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D.C. Circuit Vacates FERC Pipeline Certificate Orders for Failure to Consider Downstream Greenhouse Gas Emissions

Firm Thought Leadership

On August 22, 2017, the United States Court of Appeals for the D.C. Circuit (“D.C. Circuit”) issued a 2-1 opinion, Sierra Club v. FERC,1 vacating and remanding the Federal Energy Regulatory Commission’s (“FERC”) issuance of three Natural Gas Act (“NGA”) Section 7 certificates. The majority, over a forceful dissent by Judge Brown, held that FERC failed to consider the environmental effects of greenhouse gases (“GHGs”) that would be emitted by power plants to be served by the pipelines. The decision is a sharp departure from recent case law upholding the scope of FERC and the Department of Energy’s (“DOE”) environmental review of natural gas infrastructure projects.

Background

The case involves the Southeast Markets Pipelines Project (“Project”), comprising three natural gas pipelines in Alabama, Georgia, and Florida: the Sabal Trail pipeline, the Hillabee Expansion and the Florida Southeast Connection. The Project was constructed to supply gas to various proposed and existing power plants. FERC has no role in the siting or authorization of the power plants, which are instead permitted by the Florida Power Plant Siting Board under state law. FERC issued the certificates on February 2, 2016 and by the time of the Court’s decision, portions of all three pipelines had been placed in service.

The Court’s Decision

The D.C. Circuit found that the Environmental Impact Statement (“EIS”) underlying FERC’s certificate order was inadequate because it failed either to quantitatively estimate the downstream GHGs that would result from burning the natural gas that the pipelines will transport or explain with sufficient specificity why it could not do so.

Although the Court has recently held, in a set of cases addressing LNG exports, that neither the DOE nor FERC, when approving construction of and export from such facilities, is required to analyze the indirect effects on regions or specific localities of upstream sourcing of gas2, it nevertheless held here that FERC does need to analyze the indirect environmental effects of downstream use of gas as power plant feedstock. The Court relied heavily on the fact that the Project’s “entire purpose” is to transport natural gas to electric generating plants in Florida, and that the burning of the feedstock gas will release GHGs. As a result, the Court held the significance and incremental impact of these environmental effects were reasonably foreseeable and must be considered as part of FERC’s review under the National Environmental Policy Act of 1969 (“NEPA”). The Court specifically instructed FERC to consider whether the inter-agency Social Cost of Carbon is a useful tool for evaluating GHG emissions under NEPA.

The Court distinguished this case from recent cases in which it held that FERC is not required to consider the downstream effects of LNG projects permitted under Section 3 of the NGA3 on the basis that under Section 3, FERC is “forbidden to rely on the effects of gas exports as a justification for denying” approval. In contrast, Section 7 certification requires FERC to broadly consider public convenience and necessity, including a balancing of public benefits against adverse effects. Thus, the Court reasoned, under Section 7, FERC could deny a pipeline’s request for certification based on harm to the environment, making FERC’s approval the “legally relevant cause” of both the direct and indirect environmental effects of pipelines it approves.

Judge Brown dissented, arguing that the case is indistinguishable from others in which the D.C. Circuit and Supreme Court have found that when an indirect environmental effect is contingent on issuance of a license from another agency, the original agency is not required to address that effect. The dissent noted that the majority’s opinion “completely omits any discussion” of the “dispositive” role Florida state agencies play in approving the construction and expansion of power plants. Taking into account the state approvals required to site and operate the power plants, the dissent reasoned that FERC’s certificate orders cannot be the cause of any environmental effects of burning the natural gas and, as a result, FERC should not be required to analyze those effects.

Implications

If FERC is required to implement the decision, it has the potential to disrupt the supply of natural gas to Florida by vacating the NGA certificates needed for the pipelines to continue operations, at least until FERC can supplement the existing EIS with an analysis of the indirect downstream effects of the Project. Here, consistent with its practice, the Court issued an order withholding issuance of the mandate until seven days after it disposes of any petition for rehearing or rehearing en banc. Given the implications of the opinion, particularly the significant commercial and operational disruptions likely to result from halting operations, it seems likely that one or more parties will seek rehearing or rehearing en banc.

The Project’s proponents, potentially joined by FERC, are likely to urge the full Court to adopt the reasoning of the dissent. Based on the role that the Florida state agencies play in siting the power plants, the full Court could hold that FERC’s issuance of a Section 7 certificate is not the cause of any downstream environmental effects, and that FERC is therefore not required to consider those effects when analyzing the Project.

If the Court ultimately issues the mandate, natural gas pipelines will face a new burden, in terms of uncertainty, expense and delay, in developing new pipeline infrastructure to serve power plants. Although this new burden, can to an extent. be addressed through FERC’s existing environmental review process, the decision nonetheless opens another avenue for costly follow-on litigation challenging FERC’s analysis. The electric industry may feel similar effects, as the decision places additional pressures on the ability to obtain supply for new natural gas-fired generating facilities.

The D.C. Circuit’s opinion can be found here.

Please contact one of the authors below or your Baker Botts relationship attorney with any questions.

1Case No. 16-1329 (D.C. Cir. Aug. 22, 2017).
2See our prior client alerts on the August 16, 2017 decision in Sierra Club v. DOE, available here and the June 28, 2016 decisions in Sierra Club v. FERC, 827 F.3d 36 (D.C. Cir. 2016) and Sierra Club v. FERC, 827 F.3d 59 (D.C. Cir. 2016), available here.
3See Sierra Club v. FERC, 827 F.3d 36 (D.C. Cir. 2016); Sierra Club v. FERC, 827 F.3d 59 (D.C. Cir. 2016); EarthReports v. FERC, 828 F.3d 949 (D.C. Cir. 2016).


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