Understanding Phase 2 NEPA regulations

On April 30, 2024, the Council on Environmental Quality (CEQ) finalized the Phase 2 revisions to the National Environmental Policy Act (NEPA).

The last four years have been a period of unprecedented change for NEPA practitioners. In 2020, the Trump administration implemented changes. The Biden administration subsequently proposed and finalized Phase 1 and now Phase 2 regulations, reversing some of the changes made by the Trump administration. Additionally, the Fiscal Responsibility Act of 2023 included important changes to NEPA with the goal of streamlining the environmental review process.

The final rule and supplementary information cover 136 Federal Register pages. Overall, the changes are not major and largely cover much of what agencies are already doing in NEPA documents. While we advise NEPA practitioners to read the entire rule and supplementary material in full, below is a breakdown of key changes in the revised regulations.

Key changes in the final Phase 2 Rule

Codifying climate change and environmental justice analysis

The final rule codifies that environmental effects include climate change-related effects, disproportionate and adverse effects on communities with environmental justice concerns, and effects on tribal resources.

Consistent with the Phase 2 Proposed Rule, the final rule includes language that agencies must consider how the proposed action and alternatives impact climate change, and how climate change will impact the proposed action and the various alternatives. Alternatives that reduce the proposed actions effects on climate change also need to be considered.

The preamble explains that the inclusion of this analysis is consistent with what NEPA has long required, that is “using science to make decisions informed by an understanding of the effects of the proposed action and of its alternatives.” The CEQ January 2023 NEPA Guidance on the Consideration of Greenhouse Gas Emissions and Climate Change provides further recommendations on the analysis of climate change in NEPA that go beyond the Phase 2 regulations. It provides additional technical recommendations such as the use of the social cost of greenhouse gas emissions or equivalent methods to contextualize emissions.

There are many changes with respect to environmental justice throughout the final rule including defining “communities with environmental justice concerns.” Agencies can use available screening tools, such as the EJScreen Tool, to assist in identifying communities with environmental justice concerns. The final rule also mentions the potential use of the Climate and Economic Justice Screening Tool (CEJEST), which does not include race and thus would have to be supplemented with other analyses for use in environmental justice analysis for NEPA.

In describing the affected environment, the rule includes that federal agencies shall use high-quality information and Indigenous Knowledge to describe reasonably foreseeable environmental trends. These changes, however, largely reflect the analysis that is currently conducted by agencies in NEPA documents.

Changes to context and intensity, and significance

Agencies now need to consider the duration of the effect when assessing context and intensity. For example, consider the extent to which an effect is adverse at some points in time and beneficial in others. But the final rule does caution that agencies should not offset an action’s adverse effects with other beneficial effects to determine significance. Context and intensity were included in the original 1978 NEPA regulations, but the specifications are somewhat expanded in the final rule.

Agencies also need to analyze the significance of an action in several contexts, such as proximity to unique or sensitive resources or communities with environmental justice concerns. Depending on the scope of the action, agencies need to consider the potential global, national, regional, and local contexts as well as the duration, including short-and long-term effects.

The factors that agencies need to consider when analyzing the intensity of effects have changed with the final rule, which largely covers what agencies would consider regardless of this change when considering intensity. For example, new factors include the degree to which the action may adversely affect resources listed or eligible for listing in the National Register of Historic Places.

Changes to categorical exclusions

Changes to categorical exclusions are largely reflective of changes already made in the Fiscal Responsibility Act where any federal agency can use the categorical exclusions of any other federal agency as long as they conduct certain activities. Interestingly, agencies may establish categorical exclusions jointly with other agencies. Agencies also may now establish categorical exclusions through a land use plan—a decision document supported by a programmatic environmental impact statement or programmatic environmental assessment—or other equivalent decision for which an environmental document has been prepared under certain circumstances.

The Phase 2 rule includes a definition of extraordinary circumstances that indicate where a categorically excluded action may have a significant effect. The rule describes examples of extraordinary circumstances to include potential substantial effects on sensitive environmental resources, potential substantial disproportionate and adverse effects on communities with environmental justice concerns, potential substantial effects associated with climate change, and potential substantial effects on historic properties or cultural resources.

Changes to Environmental Assessments

Many changes were made in the final rule that govern Environmental Assessments (EA), including the following:

• Inviting public comment and considering those comments in preparing the final EA.
• Establishing circumstances of when to supplement an EA.
• Ensuring that connected actions are also covered in an EA.
• Delineating between a Finding of No Significant Impact (FONSI) and a mitigated FONSI, the latter being defined as a determination of no significant effects due to mitigation. A mitigated FONSI also needs to have a monitoring and compliance plan for mitigation.

Changes to alternatives

The final rule includes a few key changes to how alternatives are developed. Language on a “reasonable number of alternatives” was removed and replaced with requirements concerning identification of the environmentally preferable alternative in a Draft and Final Environmental Impact Statement (EIS), which was previously only required in a Record of Decision (ROD). The environmentally preferable alternative is defined as an alternative that maximizes environmental benefits or causes the least damage to the biological and physical environment.

The rule describes examples of environmental benefits to be maximized “such as addressing climate change-related effects or disproportionate and adverse effects on communities with environmental justice concerns; protecting, preserving, or enhancing historic, cultural, Tribal, and natural resources, including rights of Tribal Nations that have been reserved through treaties, statutes, or Executive Orders.” The environmentally preferable alternative may be the proposed action, the no action alternative, or a reasonable alternative. Agencies can include reasonable alternatives not within the jurisdiction of the lead agency.

Changes to mitigation

The final rule describes that lead or cooperating agencies should incorporate into its decision, where relevant and appropriate, mitigation measures that address or ameliorate significant human health and environmental effects of proposed federal actions that disproportionately and adversely affect communities with environmental justice concerns. The rule falls short of mandating the adoption of mitigation measures for EIS. But where mitigation is to be adopted, the rule provides for greater rigor in enforcing and implementing mitigation.

The final rule specifies that when the ROD for an EIS incorporates mitigation, and the analysis of the reasonably foreseeable effects of the proposed action is based on implementation of that mitigation, then the mitigation shall be enforceable. Federal agencies are required to identify the authority for enforceable mitigation such as through permit conditions, agreements, or other measures.

Agencies are also required to prepare a monitoring and compliance plan, including the description of mitigation measures, the parties responsible for monitoring and implementation, how monitoring information will be made publicly available (if appropriate), the timeframe for implementation, standards for compliance, consequences of non-compliance, and identification of funding.

The rule also allows that categorical exclusions can include mitigation measures that assure environmental effects are not significant, so long as a process is established for monitoring and enforcing the mitigation, including through suspension or revocation of the relevant agency action. Similar monitoring and enforcement language is also provided for mitigation necessary to support FONSI.

Time limits and page limits

The final rule mirrors Fiscal Responsibility Act changes on time and page limits. An agency must complete an EIS in two years and an EA in one year. However, when necessary, an agency may extend these deadlines after consulting with the applicant. The Act also codified the definition of a page as 500 words or less and excludes citations, maps, graphics, and tables.

What’s next for NEPA?

The Fiscal Responsibility Act amendments to NEPA are effective now. The final rule takes effect on July 1, 2024, and applies to all project reviews commencing after that date. Agencies have the discretion to apply the regulations to pending project reviews. They also have one year starting July 1, 2024, to propose changes to their NEPA procedures to CEQ in accordance with the final rule.

The final rule has been well received by environmental groups but poorly received by some industry groups who feel that it unfairly expands the scope of NEPA documents. It’s almost certain that the final rule will be subject to multiple court challenges. In addition, whether the rules stay in place in the near future may depend on the results of the 2024 presidential election.