By Clark Mindock
(Reuters) - Offshore drilling leases covering 1.7 million acres of federal waters in the Gulf of Mexico will remain in place after a federal appeals court said last year's $430 billion Inflation Reduction Act, the biggest climate change package in U.S. history, mandated they be issued to the highest bidders.
A three-judge panel of the U.S. Court of Appeals for the District of Columbia said the law, which instructed the U.S. Interior Department to issue leases for winning bids it received from companies such as ExxonMobil (NYSE:XOM) Corp. and Chevron Corp. (NYSE:CVX) during a November 2021 sale, meant there was no longer a dispute for it to decide.
The department's Bureau of Ocean Energy Management had cited the law last year when it reinstated the leases from the 2021 sale even though U.S. District Court Judge Rudolph Contreras in Washington, D.C., had vacated the auction in early 2022, saying the Biden administration failed to properly account for its impact on climate change.
The D.C. Circuit said the law "makes clear" that those leases are no longer subject to requirements of the National Environmental Policy Act, which requires a thorough look at environmental impacts of proposed major federal actions.
The companies had collectively bid more than $191 million for the leases.
The Inflation Reduction Act included billions of dollars of funding to address climate concerns, but also protected federal drilling auctions President Joe Biden had previously promised to end.
The state of Louisiana and the American Petroleum Institute appealed Contreras' decision to the D.C. Circuit but later argued the case was moot given the passage of the law.
But environmental groups Friends of the Earth, Healthy Gulf and the Sierra Club maintained that, despite the law's mandate, the leases could still be modified or even revoked due to flaws in the environmental review already identified by the lower court. They had also argued the D.C. Circuit should send the case back to Contreras to analyze how the law impacted his decision.
Earthjustice attorney Steve Mashuda, who represented the environmental groups, said in a statement that the decision will harm Gulf communities and ecosystems.
Louisiana Solicitor General Elizabeth Murrill, in a statement, called the decision a "victory" for the state and affordable energy.
A spokesperson for the American Petroleum Institute called the order a “positive step toward more certainty and clarity for energy producers.”
The Interior Department, which did not appeal the lower court decision, declined to comment.
The case is Friends of the Earth et al. v. Debra Haaland et al., U.S. Court of Appeals for the District of Columbia Circuit, case No. 22-5036.
For the environmental groups: Erik Grafe, Brettny Hardy, Steve Mashuda and Shana Emile of Earthjustice
For the American Petroleum Institute: Cate Stetson and Sean Marotta of Hogan Lovells, and Jonathan Hunter and Sarah Dicharry of Jones Walker
For Louisiana: Attorney General Jeff Landry, Solicitor General Elizabeth Murrill and Deputy Solicitor General Joseph Scott St. John, and Tyler Green and Jeff Hetzel of Consovoy McCarthy