Interior's Failure to Company with NEPA Blocks Atlantic OCS Oil Leasing

In a decision with possible serious implications for the Department of the Interior's program to accelerate oil and gas production from the Outer Continental Shelf (OCS), Federal District Judge Jack B. Weinstein of the Eastern District of New York has voided the first sale of OCS oil and gas exploration and production leases in areas off the Atlantic coast because the final environmental impact statement (EIS) inadequately complied with the requirements of the National Environmental Policy Act (NEPA).¹ The ruling bucks the trend of several recent decisions which have upheld OCS lease sales off the Gulf coast² and off the shores of California³ and Alaska.⁴ Also, the ruling represents the first judicial success for opponents of particular actions taken pursuant to the national program for accelerated leasing announced by President Nixon in 1974.⁵ The decision moreover brings into focus a number of serious political questions concerning the role of environmental protection in the development of domestic energy resources.

Judge Weinstein's decision on the merits in County of Suffolk v. Secretary of the Interior was foreshadowed by his issuance of a preliminary injunction last fall against the opening of bids for the lease sale. The injunction was quickly stayed by the Second Circuit, however, which pointed out that there would be no irreparable harm from simply opening the bids and emphasized the paramount national interest in increasing domestic energy supplies. Mr. Justice Marshall, sitting as Circuit Justice, refused to vacate the stay.⁶

The effect of the most recent County of Suffolk ruling was stayed by Judge Weinstein himself pending completion of any appeal, a step which Interior Secretary Andrus has decided to take. The Second Circuit may find Judge Weinstein's decision on the merits difficult to reverse, however, since it is solidly based on extensive findings of fact derived mostly from trial testimony, findings which the court of appeals must accept as presumptively correct.

Prior NEPA Litigation

The 1953 Outer Continental Shelf Lands Act⁷ provides the basis for accelerated development of federal off-shore oil and gas reserves through the sale of exploration and development leases. Activity is already taking place in the Gulf of Mexico and off southern California, and attention more recently has focused on geologically promising areas off the coasts of Alaska and the middle Atlantic states. Rapid development of these sources, however, has collided with NEPA's requirement that the impacts of the government's leasing program on the environment be considered in decisions on where to lease.

In NRDC. v. Morton,⁸ one of the first NEPA decisions on an OCS leasing plan, the District of Columbia Circuit [7 ELR 10068] Court of Appeals refused to reverse a district court's preliminary injunction against a lease sale in the Gulf of Mexico. The court held inadequate the discussion of the effects of alternatives to the lease sale in the EIS and stated that alternatives may not be disregarded "merely because they do not offer a complete solution to the problem." In finding that Interior's EIS discussion should have included other federal legislative or administrative actions, the court said that even though Interior may not have the authority to implement various alternatives, in order to fully inform the decision makers, all alternatives must be discussed, if not exhaustively then in sufficient detail "to permit a reasoned choice of alternatives so far as environmental aspects are concerned."

After this initial defeat, the Department of the Interior leasing decisions have tended to survive judicial scrutiny. In 1975, the Fifth Circuit, faced with a NEPA suit against another Gulf lease sale, in Sierra Club v. Morton,⁹ affirmed the district court's decision that Interior's EIS was sufficient. The court found that the significant environmental effects were recognized and presented in a way so as to allow the decisionmakers an opportunity to weigh the impacts, that the EIS was sufficiently detailed, and that the complex cost-benefit analysis could sometimes be only predictive guess-work as long as the EIS provided enough detail to permit a reasoned evaluation and decision. In reply to plaintiffs' argument that there should be separate leases for exploration and development, the court stated that the rights remaining with the federal leaseholder allowed continuing control over subsequently discovered environmental harms. In upholding Interior's decision to proceed with the lease sale in reliance on its EIS, the court said:

where shortcomings in a major federal action can be corrected or minimized when and if they surface, the EIS upon which such action is authorized may meet NEPA's objectives with some less detail and analysis than would otherwise be required.

Lease sale challenges fared no better in other venues against the courts' developing standard of weighing the completeness of environmental impact statements against a "rule of reason." For instance, even though lease operations could be suspended when the risk to the marine environment outweighed the immediate national interest,¹⁰ a California federal district court¹¹ upheld a lease sale's EIS because NEPA did not require separate statements for each step of the OCS development process and because the EIS's cost-benefit analysis was not required to be based on regional impacts nor to be formally expressed in mathematical terms. The court refused to interfere with political decisions based on the nation's immense energy needs and would half the lease sale only if the EIS were a "shallow, purposely evasive and incomprehensive report which clearly lacked good faith statutory compliance."

In another case, notwithstanding requests from the Environmental Protection Agency and the Council on Environmental Quality, a District of Columbia federal district court¹² refused to delay a lease sale in the northern Gulf of Alaska because Interior's EIS sufficiently weighed the national need for increasing domestic energy supplies against possible environmental harms. National security and balance of trade factors were of sufficient weight, in the court's view, to justify the decision to proceed with the lease sale based on the Secretary's broad responsibility to balance energy needs and environmental impacts. Since the Secretary has continuing authority to make lease adjustments as the exploration and development activities are carried out, detailed information regarding the impact on the environment of certain actions may wait until drilling has begun.

Lease Sale 40 — Preliminary Injunction

The State of New York, several Long Island towns and counties, and a number of environmental groups challenged the first major sale of Atlantic OCS leases, Lease Sale 40, claiming that Interior's environmental impact statement failed to comply with NEPA. In preliminarily enjoining the opening of bids,¹³ Judge Weinstein concluded that the EIS complied with the spirit and letter of NEPA except in one critical respect: the failure to account for state and local decisions regarding land use that could have a substantial impact upon the ultimate disposition procedures of the OCS oil and gas resources. The federal defendants did not deny that state and local authorities can exert substantial control over pipeline placement and the siting of on-shore facilities along the coastal zone through existing land-use laws and zoning ordinances. Coordination of these decisions with the federal government is especially important under the 1972 Coastal Zone Management Act and its 1976 amendments,¹⁴ particularly in developing OCS resources for a national energy policy, but to date the Atlantic states have neither completed their coastal zone plans nor entered into coordinating arrangements with the federal government.

Judge Weinstein's opinion described a number of state laws that could seriously impede pipeline transportation of the OCS oil and gas and noted that Interior's final EIS rested upon the assumption that pipelines rather than tankers would be the means of bringing the oil ashore. [7 ELR 10069] The EIS's failure to explore the possible impact of these state and local powers and its failure to investigate the extent of state and local cooperation with the national intentions expressed in the EIS rendered Interior's assumptions and conclusions invalid and a realistic appraisal of the environmental impact of Lease Sale 40 impossible. Failing to discuss fully the state and local licensing power for coastal land development meant that the EIS was not comprehensive and did not disclose factors that would have enabled the Secretary of the Interior to make a knowledgeable decision. This inadequacy was a sufficient violation of NEPA to warrant enjoining the planned lease sale.

Judge Weinstein's decision on the preliminary injunction came down just four days before the planned sale, and the hurried appeal to the Second Circuit resulted in a brief per curiam order staying the injunction for two reasons. First, the court found nothing in the planned sale which, "in and of itself, will cause appellees any irreparable injury." Secondly, "the national interests, looking toward relief of this country's energy crisis, will be clearly damaged if the proposed sale is aborted."

Plaintiffs then applied to Justice Marshall as Circuit Justice to vacate the stay but were refused.¹⁵ Justice Marshall acknowledged that NEPA requires a "hard look" at environmental consequences but held that an evaluation of the adequacy of an EIS must be "tempered by a practical 'rule of reason,'" He states that it was more appropriate for the court of appeals to review such a "fact-intensive issue" as whether the district court used the correct standards in concluding that the EIS failed to comply with NEPA. Justice Marshall added that opening the bids was not an "irreversible commitment of resources" since the Secretary still had the right to reject all bids. Furthermore, Justice Marshall indicated that the court of appeals still could nullify the leases if, after trial, it became clear that they were entered into without complying with NEPA.

Lease Sale 40 on the Merits

The stage was thus set for a decision on the merits after the lease sale took place, and Interior had accepted bids of $1.1 billion, more than double what was expected in receipts. Considering the care that Judge Weinstein took in his preliminary hearings and the length of his first opinion, his conclusion striking down the sale on the merits could have been anticipated. In an even lengthier opinion, he nullified the leases because the EIS, even when weighed against the "rule of reason" standard, violated the requirements of NEPA, and he enjoined further activity pursuant to the leases. Judge Weinstein reiterated his earlier conclusion that the impact statement failed to consider the possible effects of the exercise of state and local regulatory powers and added several other inadequacies which had become clear as a result of the trial.

The court found that Interior's documentation noted the existence of state and local powers that could have an impact on siting on-shore facilities but failed to evaluate the effect that various decisions could have on the economics of the project. Different pipeline routes and landfalls, depending on the amenability of affected localities to on-shore facilities, would have vastly differing effects on the costs of moving the energy resources to market. If Interior's reliance on pipeline transport proved invalid because of the refusal of state and local officials to permit support facilities within their jurisdictions, not only the economic cost but the environmental risk would be substantially altered. Interior's exclusive reliance on the pipeline assumption meant that the tanker alternative was virtually ignored even though the EIS did note that tanker transport currently presents greater environmental risks. In response to the argument that the states will be able to assure protection of their coastal environments through use of federal funds under the Coastal Zone Management Act, the court noted that "NEPA requires an independent assessment of a variety of facts to determine possible environmental damage. That responsibility cannot be fobbed off to the states under a different program."

The second major shortcoming of the EIS Judge Weinstein discovered was the failure to make realistic estimates of the investment cost necessary to produce a certain amount of energy. The difficulty was that the impact statement not only underestimated the exploration and pipeline production costs but overestimated the peak levels of production. The skewed figures, of necessity, resulted in an invalid cost-benefit analysis and contained such substantial discrepancies that there was no meaningful inquiry for NEPA purposes. Thus, the Secretary's decision on Lease Sale 40 was arbitrary, capricious, and in violation of NEPA.

In addition, Judge Weinstein noted that the EIS failed to consider adequately the possibility of separating exploration and production leasing even though this might require legislative implementation. A final outright omission of the EIS was that it neglected to consider leasing OCS tracts other than those nominated for Lease Sale 40 and the resulting on-shore environmental impacts of leasing these alternate areas. The judge moved somewhat away from his finding on the preliminary injunction that the lease decision was made in good faith. He acknowledged the considerable evidence indicating that the EIS process was actually a "charade" because the federal government was already committed to speedy development of Atlantic OCS resources. He concluded, however, that it was unnecessary to decide the good-faith issue, which would constitute review of the Secretary's mental processes, because there were ample other grounds for holding that the sale violated NEPA.

Implications

Recognizing the critical role that the appeal to the Second Circuit will play, Judge Weinstein stayed the effect of his decision pending completion of the review process. Because the judge made a careful and detailed analysis in reviewing the agency's lease sale decision and his ruling is solidly based on findings of fact which the court of appeals must accept as presumptively valid, the Second Circuit may find it difficult to reverse the district court decision. The court of appeals will, however, also have to review the district court's application of the "rule of reason" test to the EIS and the lower court's implicit conclusion that acceptance of the lease bids constitutes an [7 ELR 10070] irreversible commitment of resources. Either of these legal issues could provide the appellate court with grounds for reversal should it again choose to defer to the government's political determination of the predominant urgency of increased OCS leasing and production.

The decision by Secretary of the Interior Andrus to appeal the Suffolk County decision seems clearly to be a political move. In the face of the over-simplified but popular notion that energy and environment are diametrically opposed, the Carter administration apparently does not want to appear to be anti-OCS development at a time when the energy crisis, particularly in the northeast, which is the presumed recipient of Lease Sale 40's oil and gas,¹⁶ is exacerbated by uncertainty in the nation's economic climate. Even without the Interior Department's action, the intervening defendants¹⁷ in Suffolk County would no doubt have sought appeal, but Interior's presence may sharpen the dispute presented to the Second Circuit.

Unless Interior can show that the impacts of adverse state and local regulation can be accommodated, the decision to appeal places Interior in a position of arguing that OCS development must take place regardless of economic cost or the disruption of state and local regulatory structures. The Second Circuit may be compelled to consider not only whether present procedures do allow for state input for environmental protection into the exploration and development plans¹⁸ but the extent to which federal plans spurred by the national energy crisis may override state and local coastal zone management plans.¹⁹

An Interior Department spokesman has indicated²⁰ the government intends to rely upon Sierra Club v. Morton²¹ as ample precedent to overturn Suffolk County on appeal. While the former decision did emphasize a reasonable approach allowing for guesswork in the EIS and mitigation of specific environmental impacts later on as OCS activity progresses, the court there held that plaintiffs had failed to carry the burden of proving erroneous district court's finding that the EIS complied with NEPA. In Suffolk County, on the other hand, plaintiffs succeeded in the lower court and the government will carry the burden of attacking that decision. Furthermore, a just-released General Accounting Office study supports Judge Weinstein's conclusion by stating the Interior often approves lease sales on the basis of inaccurate and unreliable data.²²

While not directly related to the Suffolk County decision, upcoming governmental restructuring will have an impact upon the whole OCS leasing program. The Carter administration's new energy department will have the responsibility for setting policy and production goals, while Interior will be responsible for determining where and how to meet the goals. But it is unclear whether environmental concerns will be considered on an equal basis with energy needs in the planning process in this bifurcated system. The Carter administration is planning to propose OCS legislation that will, among other things, allow for cancelling leases for environmental reasons and encourage coastal state recommendations on federal OCS leasing plans.²³

Suffolk County is neither a no-growth nor an antienergy decision. It is, rather, a reaffirmation of the basic principle that prior to making political choices, federal decisionmakers must be fully informed of both the environmental implications of the proposed action and the panoply of alternatives available. The decision demonstrated that instead of making this principle which is embodied in NEPA obsolete, the national program for accelerated development of domestic oil and gas reserves has reinforced its continuing validity. The resolution of possible federal-state conflicts over the siting of pipeline and on-shore facilities during the NEPA process, as Judge Weinstein suggests, would ultimately serve to facilitate the development of OCS energy resources in a mannerwhich is both politically acceptable and environmentally responsible.

1. County of Suffolk v. Secretary of the Interior, 7 ELR 20230 (E.D.N.Y. Feb. 17, 1977). An expedited appeal will be heard by the Second Circuit Court of Appeals on April 19.

2. Sierra Club v. Morton, 510 F.2d 813, 5 ELR 20249 (5th Cir. 1975).

3. California v. Morton, 404 F. Supp. 26, 6 ELR 20088 (C.D. Cal. 1975).

4. Alaska v. Kleppe, 6 ELR 20479, 6 ELR 20669 (D.D.C. 1976).

5. See generally Comment, CEQ's Report on the Outer Continental Shelf Oil and Gas Development: Recommendations for Institutional and Legal Modifications, 4 ELR 10070 (1974).

6. New York v. Kleppe, 97 S. Ct. 4 (1976).

7. 43 U.S.C. §§ 1331-1343, ELR 41435.

8. 458 F.2d 827, 2 ELR 20029 (D.C. Cir. 1972).

9. 510 F.2d 813, 5 ELR 20249 (5th Cir. 1975).

10. In the wake of the Santa Barbara Channel blow-out, the Secretary of the Interior could suspend, but not cancel, lease operations. Union Oil Co. v. Morton, 512 F.2d 743, 5 ELR 20218 (9th Cir. 1975); Gulf Oil Corp. v. Morton, 493 F.2d 141, 4 ELR 20086 (9th Cir. 1973).

11. California v. Morton, 404 F. Supp. 26, 6 ELR 20088 (C.D. Cal. 1975). A parallel attempt to block the sale was made in the federal court in the District of Columbia, but the court refused to enjoin the sale, and the case was ultimately transferred to California.Southern California Ass'n of Gov'ts v. Kleppe, 6 ELR 20115 (D.D.C. 1975), 413 F. Supp. 563, 6 ELR 20485 (D.D.C. 1976).

12. Alaska v. Kleppe, 6 ELR 20479, 6 ELR 20669 (D.D.C. 1976).

13. County of Suffolk v. Secretary of the Interior, Nos. 75 C. 208, 76 C 1229 (E.D.N.Y. Aug. 13, 1976), order stayed (2d Cir. Aug. 16, 1975), motion to vacate denied, 97 S. Ct. 4 (Aug. 19, 1976).

14. 16 U.S.C. §§ 1451-1464, ELR 41701. See generally Comment, The Coastal Zone Management Act Amendments of 1976: Tailoring Coastal Zone Protection to Expanded Offshore Oil Production, 6 ELR 10193 (Sept. 1976).

15. New York v. Kleppe, 97 S. Ct. 4 (1976).

16. Several days before the Suffolk County decision, Secretary Andrus cancelled a scheduled lease sale for the lower Cook Inlet in Alaska in favor of a three-month study to determine whether lower Cook Inlet OCS resources should be developed at this time. 42 Fed. Reg. 8723 (1977). Although no reasons were given, this may be related to the oft-voiced rumor that Alasken oil will be sold primarily to Japan and thus would be of little help in alleviating the United States' energy crisis.

17. The National Ocean Industries Association and the New York Gas Group.

18. Regulations pertaining to OCS mineral operations require that exploratory drilling plans include "features pertaining to pollution prevention and control," and modifications of exploration and development plans "shall not relieve the lessee from taking appropriate action to prevent or abate damage, waste, or pollution of any natural resource or injury to life or property." Prior to submission of development plans, lessees must submit plans to the governors of the affected states who have 30 days to review the plans. Failure to notify the federal supervisor within 30 days means that the state's "concurrence will be conclusively presumed." 30 C.F.R. § 250.34 (1976).

19. See Blumm & Noble, The Promise of Federal Consistency under § 307 of the Coastal Zone Management Act, 6 ELR 50047 (1976).

20. 7 Env. Rptr. Curr. Dev. 1677 (Mar. 4, 1977).

21. 510 F.2d 813, 5 ELR 20249 (5th Cir. 1975). See text accompanying note 9 supra.

22. Washington Post, Mar. 9, 1977, at A17, col. 2. The study recommends that Interior conduct an exploratory drilling program to collect better data for more informed decisionmaking. Judge Weinstein noted that one of the inadequacies under NEPA was a failure to consider separating the exploration and production elements of OCS leasing. One of the Carter administration proposals for revision of the OCS leasing process is for the government to conduct a certain amount of exploration rather than relying completely on private business. See note 23 infra.

A draft report, written by the Governor of California's Office of Planning and Research, is also highly critical of federal off-shore leasing policies. The report calls the accelerated leasing program a "crude policy" which was adopted on the basis of inadequate information that excluded the concerns of state and local government. Although California has little control over OCS energy resources development, the report emphasized that the state "must live within the onshore economic, social and environmental impacts of that development." The report recommends delaying future southern California leasing decisions until better information has been generated on which to base tract selections and federal and state remedies for oil spills have been improved. Los Angeles Times, Mar. 5, 1977, § II, at 1, col. 4.

23. U.S. House of Representatives, Environmental Study Conf., Weekly Bulletin D2 (Mar. 7, 1977).