CEQ Finalizes Comprehensive Changes to NEPA Regulations

On July 16, 2020, the Council on Environmental Quality (CEQ) finalized the overhaul of its National Environmental Policy Act (NEPA) implementing regulations. Through this rulemaking, CEQ makes changes to nearly every section of the regulations, which were last comprehensively updated in 1978. CEQ managed to complete this historic rulemaking on which it received over a million comments only six months after issuing the proposed rule. Notably, CEQ has proceeded with redefining "effects" and repealing the requirement to consider cumulative impacts, despite criticism from states and environmental groups that these revisions would limit analysis of climate change.

On July 29, 2020, environmental interest groups brought challenges to the final rule in Virginia and California federal district courts, alleging violations under NEPA and the Administrative Procedure Act (APA).  They claim, among other things, that the regulations are arbitrary and capricious and contrary to the statute, improperly allow agencies to apply the rule retroactively, and invalidly amend judicial review standards.

This Advisory updates the top ten list of changes identified in our January 2020 Advisory, and describes the potential next steps and key takeaways for project proponents. Here's what you need to know:

Top Ten List of Changes

Establish presumptive time limits for Environmental Assessments (EAs) and Environmental Impact Statements (EISs). CEQ finalized language requiring agencies to complete EAs in one year and EISs in two years unless the time limit is modified by a senior agency official.

Revise the definition of major federal action. Consistent with the proposed rule, CEQ adopted a revised definition of "major federal action" that gives independent meaning to the terms "major" and "significant." The definition, which triggers NEPA's applicability through the "NEPA thresholds" section of the final rule,¹ also includes a listing of actions that do not qualify as "major federal actions," including decisions that are non-discretionary, do not result in final agency action, or that involve financing for which the government does not have "sufficient control and responsibility."  CEQ also expressly excludes "extraterritorial actions" from NEPA review—a matter on which CEQ had requested comment in the proposed rule.

Refine the range of reasonable alternatives. Consistent with the proposal, CEQ included a new definition of "reasonable alternative" clarifying that agencies need only consider alternatives that are "technically or economically feasible," meet the purpose and need for the proposed action, and meet the applicant's goals (if applicable). CEQ had invited comment on establishing a presumptive maximum number of alternatives, but elected instead to direct agencies to "limit their consideration to a reasonable number of alternatives."

Restrict the scope of effects. CEQ finalized a revised definition of "effects" largely as proposed that will narrow the scope of "effects" analyzed in the NEPA process. Indeed, CEQ included new language specifying that agencies "are bound" and "should not go beyond" the definition of "effects" in the final rule—curtailing federal agencies' discretion to evaluate a broader scope of effects.

In the final rule, CEQ abandons the terminology "direct" and "indirect", though these concepts remain in substance. CEQ has defined effects as those that are "reasonably foreseeable and have a reasonably close causal relationship to the proposed action or alternatives," and those that "occur at the same time and place" (i.e., "direct effects," as defined in the 1978 regulations) and "are later in time or farther removed in distance" (i.e., "indirect effects," as defined in the 1978 regulations). The final rule also rejects a "but for" test and clarifies that agencies need not consider effects they have no jurisdiction to prevent or would occur regardless of the proposed action.

CEQ had proposed that agencies need not consider effects that are "remote in time, geographically remote, or the product of a lengthy causal change." The final rule softened that language slightly by inserting the term "generally." CEQ explains that this qualification was intended "to reflect the fact that there may occasionally be a circumstance where consideration of those effects is appropriate."

CEQ, however, did not walk back or soften its proposal to repeal the requirement to consider cumulative impacts.² Environmental justice advocates and other critics claimed that the deletion of cumulative impacts was intended to scale back consideration of climate change impacted under NEPA. In response to these concerns, CEQ included language emphasizing the potential impacts of climate change on the environment and proposed actions,³ but said little to allay concerns that the new rule would curtail consideration of a proposed action's impacts on climate change. Relatedly, CEQ refrained from finalizing, codifying or repealing any of CEQ's outstanding Draft NEPA Guidance on Consideration of Greenhouse Gas Emissions⁴—an issue left for another day—so there remains significant uncertainty about how climate change will be considered under the new regulation.

Encourage joint documents. CEQ finalized language requiring, to the "extent practicable," federal agencies to prepare a "single" EISs and EAs, and "joint" decision documents. The final rule also encourages elimination of duplication with state, tribal and local procedures through joint preparation of environmental documents—which could prove difficult in states that modeled their NEPA-like requirements on the former CEQ rules.⁵

Expand the use of categorical exclusions. CEQ finalized language that would provide agencies greater flexibility to apply categorical exclusions, a mechanism that allows pre-defined categories of routine activities to proceed without additional environmental review. Consistent with the proposed rule, CEQ's regulations now allow agencies to apply a categorical exclusion established from another agency's NEPA procedures and to adopt other agencies' categorical exclusion determinations.

Increase flexibility for applicants. Consistent with the proposed rule, CEQ will allow applicants to take certain actions while the NEPA process is still underway (e.g., acquiring interest in land). CEQ has also finalized language allowing applicants to prepare EISs under the direction of agencies. Likely in response to comments that delegating this responsibility to applicants "hands over to the fox the keys to the henhouse," ⁶ CEQ retained language in the current rules (which it had proposed to delete) that requires preparers to submit a disclosure statement identifying conflicts of interest. However, CEQ acknowledges that "most applicants will have such financial interest."

Narrow commenting. CEQ retained from the proposed rule the requirement that public comments be submitted within the comment period. If not "timely" submitted, the arguments "shall be considered unexhausted and forfeited"—meaning they cannot later be raised in court. Importantly the final rule removes the requirement in the proposed rule that agencies limit the comment periods to only 30-days.

Establish regulatory presumption. CEQ retained from the proposed rule a number of changes intended to address litigation-related delays. Among other things, the final rule requires a certification statement to be included in the Record of Decision, which establishes a "presumption"—rather than a "conclusive presumption," as proposed—that the agency has considered all submitted alternatives, information and analyses in the final EIS.

Require revision of agency NEPA procedures. CEQ finalized proposed language requiring agencies to update their agency NEPA regulations within a year of publication of the CEQ rules, and generally prohibiting agencies from imposing "additional procedures or requirements" beyond the CEQ regulations. CEQ also included new language in the final rule establishing that CEQ regulations apply in the event of a conflict with agency-specific NEPA procedures unless there is a "clear and fundamental conflict" with the requirements of another statute. Notably, CEQ deleted the "functional equivalent" test, and arguably gave agencies broad discretion to determine when they can "substitute" other procedures or documents for a NEPA document based on whether those procedures or documents "satisfy" the requirements in the final rule.

Next Steps and Key Takeaways

The rule becomes effective on September 14, 2020. For NEPA reviews already in process before that date, agencies may choose whether or not to apply the revised regulations.

Whether this rulemaking remains in effect well beyond September 2020 will depend on whether the rule survives potential judicial challenges and review under the Congressional Review Act (CRA).

• We identified two key potential hurdles to any attempts to bring a facial (rather than as-applied) challenge the rule in our January 2020 Advisory: standing and ripeness. On the merits, opponents of the rule will have to grapple with NEPA's broad and open-ended language, which arguably leaves agencies with considerable discretion in implementation. On the other hand, several of the changes arguably run counter to judicial interpretations of the statute.
• Regarding the CRA, Congress will have an opportunity to review and issue a joint resolution of disapproval that would make the rule of "no force and effect" and would ban CEQ from issuing another rule in "substantially the same form" unless specifically authorized by statute. Though this is highly unlikely to occur in the current legislative session, the CRA provides that the 60 session-day period for review resets if Congress adjourns before the full review period elapses. Meaning, if Democrats win both houses of Congress and the Presidency in the upcoming elections, the NEPA rule—along with other controversial rulemakings that have been finalized this summer—could be subject to repeal. ⁷ Of course, a potential new administration could also use ordinary rulemaking procedures to rollback the rollback.

Despite the fact that NEPA is intended to be a purely procedural statute, the NEPA process has become a highly polarized issue—as demonstrated during the comment period on the proposed rule. To some, the changes to the NEPA regulations are a needed to reign in a cumbersome process that has resulted in unnecessary paperwork and delays for critical infrastructure. To others, the changes are an attack on a bedrock environmental principles that require agencies to "take a hard look" at environmental impacts—ultimately leading to better outcomes.

The ultimate implications of the rulemaking will be seen in its application.

• Will the changes encourage agencies to prioritize the NEPA process and invest in staffing necessary to produce defensible documents in shorter timeframes? Or, will agencies be forced to cut corners in public engagement and document drafting that provides for even greater public opposition and litigation risk for projects?
• Will the changes ultimately lead to faster project implementation? Or, will agencies find it necessary to front-load analyses before the Notice of Intent starts the clock?
• Will the changes provide clarity on the scope and application of NEPA? Or will litigation continue based upon new ambiguity under these far-reaching regulations?

We'll be closely following the challenges to and the implementation of the final rule. If you have questions or concerns about the final CEQ regulations, please contact the Advisory authors or a member of Arnold & Porter's experienced Environmental Review and Permitting team.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.