The Federal Energy Regulatory Commission will increase the consideration of climate change impacts in permitting decisions for natural gas transportation and export infrastructure after a shift in policy, likely increasing regulatory burdens on developers but possibly making the process more certain.

In a March 22 order that approved a small pipeline replacement project, FERC made an assessment for the first time ever about the significance of greenhouse gas emissions associated with a pipeline. Energy industry analysts and observers saw the bipartisan decision as a foundation that the commission will build on, with a stricter analysis of project-level emissions as a likely outcome.

The order "presented a fairly easy vehicle to establish that FERC is, in fact, fully capable of making a significance assessment for greenhouse gas emissions," according to Gillian Giannetti, a staff attorney at the Natural Resources Defense Council.

But questions remained about how FERC would go about developing a new regulatory framework a week after commissioners announced the new permitting compromise at their March 18 monthly public meeting.

"Being realistic about what changes can be made in the very short term — they are going to be more modest," Katie Bays, managing director at FiscalNote Markets, said in an interview. "But that does not mean the goals that the administration has are modest in the longer term."

"I would just expect to see this analysis over and over again," Bays said. "And then eventually, over time, I think we're going to see FERC become more ambitious in the scope of the review that they require."

The March 22 order did not establish a methodology for determining the significance of project emissions using the guideposts of the Natural Gas Act and the National Environmental Policy Act. FERC commissioners described, debated and voted on the order at the commission's monthly public meeting on March 18, but the commission did not issue it until March 22.

Analysts at ClearView Energy Partners said in a March 22 note to clients that the order "appears bereft of any useful or concrete guidance for a pipeline sponsor not planning a like-for-like replacement project."

"We would characterize the order as strong on reinforcing the sentiment that change lies ahead but light on substantive information regarding the parameters of future reviews," the analysts said. "As such, it does not change any of our current assumptions related to the incrementally more challenging horizon for natural gas infrastructure development we already see ahead."

The order authorized Northern Natural Gas Co. to move forward with its South Sioux City to Sioux Falls A-line Replacement Section 7 project, which will be around 80 miles of small-diameter pipeline and related infrastructure in South Dakota. A bipartisan FERC majority found that the impact on climate change would not be significant as part of a determination that the project was in the public interest (CP20-487). The approach was a compromise between Democratic FERC Chairman Richard Glick, Republican Commissioner Neil Chatterjee, and Democratic Commissioner Allison Clements.

As the order made clear, the estimates of emissions associated with the Northern Natural project were negligible, resulting in infinitesimal percentage increases over state or national emissions inventories.

Glick told reporters in a March 18 press conference that FERC had applied an "eyeball test" to the small pipeline replacement project. He said the commission would analyze the climate impacts of pipeline projects on a case-by-case basis going forward while it prepares a potential update for its decades-old policy for certificating pipelines. This left it unclear how the agency in the near term could go about determining whether project emissions have a significant impact on climate change and factoring this into a permitting decision.

FiscalNote Markets' Bays said FERC may add more substantive analysis of greenhouse gas emissions once the commission has a Democratic majority. For now, FERC is split 3-2 in favor of Republicans, with Chatterjee's term set to expire at the end of June. FERC's approach could also be influenced by the White House Council on Environmental Quality's plans to revisit Trump-era guidance that limited how agencies consider the impacts of greenhouse gas emissions when evaluating major infrastructure permits.

The commission could end up incorporating the social cost of carbon into its analysis, Bays said. The social cost of carbon is an estimate in dollars of the long-term damage caused by greenhouse gas emissions. Glick said it is one tool at the agency's disposal.

'Just a start,' environmental attorney says

"The most important takeaway from Northern Natural is that, for the first time, FERC acknowledges that it has a legal obligation to consider the significance of greenhouse gas emissions to the best extent possible and that it is not incapable of doing so," the Natural Resources Defense Council's Giannetti said in an email.

Giannetti described the order as "a great start, but it's still just a start."

The FERC order acknowledged that the evidence that it relies on to assess the significance of emissions "may evolve as the commission becomes more familiar with the exercise." FERC also suggested that the commission would consider project-level emissions in the context of state emissions reduction goals, where they exist. But the FERC majority pointed out that the National Environmental Policy Act requires the commission to rely on the best-available evidence, not only on "studies, metrics, and models" that are universally accepted.

Republican Commissioner James Danly slammed the decision to depart from the commission's historical position that it lacks the tools to address the significance of greenhouse gas emissions, without establishing "either a replacement framework or a threshold for when emissions will be deemed 'significant.'"

"It leaves pipeline companies and those who depend on their services guessing what kind of project will pass muster, not just now, but in the future as the commission's analysis 'evolves,'" Danly wrote. "Thus we are asking pipeline companies and their customers to chase a hazy, indistinct — and moving — target."

The pipeline trade group Interstate Natural Gas Association of America, or INGAA, viewed the FERC order as "consequential."

"While the commission did not find GHG [or greenhouse gas] emissions significant in this instance, it noted that if it does find these emissions significant in other projects, it will consider them going forward, in addition to project benefits and other potential impacts, when determining whether the project is in the public convenience and necessity under Section 7 of the Natural Gas Act," an INGAA spokesperson said in a statement.

"INGAA members take seriously our responsibility to reduce GHG emissions, and we're committed to putting our nation's energy infrastructure to work to address climate change," the spokesperson said. "That's why this January our members committed to work together as an industry to achieve net-zero GHG emissions from their natural gas transmission and storage assets by 2050."

FERC stance provides 'additional certainty on the path forward,' analyst says

Danly and fellow Republican Commissioner Mark Christie also criticized the majority for making the policy change a month after FERC resurrected a review of its 1999 natural gas pipeline certificate policy (PL18-1). One widely expected outcome of the policy review is that FERC will give greater weight to the climate impacts of gas transportation infrastructure and less weight to precedent agreements between gas companies and affiliates as evidence of public need.

Some observers said the Northern Natural case could offer project sponsors and investors greater regulatory certainty, even before the pipeline policy review is complete, by showing them that these types of projects will not get held up by concerns over greenhouse gas emissions.

"Maintenance- and upgrade-related projects, like the Northern Natural project, will likely face limited resistance compared to a large, greenfield project," Height Securities LLC analyst Josh Price said in a March 22 note to clients. "With the majority of FERC seemingly now in favor of analyzing project-related [greenhouse gas] impacts, we believe projects in the queue should have additional certainty on the path forward."