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DC Circuit Rules that FERC Must Consider Global Warming in Approving New Natural Gas Pipelines

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Former Counsel
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by Timothy J. Sabo

The United States has one of the most extensive natural gas pipeline networks in the world.  This vast network enables the ongoing switch away from coal-fired generation and toward a renewables and natural gas-based electric system.  And it has allowed cheap natural gas produced by fracking to be used throughout the U.S.  Permitting natural gas pipelines is overseen by the Federal Energy Regulatory Commission (FERC), which under recent Republican and Democratic administrations, has followed a generally pro-infrastructure policy encouraging the development of new pipelines.

But a major new ruling may put a put a dent in this policy.  Last week, the D.C. Circuit ruled (2-1) that FERC must consider the global warming impact of the natural gas that travels through new pipelines, overturning a FERC order approving several related pipelines.  FERC’s Environmental Impact Statement (EIS) had considered the immediate impacts of the construction, but not the “downstream” impact of the carbon emissions from power plants burning the gas that traveled through the pipelines.  The Court explained that “[i]t’s not just the journey, though, it’s the destination,” and that the gas will go to new and existing power plants, “generating both electricity and carbon dioxide.”  The Court pointed to an administrative rule of the Council on Environmental Quality (CEQ), 40 C.F.R. 1502.16, that requires indirect effects be considered if they are “reasonably foreseeable.”

The court acknowledged that it had ruled—three times no less—that carbon emissions did not have to be considered in permitting Liquefied Natural Gas (LNG) terminals.   The court distinguished those cases, saying that FERC did not have the legal authority to consider emissions in the LNG cases.  In contrast, the Court said FERC has broad powers to balance the “public benefits against the adverse impacts,” and that since it could consider the negative impacts in its decision, it must consider those impacts in its EIS.

FERC also argued that there was no reliable way to determine the amount of emissions that would be caused by the pipelines.  The Court ruled that FERC either had to quantify the expected emissions or explain “more specifically why it could not have” quantified the emissions.  The court also endorsed a degree of guesstimating, noting that “some educated assumptions are inevitable.”

And while the court acknowledged that the pipelines may “make it possible for utilities to retire, dirtier, coal-fired plants,” it said that those benefits would also have to be estimated and weighed against the other impacts.

Judge Janice Rogers Brown dissented.  She would have applied the earlier LNG cases, which found that the ultimate carbon emissions did not have to be considered.  Judge Brown writes that the majority “blithely asserts it is ‘not just the journey,’” while in fact “NEPA is a procedural statute that is all about the journey.”  In essence, her dissent is about the classic legal issue of “causation,” and she notes that the Supreme Court has ruled “but for” causation is not enough to require an impact to be considered in an EIS.  Rather, she argues that “a reasonably close causal relationship,” similar to proximate causation in tort cases, is required.  Judge Brown writes that “the truth is that FERC has no control over whether the power plants that will emit these greenhouse gases will come into existence or remain in operation.”  She explains that new power plants in Florida can only be built if approved under the Florida Electrical Power Plant Siting Act, and it would be that approval, not the approval of the pipelines, that would be the legal cause of any emissions.

On a separate issue, in approving the pipelines, FERC also approved their initial rates, including the use of a hypothetical capital structure to decrease the rates.  FERC found that the return of equity of 14% was too high, but this could be balanced out be reducing the amount of equity in the capital structure.  The Court affirmed this part of the ruling, essentially saying that FERC can use a hypothetical capital structure to reduce, but not increase, rates.  That part of the ruling seems a bit one sided.

Given the current administration’s focus on infrastructure, the importance of the ruling, and the dissent, it seems likely that FERC will pursue further review, either at the D.C. Circuit (through an en banc i.e. a larger panel) or through the Supreme Court.

Following is a link to the D.C. Circuit Opinion in Sierra Club v. FERC$file/16-1329-1689670.pdf.