The National Environmental Policy Act (NEPA) requires federal agencies to assess the environmental impacts of major federal actions. In 2022, the Council on Environmental Quality (CEQ) issued the “NEPA Phase 1 Rule,” which expanded the scope of agency reviews to include “indirect effects” and “cumulative effects,” while also expanding the breadth of the “purpose and need” statement, which is the critical starting point for NEPA review. On July 31, 2023, CEQ  published in the Federal Register its “Phase 2 Rule,” which would further reverse Trump-era NEPA changes, implement new NEPA statutory provisions enacted by Congress as part of the debt ceiling legislation, and seek to advance the Biden Administration’s broader climate and environmental justice initiatives. CEQ is accepting comments on the proposed rule until September 29, 2023.

CEQ has released a redline showing proposed changes to existing NEPA regulations, which visually illustrates the extensive nature of the proposed reforms. Key changes include the following:

 

1. Forcing Greater Environmental Protection: While NEPA has always been understood to be a procedural statute that requires identification of potential environmental effects but does not dictate outcomes, the Proposed Rule places a greater emphasis on agencies making decisions that are environmentally protective. For example, the proposal would emphasize “action-forcing” NEPA provisions. The introductory provisions of the regulations describing the purpose of NEPA would be amended to state that the NEPA process is intended not only to help public officials make decisions that are based on an understanding of environmental consequences but also “take actions that protect, restore, and enhance the environment.” Consistent with this view of NEPA’s goal, the regulations would for the first time require an environmental impact statement to identify the “environmentally preferable alternative.”
2. Emphasizing Climate Change and Environmental Justice Concerns: Reflecting two of the key themes of the Biden Administration, the Proposed Rule includes an increased emphasis on climate change and environmental justice. For example, the definition of “effects” would be revised to include specific reference to both climate change and environmental justice as examples of effects that should be considered in a NEPA analysis. The Proposed Rule also includes for the first time a definition of “environmental justice” as “just treatment and meaningful involvement of all people, regardless of income, race, color, national origin, Tribal affiliation, or disability, in agency decision making and other Federal activities that affect human health and the environment so that people (1) Are fully protected from disproportionate and adverse human health and environmental effects (including risks) and hazards, including those related to climate change, the cumulative impacts of environmental and other burdens, and the legacy of racism or other structural or systemic barriers; and (2) Have equitable access to a healthy, sustainable, and resilient environment in which to live, play, work, learn, grow, worship, and engage in cultural and subsistence practices.” Additionally, CEQ has left the door open to including greater focus on climate change by indicating that it may incorporate its January 2023 guidance on analysis of greenhouse gas emissions into the regulations.
3. More Public Engagement: The Proposed Rule also reflects another point of emphasis for the Administration related to environmental justice by adding provisions related to public engagement. For example, under the proposal each federal agency would be required to have a Public Engagement Officer to coordinate public engagement efforts.
4. More Flexibility for Categorical Exclusions: The Proposed Rule emphasizes the importance of categorical exclusions in facilitating environmental reviews and allowing agencies to focus on impacts that are potentially significant. CEQ is proposing to allow agencies some additional flexibility in how they go about adopting CEs, for example by allowing an agency to propose and adopt a CE through mechanisms that are not specifically NEPA-focused, such as long-range planning documents. To speed up reviews, project proponents may need to encourage agencies to make more extensive use of categorical exclusions.
5. Generating More Environmental Information and Data: The Proposed Rule would increase the obligation to generate data relevant to a NEPA analysis. The burden of collecting additional data where deemed appropriate will undoubtedly fall on private applicants.
6. Adopts Narrow View of Recent NEPA Statutory Changes: The Proposed Rule generally takes a narrow view of the exclusions from NEPA review recently adopted by Congress in the Fiscal Responsibility Act. This interpretation is reflected, for example, in CEQ’s proposed approach to the exclusions from the definition of “major federal action” for federal financing where the agency lacks sufficient control and responsibility over the subsequent use of the financial assistance or the effects of the activity for which the agency is providing the financial assistance. The Proposed Rule incorporates a preference for continuing to require NEPA review for all federal funding that is more than minimal and making adjustments in the scope of that review where appropriate, an approach that is arguably inconsistent with congressional intent. This approach may ironically delay the distribution of Inflation Reduction Act funding that is intended to further the Administration’s Climate and other goals.
7. Retains Agency Flexibility for Avoiding Strict NEPA Deadlines: The Proposed Rule incorporates the FRA language regarding deadlines for NEPA reviews essentially verbatim. In doing so, CEQ has passed on an opportunity to clarify the statutory language in a way that would make the deadlines more meaningful, opting instead to retain greater flexibility with respect to schedules for NEPA reviews and increasing the likelihood that congressional attempts to speed up NEPA reviews will be largely unavailing.

Altogether, the Phase 2 Proposed Rule, if finalized, in conjunction with the Phase 1 rule would likely increase the burdens, delays, and costs associated with the NEPA process for many kinds of energy infrastructure and development projects, at least as compared to the NEPA regulations in place as of just a few years ago. Nevertheless, many of the changes seek to revert to the 1978 version of the regulations, which were in place for over three decades, so the overall impact of the changes may be less pronounced for some projects. As these and other efforts continue, many observers note that the Biden Administration’s ambitious clean energy goals largely hinge on the ability of the private sector to reliably and efficiently deploy new energy infrastructure, creating at least some incentive for federal agencies to try to find ways to improve environmental permitting and reviews.

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