Unraveling the NEPA Leviathan

How history should guide permitting reform

Permitting reform is a hot topic in Washington. On both sides of the aisle, there is a growing understanding that building the infrastructure for a cheap and bountiful future is currently beyond our abilities. So, as reform proposals start to trickle out for the inevitable legislative push, it’s a great time to examine the causes of our current paralysis. And what better place to start than the most burdensome permitting law of all, the National Environmental Policy Act (NEPA).

Briefly, the law requires that agencies consider the potential environmental effects of their actions. It started off simply, with reports sometimes only dozens of pages, but has morphed over time into a monstrosity requiring half-decade-long reviews and multi-thousand-page tomes. Commentators largely agree that the main roadblock is judicial review of agency decisions. But little attention has been paid to how that roadblock got there. By what mechanism did a simple requirement to consider potential environmental impacts turn into one of the most burdensome pieces of legislation in US history?

A Very Brief History of NEPA

Environmental disasters of the 1960s—burning rivers, choking smog, vanishing species—drove Congress to pass NEPA in 1969, requiring federal agencies to produce "detailed statements" assessing environmental impacts before acting. Agencies initially ignored the law: the Trans-Alaska pipeline's first statement ran eight pages for an $8 billion project. When Friends of the Earth sued in 1970, construction halted for five years while lawyers logged 4,500 hours (worth millions today) producing a nine-volume, 3,500-page environmental impact statement. The Supreme Court ruled in 1975 that plaintiffs couldn't recover these massive legal costs, so agencies kept flouting NEPA until the Council on Environmental Quality (CEQ)'s 1976 report documented this widespread non-compliance, prompting Carter's 1977 executive order granting CEQ binding authority over all agencies. Congress then passed the 1980 Equal Access to Justice Act, overturning the Court by allowing fee recovery in suits against federal agencies.¹

Examining Party Behavior

To understand why these reviews spiraled so quickly, you have to examine the risk (and therefore cost) allocation. Allocating legal costs is always a tricky task, with a trade-off between allowing the prevailing party to recover its costs and trying to avoid the societal costs of a trial. The British system prefers the former (the “loser-pays” rule), the American system the latter (to each his own costs). The failure modes of each system differ, but they by and large both work well. The EAJA, by contrast, allows plaintiffs to recover their fees if they win but does not force them to pay the government’s legal costs if they lose.² Other suits with similar provisions include the Endangered Species Act, Americans with Disabilities Act, and the Freedom of Information Act, all notorious for litigation abuse.

By refusing to allow the government to pass along its costs if successful, the EAJA encourages exploitative behavior by plaintiffs. Even a successful defense became an expensive proposition. If plaintiffs are able to get over the pleading barrier, a lawsuit can drag the review out by years through the typical discovery/trial/appeal process, regardless of whether the plaintiff had a reasonable case or not. And without the worry of having to bear the cost, plaintiffs are encouraged to abuse costly legal strategies. Proof of this exploitation can be seen in the incredibly high proportion of NEPA cases that are won by the agency. The agency prevails approximately 80 percent of the time, but in almost none of those cases is it allowed to recover its costs. 

This fee-shifting structure would not be nearly so onerous if the pleading bar were not so low. If plaintiffs were required to plead more specifically, at least the courts would be able to discharge their duty to block frivolous cases on the front end. But because of the 1977 executive order, agencies were required to comply fully with every CEQ regulation. This meant any failure to comply with even one clause in the dozens of pages of text was a procedural defect and theoretically met the pleading standard.³ Agencies took one look at their new incentives, and promptly decided to write 7,000 pages anytime they thought there was a chance the action might be challenged. Unfortunately, even these extensive reviews failed to fully protect their decisions. 

However, even the CEQ regulations and EAJA are not the full story. Though they go some ways to explain the rise in NEPA litigation since the 70s, they do not explain how that rise created such onerous review standards. Previously, I have used the term “ratchet statute” to describe a law that turns in only one direction, becoming continuously more burdensome over time.⁴ I believe NEPA falls into this category. But to understand how a statute like NEPA can “ratchet,” you have to consider the pressures on the individual actors.

Building a Dam under NEPA

Say you are an enterprising individual who would like to build a dam to provide power to a nearby town. To do this, you will need a Section 404 permit from the Army Corps of Engineers (ACE). Because that permit approval counts as a major federal action under NEPA, and a dam is a substantial undertaking, you will need to complete an EIS. Technically this is the agency’s job, but you’ll likely contract with a consultant to write the EIS and submit it for the agency’s approval. Over the course of three years, you work with the consultants and the public to complete the document. You consider the effect on endangered species and cultural resources, downstream flooding, sediment transportation dynamics, baseline habitat conditions, and a reasonable range of alternatives. With the complete document totalling 600 pages, the agency gives its stamp of approval, and you receive the permit.

Unfortunately for you, a local member of the Sierra Club, Bill, is not a fan of the project, and has threatened to sue. You feel confident in your study, however, and press ahead anyway. True to his word, after the permit issuance, Bill claims that the study failed to consider the effects of the possible success of your dam on encouraging further dam construction in the area, leading to foreseeable environmental degradation. In his pre-approval public comment condemning the dam, Bill had not mentioned this claim, despite noting several dozen other objections. Armed with the legal theory that the failure to address this concern was a procedural defect, Bill files in district court. You think the claim is ridiculous, but the court finds that it meets the pleading standard and issues an injunction to halt the construction while it considers the case. At this point it is the Army Corp’s obligation to defend the permit, but working with the local office for the last three years has shown you how short-staffed they are, so you decide to intervene in the case and help the defense.

Two years later, after pleadings, answers, preliminary motions, and discovery, the court finally dismisses Bill’s claim in response to your motion for summary judgement. The project is no longer encumbered, and you build your dam. Victory is yours.

Unbalanced Incentives and Ratcheting

But what if it weren’t? You win, you get your dam, but what happens if Bill wins (e.g., on appeal)? If the court rules in Bill’s favor, it’s not just your dam that has to undertake review of the cumulative effects of potential future dams, it’s every potential dam under the court’s jurisdiction.⁵ Every time the Bills of the world win a case, another requirement is added to future EISs. 

Even worse, the new requirements expand fractally. Once the need to conduct cumulative review for further dams is established, a reasonable argument can be made that the endangered species area under review should include potential sites for those future dams as well.⁶ Though this particular example is far-fetched, even if the Bills of the world had a win rate of 1 percent, requirements would still accumulate over time.

And there is absolutely no counterbalance to this process. If you win, the status quo stays exactly where it is. The next dam you try to build will have to uphold all the accumulated standards that applied when permitting the first dam. If you actually wanted to overturn a particular requirement, you would need to do the following: 

1.) Select a building site 

2.) Apply for a permit 

3.) Go through the entire multi-year EIS consulting process, minus the one particular requirement you want to challenge

4.) Persuade the agency to approve the permit, despite the agency's legal obligations under CFR regulations and established judicial precedent—a decision that would expose the approving official to enormous professional liability

5.) (Likely) get sued

6.) Go through the requisite years of pleading, discovery, and motions 

7.) Convince the judge to overrule the prior precedent despite stare decisis, a ruling they may be bound by; and

8.) Survive an appeal with the same issues

Congratulations! If successful in this incredibly costly, long-shot proposition, you have removed a single requirement from the process. The next EIS will be one half-page shorter.  

Clearly, no one in their right mind would do this. 

It is this phenomenon, where a legal win only preserves the status quo, whereas any loss imposes new requirements on everyone, that defines a ratchet statute. Much hay has been made of the particular requirements of NEPA over time, from the heightened compliance requirements to the automatic injunctions to the lowered proof required for standing, but the exact requirements are less important than the structure.⁷ If cumulative impact analysis weren’t required, something equally bad would take its place.⁸

Conclusion

Over decades, what was once a reminder for agencies to consider the environmental impact of their actions has become a noose. The Forest Service has estimated that  40 percent of its total work is planning and assessment. As discussions pick up, reformers must take care to avoid replacing the current system with one with an equally toxic logic. One-way tightening must be replaced by a system that permanently balances the interests of those who wish to build and those who seek to preserve the beauty of nature.

And reform can’t come soon enough. As AI starts gaining traction in the legal community, the game theory of these lawsuits is likely to change once again, potentially leading to a future of less environmental protections and longer reviews. Next week, I will attempt to apply LLMs to all the steps of NEPA review and give my thoughts on how I think the technology is likely to change the status quo. Stay tuned.

Summary

1. NEPA was passed in response to a genuine inability of administrative agencies to properly consider diffuse environmental costs.

2. For its first decade, NEPA’s costs were counterbalanced by the expense of litigation enforcement and the lack of binding regulation to provide a hook for lawsuits.

3. The passage of the Council on Environmental Quality (CEQ) regulations and the Equal Access to Justice Act (EAJA) removed these safeguards and steeply tilted the legal review process towards plaintiffs.

4. If defendants win the case, they merely preserve the status quo; if plaintiffs win, reviews become more onerous.

5. There is no party with an incentive to push back on bad precedents, so agencies comply regardless of whether the requirement is actually informative.

6. Repeat 4-5 for 55 years, and you get the current status quo.

7. Any reform will need to avoid establishing a similar incentive structure if it hopes to be permanent.

1. For a more comprehensive overview of NEPA, see here.

2. Technically, the EAJA has a statutory payment cap at $125/hr; but environmental lawyers often succeed in arguing that there are “special factor[s]” justifying much higher rates, the highest I’ve seen is $750/hr.

3. This got strengthened somewhat to any “plausible” failure in the last few decades with the Twombly and Iqbal cases, but by then the damage was done.

4. In (dis)honor of the ratchet theory of the 14th amendment, see Katzenbach v. Morgan

5. For clarity, usually the ruling is only binding on the parties in the case, but I’ve yet to see a government department not change its procedures in response to losing a lawsuit.

6. For a real life example, see the recent Seven County Infrastructure Coalition case, where the basis for the suit was the failure of the Surface Transportation board to study the effects of approving a railroad on the environmental impact of refineries that may use oil carried by it. The railroad was in Utah, the refineries were in Texas and Louisiana. Over 1000 miles away.

7. For a great overview of all the requirements, see: Mark C. Rutzick, “A Long and Winding Road: How the National Environmental Policy Act Has Become the Most Expensive and Least Effective Environmental Law in the History of the United States, and How to Fix It”

8. See the overturned standard of worst-case scenario analysis in Robertson v. Methow Valley Citizens for an example.