D.C. Circuit Significantly Expands the Scope of FERC Pipeline Reviews

Frederick M. Lowther and Frank L. Tamulonis III

In an abrupt departure from long-standing precedent, the D.C. Circuit ruled on August 22, 2017 that, in approving a natural gas pipeline project, the Federal Energy Regulatory Commission (“FERC”) failed to consider potential “downstream” greenhouse gas emissions from power plants burning natural gas supplied by the pipeline when preparing an environmental impact statement (“EIS”) pursuant to the National Environmental Policy Act (“NEPA”).

At issue in Sierra Club, et al. v. FERC, 2017 U .S. App. LEXIS 15911 (D.C. Cir. Aug. 22, 2017) was the Southeast Market Pipelines Project, a project that comprises three natural-gas pipelines in Alabama, Georgia, and Florida. The centerpiece of the Project is the Sabal Trail pipeline, a roughly 500 mile pipeline that will connect two other portions of the Project. The Project is designed to address Florida’s growing demand for natural gas and electricity. FERC prepared an EIS, and, on February 2, 2016, issued certificates approving the construction of the Project.

Environmental groups, led by the Sierra Club, appealed FERC’s approval. The Sierra Club argued, among other things, that FERC’s EIS failed to adequately consider the Project’s contribution to greenhouse gas emissions because it failed to consider the cumulative impacts of the project, including the “downstream” effects of the pipelines. Sierra Club argued that such impacts, referred to as “indirect environmental effects,” include a foreseeable increase in greenhouse gas emissions from the power plants utilizing natural gas transported by the pipelines. FERC disagreed, arguing that such indirect effects need not be considered pursuant to existing Supreme Court and D.C. Circuit precedent and for the additional reason that they are too speculative to accurately calculate. The Court sided with Sierra Club.

The Court first distinguished a series of D.C. Circuit cases that held that FERC need not evaluate the climate impacts of exporting natural gas when licensing upgrades to an LNG terminal. In those cases, the Court reasoned that because FERC had no legal authority to consider the environmental impacts of those exports, there was no NEPA obligation to consider those impacts. Here, the Court found those cases to be inapposite, concluding that FERC has legal authority to consider the impacts of downstream greenhouse gas emissions because FERC could deny pipeline certification on the ground that the pipeline is too harmful to the environment. Thus, a NEPA analysis requires that FERC consider such indirect environmental effects because FERC has the authority to mitigate such effects.

Notably, however, the Court did not hold that every downstream greenhouse gas emission must be considered, or that quantification of downstream greenhouse gas emissions was necessary in every instance. Rather, downstream impacts are limited to those that are “reasonably foreseeable.” If quantification of such indirect impacts is impossible or infeasible, such an analysis need not be undertaken so long as FERC provides a satisfactory explanation as to why quantification is not possible. Here, the Court concluded that “the EIS for the Southeast Market Pipelines Project should have either given a quantitative estimate of the downstream greenhouse emissions that will result from burning the natural gas that the pipelines will transport or explained more specifically why it could not have done so.” The Court vacated FERC’s approval orders and remanded for the preparation of a new EIS.

The Court’s decision raises two interesting questions. First, what is the impact of the decision on other pipeline projects pending FERC approval or already approved but pending rehearing? If one assumes that FERC sees the Court’s decision as generally applicable (as opposed to limited to the Southeast Market Pipelines matter), presumably FERC will conduct the additional analysis required in those proceedings. For matters that are pending approval (whether or not a Final Environmental Impact Statement [“FEIS”] has been issued), the approval process will likely be delayed to accommodate the additional analysis, which will then be reflected in the FEIS, or where an FEIS has already been issued, in the Final Order. For matters already approved but pending rehearing, FERC has the option of including the additional analysis in its Order on Rehearing (which, again, will likely delay the process).[1]

The second question relates to the fact that the Court vacated the FERC certificates for Southeast Market Pipelines. A portion of that series of projects has already been constructed and is operating. The Court did not address whether the operating pipelines must cease operations because the certificate has been vacated, leaving that issue for FERC to decide. While FERC could direct the pipelines to cease current operations, that is not likely (and, in this context, would be unprecedented). Nonetheless, one can expect that FERC will make explicit the authority of the operating pipelines to continue current operations pending reissuance (or denial) of final certificates.

Given the aggressive posture of the Sierra Club and its compatriot organizations in their drive against fossil fuels, it is not likely that Sierra Club v. FERC will be the final chapter. FERC must now address the dictates of the Court’s decision. How FERC does so, and how its analysis is reflected in the Southeast Market Pipelines and other pending cases, will likely be challenged.

[1] An example of a matter that is pending rehearing is the Atlantic Sunrise project (FERC Docket No. CP-15-138-000). In that case, Sierra Club is a party seeking rehearing and has raised the same issue in that proceeding as it raised in the Southeast Market Pipelines appeal. While it is possible that FERC could suspend the rehearing process and reopen the FEIS or Final Order, the more prudent approach would be to address the additional analysis in the Order on Rehearing.

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