Treasury Department's Office of General Counsel Confirms That Recovery Act Section 1603 Energy Property Grants Are Not Subject to the National Environmental Policy Act

After the Recovery Act was enacted, some law firms raised the question of whether the provisions governing Section 1603 Grants would trigger review under federal environmental statutes, such as the National Environmental Policy Act ("NEPA") or the Endangered Species Act. Stoel Rives’ analysis concludes that Section 1603 Grants should not trigger environmental reviews under these statutes because the administering agency has virtually no discretion in awarding the grant. We have recently obtained confirmation from the Treasury Department that its Office of General Counsel has agreed with this conclusion. The following analysis could be useful when considering other provisions of the Recovery Act or future legislation.

Under NEPA, an agency is required to review environmental impacts of its actions only if it will be undertaking a "major Federal action" that significantly affects the quality of the human environment. 42 U.S.C. § 4332(2). Federal funding often constitutes federal action triggering environmental review. Council on Environmental Quality regulations include the concept of "Federal control" when defining a "major action." As a general rule, the U.S. Supreme Court has held that NEPA is not triggered "where an agency has no ability to prevent a certain effect due to its limited statutory authority over the relevant actions." Nat’l Ass’n of Home Builders v. Defenders of Wildlife. Courts, however, have reached opposite conclusions regarding whether grant programs with little federal control are subject to NEPA. For example, an Environmental Impact statement was required for a state prison facility built using a federal law enforcement grant program, but NEPA was found to not apply to an unrestricted federal block grant from general revenue sharing funds where the agency exercised no discretion in disbursing the block grant. Compare Ely v. Velde, 451 F.2d 1130 (4th Cir. 1971), with Carolina Action v. Simon, 389 F. Supp. 1244 (M.D.N.C. 1975).

At a high level, Section 1603 Grants do not appear to be the type of decision to which NEPA should apply. To begin with, it is clear the tax credit itself would not trigger NEPA, because a tax credit is self-executing and involves no agency action. Similarly, the grant-in-lieu program, while requiring the Treasury Department to affirmatively make a payment, gives the Treasury Department no discretion in deciding whether or not to do so. Rather, Section 1603 directs the Treasury Secretary to make the payment, specifies the property eligible for the grant, and defines the "applicable percentage" of the basis of the property that is eligible. Finally, Section 1603(c) mandates the time period in which the Treasury Department makes the payment. Taken together, the Treasury Department "has no ability to present a certain effect" due to the limits imposed by Section 1603.

While this analysis is fairly straightforward, it is important to recognize that the agencies and courts may take a different view on other similar provisions. In this case, the Treasury Department has not promulgated NEPA regulations, and its available guidance is ambiguous and even suggests that it might subject programs to at least a threshold level of review under NEPA. Here, the Treasury Department took the question under advisement for a number of weeks before confirming the conclusion reported in this alert.

As Congress enacts legislation that uses innovative funding techniques to stimulate the economy, the following steps can be used to assess the likelihood of NEPA’s application.

• Review the specific triggering language of the statute.
• Ask whether the federal agency has any discretion to change the decision if environmental information is available.
• Review agency regulations to determine if they exclude specific activities from review.
• Work with counsel to review ambiguities

 For more information, contact Ashley Henry, Energy Industry Liaison, ahenry@stoel.com, 503-294-9506