Thought Leadership

2022 First Look - New FERC Policies on Construction of Natural Gas Projects and GHG Emissions

Client Updates

On February 17, 2022, the Federal Energy Regulatory Commission (“FERC”) voted 3-2 to adopt revisions to its 1999 Certificate Policy Statement (the “Certificate Policy Statement”).  The Certificate Policy Statement sets forth the framework that FERC applies in evaluating applications for the construction of new interstate natural gas facilities, which includes new construction and expansions of interstate pipelines and storage facilities, including Natural Gas Act (“NGA”) Section 7(c) pipelines interconnecting liquefied natural gas (“LNG”) export terminals and liquefaction facilities to the interstate pipeline grid.  FERC has not established any comment period or further process concerning the policy statement.  As explained below, FERC will apply the revised policy statement in pending and new application proceedings.

On the same day, FERC also voted 3-2 to publish an Interim Greenhouse Gas Emissions Policy Statement (the “Interim GHG Policy Statement”) setting forth the framework by which FERC will evaluate climate change impacts from proposed natural gas infrastructure projects under the NGA and the National Environmental Policy Act (“NEPA”).  The Interim GHG Policy Statement will apply to both proposed LNG terminals authorized under Section 3 of the NGA and interstate natural gas pipelines and storage facilities authorized under Section 7 of the NGA.  FERC has set a public comment deadline of April 4, 2022 on the interim statement.

Certificate Policy Statement

FERC adopted the following changes to the Certificate Policy Statement:

Applying the Public Interest Standard

FERC will continue to apply a broad public interest standard that requires a higher showing of public benefits if there will be broad and/or significant adverse impacts.  Public benefits include: (1) serving the need for the project, (2) displacement of higher pollution generation sources, (3) facilitation of the integration of renewable resources and (4) creation of significant jobs or tax revenues. If FERC determines that the total adverse impacts outweigh the public benefits from the project, and those adverse impacts cannot be mitigated or minimized, FERC will deny the application.

Evaluating Project Need

In assessing the need for the proposed project, FERC will no longer rely solely on precedent agreements between the project developer and its non-affiliates.  FERC will continue to take such agreements into account, but will also look at other evidence of project need, including (1) demand projections underlying the capacity subscribed, (2) estimated capacity utilization rates, (3) potential cost savings to customers, (4) regional assessments and (5) statements from state regulatory commissions or local distribution companies.  FERC will also look at the intended end use of the gas in connection with assessing project need.

Evaluating Project Impacts, including Landowner Impacts and Environmental Justice

FERC will address the following specific types of project impacts as follows:

  • Impacts on Other Pipelines and Their Customers: FERC will evaluate whether a proposed project will result in captive customers of existing pipelines paying for unsubscribed capacity resulting from the overbuilding of new pipelines.

  • Environmental Impacts: FERC will continue to look at environmental impacts and mitigation as part of its public interest determination.

  • Landowner Impacts: FERC will seek to consider a “wider range of impacts” on landowners through “robust early engagement” and continuing input from landowners throughout the certificate proceeding.FERC will also take into account a project’s efforts to obtain land rights through good faith negotiations and its plans to minimize the use of eminent domain.

  • Environmental Justice: FERC will “undertake a robust consideration of impacts to any environmental justice communities.”FERC will consider new environmental justice guidance issued by other federal agencies, which may include the anticipated White House Council on Environmental Quality screening tool.FERC also expects developing environmental justice impact mitigation through “close consultation” among FERC, the affected communities and the project developer.

Application to Pending and New Projects

The revised Policy Statement will not apply to projects that have already received a certificate.  For pending projects, the applicant will have the opportunity to supplement the record in its certificate proceeding and stakeholders will have the opportunity to comment on the supplemental information.

Interim Greenhouse Gas Policy Statement

The Interim GHG policy statement includes the following elements:

Rebuttable Presumption on Significance of Emissions

FERC will use a rebuttable presumption that proposed projects with 100,000 metric tons per year of carbon dioxide equivalent emissions will have a “significant impact on climate change.” 

Measuring Emissions

To measure GHG emissions, FERC will follow the Council on Environmental Quality NEPA regulations and “quantify a project’s GHG emissions that are reasonably foreseeable and have a reasonably close causal relationship to the proposed action, including those effects that occur at the same time and place as the proposed action and effects that are later in time or farther removed in distance from the proposed action.”  In evaluating “reasonably foreseeable” GHG emissions, FERC will use a projection of the proposed project’s utilization rate and any other facts impacting the quantification of emissions. 

Under these standards, FERC will always consider direct emissions from the construction and operation of a proposed project.  It will also consider on a case-by-case basis whether upstream or downstream emissions are “reasonably foreseeable” for an NGA Section 7 project.  With respect to an NGA Section 3 export project, FERC will not consider upstream or downstream emissions associated with the project.

Consideration of Emissions and Mitigation Measures in Applying the Public Interest Standard

FERC will consider applicants’ proposals to mitigate a project’s climate change impacts in making its public interest determination.  FERC may also condition its authorization on further mitigation of climate change impacts.

Application to Pending and New Projects

Like the revised Certificate Policy Statement, the Interim GHG Policy Statement will apply to pending and new projects.  Applicants with a pending application will be able to supplement the record and stakeholders will be able to comment on the supplemental information.

Next Steps

The public comment deadline for the Interim GHG Policy Statement is April 4, 2022.  FERC has not set another comment period on the issues addressed by the revised Certificate Policy Statement.  Project developers should closely monitor pending certificate proceedings to see how FERC plans to apply these new policies on a case-specific basis.  We expect that policy statements may be challenged in court in the coming year.

Visit 2021 – Traditional Energy Rebounds and Increased Energy Transition, for the complete list of individual, detailed articles associated with this publication.

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