Key NEPA-GHG Issues for the Biden-Harris Administration: Focus on FERC Chairman Glick and Incoming CEQ Chair Mallory

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In the coming weeks, the Council on Environmental Quality (CEQ) will reveal its plan for revising the National Environmental Policy Act (NEPA) regulations and guidance for analyzing greenhouse gas (GHG) emissions. Indeed, this will be one of the highest priority items for incoming CEQ Chair, Brenda Mallory, who was just confirmed by the Senate in a 53 to 45 vote on April 14, 2021.

In the meantime, under the leadership of new Chair Richard Glick, the Federal Energy Regulatory Commission (FERC) is wasting no time in charting its own course on the GHG emissions impacts of natural gas transportation facilities. It already has issued a Notice of Inquiry (NOI) on the Certification of New Interstate Natural Gas Facilities seeking input on the key NEPA/GHG issues that CEQ must address.¹ And in a recent order approving the Northern Natural Gas Company's (Northern) South Sioux City to Sioux Falls A-line Replacement project, it established new precedent for how it will assess the significance of a project's GHG emissions impacts.²

In the NOI, FERC posed a list of questions relating to how it should determine whether a proposed natural gas project meets the public convenience and necessity test under Section 7 of the Natural Gas Act. Among other topics, notably including how to consider impacts on environmental justice communities, FERC raises fundamental questions about the evaluation of GHG emissions impacts and alternatives under NEPA. For example, FERC seeks feedback on the:

• Scope of GHG emissions impact assessment (e.g., whether and how to consider upstream and downstream impacts);
• Calculation of a project's carbon footprint (e.g., whether and how to determine if a project's GHG emissions may be offset by reduced GHG emissions from the project's operations, such as displacing more carbon-intensive fuel sources);
• Assessment of the "significance" of a project's carbon footprint;
• Appropriate use of the social cost of carbon (SCC) in NEPA analysis; and
• Whether FERC has authority to impose mitigation for GHG emissions and if so, which GHG emissions should be mitigated and how.

CEQ will likely need to grapple with many of these same questions in the NEPA GHG emissions guidance that will apply government-wide. Will FERC's process get ahead of CEQ and potentially create precedent for other agencies? Or Will FERC's answers to these thorny questions be understood as specific to FERC's unique circumstances and statutory scheme? Will CEQ be able to craft government-wide guidance that answers these and other questions for agencies with diverse missions and authorities? Or will agencies follow FERC's lead and establish agency-specific guidance/rules? Time will tell.

Two of the more important questions that FERC will be addressing, which have national implications, are (1) how should the "significance" of GHG emissions be measured; and (2) what is the appropriate use of the SCC metric in NEPA reviews? We provide key insights into these two issues below.

How Should the "Significance" of GHG Emissions be Measured in NEPA Reviews?

• Why it's important: "Significance" is a key NEPA concept because it determines the type of documentation required to support a project, such as a Categorical Exclusion, Environmental Assessment, or Environmental Impact Statement, and whether mitigation must be considered.
• Where we are now: Until recently, FERC has questioned whether there is a reliable, objective means of determining the "significance" of GHG emissions.³ Chairman Glick, while a Commissioner, vigorously argued that it could.⁴ As Chairman, he intends to change FERC's position, although he notes that the methodology FERC employs "may evolve as the Commission becomes more familiar with the exercise."⁵ In its first foray into the assessment of "significance" since Chairman Glick took the helm, FERC compared a project's GHG emissions to: (1) total national GHG emissions (i.e., 5.903 billion MT CO₂e in 2018); and (2) total emissions in the relevant state. FERC suggested that it also could compare the project's emissions to a state's GHG emissions reduction targets. FERC's exploration of this issue has widespread implications because CEQ previously has refrained from establishing a GHG emissions-specific test for "significance."⁶
• Where we could go: FERC proposes a variety of potential methods for measuring significance of GHGs, including by: (1) comparing a project's GHG emissions to various policy-based metrics (e.g., carbon budgets in international agreements and state or regional GHG emissions reduction targets); and/or (2) assessing the project's potential impacts on climate change indicators (e.g., ocean acidification, sea-level rise, or storm events). Other federal and state and local agencies with NEPA-like statutes have been grappling with this question of significance. In California, for example, agencies established "significance" tests based on bright-line numeric values,⁷ efficiency metrics (e.g., percent reduction from "no action" or "business as usual" alternatives),⁸ and compliance with GHG reduction plans (e.g., cap-and-trade).⁹ Stakeholders with an interest in these essential NEPA GHG issues may wish to provide input during the FERC process.

What is the Appropriate Use of the Social Cost of Carbon Metric in NEPA Reviews?

• Why it's important: The SCC is an estimate of the monetized damages caused by GHG emissions; it was developed for use in agency rulemaking processes to inform cost-benefit analysis. Environmental interest groups have advocated that it also should be used in NEPA reviews. Other parties, and some courts, have questioned whether a tool developed mainly for regulatory cost-benefit analysis is appropriate in the NEPA context, and cautioned that reliance on the SCC metric could skew the results of environmental impact assessments if not applied carefully.
• Where we are now: FERC and other federal agencies generally have declined to use the SCC in NEPA reviews. They have asserted that (1) cost-benefit analysis is not required under NEPA, and (2) even where the agencies are analyzing the socioeconomic benefits of a proposal to monetize values, the SCC still is not an appropriate tool for project-specific analysis.¹⁰ The DC Circuit and other courts generally have upheld agencies' decisions not to use the SCC if the agency has justified that decision.¹¹ Whereas the Trump CEQ rejected use of SCC in NEPA reviews,¹² the Obama CEQ characterized it as an optional tool.¹³
• Where we could go: In the NOI, FERC seeks input on a number of important questions about the SCC, including:
  • whether there is a statutory basis for its use;
  • which discount rate should be applied;
  • whether and how the SCC is relevant to analyzing the "significance" of a proposed project;
  • the extent to which the SCC is relevant to determining a project proponent's mitigation obligations; and
  • whether there are alternatives to the SCC.

It is unclear how the FERC and CEQ processes will relate to each other, as each agency attempts to address fundamental questions concerning the evaluation of GHG emissions and climate change in NEPA reviews. This will also be one of several important forums in which the utility of the Social Cost of Carbon will be examined. Stakeholders with an interest in these issues may wish to participate in both the FERC and CEQ comment processes.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.