CEQ’s Proposed NEPA Phase 2 Rule Turns Procedure Into Substance and Could Have "Significant Effects" on Permitting and Infrastructure Projects

On July 31, 2023, CEQ published its proposed “Phase 2” NEPA rule, part of the Biden administration’s effort to respond to various 2020 Trump-era changes to the regulations governing federal environmental reviews and to imbue the regulations with the Biden administration’s emphasis on climate and environmental justice. CEQ finalized its “Phase 1” rule in April 2022, when it reversed three specific provisions in the prior Trump-era 2020 rulemaking. Originally expected in late spring, CEQ delayed releasing its Phase 2 draft so that it could include updates that implement recent changes to NEPA passed as part of the Fiscal Responsibility Act of 2023, which we previously discussed here. These changes include allowing applicants (rather than agencies) to prepare NEPA documents known as environmental impact statements; implementing deadlines and page limits; and allowing applicants to challenge agency delays in court.

In stark contrast to the measures aimed at promoting efficiency, the proposed Phase 2 rule includes numerous features that are more about imposing substantive requirements in what is intended to be a procedural statute. Below, we highlight five areas in which the proposed Phase 2 rule would transform NEPA and hinder efficient project development at a time when permit reform remains sorely needed.

Those interested in commenting on CEQ’s proposed Phase 2 rule have until Friday, September 29, 2023. CEQ will also hold virtual public meetings on Saturday, August 26; Wednesday, August 30; Monday, September 11; and Thursday, September 21. 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 rule. Given the general applicability of CEQ’s rule to the broad array of projects funded or permitted through federal agencies, such as the Federal Energy Regulatory Commission, 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. Backgrounding NEPA’s Procedural Nature

The courts have consistently interpreted NEPA to require that agencies consider significant environmental impacts before they take action and that they inform the public of their reviews, but as a procedural statute, NEPA does not require that agencies elevate environmental concerns over other considerations.¹ CEQ proposes to delete language from its NEPA regulations acknowledging the statute’s procedural nature, claiming it is not necessary to repeatedly emphasize NEPA’s procedural nature for fear that it may suggest that NEPA merely requires a “rote paperwork exercise.” But CEQ proposes to change several provisions that move NEPA beyond procedure and mandate substantive results.

2. Mitigation Mandates

The proposed Phase 2 rule would also restore select language about mitigation from the pre-2020 version of the NEPA regulations, but in doing so, CEQ proposes to substantively expand project proponents’ mitigation obligations. Previously, if a cooperating agency objected to or expressed reservations about the environmental impacts of a proposal, the regulations directed the cooperating agency to identify mitigation measures it would suggest as necessary to allow the lead agency to proceed. In the Phase 2 proposal, CEQ directs cooperating agencies to specify mitigation measures in all circumstances. Similarly, the pre-2020 version directed the agency to adopt a monitoring and enforcement program for mitigation where applicable, which recognizes that agencies may not always have authority to require mitigation. The Phase 2 proposal mandates that agencies make all mitigation enforceable, with accompanying monitoring and compliance plans, whenever agencies consider such mitigation in their analysis of the reasonably foreseeable environmental effects of an action (see proposed sections 1505.2(c) and 1503.3(c)). This fails to account for agencies with limited statutory authority to require mitigation, and it ignores circumstances when an agency may reasonably foresee the implementation of mitigation measures, even though no lead or cooperating agency has jurisdiction to enforce mitigation requirements.

3. Enhanced Analysis of Climate Change and Environmental Justice

Although NEPA only requires an agency to consider effects that have a sufficiently close causal connection to the proposed action, the proposed Phase 2 rule ignores this fundamental precept. For example, CEQ would include, as a category of environmental consequence to be considered, “any reasonably foreseeable climate change-related effects” of the proposed action (see proposed section 1502.16(a)(7)). Similarly, the definition for “effects” would also make specific reference to “climate change-related effects, including the contribution of a proposed action and its alternatives to climate change” (see proposed section 1508(g)(4)). The proposed rule uses this language, even though there is no ability to demonstrate causation between any individual project and climate change, or any means to translate any individual project’s greenhouse gas emissions into actual environmental impacts.

This effort to expand NEPA analysis of purported climate change-related impacts is unsurprising given CEQ’s January 2023 guidance for assessing greenhouse gas emissions and climate change under NEPA. As we discussed previously, in that guidance CEQ recommends that agencies disclose and provide context for their assessments of greenhouse gas emissions using models such as the social cost of greenhouse gas to assess the significance of those emissions. The proposed Phase 2 rule takes this further by removing language stating that agencies are not required to undertake new scientific and technical research, and it inserts other language promoting the use of such models and projections.

The proposed Phase 2 rule would also explicitly include consideration of disproportionate impacts on communities with environmental justice concerns. Agencies have long analyzed potential impacts to environmental justice communities in their NEPA documents. However, the proposed rule would require agencies, when appropriate, to incorporate mitigation measures that address or alleviate disproportionate impacts on these communities. In doing so, CEQ employs an amorphous definition of “environmental justice,” which includes ensuring that all people are fully protected from structural or systemic barriers and have equitable access to a sustainable and resilient environment.

4. Unclear Contours for “Innovative Approaches” to NEPA Reviews

CEQ proposes new provisions labeled “[i]nnovative approaches to NEPA reviews” that provide an alternative means for NEPA compliance intended to maximize an agency’s “flexibility, creativity, and efficiency” (proposed section 1506.12). Under this alternative compliance provision, agencies could propose an alternative approach to specific provisions of the regulation, explain the environmental challenge the approach is intended to address, and then explain how the alternative approach would ensure sound and efficient environmental review. CEQ would then have 60 days to approve, revise, or deny the agency’s request. Although the proposed Phase 2 rule would limit this avenue to “extreme environmental challenges,” the rule provides scant detail on the standards for what types of projects might actually be able to take advantage of this process. The list of examples could describe the environmental effects of nearly any large or complex project (e.g., projects that relate to sea level rise, increased wildlife risk, water scarcity, disproportionate impacts on environmental justice communities, loss of cultural resources, loss of protected species, and impaired ecosystem health). Moreover, CEQ has recently shown a willingness to abbreviate the environmental review for projects that align with the administration’s policy preferences, as we have previously discussed, in the context of increased greenhouse gas emission scrutiny for only certain types of energy projects. As a practical matter, it is unclear how broadly CEQ would apply this alternative compliance provision and, if finalized as proposed, the provision is likely to introduce unpredictability and potential disparate treatment for projects seeking to meet the same market demand.

5. Eliminating Exhaustion Requirements

CEQ highlights the proposed Phase 2 rule’s effect in creating an “efficient process” and providing “regulatory certainty,” but the proposal would remove an important provision from the 2020 rule that requires claimants in federal court to have first raised their concerns directly with the agency during the agency’s public comment periods before suing the agency. The 2020 rule noted numerous Supreme Court and appellate court opinions barring NEPA challenges based on issues the claimants failed to bring to the agency in the first instance. CEQ proposes to eliminate this provision entirely, citing two district court opinions that allowed plaintiffs to bring claims that were raised to the agency in comments by others or when the agency should have identified the issue on its own, but generally saying that CEQ takes no position on what it sees as a question of general administrative law. Although exhaustion remains as a long-standing common law doctrine requiring interested parties to structure their NEPA participation in a meaningful way, the proposed Phase 2 rule appears to make agency NEPA reviews less efficient and their follow-on litigation risks more unpredictable.

Conclusion

While CEQ describes the proposed Phase 2 rule as an effort to streamline and accelerate the NEPA review process, it may be counterproductive to these goals. The proposal would expand the analysis required under NEPA and transform it from the procedural statute it is into a tool that demands a particular outcome subject to the winds of current federal policy. Those interested in commenting on CEQ’s proposed Phase 2 rule have until Friday, September 29, 2023, to do so.

¹ Balt. Gas & Elec. Co. v. Nat. Res. Def. Council, Inc., 462 U.S. 87, 97, 100 (1983).