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In an article published by Law360 on 22 May 2020, NERA Managing Director Dr. David Harrison, Jr., notes the current controversy on how federal and state agencies should evaluate the climate change impacts of new natural gas and oil pipelines. Many evaluations by intervenors and commentators use simple calculations of the potential combustion emissions from transported fuel, which do not clarify “what is at stake.” Dr. Harrison explains that simple facts on the sources of GHG emissions, along with basic supply and demand considerations, can go a long way toward clarifying the likely GHG impacts, with energy/economic models available to quantify impacts. Combustion emissions dominate, so the major question is whether a given pipeline would lead to increased use (and thus combustion) of gasoline, natural gas, and other final fossil fuel products.

Dr. Harrison outlines the economic factors that determine whether a new pipeline would likely lead to increased fossil fuel use and thus significant increases in GHG emissions. Dr. Harrison also points out that a policy to reject a proposed pipeline as not “in the public interest” based on GHG emissions impacts is a particularly blunt policy instrument and, inevitably, much less efficient than a comprehensive market-based approach such as a national cap-and-trade program or carbon tax. Experiences with the European Union Emissions Trading Scheme (EU ETS), the largest and oldest GHG cap-and-trade program, as well as other major GHG market-based programs show that such programs provide practical alternatives to piecemeal “command and control” approaches and, indeed, make such approaches redundant.