United States: Addressing Pipeline And Other Supply Chain Issues During The Transition To Cleaner Aviation Fuel

As industries move toward cleaner energy sources, crucial sectors of the economy—notably aviation—cannot realistically be powered with electricity and must be powered by cleaner physical fuels, such as sustainable aviation fuel (SAF), synthetic "efuels," hydrogen, or even ammonia. Forward-thinking companies in these sectors are working diligently to secure increasingly abundant, affordable, and reliable supplies of these fuels in both the near and long term in order to usher in the transition to a reduced carbon energy economy.

Despite the enormous challenges involved, the aviation industry has shown extraordinary leadership in transitioning to sustainable sources of fuel. There is an ongoing debate as to the best clean fuel in the long term. However, most agree that in the shorter term, the most practical options are SAFs and efuels. Since these two fuels are hydrocarbon replicas of conventional fuel, they can serve as direct "drop-in" replacements to fuel existing aircraft. By contrast, hydrogen and ammonia are chemically different from hydrocarbon fuels. Although they have been proven as feasible fuels for aircraft, their use would require a different aircraft design or at least significant modification of current aircraft.

The transition to sustainable fuels will entail a reworking of supply chains, including the pipelines currently used to transport aviation fuel. The legal and regulatory landscape for both the development of fuels and the transportation supply chain is the subject of significant uncertainty and debate, and few individuals are experts in the relevant law. Currently, aviation fuel is predominantly produced from crude oil and transported in pipelines carrying other refined petroleum products, which are subject to the Federal Energy Regulatory Commission's (FERC) regulation under the Interstate Commerce Act (ICA). Once made, SAF and efuels will also need to access pipeline infrastructure (regulated under the ICA) to reach their consumers. Hydrogen, which is already used to produce conventional fuels, will likely be required in greater abundance to produce sustainable alternatives.¹ As hydrogen begins to be sourced more often from renewable sources (rather than produced onsite from natural gas), more transportation infrastructure will be needed to transport this hydrogen from its production location to the destination of end use.² Pipelines may also be needed to transport carbon dioxide both for sequestration of that carbon dioxide and as a feedstock for energy products, including efuels.³ There is uncertainty and debate as to how pipelines carrying hydrogen or carbon dioxide are regulated under current law.

Venable's Energy Group is at the forefront of these legal and policy issues. Venable's Energy Group has long represented the aviation industries and others in transporting both crude inputs and finished fuels in pipelines regulated by FERC and state agencies. The Energy Group is also a leader in the ongoing legal and policy debate about the regulation of pipelines transporting hydrogen, carbon dioxide, and biofuels. This year alone, Venable attorneys have testified before a Senate Committee, debated in association events, and published peer-reviewed articles on these topics.⁴ Venable's policy group worked to secure key tax provisions in the Inflation Reduction Act, and Venable's attorneys have advised clients on potential hydrogen production projects and represented renewable fuel producers in their disputes with natural gas pipelines. Venable's Energy Group recognizes that all these issues are changing and inter-related and are ready to advise clients as they confront these and other issues related to the new decarbonized energy economy.

Footnotes

1. William G. Bolgiano, FERC's Authority to Regulate Hydrogen Pipelines Under the Interstate Commerce Act, 43 Energy L.J. 1, 11, 71-72 (2022) ("Hydrogen Pipelines").

2. Id. at 13-16.

3. Richard E. Powers, Jr., et al., Hydrogen Production and Carbon Sequestration May Require the Surface Transportation Board to Clarify Jurisdiction over Carbon Dioxide Pipelines, Venable LLP (Nov. 18, 2022), https://www.venable.com/insights/publications/2022/11/hydrogen-production-and-carbon-sequestration.

4. Hearing to Examine Federal Regulatory Authorities Governing the Development of Interstate Hydrogen Pipelines, Storage, Import, and Export Facilities, Before the S. Comm. on Energy & Nat. Res., 117th Cong. (July 19, 2022) (Written Testimony of Richard E. Powers, Jr.), https://www.energy.senate.gov/services/files/542E24C8-F2A2-4483-869F-1201C6E7D9FD; Rich Reidorn, Jr., Lawyers, Industry Debate Path for Hydrogen Regulation: Natural Gas Act, Interstate Commerce Act or New Law?, RTO Insider (Oct. 16, 2022), https://www.rtoinsider.com/articles/30955-lawyers-industry-debate-path-hydrogen-regulation; Bolgiano, Hydrogen Pipelines.