Published: Mar 20, 2017 5:28 a.m. ET
Cutting regulatory or procedural corners on the oil pipelines increases the risk of successful court challenges and trade disputes
President Donald J. Trump’s new actions intended to expedite approval of energy and infrastructure projects were hailed by industry groups and decried by environmentalists. If those actions are implemented in ways that cut regulatory or procedural corners, they likely will slow down infrastructure development by increasing the risk of successful court challenges and trade disputes.
If the agencies reviewing Dakota Access and Keystone XL pipelines don’t take the time to provide justifications for their recent decisions on those projects—influenced by Trump—courts may invalidate pipeline approvals. Implementing explicit local-content requirements for steel in pipelines could embroil the United States in trade disputes. Further, the administration’s memorandum to expedite federal infrastructure review and permitting creates uncertainty about the application of a more carefully thought out process Congress established in 2015.
Dakota Access Pipeline
Trump signed a memorandum designed to reverse the Army Corps of Engineers’ decision to withhold the last permission the Dakota Access Pipeline (DAPL) needed to complete construction until it undertook additional review of an alternate route and conducted additional tribal and public engagement by preparing an environmental impact statement, or EIS.
The Corps of Engineers has now rescinded the environmental review and granted the easement to those constructing the pipeline, citing Trump’s directive as its basis for action. The reviewing court has denied a request for a preliminary injunction from the Standing Rock Tribe. While the court didn’t rule on the tribe’s motion for partial summary judgment, there is still some risk the court could halt or delay operation of the pipeline and order the army to proceed with more environmental review.
The main issue with the Corps of Engineers’ decision is that while an agency can change its mind about a policy decision, that agency must provide a reasoned justification for that change, particularly when it is changing its determinations about the underlying facts and circumstances of an issue. The Corps of Engineers should have explained why there was a basis to change its mind about producing an EIS before the comment period on scoping for the EIS had finished. While its analysis in support of reversing course went over the procedural history of the environmental review, it provided no explanation for changing its decision to conduct an EIS, however, other than referring to the president’s memorandum. Court cases indicate that a change in administration itself isn’t a reasoned justification for changing an agency’s decision about the underlying facts and circumstances of that decision.
If the court finds the Corps of Engineers’ change in decision to be arbitrary and capricious, it could order an EIS to be completed and may order pipeline operations be halted pending the completion of that EIS. In the rush to move forward immediately after the inauguration, the administration may have slowed down DAPL’s progress.
In addition to his executive action on DAPL, Trump signed a memorandum inviting TransCanada to resubmit its application for the Keystone XL project and directed agencies to make a permitting decision within 60 days. TransCanada resubmitted its application on Jan. 26 and submitted a new application for the route in Nebraska on Feb. 16.
This accelerated timeline significantly increases the risk that a court could block any decision to grant Keystone XL a permit.
First, despite the 60-day time limit in the memo, the U.S. Department of State needs to follow the same considerations the Army Corps of Engineers must follow in DAPL to ensure that any change in its decision is supported in the record or it will face legal challenge that its actions are arbitrary and capricious. The State Department would have an additional legal defense in court that is not available to the Corps of Engineers in DAPL because two out of three district courts that have considered previous presidential permits have found the permits unreviewable. There is no guarantee that subsequent courts will follow those precedents, however, and if the court reviewing this action doesn’t, it will judge State Department actions as arbitrary and capricious.
Second, one of the key decisions that the State Department will need to make in that process is whether there is a change in circumstances that would alter the environmental impacts of Keystone XL described in the supplemental environmental impact statement, or SEIS. Litigants could assert, at minimum, that the collapse in oil prices since the SEIS was concluded may change the SEIS conclusion that Keystone XL was unlikely to affect production and thereby greenhouse gas (GHG) emissions from the oil sands.
Third, the State Department has previously stated that it couldn’t adequately evaluate the impacts of Keystone XL without a final approved route in Nebraska. TransCanada won’t complete the process in Nebraska for at least several months, well after the 60-day deadline for the department to make a decision. The department will need to justify why it has changed its consideration of the facts and can now adequately evaluate the environmental impacts of the pipeline without a settled route in Nebraska.
Fourth, the president’s suggestion that he might impose additional conditions could make the project uneconomic. While the administration has stated it will not require the pipeline to be constructed from U.S. steel, in the current low-oil-price environment even more modest additional conditions could challenge the project’s economics. TransCanada has agreed to temporarily suspend its $15 billion North American Free Trade Agreement claim against the United States, but it has not yet dropped the claim. If it does decide to pursue the Nafta claim instead of complying with uneconomic additional conditions, TransCanada could cite the imposition of conditions by the current administration to buttress its claims that the United States has treated the company unfairly and arbitrarily.
The domestic content plan
Trump also signed a memo directing Secretary of Commerce Wilbur Ross to develop a plan under which pipelines in the United States are required to use materials and equipment produced domestically. As with the other memorandums, this one leaves the hard work to the agency in question, and Ross will face significant challenges in crafting a plan that avoids creating additional legal uncertainty in a World Trade Organization challenge or harming U.S. industry.
WTO agreements generally prohibit requirements giving preference to domestically sourced goods over imported goods. The United States has long been a champion opposing local-content requirements, or LCRs, having won a landmark pre-WTO proceeding that overturned many Canadian local-content requirements in its Foreign Investment Review Act, and recently won a challenge against India’s LCRs in its solar industry.
Any plan that supports using U.S. steel and equipment in pipelines will need to be carefully designed to avoid being invalidated at the WTO. In addition, LCRs generally harm the economy of the country implementing them by increasing costs in the economy as a whole and harming international competitiveness.
Expediting federal permit reviews
The most unusual of Trump’s memorandums is the one expediting reviews of infrastructure permits. The memorandum creates a process for expediting permitting reviews headed by the chair of the Council of Environmental Equality (CEQ). The memo, however, doesn’t describe how it relates to existing measures to streamline infrastructure review processes, most importantly the 2015 Fixing America’s Surface Transportation (FAST) Act. The bipartisan FAST Act provides authority to an interagency Federal Infrastructure Improvement Steering Council, controlled jointly by the Office of Management and Budget and CEQ, devoted to streamlining federal permitting reviews.
In contrast to Trump’s memo, the FAST Act takes a comprehensive approach to addressing permitting delays. OMB’s inclusion in the process is important because its mandate and expertise is in overall management of the executive branch, including the budget. By contrast, CEQ’s expertise and mandate is primarily devoted to the implementation of the National Environmental Policy Act (NEPA). Expediting federal permitting isn’t simply a matter of speeding up the NEPA examination, but also often involves efficiently mediating interagency disputes about limited resources and overlapping statutory authorities, which is the purview of OMB.
Federal permitting of pipelines and energy infrastructure should be improved, and improving pipeline safety by replacement of aging pipelines should be encouraged.
For cross-border pipelines, the executive order governing the State Department’s process for moving forward with the Keystone XL pipeline could be amended:
• to clarify cross-border pipelines are subject to FAST Act procedures;
• to allow existing permits to be amended for a change in control of the owner (or a change in the name of the line) without requiring a new permit; and
• to allow pipeline improvements (such as replacement, upgrade, or improvement with collateral equipment) to require notice but not issuance of a new permit. The administration may also consider whether the environmental review of cross-border pipelines should be led by a different agency with greater capacity.
However, for DAPL, the Army Corps of Engineers should still be prepared to proceed with additional environmental review by developing a plan that can be immediately implemented if the court rules against it on the still-pending motion for partial summary judgment.
For Keystone XL, the State Department should do a rapid but thorough review of SEIS to consider and evaluate if changed circumstances impact the NEPA assessment. The administration should consider changing the deadline for decision on the Presidential Permit to 30 or 60 days after Nebraska finishes its process.
On domestic content, the Commerce Department should evaluate alternatives to supporting U.S. steel production other than implementing an explicit local content requirement that is inconsistent with WTO obligations.
Finally, on overall expediting of federal permitting, the administration should clarify that it is not creating a new, competing system for expediting infrastructure reviews and clarify how the recent order can be integrated with the existing FAST Act requirements.
The administration can best expedite approval of pipelines and other energy infrastructure without sacrificing environmental, safety, or economic concerns by ensuring that agencies have sufficient resources to meet expedited timelines while still complying with existing laws.