• As a key first term environmental policy priority, the Biden Administration undertook a “two-phased” comprehensive approach to revising the Council on Environmental Quality’s (CEQ) National Environmental Policy Act (NEPA) regulations.
  
  
• Enacted over 50 years ago, NEPA requires federal agencies to assess the environmental impacts of major federal actions:

“The Congress authorizes and directs that, to the fullest extent possible … all agencies of the Federal Government shall … include in every recommendation or report on proposals for legislation and other major Federal actions significantly affecting the quality of the human environment, a detailed statement by the responsible official on (i) the environmental impact of the proposed action, (ii) any adverse environmental effects which cannot be avoided should the proposal be implemented, (iii) alternatives to the proposed action, (iv) the relationship between local short-term uses of man’s environment and the maintenance and enhancement of long-term productivity, and (v) any irreversible and irretrievable commitments of resources which would be involved in the proposed action should it be implemented.”  42 U.S.C. § 4332

• Companies routinely encounter a labyrinth of NEPA procedures for many kinds of projects, such as new or expanded roads, ports, rail lines, electricity generation and transmission, oil and gas production, pipelines, LNG terminals, renewable energy projects, agriculture and forestry, water treatment, and mining, among others.
  
  
• Two years ago, the Biden Administration adopted its “Phase 1 Rule,” published at 87 Fed. Reg. 23,453 (April 20, 2022), which unwound several NEPA changes adopted during the Trump Administration. For example:
  
  - The Phase 1 Rule once again requires agencies to consider a broader set of “effects” in the NEPA process. The rule restores broader definitions of “direct effects” and “indirect effects” as well as the requirement to address “cumulative effects.”
  
  - Additionally, the Phase 1 Rule adopted a more expansive approach to setting the “purpose and need” for a project, which is the crucial starting point for NEPA reviews. Stakeholder views about the “purpose and need” – along with those of the agencies and project applicant –play a role in setting the framework for evaluating project impacts and alternatives.   

• On May 4, 2024, CEQ published its “Phase 2 Rule,” at 89 Fed. Reg. 35,442. This final rule makes several important changes, including:
  
  - “Action-Forcing” Provisions: A critical change involves new emphasis on what CEQ describes as “action-forcing” procedural requirements under NEPA. Traditionally, NEPA has been viewed as a “procedural” statute aimed at ensuring a “hard look” at a project’s environmental impacts but not necessarily requiring specific changes. New language adopted in Sections 1500.1(a)(2) and 1502.1(a) of the NEPA regulations emphasize “action-forcing” aspects of the procedures. 
  
  
  • Note: In the preamble to the Phase 2 Rule, CEQ relies on the U.S. Supreme Court’s 1978 decision in Andrus v. Sierra Club to support its view that NEPA contains “action-forcing” requirements. A close read of Andrus, however, suggests that Justice Brennan, in writing the opinion, was referring to the obligation to prepare an Environmental Impact Statement (EIS) as the required action, not a broader obligation to “force” action in terms of changes to projects.
    
    
  - EJ and Climate Change: CEQ has also elevated the role of climate change and environmental justice (“EJ”) in the NEPA procedures.  For example, the Phase 2 Rule revises the definition of “effects” to expressly reference both climate change and environmental justice as examples of effects that should be considered in a NEPA analysis. CEQ has also adopted a NEPA definition of “environmental justice.”
  
  
  • Note: While CEQ had proposed the possible incorporation of its January 2023 interim NEPA guidance on considering greenhouse gas emissions and climate change into NEPA regulations, see 88 Fed. Reg. 1196 (Jan. 9, 2023), CEQ did not do so in the final rule, noting instead that the agency “may consider codification of the 2023 GHG guidance in a future rulemaking.”
    
    
  - Mitigation: The Phase 2 Rule adopts new measures to create “enforceable” mitigation measures that an agency can rely on in issuing a mitigated Finding of No Significant Impact (“FONSI”). For example, the Phase 2 Rule “requires agencies to prepare a mitigation and compliance plan for the enforceable mitigation …” 85 Fed. Reg. at 35,479. Likewise, the final rule adds new Section 1505.3(b) to encourage federal agencies, “where relevant and appropriate,” to “incorporate into its decision mitigation measures that address or ameliorate significant human health and environmental effects” of proposed actions that “disproportionately and adversely affect communities with environmental justice concerns.”
  
  - Categorical Exclusions: The Phase 2 Rule provides new flexibilities for agencies to establish “Categorical Exclusions” (CEs or “CatEx’s”) as a means to assist with streamlining NEPA reviews in some contexts.
  
  - Timelines: The Phase 2 Rule provides further clarity regarding deadlines and timelines with the intent of improving transparency and predictability for stakeholders.  The revisions largely incorporate language verbatim from the Fiscal Responsibility Act (FRA) of 2023, including "deadlines" of one year for Environmental Assessments (EAs) and two years for EISs.  Substantial questions still remain about the enforceability of any such time limits. 

Taken together, the Phase 1 and Phase 2 Rules substantially rewrite key areas of the NEPA procedures. Some changes return the NEPA procedures to pre-Trump era approaches, while other changes chart a new course entirely and will certainly raise significant questions among project applicants and other stakeholders.

The Phase 2 Rule is set to go into effect on July 1, 2024, and will apply to all NEPA reviews that begin after that date. Agencies also have the option to apply the revised regulations to ongoing NEPA reviews begun before July 1, 2024.

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