D.C. District Court Determines that Dakota Access Environmental Assessment was Inadequate

On June 14, 2017, the District Court for the District of Columbia issued a decision in Standing Rock Sioux Tribe v. U.S. Army Corps of Engineers. The Court found that the Army Corps of Engineers (“the Corps”) had not adequately considered several issues in its environmental assessment (“EA”) for the Dakota Access Pipeline, and that therefore the Corps’ decision-making was arbitrary and capricious.

The EA was undertaken pursuant to the National Environmental Policy Act (“NEPA”), which requires that any permitting federal agency take a “hard look” at the environmental impacts of a federally permitted project. A federal agency must take a “hard look” but has substantial discretion regarding whether to permit a project so long as the agency’s review is not arbitrary and capricious. Although the District Court found much of the EA to be adequate, it found the Corps’ EA to be arbitrary and capricious in certain key areas, as described below.

Controversial Impacts from a Scientific Perspective

The Court found that the Corps failed to consider the extent to which the pipeline’s effects might be controversial from a scientific perspective, which can be a basis for the Corps to find that a project might have significant impacts on the environment. Such a finding would in turn prompt the Corps to carry out an Environmental Impact Statement (“EIS”).

Notably, an EIS is lengthier and typically involves more formal consultation than an EA. Whether the Corps should have carried out an EIS for the pipeline’s crossing at Lake Oahe, just upstream of tribal reservation land, is a key source of contention in the lawsuit.

The Potential Effects of an Oil Spill

The Court also found that the Corps failed to adequately consider the effects of an oil spill, which led to several deficiencies in its EA.

For example, the Court found that the Corps did not adequately consider the potential impacts of a spill on several tribal treaty rights, including fishing and hunting rights on and near Lake Oahe. The Court did find, however, that the Corps had adequately considered potential impacts of a spill on tribal water rights.

The Court also found that the Corps’ environmental justice methodology was faulty, as it focused only on construction impacts on majority white and relatively well-off communities within 0.5 miles of the Lake Oahe crossing, even though a spill could affect communities more than 0.5 miles downstream from the crossing.

The Standing Rock Sioux Tribe is located 0.55 miles downstream from the crossing but was not part of the main environmental justice analysis. The final EA devoted a separate section to environmental justice impacts specifically on the Standing Rock Sioux, but the Court criticized the Corps’ analysis because it focused on construction impacts and barely mentioned spill impacts, even though the Court suggested that the latter are of greatest relevance because the tribe is downstream and relies on water from Lake Oahe.

What Now?

The Court remanded the matter to the Corps for reconsideration. This could lead to a revision of the Corps’s EA, or could prompt an EIS.

The Court noted that in most instances the remedy in such a situation is to vacate the administrative decision and halt the activity until the administrative process is adequately carried out, but there are exceptions.  The Court asked the parties to brief whether the Dakota Access should be allowed to continue to operate the pipeline during the Corps’ review process.

Protection for Tribal Rights

Notably, the decision confirms several of the tribes’ bases for claiming that the Corps’ EA was inadequate. The decision may lead to stronger protection of tribal rights in the future.

For instance, it will almost undoubtedly prompt the Corps to devote more time in the future to analyzing the potential impacts of oil spills on treaty rights and to environmental justice considerations. The Corps’ permitting decisions have been overturned a number of times for failure to adequately consider reserved treaty rights, such as hunting and fishing rights, but never in such a high-profile case. The decision may also cause the Corps to select a zone for the environmental justice analysis that is more than 0.5 miles downstream at water crossings.

Future of the Pipeline

It is possible that Dakota Access will face a temporary halt in its operations, although the Court may instead rule that the company can continue to operate the pipeline during the Corps’ deliberations. This creates a degree of uncertainty that could have business implications for the pipeline and the company that constructed it.

Over the next few months, however, it is quite possible that the Corps will take the statutorily mandated “hard look” required by NEPA and re-approve the project — with or without an EIS. The tribes could, of course, further litigate the issues after the Corps’s new evaluation, increasing uncertainty and cost for the project. One of the parties might also appeal the District Court’s decision, which would create a more extended period of uncertainty.

Considerations for Financial Institutions

Meanwhile, the case and related controversies may have an effect on standards that financial institutions apply to such projects.

On May 18, 2017, presumably in reaction, at least in part, to strong public criticism of the institutions financing the Dakota Access Pipeline, the Equator Principles financial institutions — which include 80 banks, such as Citigroup, Barclays, Credit Suisse, Wells Fargo, and JP Morgan — launched a working group to examine whether they should continue to assume that domestic law is adequate in high-income countries.

The Equator Principles financial institutions, which provide the vast majority of the world’s project finance, apply the IFC Performance Standards — a specific set of environmental and social screens — to their review of investments in developing countries. At the moment, these standards are not applied to projects in high-income countries such as the United States, where domestic law is currently deemed to be sufficient. Notably, 10 of the 80 Equator Principles financial institutions — including ABN Amro and BNP Paribas — recently issued a statement calling for application of the IFC Performance Standards in high-income countries.

More information on some of the differences between the IFC Performance Standards and U.S. law — as they relate to indigenous peoples, security, and community engagement — can be found in a recent report, published by Foley Hoag, that was commissioned by the financial institutions that lent to the Dakota Access pipeline. More information about the Foley Hoag report is available here.

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