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Navigating the Transition: Key Infrastructure Issues to Watch in the Biden Administration

Navigating the Transition: Key Infrastructure Issues to Watch in the Biden Administration Background Image

Each new presidential administration brings with it its own set of policy goals and priorities. While the text of U.S. environmental law does not change without an act of Congress, agencies within the executive branch have a great deal of discretion in determining where to focus their limited resources, and they can issue new regulations changing how they administer their programs and interpret those statutes. Such changes may expand or constrict opportunities for the development and operation of major infrastructure projects. Given the number of federal permits needed to construct and operate large infrastructure projects, such as marine terminals, offshore renewable energy projects, interstate pipelines, and electric transmission lines, federal permitting policies can also have a major impact on the ability to build and operate infrastructure projects.

News stories and campaign rhetoric frequently create expectations of immediate shifts following an administration change, but most changes in the federal government happen slowly, and resource constraints mean that many areas of environmental regulation and permitting policy will remain unchanged in the early years of the new administration. So where should infrastructure developers focus their near-term attention? Here are several key issues to watch over the upcoming year.

Federal Energy Regulatory Commission (“FERC”) Leadership and Policies

By statute, no more than three of the five FERC commissioners may be of the same political party. The President has unilateral power to designate the FERC chairman from among the commissioners; in addition to administrative duties, the Chair has some control over FERC’s agenda and can help shape FERC’s priorities. Currently, FERC has a 3-2 Republican majority, and this is likely to continue for some months after the inauguration, assuming that current members of the Commission serve out their terms in office. However, FERC could switch to a Democratic majority as early as June 2021 when Commissioner Chatterjee’s term expires, and the result could be significant changes in key policy areas.

For midstream infrastructure developers, and particularly those in the interstate natural gas transportation space, two crucial FERC policy areas to watch are greenhouse gases (“GHGs”) and eminent domain. Both issues have been the subject of intense disagreement between Republican and Democratic commissioners.

With respect to GHGs, current FERC policy is to quantify and analyze the direct GHG emissions of constructing and operating projects (e.g., emissions from equipment and vehicles used during construction, and emissions from operating pipeline equipment such as compressor stations and valves) as well as directly connected industrial facilities if their emissions are “reasonably foreseeable,” but not GHG emissions from upstream production and downstream consumption of transported natural gas that FERC does not consider reasonably foreseeable.

This policy has engendered sharp opposition from environmental groups and other project opponents, and within the Commission itself. A revision to FERC’s approach would represent a significant change in FERC’s analysis of projects under the National Environmental Policy Act (“NEPA”) and possibly also FERC’s standard for evaluating the public convenience and necessity under the Natural Gas Act.

Similarly, escalating opposition to interstate natural gas pipeline developers’ use of federal eminent domain authority under the Natural Gas Act has led to acute disagreement among Commissioners (as well as repeated and ongoing litigation), with Democratic commissioners generally more sympathetic to landowners’ concerns. Any change in FERC policy regarding eminent domain (for instance, if FERC were to attempt to impose conditions in certificate orders purporting to limit the use of eminent domain) could have a major effect on the timelines for — and, in some cases, potentially even the feasibility of — constructing FERC-jurisdictional natural gas projects.

Permit Challenges

Opponents of infrastructure development often use litigation to impede infrastructure project development. For example, they can challenge a federal agency’s decision to grant a permit necessary for project development by bringing a claim under the Administrative Procedure Act, claiming that the agency did not adequately study the environmental consequences of its action under NEPA, or did not properly complete consultations under the Endangered Species Act or the National Historic Preservation Act. Additionally, some environmental laws allow private citizens and organizations to file suits asserting a developer’s violation of environmental laws, such as unauthorized discharges of air or water pollution, or effects on protected species or historic properties. In either instance, these cases can result in significant additional costs and can halt projects for months or years, with the risk of the development ultimately being cancelled.

The number of challenges brought by nongovernmental environmental organizations has grown significantly over the years, and the legal arguments brought to bear have also become more sophisticated. Because the groups that bring such lawsuits are often challenging the adequacy of the federal permit (and the Agency’s “record” supporting its decision), there are a number of things an agency can do to make it easier or harder to ultimately defend a permit in court. In addition to the particular analysis included prior to the issuance, or as conditions of, a specific permit, the Biden Administration could make permits more susceptible to challenge by issuing government-wide guidance regarding the review of additional issues resulting from a proposed infrastructure project — such as by encouraging the use of particular types of cost-benefit analyses like the Social Cost of Carbon — that environmental litigants have long argued should be included. In these cases, the groups technically sue the government, rather than the party holding the permit. This means that the federal government plays the primary role in defending the permit in court. While there is some limited risk, it is very unlikely (except perhaps in a handful of particularly high-profile cases) that the Biden Administration will cease to defend these permits in court challenges from these groups, as agencies are generally very protective of their administrative actions.

National Environmental Policy Act Regulations

Infrastructure projects typically require a number of federal permits for their construction and operation. Before issuing certain permits, federal agencies must comply with an environmental law known as NEPA. NEPA requires agencies to analyze the environmental consequences of the major federal actions they take, and to provide transparency to the public about that analysis. The regulations guiding how much and what kind of analysis is required come from two sources: (1) the Council on Environmental Quality (“CEQ”) within the Executive Office of the President, which issues regulations that guide all federal agencies in complying with NEPA, and (2) federal agencies themselves, as those agencies then issue their own regulations implementing NEPA and applying any agency-specific requirements.

Recent revisions during the Trump Administration to the CEQ’s regulations on how federal agencies should implement NEPA were a long time in coming, as the last comprehensive overhaul of the NEPA regulations occurred more than 40 years ago. These revisions streamlined the NEPA process and arguably would make issuing federal permits faster, more efficient, and less susceptible to legal challenges by environmental groups. Federal agencies must promulgate their own rules to implement NEPA that are consistent with the CEQ’s rules. The Trump Administration’s new rule requires agencies to propose updates to their own rules within one year of the new rule’s effective date, which was in mid-September 2020. The Trump Administration has accelerated some of these rulemaking efforts to try to put as many agency rules in place before the Presidential Inauguration in late January 2021, but the Biden Administration will still have time to seek to dismantle the new rule entirely, alter its effectiveness date, or apply an overlay of revisions atop the current rule, as well as to affect the larger suite of other agency NEPA implementation rules, even if the current administration’s “midnight rules” make it more cumbersome to do so.

Some environmental groups argue that the revisions go too far and have brought challenges in multiple federal courts, and the Biden Administration is likely to face pressure to rescind the Trump Administration rules, returning to a more stringent and time-consuming set of NEPA regulations. These groups argue that Trump CEQ regulations would allow agencies to ignore effects like climate change from GHG emissions resulting from potential infrastructure projects. This can be very consequential in the NEPA analysis for certain infrastructure projects, as it touches on whether an agency must analyze, for example, induced upstream production and ultimate downstream combustion of hydrocarbons transported through a proposed pipeline project.

The Biden Administration’s selection of Brenda Mallory to lead CEQ is also a clear signal that changes to the NEPA regulations are coming. For example, Mallory was influential in the Obama Administration’s creation of guidance on how agencies should incorporate climate reviews into NEPA analyses, and she will be leaving a position with an environmental NGO that is currently challenging the Trump Administration’s NEPA regulations. Between the court fights and the time it takes to revise regulations within the federal government, we expect the state of NEPA review to be in flux for the short to medium term, with the potential for more expansive impact analysis requirements with respect to climate change to be proposed in the future.

Defining Federal Waters: Waters of the United States (“WOTUS”) Rule

Policy-makers and the affected public have been fighting for decades over how far onto private property the federal government can reach to regulate waterbodies. The Biden Administration is on deck to continue that fight and reverse recent trends narrowing the extent of federal jurisdiction. This legal fight can have major impacts on infrastructure projects, as many infrastructure projects cross or otherwise affect waters that fall within federal jurisdiction.

The debate centers on the definition of “waters of the United States,” a term used in several federal regulatory programs, and sometimes referred to as “WOTUS.” Supreme Court precedent on the extent of federal jurisdiction remains muddy, with the 2006 decision in Rapanos v. United States resulting in a fractured 4-1-4 decision, and it is unlikely that Congress would be able to provide a legislative fix. The fight is likely to continue in agency rulemakings and in legal challenges to those rulemakings.

The Obama Administration spent six years developing the “Clean Water Rule,” which expanded federal jurisdiction to cover, for example, more intermittent streams, ephemeral streams, and isolated wetlands than were previously regulated. Challenges by industry, agricultural interests, and Republican-led states kept the rule from going into effect in 28 states. The Trump Administration spent three years undoing the Clean Water Rule and pulling the pendulum the other way with the “Navigable Waters Protection Rule” in an attempt to balance state and federal permitting. Although there have been multiple challenges to the Trump Administration’s rule, it has currently been enjoined, or stopped from going into effect, only in Colorado, and that decision is currently on appeal.

As litigation over the Trump Administration’s Navigable Water Protections Rule continues, the Biden Administration is likely to explore how to use the rulemaking process to undo that rule. As events of the past decade illustrate, this will not be an easy or a quick fix. Even if the Biden Administration’s Department of Justice backs away from defending the Navigable Water Protections Rule in its ongoing challenges, the rule must continue to be defended in some capacity, and crafting a new rule will likely take years. Even if the Biden Administration succeeds in rescinding the Navigable Water Protections Rule and reapplying the Clean Water Rule, it would not immediately result in wide-scale application of the Clean Water Rule, which never went into effect in numerous states, and would restart numerous cases that were challenging that rule. The state of federal regulation of waters is therefore likely to remain in flux for some time, and states can (and often do) regulate waters more expansively than the federal government.

Crossing Federal Waters: Nationwide Permit 12

While the definition of “waters of the United States” and the specific location of a particular project will determine the permitting requirements, most linear infrastructure projects like pipelines or electric transmission lines, if they are of any appreciable length, are likely to cross waters and wetlands subject to federal jurisdiction. For decades, these projects have qualified for streamlined permitting under the U.S. Army Corps of Engineers’ (“Corps”) nationwide permit program, and Nationwide Permit #12 (“NWP 12”) in particular, which applies to utility lines and pipelines. Securing authorization under these general permits is much faster and cheaper than obtaining an individual permit from the Corps. The Clean Water Act allows the Corps to issue general permits for up to five years before they must be renewed. Permitting for pipeline and other linear infrastructure projects could be slowed down if the Biden Administration changes the circumstances where infrastructure projects can rely on NWP 12 and other nationwide permits commonly used in infrastructure development.

Opponents of infrastructure projects have in recent years focused their attacks on NWP 12 to block these projects. For example, opponents of the Keystone XL pipeline project succeeded in obtaining a nationwide injunction against the use of NWP 12 from a federal district court in Montana, arguing that the Corps failed to undertake programmatic consultation under the Endangered Species Act when the Corps issued the permit in 2017. The Montana court eventually limited its injunction to only new oil and gas pipelines. The Supreme Court stayed that injunction for all parties except for Keystone XL, and the appeal over the merits of the Montana court’s decision is currently before the Ninth Circuit.

On January 5, 2020, the Corps reissued a subset of its nationwide permits earlier than their current 2022 expiration. In addition to splitting NWP 12 into three permits (so that oil and gas pipelines are now governed by their own separate permit), the Corps also reduced the number of conditions that would trigger an applicant’s need to submit a pre-construction notification (“PCN”) to the Corps before proceeding with its activity. In addition to requiring a PCN when a threatened or endangered species may be in the vicinity or when a historic property may be affected, the 2017 version of NWP 12 required a PCN in seven other circumstances. The new 2021 NWP for oil and gas pipelines removes five of these PCN triggers as redundant. However, the 2021 NWPs add one additional PCN trigger to the oil and gas NWP, which now requires a PCN for oil and gas pipeline activities when the overall project is to install a new pipeline greater than 250 miles in length. The new rule also addresses how the Corps has complied with the Endangered Species Act (“ESA”) and why the Corps did not undertake a national programmatic ESA Section 7 consultation as part of the latest NWP rulemaking. The Corps took the same position in issuing the 2017 NWPs, and that position is central to the dispute in the Keystone XL litigation.

The final rule was published on January 13, 2021, and has an effective date of March 15, 2021. The Biden Administration could seek to delay having the new rule from going into effect, and thereafter seek to make changes to the Corps’ approach to permitting, or even extend the deadline to correspond to the March 2022 expiration date of all other current NWPs. This would not deprive industry of the opportunity to continue to use the in-place nationwide permits in the interim, because they do not expire for another two years. Given the outcome of the recent runoff election in Georgia, Congress and the new Administration could potentially use the Congressional Review Act (“CRA”) to overturn the final rulemaking, as discussed in greater detail below. There is uncertainty about the effect of such an action, since doing so prohibits the agency from issuing a substantially similar rule in the future, and this may unusually constrain the Corps in the context of these NWPs, and NWP 12 in particular, which has been in place for many decades and reissued under administrations of both political parties. If the agency instead takes administrative action to forestall the effectiveness of the new NWPs, this time could also give the Biden Administration an opening to undertake additional analysis that might reduce litigation risk on the ESA issues.

The Biden Administration could also trim back the availability of nationwide permits for politically disfavored types of projects, such as oil and gas development and the pipelines and marine terminals that support their movement in commerce. For example, now that oil and gas pipelines are split from other utility projects in their own NWP, the Corps could suspend or revoke NWP 12 for oil and gas pipelines without affecting transmission or other utility line activity.

Clean Water Act Water Quality Certifications

In recent years, states have used the Clean Water Act’s Section 401 water quality certification process to functionally veto certain politically disfavored projects, including oil and gas pipelines and export terminals. In June 2020, the Trump Administration finalized a rule narrowing the scope of state water quality reviews to focus only on pollution discharges and not, for example, a project’s impacts on climate change or air quality. The rule also reiterated the ability of individual federal agencies to impose deadlines by which a state agency must act on a request for water quality certification, including deadlines shorter than the one-year maximum deadline provided by statute, as long as the review periods are reasonable. These changes followed from President Trump’s April 2019 Executive Order No. 13868 on “Promoting Energy Infrastructure and Economic Growth.” Environmental opponents are currently challenging the rule change in several federal district courts. The Biden Administration may opt not to defend the cases, may seek a remand to change the rule, or may act on its own to go through the rulemaking process to revise the rule. Regardless, the Trump Administration’s final rule will have very limited effect on a state’s ability to block any project requiring Section 401 certification — the state may just have to act sooner and be clear about the basis on which a denial is made.

Recently Finalized Regulations and the Congressional Review Act (“CRA”)

In conjunction with administrative actions taken by the Biden Administration, the new Congress may use the streamlined legislative procedures available under the CRA to disapprove a range of Trump Administration “midnight” regulations that were enacted near the end of the term. The CRA provides a streamlined procedure for Congress to enact legislation to disapprove (i.e., veto) rules issued by federal agencies. That procedure is available only for a limited time after a rule is published and formally notified to Congress — i.e., 60 legislative days (a period which is often much longer than 60 calendar days). In practice, the CRA mechanism should be available for rules published and notified to Congress after approximately June 2020. A CRA resolution is not subject to Senate filibuster, meaning that only simple majorities of the House and Senate — and signature by the President — are required to enact legislation to overturn a rule. A CRA resolution of disapproval not only invalidates a rule, but bars the agency from issuing another rule in “substantially the same form” in the future, absent specific statutory authorization. Historically, the CRA was rarely used until the beginning of the Trump Administration. In practice, the CRA is most relevant when a new Presidential administration changes political party, and the same party controls both houses of Congress. The conditions are now ripe for a Democratic Congress and President to disapprove rules finalized near the end of the Trump Administration.

Key Takeaways

While no one can predict the future, based on numerous public statements and the policy goals of some key appointees, infrastructure developers should prepare themselves for more stringent environmental reviews. Two areas that are likely to see enhanced scrutiny are climate change impact analyses and the availability of streamlined permitting pathways for oil and natural gas projects. In addition, although President-Elect Biden has signaled some support in the past for natural gas export projects in the past, environmental groups are already pressuring the transition team to take a hard look at proposed oil and natural gas infrastructure development.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.