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Supreme Court ruling may lead to more limited FERC climate reviews for pipelines

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Supreme Court ruling may lead to more limited FERC climate reviews for pipelines

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A June 30 ruling by the U.S. Supreme Court could ensure that natural gas pipeline projects receive more limited climate reviews from federal regulators.
Source: David Tejada/Getty Creative via Getty Images

The U.S. Supreme Court's recent decision restricting the U.S. Environmental Protection Agency's authority to regulate planet-warming emissions could constrain efforts by the majority at the Federal Energy Regulatory Commission to elevate consideration of climate change in the agency's decisions.

Republican FERC Commissioner Mark Christie and veterans of the commission told S&P Global Commodity Insights the ruling could be read to support arguments that FERC is limited in how much weight it can give to climate change concerns when deciding whether to grant permits for natural gas infrastructure under the Natural Gas Act — a key issue in FERC's ongoing review of its decades-old permitting policy.

The ruling in the case, West Virginia v. EPA (No. 20-1530), may prompt FERC to take a less aggressive approach toward regulating greenhouse gas emissions from natural gas facilities than what FERC's majority initially proposed, according to legal experts. But the decision might not prevent the regulator from considering direct greenhouse gas emissions from the facilities it regulates or requiring developers to mitigate emissions.

And although the Supreme Court decision could have wide-ranging implications for federal rulemaking, it is not expected to significantly alter FERC's approach in power sector proceedings, experts said.

The Supreme Court's decision relied on a line of reasoning known as the "major questions" doctrine in finding that the EPA exceeded its authority under the Clean Air Act when it issued its Clean Power Plan under former President Barack Obama. The doctrine, invoked for the first time by a majority of justices, holds that courts should not defer to agencies on matters of "vast economic or political significance" unless the U.S. Congress has explicitly given the agencies the authority to act in those situations.

Christie cited the major questions doctrine in a February dissent, saying FERC "clearly exceeded the commission's legal authority" when the Democratic majority voted to update FERC's 1999 natural gas pipeline policy statement and issue an interim policy laying out how it would consider greenhouse gas emissions in its project reviews. A month later, FERC decided along bipartisan lines to pull back the policies, convert them to drafts, and seek additional public comment after intense blowback from the industry and some lawmakers.

"We have no authority to reject a pipeline application based on an estimate of global [greenhouse gas] impacts, nor do we have the authority to require a pipeline certificate applicant to mitigate indirect [greenhouse gas] impacts from activities outside of our jurisdiction, such as by an end-user," Christie told Commodity Insights. "Such actions implicate major questions of policy that fall under the Supreme Court's major questions doctrine, as West Virginia. v. EPA makes crystal clear."

The court's decision, Christie said, should not have come as a surprise.

"The practical impact is on every federal agency — FERC included of course — that tries to claim legal authority over a major policy question where there is no clear grant of authority from Congress," Christie said.

Former FERC Chairman Neil Chatterjee, a Republican, said the ruling "shows clearly the risk to FERC if it attempts to use its pipeline certification policies to regulate [greenhouse gas] missions without clear authorization from Congress." The risk of a court overturning FERC's permitting policies would be "particularly high" if the policies indirectly regulate emissions beyond the facility FERC is permitting, Chatterjee said.

"It is a serious card that the pipeline industry now has to play in challenging the agency's broad policies that would hinder infrastructure," Chatterjee said.

The court's ruling "strongly supports the parties who argue that the current majority at FERC should not elevate its concerns over climate change above its obligations under the Natural Gas Act," analysts at ClearView Energy Partners said in a note to clients. The decision likely does not preclude the commission from considering emissions from a project's construction and operation, but it suggested FERC would be on "thin legal grounds" if it were to condition or deny a permit for a project on upstream or downstream emissions, the analysts said.

Other attorneys focused on FERC said the directive in the Natural Gas Act for FERC to determine whether a pipeline is required by the "public convenience and necessity" gives the commission the authority to consider greenhouse gas emissions alongside other environmental factors.

"It would be nonsensical to argue that a project's climate effects aren't part of the public interest," Natural Resources Defense Council staff attorney Gillian Giannetti said. "Federal courts have repeatedly ruled that FERC must consider those emissions, and there's no reason that should change."

Ruling 'really limits' consideration of pipeline emissions

Commissioner Christie said FERC can consider direct greenhouse gas emissions of a specific facility that FERC is evaluating whether to permit, and it can attach "reasonable and feasible" conditions to reduce those emissions.

But Christie also argued that FERC cannot reject a certificate application for a facility that would otherwise be found in the public interest under the Natural Gas Act because of concerns about estimated greenhouse gas emissions that might arise under a review required by the National Energy Policy Act. Christie declined to speculate what measures for mitigating direct emissions would be considered reasonable because that would depend on the facts of a specific proceeding.

FERC Chairman Richard Glick's office declined to comment. FERC spokesperson Mary O'Driscoll said in an email the agency is still reviewing the Supreme Court decision.

The issue of how FERC should treat climate change considerations has been a source of division along party lines on the commission in recent years. Glick said in May that the commission would continue trying to develop a policy statement that is "legally durable" and supported by all or "a supermajority" of the five commissioners.

Glick has long argued for a more expansive interpretation of FERC's authorities in light of lower court rulings. The chairman has cited the U.S. Court of Appeals for the District of Columbia Circuit's pivotal Sierra Club v. FERC decision involving the Sabal Trail Transmission project as laying out the standard that FERC can deny a pipeline permit if it determines a project's climate impacts outweigh its benefits to the public.

Former Republican Commissioner Bernard McNamee, who took a more limited view of FERC authority during his tenure on the commission, said FERC may lack the authority to require mitigation of even direct greenhouse gas emissions if the agency also lacks the authority to deny a project over emissions concerns.

"At the end of the day, this ruling really limits the ability of FERC to consider greenhouse gas emissions at all in its consideration of pipeline projects or [liquefied natural gas] projects," McNamee said.

Experts said it will be important to see how lower courts interpret the Supreme Court decision.

"The Federal Power Act and the Natural Gas Act are statutes that deal directly with economic regulation, and they do it in a very broad way," former Democratic FERC Commissioner Suedeen Kelly said in an interview.

Federal Power Act 'is a lot different'

The Supreme Court delivered its decision as FERC is advancing a range of proceedings aimed at speeding electric transmission build-out and ensuring its wholesale power market rules account for the nation's clean energy transition. But the decision is not expected to have a dramatic effect on FERC's power-related efforts, according to legal experts.

In West Virginia v. EPA, the Supreme Court held that the Clean Air Act does not authorize the EPA to cap greenhouse emissions from existing power plants at a level that would force a broad transition away from coal-fired electricity.

However, "the Federal Power Act is a lot different," Jeff Dennis, a former FERC attorney who is now managing director of Advanced Energy Economy, a clean energy trade group, said in an interview. Dennis explained that Congress explicitly passed the Federal Power Act to give FERC expansive authority over wholesale electricity markets and interstate transmission.

Ari Peskoe, director of Harvard University's Electricity Law Initiative, added that the Supreme Court "may have missed the boat" in applying the major questions doctrine to FERC. Peskoe noted in an interview that, around 30 years ago, FERC approved market-based rates and mandated open access for natural gas pipelines and electric transmission.

"Those moves really facilitated the creation of today's interstate markets," Peskoe said. "At this point, they're so entrenched within the industry that I don't think anybody really wants the Supreme Court to say FERC can't authorize market-based rates and we have to go back to cost-of-service ratemaking for everything."

More recently, the Supreme Court also affirmed FERC orders establishing bid-based market mechanisms and the free participation by demand response resources on the supply side, said Commissioner Kelly, who is now a partner at the law firm Jenner & Block. "Obviously, none of these things were thought of in the 1930s when the statute was promulgated by Congress," Kelly said.

In terms of practical impacts, Dennis predicted the high court's ruling will motivate states to take even bolder climate action.

"I think you're going to see states that are already forward-leaning on climate issues and are stepping up to address the climate crisis do so even more aggressively," Dennis said. "That will really put a continued premium on FERC's efforts to ensure that wholesale markets are better aligned with state policies, and to ensure that its transmission, planning, and cost allocation policies really reflect the needs of the states."

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