The U.S. Court of Appeals for the D.C. Circuit’s recent decision in Sierra Club v. FERC (Southeast Market Pipelines Project), No. 16-1329 (D.C. Cir. 2017), has already had an impact on the natural gas industry and resulted in the halting of a pipeline project in New York shortly after the case was decided. The New York Department of Environmental Conservation (DEC), citing the ruling in Southeast Market Pipelines Project, denied permits to Millennium Pipeline Co.’s Valley Lateral Project. The project was set to be an 8-mile, 16-inch diameter natural gas pipeline extending an existing main line pipeline in Orange County, New York, to a power plant being constructed in Wawayanda, New York. The DEC denied the permits on the basis that FERC’s environmental review of the project was “inadequate and deficient” because FERC “failed to consider or quantify the downstream greenhouse gas emissions from the combustion of the natural gas transported” by the planned pipeline as part of its application review under the National Environmental Policy Act (NEPA).

In its August 22 Southeast Market Pipelines Project decision, a divided D.C. Circuit ruled that FERC must consider the downstream impact of greenhouse gas emissions as part of its environmental impact statement (EIS). The appellate court found that NEPA required an agency conducting a review to consider both the direct and indirect effects of a pipeline project, including “reasonably foreseeable” later-in-time outcomes, which also include greenhouse gas emissions from the facilities combusting natural gas fed by the pipeline. The appellate court concluded that FERC’s EIS should have included “a quantitative estimate of the downstream greenhouse [gas] emissions that will result from burning the natural gas” transported by the pipeline, and the EIS needed a discussion of the significance of the emissions and the “incremental impact of the action” in consideration of past, present and future actions.

Historically, FERC has not considered the analysis of downstream greenhouse gas impacts on natural gas consumers as part of its role in deciding the viability of the pipeline, deferring these issues to the EPA and state regulators. Accordingly, the D.C. Circuit ruling would require a substantial change in the scope of analysis by FERC that would likely lengthen the permitting process.

In light of Southeast Market Pipelines Project, on August 30, the New York DEC sent a letter to Millennium Pipeline Co., giving notice that the requested permits for the Valley Lateral Project were denied as the result of DEC’s having moved for FERC to reopen or rehear review of the project on the grounds that FERC’s environmental review had been deficient. The DEC cited to New York law allowing an application for a permit to be denied if there is a material change in applicable law or regulations. The DEC considers the D.C. Circuit’s holding in Southeast Market Pipelines Project to be such a material change in law.

Given how the DEC applied the Southeast Market Pipelines Project ruling, it is possible that other state environmental bodies may follow its lead in denying, modifying or revoking and reissuing state permits based on the change in law, which could create unexpected delays in pipeline projects elsewhere.

The appeal period for the Southeast Market Pipelines Project decision has not ended, and it is expected that an appeal may well be filed, whether as a petition for panel rehearing or a petition for rehearing en banc before the D.C. Circuit, or as a petition for a writ of certiorari to the U.S. Supreme Court.