US EPA urges FERC to consider 'climate damages' of pending gas projects

Highlights

Comments similar to broader recommendations in May

Commission should attach mitigation measures to orders

• Author  Corey Paul    S&P Global Market Intelligence Aug 2021

The US Environmental Protection Agency advised the Federal Energy Regulatory Commission to begin incorporating the social cost of carbon into its environmental reviews, taking an added look at the climate change impacts of natural gas infrastructure projects. The tool could help the commission put a dollar value on harm caused by project emissions, the EPA said.

That recommendation was consistent in recent comments filed by officials from regional EPA offices about draft environmental reviews on two separate projects: Iroquois Gas Transmission System's 125 MMcf/d Enhancement by Compression Project (CP20-48) in Connecticut and New York and Adelphia Gateway's Marcus Hook Electric Compression Project (CP21-14) proposed under a blanket certificate in Pennsylvania.

The draft reviews are among a series of supplemental reports that FERC has issued for gas projects as the commission's approach to considering climate change impacts in permitting decisions continues to evolve. FERC staff has been at an impasse, repeatedly saying in the draft reviews released so far that they are "unable to determine significance" when it comes to climate change.

"Climate change is inherently a major, significant impact of each fossil fuel project," an EPA official from the agency's Region 3 office in Philadelphia said in an Aug. 9 filing about the Adelphia project.

The EPA comments were similar to the broad recommendations it submitted to FERC in May when the agency weighed in on a review of FERC's 1999 natural gas pipeline certificate policy that the commission resurrected in February. (PL18-1) Those recommendations also supported FERC using the social cost of carbon, which is an estimate in dollars of the long-term economic damage caused by emissions.

But the recent comments by the EPA on specific pending pipeline cases carried further potential to shake up the debate on a key FERC policy.

Mitigation measures to offset emissions

The EPA's other recommendations in the recent comments included FERC taking a harder look at local and regional impacts of methane emissions as a precursor to ozone, which can cause harmful effects on human health and the environment. The EPA also said FERC should consider attaching mitigation measures for climate change impacts to certificate orders for gas projects.

"Additional mitigation efforts to offset emissions associated with the proposed action, such as promoting carbon sequestration through revegetation efforts, should also be considered in the final [environmental impact statement]," an EPA official from the agency's Region 2 office in New York wrote about a draft review for the Iroquois project. The Iroquois project review update was the first of the supplemental reviews FERC released.

The EPA also encouraged FERC to use state climate targets in its analyses. In the case of Marcus Hook project, an EPA official wrote that "it would be beneficial to require the proponent to mirror" state targets, including Delaware's, saying as an example that the developer could consider a goal of reducing its operational emissions by 80% by the end of the license term.

In March, the commission issued its first-ever pipeline authorization (CP20-487) that assessed the significance of greenhouse gas emissions, but the commission has not settled on an approach for projects with more than minimal greenhouse gas emissions.

FERC Chairman Richard Glick has indicated a preference to arrive at a method for the commission staff to determine the significance of climate impacts associated with permitting natural gas infrastructure. The pipeline policy review is expected to address how the commission considers climate change impacts, but when FERC will be able to resolve the issue remains unclear. The timeline may, in part, depend on finding a replacement for Republican Commissioner Neil Chatterjee, who is still at the commission but whose term expired June 30.

Most pipelines and other energy companies weighing in on the pipeline policy review took a more limited view of the scope of FERC's legal authority to examine indirect emissions or require mitigation. The Interstate Natural Gas Association of America, for example, argued that the commission should not rely on the social cost of carbon tool in certificate proceedings because it "is an expansive tool that incorporates factors beyond the authority of the commission to consider" under the Natural Gas Act. The group supported a previous finding by FERC that the tool is also "inadequately accurate" to use in reviews under the National Environmental Policy Act.

In the Iroquois filing, an EPA official said the agency acknowledged the uncertainty associated with using a social cost of greenhouse gases analysis but still encouraged FERC to use the estimates "that reflect the best available science and methodologies to incorporate the value to society" of emissions impacts associated with permitting decisions.

"For example, by applying the [social cost of greenhouse gases] analysis, the projected emissions associated with the proposed action equates to over $144 million in climate damages per year," the EPA said.

In a recent ruling on permits for LNG projects, the US Court of Appeals for the District of Columbia Circuit also said FERC must explain whether it is required to apply the social cost of carbon or some other analytical framework.

Estimates 'not reasonably foreseeable'

The developers of the Iroquois and Marcus Hook projects, in separate filings, largely supported the draft reviews that included emissions estimates associated with the projects but did not make determinations about the significance of those emissions.

Iroquois said it did not take issue with FERC including a new estimate of downstream greenhouse gas emissions that assumed the project — a 125,000-Dt/d expansion of its natural gas pipeline system that serves utilities Consolidated Edison Inc. and National Grid — is operated year-round at maximum capacity. But the developer said "any upper bound [greenhouse gas] emission analysis should only be provided for informational purposes" because interstate pipelines rarely operate at full utilization and actual emissions would be lower.

"By its very nature, any impact predicated on extraordinary, worst-case-scenario estimates is not reasonably foreseeable," the developer said.

If the commission does make determinations about the significance of those emissions, Iroquois may determine they are not significant and factor in previous FERC orders approving pipeline projects with larger emissions profiles. Iroquois also said the project aligned with New York state climate targets and that most of the project's capacity would be unlikely to be used for power generation, even if ancillary benefits of the project include additional deliverability to New York City and the region that may be used by electricity generators, to displace fuel oil and to support variable renewable generation sources.

Adelphia, in its filing, said using the social cost of carbon "would be improper." Instead, the developer said commission staff could detail in the final environmental review how the tool "is not generally accepted in the scientific community for use in project-level environmental analysis" and was developed for use in cost-benefit analyses in administrative rulemaking.