In a recently adopted final rule, the Department of Energy (DOE) revised its National Environmental Policy Act (NEPA) implementation procedures to include LNG exports by marine vessel within a categorical exclusion from NEPA review.  DOE finds that the only source of potential environmental impacts within its authority to review are those associated with transporting natural gas by ship, which DOE determined does not pose the potential for significant environmental impacts. Accordingly, LNG exports qualify for a categorical exclusion from NEPA review.  The new rule applies to new export authorizations as well as amendments to existing authorizations.

DOE’s new rule is likely to be controversial.  Environmental groups may challenge it in court.  In addition, the incoming Biden administration could seek to undo the rule through either repeal under the Congressional Review Act, if the Democrats have a majority in the Senate, or through a new rulemaking proceeding at DOE.

This change in DOE policy will be of interest to proposed LNG export projects that seek authorizations or amendments to authorizations from DOE and their counterparties in associated 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 U.S. 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 a public interest review, including an evaluation under NEPA.  Accordingly, the new rule affects only authorizations to export LNG to non-FTA countries.

As reported on this blog, DOE issued a Notice of Proposed Rulemaking (NOPR) in May 2020 proposing the categorical exclusion from NEPA review of LNG exports by marine vessel.  DOE received 16 comment letters on its proposal, some in opposition.  The final rule adopts the proposal without change.

The final rule

In the notice of the final rule, DOE says that its review of applications for LNG export authorizations is limited to “consideration of effects that are reasonably foreseeable and have a sufficiently close causal connection to the granting of the export authorization.” [1]  Thus, according to DOE, the environmental impacts of its export authority under the NGA are limited to those associated with activities occurring at the point of delivery to the export vessel  (i.e., when the LNG is delivered to the flange of the LNG export vessel) and extending to the territorial waters of the receiving country.  DOE stated that the new rule is consistent with the court precedent that an agency has no obligation to ‘‘gather or consider environmental information if it has no statutory authority to act on that information.’’[2]

In response to comments that DOE should consider upstream and downstream impacts of exports, DOE says upstream production impacts are not reasonably foreseeable and downstream emissions at the point of consumption are “too attenuated to be reasonably foreseeable and do not have a reasonably close causal relationship to the granting of an export authorization.”

Based on prior NEPA reviews and technical reports, DOE finds the transport of natural gas by marine vessel normally does not pose the potential for significant environmental impacts.[3] Accordingly, such transportation is within the scope of a categorical exclusion from NEPA review in its regulations.

While the rule appears to effectively eliminate NEPA review of LNG exports, DOE says, in response to comments, that when reviewing an export application it will consider whether there are extraordinary circumstances that require an Environmental Assessment or Environmental Impact Statement.

The new rule becomes effective January 4, 2021.

[1] Citing  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] Citing Sierra Club v. Federal Energy Regulatory Comm’n, 867 F.3d 1357, 1372 (D.C. Cir. 2017).

[3] U.S. Dep’t of Energy, Technical Support Document, Notice of Final Rulemaking, National Environmental Policy Act Implementing Procedures (10 CFR part 1021) (Nov. 2020).

Print:
EmailTweetLikeLinkedIn
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.