On August 15, 2017, the U.S. Court of Appeals for the District of Columbia Circuit rejected an appeal filed by the Sierra Club challenging an order by the U.S. Department of Energy ("DOE") that granted long-term authorization to export liquefied natural gas ("LNG") to Non-Free Trade Agreement nations from the Freeport LNG terminal.
Previously, the Sierra Club challenged the review by the Federal Energy Regulatory Commission ("FERC") of the application to construct and operate the Freeport LNG terminal, and argued that FERC failed to consider the indirect environmental effects of the project's increased natural gas exports. In that earlier case, the Court determined that arguments relating to the indirect effects of exports "should be addressed instead in Sierra Club's pending challenge to DOE's order" authorizing exports from the terminal (see prior coverage).
As explained in a Cadwalader memorandum, the Sierra Club challenged the DOE's National Environmental Policy Act ("NEPA") review on the basis of three "indirect effects" arguments. The Sierra Club asserted that the DOE failed adequately to consider the following indirect effects of increased natural gas exports: (i) induced domestic natural gas production, (ii) a switch from gas- to coal-fired generation in the electric power sector as a result of increased gas prices, and (iii) potential upstream and downstream greenhouse gas emissions. After considering each challenge, the Court upheld the DOE's NEPA review.
The Sierra Club also challenged the adequacy of the DOE's public interest analysis under section 3 of the Natural Gas Act. The Court affirmed the DOE's public interest analysis, and determined that the DOE was within its statutory discretion to conclude that the non-environmental benefits of the application outweigh the potential environmental harms.
The Cadwalader memorandum was authored by Mark Haskell, Lamiya Rahman and Brett Snyder.
Commentary / Mark R. Haskell
This decision is a positive precedent for the LNG industry, but some additional challenges remain pending. Sierra Club has filed four other petitions for review of DOE LNG export authorization orders, all of which are currently pending before the D.C. Circuit. These petitions repeat similar NEPA-related arguments, which the court likely will decide consistently with its August 15 decision. However, they also include certain additional challenges to DOE's public interest analysis, including that DOE ignored the disproportionate economic effects of increased exports, which will benefit a minority of Americans and leave a majority of the population worse off.
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