How far must the Federal Energy Regulatory Commission (FERC) go in examining the indirect, reasonably foreseeable environmental impacts of new natural gas pipelines when considering whether to issue permits for such pipelines? This is the issue addressed in a recent decision of the U.S. Court of Appeals for the District of Columbia Circuit in Sierra Club v. FERC.1 This case involved FERC’s issuance of a certificate of public convenience and necessity under Section 7(c) of the Natural Gas Act for pipelines intended to serve new natural gas-fired power plants in Florida. The court held that, to comply with its obligations under the National Environmental Policy Act (NEPA),2 FERC was required to analyze the amount of additional greenhouse gases that would be emitted by the power plants fueled by natural gas transported by the new pipelines. Because FERC had not done so, the court vacated FERC’s approval of the pipelines and remanded the case to FERC for further evaluation.

The practical result of the ruling is that, in preparing an environmental impact statement (EIS)3 in connection with considering whether to issue a permit for a natural gas pipeline, FERC is required to provide a quantitative estimate of the downstream greenhouse emissions that will result from burning the gas transported by the pipeline (or to explain why it cannot provide such an estimate). The EIS also must “include a discussion of the ‘significance’ of this indirect effect..., as well as the ‘incremental impact of [the permitting of the pipeline] when added to other past, present, and reasonably foreseeable further actions.’”4 The case leaves open the question of whether FERC must take the next step and analyze the particular climate impacts (such as higher sea levels or more frequent severe storms) that may be associated with the emissions from combustion of natural gas transported by the pipeline.5 Given that the court did not rule on this point, the prudent approach—until the courts provide clearer guidance—may be to include in an EIS for a new pipeline project some analysis of such potential climate impacts, recognizing that there is considerable uncertainty associated with such analyses (or at least explain why this cannot be done). The court also addressed the fact that a new pipeline may reduce greenhouse gas emissions—for example, if it facilitates replacement of coal-fired electric generation with natural-gas-fired generation—holding that the EIS needs to analyze these effects—both positive and negative.

The additional analysis required by Sierra Club will add some time and expense for applicants preparing pipeline certificate applications, and for FERC in reviewing such applications, but it would not appear that the scope of this analysis would be a large burden or the source of significant delays. Perhaps a larger concern is the status of cases currently pending before FERC. Will FERC need to obtain additional information from applicants in those cases to allow FERC to prepare environmental analyses meeting this new Sierra Club standard? If so, this could add to the delay in making permit decisions on applications that already have been pending for a long time at FERC due to FERC’s inability to act on contested cases since it lost its quorum earlier this year (a problem that was resolved earlier this month). Will FERC or applicants want to extend this also to cases for which only an environmental assessment (as opposed to an EIS) has been prepared? Given the uncertainty about how far the holding in Sierra Club extends, that may be a prudent approach. Similarly, would this holding extend to pipelines in natural gas-producing regions that will be feeding into larger, long-distance pipelines serving a diverse set of customers (including local distribution companies and existing industrial consumers and power plants)? There may be good arguments why no analysis of greenhouse gas emissions is required in such cases (for example, because it is too hard to make reasonable estimates), but FERC and applicants likely will want to bolster their cases to address that issue in some manner in order to defend against appeals based on the holding in Sierra Club.

It seems likely that this recent court decision will not be the last word on this issue, however. Only two of the three judges deciding this case joined in the majority view; Judge Brown filed a dissent, arguing that prior D.C. Circuit and Supreme Court precedent does not support the view that FERC is required to analyze the greenhouse gas emissions of power plants that would burn the gas transported by pipelines permitted by FERC. In several cases involving FERC permits for facilities associated with new terminals for export of liquefied natural gas (LNG), the D.C. Circuit previously held that FERC was not required to analyze the greenhouse gas emissions associated with additional domestic natural gas production and higher domestic natural gas prices—which , in turn, would shift consumption to higher emission energy sources, such as coal—that would result from exports of LNG from the terminal facilities permitted by FERC.6 The reasoning in these prior LNG export terminal cases was that FERC did not have to analyze these secondary effects of exporting LNG because the authorization of such exports fell within the authority of the Department of Energy (DOE) rather than FERC. In essence, the requirement for authorization by another governmental body broke the chain of causation between the activity being authorized by FERC (construction of the LNG terminal facilities) and the activity causing the indirect environmental effects that was subject to DOE authorization (exports of LNG). Judge Brown argues that the situation is no different here—in this case, the power plants cannot be constructed without the authorization of the Florida Power Plant Citing Board under applicable Florida law. It would not be surprising if FERC and the sponsors of the pipelines at issue in Sierra Club seek further review by the full D.C. Circuit (or perhaps the Supreme Court) based on the issues raised in Judge Brown’s dissent.