Natural gas projects face new scrutiny from FERC
The rules have changed from a year ago. Between court orders and election-induced policy changes at the White House and Federal Energy Regulatory Commission, natural gas pipelines and liquefaction plants will need to pass stricter regulatory reviews of their greenhouse gas emissions.
It’s still uncertain how FERC will determine which projects pass and which fail.
The Department of Energy will do much the same for liquefied natural gas exports.
In a victory for opponents of two proposed LNG export terminals at the Port of Brownsville, Texas, a federal appeals court on Aug. 3 ruled that FERC must further analyze each project’s potential impacts on climate change.
The panel of the U.S. Court of Appeals for the D.C. Circuit was unanimous in its ruling that FERC violated the National Environmental Policy Act, or NEPA, with “deficient” environmental analyses.
The court did not vacate FERC’s authorization of either project, but did direct the commission to try again and do a better job.
“This decision clearly demonstrates that the commission has the authority and obligation to meaningfully analyze and consider the impacts from (greenhouse gas) emissions and impacts to environmental-justice communities,” FERC Chairman Richard Glick, who had dissented when the commission approved the projects in 2019, said in a statement after the court decision.
The court ruled that the commission “had not adequately justified its finding that the projects are in the public interest under the Natural Gas Act,” FERC reported on its website.
Also in August, the Environmental Protection Agency advised FERC to begin incorporating the social cost of carbon into its environmental reviews of natural gas infrastructure projects. The EPA said such work could help the commission put a dollar value on harm caused by project emissions.
In addition, FERC should consider attaching conditions to its orders to reduce climate change impacts from gas projects, the environmental agency said.
The commission this year has expanded its reviews with supplemental environmental reports to consider climate change impacts of gas projects, though commission staff has said in at least two reports that they are unable to calculate the lifetime impacts of emissions from gas production to consumption by end-users.
“Commission staff conclude that construction and operation of the project would not result in significant environmental impacts, with the exception of climate-change impacts, where FERC staff is unable to determine significance,” a draft environmental review in June for a Louisiana gas pipeline said.
Glick, who took over as FERC chairman in January, has pushed to include consideration of climate impacts in gas pipeline reviews. At a congressional hearing in July, he answered that federal courts on “numerous occasions” have told FERC that if environmental concerns are significant enough to outweigh benefits, and if those impacts could not be mitigated, then FERC could reject a project.
“I think we will start to see greater accounting for greenhouse gas emissions in the FERC process,” Samuel Reynolds, an energy finance analyst at the Institute for Energy Economics and Financial Analysis, said at a conference hosted by the group in June.
In March, the commission issued an order that said it will “consider all appropriate evidence regarding the significance of a project’s reasonably foreseeable GHG emissions and those emissions’ contribution to climate change.”
That’s a big change from a year ago, said an analysis by law firm Jones Day.
“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,” the firm said. “What this means for the natural gas industry is still unresolved.”
A National Law Review report described the order as “a sea change” for FERC’s approach to emissions and its obligations under NEPA.
“Additional changes to FERC’s approach are likely … but the order leaves little doubt that the GHG impacts of pipeline proposals will receive closer scrutiny from the commission than they have in the past,” the report said.
Though court decisions in 2017 and 2019 directed FERC to pay attention to climate change impacts in its gas project reviews, “FERC continued to be restrained in its consideration of GHG emissions throughout the remainder of the Trump administration,” Jones Day said in its May analysis.
That changed with the election, with a new majority on FERC and court rulings.
“FERC will now consider a project’s GHG emissions … when determining whether a project is required by the public convenience or necessity,’” Jones Day said. “FERC views this analysis as part of its obligation under NEPA to take a ‘hard look’ at a project’s environmental impacts.”
What the change means for the natural gas industry is uncertain. In its March order, expanding its review of climate change impacts, FERC was careful to note that “the evidence on which the commission relies to assess significance may evolve,” Jones Day said.
At a July hearing of the U.S. House Energy and Commerce Committee’s energy subcommittee, Ohio Republican Rep. Bill Johnson asked Glick how FERC would consider climate change impacts from U.S. LNG exports, including the benefit that consuming nations might use cleaner-burning gas than dirtier fuels to generate electricity.
“Courts have told us that’s for the Department of Energy, not FERC,” Glick responded.
That’s exactly what is happening to the proposed Alaska LNG Project. The state corporation managing the project was told in late June that the U.S. Department of Energy has ordered a supplemental environmental review of the full lifecycle of greenhouse-gas emissions from production on the North Slope to consumption by overseas buyers.
Referring to executive orders issued in the first week of the Biden administration, the department determined “it was appropriate to further evaluate the environmental impacts” of exporting LNG from the proposed Alaska project.
In a footnote to its June 28 order, the department said it would consider emissions from the entire LNG supply chain, “from the ‘cradle’ when natural gas is extracted from the ground, to the ‘grave’ when electricity is used by the consumer.”
Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide. He can be reached at [email protected].