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The US Federal Energy Regulatory Commission (FERC) waded
forcefully into the GHG emissions arena with two policy statements
on 17 February that increase the agency's review of the climate
impact of new natural gas pipeline projects.
The new policies take effect immediately and will be
incorporated into reviews of applications pending before FERC and
all new applications, said Chairman Richard Glick, who added they
reflect both the greater urgency of addressing climate change and
federal court decisions that said FERC's prior permit reviews did
not take into account a sufficient range of factors. Glick called
the new guidance "long overdue [incorporation of] ... all
stakeholder concerns and interests."
The first document is an update of a "1999 Policy Guidance" in which FERC is
expanding the criteria to decide if a project meets the standard of
"public convenience and necessity" for approval. Under the prior
policy, if a project had contracts in hand for most of its
capacity, known as a "precedent agreement," it was deemed to have
met the public convenience and necessity standard for approval.
Now, FERC will consider the environmental impacts of climate
change, environmental justice, and effects on competition with
other energy resources, non-economic impacts to landowners, and
other factors in a "holistic" approach.
FERC warned that environmental impacts will be studied closely.
"Should we deem an applicant's proposed mitigation of impacts
inadequate to enable us to reach a public interest determination,
we may condition the certificate to require additional mitigation,"
FERC said in the guidance.
FERC for the first time defines any project with 100,000 metric
tons (mt)/year of CO2-equivalent emissions as "significant impact
on climate change." Any project exceeding this threshold will have
to undergo an environmental impact statement (EIS). That EIS will
include a weighting of the impact of increased GHG emissions caused
by the project as part of its public need assessment. The interim
rules are open for a comment period through 4 April, even though
they are now in effect.
This guidance marks a change from FERC's prior practice. For the
last several years, FERC has been calculating the downstream
emissions as part of its permit review, such as from a power plant
or for home heating, but in every case it had stated it "could not
reasonably foresee" what the effect might be on climate.
FERC's role in pipeline permitting
The commission issues permits for all new construction and
modifications to interstate gas transmission pipelines in the US
(those that cross the boundary from one state to another). More
than 320,000 miles of these lines are operating in the US. FERC
also issues permits for all applications for LNG facilities.
According to the US Energy Information Administration
(EIA), applications for nearly 13 billion cubic feet per day
(Bcf/d) of gas pipelines and LNG projects are sitting in FERC's
in-tray and would be affected by the new rules. For 2021, the US
averaged 82.9 Bcf/d of gas use, plus net exports of gas and LNG of
10.5 Bcf/d.
"FERC's new policy is highly likely to slow down the permitting
process," predicted Matt Palmer, S&P Global Commodity Insights
research and analysis director, global gas. "It's worth noting that
for the past two years IHS Markit's long-term view for North
America has not included any significant new interstate pipelines
after a much-delayed Mountain Valley Pipeline. The cost overruns
from litigation at every step in the process have made it extremely
difficult for new pipelines to get constructed."
The EIA reported in February that the US added 7.4 Bcf/d of new pipeline
capacity in 2021, the lowest volume since 2016.
New policies
Looking more closely at the two new policy statements, the
update of the 1999 Guidance adds criteria used under the Natural
Gas Act (NGA) to consider if a project is needed, beyond the
precedent agreements.
This is potentially a significant change to a process in which
projects were almost never rejected. The Delaware Riverkeeper
Network, which has opposed several pipelines in the eastern US,
studied FERC's record for 1990 through 2020 and found that only two
projects were rejected under the public convenience and necessity
standard, Delaware Riverkeeper Maya van Rossum told Net-Zero
Business Daily.
With the weighting of other factors in the decision, developers
will be expected to provide information on demand projections for
gas and potential cost savings to customers. FERC said it will
"look for information about the intended end use of gas to help
explain why a project is needed," potentially challenging a
pipeline for a gas-fired power plant that competes with renewable
energy.
"It is good to see FERC raising up environmental justice impacts
in its review process and that it seems to be opening the door to
considering the induced gas extractions operations that feed the
pipeline infrastructure it is approving," van Rossum said.
The Interim Greenhouse Gas Emissions Policy Statement
is entirely new. As noted, it sets a threshold of 100,000 mt of
CO2e emissions per year under which a pipeline would have to go
through an EIS. FERC estimates that any project that adds at least
5,200 dekatherms/day of capacity will hit the trigger point.
That's an extremely low threshold, said Michael Krancer, former
secretary of the Pennsylvania Department of Environmental
Protection, and principal of energy consulting firm Silent Majority
Strategies. "This is all about controlling GHGs … just what the
nongovernmental organizations wanted all the time," he told
Net-Zero Business Daily. "It will impact any project
important enough to be relevant for energy independence."
Attorneys for Texas-based law firm Vinson & Elkins said the
new guidance signals a new "balancing test" of a project's merits
and impact. FERC "encourages" pipeline developers to offer GHG
mitigation measures that are "real and additional" in their
application, the law firm noted.
Initial reaction
Environmental and public interest groups, which have appealed
scores of projects and litigated against dozens of pipelines in the
last five years, were pleased with the guidance. "These are changes
both demanded by the courts and long overdue. FERC will now need to
follow through and permanently establish a meaningful climate test
for pipelines," said the Natural Resources Defense Council.
And US House of Representatives Energy and Commerce Committee
Chairman Frank Pallone, Democrat-New Jersey, signaled his support
as well. "I applaud FERC for taking these necessary and
long-overdue actions to ensure that climate change and
environmental justice are core considerations of its natural gas
infrastructure certification process. The courts have repeatedly
instructed FERC to take greenhouse gas pollution into account when
deciding whether new gas infrastructure is in the public interest,"
Pallone said.
In contrast, the initial reaction from the oil and gas industry
to the new rules has been negative, as trade groups said that they
will make a lengthy and costly process even worse. They tied the
need for gas infrastructure to reliability of both gas deliveries
to homes and power plants.
"FERC's actions […] unfortunately insert more uncertainty into
the process and will only add more delays on top of an already
overly bureaucratic process that is hampering the vital pipeline
and other energy infrastructure needed to deliver and export
natural gas, which is the leading reason the US has reduced
emissions to generational lows," said American Petroleum Institute
(API) Vice President of Midstream Policy Robin Rorick in a
statement.
Dena Wiggins, CEO of the Natural Gas Supply Association, said
the impact could be substantial. "The orders … represent a major
overhaul in the way FERC intends to analyze pipeline certificate
applications," she said. "We are very concerned that these
revisions will have a chilling immediate effect on pending and
future projects."
For years, the energy industry has been frustrated by the slow
pace of review. A federal study a decade ago found that permitting
took an average of 558 days. The Interstate Natural Gas Association
of America (INGAA) studied the issue more recently and found
that a project typically takes more than a year to complete the
review process, though some of that delay can be attributed to
other federal and state agencies that also have a hand in the
review missing their deadlines to provide analysis to FERC.
Divided FERC, angry Congress, concerned
industry
The new policy statements were approved by 3-2 votes, with the
two FERC Republican commissioners opposing them, and the three
Democrats voting in favor.
During the 17 February open meeting at
which the new policies were discussed, Republican Commissioner
James Danly said Congress has stated through the NGA that FERC's
mission is to "encourage the orderly development of plentiful
supplies of ... natural gas at reasonable prices." This means that
the sale of gas in the interstate market is in the public interest,
he said.
By linking a permit decision to the emissions of a project,
Danly said FERC is violating that law by implicitly saying natural
gas is harmful. Danly and fellow Republican Mark Christie said
during the open meeting and in written dissents that FERC does not
have the authority to deny a pipeline certificate based on
emissions of the use of the gas.
Whether or not the emissions are seen as harmful, S&P
Global's Palmer said the new rules add complexity. "In particular,
how downstream GHG emissions from a pipeline are calculated is
going to be difficult, given that the destination and use of
natural gas over the duration of its lifetime is not knowable," he
said.
Despite the complexities of determining GHG emissions, the
Democrats at FERC said that US federal courts since 2017 have
repeatedly told the agency it must try to do so. Glick observed
that in 2021 the US Circuit Court for the District of Columbia
disagreed with FERC's conclusion on a pipeline that "it is not
currently possible to determine localized or regional impacts from
[greenhouse gas] emissions from the project" (Vecinos Para el
Bienestar de la Comunidad Costera, et al., v. FERC).
That ruling hearkens back to the so-called "Sabal
Trail" decision in 2017 (Sierra Club v. FERC), when
the US Court of Appeals for the District of Columbia ruled that
FERC did not take the required "hard look" at the environmental
impact of the Sabal Trail Pipeline project in Florida. The
1.1-Bcf/d pipeline was proposed for a new gas-fired power plant
that replaced a coal plant.
The court vacated the project's permit in August 2017—even
though the Sabal Trail project had started to operate—because
FERC failed to study the GHG impacts of downstream gas
combustion.
In February 2018, FERC reissued the permit with a calculation
that the Sabal Trail project would result in a net addition of up
to 8.4 million mt/year of CO2-e, or 9.7% of Florida's annual
emissions. However, in reissuing the permit FERC said that the
increase in emissions "would have no significant environmental
impact," and the court accepted that decision.
In the wake of Sabal Trail, the Republican majority on
the commission interpreted the court's decision as requiring it to
quantify the downstream emissions caused by the gas from the
pipeline, but not requiring it to investigate the impact of those
emissions. This led to a split on more than 30 permit applications
over the past few years, with Democratic appointees Glick and
Cheryl LaFleur dissenting repeatedly on the grounds that counting
the projected emissions but not assessing if they have an impact is
not taking a genuine "hard look" at the environmental impact as
required under the National Energy Policy Act (NEPA).
Sabal Trail also led to FERC opening its 1999 Policy
Statement in 2018 and the eventual issuance of the updated guidance
last month. Although Commissioner Glick is confident the new rules
will avoid litigation, Christie claims the impact will be the
opposite. He argued that the new review standards are so vague that
they will lead to more, not less, litigation.
More criticism
The new rules also brought criticism from members of Congress,
with West Virginia Democrat Senator Joe Manchin calling them
"reckless" and "putting the security of our nation at risk."
The US Senate Energy and Natural
Resources Committee, which is chaired by Manchin, will hold a
hearing on 3 March for all five members of the commission to speak
about the need for and impact of the new policies.
Trade groups made the case that the policies can actually
interfere with US efforts to reduce GHG emissions. Natural gas is a
low-carbon tool that helps the US meet environmental goals, as well
as contributes to energy security. The American Gas Association
(AGA) pointed out that from 2005 through 2019, natural gas methane
emissions have dropped by 14%, while production has increased by
50%, enabling the closure of coal-fired power plants and propelling
a 12% reduction in overall US GHG emissions.
"FERC's actions today could hinder the ability of utilities and
customers, including electric generators, to obtain the natural gas
they need to meet their responsibility to serve customers
affordably and reliably. These policy changes could also lead to
further delays in the review process, which could impact system
resilience and incumber the delivery of low-carbon fuels such as
renewable natural gas and hydrogen using the natural gas delivery
system," said AGA President and CEO Karen Harbert.
Legal challenges?
There are several potential avenues for opponents of the rules
to challenge them in court, said energy attorney Krancer. In his
opinion, the argument by Republican commissioners that FERC might
be overstepping its NGA authority is legitimate. "FERC is giving
itself discretion to say that a project's carbon impact is too big,
so it will not approve it. Whether it should have that discretion
should be decided by Congress, not by the regulatory agency
itself," he said. "There's a chance that will be litigated … and a
chance it could be struck down by the Supreme Court."
Commissioner Christie said the retroactive use of new standards
could violate due process rights for developers.
INGAA raised another legal issue by calling the 100,000-mt
emissions threshold "arbitrary," despite FERC pointing out that
it's the emissions limit that the US Environmental Protection
Agency uses in its review process. The trade group also pointed out
that while FERC "suggests that developers may be required to
mitigate the effects of emissions created by downstream natural gas
consumption," it provides no information on how much mitigation
would be needed nor be proven in an application. INGAA did not
respond to a request for comment on whether it will challenge the
regulation in court.
To be sure, the new policy statements are not the end of the
story. One rule is interim and could be changed. Either rule could
be litigated. And a major factor in the Biden administration's
climate toolbox—the social cost of carbon (SCC)—isn't even
yet part of the FERC's pipeline review.
At the open meeting in February, Glick said FERC did not include
use of SCC to measure downstream emissions' impacts because a
federal court in Louisiana had ruled that the Biden administration
cannot raise the SCC from the current level of $7/mt. The EPA has
been expected to increase the SCC to at least $51/mt, where it was
under President Obama, but Glick said that plan is on hold while
the government appeals the court ruling. When that dispute is
resolved, Glick said FERC will revisit use of SCC in permit
analysis.
Environmental activists—who want to see the new rules
stick—also expect challenges. "That is why we need Congress to
step in with clear mandates and reforms that will ensure climate
change, environmental justice, and shale gas extraction impacts are
mandated high priority considerations," van Rossum said.