November 2021, Vol. 248, No. 11


Will Democratic-Run FERC Bless Use of ‘Social Cost of Carbon Tool’?

By Stephen Barlas, Contributing Editor, Washington D.C.

In a decision at the end of September, the Federal Energy Regulatory Commission (FERC) staff handed the pipeline industry what could be a short-lived victory by approving three compressor stations – one new – in New Jersey and Pennsylvania.  

Opponents had demanded FERC use a “social cost of carbon (SCC)” tool to total up the projects’ greenhouse gas emissions (GHG), which environmentalists said were significant and argued for more stringent restrictions or rejection. But the commission staff refused to do that.  

FERC staff’s refusal came after the U.S. Court of Appeals for the District of Columbia issued a decision in August 2021 rebuking FERC for not trying harder to assess the significance of GHG emissions for three Texas liquefied natural gas  projects and their associated pipelines. The court mentioned the SCC tool as one way to achieve its mandate.   

So, the decision by the staff to submit the full environmental impact statement (EIS) for the Tennessee Gas East 300 project without further restricting GHG emissions from the compressors – via use of the SCC tool or some other analysis – could be read as a rejection of the Appeals Court’s mandate, though the staff provided an explanation for why it reached its decision.  

The commission, soon to have a Democratic majority, now has to decide whether to grant Tennessee Gas a certificate or send the staff back to redo the EIS. That is a possibility if the Senate confirms Democratic nominee Willie L. Phillips, chairman of the Public Service Commission of the District of Columbia, to take departing Republican Neil Chatterjee’s spot.   

That will give the Democrats a 3-2 voting majority, and Commission Chairman Richard Glick, who is a strong supporter of GHG reductions for pipeline projects, might well lead the commission to buck the staff’s EIA on the East 300 project.  

That decision, if it happens, will also underline what could be a new, negative reality for pipeline companies: that FERC is now getting tougher on compressor additions as well as new pipeline mileage.   

Adam Carlesco, staff attorney for an environmental group called Climate & Energy, which opposes the Tennessee compression project, explains, “As the environmental effects of greenfield pipelines are becoming more apparent to regulators, the industry appears to be pivoting toward expanding compression capacity on aging existing lines as a workaround.”  

This matter is a real test of whether the gas transmission industry can continue to thicken its existing infrastructure without FERC ever using “research methods generally accepted in the scientific community (Vecinos) to assess the indirect climate impacts of fossil fuel infrastructure lock-in.” Vecinos was the Appeals Court decision in August 2021.  

The advent of the Biden administration and its environmental bend has already created significant uncertainty in the pipeline industry with some companies backing out of projects.   

On Sept. 28, James Danly, a Republican commissioner at FERC, told the Senate Energy & Natural Resources Committee, “Pipeline companies now have no idea how the commission will assess their project’s emissions or what additional costs the commission may seek to impose.”   

He related a decision the week before by Eastern Gas Transmission and Storage Inc. to withdraw an application for a Section 7 certificate that it filed nearly six months ago, requesting permission to build minor upgrades to three compressor stations in Pennsylvania and Virginia.   

Tennessee Gas’s Upgrade project is more expansive. It would create 115,000 Dth per day of firm transportation capacity on Tennessee’s 300 Line and is fully subscribed under a binding precedent agreement with Consolidated Edison Company of New York Inc. Tennessee Gas is a division of Kinder Morgan.  

Katherine Hill, a spokeswoman for Kinder Morgan, declined to comment on the final EIS or how it might fare in front of a Democratic-run FERC.  

In its Sept. 24 final staff EIS for the Tennessee Gas East 300 Upgrade project, FERC staff stated, “FERC staff continues to be unable to determine significance with regards to climate change impacts.”   

It provided three reasons why it could not use the SCC. That is a controversial conclusion.   

The Environmental Protection Agency (EPA) in an August 2021 comment on the draft EIS said, “EPA strongly recommends that FERC apply social cost of greenhouse gases to disclose the estimated climate impacts generated by the additional greenhouse gas emissions from the project.”   

However, in what could be read as an effort to quiet environmentalists, FERC staff added the commission would address questions about the SCC tool and its appropriateness when it publishes a review of its interstate natural gas certificate policy adopted in 1999. That policy has been under review since 2018.  

The EIS decision is a recommendation to the commissioners who may or may not agree with it. The Republican-majority commission has not been sympathetic to the SCC tool, which is currently being considered by the Biden administration for wide application by a number of regulatory agencies with authority under the National Environmental Policy Act (NEPA).   

The SCC estimates the monetized climate change damage associated with an incremental increase in carbon dioxide (CO2) emissions in a given year.   

The final staff EIS gave three reasons for not using the SCC, including its “methodological limitations (e.g., different discount rates introduce substantial variation in results and no basis exists to designate a particular monetized value as significant) that limit the tool’s usefulness in our review under NEPA and the Commission’s decision under the NGA.” That is the Natural Gas Act.  

Not only will a Democratic voting majority strengthen the potential for FERC to use the SCC methodology, but it already got encouragement of a sort in August. The court issued a ruling on LNG projects and associated pipelines in Texas, rapping the knuckles of FERC for failing to do a diligent analysis of the significance of those projects in terms of GHG emissions.   

NEPA requires that significance judgement. The court suggested one way FERC could make that judgement would be by using an SCC analysis. The court did not tell FERC to pull its prior certificates awarded to those LNG projects, but FERC is required to take some action in response to the court’s mandate. That action has not yet been forthcoming.  

Tennessee Gas argued in defending the project: “The direct and indirect emissions attributable to the project are minimal when compared to global emissions levels and to the actual emissions inventories and stated emissions goals of the United States and each of the applicable states. Therefore, the emissions attributable to the project are not significant.”   

EPA was not the only outside force pressing FERC staff to use the SCC tool. The Institute for Policy Integrity at New York University School of Law argued when it submitted comments on the draft EIS for the East 300 Upgrade project:  

“Yet, as the social cost metrics reveal, approval of the proposed action could result in over $128 million in annual climate costs from downstream emissions.   

This substantial cost bears heavily on assessing whether the project is in fact in the public interest, and FERC’s failure to consider the severity and magnitude of the project’s climate impacts is insufficient under NEPA and the NGA. The Commission should, therefore, apply these social cost metrics to assess climate harm as it continues to evaluate the project.”   

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