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D.C. Circuit Upholds FERC’s NEPA Analysis in Sabine Pass and Freeport LNG Projects

On June 28, 2016, the U.S. Court of Appeals for the District of Columbia Circuit rejected two related challenges to the Federal Energy Regulatory Commission’s environmental review of the Sabine Pass LNG and Freeport LNG applications to site, construct, and operate liquefied natural gas (“LNG”) export facilities under Section 3 of the Natural Gas Act. 

The first decision, Sierra Club v. FERC, No. 14-1249 (the “Sabine Pass Decision”) addressed a challenge to FERC’s 2014 order amending the maximum production capacity of Sabine Pass LNG’s existing LNG export facilities, which were initially approved in a separate 2012 proceeding.  The second decision, Sierra Club and Galveston Baykeeper v. FERC, No. 14-1275 (the “Freeport LNG Decision”), involved FERC’s order approving Freeport LNG’s application to add export and liquefaction facilities to its existing import terminals.

In each decision, the D. C. Circuit rejected the argument that FERC’s review under the National Environmental Policy Act (“NEPA”) failed adequately to consider: (1) the indirect environmental effects of increased natural gas exports (e.g., induced domestic natural gas production and increased use of coal-fired electric generation); and (2) the cumulative impacts of the total number of approved and pending LNG applications before FERC.  The Court held that the petitioners in each case had standing, but decided on the merits that FERC’s orders were not arbitrary or capricious.

The D.C. Circuit held that FERC is not required in its NEPA review to consider possible indirect effects that flow from increased natural gas exports.  Under NEPA, an agency is required to analyze only those effects caused by its own agency action.  Because the Department of Energy (“DOE”) has the legal authority to approve natural gas exports–a decision over which FERC has no regulatory authority–the opinions held that DOE’s export authorization in each case “breaks the NEPA causal chain” and absolves FERC of the responsibility to analyze the indirect effects of increased natural gas exports.  In the Freeport LNG Decision, the Court directed that these indirect effects should be addressed instead in Sierra Club’s pending challenge to DOE’s order authorizing Freeport LNG to export LNG.[1] 

The opinions in each case also rejected petitioners’ claims that FERC’s cumulative impacts analysis violated NEPA by failing to consider applications for all other approved and pending LNG projects across the United States.  According to the Freeport LNG Decision, petitioners “[drew] the circle too wide” because NEPA only requires FERC to consider the effect of a particular project along with other projects in the same geographic area.  Moreover, in the Sabine Pass Decision, the D. C. Circuit dismissed petitioner, Sierra Club’s, cumulative impacts argument for lack of jurisdiction because Sierra Club did not raise the issue in its request for rehearing of FERC’s order, and thereby failed to exhaust its administrative remedies.  Even if Sierra Club had raised the cumulative impacts issue in its request for rehearing, the D.C. Circuit noted it would dismiss the argument on the merits for the same reasons outlined in the Freeport LNG Decision.

These decisions confirm that FERC’s environmental review obligations under NEPA do not include indirect impacts resulting from increased natural gas exports, such as increased natural gas production and the increased use of coal for electric generation.  The decisions also hold that there are regional limitations to FERC’s required cumulative impacts analysis when reviewing LNG terminals under section 3 of the Natural Gas Act.  However, certain contours of the NEPA analysis remain uncertain for LNG projects.  It remains unclear whether and how DOE would conduct an environmental review of such indirect effects of LNG exports. 


1 See Sierra Club v. Department of Energy, Petition for Review, Docket No. 15-1489 (Dec. 22, 2015).

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© Copyright 2021 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume VI, Number 182
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Mark Haskell, Cadwallader Law Firm, Energy and Commodities Attorney
Partner

Mark R. Haskell advises clients on matters related to the U.S. Federal Energy Regulatory Commission (FERC), including FERC investigations, litigation and related court appeals, and Commodity Futures Trading Commission (CFTC) investigations affecting the energy industry. Mark represents natural gas and power marketers, local distribution companies, end users, producers, industrial consumers, and liquefied natural gas (LNG) and shale gas developers in energy regulatory matters.

As a natural gas litigator, Mark handles...

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Thomas Reid Millar, Cadwalader, regulatory proceedings Attorney, FERC electric matters lawyer
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Tom Millar focuses his practice on representing energy and commodity companies and financial institutions in a variety of investigatory, transactional and regulatory matters. He regularly assists clients in regulatory proceedings before FERC on electric matters, including general rulemakings, ISO/RTO proceedings, and Federal Power Act Section 203 and 205 proceedings.

Tom’s energy and commodity clients value the insight his litigation background offers in regulatory and investigatory matters. Among his most significant and high-profile...

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Lamiya Rahman, Cadwalader, Energy Commodity Lawyer, Transactional Compliance Attorney
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Lamiya Rahman focuses her practice on representing energy and commodity companies, financial institutions and trade associations in a variety of transactional, regulatory, compliance, and litigation matters. Her work includes representing clients in enforcement matters before the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC), advising on regulatory matters, and assisting with transactions.

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Brett Snyder, Cadwalader, Project certification lawyer, gas infrastructure attorney
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Brett A. Snyder focuses his practice on the U.S. federal regulation of the natural gas, oil, and natural gas liquids industries and the negotiation of related commercial agreements. He advises clients regarding the certification of new natural gas infrastructure projects. Brett regularly represents energy industry clients in complex administrative and rate litigation and in agency investigations before the Federal Energy Regulatory Commission (FERC), Department of Energy, the Commodity Futures Trading Commission (CFTC), Federal Communications Commission (FCC) and in U.S...

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