By John B. King (John B. King was a member of Formosa’s legal team, submitting portions of the briefs at the district court and First Circuit.)

The Louisiana First Circuit has issued a sweeping decision affirming and upholding the issuance of air emission permits by the Louisiana Department of Environmental Quality (LDEQ) for the Sunshine Project, Formosa’s $9.4 billion petrochemical facility located in St. James Parish (the Facility). RISE St. James, et al v. LDEQ, 23-0578 (La. App. 1 Cir. 1/19/24), — So.3d —, 2024 WL 207859 (the Decision). In doing so, the First Circuit reversed the legally deficient decision of the district court, which had adopted “almost verbatim” the suggested written reasons submitted by the Opponents to the Project.

A.  Facts

FG LA LLC (known as Formosa) sought to construct a petrochemical complex that would take ethane and propane, convert them into ethylene and propylene, and ultimately create high density polyethylene, linear low-density polyethylene, ethylene glycol, and polypropylene. Formosa choose a site in St. James Parish that was designated for industrial use, which was surrounded by industrial and agricultural uses, and which was about one mile from the nearest community on the west bank of the Mississippi River.

As a major source of air emissions, Formosa submitted applications to LDEQ to construct and operate the Facility. LDEQ reviewed the applications, which included the required air quality modeling. A public hearing was held and thousands of public comments were received.

In January 2020, after a review of the applications and all the public comments, LDEQ issued fifteen air emissions permits to construct the Facility. LDEQ issued a Prevention of Significant Deterioration (PSD) Permit and fourteen Title V Permits (the Permits), which together authorized the construction and operation of the Facility. LDEQ also issued a 182-page Basis for Decision and Public Comments Response Summary (Response to Comments), which provided, in detail, LDEQ’s reasons and rationale for granting the Permits. The PSD Permit also provided a detailed discussion of the Best Available Control Technology and the air quality modeling performed by Formosa. [1]

Several environmental organizations, such as RISE St. James, the Louisiana Bucket Brigade, and the Sierra Club (the Opponents), sought judicial review of LDEQ’s decision to issue the Permits. In very general terms, the Opponents argued that:

• LDEQ violated the Clean Air Act due to its use of significant impact levels (SILs) to determine that the Facility’s emissions did not cause or contribute to a violation of the National Ambient Air Quality Standards (NAAQS);
• LDEQ violated its constitutionally mandated duties as the public trustee of the environment; and
• LDEQ failed to properly consider environmental justice issues, such as the alleged disparate impact on Black and minority members of nearby communities.

The appeal was assigned to District Judge Trudy White, now retired. After the matter was briefed and argued before her, she requested that all parties submit draft Written Reasons, in Word format, for her review. In September 2022, she issued her own Written Reasons for Judgment in which she vacated the Permits and remanded the entire matter back to LDEQ. Judge White’s Written Reasons for Judgment were an “almost verbatim” adoption of the draft Written Reason submitted by the Opponents.

LDEQ and FG appealed Judge White’s decision to the First Circuit. After an oral argument to a three-judge panel and another oral argument in front of a five-judge panel (which included the original three), the First Circuit issued its Opinion (the Decision). The First Circuit reversed Judge White’s decision and fully reinstated the Permits.

B.  The Decision

The Decision is a detailed and lengthy explanation of the facts, the arguments by the parties, the applicable law, and LDEQ’s reasoning and rationale. For almost every issue before it, the First Circuit noted the LDEQ’s stated basis for its decision on that issue, the support in the record for that decision, and the vast discretion afforded LDEQ in permitting matters. In doing so, the First Circuit highlighted the need for a complete administrative record and a robust discussion of the issues by LDEQ in its Basis for Decision and Response to Comments.

There are several important aspects to the Decision. This article will include a discussion of the main ones: the standard of review, the Clean Air Act issues, and certain issues associated with the scope and application of the public trust doctrine.

1.  The Standard of Review

The standard of review refers to the guiding principles to be applied by a court in reviewing a decision made by an administrative agency or a lower court. A lax or broad standard of review tends to provide a reviewing court with more latitude to overturn a lower court’s decision. By way of contrast, a more restrictive or narrow standard of review cabins or constrains a reviewing court as it reviews the lower court decision.

The Opponents argued that the First Circuit must give deference to the district court’s decision and factual findings. The First Circuit rejected this notion and applied the standard of review set out in Save Ourselves and Save Our Hills.

First, the First Circuit “reviews the findings and decision of the DEQ and not the decision of the district court” and “no deference is owed to the factual findings or legal conclusions of the district court.” Second, the First Circuit “should not reverse a substantive decision of DEQ on its merits unless it can be shown that the decision was arbitrary or that DEQ clearly gave insufficient weight to environmental protection in balancing the costs and benefits of the proposed action.” The test for determining whether an action was arbitrary or capricious is whether the action was taken “without reason,” a test that “imposes a significant limitation on judicial review.” Third, “considerable weight” must be given to LDEQ’s construction and interpretation of the statutory scheme it is entrusted to administer as well as its construction and interpretation of the rules and regulations under its authority.

When taken together, these principles provide a more restrictive or narrow standard of review. They impose a “significant limitation” on a reviewing court, which is prevented from reversing a substantive decision by LDEQ unless it was arbitrary (i.e., without reason) or there was insufficient weight provided to environmental protection. Throughout the Decision, the First Circuit applied this standard of review and found that the administrative record provided more than sufficient reasons for LDEQ’s decisions.

2.  The Clean Air Act Issues

The Clean Air Act issues relate to the modeling effort conducted by Formosa and the use of SILs (or significant impact levels) to determine that the Facility does not cause or contribute to a violation of the National Ambient Air Quality Standards (NAAQS).

Formosa conducted what the First Circuit described as “extensive air modeling.” Formosa conducted a preliminary impact analysis, a full impact analysis, and detailed refined modeling. The modeling was done in accordance with federal and state guidelines.

However, the model did predict exceedances of 24-hour PM2.5 and 1-hour NO2 NAAQS. Based on those exceedances, the Opponents claimed “that the mere existence of a modeled exceedance violates the Clean Air Act.” The First Circuit simply stated, “we disagree,” finding that the “existence of a predicted modeled exceedance is merely one step in the modeling process.” Because of the modeled exceedances, Formosa followed the approvable air quality modeling procedures and conducted the required detailed refined modeling which showed that the modeled exceedances “are caused by off-site sources.”

The First Circuit also approved the use of SILs as part of the modeling effort to determine whether emissions “cause or contribute”: to a violation of the NAAQS. The NAAQS are health-based standards set by EPA at levels requisite to protect public health with an adequate margin of safety.

Under the Clean Air Act, emissions are not allowed to “cause or contribute’ to a violation of the NAAQS.

The Opponents mounted a vigorous challenge to the use of SILs to make this determination. They essentially claimed that any contribution to a violation, regardless of its size, violated the Clean Air Act. The First Circuit found that LDEQ’s “use of SILs in the PSD program is supported by its interpretation of the Clean Air Act itself, case law interpreting the Clean Air Act, and the regulations and guidance promulgated or issued by the EPA pursuant to the Clean Air Act. Thus, DEQ had a reasonable basis for incorporating the use of SILs in its PSD program, and its use of SILs is neither erroneous nor arbitrary and capricious.”

The First Circuit noted that entire purpose of the PSD program was to prevent “significant” deterioration of air quality and that EPA had incorporated SILs into their own regulations. Importantly, the First Circuit recognized that the use of SILs is based on EPA’s “longstanding policy” and even cited to EPA’s guidance documents. It also noted that LDEQ had incorporated the guidance memoranda “into the administrative/permit record as justification for the use of EPA’s recommended SILS in its PSD program” and “considerable weight” must be given to an agency’s

construction and interpretation of the statutory scheme that it administers and to its own rules.

To reach these conclusions, the First Circuit relied extensively on the documents in the administrative record and LDEQ’s articulation of its reasoning as set out in the Basis for Decision and Response to Comments. Because the record supports LDEQ’s reasoning, the First Circuit could not say that LDEQ’s decisions, such as the use of SILs, were ‘without reason’ and thus arbitrary.

3.  The Public Trust Issues

At the district court and in the First Circuit, the Opponents grouped or styled the rest of their arguments as violations of the public trust doctrine. Essentially, they argued that LDEQ did not fulfill its duty as the public trustee because LDEQ failed to consider a variety of issues raised by the Opponents that they claimed should have been considered as part of the public trust analysis.

The public trust doctrine emanates from the Louisiana Constitution and generally requires that LDEQ, as the primary agency tasked with protecting the environment, articulate in written findings its consideration of three basic issues: whether the potential and real adverse environmental effects of the proposed project have been avoided to the maximum extent possible; a balancing (a cost-benefit analysis) of the environmental impact costs against the social and economic benefits of the project demonstrating that the latter outweighs the former; and whether alternative projects, alternative sites, or mitigating measures offer more protection to the environment without unduly curtailing non-environmental benefits. The consideration of these issues does not mandate a specific result; instead, LDEQ is afforded a great deal of discretion and latitude in individual matters.

Several of the main issues associated with the public trust doctrine are discussed below.

a.  Environmental Justice

LDEQ and Formosa argued that the inclusion of environmental justice concepts in permitting decisions is not mandated by any constitutional provision, statute, regulation, or policy. In this regard, the First Circuit disagreed with LDEQ and Formosa, finding that “the directives from the Louisiana Supreme Court in Save Ourselves, which require consideration of economic, social, and other factors, broad enough to include an analysis of environmental justice, as defined by the EPA.” (Citation and punctuation omitted.)

Based on this decision, then, the consideration of environmental justice concerns is a part of the public trust review. However, as such, LDEQ’s consideration of these issues and its conclusions should be entitled to the “rule of reasonableness” and the same “room for a reasonable exercise of discretion” afforded other components of the public trust review, as set forth in Save Ourselves. In other words, if LDEQ articulates its reasons and there is support in the administrative record for those reasons, LDEQ should not be deemed to have acted arbitrarily (i.e., without reason).

Even so, LDEQ did conduct an extensive environmental justice analysis which was articulated in the Basis for Decision and Response to Comments. The First Circuit summarized LDEQ’s environmental justice analysis, ultimately finding that “we cannot say that [LDEQ’s] decision was in violation of its public trust duty or that its environmental justice analysis was arbitrary and capricious or otherwise without reason.” Indeed, there was “ample documentation in the administrative record” to support LDEQ’s conclusions.

Several key points were made by LDEQ which were highlighted by the First Circuit. First, LDEQ found that emissions from Formosa would not cause or contribute to a NAAQS violation and so the permits “do not allow for air quality impacts that could adversely affect human health or the environment.” EPA had previously regarded compliance with the NAAQS as presumptively protective “and that emissions of a pollutant meeting the NAAQS should not be viewed as ‘adverse’ under Title VI of the Civil Rights Act.” Although EPA did away with that rebuttable presumption, “the determination of whether there were ‘adverse’ impacts was ‘still intrinsically linked to whether a given area is compliant with the NAAQS.’”

Second, LDEQ addressed the alleged cancer risks from emissions of toxic air pollutants, primarily ethylene oxide, as to potentially affected Black and minority populations in the surrounding community. While LDEQ noted that there had been declines in the emission of toxic air pollutants and that there would be no ‘fenceline community,” the First Circuit specifically noted LDEQ’s use and reliance on data from the Louisiana Tumor Registry. That data, which include actual cancer incidences and deaths, indicted that cancer did not affect Black men or women in a significantly different manner. For example, rates “rates for all cancers combined for [W]hite men, [B]lack men, and [B]lack women do not differ significantly from Louisiana rates.”

Third, the First Circuit addressed claims that a disparate impact was created by emissions from the Facility, finding that LDEQ “specifically considered the impact of emissions on the nearby Black and minority communities.” LDEQ had found that there was no adverse impact, that overall emissions had significantly declined, that cancer rates were not significantly different based on data from the Louisiana Tumor Registry, that Formosa sought a site as far away from all people, regardless of race, and that the Facility was at least a mile from residential communities. It concluded that the fact that the Facility “is situated near a minority community alone is insufficient to establish a disproportionate effect on a minority community,” citing a prior case. As a result, and based on these findings, the First Circuit found that “even if there was evidence of an ‘adverse impact,’ there was no evidence of a ‘disparate impact.’”

Finally, the First Circuit highlighted LDEQ’s conclusion regarding the substantial limitations of the use of the EJScreen, as set forth by EPA itself. For example, EJScreen should not be used “to quantify specific risk values for a selected area” and that the screening-level results supplied by the EJScreen “do not, by themselves, determine the existence or absence of environmental justice concerns in a given location.” The Opponents had touted the EJScreen data to establish that “there is a ‘disparate impact’ or a disproportionate effect on a minority community.” The First Circuit supported LDEQ’s determination “based on specific directives from the EPA” that the EJScreen “information remains unsuitable for the use to which the [Opponents] are trying to use it: to quantify specific risk values for a selected area and as a basis for agency decision-making regarding the existence or absence of environmental justice concerns.”

b.  Cumulative Impact Analysis

The Opponents argued that LDEQ failed to require Formosa to model the cumulative or combined

impact of all of its toxic air pollutants. The First Circuit rejected this argument.

The issue had come up in a prior matter (In re: Petroplex, 2010-1194 (La. App. 1st Cir. 3/25/11), 2011 WL 1225871). In that case, a similar argument was made but the First Circuit did not require such modeling because modeling was done in accordance with approval protocols and the facility emissions were lower than the ambient air standards. As a result, additional cumulative modeling was not required.

Similarly, Formosa conducted extensive air modeling in accordance with EPA’s and LDEQ’s approved modeling guidance and protocols. That modeling effort showed, like the modeling effort in Petroplex, that no ambient air standard for any toxic air pollutant would be exceeded. As a result, the First Circuit could not say that LDEQ’s “decision not to require Formosa to model the cumulative or combined impact of all of its toxic air pollutants was arbitrary and capricious or in violation of its duty under the public trust doctrine.”

c.  Alternative Sites

Formosa conducted a robust alternative sites analysis in which sites were eliminated because they were located in what, at the time of site selection, was to be a non-attainment area. A facility to be constructed in such an area must purchase offsets in the form of expensive emission reduction credits. In this case, the amount of offsets that would be required to be purchased by Formosa “effectively precluded construction of the complex” because the requisite number of credits were not available.

The Opponents argued that the elimination of the non-attainment sites was arbitrary. The First disagreed, stating that LDEQ “had a reason, supported by the administrative record, to find that the five sites in Ascension Parish were not feasible alternative sites for the proposed Formosa complex.” As a result, LDEQ’s analysis of alternative sites was not arbitrary.

C.  Conclusion

The First Circuit’s decision upholding LDEQ’s issuance of the Permits provides a powerful precedent and multiple arguments for LDEQ and permittees who seek to fend off judicial challenges to LDEQ’s decision to issue a permit. However, there are two main “takeaways” from this decision:

• LDEQ should provide robust and detailed reasons for its decision to grant the permit in a Basis for Decision, Response to Comment, and/or other permit documents; and
• The administrative record should be replete with sufficient evidence to support any and all such reasons.

Here, the administrative record included a vast amount of information to support LDEQ’s decision, much of which was supplied by Formosa as part of the permit process. In turn, LDEQ provided detailed reasons for its conclusions and the decision to issue the Permits. As a result, and faced with such a record and reasoning, the First Circuit could clearly find, and did find, that the decision was not arbitrary (i.e., without reason).

A copy of the decision can be found here.

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[1] LDEQ later issued a Supplemental Basis for Decision in response to an order by the district court.