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Tuesday, September 24, 2013

Federal Permitting and Oversight of Export of Fossil Fuels

Adam Vann
Legislative Attorney

Daniel T. Shedd
Legislative Attorney

Brandon J. Murrill
Legislative Attorney

Recent technological developments have led to an increase in the domestic supply of natural gas. As a result, there is interest among some parties in exporting liquefied natural gas (LNG) to take advantage of international markets. This has placed new attention on the laws and regulations governing the export of natural gas as well as other fossil fuels.
In most cases, export of fossil fuels requires federal authorization of both the act of exporting the fuel and the facility that will be employed to export the fuel. For example, the export of natural gas is permitted by the Department of Energy’s Office of Fossil Energy, while the construction and operation of the export facility must be authorized by the Federal Energy Regulatory Commission (FERC). Oil exports are generally forbidden, but an export that falls under one of several exemptions to the ban can be authorized by the Department of Commerce’s Bureau of Industry and Security, while oil pipelines that cross international borders must be permitted by the State Department. Coal exports do not require special authorization specific to the commodity; however, as with natural gas and crude oil, other generally applicable federal statutes and regulations may apply to the export of coal.

Restrictions on exports of fossil fuels could potentially have implications under international trade rules. They may possibly be inconsistent with the most favored nation requirement of Article I of the General Agreement on Tariffs and Trade 1994 (GATT 1994) if certain World Trade Organization (WTO) members are treated differently than others. Limits on exports could also potentially violate the prohibition on export restrictions contained in Article XI of the GATT 1994 if they prescribe vague and unspecified criteria for export licensing. However, an export licensing regime does not appear to constitute a “subsidy” to downstream users of fossil fuels under WTO rules.

Article XXI, the exception for essential security interests, may provide justification for potential violations of GATT Articles I and XI. The United States has traditionally considered this exception to be self-judging. However, it is possible that a panel or the Appellate Body might scrutinize the United States’ use of the exception.

Article XX of the GATT provides additional exceptions that a member country may invoke if it is found to be in violation of any GATT obligations. For example, WTO Members may maintain an otherwise GATT inconsistent measure if it is necessary to protect an exhaustible natural resource or necessary to protect human health or the environment. Article XIII requires that if an otherwise GATT inconsistent measure is permitted to remain in force due to an Article XX exception, the measure must be administered in a non-discriminatory manner. Export restrictions that treat WTO Members differently would appear not to satisfy the non-discriminatory requirements of Article XIII.

Date of Report: September 17, 2013
Number of Pages: 17
Order Number: R43231
Price: $29.95

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