United States: Environmental Challenges To Exporting Coal From The United States

Chesapeake Climate Action Network v. Export-Import Bank of the United States highlights how failure to follow the National Environmental Policy Act of 1969 can result in delays to coal export endeavors.

As recent news stories have emphasized, efforts to expand the United States' coal exporting capacity have encountered strong opposition from environmental organizations. The opposition takes many forms, but one development that has received substantial press attention is a lawsuit against the Export-Import Bank of the United States (E-I Bank) concerning a loan guarantee to Xcoal Energy & Resources, LLC—a lawsuit that arises under the United States' National Environmental Policy Act of 1969, better known as NEPA.  This On the Subject aims to demystify the E-I Bank lawsuit for foreign entities that may not be familiar with NEPA.

NEPA is a procedural statute, not a substantive one.  It requires U.S. agencies to take a "hard look" at the environmental consequences of their actions, but it does not prohibit the agencies from undertaking those actions, even when they have negative environmental impacts.  In essence, the statute provides a means for federal agencies to examine their actions and think about alternatives to those actions, but it does not require any particular outcome as a result of that examination process.

The centerpiece of the NEPA examination process is the preparation of an environmental impact statement (EIS). NEPA requires federal agencies to prepare an EIS whenever they take a "major Federal action significantly affecting the quality of the human environment." The EIS is subject to public comment before it becomes final, and must include a discussion of possible alternative actions as well as a discussion of opportunities to mitigate any environmental harms from the proposed federal action. The statute does not require the agencies to adopt any specific mitigation measures, but the EIS process sometimes does result in the imposition of various obligations on the parties seeking government permits or financial support.  For example, mitigation measures identified in an EIS are sometimes incorporated into federal, state or local permits that are required under other environmental statutes. Finally, the failure to follow NEPA—which is the issue in the E-I Bank case—can lead to significant delays. Where a plaintiff successfully proves that an agency undertook a major federal action significantly affecting the environment without first preparing an EIS, the judicial remedy will often be revocation of that action.

In the E-I Bank case, Chesapeake Climate Action Network, et al. v. Export-Import Bank of the United States, et al., No. 13-3532 (N.D. Cal.), a group of environmental organizations contend that the E-I Bank violated NEPA by guaranteeing a $90 million loan from PNC Bank, N.A., to Xcoal, thereby facilitating Xcoal's coal exporting activities, without first evaluating the environmental consequences of that action. The lawsuit, which is in its earliest procedural stages, likely will turn on whether the loan guarantee is the type of action that is subject to NEPA's requirements. If the court agrees with the plaintiffs and finds that the E-I Bank failed to undertake the required environmental review, the court may order the E-I Bank to revoke its loan guarantee, at least until it completes a proper NEPA review.

In the E-I Bank case, the plaintiffs are focused on the local impacts of Xcoal's activities, not the downstream impacts.  They allege, for example, that Xcoal's transportation of coal by rail will result in the release of coal dust into surrounding neighborhoods, thereby harming the health of local residents.  They do not allege that the coal exports are expected to result in increased greenhouse gas emissions, perhaps because Xcoal's coal is expected to be used to manufacture coke, rather than to be burned to generate electricity.  But the issue of downstream emissions is likely to become an increasingly important issue in other coal export matters, especially where the coal will be used to generate electricity.

Under NEPA and its implementing regulations, agencies must consider the "direct," "indirect" and "cumulative" effect of their actions.  Some commentators have argued that an "indirect" effect of exporting coal for electricity generation is increased greenhouse gas emissions, because the exported coal will result in emissions that would not otherwise have occurred.  Thus, a federal agency that permits, finances or builds a coal exporting facility without first estimating and disclosing the downstream greenhouse gas emissions associated with the exports may find itself facing NEPA litigation to compel such estimates.

The NEPA process, and litigation concerning that process, may seem daunting for companies not familiar with U.S. environmental law.  But since NEPA is a procedural rather than substantive statute, it is important to remember that the primary practical consequences of the EIS process are public scrutiny and potential delays in obtaining permits, not the outright prevention of a project. The failure to perform a proper EIS can be corrected, and NEPA does not prohibit federal agencies from taking actions that may harm the environment; it simply requires those agencies to consider and disclose such impacts.

McDermott Will & Emery has a strategic alliance with MWE China Law Offices, a separate law firm based in Shanghai. This On the Subject was also authored by MWE China Law Offices lawyer Kevin Qian.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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