This report puts a price tag on the climate impacts of US LNG exports

In late January, the Biden administration announced that it was pausing new approvals for liquefied natural gas export terminals until it can reassess its review process. That decision hinges on a key question: Is continuing to expand the country’s already massive fossil-gas export capacity in the “public interest?”

To answer that, the administration will likely try to determine the cost in dollars and cents of two main impacts of liquefied natural gas (LNG) exports: their effect on domestic energy prices and their contribution to climate change.

These are tricky equations for the U.S. Department of Energy to solve as it undertakes the review the Biden administration has ordered. DOE hasn’t yet publicly discussed the methodology or process it plans to use to make these determinations.

But amid much uncertainty and many contested claims over the issue, one thing appears clear, according to a recent report from the Institute for Policy Integrity at New York University School of Law: The assessments that have guided U.S. LNG export authorizations over the past half-decade of the industry’s startling growth are not capturing the full scope of climate harms those exports are causing — or the economic harms those emissions will create in the country or around the world.

The report uses data from DOE’s previously published studies — the same ones that environmentalists say have failed to consider the broader economic and climate impacts of LNG export terminals to date — to determine that the “climate costs” of expanding LNG exports “likely exceed economic benefits.”

And these findings aren’t based on a novel methodology for calculating benefits and harms of the LNG industry, said Max Sarinsky, the report’s co-author, a senior attorney at the Institute for Policy Integrity and an adjunct clinical professor at New York University School of Law. Instead, “we just took DOE’s existing analyses and had them talk to each other,” he explained. “Because our analysis draws heavily from the DOE’s own work, including data, models and methods, it could be particularly useful for DOE’s purposes” of reassessing whether expanding U.S. LNG export capacity is in the public interest.

Going to the source of DOE’s economic and environmental analysis

The new report draws from two DOE analyses. The first is a 2018 study of the economic impacts of LNG exports. It found that increasing LNG exports would drive up domestic fossil-gas prices but would also increase the domestic revenue of the companies involved, which in turn would benefit American consumers and outweigh the negative effect of more expensive utility bills. This finding has remained part of DOE’s current process for reviewing LNG exports that will now be reevaluated.

The second analysis is an environmental assessment prepared by DOE in 2022 on the life-cycle emissions of producing gas and shipping it from Alaska to Japan, South Korea, China and India. That study represents an updated analysis of a similar study conducted in 2019 of the life-cycle greenhouse gas impacts of U.S. LNG being used to replace coal-fired power or Russian fossil gas in Europe and Asia. It found that U.S. LNG would yield lower carbon emissions than those alternatives, a conclusion that now guides DOE determinations on LNG exports.

“Then we just compared the climate costs and the economic benefits,” Sarinsky said. “And we find the climate cost is substantially higher than the economic benefit.”

Even under the most conservative assumptions about the economic harms of increasing greenhouse gas emissions, the new report finds that the climate costs of gas exports are nearly twice as high as their benefits for consumers. In the worst case, those costs are nearly 19 times higher than the benefits.

These findings are durable even when considering all the uncertainties around forecasting the economic and environmental impacts of increasing the supply of LNG on international markets, the report states. “While the precise difference depends on several factors — including the share of gas production that merely displaces fossil-fuel production from other sources, the economic value assigned to climate damages and the adoption of carbon-capture technology — gross climate damages greatly exceed economic benefits under all scenarios evaluated.”

Dealing with the uncertainties

Much of the debate over the Biden administration’s decision to reassess the criteria by which DOE evaluates LNG exports centers on disputes over how to calculate these uncertainties.

For example, U.S. LNG exports could allow countries to transition away from coal or fossil gas from Russia, which other recent analyses have shown to have higher greenhouse gas emissions than U.S. LNG when burned to generate power. This, in turn, could reduce those countries’ global warming emissions, as many industry groups contend. In that light, limiting U.S. LNG export growth could be seen as a “win for Russia and a loss for American allies, U.S. jobs and global climate progress,” as Mike Sommers, CEO of the American Petroleum Institute trade group, said in a statement decrying the Biden administration’s decision.

But increased U.S. LNG exports could also inject more fossil gas into economies striving to switch from fossil fuels to clean energy, slowing progress on climate change, a point frequently made by environmental groups.

“The industry loves to say America’s LNG is cleaner,” said Jake Schmidt, senior strategic director of international climate at the Natural Resources Defense Council. But that “depends on what you’re replacing.”

In a recent blog post, Schmidt and a co-author point out that European demand for fossil gas has spiked since Russia invaded Ukraine in 2022 and began curtailing exports to Europe, but demand is set to decrease significantly as the European Union moves ahead on its aggressive climate and clean energy mandates. Meanwhile, Japan and South Korea “have declining gas consumption as they switch to renewables,” and China’s appetite for fossil gas is mainly driven by industrial uses rather than power generation, he said.

Indeed, most contracts signed for U.S. LNG export terminals awaiting DOE approval are for so-called “portfolio” buyers — “oil and gas traders that are not bound to any jurisdiction,” Schmidt said. “Whoever will pay them the most money, they’ll turn their gas to that.”

Even if most exported U.S. LNG is used to replace coal overseas, expanding the country’s export capacity may not lead to an overall reduction in greenhouse gas emissions, he noted. Recent research often cited by LNG opponents (and disputed by LNG backers and some climate scientists) indicates that the global-warming impact of leakage of methane — a highly damaging greenhouse gas that is the primary ingredient in fossil gas — from wells, pumps, pipelines, terminals and LNG cargo vessels overwhelms the carbon-emissions-reduction benefits of using it to replace coal.

Breaking down the costs and benefits

The Institute for Policy Integrity (IPI) doesn’t directly engage with these questions of global trade and methane leaks. Instead, it analyzes the existing methodologies used by DOE to calculate the climate harms driven by the increased use of fossil gas made available from expanded LNG exports.

The new IPI report uses a metric known as the social cost of greenhouse gases, which encompasses wide-ranging variables including decreased human lifespans due to temperature extremes, reduced agricultural productivity due to changing precipitation, and property values damaged by sea-level rise and extreme weather events.

There are many different approaches to applying the social cost of greenhouse gases, but it remains the primary way to “compare costs and benefits in dollar terms,” Sarinsky said. While the new IPI report uses the federal government’s newest methodology — issued by the U.S. Environmental Protection Agency in December — the report’s findings still bear out using older methodologies, he said. “Even if you use the old numbers, you still likely come to the same results.”

The IPI report also shines some light on how much of the fossil gas that would be made available for use worldwide by expanding U.S. LNG export capacity would have to displace coal or more emissions-intensive sources of fossil gas to yield more benefits than harms. LNG backers have argued that newly added U.S. exports will displace dirtier sources of fossil gas from countries like Russia, rather than simply increase the total volume of fossil gas available on global markets.

To counter that argument, Sarinsky points to the IPI report’s finding of a median cost-benefit ratio of 9.6. That means that the climate costs of each unit of exported LNG are roughly 10 times higher than its economic benefits. In other words, if just “10 percent of the greenhouse gas emissions from LNG exports are…emissions that wouldn’t have occurred without these exports, then the costs exceed the benefits,” he said.

While it’s possible that more than 90 percent of the LNG being exported from the U.S. would be used in ways that decrease rather than increase greenhouse gas emissions compared to not exporting that LNG in the first place, other federal analyses have indicated that’s highly unlikely, he said.

By way of comparison, Sarinsky cited a 2023 analysis by the Interior Department’s Bureau of Ocean Energy Management on the “substitution costs” of U.S. offshore oil and gas extraction. According to Sarinsky, that analysis found that “about 25 percent of the emissions from U.S. offshore oil and gas extraction represent additional emissions — that if you didn’t have offshore extraction, those emissions would not come from substitute sources.” That is, increasing the supply of fossil fuels on global markets is more likely to lead to more fossil gas being burned than otherwise would have been.

The new IPI report’s methodology is a relatively simple way to assess climate harms without engaging in the complex and assumption-riddled task of trying to determine precisely where exported U.S. LNG will end up being used and what alternatives it will supplant, said co-author Minhong Xu.

“Estimating…what exported gas will replace and how it will affect the market can be very challenging,” Xu said. “This approach circumvents the need for complex substitution models covering international markets and various end-use sectors.”

It’s not clear how DOE will undertake the reassessment it’s been ordered by the Biden administration to conduct. According to Sarinsky, the White House hasn’t called upon DOE to directly compare LNG exports’ “climate costs to its economic benefits, and it is not clear whether DOE will produce such an analysis.”

But he thinks DOE should take on this fundamental question, as IPI did in its new analysis. “This will enable a more holistic impact comparison and inform a reasoned determination about whether, and on what terms, to approve export applications.”