The U.S. Court of Appeals for the Eighth Circuit Thursday vacated and remanded a decision by the U.S. Surface Transportation Board (STB) approving a $1.4 billion rail project to carry coal from the Powder River Basin to power plants in the East and Midwest, saying the board failed to assess the environmental impact of increased coal burning.

The Court agreed with the Sierra Club that the agency failed to consider the effects on air quality of making available to power plants 100 million tons of low-sulfur coal per year. It objected to the agency’s claim that the coal would reach the plants by other rail lines anyway and the proposed 880-mile line to be constructed by the Dakota, Minnesota & Eastern Railroad Corp. (DM&E) simply provided a shorter, more direct route.

“But the proposition that the demand for coal will be unaffected by an increase in availability and a decrease in price, which is the stated goal of the project, is illogical at best,” the court decision said. “The increased availability of inexpensive coal will at the very least make coal a more attractive option to future entrants into the utilities market when compared with other potential fuel sources, such as nuclear power, solar power or natural gas.”

The project includes about 280 miles of new rail line from the Powder River Basin in Wyoming and upgrades to about 600 miles of existing line in Minnesota and South Dakota.

The decision appeared to be a blow to the coal industry and coal-burning plants, particularly in the Midwest, although the Court decision commended most of the STB’s permit processing and said it expected the Board could remedy the deficient portion of its analysis.

The judges noted that the National Environmental Policy Act (NEPA) requires federal agencies to consider any adverse environmental effects — both direct and indirect — of major actions. “There is little doubt that the type of effect at issue here, degradation in air quality, is indeed something that must be addressed in an [Environmental Impact Statement] if it is reasonably foreseeable.”

DM&E said that whether any new power plants would be built as a result of the rail line was pure speculation. But that means only the extent of the effect is speculative, the court said, while “it is almost certainly true — that the proposed project will increase the long-term demand for coal and any adverse effects that result from burning coal.

“We believe it would be irresponsible for the Board to approve a project of this scope without first examining the effects that may occur as a result of the reasonably foreseeable increase in coal consumption.” The STB passed over the air quality question, saying that because the rail line as yet had no customers, it could not evaluate its impact. The judges’ decision said there are models available that can forecast those results.

The judges commended the board on the work it had done on the largest project ever to come before it. “We are confident that on remand the Board will quickly address those few matters that we have identified as requiring a second look, and will come to a well informed and reasonable conclusion.”

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