On November 6th, the D.C. Circuit of Appeals granted a temporary stay on the construction of the Atlantic Sunrise Pipeline on behalf of groups arguing that the pipeline did not go through a stringent enough environmental review that considers all environmental costs. The court lifted the stay two days later on the grounds that the opponents of the pipeline had not satisfied requirements for a stay pending court review. Despite the current status, the case illustrates persistent and fundamental flaws in how the Federal Energy Regulatory Commission (FERC) assesses proposed pipelines.
FERC talks a good balancing-benefits-and-costs game in its pipeline certification policy, but in practice, the regulators simply parrot pipeline applicants’ flawed claims about their projects’ promised benefits while greatly discounting or ignoring costs entirely. The predictable and economically wasteful result is growing overcapacity for natural gas transmission and significant, uncompensated costs borne by nearby landowners, diverse businesses, and the public at large.
As we show in our report, Atlantic Sunrise Project: FERC’s Approval Based on an Incomplete Picture of Economic Impacts, and as we have found in several other cases, FERC fails to account for the costs that pipeline construction and operation impose on people other than the pipeline company and its customers--what economists know as “external costs” or “externalities”. FERC’s policy states that the interests of communities near proposed pipelines should be considered. However, in practice, the only members of those communities who count in FERC’s eyes are owners of those properties that the pipeline would cross directly. Neighbors facing no less risk or inconvenience, recreation and tourism companies likely to lose business during and after pipeline construction, and whole communities that the pipeline makes less attractive as a location in which to live and work simply do not show up in FERC’s analysis. This is to say nothing of the impacts of the added greenhouse gas emissions that the pipelines will directly and indirectly cause.
Things are not much better on the benefits side. FERC relies exclusively on applicants’ own estimates of their projects’ benefits, and those estimates are routinely based on the inappropriate use of models known to be inadequate for estimating short-term economic effects and inappropriate for estimating effects in the longer term.
In a partial acknowledgment of these problems, then outgoing FERC Commissioner Norman Bay issued a statement to the effect that the current pipeline certification process is inadequate. He recommended that the Commission both rethink how need for pipelines is established and improve the way it conducts environmental reviews, with special importance given to a more comprehensive environmental analysis.
More recently, the Analysis Group evaluated FERC’s practices and concludes that FERC should reevaluate their certification policies to incorporate the extremely dynamic changes the natural gas industry has encountered since 1999, the last time FERC changed its policy statement.
Key-Log Economics has been working with grassroots citizens groups and established conservation organizations to provide solid, strategically important research into the economics of natural gas transmission. We would hope that FERC will fix the flaws in its broken system and establish both the capacity for and the habit of evaluating the full economic costs of proposed pipelines along with realistic assessments of their benefits. Until that happens, it will continue to fall to outside groups to develop that information and bring it to debates over pipeline approval.
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