CEI Comments on Federal Energy Regulatory Commission Consideration of Greenhouse Gas Mitigation under Sections 3 and 7 of the Natural Gas Act.

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Docket No. PL21-3-000

Comments submitted by Patrick Michaels, Kevin Dayaratna, and Marlo Lewis.[1]

Thank you for the opportunity to respond to the questions posed by the Federal Energy Regulatory Commission (“FERC,” “Commission”) regarding its November 19, 2021 Technical Conference on Greenhouse Gas Mitigation under Sections 3 and 7 of the Natural Gas Act (NGA).[2]

We concentrate on questions 1.b: What is the appropriate level of mitigation associated with 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:

Section 1: Summary of Argument

In public convenience and necessity determinations, the Commission weighs the projected economic benefits of new natural gas infrastructure against the 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.

That decision framework has no rational application to natural gas infrastructure 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. Consequently, the climate protection benefits of mitigating such emissions are illusory.

If an infrastructure project is commercially viable and helps ensure adequate supplies of electricity and natural gas at reasonable prices (the NGA’s principal purpose), the Commission knows in advance that the project’s economic benefits far exceed its 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 may be summarized as follows. Social cost of carbon (SCC) 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 (CO2e) GHG emitted in a given year. The Commission should estimate the project’s direct and indirect lifetime GHG emissions, and multiply those emissions by their associated SCC values. The project’s SCC-estimated climate cost may be large enough to warrant mitigation measures or even denying 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 illusory. SCC estimates are highly sensitive to the modeler’s choice of inputs and assumptions. For example, when a leading integrated assessment model is updated with empirical information regarding climate sensitivity and CO2 fertilization, the SCC drops to very low numbers with substantial probabilities of being negative through 2050. A negative SCC 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 (TSDs) produced by the Obama and Biden administration Social Cost of Greenhouse Gases Interagency Working Group (IWG) are a prime case in point. The IWG’s methodological decisions continually err on the side of climate alarm and regulatory ambition. Such egregiously-biased social cost estimates have no legitimate role in regulatory or permitting decisions.

In the course of developing those points, we also briefly explain why aligning the NGA with the Biden administration’s NetZero agenda would be unlawful.

Section 2: Project-Related Emissions Do Not Significantly Affect the Human Environment

The NGA directs the Commission to follow National Environmental Policy Act (NEPA) procedures when reviewing proposed natural gas infrastructure projects. Some stakeholders claim this authorizes or requires the Commission to weigh potential climate change damages when determining whether a project serves the public convenience and necessity. Not so.

NEPA is centrally concerned with “major” federal actions that “significantly affect [] the quality of the human environment.”[3] The GHG emissions of even the largest infrastructure project have no discernible, traceable, or verifiable impacts on the quality of the human environment. Project-related GHG emissions are not “significant” environmental effects for NEPA purposes. Consequently, NEPA does not require the Commission to weigh or balance such emissions against the economic benefits of natural gas infrastructure.

Those who view climate change as an existential threat may find it hard to believe that NEPA, the nation’s foundational environmental law, does not require GHG mitigation measures in project authorizations. The Obama administration Council on Environmental Quality (CEQ) clearly wanted to use NEPA as a climate policy tool. Over the course of six years and three comment periods, CEQ tried but could not coherently explain why project applicants and permitting agencies should mitigate or even review emissions known in advance to be climatically-insignificant. A brief review of that history follows.

Illusory Thresholds of “Meaningful” Climate Action

FERC’s Question 1.b asks: What is the appropriate level of mitigation associated with GHG emissions for a particular project? That question skips over the logically prior question: What quantity of emissions is large enough to warrant scrutiny and mitigation?

Climate change science predicts that cumulative global GHG emissions over decades to centuries will have detectable impacts on average global temperatures and other climate variables. It does not postulate that incremental emissions from individual sources have identifiable climate impacts, or any actual economic damages. Incremental emissions attributable to specific projects are nowhere near large enough to have foreseeable, traceable, or verifiable physical effects. And those microscopic perturbations are even less likely to decide the fate or fortunes of any business enterprise, community, or human being anywhere in the world. In short, even the GHG emissions of the largest project cannot “significantly affect [] the human environment.”

Consequently, NGA review of individual project-related GHG emissions serves no bona fide environmental, scientific, or economic purpose. Absent express directives in other statutes, GHG emissions have no proper role in NGA project reviews and permitting decisions.

Although some stakeholders may balk at those conclusions, CEQ, the expert agency tasked by Congress to administer NEPA, has long acknowledged their premise—the climatological insignificance of project-related GHG emissions.

In its 2010 Draft NEPA Guidance on Greenhouse Gas Emissions and Climate Change Effects, CEQ attempted to determine which among the myriad potential projects applying for federal permits should be vetted for greenhouse gases. The answer was not obvious. “From a quantitative perspective,” CEQ explained, “there are no dominating sources and fewer sources that would even be close to dominating total GHG emissions.”[4]

The 2010 Draft GHG Guidance proposed that 25,000 tons or more of annual carbon dioxide-equivalent (CO2e) emissions could provide “an indicator that a quantitative and qualitative assessment may be meaningful to decision makers and the public.”[5] However, CEQ immediately clarified that it was not making a claim about climatic impact: “CEQ does not propose this as an indicator of a threshold of significant effects, but rather as an indicator of a minimum level of GHG emissions that may warrant some description in the appropriate NEPA analysis for agency actions involving direct emissions of GHGs.”[6]

The 2010 Draft Guidance further stated: “CEQ does not propose this [25,000 ton] reference point as an indicator of a level of GHG emissions that may significantly affect the quality of the human environment.” Lest anyone mistakenly infer climatological significance, CEQ reiterated: “However, it is not currently useful for the NEPA analysis to attempt to link [proposed projects to] specific climatological changes, as such direct linkage is difficult to isolate and to understand.”[7] 

Stakeholders were confused. How can NEPA analysis of a project emitting 25,000 tons of greenhouse gases per year be “meaningful” if that quantity of emissions does not significantly affect the quality of the human environment?[8]

CEQ’s 2014 Draft GHG Guidance devoted several pages to the issue without resolving it. CEQ again proposed a 25,000 metric ton reference point while disclaiming an intent to make a “determination of significance.”[9] Rather, the significance of an agency action depends on multiple factors, such as “the degree to which the proposal affects public health or safety, the degree to which its effects on the quality of the human environment are likely to be highly controversial, and the degree to which its possible effects on the human environment are highly uncertain or involve unique unknown risks.”[10]

However, that restates rather than removes the perplexity. The degree to which GHG emissions from an individual project affect public health and safety is for all practical purposes zero. The climatic insignificance of individual projects is non-controversial and highly certain. Greenhouse gas emissions from individual projects are not suspected of posing unique unknown risks.

After reviewing comments ranging from ‘no project-level emissions are big enough to quantify’ to ‘no project-level emissions are too small to quantify,’ CEQ judged that a 25,000-ton disclosure threshold is “1) low enough to pull in the majority of large stationary sources of greenhouse gas emissions, but also 2) high enough to limit the number of sources covered that state and local air pollution permitting agencies could feasibly handle.”[11] In other words, administrative convenience rather than climatic significance would determine the cutoff.

Then, two years later, the final 2016 GHG guidance silently dropped the 25,000-ton threshold. In fact, the whole topic disappeared without a word of explanation or comment. Perhaps CEQ just gave up trying to explain how quantifying emissions that are not climatically “significant” could still be “meaningful.”[12]

False “Proxies” for Climate Effects

Although the climatic insignificance of project-related emissions has been Council’s consistent view since 2010, CEQ in 2014 continued to propose and in 2016 required agencies to quantify facility-level GHG emissions, and use that information to evaluate proposed actions, alternatives, and mitigation measures.

Based on what scientific rationale? CEQ argued that “projection of a proposed action’s direct and reasonably foreseeable indirect GHG emissions may be used as a proxy for assessing potential climate effects.”[13] However, that is tantamount to saying, ‘Let’s pretend we know what we don’t know and regulate anyway.’

A proxy voter can cast a real, countable, ballot for an absentee voter. Data from tree rings, ice cores, fossil pollen, ocean sediments, and corals can be calibrated to instrumental data and then serve (albeit imperfectly) as proxies for climatic conditions in pre-industrial times. In contrast, no testable, measurable, or otherwise observable relationship exists between project-level greenhouse gas emissions and climate change effects. To call the former a “proxy” for the latter in an ostensibly scientific context is inaccurate and misleading.  

The Obama CEQ’s actual rationale for treating project-related emissions as climate effects for regulatory purposes appears to be political. Requiring agencies (hence also project applicants) to quantify the “direct and indirect” GHG emissions of proposed projects injects climate concerns into the daily routines of myriad public and private actors involved in building, upgrading, and reviewing energy infrastructure. It is a “consciousness raising” exercise, forcing business leaders and agency heads to “think globally” whenever they “act locally” on infrastructure. GHG project review also helps mobilize activists, promote fear and loathing of “dirty” fuels, and multiply arenas of conflict over the “climate crisis.” Advancing such political objectives is not the Commission’s proper business.

Fool’s Errand: Saving the Planet One Project at a Time

While abandoning a numerical “reference point” for “meaningful” GHG analysis, CEQ’s 2016 GHG Guidance nonetheless insists that NEPA is an appropriate framework for analyzing climate effects:

Climate change results from the incremental addition of GHG emissions from millions of individual sources, which collectively have a large impact on a global scale. CEQ recognizes that the totality of climate change impacts is not attributable to any single action, but are exacerbated by a series of actions including actions taken pursuant to decisions of the Federal Government. Therefore, a statement that emissions from a proposed Federal action represent only a small fraction of global emissions is essentially a statement about the nature of the climate change challenge, and is not an appropriate basis for deciding whether or to what extent to consider climate change impacts under NEPA.[14]

CEQ ignored the obvious. The “nature of the climate challenge” is what renders project-level GHG scrutiny a colossal waste of time and effort—perhaps the biggest make-work project ever conceived by the bureaucratic imagination.

If climate change results from the “incremental addition of GHG emissions from millions of individual sources,” and “emissions from a proposed federal action represent only a small fraction of global emissions” (perhaps no more than a few hundred thousandths of 1 percent),[15] then the GHG emissions from any individual action are climatically inconsequential. Attempting to solve the “climate change challenge” one project at a time is like trying to drain a swimming pool one thimbleful at a time. It is a fool’s errand. An individual project’s GHG emissions is an inappropriate basis for approving or rejecting the project, especially in the absence of a clear congressional directive to do so.

Keeping It Legal

The rejoinder, conveniently furnished by CEQ’s rescinded Final 2016 GHG Guidance, is that although “individual sources of emissions each make relatively small additions to global atmospheric GHG concentrations,” the myriad diverse sources “collectively have large impact.”[16] The political implication is obvious: To mitigate “large impact,” permission should be denied to as many sources as possible—ideally to all.

The chief problem with that policy—aside from the enormous economic losses and suffering it would entail—is that Congress has not authorized it. The NGA has been amended several times since enactment in 1938. Yet the Act contains none of the terms suggestive of a statute intended to address climate change. The NGA never mentions “climate,” “impact,” “global,” “warming,” “carbon,” “greenhouse,” “mitigation,” or their cognates.[17] And as the Supreme Court has said, an agency action is arbitrary and capricious under Sec. 706 of the Administrative Procedure Act if, among other things, “the agency has relied on factors which Congress has not intended it to consider….”[18] 

Congress made extensive revisions to the Commission’s powers and responsibilities in the 2005 Energy Policy Act. Section 368 (§15926 of the U.S. Code) remains in effect today. It clearly directs the Commission, as part of its “ongoing responsibilities,” to facilitate the planning and “construction” of natural gas infrastructure on federal lands.[19] Using the NGA to tilt the energy marketplace against natural gas would be contrary to the statute’s “principal purpose” of “ensuring plentiful supplies of natural gas at reasonable prices.”[20]

Numerous bills have been introduced in Congress since the early 1990s to establish economy-wide or sectoral GHG reduction targets and timetables, or to tax the carbon content of fuels or emissions. None has ever been enacted.[21] To our knowledge, Congress has never even voted on legislation expressly requiring or authorizing the Commission to regulate natural gas infrastructure for climate change purposes.

Even in the 117th Congress, despite strong pressure from the President, the Speaker of the House, and the Senate Majority Leader, legislation requiring the rapid phaseout of gas-fired generation, whether via regulatory mandates or fiscal subsidies and penalties, seems unlikely to pass.[22]

The Commission should take care not to do piecemeal what it clearly lacks authority to do at the pace and scale desired by activist groups. Those who wish to make climate policy should do so through new legislation specifically addressing the subject rather than by reinterpreting the 84-year-old NGA or 52-year-old NEPA—statutes never intended and completely inappropriate for the purpose.

Section 3: Social Cost of Carbon Basics

In the past, the Commission has taken the same position we do: “Currently, there is no standard methodology to determine how a [natural gas infrastructure] project’s relatively small incremental contribution to GHGs would translate into physical effects on the global environment.”[23] Columbia Law School Research Scholar Romany M. Webb objects that social cost of carbon (SCC) analysis is the methodology that can quantify climate damages from project-level emissions:

The SCC reflects the cost, expressed in dollars per ton, of current and future damage caused by carbon dioxide emissions. It is widely considered the best available estimate of the costs imposed by climate damage, having been developed by an interagency working group, comprising experts from twelve federal bodies, based on the latest scientific and economic modeling.[24]

Similarly, at the Commission’s November 19, 2021 Technical Conference, Analysis Group, Inc. Senior Advisor Dr. Susan Tierney, EarthJustice Senior Attorney Moneen Nasmith, and Environmental Protection Agency Deputy General Counsel Melissa Hoffer argued that SCC analysis is fit for purpose. In Dr. Tierney’s words:

And the social cost of carbon is a highly credible peer reviewed analysis that looks at the cost of impacts of greenhouse gas emissions across the economy . . . one can kick the tires and see transparently what are the economic studies that are associated with the number that has been determined as the social cost of carbon in any year associated with the next greenhouse gas emitted.[25]

In the sections below, we explain how the SCC is highly sensitive to user manipulation and can therefore be easily misused to guide policy. Before doing so, we summarize in this section the basics of SCC analysis, particularly as performed by the IWG.

The SCC is an estimate in dollars of the cumulative long-term damage caused by one ton of CO2 emitted in a specific year. That number also represents an estimate of the benefit of avoiding or reducing one ton of CO2 emissions.

The computer models used to project SCC values are called integrated assessment models (IAMs) because they combine aspects of a climate model, which estimates the physical impacts of CO2 emissions, with an economic model, which estimates the dollar value of climate change effects on agricultural productivity, property values, and other economic variables. The IWG uses three IAMs—abbreviated DICE, FUND, and PAGE—to estimate SCC values.[26]

SCC estimates are highly sensitive to:

  • The discount rates chosen to calculate the present value of future emissions and reductions.
  • The calculated climate sensitivities chosen to estimate the warming impact of projected increases in atmospheric GHG concentration.
  • The timespan chosen to estimate cumulative damages from rising GHG concentration.
  • The extent to which the SCC reflects empirical information about the agricultural and ecological benefits of carbon dioxide fertilization.
  • The assumptions chosen regarding the potential for adaptation to decrease the cost of future climate change impacts.
  • The choice of socioeconomic pathways used to project future GHG emissions and concentrations.

In addition, from a political perspective, it matters a great deal whether the net benefits of climate policy proposals are calculated by comparing the domestic costs of GHG-reduction policies to the IAM-estimated global climate benefits or to the much smaller domestic benefits.

What this all means is that, if SCC analysts intend to make climate change look economically catastrophic and build a case for aggressive regulation, they:

  • Run the IAMs with below-market discount rates.
  • Use IAMs with high climate sensitivity.
  • Calculate cumulative damages over a 300-year period—i.e., well beyond the limits of informed speculation about future economic vulnerabilities and adaptive technologies.
  • Minimize the agricultural benefits of atmospheric CO2 fertilization by, for example, averaging the results of three IAMs, two of which effectively assign a dollar value of zero to carbon dioxide’s positive externalities.
  • Include at least one IAM that assumes adaptation cannot mitigate the cost of climate change impacts once warming and sea-level rise exceed low-end climate model projections.
  • Run the models with implausible emission scenarios that assume the world repeatedly burns through all economically-recoverable fossil fuel reserves.
  • Calculate climate policy net benefits by comparing apples (domestic costs) to oranges (global benefits).

In other words, the analysts do exactly what the Obama IWG did in its 2010, 2013, and 2016 TSDs, and what the Biden IWG proposes to do in its 2021 interim TSD.[27]

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