On June 28, 2016, the U.S. Court of Appeals for the District of Columbia Circuit issued a pair of decisions upholding the Federal Energy Regulatory Commission’s (FERC) treatment of indirect and cumulative effects of greenhouse gas (GHG) emissions under the National Environmental Policy Act (NEPA) when the agency approved the construction and operation of enhanced liquid natural gas terminals at sites in Louisiana and Texas. These cases provide direct insight into the treatment of GHG emissions in NEPA analyses and are arguably more limited than Revised Draft Guidance issued in 2014 by the Council on Environmental Quality (CEQ). As explained in a previous Sidley Update, CEQ’s revised draft guidance would conceivably expand the scope of NEPA analyses of GHG emissions beyond what is permitted by NEPA or by CEQ’s implementing regulations in several key respects. In particular, CEQ’s arguably broad inclusion of upstream and downstream emissions associated with the extraction and ultimate combustion of fossil fuels is inconsistent with CEQ’s regulations and with well-established judicial precedent that a closer causal connection between an agency action and alleged environmental impacts. In contrast, the D.C. Circuit’s decisions are consistent with prior case law and provide further reason for CEQ to issue final guidance that clarifies the limits on an agency’s ability to evaluate upstream and downstream emissions when conducting a NEPA analysis.

In each case, the court rejected claims by the Sierra Club that NEPA obligated FERC to study the alleged impacts of extracting and processing additional gas that might be produced to satisfy additional international demand arising from greater export capacity. Also, the court rejected Sierra Club’s assertion that FERC should have included, as part of its cumulative effects analysis, a nationwide study of existing or proposed liquid natural gas export terminals. These rulings are important because they provide a further delineation for when so-called upstream and downstream effects can be excluded from analysis as indirect or cumulative impacts in a NEPA study, especially in the energy field.

The Natural Gas Act, FERC and the Department of Energy

In its decision in the Texas case, the D.C. Circuit appropriately observed: “Export authorizations for natural gas implicate a tangled web of regulatory processes.” Sierra Club v. FERC, (No. 14-1275, p. 3). Thus, the Department of Energy (DOE) has exclusive authority over the export of natural gas as a commodity, including the sole authority to make the public interest determination required for the export of domestic natural gas. 15 U.S.C. § 717b(a), 42 U.S.C. § 715(b). However, the Natural Gas Act gives FERC exclusive authority to approve or deny any application for the siting, construction, expansion or operation of any liquefied natural gas (LNG) terminal. 15 U.S.C. § 717b(e)(1). Although both agencies are subject to NEPA, Congress has designated FERC as the “lead agency” for purposes of complying with NEPA. 15 U.S.C. §717n(b)(1). DOE is a “cooperating agency” in this NEPA process, and has the option of adopting any NEPA document approved by FERC.

The Litigation

In Sierra Club v. FERC, (D.C. Cir. No. 14-1249), the Sierra Club challenged a FERC order authorizing an increase in the production capacity at an existing LNG terminal in Louisiana. Sierra Club asserted that the Environmental Assessment (EA) FERC had prepared violated NEPA in its exclusion of alleged indirect and cumulative impacts. In Sierra Club v. FERC, (D.C. Cir. No. 14-1275), Sierra Club and Galveston Baykeeper attacked a FERC order and accompanying Environmental Impact Statement (EIS) allowing the redesign of an LNG terminal to support export operations. In both cases, Sierra Club alleged that NEPA’s command to address indirect impacts obligated FERC to address environmental impacts related to the increase in domestic natural gas production that Sierra Club believed these FERC approvals would induce. Also, Sierra Club argued that an indirect effect of increasing natural gas export capacity would be to increase the domestic price of natural gas, and that, in turn, would cause greater reliance on the use of coal as a cheaper but more GHG-intensive fuel.

The D.C. Circuit flatly rejected these claims, noting that under NEPA, indirect effects are those that are later in time or farther removed in distance yet reasonably foreseeable. Thus, a federal agency need only study those indirect impacts that have a reasonably close causal relationship between the environmental effect and the alleged cause. Here, the court rejected Sierra Club’s “self-evident” assertion that FERC’s authorization of these terminal improvements would lead to DOE export authorizations and thereby increase natural gas prices leading to greater domestic use of coal. Without accepting or rejecting Sierra Club’s recitation of likely consequences, the court found that because DOE, not FERC, is the agency responsible for authorizing exports of LNG, the challenged orders of the Commission authorizing the siting, construction and operation of the LNG terminals are not the legally relevant causes of the alleged indirect effects. As a result, FERC had no obligation to examine such issues. The court stated: “The Department’s independent decision to allow exports—a decision over which the Commission has no regulatory authority—breaks the NEPA causal chain and absolves the Commission of responsibility to include in its NEPA analysis considerations it ‘could not act on’ and for which it cannot be ‘the legally relevant cause.’” Sierra Club v. FERC, (No. 14-1275, p. 18). In the Louisiana case, the court went further, holding that FERC acted reasonably when it found that additional natural gas production was not a reasonably foreseeable consequence of approving greater production capacity at the terminal. Sierra Club v. FERC, (No. 14-1249, p. 14).

Similarly, the Court upheld FERC’s declination to conduct nationwide reviews of every present or proposed LNG terminal as part of the cumulative effects portions of these NEPA documents. Instead, the court found that FERC was only required to address cumulative impacts within the county in which the facility was located. In particular, the court held that where there is little or no evidence that a project itself has significant impacts, an agency’s duty to address cumulative impacts is appropriately narrow.

Significance of These Decisions

This pair of decisions is important for at least four reasons. First, they are relevant because of the clear manner that these rulings apply the Supreme Court’s NEPA decision in Department of Transp. v. Public Citizen, 541 U.S. 752 (2004) to NEPA documents prepared for energy projects. The D.C. Circuit expressly rejected the notion that the scope of FERC’s NEPA documents should be set by including every possible impact that might occur for which the authorized project could conceivably be a “but-for cause.” Instead, the court invoked the Supreme Court’s analogy to “the familiar doctrine of proximate cause” as articulated in Public Citizen, and applied that test to these energy projects. As a result, the court excused FERC from considering effects of these projects that could only occur as a result of subsequent action by the only entity with the authority to approve LNG exports—DOE.

Second, the ruling in the Louisiana case shows that reviewing courts may be inclined defer to agency findings regarding reasonably foreseeable impacts of any kind—direct, indirect or cumulative—if the record supports the agency’s findings of causal connections. As a result, applicants for federal permits should be prepared to assist permitting agencies by providing relevant evidence in support of the appropriate scope of and limits on climate change impacts in anticipation of the type of broader and all-encompassing studies advocated by the plaintiffs here.

Third, these rulings are important because the D.C. Circuit rejected the Sierra Club’s effort to adopt the Eighth Circuit’s ruling in Mid States Coalition for Progress v. Surface Transportation Board, 345 F. 3d 520 (8th Cir. 2003). There, that court invalidated an EIS prepared for improvements to a railroad line that proposed to transport Powder River Basin coal to the Midwest. The Eighth Circuit ruled the agency had failed to address the indirect impacts of air emissions resulting from the consumption of this coal when it was used to generate electricity, even though the railroad had not yet signed any contracts to haul this coal. The D.C. Circuit declined to apply the case, noting that the Surface Transportation Board had itself identified these air emissions as an impact but then failed to discuss them in the EIS. In other words, the D.C. Circuit said that the only reason those air emissions were an appropriate indirect impact was because the Board had earlier declared them to be so. Equally important, the D.C. Circuit stated that it saw no need to address the correctness of a decision that is not binding upon it, the bounds of indirect impacts would be governed by Public Citizen, and not by Mid States.

Fourth, these two D.C. Circuit decisions may make it more difficult for CEQ to demand that future EISs and EAs prepared for proposed actions impacting climate change and GHG emissions should include upstream and downstream impacts as part of the discussion of indirect and cumulative impacts. As we observed in our December 22, 2014 Sidley Update, “CEQ’s Proposed New Draft Guidance Assessing Climate Impacts in Federal Actions Subject to NEPA: Five Things You Need to Know,” and as further elaborated in Congressional testimony on the topic, here, CEQ has interpreted indirect and cumulative impacts by requiring that an EIS or EA must include a discussion of emissions from other activities that not only have a reasonably close causal connection, but also are “upstream” or “downstream” from the proposed action. For example, in the draft guidance, CEQ stated that for an EIS prepared for a proposed open pit mine, the expanded definition of indirect impacts now requires the agency to address the downstream impacts of “using the resource.” But, these two FERC decisions from the D.C. Circuit suggest that NEPA indirect and cumulative effects need not be read as broadly as proposed by CEQ. Particularly with respect to EISs and EAs prepared for energy projects, the scope of those documents should be limited to those impacts for which are within the statutory jurisdiction of the permitting agency and are proximately caused by the agency action. Because FERC is an independent agency, it can be expected to continue to apply the narrower definition of indirect and cumulative impacts, especially now that its treatment of this issue has been upheld by the D.C. Circuit. Ultimately, however, we expect that this issue will be resolved by the courts.