The White House Council on Environmental Quality, or CEQ, released interim guidance for how federal agencies should assess climate change effects of federal agency actions in their environmental assessments under the National Environmental Policy Act, or NEPA.

The guidance requires NEPA assessments to include reviews of the direct and indirect greenhouse gas emissions from proposed projects. 

The interim guidance took effect when it was published in the Federal Register on January 9, but CEQ is still collecting comments through March 10.

Agencies do not have to apply the new guidance to NEPA reviews that have already been completed. They are asked to consider using it in reviews that are still underway.

The guidance does not set a specific threshold for when a project will have a “significant” amount of greenhouse gas emissions that would require a more rigorous review under NEPA because of the potential effect on “the quality of the human environment.”

Instead, the guidance requires “quantifying a proposed action’s reasonably foreseeable GHG emissions whenever possible, and placing those emissions in appropriate context.”

The lack of significance thresholds could rekindle a long-stalled debate at the Federal Energy Regulatory Commission over how to conduct NEPA reviews for natural gas pipelines and other energy infrastructure.

The guidance says that it is not enough for agencies to state that GHGs from a proposed project “represent only a small fraction of global or domestic emissions.” CEQ said such a statement “merely notes the nature of the climate change challenge, and is not a useful basis for deciding whether or to what extent to consider climate change effects under NEPA.”

Agencies should calculate both direct and indirect GHGs. In the case of pipelines, for instance, that could include consideration of both downstream emissions when the gas is used as a fuel and upstream emissions tied to additional production.

Federal agencies have been told to use a “rule of reason” to conduct their greenhouse gas analyses “commensurate with the quantity of projected GHG emissions.” In other words, in-depth analysis is not required for projects that “involve net GHG emission reductions or no net GHG increase.” Obviously, this will aid renewable energy projects over those that use fossil fuels.

New York

New York Governor Kathy Hochul signed a bill on the last day of 2022 amending the State Environmental Quality Review Act to require consideration of potential environmental justice impacts from agency actions as part of the normal review process, including permit approvals.

The review process will now consider both long- and short-term effects of any proposed action “on disadvantaged communities, including whether the action may cause or increase a disproportionate or inequitable or both disproportionate and inequitable pollution burden on a disadvantaged community.”

Like the federal National Environmental Policy Act, SEQRA’s basic purpose is to force consideration of environmental factors in government agency planning early enough to inform, but not direct, agency decisions.

SEQRA does not establish a permitting process. Instead, it requires state agencies to make comprehensive assessments of environmental impacts from proposed government actions so that the effects, once identified, can be mitigated.

Going forward, New York agencies will now also be required to consider the cumulative impacts of their actions on disadvantaged communities.

New York is now only the second state, after New Jersey, to require that environmental justice considerations be assessed as agencies make environmental permitting decisions.

The new regime is likely to become effective in June 2023 and will be implemented over a two-year period.

Phase I Assessments

The US Environmental Protection Agency approved an updated industry standard for conducting most phase I environmental site assessments of industrial and commercial properties, following consideration of public comments on the proposal last year. 

The new standard for conducting phase I environmental site assessments is ASTM E1527-21. EPA released it in late 2021 to replace an earlier standard that has been widely used since 2013, ASTM E1527-13. The previous standard remains valid for use but only until February 13, 2024, after which ASTM E1527-21 will be the only EPA-approved standard.

Phase I site assessments are almost always required before closing financings, commercial and industrial real estate purchases, and mergers and acquisitions involving real property.

The new ASTM E1527-21 standard defines what are good commercial and customary practices for conducting environmental site assessments of property to identify both hazardous substances under the Comprehensive Environmental Response, Compensation & Liability Act, or CERCLA, and petroleum products.

A phase I site assessment requires a qualified environmental professional to assess potential environmental risks from hazardous substances and petroleum products by physically inspecting sites, observing adjacent properties, interviewing knowledgeable persons, reviewing government regulatory data bases and considering certain historical information that may yield information relevant to site conditions. Although a phase I assessment requires inspection of a property to look for visual evidence of actual or potential contamination, invasive sampling is not usually performed.

The goal of a phase I site assessment is to identify and disclose what are referred to as recognized environmental conditions, or “RECs.” A REC is not only the presence of a hazardous substance or petroleum product on a site, but also the “the likely presence” of such items “due to a release or likely release.”

The new standard broadens what consultants should consider “likely” release of contamination when assessing a potential REC. “Likely” contamination is now “neither certain nor proved,” but something that “a reasonable observer” would expect or believe “based on the logic and/or experience and/or available evidence.”

Site assessments must also now explain why consultants believe there is or is not a “likely presence” of contamination. Proof of an actual release is not required for a REC, and the consultant cannot dismiss common sense.

Under the new standard, consultants must classify site conditions as current RECs where the applicable regulatory standards have tightened over time, even if past phase I reviews did not.

If a site previously reached approved regulatory closure by meeting the unrestricted use standards in effect at the time of the release or subsequent cleanup, the condition may nevertheless still be classified as having a current REC in a new phase I assessment if the available data show that site conditions do not meet applicable new, stricter regulatory standards. In other words, consultants must check whether the available cleanup data satisfy the standards that are currently in effect even if a site previously achieved regulatory sign-off.

The new standard also clarifies when a phase I site assessment is too stale. Instead, each specific diligence inquiry required by the standard — the site visit and visual inspection of adjoining properties, interviews with occupants, owners and operators, searches for environmental cleanup liens and governmental records searches — must have been completed within 180 days before closing the transaction for the report to meet the standard.

Parties follow the EPA-approved standard not only to assess risk and meet best practices, but also to preserve the ability to claim a defense to CERCLA liability as an innocent landowner, contiguous property owner or bona fide prospective purchaser by having conducted what EPA considers “all appropriate inquiry.” A report whose required assessments are older than 180 days may still provide valuable diligence information, but the report is considered too stale to meet EPA’s standards.

It is important for parties relying on phase I site assessments to do diligence of environmental risks to realize that, even under the new standard, the site assessment does not have to assess environmental risks associated with certain emerging chemicals of concern that are very likely to be sources of increasing liability risk in the future.

While the scope of hazardous substances regulated under the Superfund statute overlaps broadly with most other environmental laws, the overlap is not 100%. Emerging contaminants are substances that are not currently defined as hazardous under CERCLA, but that may already be regulated as hazardous substances under state law, or that may later become regulated as hazardous under CERCLA. These substances are called “emerging” because regulation of them is evolving quickly, such as in the case of per- and polyfluoroalkyl substances, also known as “PFAS.”

Because even the new ASTM standard only requires assessment of hazardous substances already regulated under CERCLA, plus petroleum products, phase I assessments are not required to consider known or suspected releases of contaminants that do not currently fall within that scope. This is true even if a particular contaminant found on a property is already regulated under state law, potentially imposing non-federal cleanup liability or establishing a basis for tort exposure.

An environmental counsel should assess the potential limitations of any reports on which a lender, tax equity investor or acquiror is asked to rely for environmental diligence.

Conducting an optional PFAS assessment — or making sure the phase I assessment includes one — is particularly important for sites where specific current or historical site uses may have resulted in PFAS releases.

Finally, it is important to remember that all RECs are not necessarily disqualifying to a transaction or acquisition.

Environmental site assessments are tools to enable parties to assess risk and then consider whether or how to proceed.

The Inflation Reduction Act established new financial incentives to reuse certain brownfield sites still burdened by the presence of hazardous substances or other pollutants for renewable energy development.

Water

The scope of federal Clean Water Act regulation of waters of the United States has been the subject of regulation, litigation, re-regulation and general uncertainty and tumult since the 1970s.

It has shifted back and forth over decades from narrow limits of just waters that are actually navigable to tributaries of such waters, to interstate waters and their tributaries, to non-navigable intrastate waters whose use or misuse might affect interstate commerce, and to freshwater wetlands adjacent to other jurisdictional waters.

The stakes are significant, both for development and for the environment.

The US EPA and Army Corps of Engineers issued final rules on January 18, 2023, revising the definition of “waters of the United States,” often shortened to WOTUS — again. The term determines what gets regulated.

The new WOTUS rule is the latest regulatory attempt to define the geographic reach of federal agency authority to regulate streams, wetlands and other water bodies under the Clean Water Act.

It supplants a Trump administration navigable waters protection rule, itself a controversial revision to prior regulatory authority that significantly narrowed clean water protections. In 2021, the navigable waters protection rule was set aside by the courts.

The new 2023 WOTUS rule expands federal jurisdiction significantly by allowing federal agencies, and state agencies acting under powers delegated under the Clean Water Act, to regulate most wetlands or streams.

The new rule also establishes a complex analysis for whether an area is a regulated water. The analysis could cause some landowners simply to concede federal jurisdiction.

The new WOTUS rule relies on two standards to establish federal Clean Water Act jurisdiction that were at issue in a split decision by the US Supreme Court in a 2006 case called Rapanos v. United States. The new WOTUS rule regulates based on both the “significant nexus” standard advanced in Justice Anthony Kennedy’s concurring opinion in Rapanos and the “relatively permanent” standard in court’s plurality opinion.

The long-running 30,000-foot issue can be simplified to the question of “when does a federal agency have authority to regulate a wetland or other non-navigable water body under the Clean Water Act?” The Rapanos opinion was a split decision that did not clearly resolve that issue.

A water body is considered to have a “significant nexus” if it “either alone or in combination with similarly situated waters in the region, significantly affects the chemical, physical, or biological integrity of traditional navigable waters, the territorial seas, or interstate water . . . .” 

The “relatively permanent” test requires a permanent hydrologic connection to traditionally navigable waters, thereby excluding channels through which water flows intermittently or ephemerally, or channels that periodically provide drainage for rainfall. Under that test, a wetland must have a continuous surface connection with the navigable water to be considered jurisdictional. Under this narrower standard, only relatively permanent, standing or continuously flowing bodies of water that in everyday English are “streams, oceans, rivers and lakes” qualify as regulated waters of the United States.