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FERC’s pipeline policy U-turn is unwelcome and poorly timed

The reversal of a landmark policy by the US energy regulator is a missed opportunity for gas as a transition fuel.

For a moment, it looked like US energy regulators had caught the ESG bug. Despite the fondness for its natural gas reserves, commissioners at the Federal Energy Regulatory Commission in February issued a landmark policy statement to bring an environmental lens to proposed future gas pipeline projects.

Future pipeline projects with “reasonably foreseeable” greenhouse gas emissions of 100,000 metric tons per year would be deemed to have “a significant impact on climate change”, according to the FERC, and would likely result in rejection. Emissions, the FERC added, would be measured from construction and operation of the project and from emissions resulting from the downstream combustion of transported gas.

The reaction to the policy was one of outcry in several quarters. Fans of irony might have enjoyed Democrat Senator Joe Manchin telling a committee hearing on the policy that it begins “a process that will serve to further shut down the infrastructure we desperately need as a country and further politicise energy development in our country”. Manchin, of course, was a key figure in the scaling down of President Biden’s initial $2.2 trillion infrastructure spend to $1.2 trillion. And the elephant in the room, waving its trunk, is the Manchin-stalled Build Back Better Bill, containing key provisions for climate infrastructure and renewable tax credits.

The FERC policy was issued a week before the Russian invasion of Ukraine, although the war was also used as a stick in the reaction, with Senate minority leader Mitch McConnell writing to FERC chairman Richard Glick that “erecting new roadblocks to affordable, abundant energy makes no sense, particularly in this tenuous time”.

And so it was, two weeks ago, that Glick U-turned in all but name, adding “draft” to the FERC’s initial categorisation of the ruling as a “policy statement”.

“In light of concerns that the policy statements created further confusion about the commission’s approach to the siting of natural gas projects, the commission decided it would be helpful to gather additional comments from all interested stakeholders, including suggestions for creating greater certainty, before implementing the new policy statements,” he said.

At best, it’s unfortunate timing for a regulator to demonstrate such toothlessness in the wake of opposition. This week’s Intergovernmental Panel on Climate Change report on the ever-narrowing window to halt climate change pointed to a “stronger alignment of public sector finance and policy” as key to the solution. Meanwhile, research published last week in the Environmental Science & Technology journal found methane leaks in New Mexico’s Permian Basin were far worse than originally envisaged. Methane emissions, as a recent International Energy Agency report stressed, are about 70 percent higher than governments have admitted.

The FERC’s original proposal would not have “shut down” gas infrastructure, in Manchin’s words. Instead, it was putting in measures that would have forced an industry to truly demonstrate that it can be the transition fuel that it so often claims to be. Given that North America is the worst CO2 emitter in the IPCC report by several metrics, the FERC’s actions are likely to be closely watched by regulators across the globe.

Whatever may come from Glick’s attempts to clear up “confusion”, hitting the pause button on the policy shows a regulator not strong enough to regulate, an industry reluctant to adapt and a warming world losing out to the both of them.