Sierra Club, et al. v. FERC, No. 16-1329 (DC Cir. Aug. 22, 2017)

A divided panel of the United States Court of Appeals for the District of Columbia Circuit (DC Circuit)[1] recently ruled that the Federal Energy Regulatory Commission (FERC) did not take the requisite “hard look” under the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. § 4332(2)(C), at the greenhouse-gas emissions that will result from power plants burning the natural gas transported on three new interstate natural gas pipelines. One judge dissented in part, finding the commission was not obligated to consider the emissions of greenhouse gases from newly constructed or expanded power plants because licensing of those plants was under the authority of a separate agency.

The commission must now decide whether to seek rehearing before the entire court or to respond by issuing a new environmental impact statement (EIS) that addresses these emissions. Whatever FERC decides, this case could markedly impact the backlog of pending certificate orders and rehearing orders and the commission’s ongoing environmental review of pending natural gas pipeline projects. The order could also have gas-electric impacts for pipelines being developed to serve power plants in Regional Transmission Organizations and Independent System Operators (RTO/ISOs), as the ability to predict which power plants will be dispatched for what period and consequently the amount of greenhouse-gas emissions is much more difficult in these markets.

By way of background, on February 2, 2016, the commission granted three requested authorizations under Section 7 of the Natural Gas Act (NGA), subject to condition: (1) Florida Southeast Connection, LLC’s (Florida Southeast) requested a certificate of public convenience and necessity (certificate) to construct and operate the Florida Southeast Connection Project (Florida Southeast Project);[2] (2) Transcontinental Gas Pipe Line Company, LLC (Transco) requested a certificate to construct and operate the Hillabee Expansion Project and abandon the capacity on the Hillabee Expansion Project by lease to Sabal Trail Transmission, LLC (Sabal Trail);[3] and (3) Sabal Trail requested a certificate to construct and operate the Sabal Trail Project and to lease capacity from Transco. Florida Southeast Connection, LLC, 154 FERC ¶ 61,080, order on reh’g, 156 FERC ¶ 61,160 (2016). As relevant here, the Sierra Club and other environmental organizations (collectively, Sierra Club) appealed those rulings.

The Sierra Club argued that the commission’s EIS did not contain enough information on the greenhouse-gas emissions that will result from third parties (gas-fired generators) burning the natural gas that the pipelines will carry. In evaluating the claim, the court acknowledged that the commission had prepared an EIS as required by the NEPA. NEPA mandates as part of every “major Federal action significantly affecting the quality of the human environment,” the preparation of a “detailed statement” discussing and disclosing the environmental impact of the action. 42 U.S.C. § 4332(2)(C). The EIS has two purposes – (1) it forces the agency to take a ‘hard look’ at the environmental consequences of its actions, including alternatives to its proposed course, and (2) the environmental consequences considered by the agency are disclosed to the public.

The court initially ruled that the Sierra Club had Article III standing to challenge the commission’s alleged inadequate EIS because “[s]everal individual Sierra Club members submitted” affidavits explaining how the pipeline project would harm their “concrete aesthetic and recreational interests.” To this end, the court observed that one member had explained that the Sabal Trail pipeline would cross his property, that construction noise would impair his enjoyment of daily activities, and that the trees shading his house would be permanently removed. The court viewed these assertions as “credible claims” because they were “backed up by specific factual representations in an affidavit or declaration.” Notably, the court ruled that the Sierra Club did not have to allege that the EIS’s deficiency was “directly tied to the members’ specific injuries,” but “may argue that the FERC did not adequately consider the pipelines’ contribution to climate change.”

Having concluded that the Sierra Club had standing, the court evaluated the merits of its arguments. The DC Circuit upheld the commission’s NEPA analysis in all regards, except as to its failure to “have estimated the amount of power-plant carbon emissions that the pipelines will make possible.” The court found that greenhouse-gas emissions were an “‘indirect effect of authorizing’ the project,” and that FERC could “reasonably foresee” that the power plants would burn natural gas, and “that burning natural gas will release into the atmosphere the types of carbon compounds that contribute to climate change.” Consequently, the court determined that pursuant to Section 7(c) of the NGA, the commission was statutorily required to consider the public convenience and necessity and, in doing so, balance the “public benefits against the adverse effects of the project, including adverse environmental effects.”

The court was not persuaded by the commission’s objection that “it is impossible to know exactly what quantity of greenhouse gases will be emitted as a result” of the project’s approval. The court suggested that the commission could engage in “reasonable forecasting,” reflecting educated assumptions about an uncertain future. The court noted that the commission had “already estimated how much gas the pipelines will transport: about one million dekatherms (roughly 1.1 billion cubic feet) per day.” The court found that the “EIS gave no reason why this number could not be used to estimate greenhouse-gas emissions from the power plants, and even cited a Department of Energy report that gives emissions estimates per unit of energy generated for various types of plants.”

Thus, the court ruled that the EIS “should have either given a quantitative estimate of the downstream greenhouse emissions that will result from burning the natural gas that the pipeline will transport or explain more specifically why it could not have done so.” Accordingly, the court ruled the EIS “needed to include a discussion of the ‘significance’” of the indirect greenhouse-gas emissions and “the incremental impact of the action when added to past, present, and reasonably foreseeable future actions.” The court cautioned, however, that “quantification of greenhouse-gas emissions” was not “required every time those emissions are an indirect effect of an agency action” because in some cases “quantification may not be feasible.” The court explained that the commission would need to provide a “satisfactory explanation” as to why quantification was not possible, while noting that “some educated assumptions are inevitable in the NEPA process,” but that those assumptions should be disclosed so that readers could check such assumptions.

The court also rejected several potential excuses for not including emission estimates in the EIS. The court ruled that FERC would not be excused from making emissions estimates “because the emissions in question might be partially offset by reductions elsewhere.” The court explained that in such circumstances, an agency must discuss both the good and bad consequences of a project in the EIS so that the agency decision maker reviewing the EIS is well-informed and the record can be complete for the commenting public. The court also rebuffed the notion that “the existence of permit requirements overseen by another federal agency or state permitting authority” can substitute for a proper NEPA analysis. The court also required the commission to explain “as an aid to the relevant decision makers,” whether and why the commission continues to maintain that “the Social Cost of Carbon is not useful for NEPA purposes, because several of its components are contested and because not every harm it accounts for is necessarily ‘significant’ within the meaning of NEPA.”

Dissent

Judge Brown dissented in part as to the court’s remand on the issue of downstream greenhouse-gas emissions. Judge Brown based her dissent on the fact that the indirect environmental effect of greenhouse-gas emissions was “contingent upon the issuance of a license from a separate agency,” thereby negating the requirement that FERC evaluate the indirect effects in its NEPA analysis.

Judge Brown observed that under the Florida Electrical Power Plant Siting Act, “a power plant cannot be built unless a site certification is obtained from the Florida Power Plant Siting Board.” Such certification “constitutes the sole license for a power plant’s construction and operation.” Accordingly, Judge Brown found that “no power plant is built or expanded in the state of Florida-and consequently no greenhouse gases are emitted from Florida power plants-without the Board’s approval.” Moreover, she found that “FERC’s statutory authority is limited by the fact that the Board, not FERC, has the ‘sole authority’ to authorize or prohibit the construction or expansion of power plants in Florida.” Therefore, Judge Brown ruled, consistent with a previous DC Circuit liquefied natural gas order, this “one-stop licensing process” “breaks the chain of causation” and in such circumstances the commission is not required to address the indirect environmental effects. Consequently, Judge Brown would have denied the petition for review in total.

Next Steps on Environmental Matters

The FERC has several options for further action. It can accept the remand order and issue a new EIS in accordance with the court’s instructions. Alternatively, it can seek rehearing before the entire DC Circuit. This rehearing request could be based, in whole or in part, on Judge Brown’s partial dissent.

According to FERC’s Energy Infrastructure Update, between January 2016 and June 30, 2017, the commission certificated about 2,200 miles of new, expanded, or reversed interstate natural gas pipelines, but only about 300 miles of those pipelines have been placed in service. The commission also has many pending natural gas pipeline projects; just in June 2017 alone, the commission’s Infrastructure Update notes five new projects were proposed. Those applicants will need to review their environmental documentation and consider whether it provides the necessary information for the commission to comply with the court’s greenhouse-gas emissions rulings.[4] The court’s expanded review will also likely add time to the commission’s review process and certificate issuance that was already delayed due to the lack of quorum for about seven months.

The outcome of this proceeding could also impact power plants in RTOs and ISOs. The order raises questions of how the commission would conduct the greenhouse-gas emissions analysis of power plants in RTOs and ISOs. Power plants in RTOs and ISOs are scheduled based on whether they clear the market and consequently the type of assumptions the commission would use for power plants in RTOs and ISOs would likely be strongly challenged. Moreover, the court’s greenhouse-gas ruling could potentially embolden arguments by supporters of nuclear and renewable power that RTO/ISO energy and/or capacity markets must be revised to factor in the emission costs and/or the “Social Cost of Carbon.” The court’s rulings could also implicate the debate surrounding how much support a state may give to a specific resource and the composition of a rate to reflect that support.[5]