FERC and climate change: Where are we now?

Source: Ellen M. Gilmer, E&E News reporter • Posted: Wednesday, June 6, 2018

Federal regulators’ recent move to set limits on climate analysis for natural gas pipelines raises new questions about the government’s environmental obligations and how courts might get involved.

The Federal Energy Regulatory Commission last month announced its intention to trim climate reviews for some pipeline applications — analyzing the greenhouse gas emissions from production and consumption of natural gas only when specific information about the source or end use of gas is available.

The move represents a change of direction for FERC, which has gradually increased its attention to climate change in recent years. Now the Republican-majority commission is seeking to clarify the boundaries of its climate obligations.

That’s what industry advocates have pushed for in recent years: tighter limits on what they consider to be ever-expanding National Environmental Policy Act reviews of interstate pipeline projects.

Around 2016, FERC began including additional greenhouse gas estimates in pipeline reviews. Prodded by environmentalists and the Obama administration’s EPA, the agency started tallying approximate emissions associated with burning the gas that would be transported by some proposed pipelines.

A federal court decision bolstered the approach last year, when judges tossed an earlier FERC review that didn’t include those estimates, even though the commission had enough information to crunch the numbers.

FERC critics and environmental groups say last month’s policy shift disregards that court order and undermines an ongoing agency review of how it considers pipeline proposals. They’re looking to challenge the move as soon as they can get into court.

Drawing a line on climate reviews

Before the lawsuits fly, it’s helpful to understand exactly what FERC is doing here. Experts disagree about the significance of the revised approach.

That’s in part because the change came about in an order related to a relatively minor natural gas project in New York. FERC on May 18 denied a rehearing request for its approval of a Dominion Energy Transmission Inc. compressor station upgrade and used that document to set out its broader plan (E&E News PM, May 18).

The regional environmental group Otsego 2000 had pushed the agency to consider the impacts of the natural gas production feeding Dominion’s project. In a 3-2 decision, the majority of commissioners found that such “upstream” production impacts were too attenuated to inform the NEPA analysis: Gas flowing into upstate New York compressor stations could come from anywhere in the sprawling Marcellus or Utica shale formations, the order said.

The gas would not even originate in New York, as the state has a ban on hydraulic fracturing used to extract shale gas. Moreover, the order said, there is no evidence to suggest that the project would result in increased production activity.

On the “downstream” side, FERC made a similar argument: The exact end use of the natural gas that runs through Dominion’s stations is unknown, so impacts on consumption are unpredictable.

But the order presented an approach that goes beyond the New York project.

“Accordingly, to avoid confusion as to the scope of our obligations … we will no longer prepare upper-bound estimates … where, as here, the upstream production and downstream use of natural gas are not cumulative or indirect impacts of the proposed pipeline project, and consequently are outside the scope of our NEPA analysis,” it said.

That doesn’t mean FERC is skipping climate analysis altogether. The majority acknowledged the commission’s duty to weigh the direct greenhouse gas impacts of construction and operation of individual pipelines. And it noted that FERC will do the upstream or downstream estimates when it has clear and detailed information about where relevant gas is produced or how it is ultimately used.

What does that mean? Former Commissioner Tony Clark, now at Wilkinson Barker Knauer LLP, said added downstream analysis would likely occur when a gas pipeline directly feeds a power plant, as was the case in the 2017 court opinion dealing with the Sabal Trail pipeline.

“For any project that begins to look like Sabal where there’s a pretty defined end use, they are probably already sharpening their pencils and figuring that they’re going to have to do that GHG analysis,” he said, adding that NEPA still doesn’t control the outcome of the application.

Steptoe & Johnson LLP attorney Monique Watson, a former FERC lawyer, said that cases in which the agency would perform upstream climate analysis — estimating greenhouse gas emissions from gas production — might be less common. For a clear causal connection between production and a pipeline, a project would need to transport gas from a discrete field with limited transportation options, she said.

The two dissenting commissioners, Richard Glick and Cheryl LaFleur, criticized FERC’s logic as circular: The agency won’t have that level of detail about production or use unless it asks developers to provide it, they wrote.

‘The line is much blurrier than they’d like it to be’

FERC’s critics were surprised and frustrated by the news last month, calling it a step backward on environmental review.

“NEPA is always about making reasonable forecasts, and it’s never the case that some uncertainty is an excuse for an agency to throw their hands in the air or treat significant effects as being worthless,” said Jason Schwartz, legal director for New York University’s Institute for Policy Integrity.

“So it is still somewhat unclear — the line they’re trying to draw, the line is much blurrier than they’d like it to be,” he said. “In all cases, there are models that exist and that the agency can use to try to figure out what the market consequences are going to be.”

Natural Resources Defense Council attorney Gillian Giannetti noted in a blog post last month that in addition to NEPA obligations, FERC is required to weigh environmental impacts in its analysis of whether pipeline applications are in the public interest under the Natural Gas Act.

Environmental groups have several options for fighting FERC’s approach: a direct challenge to the Dominion order, a challenge to a future pipeline project and participation in the agency’s ongoing review of how it handles pipelines.

The first option is the toughest. Challenging a FERC order requires previous participation in the relevant proceedings. Most environmental groups pushing FERC on climate action were not involved in the Dominion case, so they can’t sue over the decision. Otsego 2000, the New York group that is party to the case, has said it’s not sure it has the resources to keep fighting (Energywire, June 1).

The next option is simpler but requires patience: Environmental groups can simply wait for FERC to apply the new approach to one of the cases in which they are involved. Then they’ll be able to challenge the result.

In the meantime, they can raise their concerns directly to FERC via the agency’s separate review process for its general pipeline policy. The review — not tied to any particular project — began earlier this year and is aimed at determining whether FERC needs to update how it weighs developers’ permit applications.

Many agency watchers assumed FERC would hold off on policy changes until that review concludes. In fact, the dissenting commissioners raised that issue in their Dominion statements: Why not wait until the broader review is complete?

“I find it particularly disappointing that the Commission is adopting this new policy just as it embarks on a broad review of the Commission’s process for certificating new natural gas pipelines, which will include how greenhouse gas emissions are assessed,” Glick wrote in his dissent.

The commission recently extended the public comment period for the broad policy review. Steptoe & Johnson’s Watson said the groups can use the Dominion order to further inform their comments on that process.

Sabal Trail

Critics of FERC’s policy shift also argue that the move is out of step with an important decision from the U.S. Court of Appeals for the District of Columbia Circuit. The court last summer ordered FERC to calculate the greenhouse gas emissions from power plants linked to the Sabal Trail pipeline and related projects in Florida, Georgia and Alabama (Energywire, Aug. 23, 2017).

The decision was seen as a game-changer, bolstering environmentalists’ climate arguments against numerous other projects.

FERC’s order last month reads the Sabal Trail case narrowly: limited to a situation in which extensive information about downstream natural gas use was available. The record clearly showed that the project would feed certain Florida power plants. But it’s often the case that pipelines feed into broader distribution systems, and the exact end use is harder to track.

Still, Schwartz said he was skeptical about how the new approach would square with the Sabal Trail ruling.

“In all major combustion applications of natural gas, the greenhouse gas consequences are the same,” he said. “So you don’t really need to know exactly where this is going to be burned. You can make a very reasonable, informed estimate based on models. You can apply the standard emissions factors, and you can get a very reasonable estimate of downstream emissions.”

The Sierra Club, which led the Sabal Trail challenge, fired off a warning last month that FERC may end up in court again over its new take on analyzing climate impacts.

“The people demanded FERC do its job, and FERC refused,” Executive Director Michael Brune said in a statement. “Then, the courts ordered FERC to do its job, but instead, it just keeps trying to evade the court’s order and shirk its responsibilities. FERC has broken the public’s trust, and we are exploring our options in response to today’s vote.”

Or the Sierra Club could end up playing defense at the Supreme Court. FERC and Sabal Trail developers haven’t yet committed to asking the justices to weigh in on the D.C. Circuit’s decision, but they’ve both signaled interest — requesting and receiving extensions to file petitions later this summer.

If they do seek Supreme Court review, it would be months before the court even decides whether to accept the case.

No more ‘color commentary’

Longtime FERC watchers have waved off the notion that FERC’s Dominion order represents a huge change for the agency.

Clark, the former commissioner, said the revised approach simply means the agency will include less “color commentary” in its pipeline orders.

Though former FERC Chairman Norman Bay, a Democratic appointee, memorably implored the agency in early 2017 to increase its climate disclosures in the interest of “good government,” Clark noted that excess language in an agency order can start to look like an obligation. The Republican appointee said the commission is better off steering clear of such extras so it’s not “tacitly approving the notion that it should be in there.”

“If just in practice you start putting things in your order, even if you don’t think they’re specifically tied to a some statutory requirement, but you start speaking to it, it can raise questions in court,” he said. “A judge might take a look at it and say, ‘Well if you’re not required to do it, then why are you doing it?'”

Watson, the Steptoe & Johnson lawyer, said the policy laid out last month clarifies the landscape for project developers.

“The commission was trying to put in goal posts to say, ‘Yes, we understand what the Sabal court told us to do, that’s something that we need to consider. However, words do matter. So what is reasonably foreseeable?'” she said.

Intervenors, including environmental groups, can use the approach to their advantage by anticipating the type of information FERC would need to do the expanded climate analysis, she added. If they have clear evidence tying specific production or end use to a proposed pipeline, they can submit it for the record.

“If this analysis in a subsequent case doesn’t meet that test or doesn’t meet the standard,” she said, “then they still have the chance to argue in court or on rehearing, ‘Commission, you got it wrong in this specific case.'”