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Offshore Drilling Project Dealt Setback by Ninth Circuit

Earlier this month, the Ninth Circuit dealt a setback to oil and gas interests, vacating the U.S. Department of the Interior’s Bureau of Ocean Energy Management (BOEM)’s approval of the “Liberty Project” – a offshore drilling and production facility located off the coast of Alaska in the Beaufort Sea.

The Project

[Source:  Bureau of Ocean Energy Management, Alaska Public Media]

Proposed by Hilcorp Alaska, LLC, the Liberty Project was slated to be the first offshore oil development in federal Arctic waters.  The project involved construction of a nine-acre artificial island, a 5.6-mile underwater pipeline, oil wells, gravel pads, ice pads, a hovercraft shelter, a boat dock, a gravel mine, and additional ice roads and crossings.  Hilcorp expected to extract approximately 120 million barrels of oil from the project over the next 15 to 20 years.

Procedural History

In October 2018, the BOEM’s Regional Supervisor of Leasing and Plans signed a record of decision approving the Liberty Project.  The project required preparation of an Environmental Impact Statement (EIS) under the National Environmental Policy Act (NEPA), as well as production of a “Biological Opinion” (BiOp) by the Fish and Wildlife Service (FWS) to comply with the “incidental take” regulations of the Endangered Species Act (ESA) and the Marine Mammal Protection Act of 1973 (MMPA).  Multiple environmental groups challenged the project approval, including the Center for Biological Diversity, Defenders of Wildlife, Friends of the Earth, Greenpeace USA, and Pacific Environment.

Following oral argument on November 5, 2019, a three-judge panel of the Ninth Circuit issued a unanimous opinion on December 7, 2020.  Under § 1349(c)(2) of the Outer Continental Shelf Lands Act (OCSLA), the court ruled that it had original jurisdiction over plaintiffs’ challenge to the EIS prepared under NEPA and the BiOp prepared under the ESA and MMPA, as well as plaintiffs’ claim that BOEM’s approval had violated the ESA by relying on FWS’s inadequate BiOp.

Claims under NEPA

In reviewing the EIS’s adequacy under NEPA, the court found that BOEM violated the Administrative Procedure Act (APA) and acted arbitrarily and capriciously when it failed to thoroughly analyze the environmental consequences of the Liberty Project and its alternatives. 

The panel rejected plaintiffs’ first claim that BOEM used inconsistent methodologies to calculate the greenhouse gas emissions resulting from the Liberty Project versus the no-action alternative, thereby rendering the two alternatives incomparable.  While the two calculations were different, the court found that both methods resulted in a net emissions number, which produced a relative comparison sufficient for making “a reasoned choice among alternatives.” 

However, the court agreed with plaintiffs’ second argument that BOEM failed to quantify the effects of foreign oil consumption in analyzing the no-action alternative.  In the EIS, BOEM had perplexingly estimated that the no-action alternative would produce more carbon emissions than if the Liberty Project were to be developed.  The agency reached this counterintuitive result by arguing that oil substituted for the Liberty Project would come from sources with “comparatively weaker environmental protection standards [. . .] and increased emissions from transportation.” 

However, BOEM’s analysis omitted the increase in foreign oil consumption that would result from the Liberty production increasing global supply and driving down oil prices.  While the EIS acknowledged that the no-action alternative would result in a reduction of foreign oil consumption of one to six billion barrels of oil, the attendant decrease in greenhouse gas emissions was not estimated because BOEM determined it did not have sufficiently “reliable information on foreign emissions factors and consumption patterns.”

Pointing to multiple studies in the administrative record, including one that had analyzed similar effects from the Keystone Pipeline, the court ruled that the EIS “should have either given a quantitative estimate of the downstream greenhouse gas emissions” or “explained more specifically why it could not have done so.”  For those reasons, the court found BOEM’s alternatives analysis in the EIS to be arbitrary and capricious.

Claims Under ESA and MMPA

Plaintiffs also challenged FWS’s conclusion in the BiOp that the Liberty Project was unlikely to jeopardize the continued existence or adversely modify the critical habitat of polar bears, a threatened marine mammal.

Both the ESA and MMPA prohibit the “taking” of certain species, which can include killing, hunting, and injuring of animals, but also non-lethal harassment or disturbance that causes disruption of behavioral patterns.  Under Sections 7 and 9 of the ESA, BOEM was required to consult with FWS and obtain a written BiOp and an “incidental take statement” specifying the allowable level of “take” and mitigation measures necessary to comply with the MMPA, prior to authorizing the Liberty Project. 

The court took issue with two aspects of the BiOp.  First, it found that FWS relied on mitigation measures to alleviate the harm to polar bears that were insufficiently specific, binding, or certain to occur.   Principally, the BiOp relied on as-yet unapproved and undefined mitigation measures under the MMPA.  Because the measures were too vague to be enforceable, and did not constitute a “clear, definite commitment of resources,” it was too difficult to determine noncompliance and the point at which agency re-consultation was required. 

The court concluded that FWS did not rely on the proposed mitigation measures in reaching its “no-jeopardy” determination.  However, FWS’s reliance on unauthorized, future mitigation measures to reach its “no-adverse-modification” finding was arbitrary and capricious, and therefore violated the ESA.

Second, in the incidental take statement issued with the BiOp, FWS failed to quantify the number of incidents involving non-lethal harassment of polar bears that would indicate non-compliance and trigger a re-consultation with the agency.  While the BiOp did provide a numerical cap on the amount of take that would constitute injury or death to polar bears (i.e. more than one incident would require re-initiation of formal consultation), the statement was also required to include a threshold for non-lethal disturbance and harassment. 

In the BiOp, FWS had contemplated that polar bears might face disturbance from construction, drilling, and maintenance activities associated with the Liberty Project, and that ground and vehicle traffic might cause female polar bears to relocate or abandon their dens before cubs were born.  However, because FWS did not quantify the non-lethal take that polar bears were expected to face (or explain why it could not do so), the court held that the incidental take statement violated the ESA and was arbitrary and capricious under the APA.

Because the FWS’s BiOp was “flawed and unlawful,” the court found that BOEM’s reliance on the opinion to approve the Liberty Project was arbitrary and capricious.  BOEM’s decision was vacated and remanded to the agency for another attempt at approval.  

Future of Offshore Drilling at Stake?

In perhaps a sign of things to come, this Ninth Circuit decision shows that federal courts are more than willing to overturn agency approvals and insist on full analysis of environmental impacts (including climate change and endangered species) when evaluating large-scale developments in the Arctic. 

The decision in this case comes less than two weeks after the U.S. Army Corps of Engineers denied a key permit for the proposed Pebble Mine near Bristol Bay in Alaska, finding that the massive gold and copper project did not comply with Clean Water Act guidelines and was contrary to the public interest. 

The rejection also comes as industry groups and the Department of the Interior await a decision from this same court on the 2016 ban by former President Obama on oil and gas drilling in approximately 128 million acres of the Arctic and North Atlantic Oceans.  After President Trump attempted to reverse the ban in 2017, a March 2019 district court ruling struck down his executive order and restored the Obama-era protections, finding that the OCSLA functions as a one-way rachet that confers presidential authority to withdraw federal lands from oil development but not the ability to rescind an existing withdrawal.

While that case (League of Conservation Voters v. Trump) is still on appeal to the Ninth Circuit, time appears to be running short for the Liberty Project and other offshore drilling proponents.  If this ruling is any indication, oil and gas developers may be facing increased scrutiny once a new administration takes office with different priorities in the Arctic.

Categories: Clean Water Act, Environmental Litigation