On March 7, 2014, the US Court of Appeals for the Sixth Circuit issued a decision in Kentuckians for the Commonwealth v. USACE limiting the scope of impacts to be considered under the National Environmental Policy Act (NEPA) when the US Army Corps of Engineers (Corps) issues Clean Water Act Section 404 permits for surface mining operations. Kentuckians involved the issuance of a Section 404 permit to a mining company to “mine through” and fill certain stream beds, while offsetting the environmental effects by improving other streams in the watershed and making an “in-lieu” payment to a trust fund.  Plaintiff environmental groups challenged the Corps’ issuance of the permit, arguing that the Corps should have considered the public health effects related to surface mining generallyand that the Corps’ consideration of the associated compensatory mitigation plan was arbitrary and capricious.

In upholding the District Court’s decision, the Sixth Circuit found that the Corps did not violate NEPA as it “reasonably limited” its scope of review to the effects of the dredge and fill activity, such as impacts to the local water supply and air pollution effects associated with site preparation and operations. The Court found that “the context of the federal agency’s action should be considered in determining the scope of its relevant effects.”   Therefore, the Corps was not required to expand the scope of its review to the effects of the entire surface mining operation as argued by the Plaintiffs.  Importantly, the Court observed that Congress intended primary regulatory authority be given to the states for surface mining activities under the Surface Mining Control and Reclamation Act of 1977 (SMCRA), and that “the Corps’ role in the overlapping permitting scheme is secondary, affecting only a small albeit necessary part of the particular surface coal mining operation.”  Accordingly, to the extent that there are impacts to the public health, “the plaintiffs should raise these concerns with those agencies in which Congress has placed the primary responsibility of regulating surface mining, either the federal Office of Surface Mining or the federally approved state regulators.”

As to the compensatory mitigation plan, the Court held that the Corps did not act arbitrarily and capriciously in approving the plan since it was entitled to rely upon the Eastern Kentucky Stream Assessment Protocol, which was developed as part of a federal and state interagency initiative to assess the relative quality of a particular headwater stream ecosystem.   The Court confirmed that “functional metrics” such as the Protocol are a valid basis for agency reliance in the wake of 2008 regulations issued by the EPA and the Corps’ that authorized the use of such protocols.

The Sixth Circuit decision follows a “closely analogous” Fourth Circuit case, Ohio Valley Environmental Coalition v. Aracoma Coal Co., which also found that primary regulatory authority lies with the states under SMCRA in considering the effects of surface mining and that the Corps’ jurisdiction is limited “to the narrow issue of the filling of jurisdictional waters.”

Although the Kentuckians decision represents a win for the coal industry, it increasingly finds itself under attack in a variety of contexts.  However, in re-affirming the limited scope of the impact assessment performed by the Corps, the decision provides a degree of regulatory certainty:  That otherwise approvable Section 404 permits will not be unduly impeded or delayed by duplicative reviews of non-aquatic aspects of the company’s operations.