insufficient to warrant an analysis of GHG emissions.
FERC's New Approach to Considering GHG Emissions in the March 22 Order
Following the change of administration, Commissioner Richard Glick was named chairman of FERC by President Biden on January 21, 2021. Commissioner Glick had previously authored dissents in which he was critical of FERC's restrained approach to analyzing GHG emissions, and a policy shift in this area under Glick's leadership is therefore not surprising. On February 18, 2021, FERC issued an NOI seeking comments on whether it should formally refine its approach to its GHG analysis in FERC's Certificate Policy Statement, a guidance document the agency uses to evaluate certificate applications. In an unexpected move, however, FERC revised its approach to GHGs as set out in the March 22 Order while the comment period for the NOI was still pending. While the March 22 Order makes it clear that FERC will consider GHG emissions from natural gas pipeline projects, the specific contours of that analysis are still uncertain.
As detailed in the March 22 Order, FERC will now consider a project's GHG emissions "along with many other factors when determining whether a project is required by the public convenience or necessity." FERC views this analysis as part of its obligation under NEPA to take a "hard look" at a project's environmental impacts. With regard to GHG emissions, FERC explained that it will evaluate whether such emissions and their contribution to climate change may have significant environmental impacts. To determine the significance of GHG emissions, in the March 22 Order, FERC compared the project's reasonably foreseeable GHG emissions to the total GHG emissions of the U.S. as a whole, which allowed FERC to assess the project's relative contribution to GHG emissions and their potential impact on climate change at a national level. Ultimately, FERC concluded that Northern's proposed pipeline project could potentially increase GHG emissions by extremely small amounts, 0.0002% to 0.000006%, and that the project's contribution to climate change would not be significant.
In so holding, however, FERC indicated that NEPA does not prescribe reliance on specific metrics or models and that a wide range of evidence may be relevant to evaluate whether a project has significant environmental impacts. FERC was careful to note that "[i]n future proceedings, the evidence on which the Commission relies to assess significance may evolve." FERC also cited the February 18th NOI, suggesting that it may use that proceeding to further elaborate the details on its new GHG approach. For example, the Order does not mention use of the social cost of carbon in FERC's analysis, though President Biden has made implementation of a social cost of carbon a priority of his administration. See Executive Order On Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis (Jan. 20, 2021).
In a lengthy partial dissent to the March 22 Order, Commissioner James Danly argued that FERC violated the Administrative Procedure Act ("APA") by reversing its "longstanding determination" that the agency is unable to assess GHGs. Specifically, Commissioner Danly argued that FERC's action in the March 22 Order was arbitrary and capricious under the APA because FERC (i) failed to explain its departure from precedent, (ii) created a test with no standards, (iii) failed to engage in reasoned decision making by acting before the questions posed in the pending NOI are answered, and (iv) acted outside the scope of its expertise. Danly ended his dissent with a warning where he pleaded for interested parties to intervene in open proceedings as a way to prevent the "profound consequences" of the March 22 Order. Commissioner Mark Christie also authored a partial dissent in which he reasoned that it is "unfair and premature at best to jump the gun" by deciding the GHG issue in the March 22 Order rather than through the pending NOI process.
Potential Impact of the March 22 Order on the Natural Gas Industry
FERC's March 22 Order represents a significant policy change and should put the industry on notice that FERC will evaluate GHG emissions and their potential impact on climate change as part of FERC's review of the environmental impact of a pipeline project and its determination of whether the project is required by the public convenience and necessity. How FERC will do this, however, is less clear. A more precise assessment of this new policy is difficult because the March 22 Order leaves open questions about how specifically FERC plans to address GHG emissions in certificate proceedings, and because the impact of Northern's GHG emissions was so small that FERC did not have reason to evaluate GHG emissions and the contribution to climate change as a component of its more comprehensive review of a project under NEPA. Further, given the facts and circumstances of this specific proceeding, it appears unlikely that the March 22 Order will be subject to further review. The other principal uncertainty is whether FERC will articulate a more consistent policy in its forthcoming order on the NOI, or whether it will continue to decide matters on a case-by-case basis. The risks to the industry of case-by-case adjudications was highlighted in Commissioner Danly's dissent, where he argued that "every single natural gas company, LNG company, and shipper should intervene in every single certificate item" to protect their interests.
Finally, the March 22 Order focuses even more attention on the pending NOI, where these issues will be front and center. Interested parties can submit comments on the February 18th NOI (FERC Docket No. PL18-1-000) at any time up to May 26, 2021.