CEQ Releases New Guidance for Assessing Greenhouse Gas Emissions and Climate Change under NEPA

Under the guidance, federal agencies are directed to quantify and consider the effects of a proposed project’s direct and indirect GHG emissions and, in many cases, use estimates of the social costs of GHGs (“SC-GHG”) when communicating those findings to the public. Notably absent, however, is a specific threshold for when a project has a “significant” amount of GHG emissions that would trigger more rigorous review under NEPA. The issue of significance has been a major topic of debate, and the guidance does little to clarify differences between, to use various terminology used in the guidance, “relatively large,” “small,” or “de minimis” volumes of GHGs.

The guidance has the potential to affect a wide array of federal decision-making, and, perhaps most acutely, permitting for traditional energy infrastructure projects; renewable projects and other energy transition efforts; leasing of federal resources; and transportation projects, all of which may face extended permitting timelines and new litigation risks. The guidance is effective immediately and even applies to pending permitting decisions. The public has a limited window to comment on CEQ’s approach before it is finalized. Here we summarize what you need to know.

Background on CEQ’s Interim Guidance

Before taking a “major federal action,” a federal agency must prepare an environmental analysis under NEPA. CEQ oversees the executive branch’s implementation of NEPA and develops regulations and guidance. Its guidance, while non-binding, can have powerful real-world impacts because it is frequently incorporated into federal agencies’ NEPA practices and procedures and because courts sometimes give great weight to CEQ’s statements, even when not binding, about the appropriate level of analysis to satisfy NEPA.

CEQ’s long-awaited guidance represents the latest swing of a pendulum that has been in motion since at least the Obama administration, which issued final guidance on GHGs and climate reviews in 2016.¹ In 2017, the Trump administration’s CEQ rescinded the 2016 guidance and ultimately issued its own draft guidance in 2019, significantly paring back what had been contained in the Obama-era guidance.² The Biden administration, in turn, rescinded the 2019 draft guidance and reinstated the 2016 final guidance. President Biden then directed CEQ to review, revise, and update the 2016 guidance, and CEQ has now taken the first step in fulfilling that mandate. CEQ’s guidance takes effect immediately, despite its interim status and availability for public comment. In addition, it applies to future proposals as well as agency actions currently in the agency review process that have not yet issued a final NEPA document (e.g., a final environmental impact statement or final environmental assessment).

The guidance makes frequent reference to the analysis of a proposal’s resiliency and adaptation to climate change challenges, and it reflects the current administration’s emphasis on boosting the development of renewable energies and mitigating GHG emissions, often at the expense of traditional energy development. These are all key priorities highlighted in President Biden’s January 27, 2021, Executive Order on Tackling the Climate Crisis at Home and Abroad. The guidance also incorporates the administration’s ongoing emphasis on environmental justice as an important consideration in the agency permitting process, as we have discussed previously. As such, these considerations are likely to influence agencies’ project analyses going forward.

What CEQ’s Interim Guidance Does and Does Not Do

The interim guidance identifies three steps that federal agencies should undertake when analyzing a proposed project’s climate change effects under NEPA:

1. Agencies should quantify the reasonably foreseeable direct and indirect GHG emissions of a proposed project and its reasonable alternatives, including the no-action alternative.
2. Agencies should disclose and provide context for the GHG emissions and climate impacts of a proposed project and its alternatives, including, as relevant, a SC-GHG estimate.
3. Agencies should analyze reasonable alternatives, including those that would reduce GHG emissions, and identify available mitigation measures to avoid, minimize, or compensate for climate effects.

While each step may appear on the surface to be clear-cut, there are several pressure points and omissions that will need to be worked out as agencies implement CEQ’s guidance.

Significance. CEQ’s guidance does not identify a particular quantity of GHG emissions as “significant” enough to trigger more rigorous agency review. Instead, CEQ instructs agencies to employ the “rule of reason” to conduct analyses commensurate with the quantity of GHG emissions associated with the proposed project. CEQ advises that less-detailed analyses may be appropriate for projects with net GHG emission reductions or no net GHG emission increases, highlighting as examples renewable energy projects such as utility-scale solar and offshore wind. However, CEQ also suggests that actions with only small GHG emissions may be able to rely on less detailed emissions estimates, and actions with de minimis emissions need not produce any quantitative estimate of emissions. Nowhere, though, does CEQ explain what constitutes “small” or “de minimis.” CEQ’s concessions appear inconsistent with its caution against agencies simply stating that project-level emissions are small relative to domestic or global GHG emissions when assessing a project’s impacts on climate change. It is unclear at what level a project’s GHG emissions are minimal enough to avoid quantitative analysis or, alternatively, more rigorous NEPA review.

Direct and Indirect Effects. CEQ’s guidance provides an expansive view of reasonably foreseeable direct and indirect effects, but its discussion of indirect effects largely ignores the causation requirement. Not only is that causation requirement embedded within CEQ’s own regulatory definition, but it also features prominently in Department of Transportation v. Public Citizen,³ where the Supreme Court held that NEPA only requires that an agency assess the reasonably foreseeable impacts of a proposal that are proximately caused by the agency’s action. CEQ states that indirect effects “generally include reasonably foreseeable emissions related to a proposed project that are upstream or downstream of the activity resulting from the proposed action” (emphasis added). However, upstream or downstream GHG emissions are typically not caused by proposals before federal agencies undergoing NEPA reviews.

A good example of this is natural gas pipeline infrastructure. CEQ states that indirect emissions are often reasonably foreseeable given “quantifiable connections” between projects involving use or conveyance of a commodity or resource and changes relating to production or consumption of that resource. CEQ then mentions natural gas pipeline infrastructure, suggesting that it “creates the economic conditions for additional natural gas production and consumption, including both domestically and internationally, which produce indirect (both upstream and downstream) GHG emissions that contribute to climate change.” In most instances, the Federal Energy Regulatory Commission (“FERC”) and courts have concluded that natural gas pipelines do not cause upstream natural gas production or domestic or international natural gas combustion. For example, FERC has rejected blanket claims that midstream pipelines cause upstream production, instead observing that pipeline infrastructure generally responds to upstream production, unless the pipeline represents the only way to get additional gas from a specified production area.⁴ Similarly, courts have held that FERC’s approvals for pipeline infrastructure are not generically the cause of downstream combustion, such that it must be considered in the agency’s NEPA analysis as an indirect effect, although the D.C. Circuit has concluded that in certain limited circumstances, such as a dedicated pipeline directly delivering to a known end-user (e.g. a power plant), sufficient causation exists to require an indirect effect analysis. ⁵ Nor, as FERC and courts concluded, are FERC’s approvals for the siting of liquefied natural gas export terminals the proximate cause of international natural gas combustion.⁶

For fossil fuel projects in general, CEQ also suggests that agencies provide an upper bound for effects by assuming that all incremental resources will be produced and combusted (a “full burn” scenario), without limitation on whether the assumption is reasonably foreseeable for a particular project. Although CEQ encourages agencies to analyze how increasing certain energy resources may result in substitution or displacement of higher-emitting fuels, it remains to be seen how agencies will grapple with questions about how markets and behavior will actually respond, and how agencies will square CEQ’s broad, and potentially misplaced, assumptions with their review of particular projects.

Climate Damages. CEQ directs agencies to quantify the reasonably foreseeable direct and indirect GHG emissions of a proposed project in order to evaluate the potential effects on climate change. But CEQ’s approach generally equates GHG emissions with climate damages without providing clarity as to how drawing a connection between incremental GHG emissions and actual physical, environmental, or climate impacts is even possible at the project level. CEQ’s guidance does not confront the reality that no methodology is available to attribute discrete, quantifiable, physical effects on the environment from a single project’s GHG emissions.

Social Cost of GHGs. After quantifying a project’s emissions, CEQ suggests that agencies should place a project’s expected GHG emissions “in context,” stating that “in most circumstances” agencies should use the best available SC-GHG estimates to monetize a project’s incremental emissions. The SC-GHG, in CEQ’s view, provides a valuable metric that gives decisionmakers and the public useful information and context about a proposed project’s climate effects. CEQ asserts that this is the case, even if no other costs or benefits of a project are monetized, because metric tons of GHGs can be difficult to understand and assess in the abstract.

However, CEQ’s emphasis on calculating SC-GHG estimates in almost all circumstances largely eschews NEPA’s caution against agencies using monetary cost-benefit analyses where there are important qualitative issues at stake.⁷ CEQ also avoids engaging with the SC-GHG tool’s severe limitations for project-level analysis, where policy considerations, such as the selection of one discount rate among others, can result in significantly divergent estimates — and where the SC-GHG tool is designed for relative comparisons between policy options, and generates nominal, not real, dollar-value estimates. Although CEQ cautions against using SC-GHG estimates that confuse the public, CEQ’s own recommendation to highlight the social cost of GHG emissions without making any effort to calculate the social benefits of energy gives an incomplete and potentially biased view. Although renewable energy projects may look very favorable under CEQ’s proposed SC-GHG rubric, putting the agency’s thumb on the scale during the analysis by considering only some of the costs and benefits creates significant litigation risk that could stymie project development.

Mitigation. CEQ instructs agencies to consider available mitigation measures that avoid, minimize, or compensate for GHG emissions and climate change effects when those measures are reasonable and consistent with achieving the purpose and need for the proposed action. Yet CEQ provides inconsistent instruction, encouraging agencies to mitigate GHG emissions to the “greatest extent possible.” Further, CEQ avoids providing clarity as to the thorny question of how to measure the discrete impacts of a project’s expected GHG emissions, and then how to translate those impacts into measures with corresponding mitigating effects.

Takeaways and Next Steps

While CEQ’s release of its guidance appears driven by the Biden administration’s goals of developing renewable energy infrastructure and mitigating GHG emissions, in line with the nation’s broader climate commitments, it could actually be counterproductive to these goals. Both renewable projects and traditional infrastructure projects are subject to the new guidance, and their permitting could experience slowdowns as federal agencies work to understand and consistently implement the new guidance. Permits could also be slowed down by protracted court fights if groups seeking to challenge issued permits argue that the projects require additional environmental analysis before they can be granted, or that the agency’s application of the guidance led to unreasoned and arbitrary review.

The guidance also creates uncertainty for federal agencies and those seeking permits by presenting a myriad of issues which will need to be ironed out in order to effectively achieve the goal of assisting federal agencies when evaluating proposed major federal actions. For example, the guidance provides no insight into how to measure the significance of a proposed project’s GHG emissions. As another example, it fails to address the current lack of means to translate incremental, project-specific emissions or required mitigation measures into actual environmental impacts or benefits. These issues are ripe for public comment and for litigation when applied.

Those interested in commenting on CEQ’s guidance will have until March 10, 2023, to do so. Public comments play an important role in shaping the final policy and also serve as the key part of the administrative record, which forms the basis for any future court challenges to the final policy. Given the general applicability of CEQ’s guidance to the broad array of projects funded or permitted through federal agencies, such as FERC, Federal Highway Administration, Department of the Interior, and U.S. Army Corps of Engineers, interested persons should consider providing comment and input at this critical stage.

 ¹ See CEQ, Final Guidance for Federal Departments and Agencies on Consideration of Greenhouse Gas Emissions and the Effects of Climate Change in National Environmental Policy Act Reviews, 81 Fed. Reg. 51,866 (Aug 8, 2016).

² See CEQ, Draft National Environmental Policy Act Guidance on Consideration of Greenhouse Gas Emissions, 84 Fed. Reg. 30,097 (June 26, 2019).

³ 541 U.S. 752, 767–70 (2004).

⁴ See, e.g., Dominion Transmission, Inc. Order on Rehearing, 163 FERC ¶ 61,128, at PP 28, 59 (2018).

⁵ See Birckhead v. Fed. Energy Reg. Comm’n, 925 F.3d 510, 518 (D.C. Cir. 2019).

⁶ See Sierra Club v. Fed. Energy Reg. Comm’n (Freeport), 827 F.3d 36, 47 (D.C. Cir. 2016). The D.C. Circuit has concluded that downstream effects of the export of natural gas are caused by the Department of Energy’s licensing of commodity exports. The Department of Energy prepares its own life-cycle analyses of GHG emissions.

⁷ See 40 C.F.R. § 1502.22.