LNG Exports: Who Gets to Decide?

An abundance of North American natural gas, coupled with high foreign demand, has sparked interest in exportation of natural gas. However, liquefied natural gas (LNG) facilities are controversial. Some opponents raise safety concerns—accidents, explosions, seismic events, climate change—while others assert that domestic gas prices will rise if exports occur on a significant scale.

Whose job is it to establish and enforce standards for LNG development and exports? The Natural Gas Act (NGA) gives the Federal Energy Regulatory Commission (FERC) exclusive jurisdiction over interstate gas pipelines. The Energy Policy Act of 2005 amended the NGA to clarify that FERC jurisdiction extends to siting of LNG terminals. Thus, national energy policy centralizes regulatory authority for LNG development in a single federal agency, FERC.

Or does it? When Congress designated FERC to decide the full range of LNG siting issues, it also preserved the authority of individual states conferred by the Clean Water Act, Clean Air Act, and the Coastal Zone Management Act (CZMA). Thus, LNG project developers must secure permits for waste water discharges and air emissions, in compliance with federally approved state standards. Similarly, developers must certify “consistency” with state coastal management plans approved by the National Oceanographic and Atmospheric Administration (NOAA).

Some states have wielded these authorities in a manner that exceeds any legitimate interest in enforcing local environmental standards. They have exploited their preserved environmental authority to attempt to unilaterally veto LNG projects. CZMA has been the weapon of choice.

CZMA v. LNG

The CZMA is intended to encourage states to preserve, protect, and restore their coastal environments. The states are to develop programs that include objectives, policies, and standards to guide coastal development. Once NOAA approves the plan, the state is eligible for federal funding to support further planning efforts. The CZMA and NOAA rules require developers to certify consistency with the state plan.

The CZMA contemplates local participation in the planning process, but purposely restricts the role of local laws and concerns. First, state coastal management plans must give “adequate consideration” to the “national interest” in energy facilities. Second, CZMA requires state plans to ensure that local regulations do not “unreasonably” restrict land uses of “regional benefit.” Third, state coastal management agencies have the ability to override local zoning ordinances.

The states have been creative in their attempts at blocking LNG development under their CZMA programs, but have been challenged in court. In AES Sparrows Point v. Smith, a county adopted an ordinance to stop an LNG project, and the Maryland coastal management agency included the ordinance in its CZMA coastal plan. The Fourth Circuit Court of Appeals held that the NGA preempted the ordinance because it had not been approved by NOAA as an amendment to the state coastal plan. One judge on the Fourth Circuit was more direct, saying that states lack authority under the CZMA to ban LNG facilities and the ordinance would have been preempted under any circumstances.

A second case, Weaver’s Cove Energy LLC v. Rhode Island Coastal Resources Management Council, involved a more subtle state approach to blocking LNG projects. State law required the coastal agency’s approval of dredging plans. Because the Weaver Cove LNG project proposed disposal of dredged materials in Massachusetts over which Rhode Island would have no jurisdiction, Rhode Island argued that it could not process the developer’s consistency certification. The First Circuit didn’t buy Rhode Island’s argument, holding that FERC has exclusive domain over dredging issues, and thus the NGA preempts the state’s dredging requirement.

Oregon CZMA Implementation

In recent years, three LNG terminals and gas pipelines have been proposed in Oregon. All have encountered resistance at the local level, which under Oregon’s implementation of CZMA is particularly troublesome. The Oregon Coastal Management Plan is a simple compilation of state laws, local land use comprehensive plans and regulations, and permits. The Oregon coastal management agency recently adopted rules requiring local permits to show “consistency” with the state coastal plan.

The net result is that local governments are given veto authority over LNG projects that FERC has approved, and notwithstanding that FERC would have reviewed many of the same issues included in the local government process. There could be no more explicit repudiation of congressional authority to impose a national program for the siting of energy facilities.

Even if the courts prevent the states from abusing their CZMA authority to foil LNG projects, the added cost, uncertainty, and delay imposed on developers can be just as destructive as if the states are upheld. Whatever one may think about LNG facilities, gas pipelines, or energy exports generally, the fundamental question remains: Is there a national energy policy or not? As important as local concerns are, they cannot be allowed to trump the national interest or there will be few interstate infrastructure projects—highways, telecommunications networks, or electric transmission lines, to name a few—that will withstand the Not in My Backyard test. ■

— Richard M. Glick ([email protected]) is a partner in Davis Wright Tremaine LLP’s energy and environmental practice group. Mr. Glick and his law firm represent one of the three LNG projects being developed in Oregon.