D.C. Circuit Vacates FERC Approval of Natural Gas Project, Holding Environmental Justice Analysis Inadequate

As part of an ongoing blog series, Arnold & Porter’s cross-practice Energy and Energy Transition team is highlighting key legal and regulatory developments for clients across economic sectors navigating all aspects of the energy transition.  

The D.C. Circuit continues to issue noteworthy decisions shaping the way natural gas projects are reviewed for potential climate change and environmental justice impacts. Most recently, on August 6, 2024, the D.C. Circuit in City of Port Isabel v. Federal Energy Regulatory Commission remanded to the Federal Energy Regulatory Commission (FERC or the Commission) its authorization of two liquefied natural gas export terminals and a pipeline that would carry natural gas to export terminals in Cameron County, Texas (the Rio Grande Project), vacating project reauthorizations and leading to construction delays while FERC conducts a more robust environmental analysis for the project. The court directed FERC on remand to issue supplemental environmental impact statements (EIS) under the National Environmental Policy Act to address the Commission’s “entirely new and significantly expanded environmental justice analysis,” and its consideration of a carbon capture and sequestration system for one of the terminals. The court also held that FERC failed to explain why it declined to consider air quality data from an air monitor closer to the Rio Grande Project than that used by the applicants. The D.C. Circuit’s environmental justice analysis is particularly notable, as the court held that “effects on environmental justice communities can be independently sufficient” to require a supplemental EIS.

This is the second time that the D.C. Circuit has issued a remand (although the first involving vacatur) on FERC’s authorization for the Rio Grande Project. Challengers, consisting of environmental groups, residents, and the City of Port Isabel, originally filed suit in February 2020 alleging that FERC did not adequately study the Rio Grande Project’s air emissions, climate impacts, and impacts on surrounding communities. In 2021, the D.C. Circuit remanded FERC’s authorization in part because FERC had failed to justify why it had examined environmental justice impacts only within a two-mile radius of the Project. In its April 21, 2023 Order on Remand and Amending Section 7 Certificate, FERC provided updated demographic information and emissions models for an increased radius around the Project and conducted a new environmental justice analysis. It concluded that impacts on environmental justice communities would be disproportionately high and adverse, and added mitigation measures to address potential air quality impacts on public recreational areas. However, over the objection of dissenting Commissioner Clements, who explained that on remand FERC had identified 282 additional environmental justice communities beyond the four identified in the original analysis, FERC did not prepare a supplemental EIS or hold public meetings regarding its updated analyses.

The D.C. Circuit, on review of the 2023 FERC order, agreed with the dissenting Commissioner, finding FERC’s failure to issue a supplemental EIS arbitrary and capricious because FERC “generated a new and significantly expanded environmental justice analysis” and arrived at new conclusions substantially different from the original EIS. The D.C. Circuit further explained that “environmental justice analyses and impacts can be sufficiently meaningful to require a [supplemental EIS] on their own” even in those circumstances when the analysis does not disclose significant impacts to the physical environment. In addition, the court found that FERC’s failure to issue a supplemental EIS prejudiced the ability of interested parties to fully participate and comment. It vacated the reauthorization orders and remanded the matter to FERC.

While it may seem counter-intuitive to expect a project sponsor to support additional environmental reviews and public engagement, this decision highlights the risks involved when an agency does not initiate such reviews on its own in the face of potentially significant new environmental impacts. While the agency is responsible for the sufficiency of its own review, the permit applicant may actually benefit by encouraging the agency to develop a robust record and is the party that ultimately pays the price for costly and time-consuming delays associated with an insufficient analysis.

Arnold & Porter’s cross-practice Energy and Energy Transition team is closely monitoring the rapidly evolving legal landscape concerning energy and energy transition projects, including the emerging case law addressing the intersection between the energy transition and environmental justice. Please contact any of the authors of this blog post with questions.

Shampa Panda-Bryant contributed to this blog post. Ms. Panda-Bryant is admitted only in California; practicing law in Washington, D.C. during the pendency of her application for admission to the District of Columbia Bar and under the supervision of lawyers of the firm who are members in good standing of the District of Columbia Bar.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This blog post 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.