Does anyone know the reason why you can't use 'that' in 2?
But you can......if...
2 The Aurora Borealis is a 'phenomenon', in that it is regarded by most people (other than blasé scientists), as a remarkable occurrence. .
2 The Aurora Borealis is a phenomenon in which curtains of faint and shimmering light are visible in the night sky.
So the question becomes, what's the difference between 'in that' and 'in which'?