D.C. Circuit Requires Further Consideration Of Social Cost Of Carbon In NEPA Analysis

• Published date: 19 August 2021
• Subject Matter: Environment, Government, Public Sector, Energy and Natural Resources, Energy Law, Environmental Law, Oil, Gas & Electricity, Government Contracts, Procurement & PPP, Climate Change
• Law Firm: Covington & Burling
• Author: John Mizerak

The D.C. Circuit issued a decision in Vecinos para el Bienestar de la Comunidad Costera v. FERC, which faulted FERC for failing to consider whether the social cost of carbon (SCC) is a "generally accepted" analytical tool for assessing the significance of greenhouse gas impacts under NEPA. The decision is likely to result in additional agency engagement of the necessity of the SCC in project reviews, although the decision does not mandate the tool's use going forward.

As we have described in prior posts, the social cost of carbon is a tool that expresses in dollar amounts the estimated cost to society of a one metric ton increase in CO2 emissions. Developed by a federal interagency working group (IWG) originally to aid cost benefit analysis in rulemaking context, the tool also has potential use in the project approval, by informing agency assessments of environmental impacts under the NEPA. By and large, however, courts have accepted agency decisions not to utilize the SCC in their analysis, often relying on the well-established rule that NEPA generally does not mandate cost-benefit analysis. See 40 C.F.R. 1502.22.

Enter Vecinos, the most recent decision in an evolving area of law. The case concerned FERC approval of liquefied natural gas export terminals and pipelines in Texas. As it has in past projects, FERC quantified the greenhouse gas emissions associated with construction and operation of the facilities, but declined to consider the significance of those effects on the project's contribution to climate change. The Commission justified this position on the grounds that there is no "universally accepted methodology to attribute discrete, quantifiable, physical effects on the environment to" an individual source's greenhouse gas emissions. Local residents, environmental groups, and a nearby city challenged, arguing, inter alia, that the Commission was obligated to use the social cost of carbon in light of 40 C.F.R. ' 1502.21, a CEQ regulation implementing NEPA which requires agencies to evaluate impacts based on theoretical approaches or research methods "generally accepted in the scientific community" when "information relevant to reasonably foreseeable significant adverse impacts cannot be obtained."

The D.C. Circuit held that the Commission's NEPA analysis was inadequate. Its decision regarding the social cost of carbon¹ rests solely on FERC's failure to consider the potential effect of ' 1502.21, which was not discussed or cited in any FERC order...