The Mortgage and Fracking Minefield

It’s one of the most powerful federal laws designed to protect the environment. But, outside of a small circle of environmental lawyers and litigators, few Americans have heard of the National Environmental Policy Act of 1969, or NEPA.

Unlike better known statutes like the Clean Water Act, the Clean Air Act or the Superfund laws, which directly control pollution, prohibit dumping toxins into rivers and set caps on air emissions from smokestacks, NEPA does not tell industries that they can or cannot do anything. At its core, NEPA simply requires the federal government to understand the environmental impacts of the decisions it makes. Despite its relative obscurity, NEPA has been used again and again by environmental groups, which can sue if it is not enforced, to great effect.

It has been used to force the Atomic Energy Commission to assess the environmental impact of issuing nuclear plant licenses, it delayed deepwater drilling in the Outer Continental Shelf until environmental issues were considered and it played a key role in controversies over the Alaskan Oil Pipeline.

On occasion, after finding unexpected impacts, the government has abandoned programs altogether. For example, after an environmental review revealed that it would increase congestion and air pollution, a plan to build a presidential library at Harvard University was dropped.

Last week, a major storm broke out after it was revealed that a federal agency, the U.S. Department of Agriculture (USDA), believed that the law required it to conduct a NEPA review of one of the most controversial practices in the energy industry: fracking. The New York Times broke the story which featured emails showing that the USDA planned to tell its $165 billion dollar mortgage program to stop financing properties with drilling leases until an environmental review of the impact of drilling and fracking on homes backed by the agency could be completed.

The oil and gas industry’s response to reports of environmental problems has consistently been to deny that fracking itself is to blame. While there is a federal scientific study of fracking’s impacts being conducted by the U.S. Environmental Protection Agency (EPA), that study is limited to impacts on drinking water supplies and will not look at issues that scientists say are major concerns, including air pollution, climate change and earthquakes.

Doing a full environmental review under NEPA would offer a broader accounting of the impacts of drilling. What’s more, a NEPA review allows public input, so there would be far more transparency than exists with the EPA’s study. This sort of transparency is slow and can produce litigation, both of which worry the Obama administration, which is under immense pressure to accelerate domestic drilling.

Calls from drilling supporters to reverse the recommendation of its legal experts began almost immediately after The New York Times report. Rep. Dan Boren (D-OK) immediately sent a letter to Agriculture Secretary Tom Vilsack, protesting against a full NEPA review. At a hearing Wednesday before the House Committee on Natural Resources, Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute for Policy Research, a conservative think tank, pilloried the Agriculture Department for considering whether to require environmental reviews. “All this is to discourage people from issuing leases on their lands,” Ms. Furchtgott-Roth said, citing the USDA’s analysis as evidence that the Obama administration has been biased against the oil and gas industry.

In response, the political appointees at the USDA began trying to disavow what their staff specialists had advised. “The information provided to Congressional offices on March 8, 2012 was premature and does not reflect past, current or future practices of the department,” Mr. Vilsack said, adding that he would immediately authorize an Administrative Notice “reaffirming” that rural housing loans are exempt from full NEPA reviews.

That notice shortly followed. It said that federal agriculture officials will not require an extensive environmental review before issuing mortgages to people who have leased their land for oil and gas drilling. The reaction was immediate, angry and broad.

Calling it “USDA-gate”, Josh Fox, the director of Gasland, said the decision “contradicts both science and law.”

“They’re literally saying, ‘we not gonna look,” said investigative reporter Greg Palast in a T.V. interview, describing the reversal. “They don’t wanna look because they’re afraid of what they’re gonna see, except that means that the U.S. taxpayer is on the hook if there’s a disaster.”

“This recent ruling is the antithesis of good public policy,” said Wenonah Hauter, the executive director of Food and Water Watch. “The Obama Administration should stop pandering to the oil and gas industry.”

Environmental groups also warned the agency that the reversal could lead to litigation. The Center for Biological Diversity (CBD), an environmental group known for using NEPA effectively in the courts, said it was considering filing lawsuits against the USDA and other agencies. The center sent a letter to the USDA, Federal Housing Administration, Veterans Administration, and the Federal Housing Finance Agency (which oversees Fannie Mae and Freddie Mac), alerting them that their mortgage lending policies were in clear violation of federal law. An immediate legal review was required and all lending agencies need to stop granting categorical exclusions to properties leased for oil and gas drilling, the letter said. Agencies also need to conduct audits to figure out how many categorical exclusions have already been granted for such properties, added the CBD.

Public Employees for Environmental Responsibility which specializes in whistleblower and open-records litigation, sent an aggressive Freedom of Information Act request to the USDA. The records request, which clearly indicates that the organization has questions about the decision, asks for documents relating to any possible pressure the White House may have put on the USDA to reverse the view of agency staff. It also requests emails and other communications between elected officials and the agency about their decisions.

Members of Congress also stepped in. In a letter to the section of the White House that is responsible for overseeing NEPA, Rep. Edward J. Markey (D-MA), asked for a full review of the law and requested reams of information about how the administration plans to handle fracking and mortgages. Many agencies, not just the USDA, issue or back mortgages, Rep. Markey said, so taxpayers need protection from being sued for failing to follow NEPA or from being liable for environmental damage from drilling on mortgaged lands. Rep. Maurice Hinchey (D-NY), who has been a consistent watchdog on the matter, demanded that the USDA listen to their experts. “It is critically important that the appropriate federal agencies, including USDA, do everything they can to prevent these things from happening again,” he said. “There are many cases where these operations have contaminated water supplies and significantly downgraded air quality.”