DC Circuit LNG fight showcases rift on social cost of carbon

By Niina H. Farah | 05/20/2024 07:10 AM EDT

The Federal Energy Regulatory Commission remains steadfast in its resistance to using the climate metric.

FERC headquarters.

Federal Energy Regulatory Commission headquarters in Washington. Francis Chung/E&E News

Federal judges on Friday wrestled with whether to order a second review of how two liquefied natural gas export projects in Texas could affect climate change and air quality.

The hearing at the U.S. Court of Appeals for the District of Columbia Circuit is the latest to grapple with how the Federal Energy Regulatory Commission should use the social cost of carbon in assessing whether to green-light energy projects. The climate metric puts a price tag on the social and economic damage associated with every metric ton of pollution.

The D.C. Circuit had ordered FERC to redo parts of its analysis of Texas LNG and Rio Grande LNG — as well as an associated natural gas pipeline — and to at least explain why the agency chose not to use the social cost of carbon.


On Friday, the court’s three-judge panel questioned whether FERC’s updated analysis fulfilled that order.

“Your response seems to say this is not scientifically valid,” Judge J. Michelle Childs, a Biden appointee, said of the climate metric. “The EPA at least recently said that you should look at it as scientifically valid, [but] you don’t put forward an expert who says it’s not.”

Childs was joined at the hearing by Judge Brad Garcia, a Biden appointee, and Chief Judge Sri Srinivasan, an Obama pick.

The case — brought by a coalition led by the City of Port Isabel — is one of several legal challenges pushing FERC to calculate an individual project’s impact on planet-warming emissions and then use that information to assess whether that project should be approved. It comes months after EPA finalized its social cost of carbon estimates and the White House gave other agencies the green light to adopt it.

Friday’s hearing showed FERC remains steadfast in its resistance to the metric.

Justice Department attorney Robert Kennedy said that the climate metric was developed for rulemaking, not analyzing the significance of emissions from individual projects.

“What we’re talking about here is an off-label use,” he said. “It gives a distorted picture looking at a specific project.”

The City of Port Isabel — along with the Sierra Club and residents — argues that FERC has not done enough to minimize environmental harm in approving the Texas LNG and Rio Grande LNG projects. The coalition first sued the agency in 2019, resulting in the D.C. Circuit’s 2021 order to FERC to redo some analysis. The groups sued again after FERC approved the projects last year.

After the D.C. Circuit’s 2021 ruling, FERC estimated the economic impact of the projects’ greenhouse gas emissions using the social cost of carbon — and then concluded the metric could not be used to determine the projects’ contribution to climate change.

On Friday, Kennedy argued that the climate metric puts a big dollar value on a project’s climate costs, taking into consideration a wide array of factors, but does not include the same degree of specificity for a project’s benefits.

When asked by Garcia if any other agencies had used the metric to make a significance finding, Kennedy said he was unaware of any examples.

Air pollution concerns

Garcia seemed sympathetic to the coalition’s claims that FERC had fallen short when assessing the air pollution risks of Texas LNG, Rio Grande LNG and the Rio Bravo pipeline.

FERC initially limited the scope of its analysis to a 2-mile radius, asserting that the projects did not pose a disproportionate risk to low-income and minority communities because all the residents around the facilities were minorities and low-income. The D.C. Circuit rejected that finding in its 2021 order.

In response, FERC expanded the scope of its analysis to a 50-kilometer radius around the fossil fuel facilities. The commission identified hundreds of communities that could feel disproportionate effects of heightened air pollution in the updated assessment.

“As petitioners point out, the actual bottom line conclusion has flipped,” said Garcia. “I think that is maybe their best argument for why this is meaningfully different.”

Sierra Club senior attorney Nathan Matthews, who represented the coalition during oral arguments, said FERC should have launched a supplemental environmental impact review under the National Environmental Policy Act once it identified communities more likely to face elevation air pollution risks.

“The failure to provide a NEPA process mattered here. It certainly mattered to the hundreds of environmental justice communities that didn’t receive any notice that they would face adverse impacts,” he said. “By the time they did, it was too late for non parties [to the lawsuit] to be able to comment on it.”

Kennedy, FERC’s attorney, defended the commission’s analysis. Even though more communities would see elevated air pollution, he said, the levels still remained in compliance with federal standards.

“There were no unique demographic factors that would make those populations impacted to a greater degree than the larger population,” Kennedy said. “So the commission recognized numerically these impacts are falling on [environmental justice] communities, but they are not expecting them to be amplified in any manner.”

The coalition has also argued that FERC failed to account for new developments in the projects, including a proposal by the Rio Grande LNG developer to add carbon capture and storage to the facility.

Garcia said it was a “difficult question” whether FERC should have considered that proposal as it reworked its analysis on the LNG facility. The addition of the new technology was made by the applicant for the “specific purpose of trying to increase its chance of being reapproved,” the judge said.

Garcia also questioned whether the CCS proposal was made too late to be considered as an alternative for the project in the FERC analysis, since FERC finalized the scope of alternatives in 2019.

Varu Chilakamarri, an attorney for the Rio Grande LNG project and partner at the firm K&L Gates, said the project would go forward, with or without carbon capture. As of now, she said, the Rio Grande developer intends to add carbon capture and storage.

Construction of the LNG export terminal has been underway for the past six months, she said.

The Texas LNG project, meanwhile, will likely start construction at the end of the year, according to project attorney Michael Pincus, a partner at the firm Van Ness Feldman. The facility’s conditions have not changed since it was first proposed nearly a decade ago, he said.