Debt Ceiling Agreement Aims to Speed, Simplify NEPA Review

The permitting reforms embedded in the recently enacted debt-ceiling agreement[i] (Fiscal Responsibility Act of 2023 or “FRA”) have been variously described as modest, earthshaking, or maybe somewhere in between.[ii] As discussed in a previous Marten Law newsletter article by my colleague Shannon Nelson,[iii] many of the provisions affecting NEPA parallel the “Builder” Act passed by the House, but with important changes. This article examines those changes in depth and highlights the amendments that appear to be the most significant to developers of energy, mining, forestry and other projects requiring federal permits or approvals. Ultimately, it is our view that these changes will bring greater stability and clarity to NEPA decision making.

1. A Subtle But Important Change to the Threshold for Requiring an EIS

Perhaps the most-litigated question under NEPA is the level of scrutiny required of federal permit decisionmakers – that is, whether to direct the federal agencies reviewing projects to require a full Environmental Impact Statement (“EIS”), or allow a lesser level of scrutiny using an Environmental Assessment (“EA”), or if the project qualifies, a Categorical Exclusion (“CE”).

NEPA, as originally enacted, directed permitting agencies to require a “detailed statement” on the effects of the action and other factors.[iv] CE and EAs were not referenced in the original NEPA statute,[v] but rather emerged in rulemaking under the statute,

The FRA expressly sets forth when an EIS must be prepared and, alternatively, when EAs and CEs may be used to speed agency review. It provides that an agency “shall issue” an EIS only for an action “that has a reasonably foreseeable significant effect on the quality of the human environment.”[vi] By contrast, it directs an EA be prepared for an action “that does not have a reasonably foreseeable significant effect on the quality of the human environment, or … the significance of such effect is unknown. …”[vii]

The effect of this change in practice could be ground-shifting. It seems to reduce the number of decisions that will require preparation of an EIS, by requiring an EIS only where approval of a project permit or action “has” a reasonably foreseeable significant impact on the environment. Agencies are to use EAs when the significance of an action is unknown and may use CEs when they are found to apply to the proposed action.

Prior to 2020, the governing regulations set forth a complex definition of “significantly” in the statutory EIS requirement of NEPA section 102(2)(C).[viii] Significance was defined both by “context” and “intensity,” with the former an amorphous and vague concept, [ix] and the latter an exhaustive list of 10 factors to consider.[x] The intensity factors were frequently litigated, with courts hinting, if not outright holding, that the presence of one of the ten factors would require an EIS. This was coupled with regulatory language that created a presumption in favor of preparing an EIS. “Major federal actions” included “actions with effects that may be major and which are potentially subject to Federal control and responsibility.”[xi] A finding of no significant impact (“FONSI”), which allows a project to proceed following an EA, was required to state that an action “will not have a significant effect on the human environment” such that “an environmental impact statement therefore will not be prepared.”[xii]

Applying these regulations, courts, especially in the Ninth Circuit, tended to scrutinize EAs and FONSIs closely. In one leading case, National Parks & Conservation Association v. Babbitt (“NPCA”),[xiii] the Ninth Circuit required an EIS for increased cruise ships visits to Glacier Bay National Park. NPCA held that if an EA “establishes that the agency's action ‘may have a significant effect upon the ... environment, an EIS must be prepared.’”[xiv] NPCA built on Blue Mountains Conservation Association v. Blackwood, which stated that [i]f an agency decides not to prepare an EIS, it must supply a “convincing statement of reasons” to explain why a project's impacts are insignificant.”[xv] Blue Mountains explained that an EIS was required without a showing that significant effects will in fact occur. The court held that it was enough for the plaintiff to raise “substantial questions whether a project may have a significant effect” on the environment.”[xvi]

These lower thresholds, coupled with the ten intensity factors, led to a wide variety of actions needing review in an EIS, since “[m]eeting just one of these ‘significance factors’ may be sufficient for us to require an agency to prepare an EIS.”[xvii] Case law in other Circuits developed along the same lines—particularly in the D.C. Circuit.[xviii] Still, the courts and agencies frequently denied that any heightened standard was being imposed, instead equating the “convincing reasons” standard with ordinary APA review.[xix] Courts also issued contradictory rulings about the “highly controversial” intensity factor,[xx] often appearing to require an EIS in cases of political or social controversy while maintaining that the factor was limited to scientific or technical uncertainty.[xxi]

In 2020, CEQ issued new regulations that dropped the multi-factor test and established a more generalized standard that agencies “shall analyze the potentially affected environment and degree of the effects of the action.”[xxii] These regulations, like the original CEQ regulations, had a lower bar for an EIS, providing that an action “likely to have significant effects” would be “appropriate for” an EIS,[xxiii] and permitting a FONSI for actions that “will not have significant effects.”[xxiv]

The 2020 regulatory changes were challenged in five separate lawsuits, all of which remain pending, but are stayed during further CEQ review following the change in Administrations. CEQ published a first set of revisions in April 2022, restoring obligations to consider cumulative effects that had been removed in 2020.[xxv] CEQ also restored the ability of agencies to exceed the 2020 NEPA Rule’s requirements.[xxvi]

In the meantime, substantial uncertainty remained as to the standard for requiring an EIS. Should agencies rely on the 10 factors, or something else? What is the status of agency-specific regulations, most of which rely on the prior CEQ regulations? And what happens in the event of another change of Administration?

The FRA legislation reduces this uncertainty by encouraging the use of shorter and more concise documents. It also aims to increase the use of Categorial Exclusions (“CEs”) to comply with NEPA. To that end, it authorizes an agency to adopt a CE issued by any other agency through a streamlined procedure.[xxvii] Some agencies have similar authority.[xxviii] The legislation does not, however, enable expansion of statutory CEs, which limits the utility of this provision.

2. Some Surprising Tweaks and Lurking Dangers

The FRA also codifies regulations limiting NEPA obligations as to non-discretionary and extraterritorial actions.[xxix] As to the former, the provisions largely codify the Supreme Court’s decision in Public Citizen, which held that “where an agency has no ability to prevent a certain effect due to its limited statutory authority over the relevant actions, the agency cannot be considered a legally relevant ‘cause’ of the effect.”[xxx] To a great extent, these concepts were embedded in the 2020 regulations as well.[xxxi] Public Citizen also reiterated that effects at issue under NEPA are those with a “reasonably close causal relationship” to the action.[xxxii] While the FRA does not incorporate that language, it incorporates references to reasonable foreseeability throughout. This is consistent with the Court’s analogy to proximate cause in cases under NEPA and other environmental statutes.[xxxiii]

The statute contains a small surprise by excluding certain forms of financial assistance from NEPA’s definition of a “major federal action.”[xxxiv] This includes loan guarantees and specifically calls out such guarantees issued by the Small Business Administration — the latter without regard to whether the agency retains any control over subsequent actions.[xxxv] These sections codify a 2008 case where the U.S. District Court, District of Arizona, held that loan guarantees issued by the SBA, Department of Veterans’ Affairs, and HUD were not the legal cause of any environmental effects under NEPA or the Endangered Species Act.[xxxvi] It does not exclude, however, actions such as the National Flood Insurance Program where the government has a more substantial and/or discretionary role.[xxxvii]

The FRA also changes NEPA by expressly excluding consideration of extraterritorial effects. It establishes, for example, that both Antarctica and outer space are beyond NEPA’s reach. In doing so, it abrogates some precedent[xxxviii] and also answers an open question that the D.C. Circuit recently avoided. In Viasat, Inc. v. F.C.C., the court considered NEPA challenges to a permit allowing Starlink satellites to lower their orbit.[xxxix] The court rejected both challenges on standing grounds. Viasat, as a competitor to Starlink, was asserting purely economic interests that fall outside NEPA’s zone of interests.[xl] The Balance Group, which held itself out as an environmental interest group, failed to establish its associational standing with a “conclusory” affidavit and members who described no involvement with the group beyond “a bare assertion of membership.”[xli] As a result, the court never reached the question whether NEPA applies in space. In Massey, where the D.C. Circuit held NEPA applied to Antarctica, the court reasoned that Antarctica is “a continent without a sovereign, and an area over which the United States has a great measure of legislative control.”[xlii] As such, it is “generally considered to be a ‘global common’ and frequently analogized to outer space.”[xliii] The Supreme Court subsequently held that despite these factors Antarctica is a “foreign country” for purposes of the Federal Tort Claims Act.[xliv] With enactment of the FRA, the question has been legislatively resolved.

By contrast, the Endangered Species Act continues to apply not only within the United States but on the high seas.[xlv] This inconsistency could lead to surprises for permitting if ESA consultation is required.

If the FRA is to be successful in reducing permitting timelines, a key component will be funding for agencies to complete NEPA documents in the shorter timelines directed by the Act.[xlvi] This is where the FRA works together with the IRA (Inflation Reduction Act), and protects investments in President Biden’s words. The IRA includes $1.005 billion for agency funding “for effective and efficient environmental reviews,” including $350 million for the Federal Permitting Improvement Steering Council.[xlvii] Unfortunately, the one agency not receiving funds is the U.S. Fish & Wildlife Service, potentially creating a bottleneck on ESA compliance.

3. Conclusion

The changes to NEPA, while subtle, have the potential to create a more responsive and streamlined permitting regime. Future guidance from CEQ, agencies and the courts will determine the real world impact of these changes.

For information on Marten’s NEPA and permitting practice, please contact Al Barker at abarker@martenlaw.com.