A new rule proposed by the U.S. Environmental Protection Agency (EPA) could drastically change the way industrial projects obtain permits to discharge into U.S. waters. On Jan. 13 the Trump‑administration EPA announced that it would “return Clean Water Act Section 401 to its proper statutory purpose” by limiting state and tribal regulators to consider only direct water‑quality impacts when certifying federal permits. The agency argued that the Biden‑era 2023 rule allowed some states to “weaponize” Section 401, creating long delays and blocking infrastructure projects for reasons unrelated to water quality.

The new proposal, now open for public comment until Feb. 17, 2026, would significantly restrict the ability of states and tribes to impose conditions on projects such as pipelines, hydropower dams and industrial facilities. Under the proposed rule, certifying authorities could only examine whether a point‑source discharge meets existing federal water‑quality standards; they would no longer be allowed to evaluate broader impacts such as fish migration, wetlands loss or downstream pollution. The rule also defines a standard list of components that applicants must include in certification requests, preventing states from requesting additional information.

Environmental advocates warn that the change could weaken protections for waterways and leave smaller streams, wetlands and headwaters vulnerable. Nancy Stoner, a senior attorney at the Environmental Law & Policy Center, told Inside Climate News that states would be limited to reviewing only direct discharges into federally protected waters; they would no longer be able to consider broader water‑quality impacts, which could weaken oversight of projects such as dams. She noted that water released from a dam might meet quality standards while still blocking fish migration and disrupting river flows. Harvard’s Environmental and Energy Law Program observed that Section 401 has historically allowed states to deny permits for projects that could pollute local waterways; the January proposal “reduces the ability of state and tribal certifying authorities to reject federal permits for projects that pollute local waterways”.

Industry groups and Republican lawmakers, however, praised the proposal. The EPA said the rule would eliminate regulatory “overreach” and provide predictability for permit applicants by standardizing the certification process and adhering to statutory timelines. Senator Shelley Moore Capito (R‑W.Va.) called the proposal a common‑sense reform that would expedite critical infrastructure projects and reverse policies that allowed states to block projects for reasons “unrelated to water quality”.

Why It Matters for Business Owners

The Section 401 revision may not make headlines like a dramatic chemical spill, but it has far‑reaching implications for businesses across construction, energy, manufacturing and real estate. Here’s why:

1. Fewer Conditions on Federal Permits – By limiting state review to direct discharges, the new rule could make it easier to secure federal permits for pipelines, hydropower dams and other projects. This streamlining might reduce permitting costs and delays for developers. However, it also means that states may be unable to impose conditions addressing construction‑related pollution, storm‑water runoff or habitat impacts.
2. Expanded Liability Exposure – When states cannot impose protective conditions, businesses may face greater risk of third‑party lawsuits or cleanup obligations if unregulated aspects of a project cause contamination. Harvard’s EELP warns that the proposal reduces the ability of certifying authorities to obtain additional project information and shifts the standard from considering an activity “as a whole” to focusing only on discharges. This narrower scope could leave gaps in oversight, increasing the likelihood of claims after pollution events.
3. Uncertainty Around Future Litigation – Legal experts note that litigation is likely once the rule is finalized. Beveridge & Diamond’s summary points out that the proposed rule revives elements of the 2020 Trump‑era rule and limits states to regulating only discharges; litigation could arise over the limits placed on state authority and the exclusion of non‑discharge impacts. Businesses should anticipate a shifting regulatory landscape and plan accordingly.
4. Insurance Considerations – Pollution liability insurance provides coverage for cleanup costs, bodily injury, property damage and legal defense resulting from accidental releases. Projects that disturb soil, generate storm‑water runoff or use large quantities of chemicals may still create pollution exposures not covered by the narrower Section 401 review. With states less able to impose preemptive conditions, pollution liability insurance becomes an important risk‑management tool. Policies should be reviewed to ensure they cover liabilities arising from both sudden and gradual releases and address coverage gaps in existing general liability policies.

Taking Action

Business owners considering new projects or expansions should follow this rulemaking closely. The public comment period runs through Feb. 17, 2026, and the EPA aims to finalize the rule by spring 2026. Companies should:

• Monitor state reactions – Some states may challenge the rule in court, and litigation outcomes could affect permitting timelines.
• Consult environmental counsel – Understanding how the rule alters the permitting process can help businesses anticipate requirements and avoid costly delays.
• Review pollution liability policies – Ensure coverage limits are adequate for potential cleanup and third‑party claims. Coverage should include remediation costs, legal defense and business interruption.
• Invest in best management practices – Even if permit conditions are reduced, implementing robust pollution prevention measures (e.g., erosion controls, secondary containment, spill response plans) can reduce the risk of a claim.

As the pendulum swings back toward deregulation, environmental due diligence and insurance coverage remain vital safeguards. Businesses that proactively manage pollution risks will be better positioned to navigate the evolving regulatory landscape and maintain community trust.