First Circuit Lifts Injunction Against OCS Lease Sale, Ushers in 1978 Amendments to OCS Lands Act

The inherent tension between energy production and environmental quality is a theme which in recent years has grown all too familiar. Proponents of a given source of energy (e.g., nuclear fission or coal) typically assert that it cannot fulfill its potential contribution to the nation's energy difficulties unless existing environmental restriction (e.g., nuclear licensing laws or Clean Air Act regulations) are eased or postponed temporarily. Defenders of the environment then attempt to generate a hue and cry sufficient to stay the hand of the decision maker, usually Congress. The most recent conflicts show the proponents of energy development have tended to prevail at the expense of the environment.

The recent amendments to the Outer Continental Shelf Lands Act (OCSLA)¹ followed a contrary pattern, however. When President Nixon announced a drive to dramatically increase petroleum production from the outer continental shelf (OCS) in 1974, oil companies had been withdrawing oil and natural gas from OCS lands in the Gulf of Mexico and off the California coast for more than 20 years, relatively unencumbered by environmental restrictions. Since that time, growing national energy demand and soaring oil imports have added even more urgency to the call for expedited utilization of OCS resources, which represent the major untapped repository of domestic petroleum-based energy in the lower 48 states. Yet this mounting pressure has been matched step-for-step by aggressive demands for stronger environmental safeguards. In September 1978, Congress produced a set of amendments to the OCSLA which reform considerably the mechanics of the OCS oil and gas leasing process and require that exploration and development activities occur only if accompanied by rigorous measures to reduce adverse social and environmental effects. Statutory provisions are thus in place which promise to achieve a reasonably harmonious balance between energy development and environmental protection.

The amendments also served to still a lawsuit which had already resulted in the halting of a major sale of leases to OCS oil and gas tracts off the shores of New England. In Massachusetts v. Andrus,² the First Circuit Court of Appeals recently vacated an injunction against the sale on the grounds that final enactment of the legislation had mooted the controversy. In New England and on the West Coast, the drive to develop OCS oil and gas has thus been given a fresh start.

Background: Litigation

The hallmark of OCS petroleum development on the East Coast has been intensive litigation. In County of Suffolk v. Secretary of the Interior,³ plaintiffs convinced a federal district court that the proposed sale of leases to tracts in the Baltimore Canyon⁴ was based on an inadequate environmental impact statement (EIS). Five judicial decisions later, the sale was permitted to proceed.⁵ Results of exploration of the area have so far been a disappointment to the oil companies, but the effort continues.

Another East Coast area with potentially significant petroleum deposits is the Georges Bank region, which lies between 63 and 200 miles southeast of the Massachusetts coast.⁶ The Department of the Interior set January 31, 1978 as the date of the first auction (OCS sale no. 42) of exploration rights in the region. On January 19, the State of Massachusetts and several environmental groups, raising multiple and novel legal issues, filed suit in federal court seeking an injunction against the sale. Three days before the bids were to be opened, Judge Arthur Garrity determined that the plaintiffs were likely to prevail on many of their arguments and issued the requested relief from the bench.⁷

Central to the decision was the imminent enactment of the OCSLA amendments. After having fallen just short of enactment in the 94th Congress,⁸ strengthening modifications to the Act had again been passed by the Senate,⁹ and a similar measure was only days away from passage.¹⁰ The two bills had clear differences but there was enough similarity between them to assure that any conceivable compromise would provide significantly more protection to the OCS environment than existed.

The federal court was able to halt such a massive federal action on the basis of incipient legislative proposals only by inferring from existing law an overriding obligation on the part of the Secretary of the Interior to take all reasonable measures to safeguard the resources of the OCS. This obligation was derived from a synthesis of three sources: first, the statement of policy in § 3 of the OCSLA¹¹ provides that the Act shall be administered so as not to affect the character of OCS waters or fishing therein. This policy statement arguably confers upon the Secretary less than an absolute mandate, however, and the court also placed great reliance on recent amendments to the Coastal Zone Management Act (CZMA)¹² and the newly passed Fishery Conservation and Management Act (FCMA).¹³ Judge Garrity expressed the view that by directing the Secretary to enforce these additional layers of protection for the OCS, [9 ELR 10069] Congress had in effect appointed him the "guardian" of the OCS environment. In this new role, the Secretary had no discretion to risk injury to the Georges Bank region if it were possibly avoidable and thus no discretion to ignore the stronger legislative protections that were then on the horizon.

Aside from the question of the Secretary's substantive mandate, the pendency of the OCSLA amendments also factored into the court's finding of procedural violations. The EIS and other documentation prepared for the sale, it concluded, did not sufficiently address the option of delaying the sale. This alternative had been considered in a cost-benefit analysis which was determined by the court to lack meaningful analysis of the intangible, environmental benefits of waiting for additional legislative protections to be put in place. As an additional deficiency in the EIS, the court noted the complete absence of discussion of possible designation of the Georges Bank area as a marine sanctuary.¹⁴ Furthermore, Judge Garrity found that the EIS considered the possible damage to the Massachusetts shores from oil spills in only a generalized fashion, in contrast to its detailed statistical analysis of risk to Long Island beaches. The court was also dissatisfied with the lack of thoroughness of Interior's responses to the Environmental Protection Agency's (EPA's) critical comments on the draft EIS.

In light of this litany of substantive and procedural violations, as well as the judge's obvious concern with the importance and fragility of the Georges Bank environment, he preliminarily enjoined the action pending full briefing and argument. The government and intervenors took an emergency appeal to the First Circuit, which was denied.¹⁵ Its brief memorandum showed reluctance not only to step beyond the limited scope of its review in such circumstances, but also to interfere with the status quo in such a high-stakes contest without an opportunity to examine more closely the factual setting and legal issues.

The OCSLA Amendments of 1978

Two days after the First Circuit's ruling, the House of Representatives overwhelmingly passed a bill to amend the Act,¹⁶ which was then sent to conference with the bill the Senate had passed the previous summer.¹⁷ After much debate and delay, a compromise was reached and approved by both houses toward the end of the session.¹⁸

Environmental Safeguards

From an environmental standpoint, one of the most significant aspects of the amendments is the requirement that OCS developers employ the best available technology economically achievable to prevent oil spills and pollution from new facilities.¹⁹ On an industrywide basis the Secretary of the Interior is to determine those technologies which meet this standard, rejecting only those shown by a cost-benefit analysis to provide incremental benefits that are "clearly insufficient" to justify the incremental costs.²⁰ For OCS facilities which are already in existence, only the best practicable technology need be adopted.

The amendments direct the Secretary to promulgate regulations requiring OCS activities to be conducted in compliance with the requirements of the Clean Air Act.²¹ The regulations will require only that such activities not result in non-attainment of national ambient air quality standards (or more restrictive state standards); the regulations may not attempt to prevent significant deterioration of air quality which is in compliance with applicable standards, and will not apply to the air mass above the OCS if there is no concurrent impact on the air quality of a state. In this respect the amendments essentially endorse the determination by the Administrator of the Environmental Protection Agency²² that OCS activities are subject to the Agency's permitting authority.

Under an important addition to the Act, the Secretary now has authority to suspend a lease where there is a threat of "serious, immediate, or irreparable" harm to the environment or human safety.²³ If a suspension has been in effect for five years, the Secretary may order the cancellation of the lease if it appears that the dangerous condition is likely to continue and that the benefits of cancellation will exceed the costs, in light of the impact of the cancellation on the nation's energy supplies. Where the cancellation is not due to the fault of the leaseholder, the leaseholder is entitled to compensation from the government for the value of the lease, property losses, and other costs.

Study and Reporting Requirements

The amendments impose upon the Secretary of the Interior an extensive series of study and reporting requirements. These include the preparation and periodic [9 ELR 10070] revision of a five-year OCS oil and gas leasing program,²⁴ an annual report to Congress describing all OCS activities,²⁵ and a separate annual report detailing the cumulative environmental and social impacts of such activities during the previous year.²⁶ At least six months prior to any lease sale,²⁷ the Secretary must conduct a baseline environmental study of the area.²⁸ Further studies are called for after the sale has been held.²⁹ In addition, before prospective lessees secure a lease, they must submit for the Secretary's approval a comprehensive "development and production plan," which is subject to public comment and revision by the Secretary.³⁰ Such plans are to be accompanied by a limited "onshore impact statement."³¹ The Secretary has broad authority to disapprove such plans, thereby preventing sale of a lease, if any affected state fails to approve the plan,³² or if "exceptional circumstances" lead the Secretary to conclude that on balance the environmental and other risks presented by the lease outweigh its benefits.³³

Local Impact Provisions

Title V of the amendments modifies § 308(b) of the Coastal Zone Management Act (CZMA),³⁴ which established a coastal energy impact program to ameliorate the effects of the construction of energy facilities in coastal states. The amendments make technical adjustments in the formula by which the program funds are distributed to the states and authorize the appropriation of $130 million each year for nine years. Section 503 establishes a new fund, for which is authorized to be appropriated $5 million per year, to assist the states in meeting their newly expanded responsibilities under the OCSLA.

Title IV creates a "Fisherman's Contingency Fund" to be maintained at a level of $100,000 and replenished through assessment of owners and operators of OCS facilities. The purpose of the fund is to provide compensation to commercial fishermen for lost profits and damaged equipment as a result of OCS activities. The amendments establish a complex procedural mechanism under which claims are filed, judged by a hearing examiner, and paid.

Financial Indemnity

The amendments impose upon owners and operators of offshore facilities and "public vessels"³⁵ liability for damages and cleanup costs incurred as a result of oil spills.³⁶ This liability is subject to certain monetary limitations³⁷ which are inapplicable where the liable party has committed gross negligence, violated safety or operating regulations, or refused to cooperate with federal authorities. The President, as trustee of the nation's natural resources, is authorized to sue for the full measure of any damages to such resources.³⁸

The amendments also create an Offshore Oil Pollution Fund which is to be maintained by a three-cent-per-barrel surcharge on OCS oil. Claims for damages and cleanup costs may be made directly against the fund, which then by subrogation acquires the right to sue the spiller. Inclusion of such a measure in the OCSLA adds a powerful disincentive against avoidable environmental pollution.³⁹

Bidding and Leasing Procedures

One of the more controversial changes wrought by the new law is the required use of "alternative" bidding systems. Under existing OCS leasing procedures, leaseholders are required to pay a fixed royalty on revenues of 16.66 percent. When leases are auctioned, eligible bidders offering the largest "cash bonus" are awarded the lease. Since such bonuses are typically very large,⁴⁰ companies with smaller reserves of available capital have claimed a competive disadvantage.

The amendments require that between 20 percent and 60 percent of all future leases be offered under alternative bidding systems, principally the "fixed bonus, variable royalty" system. Under this approach, the initial outlay could be as little as a few thousand dollars, thus enabling smaller companies to compete with their more heavily capitalized competitors by offering to pay higher royalties on future revenues.

Notable for its omission from the amendments is a directive to the Secretary to conduct federal exploration of OCS petroleum deposits prior to offering any tracts for lease. The Senate, with the support of environmentalists, had included such a provision in the bill it finally passed, on the theory that with more information the Secretary could exert greater control over leasing and development and recoup a fairer return for the use of federal lands. House opposition to this proposal was so strong, however, that the conferees eventually [9 ELR 10071] decided to drop the issue. The final compromise left in place the language of the 1953 Act, which does not require federal exploration.⁴¹

In sum, the amendments thoroughly overhauled OCS leasing procedures. The matter of onshore impacts, which was central to the County of Suffolk case, has been addressed by the requirement of an onshore impact statement and the refurbishment of the Coastal Energy Impact Program. The amendments also responded to the critical issues in the Massachusetts litigation. Environmental controls, stringent liability provisions, and separate funds to cover damages to the environment and commercial fisheries are now in place. The First Circuit thus considered the appeal of the Massachusetts dispute in a "legal and factual context" that was "altogether different from that which existed when the injunction was first issued."⁴²

Massachusetts v. Andrus

Effect of the Amendments

After refusing to stay Judge Garrity's injunction in January 1978, the First Circuit established an expedited briefing schedule and heard plenary argument shortly thereafter, many months before the OCSLA amendments emerged from conference committee.Once the law had been signed by the President, the court called for further briefing and argument in light of the changed legal circumstances. Unlike the first argument, the second focused less on the validity of the district court's ruling than the proper means of proceeding under the new legal regime.

Judge Campbell, writing for the court, noted at the outset of the First Circuit's opinion that the mainstay of the decision below was the pendency of the amendments. This key circumstance bore on the Secretary of the Interior's violation of both substantive duties under the existing OCSLA as well as procedural duties under the National Environmental Policy Act (NEPA). The First Circuit did not dispute the correctness of those rulings but found that the objective of the injunction, i.e., to delay the sale until the amendments were in place, had been accomplished. The injunction was therefore moot. With respect to the several other grounds cited by the trial court in support of its decision, the court of appeals found them inadequate to support continuation of the injunction.

Plaintiffs argued that in view of the Secretary's past violation of his statutory duties, it would be inappropriate to withdraw judicial oversight of the Georges Bank sale until he had affirmatively complied with those duties. The court rejected this argument on the rationale that the amendments had the effect of eliminating any past violation of the law. Drawing support from dictum in the Supreme Court's opinion in Vermont Yankee Nuclear Power Co. v. Natural Resources Defense Council, Inc.,⁴³ the First Circuit stated that it would be improper for a court to oversee aggressively the activities of an agency in order to prevent possible future violations of the law. On the contrary, given the long lead time required by the Interior Department to develop regulations and otherwise prepare for compliance with the new law, the court found it more appropriate to lift the judicial restraint and allow future allegations of noncompliance to be brought to the district court as they arise.

NEPA Issues

The first of four violations of NEPA attributed to the Secretary by the district court wasthe failure to weigh within the environmental impact statement the relative costs and benefits of delaying the sale pending congressional action. Like the question of the Secretary's substantive obligations under the OCSLA, this issue was declared moot by the appellate court. A second defect found in the EIS was the inadequacy of the analysis of possible damage to the beaches of Martha's Vineyard and Cape Cod as a result of a major oil spill. Whereas the EIS contained a detailed quantitative estimate of the probable impacts to Long Island beaches, including calculations of economic costs, the EIS did little to quantify the possible injuries to the Massachusetts coast. Although a more detailed analysis would have been "desirable" in the First Circuit's view, it found it unnecessary for the EIS to "single out" the threats to the area. Given that detailed, localized estimates are easily within the Interior Department's competence and should logically be a part of any "hard look" at OCS leasing, this aspect of the ruling would be significant but for one fact: as amended, the OCSLA now calls for a regimen of environmental and onshore studies which certainly engulf NEPA's requirements in this regard.

The district court had also determined that the Interior Department's responses to EPA's criticism of the EIS were inadequate and held this to constitute an independent violation of NEPA. Interagency review of EISs is mandated under § 102(2)(C) of the Act,⁴⁴ but the weight which attaches to such comments has received little judicial attention.⁴⁵ In addition, § 309 of the Clean Air Act⁴⁶ gives EPA a special responsibility to review impact statements. This suggests that EPA's adverse comments not only merit greater attention than those of other agencies, but also that they should serve to stimulate rectification of the noted shortcomings. The First Circuit, however, either rejected the latter suggestion or found EPA's adverse commentary too trifling,⁴⁷ and declined to require Interior to make a fuller response to the criticisms.

The final issue concerning the adequacy of the EIS was whether it was defective for failure to analyze the possibility of the Secretary of Commerce's designation of certain tracts in the Georges Bank region as marine sanctuaries, pursuant to her authority under the Marine Protection, Research and Sanctuaries Act.⁴⁸ In the event [9 ELR 10072] that the Secretary were to exercise this authority, the statute would require a reorientation of the management priorities of the designated areas, although oil and gas development would not necessarily be ruled out. Though expressing doubts as to whether the plaintiffs had raised this issue in a timely fashion, the appellate court agreed with Judge Garrity, finding this alternative worthy of further exploration by the Interior Department and possible future consideration by the district court "if the matter remains disputed." This deficiency in the EIS, however, was held inadequate to support continued injunctive relief.

Comments on the OCSLA Amendments

Because enactment of the amendments had mooted the case, it was unnecessary for the court to review the lower court's ruling that the Secretary's compelling duty under the earlier version of the statute required delay of the lease sale. Because the court evidently disagreed with Judge Garrity's assessment of the Secretary's "fiduciary duty" to the fishing resources of the OCS, however, it went on to explore and offer "comments" on the nature of that duty.

According to the First Circuit, when regulating OCS development the Secretary need not assure the protection of fisheries above all else: rather, he is to strike a balance between OCS energy production and environmental protection which forbids any course of action creating an "unreasonable risk" to fisheries resources. In other words, the Secretary wears the twin hats of exploiter and protector, a position which would appear to be imbued with a great deal of discretion.

Judge Campbell's opinion reads the OCSLA, in conjunction with NEPA, to impose at least one firm restraint on that discretion, however; no leasing may be permitted where it would result in "serious"⁴⁹ or "irreparable"⁵⁰ harm to the area's resources. While the OCSLA is indeed aimed at promoting the extraction of energy from the nation's waters, it and other applicable statutes evince a strong conviction that if such development requires a significant sacrifice of the OCS environment, it is not worth the price.

Conclusion

The Department of the Interior's planning for the Georges Bank lease sale is now proceeding without jucicial impediment, as are its plans to accelerate the OCS leasing program on the West Coast, particularly off the coast of Alaska. In fact, the indications are that the western program is currently receiving greater attention, in part because of the limited success thus far of exploration in the Baltimore Canyon. The major barrier at this point is meeting the stricter requirements of the OCSLA amendments. The revised statute is complex and compliance will be laborious. It is unlikely that its requirements can be met, or further lease sales held, before 1980.

There is every reason to believe, however, that the wait will be worth it. The Act strongly encourages rational development of OCS petroleum reserves concurrent with a careful weighing of environmental risks. The Carter Administration, which vigorously supported this bill in its long journey to passage, appears ready to implement it wisely. The result promises to be an acceptable balance between energy production and environmental quality.

1. Pub. L. No. 95-372, 92 Stat. 629 (Sept. 18, 1979).

2. __ F.2d __, 9 ELR 20162 (1st Cir. Feb. 20, 1979).

3. 7 ELR 20230 (E.D.N.Y. 1977).

4. This region of the OCS lies off the shores of Delaware and New Jersey.

5. 434 U.S. 1064 (1978). See generally Comment, Interior's Failure to Comply with NEPA Blocks Atlantic OCS Oil Leasing, 7 ELR 10067 (1977); Comment, Second Circuit Puts Atlantic OCS Oil Development Back in Business, 7 ELR 10192 (1977).

6. The Georges Bank fishing ground is one of the most productive fishing areas in the world.

7. Massachusetts v. Andrus (I), __ F. Supp. __, 8 ELR 20187 (D. Mass. 1978).

8. S. 21, H.R. 6218, 94th Cong., 1st Sess. (1975).

9. S. 9, 95th Cong., 1st Sess. (1977).

10. H.R. 1614, 95th Cong., 1st Sess. (1977).

11. 43 U.S.C. § 1332(b), ELR STAT. & REG. 42451. See also 43 U.S.C. § 1334(a)(1), ELR STAT. & REG. 42457.

12. 16 U.S.C. §§ 1451-1464, ELR STAT. & REG. 41701.

13. 16 U.S.C. § 1801 et seq.

14. Under the Marine Protection, Research and Sanctuaries Act of 1972, 16 U.S.C. §§ 1401-1444, ELR STAT. & REG. 41821, the Secretary of Commerce has the authority to designate important marine and coastal areas as marine sanctuaries, with an aim to preventing their degradation. See generally, Blumm and Blumstein, The Marine Sanctuaries Program: A Framework for Managing Critical Environmental Areas in the Sea, 8 ELR 50016 (1978).

15. Massachusetts v. Andrus (II), __ F.2d __, 8 ELR 20192 (1st Cir. 1978).

16. H.R. 1614, 95th Cong., 1st Sess., 124 CONG. REC. H601 (daily ed. Feb. 2, 1978).

17. S. 9, 95th Cong., 1st Sess. 123 CONG. REC. S11971 (daily ed. July 15, 1977).

18. 124 CONG. REC. S13994 (daily ed. Aug. 22, 1978), 124 CONG. REC. H8873 (daily ed. Aug. 17, 1978).

Although the bills bore many resemblances, their resolution in conference proved a tortuous process. This was due in roughly equal parts to the importance of the measures and the consequent pressure applied by the powerful lobbying interests attending them, as well as the fact that many congressional members and staff involved in environmental and energy areas were hopelessly mired in two other matters of perhaps greater import: the Alaskan national interest lands controversy and passage of the National Energy Act.

19. OCSLA § 21(b), 43 U.S.C. § 1347(b), ELR STAT. & REG. 42465.

20. Such standards must be set "in consultation with the Secretary of the Department in which the Coast Guard is operating." Id.

21. 42 U.S.C. §§ 7401-7642, ELR STAT. & REG. 42201.

22. See 43 Fed. Reg. 16350 (Apr. 18, 1978). Cf. California v. Kleppe, __ F. Supp. __, 8 ELR 20359 (C.D. Cal. 1978).

23. One court has held that, prior to the amendments, the Secretary had an implied but limited right to issue suspensions for environmental reasons. Gulf Oil v. Morton, 493 F.2d 141, 4 ELR 20086 (9th Cir. 1973).

24. OCSLA § 18, 43 U.S.C. § 1344, ELR STAT. & REG. 42463.

25. OCSLA § 15, 43 U.S.C. § 1344, ELR STAT. & REG. 42463.

26. OCSLA § 20(e), 43 U.S.C. § 1346(e), ELR STAT. & REG. 42465.

27. Or, for sales which had already been proposed at the date of enactment, within six months after enactment.

28. OCSLA § 20(a), 43 U.S.C. § 1346(a), ELR STAT. & REG. 42465.

29. Id. § 20(b).

30. Id. § 25(h).

31. Id. § 25(b). See also H.R. REP. NO. 95-1474, 95th Cong., 2d Sess. 116 (1978).

32. Id. § 25(h)(1)(B). This "state-veto" is available only where the state has received federal approval of a coastal zone management program pursuant to § 306 of the Coastal Zone Management Act, 16 U.S.C. § 1455, ELR STAT. & REG. 41703.

33. OCSLA § 25(h)(1)(D), 43 U.S.C. § 1351(h)(1)(D), ELR STAT. & REG. 42467.

34. 16 U.S.C. § 1457(b), ELR STAT. & REG. 41704:1.

35. "Public vessels" are those which are operated by governmental entities for noncommercial purposes. OCSLA Amendments § 301(6).

36. OCSLA Amendments § 304, 43 U.S.C. § 1814, ELR STAT. & REG. 42479.

37. Liability for public vessels is limited to $250,000 or $300 per gross ton, whichever is greater. For offshore facilities, the limitation is $35 million. Id. § 304(b).

38. Id. § 303(b)(3).

39. A similar "superfund/liability" bill, which would have applied to activities within all navigable waters as well as the OCS, narrowly avoided passage in the last session of Congress. S. 2083, H.R. 6803, 95th Cong., 1st Sess. (1977).

40. The bids received for the Baltimore Canyon sale totalled more than $1 billion.

41. Section 11 of the Act, 43 U.S.C. § 1340, ELR STAT. & REG. 42462, provides that the Secretary "may" conduct geological and geophysical exploration of the OCS.

42. Massachusetts v. Andrus (III), __ F.2d __, 8 ELR 20162 (1st Cir. 1979).

43. 435 U.S. 519, 8 ELR 20288 (1978).

44. 42 U.S.C. § 4332(2)(C), ELR STAT. & REG. 41010.

45. W. RODGERS, ENVIRONMENTAL LAW § 7.4 at 729 (1977).

46. 42 U.S.C. § 7609, ELR STAT. & REG. 42259.

47. EPA had suggested that the oil spill modelling techniques employed in the EIS were inadequate, but did not think that the EIS was so deficient that the sale should have been delayed.

48. See note 14, supra.

49. 9 ELR at 20173.

50. 9 ELR at 20172.