Originally published for customers on August 30, 2023.
What’s the issue?
In 2020, the Trump Administration enacted sweeping amendments to the Council on Environmental Quality (CEQ) NEPA regulations that date back to 1978, with the goal of streamlining review processes and reducing the time to permit interstate pipelines. What resulted instead was a period of significant uncertainty surrounding environmental reviews, compounded by several lawsuits designed to reverse those amendments, and then by the Biden Administration’s decision to delay their implementation while it considered its own NEPA amendments.
Why does it matter?
CEQ conducts rulemaking processes that include public comment, which interprets NEPA statutes into regulations. These regulations provide a framework for federal agencies to craft their own conforming regulations. In the first half of this year, CEQ initiated a two-phase rulemaking effort; Phase 1 is now finalized, and a Phase 2 proposal is currently open for comment. Additionally, CEQ has issued more expansive official guidance for agencies on how to consider GHG emissions under NEPA.
What’s our view?
The first in this two-part series will address the impact of Phase 1 and the GHG Guidance; a forthcoming article will look deeper into Phase 2. Two conflicting forces present themselves in the recent reforms: increasing the breadth and depth of environmental analysis and decreasing the time it takes to do it. We believe FERC is well positioned to navigate these changes as it is well staffed, seasoned in GHG analysis, and has completed EAs in under one year and EISs in under two years in 88% of its projects since 2008.
In 2020, the Trump Administration enacted sweeping amendments to the Council on Environmental Quality (CEQ) NEPA regulations that date back to 1978, with the goal of streamlining review processes and reducing the time to permit interstate pipelines. What resulted instead was a period of significant uncertainty surrounding environmental reviews, compounded by several lawsuits designed to reverse those amendments, and then by the Biden Administration’s decision to delay their implementation while it considered its own NEPA amendments.
CEQ conducts rulemaking processes that include public comment, which interpret NEPA statutes into regulations. These regulations provide a framework for federal agencies to craft their own conforming regulations. In the first half of this year, CEQ initiated a two-phase rulemaking effort; Phase 1 is now finalized, and a Phase 2 proposal is currently open for comment. Additionally, CEQ has issued more expansive official guidance for agencies on how to consider GHG emissions under NEPA.
The first in this two-part series will address the impact of Phase 1 and the GHG Guidance; a forthcoming article will look deeper into Phase 2. Two conflicting forces present themselves in the recent reforms: increasing the breadth and depth of environmental analysis and decreasing the time it takes to do it. We believe FERC is well positioned to navigate these changes as it is well staffed, seasoned in GHG analysis, and has completed EAs in under one year and EISs in under two years in 88% of its projects since 2008.
Background: NEPA Compliance by Agencies
NEPA requires federal agencies, like FERC, to adopt their own regulations requiring a “detailed statement” considering the environmental impact of major federal actions significantly affecting the environment. Agencies can comply with NEPA in three ways, which we detailed in Trump Administration Seeks to Speed Environmental Review Process, but, in short, they prepare Environmental Impact Statements (EIS), Environmental Assessments (EA), or use Categorical Exclusions. NEPA has been held not to mandate any particular decision by the agency, but rather to impose solely procedural requirements. However, failure to satisfy the procedural requirements can result in the substantive federal decision being overturned for not being well-founded.
NEPA’s Long Strange Trip
Like the famous Grateful Dead song released in the same year, NEPA has been “truckin’” along since 1970. Unfortunately, the last few years have proven to be a “long strange trip” for NEPA with two administrations’ worth of changes, related litigation, and a recent Congressional amendment.
It all began when the Trump administration proposed changes to the 1978 CEQ NEPA regulations (1978 Regulations) in January of 2020 (2020 Regulations), upending almost 50 years of precedent and industry practice. Those amendments took effect September 14, 2020. In the months that followed, various opponents filed a total of five lawsuits. One has been dismissed, and courts have repeatedly stayed the remaining four, because the Biden Administration’s CEQ has been conducting its 2-phased proposed rulemaking.
The Biden Administration also extended the date by which federal agencies must propose amendments to their own regulations that comply with the 2020 Regulations by two years, until September 14, 2023. (This effectively means the Trump regulations have never taken effect, and likely never will.)
Since then, CEQ has proposed and finalized its Phase 1 regulations and issued updated guidance for agencies on the analysis of GHG and climate change effects under the NEPA. Additionally, Congress passed the FRA with amendments to NEPA included, which CEQ has interpreted into its Phase 2 proposed rulemaking that is currently receiving public comment, with a deadline of September 20, 2023.
So where does that leave us? Although most of the 2020 Regulations are still officially on the books (substantively modified only by limited revisions in Phase 1), CEQ’s deadline extension for agencies to propose conforming regulations means almost all agency procedures are based on the 1978 Regulations. This does raise questions about which regulations apply to those projects subject to environmental analysis since the 2020 Regulations went into effect, but that would be for the courts to decide, and CEQ’s extended deadlines will likely be instructive.
Phase 1: Effects, Purpose and Need, and NEPA’s “Floor”
Phase 1 focused on restoring three provisions from the 1978 regulations that CEQ deemed most critical to address:
- environmental effects analysis;
- purpose and need; and
- the degree to which agencies may propose more or less stringent procedures than those issued by CEQ.
Environmental Effects (including GHG Guidance and Environmental Justice)
The Phase 1 rule restored the requirement from the 1978 regulations for agencies to consider “direct,” “indirect,” and “cumulative” environmental effects of proposed actions. The 2020 Regulations had eliminated these categories in favor of focusing on reasonably foreseeable impacts. Although litigation associated with the categories of impacts in the 1978 Regulations has been developing for years, we do not view the reversion back to those standards as creating additional litigation risk.
CEQ also issued updated GHG Gas Guidance on January 9, 2023, which is of critical importance to effects analysis because it states agencies should quantify, disclose, and place into context a proposed action’s reasonably foreseeable GHG emissions — direct and indirect (sometimes referred to as upstream and downstream) — and their associated impacts on climate change. The guidance does not identify what a “significant” amount of GHG emissions is, which is important because if it did, all projects with emissions above that level would be subject to a full EIS. Finally, the GHG guidance emphasizes the link between climate change and environmental justice (EJ) by stating that climate change “will disproportionately and adversely affect some communities, including communities of color, low-income communities and Tribal Nations and Indigenous communities.”
We think it was practically prudent for CEQ not to set a significance threshold. If such a threshold were set too low, then many projects would be subject to EISs solely on GHG grounds, presenting a huge resource drain on the federal workforce. Further, project developers would be on the hook to mitigate GHG impacts once deemed significant, which would be a monumental task. Combined, these two outcomes would drive infrastructure development to a halt. Additionally, any significance threshold would certainly be the subject of heavy litigation, and without a robust record making a strong case for how it was developed, the likelihood of it being overturned would be strong.
So, absent a CEQ significance threshold, this guidance leaves agencies responsible for determining where to draw the line in their environmental reviews. With respect to FERC, the Commission’s current approach to GHG analysis tracks the CEQ guidance; it discloses and contextualizes GHG emissions where it considers them to be reasonably foreseeable, and has taken the position that it cannot find a way to calculate significance. The courts have upheld this approach, so the Commission is unlikely to change. But this is not to say the current approach is on completely solid ground, as the question of whether the Commission should disclose and contextualize GHG emissions at all was an issue for former Commissioner Glick and has been the subject of recent theatrics since his departure, which we discuss in FERC Tries to Clear Pipeline Project Backlog, but Republican Commissioner Says No. The key takeaway is that the commissioners themselves play the biggest role in GHG analysis — not NEPA regulations, GHG Guidance, or the courts.
However, the GHG guidance’s particular emphasis on EJ implications of climate change will increase the analytical burden on agency staff and potentially increase litigation by highlighting a class of plaintiffs and making lawsuits easier to craft. It is unclear how extensive this impact will be and what effect it will have on project timelines as this is a newer area of study without many well defined metrics. Alternatively, more meaningful public engagement could have a positive impact on the likelihood of litigation, but this will be difficult to measure. Part two in this series will discuss EJ in more detail as early and meaningful public engagement is a theme in CEQ’s Phase 2 proposed rulemaking.
Purpose and Need
CEQ’s Phase 1 regulation revised the requirements related to the “purpose and need” statement of environmental documents, which establishes the rationale for an agency’s action. CEQ removed the language from the 2020 Regulations that required agencies to base the purpose and need of a project on the goals of an applicant and the agency’s statutory authority. How broadly or narrowly an agency describes a project in their purpose and need statement filters through the rest of the environmental document, especially in the selection of alternatives to the proposed action that an agency must analyze.
The purpose and need provisions of the 2020 regulations were clearly more favorable to developers, and were a reflection of the Trump Administration’s view of current case law holding that an agency’s consideration of an applicant's goals to develop purpose and need is reasonable. In the Biden Administration’s view, while consideration of applicant goals is reasonable, the case law did not require agencies to make the applicant's goals the sole (or even primary) factor in the formulation of the purpose and need, and doing so would unduly constrain agency discretion leading to the development of unreasonably narrow purpose and need statements. Practically speaking, agency practice would probably have stayed the same for the most part under either version. CEQ’s return to the 1978 text in its Phase 1 amendments means that the current case law applies, and where agencies find it appropriate to consider applicant goals, they will continue to do so with a wide range of discretion.
NEPA’s Floor
Agencies are ultimately responsible for implementing NEPA, and use the CEQ regulations as a starting point in crafting their own conforming NEPA regulations. The 2020 Regulations contained language that established CEQ’s NEPA regulations as a “ceiling” for agency NEPA procedures, meaning that agencies could not propose NEPA implementing regulations more stringent than CEQ’s. The Phase 1 rule removed this language, positioning CEQ’s regulations as a “floor” and allowing agencies more latitude to tailor their NEPA procedures. The “ceiling” language would have been more favorable for developers as it would have forced agencies to adopt a CEQ-only interpretation of NEPA consistent with the generally developer-friendly 2020 Regulations. This would have removed agency discretion to go beyond the 2020 CEQ regulations in reconciling their own statutory mandates with the requirements of NEPA.
The Fiscal Responsibility Act Amendments to NEPA
The passage of the Fiscal Responsibility Act (FRA) on June 3, 2023 also adds color to the story, because it amended the NEPA statute itself upon which CEQ bases its regulations. (We briefly discussed the FRA in Permitting Reform Passed by Congress Was Upstaged by the Supreme Court.) The FRA amendments focus on making the NEPA process more efficient. So, while the Phase 1 amendment and GHG guidance increase the amount of analysis required under NEPA, at the same time, the FRA changes aim at decreasing the volume of analysis and speeding up processing times.
Deadlines, Delays, Court Orders, and Page Limits
The FRA imposed deadlines on agencies to complete EISs within two years and EAs within one year and agencies have three options for when to start the clock. Project sponsors have the right to petition a court to review any agency failure to meet these deadlines and to seek a court order to set a schedule and deadline for the agency to act.
These statutory changes have clear roots in the Trump Administration’s “One Federal Decision” framework and the 2020 NEPA regulations. We think that agency resources or lack thereof play a greater role in speed of processing time than deadlines themselves. Although “court order” and “deadline” sound meaningful, we view these changes as fairly toothless for one key reason: agencies have a lot of room to wiggle on the start date.
Practically speaking, this is not necessarily a bad thing. Stricter deadlines could result in agencies simply denying permits if they do not have enough time to meaningfully analyze their environmental impacts. Additionally, FERC has proven that robust pre-application procedures go a long way in resolving issues through early engagement and before the ex-parte rules kick in. The proof is in the historical data, which we have illustrated in the chart below. FERC has completed EAs in under one year and EISs in under two years in 88% of its projects since 2008:
The challenge with page limits on environmental reviews is increasing litigation and scrutiny regarding whether agencies have taken a “hard look” at the potential environmental impacts of their actions. Agency efforts to “litigation-proof” NEPA documents has resulted in voluminous environmental reviews, sometimes thousands of pages long. Page limits have always been in the NEPA regulations, but they have generally been ignored. The FRA puts page limits in the statute itself.
We think statutory page limits will prompt greater agency compliance, but that agencies will push the more detailed analysis from the main body of EISs and EAs into appendices (which are excluded from page counts). This could present a litigation risk as courts could view this as circumventing the statute. Otherwise, the result should be documents that are much easier to read, but not necessarily shorter.
Project Sponsor Prepared Environmental Documents
The 1978 Regulations allowed a project sponsor to prepare an EA on behalf of an agency. FERC has done this for years with great success, and has also allowed project sponsors to pay for independent companies to assist in preparing environmental documents in order to reduce staff workload. The 2020 regulations allow contractors to prepare both EAs and EISs almost entirely from start to finish, leaving only the final Record of Decision for EISs as the responsibility of the agency. The FRA codifies this expansion, but also adds a requirement for agencies to establish procedures for project sponsors to prepare environmental documents on their behalf.
We think these changes could be quite impactful. Project applicants could not only prepare EISs for their own projects, but also review the categorical exclusions an agency has on its books and advocate for their use where appropriate. The former could save significant time in reducing agency workload and providing project sponsors with the incentive to provide fast, robust analysis in an EIS so an agency can approve it without issues. Additionally, if an agency has not already determined an EIS is necessary for a project, a project sponsor could propose and advocate for the application of a combination of CEs and mitigation measures in support of EA preparation, or just the application of CEs where appropriate, and prepare all corresponding documentation on behalf of the agency. Agencies will ultimately still be responsible for whatever environmental document is prepared, but these changes present an opportunity for the private sector to play a much larger role in the process, which could result in more efficient and analytically concise environmental analysis.
Lead Federal Agency and Other Noteworthy Changes
When multiple agencies share jurisdiction over a project, the FRA directs agencies to establish a lead agency. The FRA also allows agencies to appoint state, tribal or local agencies as “joint lead” agencies. Together, any lead and joint lead agencies are responsible for supervising, preparing, and developing a schedule for any necessary environmental documents. The FRA also contains procedures to elevate disagreements to CEQ for resolution regarding lead agency designation. We think this provision largely formalizes existing agency practice, but to the extent there are disputes for particularly thorny projects, it is good to have some function to force agencies to determine who will be responsible.
The FRA also allows an agency to adopt a categorical exclusion listed in another agency's NEPA procedures, so long as the agency consults with the agency that established the categorical exclusion to ensure the application would be appropriate. We will discuss this further in part two of this series on Phase 2 regulations.