Who’s the Boss? DC Circuit Says CEQ Can't Call the Shots

The U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) has ruled that the Council on Environmental Quality (CEQ) lacks authority to issue binding regulations implementing the National Environmental Policy Act (NEPA), fundamentally challenging decades of environmental review practices. This decision could reshape how federal agencies conduct environmental reviews, potentially affecting thousands of infrastructure projects and creating uncertainty in permitting processes that rely on CEQ's regulatory framework.

Agencies still must comply with NEPA, and while the ruling addresses legitimate separation of powers concerns, it risks fragmenting NEPA implementation across agencies and may, paradoxically, complicate the permitting process by removing standardized guidelines. Chances of rehearing are greater than in other cases due to the exceptional importance of the issue.

A Potentially Seismic Shift in NEPA Implementation

The DC Circuit's ruling in Marin Audubon Society v. FAA marks a potential seismic shift in administrative law. While the underlying case centered on a federal management plan for commercial air tours over national parks, the bigger issue was one that the court raised on its own — the long debated issue of whether Executive Orders combined with NEPA's statutory framework provide sufficient legal justification for CEQ to issue NEPA regulations that are binding on other agencies. The majority opinion focused on separation of powers principles, concluding that: (1) Congress did not delegate rulemaking authority to CEQ in NEPA and (2) the executive orders upon which it relied are not “law” under the Constitution.

Additional key points in this case include:

• The court raised this issue on its own despite no party explicitly challenging CEQ's authority, making this a very unexpected decision
• The decision was a 2-1 split with the majority Republican-appointed and the strongly-worded dissent written by the Democrat-appointed Chief Judge Srinivasan
• The remedy (vacatur) of the federal management plan was not requested by the petitioners

The reason the court decided to weigh in on CEQ’s authority is because the litigants were arguing about whether the agencies complied with CEQ regulations in approving the federal management plan. For our purposes, we are not discussing the merits of that particular authorization as the broader issue of CEQ authority is much more impactful.

Immediate Impacts - Rehearing En Banc?

The first question is whether or not this decision will stand. The 45-day rehearing period has begun, and given the importance of this decision, a rehearing request is likely. Rehearings come in two flavors, either before the original panel or en banc (meaning before the whole court). En banc review requires a majority vote of judges in regular active service, and the court typically grants en banc review in two scenarios: when necessary to maintain uniformity in the court's decisions, or when a case presents a question of exceptional importance.

Regarding a majority vote, as you can see below, the current makeup of the court consists of seven Democrat-appointed and four Republican-appointed active judges.

To the extent the seven agree with the Chief Judge’s stance, the majority would exist. This case also potentially meets both substantive criteria and Chief Judge Srinivasan's dissent provides a potential roadmap.

Srinivasan emphasizes that the majority's decision deviates from the court's long-standing practice in two respects: in deciding to address CEQ's rulemaking authority when it has refrained from doing so in the past, particularly without any party raising the issue, and in unnecessarily vacating the agency action. Moreover, the question of CEQ's authority to issue binding NEPA regulations undoubtedly qualifies as exceptionally important, given its sweeping implications for federal environmental review processes. While the D.C. Circuit generally does not grant en banc rehearings, these factors make it more likely to do so in this particular case.

Implications for FERC and Other Agencies

If the ruling stands, the entire regulatory structure governing NEPA implementation faces legal uncertainty. This includes CEQ’s recently adopted “Phase 2” NEPA regulations which added new requirements around climate change and environmental justice, previous case law that relied on CEQ’s regulations, and agency “categorical exclusions,” which make up a significant portion of agency environmental analysis. To understand why, you need to know how the current system works.

While NEPA applies to all permitting agencies, in practice, many agencies issue their own NEPA regulations, which they base off of CEQ’s and then modify to fit their own individual statutory requirements. Many do this by simply stating that they will comply with CEQ’s regulations except where they are inconsistent with other statutory requirements. In addition to creating a uniform approach to environmental reviews, this construct also allows agencies to identify categories of activities that normally do not result in significant environmental impacts and propose to “categorically exclude” them from further NEPA review (with CEQ approval), for administrative efficiency. These categorical exclusions become part of the agency’s NEPA procedures.

The critical question then is what does this ruling mean for individual agency NEPA procedures? If CEQ’s rules are invalid, are other agencies as well? Under the majority opinion, if the agency regulations were crafted in the manner described, then they also would arguably be unlawful because they merely implement CEQ’s unlawful regulations.

Regarding FERC, its NEPA regulations mirror the regulatory structure the court found problematic. They explicitly state that they "supplement the regulations” of the CEQ, and, critically, declare that the Commission "will comply with” the CEQ regulations “except where those regulations are inconsistent with the statutory requirements of the Commission." FERC’s posture as an independent commission as opposed to a traditional executive agency may provide it some insulation, but this is an open question.

Absent CEQ’s common binding authority, federal agencies will still need to comply with NEPA. As a result, they may need to develop individual NEPA regulations, potentially leading to inconsistent approaches across different agencies. This fragmentation could especially impact projects requiring multi-agency review. Additionally, any agency authorizations that require NEPA review after this ruling may need to adjust their analysis or risk challenges asserting that their analysis is unlawful. How they do so absent a cohesive regulatory framework remains to be determined.

The Bigger Picture and Practical Considerations

The implications of this decision reach beyond environmental law to fundamental questions about presidential oversight of executive agencies. The court's reasoning could limit future administrations' ability to implement uniform regulatory reforms across agencies. This constraint on presidential authority may affect various administrative initiatives, from government efficiency programs to broader regulatory coordination efforts.

Project developers should wait to see how potential resulting litigation plays out, but should prepare for a period of increased uncertainty regardless. For meaningful resolution, this situation may ultimately require Congressional action to clearly delineate CEQ's authority. Alternatively, the Supreme Court may need to weigh in on the scope of executive branch authority in regulatory implementation. Until then, we will be watching closely as this unfolds.

If you would like to discuss strategies to navigate the evolving NEPA landscape, please contact us.