A federal court on Tuesday ordered FERC to review its approvals of two planned liquefied natural gas (LNG) export projects in South Texas, saying the agency had not adequately explained its approach in evaluating the potential impacts on climate change and environmental justice (EJ) communities.

The decision handed down from the U.S. Court of Appeals for the District of Columbia (DC) Circuit remands the Federal Energy Regulatory Commission’s authorizations, clearing the facilities for construction and operation, but it does not vacate them. That leaves the authorizations in place, allowing the developers to continue work on the facilities while the review proceeds.

“We find it reasonably likely that on remand, the Commission can redress its failure of explanation with regard to its analyses of the projects’ impacts on climate change and environmental justice communities, and its determinations of public interest and convenience” under the Natural Gas Act (NGA) “while reaching the same result,” Circuit Judge Robert Wilkins wrote in an opinion on behalf of the court.

The facilities in question, NextDecade Corp.’s Rio Grande LNG and an associated pipeline, and the privately owned Texas LNG development, received FERC authorization in 2019. Neither has reached a final investment decision. A coalition of environmentalists and local activists has long opposed the projects and challenged FERC’s authorizations in court.

Environmental Analysis ‘Deficient’

In the Tuesday decision, the court agreed with project opponents that the FERC assessment of the projects’ impacts on climate change were deficient. The opponents, which include environmental groups and local activists, argued that FERC should have used a “social cost of carbon” protocol to calculate impacts.

While commissioners had said the projects would contribute “incrementally” to climate change, FERC also said it could not calculate the actual impacts because the means of making those calculations were unknown. The court determined that the law required FERC to evaluate climate change impacts based on “theoretical approaches or research methods generally accepted in the scientific community.

“Because the Commission failed to respond to significant opposing viewpoints concerning the adequacy of its analyses” of the projects’ greenhouse gas (GHG) emissions, “we find its analyses deficient” under the National Environmental Policy Act and the Administrative Procedure Act, Wilkins wrote.

The DC court also agreed that FERC’s reliance on census blocks within two miles of the project sites to assess impacts on EJ communities was arbitrary. The opponents had argued that environmental effects from the potential projects would extend well beyond that distance.

FERC must now explain why it chose to analyze impacts only within those two-mile boundaries or analyze impacts on communities within a different radius of each project site.

The order also requires FERC to “revisit its determinations of public interest and convenience” under the NGA.

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FERC Chairman Richard Glick opposed the Commission’s approvals of the projects in 2019 and has advocated for stronger environmental reviews. He said the court decision “clearly demonstrates that the Commission has the authority and obligation to meaningfully analyze and consider the impacts from GHG emissions and impacts” to EJ communities. 

“Moreover, failure to do so puts the Commission’s decisions – and the investments made in reliance on those decisions – in legal peril.”

Both NextDecade and Texas LNG downplayed the decision and said they welcomed the news that the FERC authorizations had not been vacated. 

“The DC Circuit’s opinion is a reminder that environmental justice, energy transition and climate change are some of our most important generational issues,” a Texas LNG spokesperson said. “Texas LNG has taken tremendous actions to ensure the project is a market-leader on these issues. We look forward to assisting FERC to complete the necessary analysis while we continue to bring the project to a final investment decision.”

NextDecade, which is aiming to become a net-zero LNG exporter, also played up its green credentials.

“Efforts to reduce global greenhouse gas emissions are at the very foundation of our company, and we have already announced actions to reduce emissions at Rio Grande LNG by more than 90% through use of carbon capture and storage,” NextDecade CEO Matt Schatzman said.

‘Important Incremental Shift’

In a note to clients, ClearView Energy Partners LLC said the court’s decision was significant because it may be the first time that FERC’s EJ review under NEPA has failed to pass judicial muster.

“While there is much focus on the Biden Administration’s climate agenda, the environmental justice component of the ruling may represent an additional and important incremental shift for ongoing project reviews,” ClearView said.

On the climate side, the consultancy added that if FERC ultimately calculates a social cost of carbon for Rio Grande, the work NextDecade has done to lower the facility’s carbon footprint could result in a favorable cost-benefit analysis.

“NextDecade’s approach may be one that Texas LNG and other projects may need to consider,” ClearView said.

Within the industry, the concern is “less about the opinion and more about now shifting focus to what it is the FERC is going to use to try to review this,” Center for LNG Executive Director Charlie Riedl told NGI. “The sense is that, if FERC goes about their evaluation, and comes back and finds the necessary information for climate and finds the necessary information on EJ, then I think that we’ve got some direction on how future projects will go.”

Another LNG trade group, LNG Allies, said the U.S. export industry would continue to work with FERC to ensure all relevant issues including GHG emissions and EJ communities “are fully addressed and disclosed so that the agency’s decisions can withstand judicial scrutiny.”

The Sierra Club, which filed the legal challenge along with local activist groups, said the court’s decision marked a victory for Gulf Coast communities.

“Before the Commission can say these projects are in the public interest, it needs to evaluate their environmental justice impacts on communities…where residents lack adequate access to healthcare and rely on local fishing and tourism economies for their livelihood,” said Texas RioGrande Legal Aid attorney Jennifer Richards. The group represented one of the communities in court. “The court’s decision…will hopefully prompt FERC to do just that.”