Sweeping changes were announced at FERC on Thursday, February 17, 2022, when the majority of Federal Energy Regulatory Commission (FERC) Commissioners (Chairman Glick with Commissioners Clement and Phillips), amid blistering dissents from Commissioners Christie and Danly, voted to approve the Updated Policy Statement on Certification of New Interstate Natural Gas Facilities and the Interim Policy Statement (GHG Policy) on consideration of greenhouse gas emissions (GHGs) in natural gas infrastructure projects. The two policy statements together change both the burden of proof and presumptions in the approval process for new natural gas infrastructure, which includes interstate pipelines and LNG facilities. Extensive new evidence is “encouraged” from both project developers and shippers, and a new threshold test and a new four factor balancing test will be applied to both pending and new applications at FERC – and the GHG Policy will apply although it is only “interim” and public comments are not due on it until April 4, 2022.
What You Need to Know:
- FERC adopted new Policies for the consideration of new natural gas infrastructure which affect all pending and new applications under the Natural Gas Act.
- The new Policies introduce a new threshold test and a new four part balancing test, both of which require mitigation of all GHG emissions associated with the proposed projects.
- Comments are due April 4, 2022 on the new policy regarding GHG emissions, but the policy becomes effective immediately.
Are the announced policy changes “wrong as both law and policy”? Do they “clearly exceed the Commission’s legal authority under the NGA and NEPA and, in so doing, violate the United States Supreme Court’s major questions doctrine” as Commissioner Christie claims? Will the process under the policy statements prove to be “practically unworkable because it establishes a standardless standard” as Commissioner Danly claims? He notes: “Its universal application to all projects, both new and pending (some for over two years), is an affront to basic fairness and is unjustifiable, especially in light of the many unnecessary delays already suffered by applicants. It is unlawful because it is illogical, it arrogates to the Commission power it does not have, and it violates the NGA, NEPA and the Commission’s and the Council on Environmental Quality’s (CEQ) regulations. It is also deliberately drafted so as to evade judicial review.” There is no clear path to direct legal review, and for projects pending, some for more than two years, legal challenges will only further delay the process.
The new policies set a new threshold test – need – which includes consideration of both economic and environmental factors. “Where an applicant fails to carry its burden of demonstrating the proposed project is needed, the Commission will not undertake any further consideration of the project’s benefits or adverse effects.” The applicant’s burden of proof at the threshold stage is increased to include certain specific evidence not required by the current regulations, with a presumption against the project sponsor if some of the information, which must come from the shippers, is not presented to the Commission. “The absence of this information may prevent an applicant from meeting its burden to demonstrate that a project is needed.” Therefore project applicants are “encouraged” to obtain specific information from shippers.
Once need is established, the balancing test is a four factor test balancing the interests of the applicant’s existing customers, the interests of existing pipelines and their captive customers (to avoid overbuilding), “environmental interests” (which include GHG/climate change), and the interests of landowners and surrounding communities, including environmental justice communities, against the project need and benefit. The presumption is changed to assume that the project applicant is responsible for mitigation of the harm from potentially all GHGs for the natural gas being transported (whether directly from project construction or upstream or downstream) “based on a projection of what amount of project capacity will be actually used (projected utilization rate), as opposed to assuming 100 percent utilization.” The Policies state “the Commission will 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. This will include GHG emissions resulting from construction and operation of the project as well as, in most cases, GHG emissions resulting from the downstream combustion of transported gas.” Note that it appears that the Commission will default to the 100 percent utilization rate if the project sponsor does not meet its burden of proof to provide evidence of utilization capacity.
The burden of proof then rests on the project applicant to provide specific evidence (framed as a “proposal”) “to mitigate all or a portion of the project’s climate change impacts, and the Commission may condition its authorization on the project sponsor further mitigating those impacts.” The burden is on the project applicant because “We may also deny an application based on any of the types of adverse impacts described herein, including environmental impacts, if the adverse impacts as a whole outweigh the benefits of the project and cannot be mitigated or minimized.” Some potential acceptable mitigation proposals are listed in the Policies. There is no specific measure in the Policies for determining how much mitigation is adequate to overcome the presumption that there is harm from the quantity of GHG emissions calculated by the Commission.
Our interstate natural gas pipeline team is available to discuss the impact of the Policy changes on projects.