Rewarding Polluters: Energy Stimulus Prevents NEPA Oversight

Big Polluters Freed from Environmental Oversight by Stimulus

BP, Westar, and DuPont Among Companies Exempted from Environmental Law
By Kristen Lombardi and John Solomon | November 28, 2010 | Published by The Center for Public Integrity

In the name of job creation and clean energy, the Obama administration has doled out billions of dollars in stimulus money to some of the nation’s biggest polluters and granted them sweeping exemptions from the most basic form of environmental oversight, a Center for Public Integrity investigation has found.

"Photo was taken prior to installation of emission controls equipment for removal of sulfur dioxide and particulate matter." photo: National Parks Service

The administration has awarded more than 179,000 “categorical exclusions” to stimulus projects funded by federal agencies, freeing those projects from review under the National Environmental Policy Act, or NEPA. Coal-burning utilities like Westar Energy and Duke Energy, chemical manufacturer DuPont, and ethanol maker Didion Milling are among the firms with histories of serious environmental violations that have won blanket NEPA exemptions.

Even a project at BP’s maligned refinery in Texas City, Tex. — owner of the oil industry’s worst safety record and site of a deadly 2005 explosion, as well as a benzene leak earlier this year — secured a waiver for the preliminary phase of a carbon capture and sequestration experiment involving two companies with past compliance problems. The primary firm has since dropped out of the project before it could advance to the second phase.

Agency officials who granted the exemptions told the Center that they do not have time in most cases to review the environmental compliance records of stimulus recipients, and do not believe past violations should affect polluters’ chances of winning stimulus money or the NEPA exclusions.

The so-called “stimulus” funding came from the $787-billion legislation officially known as the American Recovery and Reinvestment Act, passed in February 2009.

Documents obtained by the Center show the administration has devised a speedy review process that relies on voluntary disclosures by companies to determine whether stimulus projects pose environmental harm. Corporate polluters often omitted mention of health, safety, and environmental violations from their applications. In fact, administration officials told the Center they chose to ignore companies’ environmental compliance records in making grant decisions and issuing NEPA exemptions, saying they considered such information irrelevant.

Some polluters reported their stimulus projects might cause “unknown environmental risks” or could “adversely affect” sensitive resources, the documents show. Others acknowledged they would produce hazardous air pollutants or toxic metals. Still others won stimulus money just weeks after settling major pollution cases. Yet nearly all got exemptions from full environmental analyses, the documents show.

This approach to stimulus projects has left the Obama administration at odds with its usual allies in the green movement. Some environmental advocates told the Center the goals of creating a clean energy economy and more jobs don’t outweigh the risks of giving money to and foregoing supervision of repeat violators of anti-pollution laws.

“Why bring somebody who was a known bad actor and give them government money and a categorical exclusion for their project?” asked David Pettit, a Natural Resources Defense Council lawyer who has litigated cases under NEPA.

Top-level administration officials and career employees who granted the so-called categorical exclusions under NEPA defend their decisions. They argue that these exemptions were essential to accelerate more than $30 billion in stimulus-funded clean energy projects, allocated by the Energy Department, which they say have already created 35,000 jobs. They note that the department frequently grants NEPA exemptions to projects of all kinds. And in the long run, they say, the exempted stimulus activities will serve to boost energy efficiency and curb pollution.

“What we are doing is providing federal funding to increase energy efficiency and increase the use of clean energy,” said Scott Blake Harris, the Energy Department’s general counsel, who has ultimate responsibility for its NEPA decisions. “I think that sends a good message to the entire American public, whether or not there are companies that have decided to do environmentally good things after doing bad things.”

Passed by Congress in 1969, NEPA provides one of the few proactive protections in an environmental enforcement system that typically relies on penalties after harm has afflicted the environment and human health. The federal law requires companies to study possible benefits and threats to the landscape, wildlife, or human health before proceeding with a major federal project, giving officials one last chance to intervene if the work imposes a “significant impact.” Ultimately, NEPA is meant to ensure environmental factors weigh as much as economic ones.

Industry groups and their legislative allies on Capitol Hill have long complained that NEPA compliance can delay projects by months and even years, tying up companies with public notices and scientific studies costing millions of dollars. Those concerns influenced the administration’s decision to grant NEPA exemptions to streamline the environmental review process for “shovel-ready” stimulus projects that could create jobs quickly in a recession and yield “green energy” benefits down the road, according to interviews with key players.

The decision stands in sharp contrast to the administration’s recent effort to shore up the NEPA process for offshore drilling projects in the wake of the Gulf of Mexico oil spill. The Interior Department has stopped issuing categorical exclusions for drilling projects and instead is requiring more extensive environmental reviews, after a White House report revealed BP had secured a NEPA waiver for its ill-fated Deepwater Horizon rig based on outdated information.

The Energy Department — which has granted stimulus money to oil firms, chemical companies, and coal-burning utilities — has handed out similar waivers to recipients with some of the nation’s worst environmental compliance records. Among them:

an electrical grid upgrade project in Kansas led by Westar Energy, the state’s largest coal-burning utility, which settled a major air pollution case by paying a half billion dollars in penalties and remediation costs. The Energy Department granted the NEPA waiver to Westar’s project, funded by a $19 million stimulus grant approved on the same day the settlement became official.
a wind farm project in Texas, as well as an electrical grid upgrade project in five additional states, undertaken by Duke Energy of Charlotte, N.C. The department granted the NEPA waiver to both Duke projects, funded by a combined $226 million in stimulus grants, even as the energy corporation continues its decade-long defense against two of the biggest air-pollution cases in the nation’s history.
a project to create clean-burning biofuel from seaweed led by the chemical giant DuPont, which faces two class-action lawsuits over water contamination caused by its toxic chemical known as C8. The department awarded DuPont’s biofuel project $8.9 million in stimulus funds in February, an amount nearly equal to the record environmental fine the company paid in 2005 to settle allegations that it hid the dangers of C8 from federal regulators for two decades.

In all, the Center has found roughly three dozen companies with past environmental problems that won NEPA exemptions for stimulus-funded projects from the Energy Department. Those projects total $2 billion — or 6 percent of the department’s total money awarded so far.

“It’s outrageous to give these companies these big breaks when they haven’t earned a bit of trust from the communities around them,” said Joe Kiger, a Parkersburg, W.Va., school teacher suffering from liver disease. Kiger filed a 2001 class-action lawsuit alleging he and thousands of citizens were being poisoned by DuPont’s C8 in their drinking water. His suit ended in a multimillion-dollar cleanup effort and a medical study funded by the company for area residents devastated by cancer and other ailments.

“I’m all for the stimulus, and I’m all for job creation,” he added, “but not at the expense of the environment and human health.”

QUESTION OF WHETHER ENDS JUSTIFY MEANS
The case of a Wisconsin ethanol plant with a long history of pollution problems demonstrates how little emphasis the administration placed on environmental compliance in regard to the stimulus.

Documents obtained by the Wisconsin Center for Investigative Journalism, which collaborated with the Center on this article, show ethanol producer Didion Milling received $5.6 million in stimulus money for an energy-efficiency project just weeks after a federal court ruled the company had repeatedly violated the federal Clean Water Act. Didion landed the NEPA exemption in March for expanding its plant in ways that, the documents state, “conserve energy.”

State and federal officials concede the Energy Department’s screening process relies on a boilerplate environmental questionnaire in which companies are trusted to provide relevant information about their activities, including which ones might qualify for a NEPA exemption.

Facing increasing pressure to speed delivery of stimulus money to a sluggish economy, Energy Secretary Steven Chu boasted to the nation’s governors at a February meeting that his department would be issuing categorical exclusions for some of the $80 billion in stimulus activities aimed at advancing cleaner-burning energy. The goal, he said, was to “get the money out and spent as quickly as possible.” There was little mention of environmental protection, or the fact that likely recipients of stimulus funds in the oil, gas, coal, and biofuel industries might have histories of violating environmental laws.

“We’re talking about billions of dollars here,” Chu told the governors. “It’s about putting our citizens back to work.”

Energy Department employees involved in NEPA reviews acknowledge that companies with “horrible” compliance histories — especially at the state level — can slip under their radar. They say the department lacks permitting and enforcement authority that would enable them to easily access such information. Even so, they say a company’s current and past environmental record is irrelevant.

“As a government, I feel we always have to give somebody a break. You’re always entitled to come back again,” said Fred Pozzuto, a department NEPA compliance officer. “We have to always be forgiving and look at this on a project-by-project basis.”

The Energy Department’s general counsel echoed the sentiment. “We know that some people have violated [environmental] regulations in the past. That’s not a shock to us,” Harris said, explaining that he’d give a categorical exclusion to a company “even if the CEO were indicted,” if the project warranted it.

ADMINISTRATION CREATED EXEMPTIONS AFTER CONGRESS REJECTED IDEA
The idea of granting blanket NEPA exemptions for stimulus recipients was first raised in Congress when the law was being crafted in early 2009. Industry groups claimed the environmental review process would hold up shovel-ready projects. Some governors called for greatly streamlining NEPA requirements.

Sen. John Barrasso, the Wyoming Republican, offered an amendment to the stimulus bill clearing projects whose NEPA reviews would take longer than 270 days. Two dozen industry groups sent senators a February 4, 2009, letter, backing the proposal, warning that “NEPA must be expedited in order to protect the projects and the jobs.”

Environmental advocates mounted a robust protest.

“Inevitably, in the course of congressional consideration, special interests will assert that we cannot afford the NEPA process in a time of national urgency,” 31 groups argued in a January 13, 2009, letter to House Speaker Nancy Pelosi, Rep. James Oberstar, Senate Majority Leader Harry Reid, and Sen. Barbara Boxer. “The truth is we cannot afford that kind of leap-before-you-look rashness.”

The green groups prevailed. Lawmakers declined to insert a broad exemption into the stimulus legislation. Instead, senators passed an amendment, negotiated by Boxer and Barrasso, mandating “expeditious” NEPA reviews using “the shortest existing applicable process.”

But what failed legislatively is now, in effect, happening administratively. Over the last year and a half, federal agencies have relied on regulatory fiat to create exemptions for stimulus projects under existing NEPA regulations, which allow for exclusions of whole categories of actions the government determines won’t “individually or cumulatively have a significant effect on the human environment.”

In filings with Congress, the administration has reported handing out categorical exclusions to 96 percent of stimulus projects so far — a total of 179,452. Among that total are nearly 4,800 new NEPA exemptions handed out in just three recent months, according to the latest report. By contrast, administration officials have required just 864 total projects to undergo the most comprehensive environmental review under the law.

The White House Council on Environmental Quality, which oversees the government’s compliance with NEPA, told the Center it does not keep historical records on NEPA reviews and could not say how the categorical exclusions for stimulus projects compared to those given to federal projects in past years.

The Energy Department, for its part, has granted NEPA exemptions to 99 percent of all stimulus projects it has funded so far, representing 8,012 actions costing $33 billion. Normally, according to Energy officials, the department requires about 10 percent of the projects that it funds to undergo some form of an environmental analysis, yet it has devised its own strategy for swiftly moving stimulus projects along.

Energy officials say the nature of the legislation — and its three-year timeline for doling out money — has yielded an emphasis on funding projects that would not automatically trigger a full environmental review, which can average two years to complete. “If it doesn’t require new construction,” one employee explained, referring to the categorical exclusion, “it’s pretty easy to CX.” They have first turned to proposals from firms seeking categorical exclusions because, as Harris explained, “you can go through the CXs more quickly.”

The department has also carved out regulatory exceptions for entire programs of stimulus money. For instance, with a single signature, one NEPA officer cleared all stimulus-funded projects to upgrade electrical grids with more efficient technology.

“The planned activities will involve the utilization of existing facilities and infrastructure to accomplish the goal of establishing a Smart Grid,” the officer’s July 7, 2009, decision explained.

The so-called Smart Grid Investment Grant Program involves many of the nation’s biggest-polluting utilities, including Westar and Duke. Companies that received the large grants along with NEPA exemptions say their projects are simply installing new equipment like smart meters and high-speed sensors on existing distribution systems, and therefore don’t threaten the environment.

“We’re basically adding communication infrastructure on top of what is already there so it is not disturbing the environment,” Duke spokeswoman Paige Layne said about the exemption the company got for a grid project that will eventually cost $204 million. That project has yielded 82 jobs so far.

Environmental advocates, however, say it is too simplistic to conclude that none of the 100 or so “smart grid” projects will harm the environment. They insist that exclusions should be made on the merits of each project, as the law envisioned.

“There is wide room for over-reliance on and outright abuse of the categorical exclusion process by federal agencies,” said Steven Mashuda, senior attorney at Earthjustice, who has challenged such decisions at other departments.

Energy officials counter that NEPA officers had to examine each project in order to discard the ones that did not fall under the broad exemptions. For example, they say they rejected all smart grid proposals calling for building new substations or digging up existing transmission lines.

They defend the overall NEPA screening process for stimulus activities as “extensive.” Review officers consider a project’s details, they say, as well as its funding objectives. Sometimes they consult the department’s project managers or the companies themselves. Other times they request additional documentation. “The CX is a NEPA review,” one officer said, albeit a “minimal” one.

Environmental lawyers disagree. “To say a categorical exclusion is a form of NEPA review is, to put it politely, rhetoric,” said Niel Lawrence, an NRDC senior attorney.

Environmental advocates suggest that intermediate levels of review might make sense in certain circumstances. One possibility, they suggest, would be to require every project that could have an environmental effect to undergo a less extensive review, known as an environmental assessment. Advocates see the assessment as kind of a screening test to ensure that a project does not require more intensive scrutiny.

“There are a lot of things the DOE has in its power that would provide incentive for a company to behave,” said Lawrence.

Lawrence and other environmental advocates also suggest Energy officials identify a “threshold” number of past or pending environmental violations that would automatically trigger a heightened NEPA review for any firm pursuing project funding.

‘CLEAN’ DOES NOT ALWAYS MEAN ‘GREEN’
One of the most frequent arguments offered by department officials for the speedy processing of stimulus-funded clean energy projects is that they will help, not hurt, the environment. Some have expressed unwavering confidence that none of the NEPA-exempted projects would result in significant harm.

“I’d eat my hat if [NEPA officers] got something wrong,” Energy’s Harris told the Center, referring to the exclusions.

But the debate goes beyond the judgments of NEPA officers. According to documents, the Obama administration has unequivocally concluded that one of the Energy Department’s biggest stimulus outlays — a $1.37 billion loan guarantee for the massive Ivanpah solar power installation to be built on federal lands in California’s Mojave Desert — will negatively affect the environment.

The solar plant represents one of the few dozen stimulus projects required by the department to undergo the most comprehensive NEPA review. It was approved by both the department and Interior’s Bureau of Land Management earlier this year even after the environmental analysis had found that it would have a “direct, adverse” impact on 3,471 acres of prime habitat for the endangered desert tortoise, according to a copy of that study obtained by the Center.

The installation, undertaken by BrightSource Energy, has been scaled back to address some environmental concerns — reducing its footprint by 15 percent, for instance, and requiring 7,300 acres of “mitigation” to help deal with impacts. Yet the final “environmental impact statement” concludes that “there would still be long-term impacts to biological resources in comparison with the No Action Alternative.”

The final report also cautions that the project could worsen air quality in a pristine section of federally protected lands. The project, it states, “would still cause direct, adverse impacts to air quality …”

Administration officials have said that they believe efforts to alter the proposed solar installation to minimize pollution will keep it from violating NEPA. On October 7, the Bureau of Land Management cleared the stimulus project for construction. It was one of several massive, renewable energy projects the bureau had “fast-tracked” in order to enable companies to break ground before year’s end, thereby meeting a deadline to collect stimulus dollars.

PAST POLLUTION RECORDS NOT A FACTOR IN MOST EXEMPTIONS
NEPA compliance officers have acknowledged that they couldn’t spend much time on the crush of stimulus applications. About 60 NEPA officers inside Energy were assigned to certify the thousands of categorical exclusions processed over the first 18 months.

Energy officials confirm the officers did not research applicants’ past pollution records; instead, they relied on information volunteered by companies in standard forms outlining their work, budget, and management plans. Applications included a questionnaire, about a dozen pages long, asking about potential effects on the environment, from radioactive waste to special wilderness areas.

An aerial view of Duke Energy’s coal-burning Gallagher Generating Station, in New Albany, Indiana. Duke paid $93 million to settle an air pollution case against the plant last year. Credit: John BlairHistorical violations were almost never a factor.

Didion’s stimulus grant for expanding its ethanol plant in Wisconsin offers a case study.
Less than a month before its approval, a federal judge ruled Didion’s plant had violated the clean-water law multiple times in recent years. In April, the company settled a state lawsuit by paying $1.05 million for 23 air and water claims dating back to 1999.

Today, the Environmental Protection Agency’s compliance database shows Didion receiving 11 violation notices since 2005 — among the most for any Wisconsin company. The agency has labeled it a “high priority violator.”

Nonetheless, Didion’s application to the Energy Department for a stimulus grant and NEPA waiver shows officials never sought — and Didion never disclosed — details of its environmental compliance record. In fact, the company did not answer several questions on the questionnaire.

For instance, the form asked what permits would be required, how solid waste would be hauled, and what emissions would result.

“Summarize the significant impacts that would result from the proposed project,” it said.

Didion left that one blank.

“That’s commonly not filled out by many companies, unfortunately,” explained Mark Lusk, the NEPA officer who approved Didion’s waiver.

Lusk and other officers recognize the “trust factor” inherent in the questionnaires. They try to verify a company’s answers, they say, consulting site maps and databases on soils or floodplains. What matters to them are the permit-related questions, which indicate major or new construction.

In Didion’s case, the company is installing new equipment at its ethanol plant, “things that are easy to do and should not have a negative impact,” Lusk said. He did not see any red flags in Didion’s case, he says, and did not look into the company’s past compliance problems.

Neither did Angela Harshman, the Energy Department employee who handled Didion’s stimulus grant. In a June 22 e-mail, she told the Wisconsin Center that background checks typically encompass “financial capability,” such as past audits, and “information via an environmental questionnaire.” Administration officials say those who monitor the stimulus dollars might flag previous environmental violations — if they involved potential criminal activity.

That would not include Didion’s million-dollar civil penalty to settle its violations.

Dale Drachenberg, the company’s vice president of operations, declined to comment on the stimulus grant and NEPA exemption, instead focusing on the project’s benefits. Didion will use 25 percent less power for every gallon of ethanol it produces, he said in a statement, and will hire 75 construction workers and 10 fulltime employees.

“Since the day we started construction on our ethanol production facility,” he said, “we’ve made innovation and conservation top priorities.”

To Karen Dettman, a neighbor of Didion’s plant in Cambria, Wis., who has lived with its spills and smells, the justification seems more like “green energy at any cost.”