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FERC, CFTC, and State Energy Law Developments

The US Department of Energy (DOE or Department) finalized a rulemaking proceeding last week that revises its National Environmental Policy Act (NEPA) implementing procedures pertaining to certain authorizations under the Natural Gas Act (NGA). This update limits DOE’s review of environmental impacts associated with natural gas exports to certain countries; DOE’s review will only consider the environmental effects of marine transportation, which DOE has also determined as not creating a significant environmental impact.

Background

Regulations that implement NEPA require that each agency develop its own NEPA implementing procedures when applying NEPA to decisionmaking processes. Under previous DOE regulations, the Department had to conduct an environmental review pursuant to NEPA before granting an application to export natural gas to a country with which the United States does not have a free trade agreement requiring national treatment for natural gas exports (non-FTA countries). But NEPA regulations also permit agencies to identify categories of actions that normally do not have significant effects or that the agency has no authority to prevent, and to then categorically exclude them from review.

Regulatory Change

Under DOE’s revised implementing procedures, DOE has streamlined its NEPA review requirements for natural gas exports with non-FTA countries “to focus exclusively on the analysis of environmental impacts resulting from activities occurring at or after the point of export.” These impacts “begin at the point of export and are limited to the marine transport effects.” Accordingly, DOE’s analysis will not consider other environmental impacts.

For example, DOE will not consider impacts of the construction or operation of natural gas export facilities “because DOE lacks authority to approve” those actions. FERC has jurisdiction for those activities. Under existing regulations, DOE does not consider upstream (production) and downstream (consumption) impacts, and DOE will not start doing so. In response to one comment suggesting that DOE analyze upstream and downstream aspects, DOE noted that in addition to not previously considering these impacts in its NEPA analysis, impacts on production are not reasonably foreseeable and analyzing emission changes from consumption are both too attenuated to be reasonably foreseeable and without a “reasonably close causal relationship” to granting an export authorization. DOE’s basis for the export review change is that the Department is required by the NGA to authorize natural gas exports to FTA countries and its review of exports to non-FTA countries limited to reasonably foreseeable effects that have a sufficiently close causal connection to granting the authorization.

In addition, DOE is removing references to authorization for importing natural gas from its NEPA implementing procedures, reasoning that under existing legislation, it has no discretion to deny natural gas imports. DOE contends that existing NEPA regulations do not require an agency to prepare a NEPA analysis when it lacks discretion in its action.

Further, DOE has determined based on recent studies that transportation of natural gas by marine vessel does not create significant environmental impacts. Marine transportation is the likely route for most natural gas exports and imports.

This rule takes effect on January 4, 2021.

DOE’s revisions, however, are expected to have limited effect on the export authorization process. FERC must still conduct a NEPA analysis of the construction or operation of natural gas export facilities and attendant pipeline infrastructure. And in the past, DOE had usually adopted FERC’s analysis on construction and operations impact instead of conducting its own.

Potential Challenges

Despite the limited scope of the rule, a Biden administration’s general opposition towards carbon-based fuels suggests it would seek to undo the rulemaking. Such revisions would require another rulemaking, however, which could take months or years to complete. In the interim, opponents could seek to repeal the rule under the Congressional Review Act. But the limited scope of the rulemaking and the at-most slim Democratic majority in Congress means that legislative repeal is unlikely. Private opponents could seek to overturn the rule in court, but the high level of deference afforded to agency rulemaking, aside from the time it takes for judicial review, means that if a Biden administration were inclined to undo the rule, another rulemaking is the surest option.

But it is not clear that this rulemaking will be significant enough to merit attention, especially when a Biden administration could advance its environmental agenda through other more aggressive agency actions. For example, a Biden administration could look to FERC to promote carbon pricing or to permit greater use of state support for favored energy resources or to the Army Corps of Engineers to block or slow approvals for pipeline that cross federal lands. A Biden administration will likely ban by executive order the use of hydraulic fracturing on federal lands. And specific to the NEPA review affected by this rulemaking, a FERC expected to be more friendly to a Biden administration’s environmental agenda will still conduct a NEPA review aspect that the DOE has now excluded.

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