While the D.C. Circuit remanded a pipeline approval to the Federal Energy Regulatory Commission ("FERC") last year in Delaware Riverkeeper v. FERC for failing to consider the "cumulative environmental impacts" of new natural gas pipeline projects and expansions as required by the Natural Gas Act, FERC has not expanded the court's holding into the climate change arena. According to commenters in numerous certificate application proceedings, FERC has failed to consider or give sufficient weight to cumulative impacts on climate change in pipeline certificate proceedings. See, e.g., Comments of the Sierra Club, the Clean Air Council, and the Allegheny Defense Project. These commenters argue that FERC must consider each project's greenhouse gas emissions together with emissions from related shale gas development because midstream projects support upstream development. So far, FERC rejects this approach.
In a May 2015 decision that is now being challenged at the D.C. Circuit, FERC rejected arguments by EarthReports and the Allegheny Defense Project that it failed to consider the climate change impacts of the Cove Point Liquefaction Project, which will enable the export of liquefied natural gas ("LNG") from an existing import terminal. 151 FERC ¶ 61,095 (2015). FERC reasoned that "the future development of upstream production is speculative and not reasonably foreseeable," and therefore falls outside the scope of the required analysis. Id. at P 57. In addition, it dismissed concerns about the impacts of end use consumption resulting from the project because "countries seeking to import natural gas will continue to negotiate and find natural gas supplies. Therefore, end use consumption of natural gas will likely occur regardless of whether this project is approved." Id. at P 58. Similarly, in April FERC rejected concerns about the climate change impacts of another new LNG and export project, stating that "the environmental impacts resulting from production activity induced by LNG exports to non-FTA countries are not 'reasonably foreseeable'" within the meaning of the rules governing environmental assessments. 151 FERC ¶ 61,012 (2015) at P 94.
FERC has further explained that it is unable to quantify a given project's impact on climate change because "[t]here is no standard methodology to determine how a project's incremental contribution to greenhouse gases would result in physical effects on the environment, either locally or globally." 149 FERC ¶ 61,255 (2014) at P 125. FERC notes that its view may change as the quality of available information improves. "Better information is emerging about fugitive methane emissions from natural gas production, both conventional and unconventional. When the quality of this information and its nexus with a proposed project allow for meaningful consideration, we will modify our analysis accordingly." 150 FERC ¶ 61181 (2015) at P 122.
Meanwhile, FERC recently reconsidered a longstanding policy that historically prevented natural gas pipelines from recovering through surcharges capital costs that the pipeline incurred to comply with environmental regulations. Referencing an Environmental Protection Agency ("EPA") White Paper on reducing greenhouse gas emissions from natural gas compression stations and an EPA Greenhouse Gas Reporting Program that includes methane monitoring for the natural gas industry, FERC recognizes that "pipelines may in the future face increased environmental monitoring and compliance costs, as well as potentially having to replace or repair existing natural gas compressors or other facilities." Cost Recovery Mechanisms for Modernization of Natural Gas Facilities, 80 Fed. Reg. 22,366, at 22,368 (Apr. 22, 2015).
Under the Policy Statement, any proposal to recover pipeline modernization costs must satisfy five standards. First, FERC requires a recent review of the current rate, either through a rate case at FERC or through a collaborative effort between the pipeline and its customers. Second, the eligible costs must be limited to one-time capital costs incurred to modify the pipeline's existing system to comply with environmental regulations or safety standards. Third, the pipeline must protect its existing captive customers from cost shifts if the pipeline loses shippers or must offer increased discounts to retain business. Fourth, there must be a periodic review to make sure the surcharge and the pipeline's base rates remain just and reasonable. Finally, the pipeline must work collaboratively with shippers and get support for any surcharge proposal.
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