Beyond water and materials, federal project are subject to NEPA, which requires the public disclosure or environmental impacts as well as proposed alternatives to the project. NEPA requires federal agencies to prepare environmental impact statements for infrastructure projects if they do not meet a categorical exclusion. Where the environmental impacts are unknown, projects must undergo an environmental assessment (“EA”). If the EA concludes that the project will have an environmental impact, an environmental impact statement (“EIS”) is required. As the understanding of potential impacts to the environment posed by proposed construction evolves, so has litigation. In recent years, litigation has further posed potential impacts to projects, expanded the scope and complexity of environmental reviews, prolonged the process, and elevated compliance costs.
The Supreme Court was recently tasked with determining whether the NEPA has evolved from a public disclosure law to a tool used to block projects altogether in Seven County Infrastructure Coalition v. Eagle County, Colorado. Here, the Surface Transportation Board (“STB”) received a proposal for the construction of an 88-mile railway with potential to quadruple oil production in the Uinta Basin of Utah by connecting its oil fields to the national rail network and delivering crude to refineries on the Gulf Coast. The STB also published a final EIS report, totaling 3,650 pages. The EIS focused on the direct effects of the project itself rather than the potential downstream effects resulting from increased crude oil production from the project and transportation. Environmental groups filed suit, alleging violations of NEPA, the National Historic Preservation Act (“NHPA”), and more. These plaintiffs also contended that the NEPA analysis failed to address risk of accidents from the site and emissions in “environmental justice communities” on the Gulf Coast.
The D.C. Circuit Court of Appeals found for the environmental groups, holding that the STB acted arbitrarily and capriciously when it failed to quantify the downstream effects of increased oil and gas production. The DC Circuit also found that the STB did not assess indirect impacts to the environment and did not provide adequate attention to comments brought before them regarding the financial viability of the railway. In failing to properly weigh the economic and environmental costs of the project, the DC Circuit found that the STB failed to supply and acceptable rationale as to its consideration of relevant policies.
The Supreme Court reversed the DC Circuit’s opinion in an 8-0 ruling. Writing for the Court, Justice Kavanaugh opined that federal agencies are only required to evaluate the environmental impacts directly tied to their decisions, not every potential consequence of a project. The STB “did not need to address the environmental effects of upstream oil drilling or downstream oil refining. Rather, it needed to address only the effects of the 88-mile railroad line. And the Board’s (study) did so.” The Court stressed that NEPA is a procedural statute – not one that dictates substantive outcome – and that courts must avoid micromanaging agencies’ judgment calls about the detail or scope of environmental review, deferring to reasonable agency choices. So long as the agency provides a rational explanation for excluding certain effects from analysis, the Court opined, agencies are entitled to substantial deference in making scoping judgments under NEPA. Justice Kavanaugh also wrote that courts must only intervene in agency decisions if the decision is outside a zone of reasonableness. Prior judiciary failure to do so has slowed down and blocked projects, causing “litigation-averse agencies to take ever more time and to prepare ever longer EISs for future projects.”
Though the impact of the Seven Counties decision remains to be seen, the opinion may go hand-in-hand with the current administration’s push for shorter review timelines and greater use of categorical exclusions to streamline approval for federal infrastructure projects. The decision reduces the scope and duration of environmental review for federal projects, allowing agencies to focus only on the direct and reasonably foreseeable impacts of the specific project. For the construction industry, the decision might result in fewer multi-year reviews that stall projects and require lengthy EAs and EISs. Additionally, the decision, coupled with the current administration’s push to hasten approvals for projects, might be the next step to ensuring that projects are not overturned due to speculative or minor analytical omissions.
Perhaps the biggest “winners” following the decision are construction companies often engaged in public-private partnerships (“P3s”). P3s rely on both federal approvals and private capital. The Seven Counties decision may make P3s more attractive and more predictable by reducing environmental-review uncertainty and the litigation risk that has consistently discouraged private investors. The narrower scope of NEPA review could result in faster environmental approvals, lower upfront due diligence costs, and fewer procedural challenges and litigation that delay projects. For construction companies that participate in P3s, the decision could lead to clearer timelines and reduced regulatory risk. The Seven Counties decision may also result in increased confidence and incentive for the federal, and perhaps state and local, government to engage in P3s.
The decision does not eliminate environmental safeguards applicable to projects; the FAR is still applicable to federal construction projects, as are regulations for stormwater pollution, hazardous waste, and more. Though this decision may have made project development and due diligence clearer in one respect, contractors still must comply with federal regulations and ensure they perform under the terms promulgated by the contract.
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