CEI’s Advice to the Federal Energy Regulatory Commission: Steer Clear of Climate Policy

On Friday, January 6, CEI submitted comments on the Federal Energy Regulatory Commission’s November 2021 Technical Conference on Greenhouse Gas Mitigation under Sections 3 and 7 of the Natural Gas Act (NGA).

Our comments concentrated on two questions subsequently posed by the Commission in the Federal Register: 1.b: What is the appropriate level of mitigation associated with greenhouse gas (GHG) emissions for a particular project? and 2.e: What factors should the Commission consider in evaluating the sufficiency of a mitigation proposal?

Our answers may be concisely stated:

• The Commission should not mandate any mitigation of project-related GHG emissions.
• The social cost of carbon (SCC) is not a factor the Commission should consider in public convenience and necessity determinations.

My CEI colleague Patrick Michaels and I coauthored the comments with Heritage Foundation Principal Statistician, Data Scientist and Research Fellow Kevin Dayaratna, who participated as an independent scholar and not on behalf of any organization.

Some quick background. The Commission’s main job under the NGA is to determine whether a project to construct new interstate electricity transmission or natural gas infrastructure serves the “public convenience and necessity.” In such determinations, the Commission weighs the expected economic benefits of new natural gas infrastructure—pipelines, liquefied natural gas (LNG) terminals, and natural gas storage facilities—against the projected social and environmental costs. If the negative externalities are significant, the Commission may condition project approval on the adoption of mitigation measures. If significant mitigation is infeasible, the Commission may disapprove the project.

Our rather long and wonky argument may be summarized as follows.

The NGA decision framework has no rational application to project-specific GHG emissions. The GHG emissions of even the largest natural gas infrastructure project have no discernible, traceable, or verifiable impacts on global average temperature, weather patterns, crop yields, polar bear populations, or any other environmental condition people care about. The undetectably small climate impacts of project-specific emissions are, for all practical purposes, nil. Moreover, such microscopic physical perturbations in the Earth’s climate system are too small to affect the fate or fortunes of any business, community, or individual. Consequently, the climate protection benefits of mitigating such emissions are illusory.

If an infrastructure project is commercially viable and helps ensure adequate supplies of natural gas and electricity at reasonable prices (the NGA’s principal purpose), the Commission knows in advance that the project’s economic benefits far exceed any hypothetical climate-related externalities. Therefore, no further investigation of the project’s GHG emissions is required, nor does it make sense to condition the certificate of public convenience and necessity on the project’s adoption of mitigation measures.

The standard rebuttal to the foregoing is the claim that social cost of carbon analysis enables the Commission to estimate the climate damages attributable to individual projects. The SCC is an estimate in dollars of the cumulative damages from one ton of carbon dioxide-equivalent greenhouse gases emitted in a given year. All the Commission has to do, according to this line of argument, is estimate the project’s direct and indirect lifetime GHG emissions, and multiply the projected tons emitted by their associated SCC values. Such analyses, supposedly, may find that the project’s climate damages are large enough to warrant mitigation measures or even to reject the project’s certification. 

There are two main problems with that rebuttal. First, the seeming objectivity and good-enough-for-government-work reliability of SCC estimation are spurious. SCC estimates are highly sensitive to the modeler’s choice of inputs and assumptions.

For example, Dayaratna, Michaels, and University of Guelph economist Ross McKitrick ran a leading social cost model with updated empirical information on climate sensitivity (the amount of long-term warming from a doubling of atmospheric CO₂ concentration) and CO₂ atmospheric fertilization (the boost to plant biomass growth rates, water-use efficiency, and photosynthetic activity from rising CO₂ concentration). The model produced very low SCC values with substantial probabilities of being negative through 2050. A negative social cost is another way of saying a net benefit.

Second, due to their intractably speculative character, SCC estimates are easily manipulated for political purposes. The technical support documents produced by the Obama and Biden administrations’ SCC Interagency Working Group (IWG) are a case in point. The IWG’s methodological decisions continually err on the side of climate alarm and regulatory ambition.

Those dubious decisions include running the SCC calculation models with below-market discount rates, projecting social costs far beyond the limits of informed speculation, assuming climate sensitivities derived from climate prediction models that repeatedly overshoot observed warming, using models that depreciate—or simply ignore—the agricultural benefits of atmospheric CO₂ fertilization, using models that lowball human adaptive capabilities, and running the models with implausibly high baseline emission scenarios.

The IWG’s egregiously biased social cost estimates have no legitimate role in natural gas permitting decisions or in any other regulatory policy. Dayaratna politely calls the SCC “the most useless number you’ve never heard of,” whereas I incline to call it the “most mischievous” number.

In the course of developing those points, we also briefly explain why aligning the Natural Gas Act with the Biden administration’s NetZero agenda would be unlawful. The NGA does not even mention “climate,” “greenhouse gas,” “carbon,” “mitigation,” or “global warming.” Moreover, Congress has never passed a bill requiring or authorizing the Commission, or any agency, to control GHG emissions from natural gas infrastructure. Recent legislative proposals to require an 80 percent reduction in U.S. electric sector GHG emissions by 2030 seem unlikely to pass in the current Congress.

The Commission knows it has no authority to simply order a halt to all new natural gas pipeline construction or require the degasification of the U.S. electric power sector. But neither should the Commission try to do piecemeal, on a project-by-project basis, what it has no power to do on the scale and pace demanded by certain climate advocates.