Marcellus Shale pipeline decision provides guidance on scope of environmental “cumulative impacts” analysis for projects requiring government approval

Energy Alert

Litigation Alert

By:

The Second Circuit has issued a decision providing further clarity on the scope of “cumulative impacts” analysis required under the National Environmental Policy Act (NEPA).

Often, during review of projects or other actions by federal agencies that have the potential to affect the environment, questions arise about the proper scope of the review of the project.  The question that has bedeviled agencies and project proponents (and opponents) for years has been what is required under the “cumulative impacts” provision of NEPA.  That is, how much analysis of unrelated projects in a geographic area must occur for the evaluation of the project under consideration to satisfy NEPA? That was the question squarely before the Second Circuit in Coalition for Responsible Growth and Resource Conservation v. U.S. Federal Energy Regulatory Commission.

The court’s June 12 decision determined that NEPA did not require FERC to include an in-depth evaluation of the environmental effects of non-jurisdictional natural gas well drilling in Pennsylvania’s Marcellus Shale region when analyzing the cumulative impacts of a major interstate pipeline project.

The Second Circuit’s decision denied a petition challenging an order issued by FERC in November 2011 that authorized Inergy, L.P. and its subsidiary Central New York Oil And Gas Company, L.L.C. (CNYOG) to build and operate the MARC I Hub Line, a 39-mile natural gas pipeline in north central Pennsylvania.  Upon completion, the pipeline will transport natural gas produced in Pennsylvania’s Marcellus Shale, one of the nation's largest known natural gas supply resources, to several major interstate pipelines, thereby providing much-needed access to interstate markets.  CNYOG was represented in the litigation by DLA Piper partner Robert J. Alessi and of counsel Jeffrey D. Kuhn.

On February 14, 2012, various environmental groups, led by the Sierra Club and its counsel, Earthjustice, filed a petition in the Second Circuit to overturn FERC’s approval of the MARC I pipeline.  The petitioners alleged that FERC violated NEPA because the agency’s Environmental Assessment for the project did not consider the environmental impacts of Marcellus Shale well drilling and associated infrastructure development when analyzing the project’s cumulative impacts.  The petitioners’ attempt to use federal approval of interstate pipelines as a vehicle to force NEPA review of Marcellus Shale natural gas production utilizing hydraulic fracturing presented a direct threat to all future Marcellus Shale development in Pennsylvania, New York, West Virginia, Ohio and Maryland.

During briefing and oral arguments, CNYOG argued that the evaluation of Marcellus Shale well drilling included in FERC’s Environmental Assessment satisfied the requirements of NEPA.  CNYOG also argued that under the Supreme Court’s 2004 decision in Department of Transportation v. Public Citizen and its progeny, FERC was not required under NEPA to analyze the environmental impacts related to Marcellus Shale well drilling in the first place because those activities are outside FERC’s jurisdiction (drilling of Marcellus Shale gas wells is primarily regulated by the states). 

In its June 12 decision denying the petition, the Second Circuit agreed with CNYOG’s arguments and held that “FERC’s analysis of the development of Marcellus Shale natural gas reserves was sufficient.”  The court also stated that “the impacts of [Marcellus Shale] development are not sufficiently causally-related to the project to warrant a more in-depth analysis.”

Importance of the decision

The Second Circuit’s decision is important because it provides further guidance to federal agencies – and proponents of private projects requiring permits or approvals from federal agencies – on the proper scope of the cumulative impacts analysis required under NEPA.  

Federal agencies must comply with the environmental review process established under NEPA before making any final decisions regarding federal actions that could have adverse environmental effects.  NEPA applies not only to direct activities of federal agencies (such as government construction projects or management of federal lands), but also to private activities that require federal approvals, licenses or permits.  These private projects subject to NEPA include (to give just a few examples) interstate gas pipelines, such as the MARC I project, which require a certificate of public convenience and necessity from FERC; private leasing of federal lands managed by the Bureau of Land Management for energy production; and most projects that require a permit from the US Army Corps of Engineers under Section 404 of the Clean Water Act to discharge dredged and fill material into navigable waters of the United States, including wetlands.  Review under NEPA is often considered a mere check-the-box formality or a requirement that will simply be discharged by the relevant federal agency.  But for project developers, investors and other marketplace participants, that mindset can prove fatal. A more proactive management of the NEPA process (and its many and varied nuances wrought by a patchwork of sometimes inconsistent court decisions) will maximize the probability that a project comes to fruition.

In analyzing the environmental impacts of projects subject to NEPA, federal agencies must evaluate the action’s direct, indirect and cumulative impacts.  “Cumulative impact” is defined in Section 1508.7 of NEPA’s implementing regulations as “the impact on the environment which results from the incremental impact of the action when added to other past, present, and reasonably foreseeable future actions regardless of what agency (Federal or non-Federal) or person undertakes such other actions.”  Stated differently, a cumulative impacts analysis examines whether a project’s otherwise insignificant direct/indirect effects on a particular resource might rise to the level of significance when considered in the context of other actions impacting the same resource.  For example, while a particular power plant’s intake of cooling water from a river might have only insignificant direct and indirect effects on the river’s ecosystem, a cumulative impacts analysis would examine if those direct/indirect effects, when added to the effects of other projects affecting the river, would result in significant impact on the river’s ecosystem.  That is, will the project be the proverbial straw that breaks the camel’s back?

Under NEPA, if a federal agency determines that a project’s impacts – including its cumulative impacts – are “significant,” then an environmental impact statement (EIS) must be prepared.  Because preparing an EIS is very costly and time-consuming (and, as stated by several federal courts, “has been the kiss of death to many a federal project”), opponents of particular projects often focus their NEPA tactics on forcing preparation of an EIS by arguing that a project’s environmental impacts rise to the level of significance.  To that end, project detractors will attempt to define as broadly as possible the scope of the “other past, present, and reasonably foreseeable future actions” that must be added to the project’s direct/indirect effects to determine the project’s cumulative impacts.  The logic of this strategy is that a project’s cumulative impacts are more likely to be found significant (and thus require preparation of an EIS) when the effects from as many other actions as possible are included in the cumulative impact analysis.

Accordingly, it is critical that project developers and others with interests in projects subject to NEPA work closely with federal agencies to ensure that the scope of other actions included in the analysis of a project’s cumulative impacts is appropriate.  While a cumulative impacts analysis with too broad a scope increases the risk that an EIS will be required, an overly narrow cumulative impacts analysis can lead to NEPA litigation in federal court challenging the agency’s approval of the project.  The United States Supreme Court’s decision in Public Citizen and subsequent cases can be read to state that NEPA does not require federal agencies analyzing the cumulative impacts of a particular project to include the effects of other actions over which the agencies have no jurisdiction.  In addition, several federal agencies have adopted regulations limiting the scope of the environmental analysis – including cumulative impacts analysis – they will perform under NEPA.  For example, FERC and the US Army Corps of Engineers have each adopted a four-factor test to determine whether there is sufficient federal control over a project to warrant environmental analysis.  Because the Supreme Court has yet to issue a definitive opinion on the proper scope of cumulative impact analysis, however, project proponents would be advised, as a hedge, to encourage federal agencies to consider including non-jurisdictional actions affecting the same resources in their analysis of a project’s cumulative impacts, even if those non-jurisdictional actions are not analyzed in the same depth as other actions over which the agency has jurisdiction.

In the arguments before the Second Circuit relating to the MARC I pipeline, CNYOG showed that FERC’s analysis of the pipeline’s cumulative impacts included an evaluation of the effects of Marcellus Shale well development.  And based on Public Citizen and FERC’s four-factor test, CNYOG also demonstrated that NEPA did not require FERC to include a comprehensive evaluation of the effects of non-jurisdictional Marcellus Shale well development in analyzing the pipeline’s cumulative impacts. 

By agreeing with CNYOG’s arguments and denying the petition, the Second Circuit not only allowed construction and operation of the US$257 million MARC I pipeline to proceed, but also provided further definition for developers of other projects on the appropriate scope of cumulative impacts analysis under NEPA.

For further information about the contents of this publication, please contact Robert J. Alessi or Jeffrey D. Kuhn.