Greenhouse Gas Quantification Under FERC’s Pipeline Certification Process

By  Jeffrey Karp and Maxwell Unterhalter

Since our last article discussing the way in which the Federal Energy Regulatory Commission ("FERC" or "the Commission") considers greenhouse gas (GHG) emissions and climate impacts in the pipeline certification process, the conflict has not abated. Presently, the Commission has just four members; a fifth member has not been appointed by the President since the death of Commissioner McIntyre on January 2, 2019.[1] With no nominee to replace the late Commissioner McIntyre, the remaining two Democratic and two Republican commissioners have stalemated over whether FERC is adequately fulfilling its National Environmental Policy Act (“NEPA”) responsibilities in evaluating certification applications for natural gas pipelines.[2] The lack of consensus among the four commissioners has slowed the certification of proposed pipeline projects, leading to cancellation of at least one application.[3]

The required breadth of GHG evaluation in the NEPA review process also has become an environmental flash point, as the Trump administration’s White House Council on Environmental Quality (“CEQ”) and the D.C. Circuit Court of Appeals have weighed in on the matter. On June 4, 2019, for the second time in three years, the D.C. Circuit confirmed that under NEPA the Commission must gather information and evaluate upstream and downstream GHG emissions[4] expected from proposed pipeline projects on a project-by-project basis.[5] Yet, later that month, on June 21, 2019, the CEQ released a Draft NEPA Guidance on Consideration of Greenhouse Gas Emissions (“Draft Guidance”) providing that federal agencies need not quantify, analyze, or give weight to GHG emissions and their climate impact where there is no close causal relationship, emissions quantification is impracticable or overly speculative, or emissions are not substantial enough to warrant quantification. As the four FERC commissioners have staked out their positions by political party and the White House and judiciary have weighed in, more proposed pipeline projects await certification decisions.[6]

Under Section 7 of the Natural Gas Act ("NGA"),[7] FERC approves and issues certificates for the construction and operation of interstate gas pipelines and related infrastructure. FERC’s 1999 Statement of Policy - Certification of New Interstate Natural Gas Pipeline Facilities - outlines the process for issuing such a certificate of public convenience and necessity. The applicant first must demonstrate that the project does not require subsidization by the pipeline’s existing customers. Then, FERC determines whether the applicant has sought to eliminate or minimize adverse effects on existing customers, existing pipelines in the market and their customers, and landowners and communities affected by the route of the new pipeline. If the proposed project is found to have no adverse effects, the Commission proceeds to a preliminary determination or a final order. However, if there are adverse effects, FERC - after efforts have been made to minimize the effects – applies an economic balancing test of the public benefits against the adverse effects, and finally proceeds to perform environmental and other reviews if the benefits outweigh the adverse effects.[8] This last step in the process – environmental review – is where disagreement among the commissioners has occurred. While the Commission has not hesitated to assess GHG emissions from the construction and operation of proposed pipelines,[9] the circumstances and manner in which the lifecycle GHG emissions from a project should be addressed have become fraught with contention.

In Sierra Club v. FERC, 867 F.3d 1357 (D.C. Cir. 2017), the D.C. Circuit Court of Appeals ruled that FERC had failed to adequately analyze the downstream impacts of GHG emissions in approving a Southeast Market natural gas pipeline project extending from Georgia to Florida ("SMP Project"). The court noted that NEPA review requires consideration of both direct and indirect effects, indirect effects being those caused by actions later in time or farther removed in distance from the pipeline project but still reasonably foreseeable.[10] The D.C. Circuit then determined that the downstream emissions from the SMP Project were a reasonably foreseeable indirect effect because the project’s entire purpose was to provide capacity to transport natural gas to electric generating plants in Florida.[11] It also dismissed FERC’s argument that it was impossible to know exactly what quantity of GHGs would be emitted as a result of the project, opining that NEPA analysis necessarily involves some reasonable forecasting and that agencies may need to make educated assumptions.[12] The court concluded that the Commission should have either given a quantitative estimate of the downstream GHG emissions that the court determined were reasonably foreseeable or explained more specifically why it could not do so.[13] The matter was remanded to the Commission for further NEPA review.[14]

After completing an expanded NEPA analysis and quantifying “gross,” “net,” and “full burn” estimates of the project’s downstream GHG emissions, the Commission reinstated the SMP Project certificate.[15] Those figures reflected the estimated gross volume of GHG emissions from the power plants receiving gas from the pipeline, the net amount of reduced estimates where the Commission determined natural gas would replace higher emitting combustion sources, and a “full burn” figure that estimated the emissions from combustion of all the possible gas that could be transported at maximum capacity without displacement of other sources.[16] Even as FERC performed the analysis required by the D.C. Circuit’s ruling, it qualified its findings, noting that the “full burn” analysis overestimated emissions,[17] the Commission staff had no basis for determining the significance of impacts from the emission estimates,[18] and further evaluation using the Social Cost of Carbon[19] could not meaningfully inform the Commission’s decision on natural gas transportation infrastructure.[20] For context, FERC estimated that the “net” GHG emission scenario would represent a 3.6% and 0.15% increase compared to baseline emission inventories of 2015 Florida and United States GHG emissions, respectively.[21] Nonetheless, the Commission stated that it could find no widely accepted standard to ascribe significance to the estimated rate or volume of future GHG emissions.[22] Both of the Democratic commissioners - Cheryl LaFleur and Richard Glick - dissented from the rehearing order because they contended it failed to apply a methodology to assess the significance of the increased emissions.[23]

Thereafter, on May 18, 2018, in an order denying a rehearing of a certificate granted for Dominion Transmission’s New Market Project,[24] the Commission majority sought to roll back the type of analysis it previously had performed in the Sierra Club remand. It noted that in intervening matters the Commission mistakenly had gone “beyond that which is required by NEPA by evaluating the potential impacts associated with unconventional natural gas production and downstream combustion of natural gas even though such production and downstream use were not reasonably foreseeable or causally related to the proposals.”[25] The Commission found Dominion Transmission’s New Market Project to be factually distinguishable from the Sierra Club ruling and SMP Project, providing that the court in Sierra Club concluded that the SMP Project’s purpose, to deliver natural gas to gas-fired electric generating plants, was clearly identified; therefore downstream emissions were identifiable and reasonably foreseeable.[26] In Dominion Transmission’s New Market Project matter, however, the parties had not identified the end use of the gas, and the Commission did “not know where the gas will ultimately be consumed.”[27] Hence, no additional gas consumption was identified and there were no reasonably foreseeable downstream GHG emissions from the New Market Project.[28] The Commission further opined that the record did not support a finding that any potential increase in emissions associated with production, processing, distribution, or consumption was causally related to its approval of the project.[29] Again, the two Democratic commissioners dissented from the denial of rehearing, opposing the majority’s shift in how upstream and downstream emissions would be addressed thereafter in the NEPA review process. The dissenting commissioners criticized the new policy as leading to the omission of what they concluded were reasonably foreseeable upstream and downstream emissions in the vast majority of cases. They further argued that the claimed lack of foreseeability of emissions was due to FERC’s failure to ask applicants for the necessary information regarding the origin and end use of the natural gas.[30] In June and August 2018, the Commission also issued orders granting certificates for two additional pipeline projects based upon the majority’s more limited consideration of GHG emissions and climate change in conducting NEPA assessments.[31]

However, on June 4, 2019, the D.C. Circuit Court of Appeals in Birckhead et al. v. FERC rejected the Commission’s limited approach to the GHG analysis, emphasizing that the Sierra Club ruling did not suggest that emissions are indirect effects only when the destination and use of the gas are clearly known; rather, indirect effects require a project-by-project determination of reasonable foreseeability.[32] In Birckhead, the plaintiff challenged a certificate of public convenience and necessity granted to Tennessee Gas Pipeline Company, LLC, for its Broad Run Expansion Project, arguing that the Commission failed to adequately consider the environmental effects of the project’s increased gas production and consumption. Although the plaintiff’s petition ultimately was denied on procedural grounds, the D.C. Circuit nonetheless took the opportunity to criticize the Commission’s “less-than-dogged” efforts to obtain the information pertinent to GHG emissions in the NEPA review process.[33]

Regarding upstream emissions, the Commission argued that unless the record demonstrated that the proposed project represented the only way to get additional gas from a specified production area into the interstate pipeline system, no reasonably close causal relationship between the pipeline project and upstream emissions could exist.[34] It also argued that, even if causation existed, effects of upstream gas production were not reasonably foreseeable because the source area and the number and location of wells were matters of speculation;[35] the Commission further contended that asking applicants for information that may inform such a determination would be futile as applicants were unlikely to have it.[36] As FERC had asserted in its administrative proceedings: “the environmental effects resulting from [upstream] natural gas production are generally neither caused by a proposed pipeline project nor are they reasonably foreseeable consequences of our approval … Rather, a number of factors, such as domestic natural gas prices and production costs, drive new drilling.”[37] While the court was dubious of FERC’s assertions, its hands were tied because the plaintiffs in Birckhead had not claimed that FERC’s failure to seek out additional information violated NEPA.[38]

The Commission also argued that downstream GHG emissions were not reasonably foreseeable because “the destination and end user (or users) remain a mystery; all that is known is that the gas is headed somewhere in the Southeast.”[39] FERC asserted it could not assess whether the gas would result in increased or decreased (by reducing demand from other dirtier sources) emissions, thus making any attempt to quantify emissions meaningless.[40] The Commission contended that Sierra Club was limited to its facts, where the destination and use of the natural gas were actually known; therefore, the court’s decision in Sierra Club was not applicable to the circumstances in Birckhead.[41]

The D.C. Circuit found FERC’s position untenable: “the mere possibility that a project’s overall emissions calculation will be favorable because of an offset … elsewhere does not excuse the Commission from making emissions estimates … Sierra Club hardly suggests that downstream emission are an indirect effect of a project only when the project’s entire purpose is to be burned at specifically identified destinations” (internal citations omitted).[42]

Alternatively, the Commission suggested that it was not required to assess downstream emissions because FERC could not be considered a ‘legally relevant cause’ of such emissions due to its lack of jurisdiction over any entity but the pipeline applicant. This argument was premised on the Supreme Court’s ruling in Department of Transportation v. Public Citizen, which held that an agency has no obligation to gather or consider environmental information for NEPA review if it has no statutory authority to act on that information or adopt a course of action that could prevent or otherwise impact the environmental effects.[43] The D.C. Circuit rejected FERC’s assertion, clarifying that in the pipeline certification context the Commission does have statutory authority to act.[44] Congress instructed FERC to consider ‘the public convenience and necessity’ when evaluating applications to construct and operate interstate pipelines.[45] Because the Commission may deny a pipeline certificate on the ground that it would be too harmful to the environment, the agency is a ‘legally relevant cause’ of the direct and indirect environmental effects of pipelines it approves.[46] Accordingly, “NEPA also requires the Commission to at least attempt to obtain the information necessary to fulfill its statutory responsibilities.”[47]

Shortly after the DC Circuit’s decision in Birckhead, on June 21, 2019, CEQ issued its Draft Guidance, which sought to narrow the scope of federal agencies’ responsibility to analyze GHG emissions as part of the NEPA review process.[48] The Draft Guidance acknowledges that GHG emissions with reasonably foreseeable indirect effects should be addressed during the NEPA review process. However, CEQ states that emissions only are reasonably foreseeable when a sufficiently close causal relationship exists between the proposed action and the effect, noting that a “but for” causal relationship is not sufficient.[49] The Draft Guidance also provides that agencies should try to quantify the projected direct and reasonably foreseeable indirect GHG emissions of a proposed action only when those emissions are “substantial enough to warrant quantification” and can be practically quantified.[50] Though the Draft Guidance does not provide context for what is meant by “substantial enough to warrant quantification,” nevertheless 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.[51] Similarly, FERC has cited inadequate causal ties, unavailability of information, and speculative assumptions as barriers to conducting GHG analysis and quantification in pipeline certification matters.[52] The Draft Guidance also instructs agencies not to apply the “Social Cost of Carbon” or similar formulas,[53] citing reasons the Commission relied on in declining to apply this methodology in making certification decisions.[54]

Industry groups have expressed support for CEQ’s Draft Guidance, hoping that it will clarify and streamline FERC’s natural gas project review process.[55] However, the CEQ’s Draft Guidance is not an agency promulgated rule, and therefore is not binding. Moreover, the Draft Guidance is inconsistent with the D.C. Circuit’s Sierra Club and Birckhead opinions, which have placed the onus on FERC to gather information regarding upstream production and downstream use of natural gas, to analyze that information to make project-by-project determinations of reasonable foreseeability, and to quantify the resulting project emissions. Given that the D.C. Circuit has rejected FERC’s attempts to avoid or minimize the quantification step, it seems unlikely that the court would now accept the Commission’s approach because of its articulation in CEQ’s Draft Guidance.

[1] FERC orders and administrative actions from 2018 discussed in this article were decided when FERC had five commissioners, three Republican and two Democratic appointees, who voted along party lines.

[2] Nominations to replace the late Commissioner McIntyre and the soon retiring Commissioner LaFleur are reportedly in the works, although none have been announced. See https://www.eenews.net/stories/1060753713.

[3] See https://www.eenews.net/stories/1060678703; https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/062819-pointing-finger-of-blame-at-ferc-dominion-pulls-120000-dt-d-gas-project.

[4] In the context of fossil fuel transport, such as via pipelines, emissions resulting from fossil fuel production are referred to as “upstream” and emissions resulting from the fuel’s end use are referred to as “downstream.” Not included in these terms are emissions occurring from the construction and operation of the pipeline itself.

[5] Birckhead, et al. v. FERC, 925 F.3d 510 (D.C. Cir. 2019).

[6] See https://www.eenews.net/stories/1060678703.

[7] 15 U.S.C. § 717f. Section 7(c) of the NGA requires that any person seeking to construct or operate a facility for the transportation of natural gas in interstate commerce must obtain a certificate of public convenience and necessity from FERC.

[8] The environmental review for natural gas projects is performed via the NEPA assessment process. NEPA requires that before taking a major action, an agency must take a "hard look" at the environmental consequences of the proposed action and disclose its analysis to the public. Agencies prepare detailed assessments of the environmental impact and alternatives either in an Environmental Assessment or Environmental Impact Statement. See https://ceq.doe.gov/.

[9] Tennessee Gas Pipeline Company, LLC, 163 FERC ¶ 61, 190 at p. 57 (June 12, 2018).

[10] Sierra Club at 1371 (citing 40 C.F.R. §§ 1502.16(b) and 1508.8).

[11] Id.

[12] Id. at 1373-74.

[13] Id. at 1374.

[14] Id. at 1379.

[15] Florida Southeast Connection, LLC; Transcontinental Gas Pipe Line Company, LLC; Sabal Trail Transmission, LLC, 162 FERC ¶ 61, 233 (2018). http://blogs2.law.columbia.edu/climate-change-litigation/wp-content/uploads/sites/16/case-documents/2018/20180314_docket-16-1329_order.pdf

[16] Estimates of annual downstream GHG emissions ranged from 8.36 “net” to 14.5 “gross” and 23 “full burn” million metric tons of carbon dioxide-equivalent units. Florida Southeast, LLC at pp. 22-24.

[17] The Commission labeled the “full burn” analysis as an “overestimate” because it assumed the SMP Project would transport natural gas at its full capacity around the clock for combustion without displacing any other source, despite explaining that pipelines only operate at full capacity during limited periods of full demand. Florida Southeast Connection, LLC; at pp. 22-24.

[18] Florida Southeast Connection, LLC at p. 14.

[19] The Social Cost of Carbon is a metric designed to quantify and monetize climate damages, representing the net economic cost of carbon dioxide emissions. See https://costofcarbon.org/. The Interagency Working Group on the Social Cost of Greenhouse Gases, which developed the methodology for the Social Cost of Carbon, was disbanded and the Social Cost of Carbon and its updates were withdrawn as no longer representative of governmental policy following the issuance by President Trump of Executive Order No. 13783, 82 Fed. Reg. 16093 (March 28, 2017).

[20] See Florida Southeast Connection, LLC at pp. 31-51, in which FERC explained that the Social Cost of Carbon tool is not meaningful to project decisions under the NGA, the Commission does not use monetized cost-benefit analysis for NEPA review, and that technical challenges hamper using the tool in the Commission’s proceedings.

[21] Under the “full burn” analysis, FERC found that the percentages would increase by 9.9% and 0.42%, respectively.

[22] See Florida Southeast Connection, LLC at pp. 26-29 (“the fact that one may view a number as large does not necessarily equate to its being significant”).

[23] Florida Southeast Connection at p. 58. Both dissenting Commissioners found the downstream emissions to be significant, and that a more transparent assessment was needed.

[24] Dominion Transmission, Inc., 163 FERC ¶ 61, 128 at p. 41, (May 18, 2018). Dominion’s New Market Project included the construction of new compressor stations, upgrade of existing compressor stations, and upgrade and modification of a meter and regulating station.

[25] Dominion Transmission, Inc. at p. 41 (referencing NEPA analysis done for matters that were assessed between the Sierra Club decision and the Dominion Transmission order).

[26] Dominion Transmission, Inc. at p. 62.

[27] Id.

[28] Id.

[29] Id. at p. 63.

[30] Dominion Transmission, Inc., Commissioner LaFleur, dissenting in part at pp. 3-5, and Commissioner Glick, dissenting in part at pp. 2-4, both finding that requesting the information from applicants falls within “best efforts” required by NEPA.

[31] Although downstream emissions were calculated in both of these matters, the Commission ultimately decided that downstream consumption of natural gas is an activity that is attenuated and not reasonably foreseeable. Mountain Valley Pipeline, LLC; Equitrans, L.P., 163 FERC ¶ 61, 197 (June 15, 2018); and PennEast Pipeline Company, LLC, 164 FERC ¶ 61, 098 (August 10, 2018). Challenges in the D.C. Circuit to FERC’s position on the scope of evaluating GHG emissions and climate impacts were summarily dismissed in Mountain Valley. The Court found FERC’s analysis was sufficient in that it had provided an upper bound GHG emissions estimate sufficient for NEPA purposes. Appalachian Voices, et. al. v. FERC, No. 17-1271 (D.C. Cir. 2019). The PennEast case is still pending before the court.

[32] Birckhead et al. v. FERC, 925 F.3d 510 (D.C. Cir. 2019); FERC acknowledged this requirement during oral argument at 25:48 – 26:27 in Otsego 2000 a companion case heard the same day. However, the Court dismissed the Otsego 2000 case in an unpublished opinion, finding it lacked jurisdiction due to plaintiffs’ failure to establish Article III standing. Otsego 2000’s request for reconsideration of its standing was denied by the Court on July 22, 2019. Otsego 2000, et al. v. FERC (No. 18-1188) (D.C. Cir. 2019).

[33] While critical of the Commission’s narrow stance on analyzing GHG emissions, the court found that the plaintiffs had failed to raise the inadequate “record development” issue in the proceedings before the Commission. Accordingly, the court ruled that it lacked jurisdiction to decide whether the Commission had acted arbitrarily or capriciously, or unreasonably in declining to evaluate downstream emissions. Birckhead at pp. 520-21 (citing 15 U.S.C. §717r(b)). Petitioners have filed for rehearing, asserting that the Court’s ruling contradicts the Sierra Club ruling and that, as Sierra Club was decided after FERC’s initial review of the matter, the record development issue had been raised at the appropriate juncture, even if not done so during proceedings before the Commission. Petition for Rehearing and Rehearing En Banc, Birckhead (No. 18-1218) (Filed July 19, 2019).

[34] Birckhead at p. 517; Tennessee Gas Pipeline Company, LLC, 163 FERC ¶ 61, 190 at p. 59 (June 12, 2018) (Order Denying Rehearing and Dismissing Clarification on Broad Run Expansion Project).

[35] Birckhead at p. 517.

[36] See Birckhead at p. 517; see also Tennessee Gas Pipeline Company, LLC at pp. 58-60 (opining that while the shipper might contract with a specific producer for its gas supply, the shipper would not know the source of the producer’s gas as producers are not required to dedicate supplies to a particular shipper, and thus likely will not know in advance the exact source of production).

[37] Tennessee Gas Pipeline Company, LLC at p. 59.

[38] Birckhead at p. 518.

[39] Id at p. 518.

[40] Id. at p. 518; see also Tennessee Gas Pipeline Company, LLC at pp. 61-62.

[41] Birckhead at p. 518.

[42] Id. at pp. 518-19. Nonetheless, the court also clarified its view that the petitioner’s claim that emissions from downstream gas combustion are as a categorical matter always a reasonably foreseeable indirect effect of a pipeline project went too far. Id. at p. 519.

[43] See Department of Transportation v. Public Citizen, 541 U.S. 752, 767-68 (2004).

[44] Birckhead at p. 519 (citing Sierra Club at p. 1372).

[45] Id.

[46] The court found FERC to be a ‘legally relevant cause’ even where the agency lacked jurisdiction over the producer or distributor of the natural gas transported by the pipeline. Id. at p. 519, Sierra Club at p. 1373; but see Sierra Club at pp. 1381-83, Brown, Cir. J. concurring in part and dissenting in part, finding that the Commission should not be considered a ‘legally relevant cause’ of emissions because no power plant to which gas was being supplied could be built or expanded—and consequently change GHG emissions—without obtaining certification from a separate regulatory entity, which in Sierra Club was the Florida Power Plant Siting Board. Judge Brown also noted that nothing in the text of the NGA empowers the Commission to entirely deny the issuance of a certificate based solely on an adverse indirect environmental effect regulated by another agency.

[47] The Court noted that it was troubled by the Commission’s attempt to justify its decisions based on a lack of information, where it had made no effort to obtain the missing information. Birckhead at p. 520. Further, during oral argument, counsel for the Tennessee Gas Pipeline Company conceded that had it been asked to provide information pertinent to the emissions analysis as part of the application process, it would have sought that information from the shipper: “When the regulator asks us questions…we generally answer them as promptly as possible and as completely as possible.” Birckhead Oral Arg. Rec. 43:01-08.

[48] Council on Environmental Quality, Draft National Environmental Policy Act Guidance on Consideration of Greenhouse Gas Emissions, 84 Fed. Reg. 30097 (June 26, 2019).

[49] A simple “but for” causation test asks whether: “but for” the existence of X, would Y have occurred? If the answer is yes, then X is an actual (“but for”) cause of Y. The Draft Guidance does not explain what constitutes a sufficiently close causal relationship in this context.

[50] See Draft Guidance at 30097.

[51] Id.

[52] See Tennessee Gas Pipeline Company, LLC, 163 FERC ¶ 61, 190 at pp. 58-62 (June 12, 2018) (noting lack of causal relationship between pipeline project and emissions, lack of information to calculate emissions, and the overly speculative nature of any attempts to quantify those emissions); see also Dominion Transmission, Inc. at p. 41 (noting that while FERC had analyzed emissions in the matter, the analysis was generic and inherently speculative).

[53] See Draft Guidance at 30098-99.

[54] See Florida Southeast Connection, LLC at pp. 31-51.

[55] See https://www.eenews.net/stories/1060709271; https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/062419-white-house-guidance-gets-early-welcome-from-industry-as-possible-lift-for-natural-gas-projects.