Tenth Circuit Rejects “Perfect Substitution Assumption” in NEPA Analysis of Coal Leases

On Friday, the Tenth Circuit issued a decision in WildEarth Guardians v. Bureau of Land Management, Docket No. 15-8109, rejecting the Bureau of Land Management’s (BLM) decision to approve four coal leases in Wyoming’s Powder River Basin (PRB) Region on the basis that the BLM’s Environmental Impact Statements, and the economic analysis related to future coal use contained therein, were flawed.  BLM’s Environmental Impact Statements were based on the “Perfect Substitution Assumption”—that is, the assumption that if the federal government declined to approve the lease, the same amount of coal would be mined elsewhere through private development.  The Tenth Circuit found that BLM’s analysis was arbitrary and capricious because: 1) BLM could not point to any information in the administrative record indicating that a national coal deficit created by the loss of the leases at issue—nearly 20% of the country’s annual domestic coal production—could be easily filled from elsewhere or at a comparable price, and 2) because it ignored basic supply and demand principles.

The case involves four coal leases that will expand two existing surface mines in the PRB Region.  These mines already account for 19.7% of the United States’ annual domestic coal production, and contain approximately two billion tons of recoverable coal.  Under the new leases, coal will be extracted at a rate of about 230 million tons per year.

In order to authorize new leases for the four coal tracts, BLM was required under NEPA to draft an Environmental Impact Statement for each lease that compared the environmental impacts of the proposed action against environmental impacts of any alternatives—including not taking any action at all. 42 U.S.C. § 4332(2)(C).  In its decision, the court explained that while NEPA does not prevent an agency from taking major Federal action that is found to have adverse environmental impacts, it requires agencies to rigorously explore and objectively evaluate all possible alternatives to inform agency deliberation and facilitate public involvement in the decision.

In each Environmental Impact Statement, BLM compared the environmental impacts of issuing the lease to a no-action alternative in which none of the licenses were issued.  Utilizing the “Perfect Substitution Assumption,” BLM concluded that there would be no appreciable difference between the United States’ total carbon dioxide emissions should it decide to issue the leases versus the no action alternative in which none of the licenses were issued.  BLM reasoned that approving the leases would have no significant impact on either national carbon dioxide emissions or domestic coal consumption because even if it were to reject the leases, “[n]umerous mines located outside of the PRB extract and produce coal in the United States [and] many mines outside the PRB have the capacity to replace the coal production generated” at the PRB mines.

The plaintiff, WildEarth Guardians (a non-profit environmental group) sued BLM alleging that its “Perfect Substitution Assumption” was arbitrary and capricious.  WildEarth presented its own economic analysis, alleging that if the tracts were not leased the price of coal would increase, as it would be difficult for domestic or internal coal mines to replace 230 million tons of coal per year at a comparable price.  This would result in other sources of electricity with lower carbon dioxide emissions becoming more competitive with coal, thereby significantly impacting national carbon dioxide emissions.  The Tenth Circuit agreed, remanding the case and directing the district court to enter an order requiring BLM to revise its NEPA analysis.  The appeals court declined to vacate the leases themselves, leaving the question of relief up to the district court.

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