Washington Watch: New FERC Policies for Pending Pipeline Applications
Exploring the Impact of Emissions on Project Approval
Under the Natural Gas Act (NGA), the Federal Energy Regulatory Commission (FERC) must approve the construction of new interstate natural gas facilities and the siting of liquefied natural gas (LNG) export facilities. In February, FERC issued 1.) an Updated Policy Statement on new pipeline facilities and 2.) an Interim GHG Policy Statement on consideration of greenhouse gas (GHG) emissions in natural gas infrastructure projects. Together, these policies provide a framework for how FERC will consider applications for new pipeline and LNG facilities. Both are in effect and apply to all future applications, as well as all currently pending applications. This column explains the genesis of the policies, describes them, and frames the issues they are meant to address.
“I never had a policy; I have just tried to do my very best each and every day.” — Abraham Lincoln
Background
For two decades, FERC relied on a process outlined in a 1999 “Policy Statement” to determine whether to authorize new pipeline and LNG facilities. Since then, the shale revolution produced abundant supplies of natural gas, leading the electric industry to rely on natural gas to fuel electric generation projects, with surplus supplies liquefied at marine terminals and shipped to international markets. Applications for new pipeline and LNG projects increased, but were met with stiff resistance from advocates for additional environmental analysis to address climate change, such as quantifying GHG emissions both upstream and downstream of the pipeline project. Several courts agreed, reversing and/or remanding certificate orders and directing FERC to address environmental issues, rather than sidestepping them.
Updated Policy Statement
The Updated Policy Statement outlines how FERC determines whether a proposed project is needed and, if so, whether the project is in the public interest by balancing its benefits against adverse impacts. Evidence of precedent agreements (i.e., agreements to execute a transportation service agreement, if authorization is issued) may not be sufficient to establish the “need” for a project. Now applicants are encouraged to provide additional details involving any precedent agreements (e.g., whether a they are in response to a distributor’s or generator’s request for proposals), as well as specific information involving how the transported gas would be used, why the proposed project is needed to serve that use, and the project’s anticipated utilization rate. In essence, FERC has increased the burden to show “need,” and, if that burden is not met, the application will be denied.
If “need” is established, FERC will consider four major interests that may be adversely affected by the construction and operation of new projects, specifically whether the applicant established that:
Existing customers will not subsidize the project;
- A project will not lead to existing pipelines’ losing market share and, in turn, captive customers being forced to pay for any resulting unsubscribed capacity in their rates;
- Environmental impacts have been avoided and mitigation measures proposed; FERC will assess the project’s impact on climate change.
- Pipelines worked with landowners and surrounding communities to minimize the use of eminent domain and engage with all interested landowners affected by the project; FERC will analyze cumulative pipeline impacts and proposed mitigation measures to ensure that environmental justice “is not merely a box to be checked.”
- “The more interests adversely affected or the more adverse impact a project would have on a particular interest, the greater the showing of public benefits from the project required to balance the adverse impact.” Stated differently, FERC may deny an application because of any of these four adverse impacts.
Interim GHG Policy Statement
The Interim GHG Policy Statement outlines FERC’s approach for considering GHG emissions attributable to a proposed pipeline or LNG facility. Specifically, the policy statement explains how FERC will assess the impacts of natural gas infrastructure projects on climate change in its reviews under the National Environmental Policy Act (NEPA) and the NGA. To expedite things, FERC is making the policy statement effective now, while also seeking comments on all aspects of the policy statement, including, in particular, the approach to assessing the significance of the proposed project’s contribution to climate change.
Under the interim policy statement, FERC will quantify a project’s GHG emissions that are “reasonably foreseeable and have a reasonably close causal relationship to the proposed action,” including emissions from the construction and operation of the project and the downstream combustion of transported gas, and estimate a project’s GHG emissions based on a projection of what amount of project capacity will be actually used (projected utilization rate), as opposed to assuming 100 percent utilization. Specifically,
FERC will consider:
- Direct emissions of a project (pipeline or export facility) to be a reasonably foreseeable effect;
- On a case-by-case basis whether upstream or downstream emissions are a reasonably foreseeable effect of an interstate project;
- An export facility not to be the cause of upstream and downstream emissions.
- If the proposed project may result in 100,000 metric tons of carbon dioxide per year, FERC staff will prepare a detailed environmental impact statement (as opposed to the more streamlined environmental analysis) to satisfy NEPA obligations.
Mitigation
FERC claims that it has broad authority to require mitigation of GHG emissions by a project sponsor, but is not mandating any particular form of mitigation, instead urging the sponsor to propose tailored mechanisms to achieve real, verifiable and measurable reductions in GHG emissions. Thus, FERC states that the mitigation measures should be real and additional, quantifiable, unencumbered and trackable.
Conclusion
Both the Updated Policy Statement and Interim GHG Policy Statement are currently in effect, which means all pending applications must be considered under the new policies. This will likely require a significant number of interstate pipeline and LNG siting applications, which have already undergone detailed environmental analyses, to be supplemented with additional facts, additional notice issued, and then further analyzed in order to comply with the policies. Supporters argue that the delays are necessary to comply with court-required analyses, while others complain that the delays will frustrate distributors and electric generators from obtaining natural gas supplies critical to satisfying their customers’ needs. Expect parties to seek clarification of the new policies, with individual pipeline projects challenging application of the new policies on rehearing, then in court. This could take years to play out.
At bottom, the policy statements represent the tension between two legitimate concerns: 1.) FERC should only authorize infrastructure projects that comply with the law, and 2.) legal standards should allow new infrastructure projects to developed, and the developers should be able to rely on FERC’s infrastructure orders withstanding judicial review. Some believe that the Updated Policy Statement is really not much different from the prior certificate policy statement and that any updates and the Interim GHG Policy Statement were required by appellate courts to ensure FERC provides insufficient environmental analysis. Others believe that the policy statements simply memorialize a set of rules that will make it much harder for new pipelines to be built and LNG facilities to be sited. Time will tell.
On March 24, following criticism from the natural gas industry and some members of Congress, FERC suspended the Updated Policy Statement and the Interim GHG Policy Statement, designated each a “draft,” and decided to seek further public comments. As such, FERC will not apply either of the draft policies to pending project applications or applications filed before issuing final policy statements.
[EDITOR’S NOTE: The final paragraph was added after the March/April issue went to print.]
Tags: FERC, GHG Emissions, LNG, March April 2022 Print Issue, Natural Gas Act (NGA), Washington WatchWashington Watch is a regular report on the energy pipeline regulatory landscape. Steve Weiler is an attorney at Dorsey & Whitney LLC in Washington, D.C. Contact him at weiler.steve@dorsey.com.
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