Industry observers are concerned that the recent court ruling that orders federal regulators to assess the downstream emission impact of natural gas pipeline projects could set a troubling precedent, even if it’s too early to call the decision a game-changer.
“[The decision] is extremely important because it has the potential effect on the timeliness of regulatory review, which is crucial to the viability of any of these projects,” Doug Pedigo, Houston-based partner with Thompson & Knight who regularly counsel carriers and shippers in connection with large-scale infrastructure projects, told Hart Energy.
A three-judge panel of the District of Columbia Court of Appeals on Aug. 22 voted 2-1 in favor of the Sierra Club and Florida landowners in its suit against the Federal Energy Regulatory Commission (FERC), ruling that the commission failed to adequately weigh the impact of greenhouse gas emissions that will result when utilities burn the fuel. The project in question is the Southeast Market Pipelines Project, which includes the Sabal Trail, Hillabee Expansion and Florida Southeast Connection pipelines.
“It’s not just the direct impact,” Regina Mayor, KPMG’s global sector head and U.S. national sector leader of energy and natural resources, told Hart Energy. Those issues are relatively common, involving conflicts over eminent domain, a particular construction site or whether a given region is oversaturated with infrastructure.
The ruling broadens FERC’s scrutiny beyond simple impact of the construction of the pipeline to cover the impact of the use of the hydrocarbons that the line carries.
“What’s the potential emissions impact?” she said. “What’s the potential carbon increase for the construction footprint? It gets really, really complicated and very nebulous, which is incredibly difficult for a company to abide by.”
The Sierra Club, of course, was delighted by the decision.
“Even though this pipeline is intended to deliver fracked gas to Florida power plants, FERC maintained that it could ignore the greenhouse gas pollution from burning the gas,” said Elly Benson, a Sierra Club staff attorney, in a statement following the ruling. “For too long, FERC has abandoned its responsibility to consider the public health and environmental impacts of its actions, including climate change.”
However, in June 2016, the D.C. Court of Appeals ruled in two separate decisions that FERC was not required to consider upstream and downstream greenhouse gas emissions as part of its review under the National Environmental Policy Act (NEPA). Those decisions involved permitting of LNG terminals in Louisiana.
In that case, the court cited the separate jurisdictions of FERC (siting, construction and operation of LNG export terminals) and the Department of Energy, which is over license to export the natural gas from the terminals.
“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 that it ‘could not act on’ and for which it cannot be ‘the legally relevant cause,’” the judges wrote in a case involving Freeport LNG.
Mayor compared the situation to that experienced by a client with coal operations. After extracting coal from the ground and selling it, the client would be expected to report on whether it was burned in a dirty electric generating facility or one employing carbon capture technology.
“I as a coal producer can’t decide where my coal is going to go yet there’s a movement afoot that I’m supposed to report on the impact of where my coal might go,” she said.
But monitoring the life-cycle of hydrocarbons is less the intent of these lawsuits than simply delaying or stopping the projects altogether.
“If this decision stands as precedent, FERC will need to add another layer to its environmental impact statements (EIS) under the National Environmental Policy Act (NEPA), which probably would decrease the probability of FERC certification of new projects, all else equal,” Bellamy wrote.
Pedigo does not agree.
“I wouldn’t say that,” he told Hart Energy. “I think it interjects uncertainty into the process. A court is saying, ‘when you do these analyses, we want you to take into account the carbon produced by downstream uses of the natural gas that you’re flowing through the line.’”
The added layer may add cost and delay a project, but it does not necessarily alter FERC’s ultimate decision.
“They’re political appointees, so they can do that analysis and say, ‘we did the analysis, thanks for the tip, we appreciate you letting us know that, but we’ve done the analysis and in our opinion, the public interest in building this line outweighs the environmental impact of burning the fuels downstream.’”
But that is assuming that the pipeline operators are not discouraged from taking the project that far.
“It creates uncertainty for the project, which makes it more difficult to get something like this financed,” Pedigo said. “It makes it more difficult to make decisions that you’re confident will hold up on a timeline that’s reasonable.”