Washington Watch: No Summer Slow Down in D.C.

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White House, FERC Driving Energy Regulatory Activity

Generally, things slow down during the hot summer months in Washington, D.C. Not this year. The White House’s Council on Environmental Quality (CEQ) will be reviewing comments on “Proposed Guidance” for how federal agencies should consider greenhouse gas (GHG) emissions and the effects of climate change during environmental reviews required by the National Environmental Policy Act (NEPA). Meanwhile, the Federal Energy Regulatory Commission (FERC) will be exploring ways the Proposed Guidance could be used to mitigate thorny environmental issues that have delayed the processing and corresponding construction of natural gas infrastructure projects. And FERC will have to do it with one less Commissioner.

Natural Gas Infrastructure Since 2009, the United States has been a world-leading producer of natural gas, which has resulted in numerous applications seeking FERC authorization for new interstate pipeline projects and liquefied natural gas (LNG) export facilities. As FERC Commissioner Bernard McNamee recently testified before Congress:

“After two years in which no new LNG project was approved, the Commission has now approved — in a three-month period — four LNG export projects, with a total estimated export capacity of 8 Bcf per day.… I also note that the Commission has ten LNG export applications pending before it, and four LNG export facility proposals are in the pre-filing process.”

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However, FERC’s June meeting did not contain a single natural gas order, even though the environmental reviews for many of the LNG projects and other pipeline expansion projects had been issued months ago. What gives?

Environmental Challenges

In 2016, under President Barack Obama, the CEQ issued guidance to federal agencies on how to consider GHG emissions and the effects of climate change in NEPA review by federal agencies issuing permits: “Climate change is a fundamental environmental issue, and its effects fall squarely within NEPA’s purview.” Among other things, the 2016 guidance recommended “that agencies quantify a proposed agency action’s projected direct and indirect GHG emissions, taking into account available data and GHG quantification tools that are suitable for the proposed agency action.”

On March 28, 2017, President Donald Trump rescinded the 2016 guidance. Nevertheless, environmental activists still urged FERC, when considering gas pipeline and LNG projects, to conduct expanded NEPA analyses to account for indirect project impacts, including “downstream” and “upstream” GHG emissions. Such analyses, they argue, should address GHG emissions from the downstream combustion of the natural gas transported by a proposed pipeline, but also upstream of the pipeline project, where production of gas could involve flaring or fugitive methane emissions — and all this should be used to estimate climate impacts using a tool known as the “Social Cost of Carbon.” But FERC considers much of this “speculative” and has generally undertaken narrower analyses.

The DC Circuit has somewhat sided with the activists, first in a Sierra Club v. FERC, a 2017 opinion ruling that FERC “must consider not only the direct effects, but also the indirect environmental effects” of a pipeline project, which in this case included GHG emissions resulting from the downstream consumption of gas by electric generators for whom the pipeline was being developed. In response, FERC subsequently determined that, because it lacks jurisdiction over gas production, it is not required to address upstream GHG impacts involving production, unless there is reasonably close causal relationship between the source of the gas and the pipeline project, such that the pipeline is the only way to get the gas to market. As for downstream GHG emission impacts, FERC argued that it does not usually know the use or destination of the transported gas and, therefore, cannot reasonably assess the downstream impacts.

More recently, in early June, the DC Circuit chided FERC on its NEPA positions. Specifically, in Lori Birckhead v. FERC, the court upheld FERC’s certificate authorization for a pipeline expansion project, but criticized FERC’s NEPA review: “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.”

In late June, the Trump CEQ released a prepublication draft of Proposed Guidance for assessing GHG emissions during NEPA review; it will not become “final” until after the CEQ’s receipt and review of public comments. The Proposed Guidance, which differs from the 2016 guidance primarily in tone, aligns more favorably with FERC’s current position on NEPA review. For example, the Proposed Guidance states: “Agencies preparing NEPA analyses need not give greater consideration to potential effects from GHG emissions than to other potential effects on the human environment.” Significantly, it declares: “Agencies are not required to quantify effects where information necessary for quantification is unavailable, not of high quality, or the complexity of identifying emissions would make quantification overly speculative.” The Proposed Guidance further clarifies that “NEPA and CEQ’s implementing regulations do not require agencies to monetize costs and benefits of a proposed action”, that is, FERC “need not weigh the effects of the various alternatives in NEPA in a monetary cost-benefit analysis using any monetized Social Cost of Carbon (SCC) estimates.”

As you’d expect, the Proposed Guidance was generally welcomed by the natural gas industry but denounced by the environmental community. The Proposed Guidance will likely buttress arguments to the DC Circuit that FERC conducted appropriately tailored NEPA review in pipeline certificate and LNG terminal orders. Whether that is enough to convince the court remains to be seen.

At bottom, when it comes to addressing GHG emissions during NEPA review, FERC is being pulled in different directions by diametrically opposed interests — make modest or limited adjustments to the NEPA review process and thereby approve more gas projects, but risk judicial rejection and/or remand; or conduct a more wide-ranging NEPA review that might satisfy the courts’ concerns, but risk authorization for some natural gas infrastructure projects.

LaFleur Leaves FERC

Cheryl LaFleur is leaving FERC at the end of August, bringing to an end a nine-year stint when she served as commissioner, acting chairman and chairman. Indeed, for a few months, she was the only FERC commissioner. Bringing to bear experience as a utility executive, with level-headed and even-handed approach to regulation, she helped bridge the divide among the FERC commissioners on the type of environmental analysis required for approving gas infrastructure projects. Without LaFleur’s compromises, FERC likely wouldn’t have approved any LNG export projects this year, and fewer pipeline projects would have been approved.

LaFleur’s departure leaves FERC with only three commissioners — two Republicans (Neil Chatterjee and Bernard McNamee) and one Democrat (Richard Glick). When the two missing seats will be filled is anyone’s guess, but there will still be a quorum to allow FERC to function.

It will be a busy summer in D.C., especially at the White House and FERC, with plenty to write about next fall. Until then, as Garrison Keillor used to say, “Be well, do good work, and keep in touch.”

Washington Watch is a regular report on the oil and gas pipeline regulatory landscape. Steve Weiler is partner at Dorsey & Whitney LLC in Washington, D.C. Contact him at weiler.steve@dorsey.com.

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