The Department of Energy proposes to no longer subject LNG exports to evaluation under the National Environmental Policy Act (NEPA).  According to a recent Notice of Proposed Rulemaking (NOPR), DOE says that the only source of potential environmental impacts within its authority to review are those associated with transporting natural gas by ship, and those shipments qualify for categorical exclusion from NEPA review.

DOE’s proposal is likely to be controversial and if adopted may be subject to litigation.  This proposed change in DOE policy will be of interest to proposed LNG export projects that are now seeking or will seek such authorizations from DOE and their counterparties in gas sales contracts.

Background

Under section 3 of the Natural Gas Act (NGA), DOE authorizes exports of natural gas and LNG unless found to not be consistent with the public interest.  Exports to countries with which the United States has a free trade agreement (FTA) are deemed in the public interest by the NGA and must be authorized “without modification or delay.”  However, for exports to countries without an FTA (non-FTA countries), DOE conducts an informal adjudication, including an evaluation under NEPA and authorizes a proposed export unless it is shown to not be consistent with the public interest.  The adjudications for non-FTA authorizations can be contentious, especially with respect to the potential increase in greenhouse gas (GHG) emissions caused by the combustion of the exported gas in the destination countries.

DOE does not authorize facilities associated with the export of natural gas.  The Federal Energy Regulatory Commission (FERC) authorizes the terminals from which LNG is exported as well as the pipelines that feed natural gas to the export terminals.  FERC undertakes NEPA reviews with respect to those facility authorizations.

Proposal

The NOPR is directed at reforming DOE’s NEPA regulations so that they are consistent with the agency’s authority and practices.  DOE proposes to revise its regulations consistent with the legal principle that potential environmental effects considered under NEPA do not include effects that the agency has no authority to prevent because they would not have a sufficiently close causal connection to the proposed action.[1]  Because DOE’s authority is limited to exports of natural gas, DOE says it will focus exclusively on NEPA review of potential environmental impacts resulting from actions occurring at or after the point of export, which DOE has construed in past adjudications as occurring when the LNG is delivered to the flange of the LNG export vessel.

According to the NOPR, the only source of potential environmental impacts associated with DOE’s decision authorizing exports are any “associated transportation of natural gas by marine vessel,” which DOE has previously determined does not pose the potential for significant environmental impacts.  Accordingly, DOE proposes to include such transportation within the scope of a categorical exclusion from NEPA review in its regulations.

With respect to the potential for GHG increased emissions, the NOPR says that “the regasification and ultimate burning of LNG in foreign countries are beyond the scope of DOE’s NEPA review.”  DOE says that two reports that it commissioned in 2014 and 2018 to calculate the life cycle greenhouse gas (GHG) emissions for LNG exported from the United States were used to support its public interest determination regarding a proposed export and were not part of DOE’s NEPA     review.[2]

Comments on the proposal are due June 1, 2020.  Documents supporting the NOPR and comments received are available here.

[1] The NOPR cites Dep’t of Transp. v. Pub. Citizen, 541 U.S. 752 (2004); Sierra Club v. Fed. Energy Regulatory Comm’n, 827 F.3d 36 (D.C. Cir. 2016).

[2] According to the NOPR, both reports concluded that the use of U.S. LNG exports for power production in European and Asian markets will not increase global GHG emissions from a life cycle perspective, when compared to regional coal extraction and consumption for power production.

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Photo of Bud Earley Bud Earley

Bud Earley, a non-lawyer senior advisor, provides analysis and advice on a wide range of federal and state energy regulatory issues, including transaction and rate issues, regional transmission organization (RTO) tariffs and rules, interconnection, retail choice and demand response for electricity customers…

Bud Earley, a non-lawyer senior advisor, provides analysis and advice on a wide range of federal and state energy regulatory issues, including transaction and rate issues, regional transmission organization (RTO) tariffs and rules, interconnection, retail choice and demand response for electricity customers, a natural gas pipelines and hydroelectric facility licenses, and LNG export authorizations.

Working with Covington teams, Mr. Earley has provided expert advice and analysis to investment firms, utilities, independent power producers, project developers, customers, marketers and U.S. and international energy companies,

Prior to joining Covington, Mr. Earley served for over 30 years in various staff positions at the Federal Energy Regulatory Commission (FERC). While at the FERC, Mr. Earley was instrumental in developing and applying policies regarding the transition of the electric utility industry to competition, including policies regarding independent power producers, transmission access, standard generator interconnection procedures, organized electricity markets, mergers and market-based rates.