National Environmental Policy Act Regulations: Phase 2 – Concluding Thoughts

This is the final in our series of eAlerts on the Council of Environmental Quality’s (CEQ) Phase 2 revisions to its National Environmental Policy Act (NEPA) regulations, published on May 1, 2024 (Final Rule).

Our prior eAlerts on the Phase 2 revisions focused on changes CEQ made to the threshold determination under NEPA of whether a project is a “major federal action”, streamlining provisions, public involvement (including newly implemented environmental justice requirements) and several other significant changes to the regulations. As we previously touched on, the Phase 1 and Phase 2 revisions to NEPA regulations reflect the Biden administration’s priorities outlined in Executive Order 13990, Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis and Executive Order Number 14008, Tackling the Climate Crisis at Home and Abroad. Further, the Final Rule aligns the NEPA regulations with amendments to the NEPA statute made by the Fiscal Responsibility Act of 2023. Many of the Phase 2 revisions effectively repeal revisions made by the Trump administration in 2020 (2020 Regulations).

This final eAlert focuses on some anticipated outcomes and reactions to the Final Rule that may affect its applicability and longevity.

Political and Legal Challenges

Challenges to the Final Rule are already being teed up by political opponents and a number of state attorneys general. Senator Joe Manchin (D-WV) has indicated he plans to use the Congressional Review Act (CRA) to pull back the Final Rule because it will result in delays to necessary infrastructure and because it does not adhere to the agreements made in the Fiscal Responsibility Act that President Biden signed into law in 2023. For regulatory actions published within 60 legislative days of congressional adjournment sine die (adjournment of the congressional session), the CRA allows Congress to “reset” the time periods for Congress to review a rulemaking in its entirety in the next session, in what is referred to as the “lookback” period. During this period, Congress can overturn a rulemaking finalized during the previous congressional session.

Whether Senator Manchin’s CRA challenge will be successful remains to be seen. If the 2024 elections result in a Republican-led House of Representatives, Senate and presidency, the Final Rule is likely to be targeted under the CRA. Should the Phase 2 revisions be repealed under the CRA, the 2020 Regulations would remain largely intact. On the other hand, if President Biden is elected to a second term, it is doubtful that Senator Manchin’s CRA challenge would be successful due to the threat of presidential veto, but other political challenges are likely.

Legal challenges to the Final Rule in the courts are also expected. Already, 20 states have joined together in a lawsuit alleging the Final Rule is facially invalid under NEPA, the Administrative Procedure Act, and the major questions doctrine (which the Supreme Court outlined in West Virginia v. EPA). In the same vein, industry groups and others required to comply with NEPA when advancing their projects are likely to bring challenges seeking to invalidate the Final Rule on its face, arguing that the Final Rule impermissibly expands the scope of federal reach.

As projects proceed under the Final Rule, legal challenges to as-applied agency decisions are also expected. For example, an agency that applies a categorical exclusion to a project that it developed jointly with another agency (as allowed under the Final Rule) may face a lawsuit from a group alleging that the categorical exclusion was improperly applied. Court decisions on such challenges will clarify, modify and possibly even invalidate portions of the Final Rule.

Agency Implementing Procedures

Since CEQ first promulgated its NEPA regulations in 1978, agencies responsible for carrying out the Act have developed their own specific implementing procedures. The Final Rule extends agencies’ ability to develop their own procedures, including for establishing categorical exclusions, identifying and addressing communities with environmental justice concerns, creating programmatic review mechanisms and setting forth guidelines for public engagement. The Final Rule requires agencies to revise their own procedures within 12 months of the publication of the Final Rule. Agencies cannot implement procedures or requirements beyond or in conflict with those set forth in the Final Rule.

The regulatory whiplash between the Trump administration and the Biden administration creates challenges for agencies in revising and implementing their own procedures (not to mention the difficulties for project proponents attempting to comply with the regulations). As legal challenges arise and courts issue rulings on the Final Rule, agencies will likely have to revise their own NEPA implementing procedures.

Moving Forward Under the Final Rule

For project applicants, agencies and other entities navigating NEPA compliance under the Final Rule, following is a brief summary of key points moving forward.

• Applicability: The effective date of the Final Rule is July 1, 2024 (Effective Date), meaning that projects commenced after that date must comply with the regulations as revised by the Final Rule. While the Final Rule does not apply retroactively, in the preamble to the Final Rule, CEQ indicated that agencies may also apply the Final Rule to ongoing activities and environmental documents. CEQ did not provide further guidance as to how to determine whether a given NEPA process was “commenced after” the Effective Date (e.g., whether the Final Rule would apply where a federal agency has determined NEPA applies to a proposed action but has not begun the scoping or drafting process).
• Challenges to the Final Rule: Already, a group of 20 states has joined together to file a lawsuit challenging the Final Rule and it is likely that industry groups, eNGOs and others will challenge the Phase 2 revisions both facially and as-applied to individual projects. Groups with NEPA processes proceeding under the Final Rule should track these challenges as they arise and move through the courts. A ruling that invalidates all or part of the Final Rule may require revisions to draft documents. As more projects proceed under the Final Rule, new court decisions clarifying, modifying, or invalidating portions of the regulations can be expected.
• Executive and Congressional Action: As explained above, the Final Rule’s issuance during an election year poses yet another set of moving parts. If President Biden is re-elected and the Democrats gain control of the House of Representatives, any challenge under the CRA would likely flame out before gaining any serious traction. However, if Republicans gain control of the presidency and Congress, a repeal of the Final Rule could occur. Alternatively, a Republican administration could propose and issue another set of revisions to the NEPA regulations, just as President Trump and President Biden did.
• Development of Agency-Specific Implementing Procedures: Agencies are required to develop or revise their existing implementing procedures to be consistent with the Final Rule by July 1, 2025. Groups that anticipate proceeding with a project with a certain Lead Agency under NEPA would do well to track that agency’s specific procedures as they are issued. These implementing procedures may also be the subject of both facial and as-applied challenges.

Final Thoughts

As we’ve highlighted in previous eAlerts in this series, the stated purposes of many of the revisions implemented by Phase 1 and Phase 2 of the Biden administration’s NEPA rulemaking are aimed at streamlining the NEPA process (e.g., encouraging programmatic NEPA documents and tiering, setting time limits for NEPA review and page limits for NEPA documents and allowing agencies to jointly develop categorical exclusions). Some of the Final Rule’s provisions may have the opposite effect, causing delays and increased uncertainty for project proponents (e.g., requiring a monitoring and compliance plan for mitigated Findings of No Significant Impact, requiring agencies to undertake new studies and analyses where existing information is incomplete and arguably expanding the definition of “major federal action”).

Groups are likely to challenge either various provisions of the Final Rule or the Final Rule in its entirety. If the Final Rule survives initial facial challenges and is fully implemented, the changes to the NEPA process for both agencies and project proponents are expansive in scope. From defining what constitutes a “major federal action”; to making significance determinations; to undertaking additional studies and analyses; to determining and identifying the environmentally preferable alternative; to incorporating environmental justice; to determining what environmental document to prepare; to meeting public engagement requirements—the Final Rule imposes substantive changes to agencies’ responsibilities in complying with NEPA.

The multitude of revisions to the NEPA regulations provides fertile ground for legal challenges to agency decisions on specific projects. As the dust settles once these challenges are resolved, agencies and project proponents will gain more clarity as to the true scope of the Phase 2 revisions. Of course, the changes implemented by the Final Rule could be rendered moot, depending on the presidential election, the success of any challenge under the CRA, or any subsequent legal challenge.

At bottom, the issuance of the Final Rule during a presidential election year and the expansive scope of the Phase 2 revisions renders the true impact of the Final Rule uncertain at the present moment. We will keep watching and provide any updates on significant NEPA developments as they unfold.