Sierra Club v. Fed. Energy Regulatory Comm'n

• Decision Date: 28 June 2016
• Docket Number: No. 14–1249,14–1249
• Citation: 827 F.3d 59
• Parties: Sierra Club, Petitioner v. Federal Energy Regulatory Commission, Respondent American Petroleum Institute, et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

827 F.3d 59

Sierra Club, Petitioner

v. Federal Energy Regulatory Commission, RespondentAmerican Petroleum Institute, et al., Intervenors

No. 14–1249

United States Court of Appeals, District of Columbia Circuit.

Argued November 13, 2015

Decided June 28, 2016

Nathan Matthews argued the cause for petitioner. With him on the brief was Sanjay Narayan.

Robert H. Solomon, Solicitor, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief was Karin L. Larson, Attorney, Washington, DC.

Jonathan S. Franklin, Beverly Hills, CA, argued the cause for respondent-intervenors Sabine Pass Liquefaction, LLC and Sabine Pass LNG, L.P. With him on the brief were Lisa M. Tonery, New York, NY, and Charles R. Scott.

Catherine E. Stetson, Washington, DC, was on the brief for intervenor American Petroleum Institute in support of respondent. Stacy R. Linden and Benjamin Norris IV entered appearances.

Before: Rogers, Griffith and Millett, Circuit Judges.

Rogers

, Circuit Judge:

Sierra Club seeks review of the authorization by the Federal Energy Regulatory Commission of an increase in production capacity at a liquefied natural gas terminal in Louisiana. According to Sierra Club, the Commission failed to consider certain environmental consequences of its authorization, in violation of the National Environmental Policy Act of 1969 (“NEPA”), 42 U.S.C. § 4321 et seq .

The Commission initially challenges Sierra Club's standing under Article III of the Constitution to bring this petition. For reasons we explain, we conclude that Sierra Club has standing but that its challenges to the Commission's orders fail on the merits, largely for the reasons stated in the companion case, Sierra Club v. FERC (Freeport) , No. 14–1275 (D.C. Cir June 28, 2016), and otherwise the court lacks jurisdiction over challenges to the Commission's cumulative impacts analysis due to Sierra Club's failure to exhaust its administrative remedies. Accordingly, we dismiss the petition in part and deny the petition in part.

I.

Until 1977, section 3 of the Natural Gas Act of 1938, Pub. L. No. 75–688, 52 Stat. 821, 822 (codified as amended at 15 U.S.C. § 717b

), required the now-defunct Federal Power Commission (“FPC”) to approve any application to export natural gas to a foreign country unless the proposed export “will not be consistent with the public interest.” 15 U.S.C. § 717b(a) ; see also id. § 717a(9). In 1977, Congress abolished the FPC, created the Federal Energy Regulatory Commission, and transferred the section 3 authority to the Secretary of the Department of Energy (“the Secretary”). Department of Energy Organization Act, §§ 301(b), 401(a), 402(a), Pub. L. No. 95–91, 91 Stat. 565, 578, 582–84 (codified at 42 U.S.C. §§ 7151(b), 7171(a), 7172(a) ). Subsequently, Congress amended section 3 to vest in the Secretary “the exclusive authority to approve or deny an application for the siting, construction, expansion, or operation of [a liquefied natural gas] terminal.” Energy Policy Act of 2005, Pub. L. No. 109–58

, § 311(c)(2), 119 Stat. 594, 686 (codified at 15 U.S.C. § 717b(e)(1) ). The Secretary has delegated to the Commission the decision under section 3 whether to “[a]pprove or disapprove the construction and operation of particular facilities” used for the import or export of natural gas, the location of such facilities, and when new construction is involved, the entry point for imports and exit point for exports of natural gas. See Dep't of Energy, Delegation Order No. 00 –004.00A, § 1.21(A) (May 16, 2006); 42 U.S.C. § 7172(f). The Commission, however, lacks the power to authorize the actual import and export of natural gas; the Secretary has delegated that section 3 function to the Assistant Secretary of Energy for Fossil Energy. See Dep't of Energy, Redelegation Order No. 00–006.02, § 1.3(A) (Nov. 17, 2014).

The Commission, in exercising its section 3 authority, must comply with NEPA and its implementing regulations, which require that all federal agencies include an environmental impact statement (“EIS”) “in every recommendation or report on ... major Federal actions significantly affecting the quality of the human environment.” 42 U.S.C. § 4332(2)(C)

; see also 40 C.F.R. § 1508.11. To determine whether an EIS is necessary, an agency first prepares an environmental assessment, 40 C.F.R. § 1508.9, which must include, among other information, a discussion of “the environmental impacts of the proposed action,” id. § 1508.9(b). “Indirect effects ... are caused by the action and are later in time or farther removed in distance, but are still reasonably foreseeable.” Id. § 1508.8(b). “Cumulative impact is the impact on the environment which results from the incremental impact of the action when added to other past, present, and reasonably foreseeable future actions regardless of what agency (Federal or non-Federal) or person undertakes such other actions.” Id. § 1508.7; see also id. § 1508.8. After preparing an environmental assessment, an agency may conclude that the proposed action would have no significant impact (often referred to as a “FONSI,” for “finding of no significant impact”) in lieu of issuing an EIS. Id. §§ 1508.9(a)(1), 1508.13.

The petition before the court challenges whether the Commission complied with NEPA when, pursuant to its delegated section 3 powers, it approved an increase in production capacity at a liquefied natural gas terminal (“the Terminal”) in Cameron Parish, Louisiana, operated by Sabine Pass Liquefaction, LLC, and Sabine Pass LNG, L.P. (collectively “Sabine Pass”). The Commission initially approved the construction and operation of the Terminal as a facility for the import of liquefied natural gas into the United States. Sabine Pass LNG, L.P. & Cheniere Sabine Pass Pipeline Co. , 109 F.E.R.C. ¶ 61,324 (2004)

; Sabine Pass LNG, L.P. , 115 F.E.R.C. ¶ 61,330 (2006). Changes in market conditions, however, prompted Sabine Pass to seek Commission authorization to construct and operate facilities that would permit the Terminal to receive natural gas produced in the United States, liquefy it, and prepare it for export to points abroad. In 2012, the Commission authorized Sabine Pass to liquefy and prepare for export up to 16 million tons of natural gas per year. Sabine Pass Liquefaction, LLC & Sabine Pass LNG, L.P. (the “2012 Order”), 139 F.E.R.C. ¶ 61,039 at PP 1, 4. (2012). Sierra Club, which participated in the Commission proceedings, did not petition for judicial review of the 2012 Order.

The Commission orders that Sierra Club now challenges amend the 2012 Order and deny rehearing of the decision to amend. On October 25, 2013, Sabine Pass requested that the Commission authorize it to use the Terminal to liquefy and prepare for export an additional 4 million tons of natural gas per year—in total up to 20 million tons per year. NEPA required the Commission to conduct an environmental analysis of Sabine Pass's proposed amendment, and Sierra Club, which intervened in the application process, argued that the Commission needed to consider several specific environmental consequences in its analysis. Among them were two environmental consequences that form the core of Sierra Club's petition to the court. First, Sierra Club argued that increasing the volume of exported natural gas would induce U.S. natural gas producers to extract and process more gas in order to meet the increase in demand and thereby cause more gas production-related environmental harm. Second, Sierra Club argued there would be increased air pollution resulting from increased coal burning, because (1) increasing the volume of natural gas exports would more fully integrate the domestic natural gas market with the global market, where the price of natural gas is generally higher; (2) market integration would cause domestic natural gas prices to rise as the lower domestic price and the higher global price reach an equilibrium; (3) this hike in domestic gas prices would prompt U.S. energy consumers—in particular electric utilities—to switch from using natural gas to using coal, which is cheaper than natural gas but generates more air pollution. In Sierra Club's view, both of these environmental consequences of Sabine Pass's proposal constituted “indirect effects” of the proposed amendment and therefore had to be considered in the Commission's NEPA analysis. Sierra Club also maintained that the Commission must consider these indirect effects as “cumulative impacts” alongside all other pending natural gas export proposals.

Pursuant to NEPA, the Commission produced an environmental assessment of Sabine Pass's latest proposal. It summarily rejected Sierra Club's comments, stating that it had addressed them in the environmental assessment that it conducted in connection with the 2012 Order. The Commission proceeded to grant Sabine Pass's request and amended the 2012 Order to increase the maximum volume of natural gas that it could liquefy at the Terminal from 16 to 20 million tons per year. Sabine Pass Liquefaction, LLC & Sabine Pass LNG, L.P. (“2014 Amend.”), 146 F.E.R.C. ¶ 61,117 at PP 5, 12 (2014)

(“the 2014 Amendment”). In so doing, the Commission explained in greater detail its rejection of Sierra Club's comments. Id. at PP 15, 19. The Commission observed that with respect to effects flowing from export-driven increases in domestic natural gas prices, the Department of Energy—and not the Commission—possessed the legal authority to approve any increase in the volume of natural gas actually exported. Id. at P 10. The Commission also determined that induced natural gas production was not a reasonably foreseeable consequence of the 2014 Amendment and therefore not an indirect effect under NEPA. Id. at P 15. Furthermore, in the Commission's view, the 2014 Amendment did not generate any new impacts that NEPA required it to consider cumulatively. Id. at P 19. Instead of generating an EIS, the Commission therefore issued a FONSI. Id. at P 20. The Commission denied ...