New Interim Guidance for Analyzing Greenhouse Gas and Climate Change Effects for Federal Actions

All project applicants that have a project requiring a federal permit or receiving federal funding should take notice of this new guidance and expect

• additional scrutiny regarding the Social Cost of GHG emissions associated with a project, especially for fossil fuel projects
• reduced scrutiny of GHG effects for projects that have a small carbon footprint, comparatively, such as renewable projects
• increased review of the relationship between the project and climate change 
• imposition of mitigation measures to address GHG emissions or climate change effects
• particular scrutiny and increased data requirements for projects relying on or applying for the Inflation Reduction Act (IRA) or Infrastructure Investment and Jobs Act (IIJA) funding 

The major elements are summarized more fully below, but additional highlights include

• elevates importance of analysis of GHG emissions and climate effects in NEPA review, including suggestion to provide overview in executive summary of environmental impact statement
• requires quantification and monetization of GHG effects using “best available information and science” as well as tools such as the Social Cost of GHG estimates and other modeling approaches 
• emphasizes importance of quantifying a proposed action’s reasonably foreseeable GHG emissions — both direct and indirect — to analyze reasonably foreseeable climate change effects, indicating importance of contextualizing such estimates
• encourages agencies to mitigate GHG emissions “to the greatest extent possible” and develop alternatives that reduce GHG effects 
• incorporates environmental justice concerns into various aspects of NEPA review, including cumulative effects analysis
• iterates that federal government decisions contribute to totality of climate change effects even though individual projects may not have identifiable effects

Evaluating GHG Effects

Quantify Direct and Indirect GHG Emissions to Monetize Effects Using the Social Cost of GHGs. The interim guidance recommends that federal agencies quantify a proposed action’s GHG emissions — both direct and indirect — and monetize those effects using the Social Cost of GHG (SC-GHG) estimates and other GHG accounting tools. CEQ urges agencies to apply the best available estimates of the SC-GHG to the incremental metric tons of GHG emissions and provide the public with an accounting of the project’s (and each alternative’s) monetized impacts. CEQ reminds agencies that such estimates are conservative and often underestimate various damage categories resulting from emissions — like ocean acidification. CEQ, therefore, recommends that agencies elaborate the real-world effects associated with increases in GHG emissions. CEQ also provides flexibility for agencies to use comparative metrics, other than costs in dollars, such as the average annual emissions per household or number of cars on the road. Overall, project applicants can expect additional, and more expansive, requests to provide quantifiable emissions data or conduct modeling to quantify emissions.

Analyze Effects of Annual GHG Emissions as Well as Effects Over the Life of the Project. CEQ expects agencies to analyze and present an analysis of annual GHG emissions and effects as well as effects over the life of the proposed project. The interim guidance emphasizes the need for a quantitative analysis, but if an agency is unable to quantify a reasonable range of GHG emissions, CEQ requires the use of qualitative analysis. CEQ instructs agencies to apply the “rule of reason” when conducting an analysis so that the level of detail is commensurate with the quantity of projected emissions. Where emissions from a project would be insignificant, CEQ cautions against providing an in-depth analysis, but greater detail is required with greater potential effects. The interim guidance indicates that CEQ does not anticipate a detailed analysis of lifetime GHG emissions for projects with relative minor or short-term GHG emissions, such as renewable energy projects — utility-scale solar or offshore wind. For projects with large effects, however, CEQ not only requires more detailed analysis but also requests agencies to explain how such projects will help meet or detract from national climate goals or commitments such as the U.S. Nationally Determined Contribution under the Paris Agreement or the Long-Term Strategy of the United States: Pathways to Net-Zero Greenhouse Gas Emissions by 2050 (November 2021).

Analyze Upstream and Downstream Indirect Effects. In addition to analyzing direct effects, CEQ clarifies that an analysis of indirect effects should include reasonably foreseeable emissions related to a proposed action that are upstream or downstream of the proposed action. For example, indirect effects of fossil fuel extraction, according to CEQ, likely would include effects associated with the processing, refining, transporting, and end-use of the fossil fuel being extracted, including combustion of the resource to produce energy. Relatedly, CEQ authorizes agencies to perform a substitution analysis for projects that would displace other emission sources. Thus, agencies can make assumptions regarding the displacement of GHG emissions by proposed projects that would increase energy production and account for the change in GHG emissions of such displacement. This analysis is most likely for actions related to the extraction, transportation, refining, combustion, or distribution of fossil fuels. CEQ urges agencies to use models and disclose assumptions used for this analysis, indicating that fossil fuel project applicants should anticipate an extensive and lengthy review process.

Cumulative Effects Should Also Be Considered, Including Environmental Justice Concerns. Regarding “cumulative effects,” CEQ recommends that agencies consider the proposed action in the context of the emissions from past, present, and reasonably foreseeable actions. When assessing cumulative effects, agencies should also consider whether certain communities experience disproportionate cumulative effects, thereby raising environmental justice concerns and requiring agencies to take a closer look at the effects of projects’ GHGs on environmental justice communities. CEQ also provides special guidance for certain types projects involving biological GHG sources and sinks.

Analyzing Effects of Climate Change — Particularly on the Project Area

CEQ also requests agencies disclose the relevant climate effects resulting from any determined or projected GHG emissions. CEQ primarily encourages agencies to consider the impact of climate change on a project area, rather than solely the effect of project on climate change. CEQ recommends this outlook, however, because it can inform (i) drought/flood issues, (ii) sea level changes, (iii) increased fire risk, (iv) ecological change, (v) extreme temperatures, and (vi) emphasis on environmental justice.

More Extensive Analysis of Alternatives to the Project as Well as Measures to Mitigate GHG Effects

In addition to analyzing GHG and climate change effects, CEQ recommends that agencies consider alternatives with reduced GHG emissions, develop such alternatives earlier in the NEPA process, and better solicit public input on potential mitigation measures, including from communities potentially affected by the proposed actions and reasonable alternatives. Project applicants should anticipate an increased scrutiny of available alternatives and be prepared to provide an analysis on the basis of GHG emissions or the Social Cost of GHGs. This potential future demand and CEQ’s emphasis on public engagement and transparency are well illustrated by CEQ’s request for environmental reports to include more charts, or similar graphics, to compare alternatives, illustrate effects, and more.

CEQ also encourages agencies to mitigate GHG emissions associated with their proposed actions “to the greatest extent possible.” And although NEPA does not impose an obligation to choose the action with greatest GHG reductions, CEQ’s directive is clear: “[A]gencies should use the information provided through the NEPA process to help inform decisions that align with climate change commitments and goals.” Last, CEQ suggests agencies consider requiring compensation for residual effects and encourages new or additional monitoring to confirm whether mitigation measures have been effectively implemented.

Therefore, project applicants should anticipate increased mitigation measures as options to reduce the total GHG emissions associated with a desired project or alternative.

Conclusion

Generally, project applicants subject to CEQ’s interim guidance should expect increased scrutiny by federal agencies regarding a proposed project’s GHG emissions, including its social cost, as well as greater public engagement, particularly if a project could affect environmental justice communities. Fossil fuel projects will be subject to increased scrutiny pursuant to the new guidance, while renewable projects will be positively favored given CEQ’s characterization that such projects are less likely to emit GHGs in a harmful measure. Additionally, because federal funding (e.g., loans or grants) is subject to NEPA review, applicants should anticipate increased data requirements in applications and requests by federal agencies for information to help quantify a project’s potential lifecycle GHG impact.