The D.C. Circuit issued a decision in Vecinos para el Bienestar de la Comunidad Costera v. FERC, which faulted FERC for failing to consider whether the social cost of carbon (SCC) is a “generally accepted” analytical tool for assessing the significance of greenhouse gas impacts under NEPA.  The decision is likely to result in additional agency engagement of the necessity of the SCC in project reviews, although the decision does not mandate the tool’s use going forward.

As we have described in prior posts, the social cost of carbon is a tool that expresses in dollar amounts the estimated cost to society of a one metric ton increase in CO2 emissions.  Developed by a federal interagency working group (IWG) originally to aid cost benefit analysis in rulemaking context, the tool also has potential use in the project approval, by informing agency assessments of environmental impacts under the NEPA.  By and large, however, courts have accepted agency decisions not to utilize the SCC in their analysis, often relying on the well-established rule that NEPA generally does not mandate cost-benefit analysis.  See 40 C.F.R. 1502.22.

Enter Vecinos, the most recent decision in an evolving area of law.  The case concerned FERC approval of liquefied natural gas export terminals and pipelines in Texas.  As it has in past projects, FERC quantified the greenhouse gas emissions associated with construction and operation of the facilities, but declined to consider the significance of those effects on the project’s contribution to climate change.  The Commission justified this position on the grounds that there is no “universally accepted methodology to attribute discrete, quantifiable, physical effects on the environment to” an individual source’s greenhouse gas emissions.  Local residents, environmental groups, and  a nearby city challenged, arguing, inter alia, that the Commission was obligated to use the social cost of carbon in light of 40 C.F.R. § 1502.21, a CEQ regulation implementing NEPA which requires agencies to evaluate impacts based on theoretical approaches or research methods “generally accepted in the scientific community” when “information relevant to reasonably foreseeable significant adverse impacts cannot be obtained.”

The D.C. Circuit held that the Commission’s NEPA analysis was inadequate.  Its decision regarding the social cost of carbon[1] rests solely on FERC’s failure to consider the potential effect of § 1502.21, which was not discussed or cited in any FERC order or briefing in the case.  In so doing, it distinguished an earlier D.C. Circuit decision which had upheld FERC’s decision not to use the social cost of carbon in other projects, which also did not discuss the regulation.[2]

Accordingly, on remand and in the future, FERC and other agencies will have to more directly evaluate the tool and the rigor of the science behind it.  Proponents will argue that the social cost of carbon is the kind of “generally accepted” theoretical approach § 1502.21 requires be incorporated into NEPA:  The IWG’s SCC framework is at this point over a decade old, and was designed from the start to reflect scientific consensus, incorporating the three most widely cited climate economic impact models, each of which have been extensively peer reviewed.  The National Academy of Sciences has recognized the tool and provided recommendations on how to strengthen it, which the Biden Administration is actively working to incorporate through an inclusive public process with stakeholders and experts to ensure that projections are based on the “best available science.”

The decision is the latest in a series of cases assessing the adequacy of FERC’s NEPA analysis.  The D.C. Circuit has required that FERC more fully consider the climate consequences of approved projects, particularly the reasonably foreseeable downstream impacts of additional fossil fuel transportation infrastructure, and Vecinos is another push in the same direction.  But, as it has in the past, the D.C. Circuit made clear that it was stopping short of forcing the social cost of carbon on FERC.  Indeed, the Vecinos court remanded the approval without vacating it, concluding it was “reasonably likely” that the Commission would be able to reach the same result even after discussing § 1502.21, and that vacatur could “needlessly disrupt completion of the projects.”  Construction of the facilities continues after the ruling.

Even if Vecinos does not result in broader adoption of the social cost of carbon in project approval, changes from the executive and legislative branches may, for FERC as well as other agencies.  By the end of this month, the interagency working group will submit recommendations on “areas of decision-making, budgeting, and procurement” across the federal government where the SCC should be applied, which could include project approval and NEPA analysis.  Regarding FERC specifically, President Biden will soon be expected to announce his replacement for Commissioner Neil Chatterjee, potentially shifting the Commission to a Democratic majority and providing additional support to Chairman Glick, who has vocally supported having the Commission consider the significance of greenhouse gas emissions and the social cost of carbon in NEPA analyses.

[1] Vecinos separately held that the Commission’s environmental justice analysis was arbitrarily limited, as it did not discuss potential disproportionate effects more than two miles away from the project site.

[2] See EarthReports, Inc. v. FERC, 828 F.3d 949, 956 (D.C. Cir. 2016); see also Appalachian Voices v. FERC, No. 17-1271, 2019 WL 847199 (D.C. Cir. Feb. 19, 2019); Sierra Club. v. FERC, 672 Fed. Appx. 38, 39 (D.C. Cir. 2016).