On August 3, 2021, the U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit) rejected the Federal Energy Regulatory Commission’s (FERC) environmental analysis of a group of Liquified Natural Gas (LNG) pipeline and export facilities near Brownsville, Texas, concluding that FERC had failed to adequately analyze both the greenhouse gas emissions (GHG) associated with the facilities and their impacts on minority and low-income communities. Vecinos Para el Bienestar de la Comunidad Costera v. FERC, 2021 WL 3354747 (D.C. Cir. Aug. 3, 2021). Although the Court ultimately declined to vacate FERC’s certificates for the LNG facilities, the decision illustrates the necessity of carefully evaluating GHG, Environmental Justice (EJ), and other environmental issues early in the permitting process to avoid delays and the danger of having project permits vacated on appeal.

Key Takeaways

• Construing regulations that require agencies to use accepted scientific methods when evaluating the difficult-to-assess environmental impacts of a proposed project, the Court concluded that FERC is required to use the Social Cost of Carbon or some other method to evaluate the GHG impacts of a project, rejecting FERC’s contention that it lacked the analytical tools to evaluate the discrete impacts of GHG emissions associated with a specific project.

• The Court rejected FERC’s EJ analysis because it considered impacts only in poor and minority communities in census tracts within two miles of the proposed facilities, while its analysis demonstrated that the projects could cause air pollution impacts up to 31 miles from the projects.

• Despite rejecting FERC’s environmental analysis, the Court declined to vacate FERC’s permits for the projects, concluding that FERC is likely to be able to remedy its errors in remand proceedings without having to vacate its permits and that the project sponsors would be unable to proceed with financing if the permits were invalidated.

• The case illustrates the importance of carefully analyzing the GHG and EJ impacts of a proposed project in the process required under the National Environmental Policy Act (NEPA). Flaws in the analysis expose projects to litigation risks, including delays and the possibility that the court could vacate permits. This is especially true now given that the Biden Administration has revived the use of the Social Cost of Carbon as an analytical tool and has adopted Executive Orders making GHG reductions and EJ central policies of the federal government.

Discussion

Under Section 7 of the Natural Gas Act, a company proposing to construct a natural gas pipeline must obtain a certificate of public convenience and necessity from FERC. Similarly, LNG export facilities must obtain federal approval, which includes a FERC certificate of public convenience and necessity. Because issuing these permits is a “major federal action,” FERC must analyze the proposed projects’ environmental impacts under NEPA.

FERC has struggled to develop a method of evaluating the impacts of GHG emissions associated with gas pipeline projects, especially the impacts of “downstream” emissions created by end-users who burn gas transported through the pipelines. In the orders at issue in this case, FERC concluded that the LNG projects would, in combination with past and future GHG emissions from other sources, “increase the atmospheric concentration of GHGs.” But FERC concluded that it could not determine the significance of the projects’ “contribution to climate change” because “there is no universally accepted methodology to attribute discrete, quantifiable, physical effects on the environment to [the] Project’s incremental contribution to GHG” emissions, which means “it is not currently possible to determine localized or regional impacts from GHG emissions” from the projects. 

Project opponents challenged this conclusion in the Court of Appeals, relying on 40 CFR § 1502.21(c), which requires that, if “information relevant to reasonably foreseeable significant adverse impacts cannot be obtained” because “the means to obtain it are not known, the agency shall include within the environmental impact statement . . . [t]he agency’s evaluation of such impacts based upon theoretical approaches or research methods generally accepted in the scientific community.” This regulation, the opponents claimed, requires FERC to use the Social Cost of Carbon to assess the GHG impacts of the projects. The Social Cost of Carbon is a methodology originally developed in the Obama Administration, recently revived by the Biden Administration, which assigns a dollars-per-ton cost to GHG emissions based on the anticipated impacts of those emissions.

The D.C. Circuit largely sided with the opponents, concluding that this regulation “appears applicable on its face” and requires FERC to address the opponents’ arguments that the regulation requires FERC to apply the Social Cost of Carbon in evaluating the GHG impacts of natural gas transmission and export facilities. Because FERC failed to address the project opponents’ arguments on this score the Court rejected FERC’s analysis and ordered FERC on remand either to apply the Social Cost of Carbon metric in a revised environmental analysis of the projects, apply some other metric, or explain why the Social Cost Carbon is not an approach “generally accepted in the scientific community” under the NEPA regulations.

While the D.C. Circuit’s decision does not necessarily require the use of Social Cost of Carbon analysis, it is likely that FERC will adopt that analysis in response to Biden Administration Executive Orders on the subject or that future project opponents will seize on this if FERC demurs. The current Social Cost of Carbon is approximately $50 per ton, but that number is expected to increase significantly when the Biden Administration completes its review and updates the Social Cost of Carbon analysis over the next few months. This latest decision may also bolster soon-expected federal recommendations for agencies to expand use of the Social Cost of Carbon beyond rulemaking actions to also encompass individual project reviews, and new federal guidance on consideration of GHGs in NEPA analysis. Because of the substantial costs associated with GHG emissions, use of the Social Cost of Carbon is likely to weigh heavily against pipelines in FERC’s public interest analysis under the Natural Gas Act, at least if the pipeline fails to demonstrate that the gas it proposes to transport would reduce overall GHG emissions by, for example, displacing GHG-intensive electric generation or providing low-GHG alternatives to transportation fuels.

The D.C. Circuit likewise rejected FERC’s analysis of EJ impacts on low-income and minority communities in the vicinity of the LNG projects. FERC reviewed these EJ impacts and concluded that the projects “would not have disproportionate adverse effects on minority and low-income residents in the area.” But FERC limited its analysis to communities in census tracts within two miles of project facilities. The D.C. Circuit concluded that this limitation was arbitrary given that FERC concluded that impacts on, for example, air quality, could occur as much as 31 miles from project facilities. The Court therefore ordered FERC on remand to revise its EJ analysis so that it aligns with the predicted impacts of the projects and either revise its analysis or explain why its conclusion that no significant EJ impacts would occur remains valid when all environmental impacts are taken into account.

Because FERC did not properly analyze either the GHG or EJ impacts of the proposed facilities, the Court found, its conclusion that the projects are consistent with the public interest under the Natural Gas Act must also be revisited on remand. Nonetheless, the Court concluded, it would not vacate FERC’s certificates for the projects, finding that FERC will likely be able to remedy the defects in its orders on remand without revoking the certificates and that revocation would undermine the ability of project sponsors to finance the projects. 

Conclusion 

In recent years, a politically divided FERC has struggled to develop a method for evaluating the climate impacts of proposed natural gas facilities that can consistently pass muster with the Courts of Appeal, especially with respect to the downstream emissions associated with these facilities. Recent court decisions have compelled agencies to at least quantify such GHG emissions. Other decisions, including the D.C. Circuit’s latest decision, further call for quantification of climate impacts from such emissions, an increasingly speculative task at a level of a single project. This latest court decision suggests that FERC is more likely to adopt the Social Cost of Carbon metric for evaluating future pipeline proposals. At a minimum, FERC will need a more robust rationale for declining to do so. If FERC in fact requires Social Cost of Carbon analyses for individual projects, project proponents must be prepared to address the Social Cost of Carbon analysis and to demonstrate either that the benefits of their projects outweigh the discrete GHG impacts calculated using the Social Cost metric, that their projects will ameliorate GHG impacts from GHG emissions sources that are displaced by the project, or both.