Amid flagging congressional efforts to streamline federal permitting processes for energy projects, a disturbing trend is now developing as federal courts move aggressively to not just slow the process but to also use novel reasons to cancel permits that have already been issued.
One prominent example relates to an August decision by a federal judge that could, if upheld, shut down all drilling in the Gulf of Mexico. U.S. District Judge Deborah Boardman struck down a 2020 environmental assessment by the National Marine Fisheries Service assessing risks posed by oil drilling to endangered species.
Normally, federal judges have in the past remanded the assessments to the agency for reconsideration in such decisions. But Judge Boardman took things further by vacating the assessment, a move that could halt the issuance of new drilling permits and put existing permits in legal jeopardy as well.
On August 6, the DC Circuit Court of Appeals took the extraordinary step of vacating a permit issued more than a year ago by the Federal Energy Regulatory Commission (FERC) enabling LNG developer NextDecade to move ahead with construction of its planned Rio Grande LNG project near Brownsville, Texas. The Sierra Club, a plaintiff in the case, said it is the first time such a permit for an LNG project has been vacated by a federal court.
The lawsuit claimed that FERC failed to “adequately consider the environmental justice impacts and greenhouse gas emissions of the three projects, as required by the National Environmental Policy Act and the Natural Gas Act.” The D.C. Circuit agreed with that argument, and vacated the permit for an $18 billion project that has already been under construction for more than a year.
This decision reached by the D.C. Circuit Court could have far-reaching implications. While it will likely be appealed to the Supreme Court, the ruling, if allowed to stand, could negatively impact the future viability of all federally permitted infrastructure projects due to the uncertainty it would create. The question before companies would now become when they can assume this thing called a “permit” is really a permit and not a mere suggestion still subject to the whims of judges employing novel new concepts of law.
The fact that these aggressive, unprecedented reversals of already issued permits come shortly after the Supreme Court ruling in the Loper Bright Enterprises v. Raimondo case that reversed the Chevron deference is more than a little disturbing. The Supreme Court’s decision to invoke the Chevron deference in 1984 came in response to a years-long rash of aggressive decisions by federal courts usurping authorities normally reserved to federal agencies by employing similarly novel new concepts of law.
The current Supreme Court rescinded the Chevron deference as part of the Loper Bright decision in June in response to concerns that the federal regulatory state had overstepped its own bounds and become too powerful thanks largely to that 40-year-old doctrine. Energy proponents applauded the decision on the grounds it would restore balance and predictability in legal and permitting processes. But now we see the opposite happening as aggressive federal judges seem to be stepping into the vacuum left by Chevron to reassert their own authority in unprecedented ways.
The United States has historically maintained an advantage over most other nations in attracting major investment capital due in large part to the investor confidence created by a stable and predictable legal and regulatory system. Projects like Rio Grande LNG take many years to develop and require the ability to secure and deploy billions of dollars in capital. This decision could have a chilling effect on the ability of developers to raise needed capital for future developments.
The decision to vacate Rio Grande LNG’s permit after more than a year of construction could also cool the global market for U.S. LNG in general. Without some degree of regulatory and legal certainty, why would countries like Japan and Germany risk entering into 20-year supply deals beginning on a date certain when they can’t even assume a “permit” is really a permit? If the Supreme Court is not willing to step in again to restore some balance to the system, then all bets could be off.
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