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D.C. Circuit Definitively Rejects Challenge to DOE Authorization of LNG Exports

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On August 15, 2017, the United States Court of Appeals for the D.C. Circuit (“D.C. Circuit”) issued an opinion, Sierra Club v. United States Department of Energy1, rejecting Sierra Club’s challenge to the Department of Energy (“DOE”) authorization for liquefied natural gas (“LNG”) exports from the Freeport terminal in Brazoria County, Texas. In this case, the court resolves issues that had been left open by a pair of D.C. Circuit opinions issued in the summer of 2016 and clarifies the extent to which agencies are expected to analyze indirect environmental effects of LNG exports.

Background

Under the Natural Gas Act (“NGA”), DOE has authority to authorize the exportation of natural gas, and the Federal Energy Regulatory Commission (“FERC”) has the authority to review proposals to site, construct, and operate related LNG terminal facilities. As a result, entities wishing to export LNG must apply for approval from both DOE and FERC. FERC serves as the lead agency for environmental review under the National Environmental Policy Act (“NEPA”), while DOE participates in FERC’s review. For purposes of exercising its authority over exports, DOE must independently review FERC’s environmental analysis and determine whether to adopt or supplement it. DOE also relies on its own studies of the economic effects of the proposed exports to determine whether they are in the public interest.

Sierra Club previously challenged FERC’s authorizations relating to LNG export facilities at the Freeport LNG terminal and (in a separate proceeding) the Sabine Pass terminal, arguing that the exports of LNG from the authorized facilities would (1) induce additional domestic production of natural gas, leading to harm to the environment; and (2) raise natural gas prices, creating a price incentive for increased reliance on coal-fired electric generation2. The court rejected those petitions on the grounds that DOE, and not FERC, actually authorizes the LNG exports at issue and that such issues “do not fall within [FERC’s] bandwidth,” because FERC lacks the legal authority to authorize LNG exports. The D.C. Circuit also found that FERC reasonably limited the extent of its environmental analysis. As we noted in a prior client alert issued on June 30, 2016, available here, the 2016 decisions set the stage for Sierra Club’s challenge to DOE’s export authorization.

The Court’s Decision

As in the FERC challenges, Sierra Club raised concerns about the potential for LNG exports to induce additional domestic natural gas production and increase domestic reliance on coal. Sierra Club also argued that DOE’s analysis of greenhouse gas impacts was inadequate, and that Freeport’s exports fail to satisfy the NGA’s public interest standard.

The D.C. Circuit upheld DOE’s determination not to analyze the potential effects of increased gas production at a local or regional level. The court found that DOE acknowledged the potential for locally significant impacts but reasonably avoided undue speculation as to the impacts in any particular location or region, a task that would not have provided meaningful information.

The court also accepted DOE’s assertion that the connection between higher natural gas prices and potential impacts from increased reliance on coal is too speculative to measure, and it rejected Sierra Club’s greenhouse gas claims as “flyspecking,” which would require a broad and highly uncertain analysis to resolve. Finally, the court swiftly dispensed with Sierra Club’s public-interest claim by noting that the only issue Sierra Club raised was that DOE allegedly failed to thoroughly consider environmental impacts, an issue the court had already resolved in DOE’s favor.

Implications

In upholding DOE’s environmental review process in response to concerns often raised by opponents of LNG export projects, the D.C. Circuit has provided additional certainty for LNG export applicants and resolved some concerns about delays for pending authorizations. Both developments are positive for the LNG export industry.

The D.C. Circuit also made several observations in the opinion that are favorable to LNG export proponents. Among other points, the D.C. Circuit reaffirmed that the NGA contains a presumption in favor of export authorization to non-free trade agreement countries, and it reiterated the long-standing tenet that significant environmental impacts—even if they had been present in this case—would not necessarily have required a negative public interest determination, provided that other factors weighed more heavily in favor of granting the requested export authorization.

The D.C. Circuit’s opinion upholding the DOE’s export authorization can be found here.

1Case No. 15-1489 (D.C. Cir. Aug. 15, 2017)
2Sierra Club v. Federal Energy Regulatory Commission, 827 F.3d 36 (D.C. Cir. 2016) (regarding Freeport), and Sierra Club v. Federal Energy Regulatory Commission, 827 F.3d 59 (D.C. Cir. 2016) (regarding Sabine Pass).


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