Originally published for customers May 31, 2024.
What’s the issue?
The Council on Environmental Quality's “Phase Two” revisions to the National Environmental Policy Act regulations will take effect on June 30, 2024, and they have already been challenged by 20 states. These revisions are significant as they codify climate change and environmental justice (EJ) principles within NEPA for the first time, and introduce a new approach to agency categorical exclusions.
Why does it matter?
Time estimates and regulatory certainty are critical inputs to all infrastructure development. Regulatory changes can increase uncertainty by imposing novel requirements and by upending the status quo upon which historic schedule and cost estimates are based. They can also introduce efficiencies that cut costs by decreasing timelines.
What’s our view?
The NEPA revisions are a mixed bag, combining elements of restoring the 1978 version of the regulations, responding to the 2020 Rule, codifying requirements for EJ and climate impacts analysis, and adding some streamlining provisions. Setting aside underlying policy goals and focusing on litigation and delays, while some changes like those to the process for establishing CEs have significant potential to increase agency efficiency, other new requirements like those addressing climate change and EJ are likely to increase the compliance burden and potential for legal challenges. If former President Trump wins the election, we will almost certainly see yet another NEPA rulemaking.
The Council on Environmental Quality (CEQ)’s “Phase Two” revisions to the National Environmental Policy Act (NEPA revisions) regulations will take effect on June 30, 2024, and they have already been challenged by 20 states. These revisions are significant as they codify climate change and environmental justice (EJ) principles within NEPA for the first time, and introduce a new approach to agency categorical exclusions (CEs).
Time estimates and regulatory certainty are critical inputs to all infrastructure development. Regulatory changes can increase uncertainty by imposing novel requirements and by upending the status quo upon which historic schedule and cost estimates are based. They can also introduce efficiencies that cut costs by decreasing timelines.
The NEPA revisions are a mixed bag, combining elements of restoring the 1978 version of the regulations, responding to the 2020 Rule, codifying requirements for EJ and climate impacts analysis, and adding some streamlining provisions. Setting aside underlying policy goals and focusing on litigation and delays, some changes like those to the process for establishing CEs have significant potential to increase agency efficiency. Other new requirements like those addressing climate change and EJ are likely to increase the compliance burden and potential for legal challenges. If former President Trump wins the election, we will almost certainly see yet another NEPA rulemaking.
That 20 states have challenged the most recent NEPA regulations is not surprising. NEPA has been the subject of administrative whipsaw since the Trump administration, which was the first to let the environmental genie out of the bottle. We cataloged NEPA’s “long strange trip” in CEQ’s Evolving NEPA Regulations — Part I, including its recent tortured history, but in short, the regulations have been through one wholesale revision and resulting lawsuits under former President Trump, and two phases of revision under President Biden.
CEQ’s Phase I NEPA revisions focused on restoring three provisions from the 1978 regulations that CEQ deemed most critical to address:
1) requiring agencies to consider environmental effects analysis, including “direct,” “indirect,” and “cumulative” effects of a proposed action;
2) reverting to the previous definition of “purpose and need”; and
3) restoring the ability of federal agencies to expand their NEPA procedures, treating CEQ’s regulations as a minimum standard rather than a maximum limit.
The Phase II revisions are much more extensive. In their lawsuit, the 20 states broadly claim that the new regulations increase regulatory burden and transform NEPA from a procedural law into substantive requirements aimed at achieving policy goals. The truth is they are a mixed bag with some provisions that add litigation risk and increase compliance burdens and others that are aimed at new efficiencies and streamlining.
The Phase Two revisions incorporate several new requirements that heighten litigation risks and increase the compliance burden for agencies and project sponsors.
1) EJ and Climate Change Codification
One of the most significant changes in the new regulations is that for the first time it codifies the principles of EJ and climate change. Agencies are now explicitly required to analyze “disproportionate and adverse human health and environmental effects on communities with environmental justice concerns, whether direct, indirect, or cumulative” and climate change-related effects, including quantifying greenhouse gas emissions where feasible. Agencies are also required to review these effects, as well as effects on Tribal rights and resources, in identifying the environmentally preferable alternative or alternatives. Agencies “should” mitigate these effects on communities with EJ concerns “where relevant and appropriate.” Finally, the new regulations include a new definition of “extraordinary circumstances”— which agencies must consider in determining whether to apply a CE — that includes potential substantial impacts on communities with EJ concerns, climate change, historic properties or cultural resources, and sensitive environmental areas as examples.
Zooming in on EJ, the regulatory definition, which was taken almost verbatim from President Biden’s executive order on “Revitalizing Our Nation’s Commitment to Environmental Justice, states that EJ is the “just treatment and meaningful engagement of all people” regardless of background in federal action that affects human health and the environment. The definition also includes two primary objectives: 1) protecting people from disproportionate and adverse human health and environmental effects, including those related to climate change and the cumulative impacts of environmental burdens and systemic barriers and 2) ensuring equitable access to a healthy, sustainable, and resilient environment.
Practically speaking, while the codification of the EJ and climate change principles is new, much of the underlying analysis is not. Most agencies include analysis in both of these topics in their NEPA reviews and courts are already wrestling with them (we recently discussed an example of EJ litigation at FERC in "Juuuuust a Bit Outside” — Recent LNG Curveballs, where the Commission was challenged on its two-mile EJ radius analysis, and we have written about climate change litigation at length). But while agencies may already be broadly conducting effects analysis on these areas, the explicit inclusion in alternatives analysis, combined with strongly encouraged mitigation for EJ will likely increase the complexity of environmental reviews.
Similarly, the new definition of extraordinary circumstances increases the complexity of CE analysis, but not by much. In practice, agencies have “extraordinary circumstances lists” that they use to check whether a CE can apply, or whether an action should be analyzed in an environmental assessment or impact statement (EA or EIS). The analysis only requires an assessment of the potential for impacts to something on the list, not of the degree of impacts. The uniformity here may be a good thing for defensibility when an agency is questioned about whether it appropriately applied a CE. As applied to EJ and climate change, the question would simply be whether there is potential for significant adverse impacts to either. If so, don’t apply the CE, proceed to conduct further analysis.
From a litigation perspective, codification provides the courts with uniform language that it can apply to EJ and climate change issues, but much of the difficulty in analysis lies in subjectivity — for example, what constitutes “meaningful engagement” varies by community. The added complexity and expanded scope into effects analysis, alternatives, and, to a lesser degree, in extraordinary circumstances is likely to lead to more contentious legal challenges as stakeholders seek to ensure that these considerations are adequately addressed.
2) Mitigation: Monitoring and Compliance Plans
The new regulations require agencies to prepare a monitoring and compliance plan whenever an environmental assessment relies on mitigation to reach a finding of no significant impact (FONSI), a practice known to NEPA practitioners as a “mitigated-FONSI.” In layman's terms, agencies can use mitigation measures like avoidance, minimization of impacts, or restoration after an impact occurs to justify a conclusion that the agency action won’t have “significant” impacts on the environment. Until now, there was no corresponding requirement to ensure these measures actually work; this new requirement does just that.
From a policy perspective, mitigation monitoring makes a lot of sense. If a FONSI is based on mitigation measures, there should be a mechanism to ensure that these measures are effectively protecting the environment in the project’s vicinity from the potential significant impacts they aim to curb. However, mitigation monitoring can also require substantial agency resources and open up avenues for litigation, such as challenges to the adequacy of the monitoring and compliance plans and the agency's monitoring practices.
Despite the added burdens, the Final Rule includes several provisions aimed at promoting efficiency and streamlining the NEPA process regarding page limits, timelines, and Categorical Exclusion (CE) efficiencies. For context, as you can see below, environmental reviews at FERC tend to be completed in under a year for Environmental Assessments (EA) and under two years for Environmental Impact Statements (EIS).
1) Page Limits and Timelines
The rule codifies amendments to NEPA made by the Fiscal Responsibility Act of 2023 and intended to improve efficiency by setting page limits for EAs (75 pages), EISs (150 pages), and extraordinary complexity EISs (300 pages). It also sets deadlines for completing EAs within one year and EISs within two years, which can be extended as necessary in consultation with the applicant. These measures aim to expedite the NEPA review process by imposing clear limits and timelines. FERC should have little trouble hitting the time deadlines based on its historic performance and page limits can often be achieved by pushing weedy analysis into appendices.
2) Categorical Exclusions (CEs) and Programmatic Reviews
One of the more substantial efficiencies of the new rule is the expanded provisions for establishing and using CEs. To clarify, a CE is not an outright exclusion from NEPA, as the name might imply. Rather, an action may be "categorically excluded" from the more in-depth analysis required by an EA or EIS if it has been demonstrated over time that it is not likely to significantly affect the environment. Since a significant amount of agency activity is processed through CEs, they are extremely beneficial from a time, resource, and cost perspective.
Previously, there was only one path to establishing a CE. Agencies had to prepare an administrative record (generally made up of numerous EAs and expert opinions) demonstrating an action’s historic lack of significant impacts, present it to CEQ along with the drafted language, and include it in their agency NEPA procedures. The draft proposal was usually subject to public notice, comment, and resulting revisions before becoming finalized. Unsurprisingly, this process could take a long time.
With the new regulations, agencies can now adopt CEs established by other agencies without needing to amend their regulations. They can also establish CEs individually, jointly with other agencies, and through land use plans or programmatic environmental analyses without needing a separate rulemaking process. This new flexibility has the potential to result in significant efficiencies, as agencies can now expedite the process of getting new CEs on the books and become accustomed to adopting other agencies' CEs.
The Phase Two revisions, set to take effect on July 1, 2024, represent a significant shift in NEPA implementation, attempting to balance the need for thorough environmental review with efforts to streamline and improve the efficiency of the process. Setting aside underlying policy goals, the new CE provisions have significant potential to improve agency efficiency in conducting environmental reviews while the new requirements for addressing EJ and climate impacts are likely to increase the compliance burden and potential for legal challenges. We will all see what sticks after the election and litigation dust settles.