Shifting the Cost of NEPA Reform

In early June, the Senate Environment and Public Works Committee (EPW) released bill text incorporating a House proposal to modernize and streamline the National Environmental Policy Act (NEPA). The bill offered a 'pay-to-play' provision, allowing project proponents to bypass judicial review by paying 125% of the estimated cost of environmental review. It also set accelerated timelines for projects choosing this route: 180 days for environmental assessments (EAs) and one year for environmental impact statements (EISs).

Though framed as a budgetary element, the pay-to-play proposal ran into immediate resistance—making clear that structural reform can’t slip through under the guise of fiscal policy.

NEPA is a substantial obstacle to infrastructure and energy development, partly due to decades of judicial overreach. However, these ‘pay-to-play’ reforms fall short of addressing the incentives that make NEPA such a frequent target for litigation in the first place.

Instead of relying on transactional exemptions that attempt to bypass judicial review, a more constructive approach would be to address the core incentive structures that fuel strategic litigation. Filing NEPA litigation requires minimal evidence, and there are trivial consequences for unsuccessful claims. This allows litigants to file cases with relatively little risk, even when legal arguments are unlikely to prevail. Reforms should focus on discouraging misuse of the statute without undermining legitimate public oversight. A 'loser-pays' model could be crucial in shifting the burden away from public agencies and developers and placing it on litigants who weaponize uncertainty without prevailing in court.

While Pay-to-Play Just Reroutes, Loser-Pays Actually Limits Frivolous Legislation

NEPA litigation introduces uncertainty that can increase costs and delay investment. However, as Nicholas Bagley points out, the proposed “pay to play” structure does not eliminate litigation risk as much as it reroutes it. Claims under related statutory laws like the Endangered Species Act (ESA), Clean Water Act (CWA), and National Historic Preservation Act (NHPA) remain viable, and adverse rulings under those laws can still invalidate the assumptions embedded in a NEPA review. For instance, if a court finds a Biological Opinion inadequate under the ESA, that ruling may render the corresponding NEPA analysis arbitrary and capricious.

Moreover, many NEPA lawsuits don’t target the documents themselves but focus on agency behavior, such as failing to act, misrepresenting facts, or segmenting a project to evade cumulative impact analysis. These procedural challenges remain available, even under a system that exempts EAs, EISs, or Records of Decision (RODs) from judicial review.

Pay-to-Play deserves credit for its attempt to shift the litigation calculus. It echoes the Inflation Reduction Act’s (IRA) limit of judicial review over Medicare drug pricing decisions, aiming to prevent legal challenges from stalling implementation. But the analogy only goes so far. That policy applies to a narrow, cost-centered process with clear statutory boundaries. Unfortunately, NEPA litigation is much broader and too entangled with other regulatory regimes. Even if pay-to-play passes, it will only reduce risk at the margins, as it doesn't get at the deeper incentive structure that makes NEPA such a reliable tool for delay.

That’s where a “loser-pays” model comes in. Under a loser-pays framework, plaintiffs who bring forward unsuccessful legal challenges would be required to compensate the defendant, typically a federal agency or project proponent, for the costs incurred due to the litigation. Applied to NEPA, this could include legal fees and additional expenses brought on by project delays. The core principle is simple: litigation should remain a viable pathway, but those who misuse the process to obstruct development without legal merit should bear the cost of doing so.

Requiring unsuccessful plaintiffs to cover attorneys’ fees and litigation-related costs may make challengers with weaker claims think twice before going to court, helping to deter speculative or obstructionist claims. Frequently called the “English Rule,” this approach is already common in countries like the UK and Canada, where it helps filter out obstructive litigation. For instance, in the UK, the loser-pays rule has been credited with reducing the number of frivolous lawsuits, thereby speeding up the resolution of more legitimate disputes. A loser pays provision would give the NEPA process more friction in the right places to facilitate fast, cheap, and reliable development.

NEPA’s low threshold for initiating litigation and minimal consequences for unsuccessful claims make the process vulnerable to strategic use by adversarial issue advocates. Even weak or duplicative lawsuits can impose years of uncertainty on projects that have otherwise followed the rules. A loser-pays framework would attempt to rebalance that incentive structure. Unlike pay-to-play, it doesn’t bar litigation outright. It raises the stakes for those who use NEPA as a stalling tactic, without compromising accountability. It could reduce the uncertainty that shadows even procedurally sound reviews for developers and investors. For agencies, it would allow litigation resources to focus on cases with merit.

Crucially, the loser-pays model can be structured to safeguard good-faith plaintiffs who might otherwise be discouraged by the prospect of bearing litigation costs, such as individuals or community-based organizations with limited resources. Through judicial discretion informed by clear standards, loser-pays can help distinguish between stronger claims and legal obstruction. While any standard will inevitably involve some court interpretation, the goal is to provide a structured framework, such as requiring claims to be substantially justified or evaluating patterns of repetitive litigation, that narrows discretion and increases predictability. This could be a game-changer for developers and investors, reducing the uncertainty that currently shadows even procedurally sound reviews.

Lawmakers could give courts more explicit discretion to assign costs based on litigant conduct, mirroring fee-shifting frameworks under statutes like the Clean Air Act and the Civil Rights Attorney’s Fees Awards Act. This would help address repeat litigation from bad actors who habitually exploit NEPA’s procedural flexibility.

This principle isn’t new. Under the Equal Access to Justice Act (EAJA), prevailing plaintiffs can already recover attorneys’ fees when the government’s position lacks justification, and Rule 11 of the Federal Rules of Civil Procedure allows judges to sanction frivolous claims. However, those tools are narrow, inconsistently applied in environmental cases, and operate only in one direction. A loser-pays framework would attempt to bring symmetry, ensuring that plaintiffs who pursue meritless litigation share in the cost of delay, just as we hold agencies accountable when they fail to follow the law.

Of course, not all plaintiffs are alike, even within a loser-pays framework. Tailoring cost-shifting rules to reflect this reality can help safeguard those with limited resources. Means testing—determining eligibility for government assistance or legal exemptions based on defined financial criteria—may offer a path for protecting smaller public interest groups and individuals. While there is a precedent for this under the EAJA, which limits eligibility to parties with fewer than 500 employees or a net worth below $7 million, it may not go far enough. These limits still leave room for many organizations with substantial litigation capacity. Any exemption criteria would need to be reexamined with care, balancing protection for public interest litigants against the risk of abuse by well-resourced groups.

Reform Through Reconciliation Comes at a Cost

Even well-designed reforms can falter if the legislative process limits their scope. Reconciliation, while expedient, imposes constraints that often sideline structural change. Because reconciliation is limited to provisions that affect federal spending or revenue, using it to pass a narrow workaround could make it harder for Congress to enact broader reforms in the future. The result may be locking in a revenue-generating fix while freezing out more lasting structural changes.

Under the Byrd Rule, the Senate parliamentarian can strike mainly regulatory rather than budgetary provisions. As compared with the recent House-passed reconciliation bill, he legislative text from the Senate Committee on the Environment and Public Works omits revenue allocation and lead agency provisions. This is likely an attempt to improve its odds of surviving a ‘Byrd bath’ by downplaying regulatory aims. By removing procedural mandates and decoupling the fee collection from explicit Treasury transfers, the drafters tried to present the pay-to-play mechanism as a revenue measure rather than a regulatory one.

Despite these efforts, the Senate Parliamentarian ruled on June 19 that the judicial review opt-out in Section 28 must be removed to comply with reconciliation rules. Otherwise, the bill risks triggering a 60-vote threshold instead of proceeding under the simple majority allowed by reconciliation. The provision’s regulatory character ultimately outweighed its budgetary framing. This decision confirms the limits of using reconciliation to pass meaningful NEPA reform. Even if pay-to-play had survived, legislating through reconciliation would have constrained future reform efforts by forcing policy to fit a budgetary frame. This method of legislating forces policy to be framed as budgetary, preventing lawmakers from clearly stating the goal of reducing litigation abuse and increasing the risk of legal ambiguity that could invite even more lawsuits. It may also crowd out Congress’s ability to pursue broader, lasting improvements, like loser pays, down the road.

Congress must move beyond narrow procedural vehicles to shift litigation incentives in a credible way. Structural reforms like loser-pays require standalone permitting legislation that speaks clearly to intent and directly addresses the underlying dynamics of delay. With the reconciliation no longer a viable route, lawmakers now have an opportunity to pursue more durable regulatory reform, without contorting policy to fit budget rules or obscuring the real goal.

From Pay-to-Play to Loser Pays

Passing meaningful litigation reform will require more than budget maneuvers. Standalone permitting legislation offers the most straightforward path to addressing the role NEPA lawsuits play in delaying development. Rather than hiding behind revenue provisions or procedural shortcuts, Congress could directly confront the incentive structure—and start by rebalancing who bears the cost of delay.

A targeted fee-shifting system, like loser-pays, could generate meaningful cost savings. Even unsuccessful litigation can impose years of delay, legal fees, and administrative overhead. Agencies, developers, and taxpayers frequently absorb these costs. A loser-pays framework would bring greater predictability to project planning and help focus litigation resources on claims with real merit.

The reform package reflected a welcome recognition that bad actors can weaponize NEPA’s implementation to delay rather than inform. That diagnosis is correct. However, reforms that eliminate judicial review through financial opt-outs only address a symptom rather than the cause. A loser-pays model directly addresses the real driver of delay—misaligned incentives that lead actors to use NEPA as an adversarial mechanism for obstruction.