ESA Law Alert: Proposed Changes to Critical Habitat Designations Would Gut Purpose of Economic Analysis

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On August 24, 2012, the U.S. Fish and Wildlife Service and the National Marine Fisheries Service (collectively, the "Services") issued a proposed rule that would modify when and how the Services analyze economic impacts in critical habitat designations under the Endangered Species Act ("ESA"). Critical habitat designation is intended to provide special protection of essential habitat for species listed as endangered or threatened under the ESA. The ESA prohibits federal agencies from taking actions that are likely to destroy or adversely modify that critical habitat. Critical habitat designations are often controversial because they may discourage or impair private activities on private lands by requiring federal permits or otherwise devaluing the lands located within a designation.

Before designating critical habitat, the Services are required to consider potential economic, national security, and other relevant impacts. This includes economic impacts to private landowners and developers. The Services may exclude an area from critical habitat if the benefits of excluding it outweigh the benefits of including it in the designation.

The proposed rule seeks to resolve a split among the U.S. federal appeals courts on how to assess economic impacts. The rule would adopt the Ninth Circuit's "baseline approach." That approach allows the Services to consider only the incremental impacts of the designation above those impacts that arguably resulted from the species' listing under the ESA. This incremental impact is often limited to minor additional administrative costs. By minimizing the economic impacts to be considered, this approach arguably results in larger areas being designated as critical habitat. By contrast, the Tenth Circuit has held the "baseline approach" unlawful and, instead, requires the Services to consider the full economic impact of a proposed designation.

The proposed rule would also give the Services "wide discretion" when determining whether to exclude areas from designated critical habitat on the basis of economic impacts. Coupled with the incremental approach, this change would arguably render the ESA requirement for an economic analysis entirely illusory; such unchecked discretion could result in the Services conducting narrow economic analyses, ignoring the results of their economic analyses, or both. In addition, if the decision of whether to exclude habitat is entirely discretionary, it will be difficult for would-be challengers to demonstrate that the Services should have excluded a particular area from critical habitat due to its economic impacts.

Finally, the Services often publish their draft economic analyses for comment when they issue a final critical habitat designation. This has resulted in legitimate criticism that the Services' final designations – particularly their weighing of the benefits of excluding an area against the benefits of designating an area – do not reflect consideration of the public's comments on the economic analysis. The proposed rule would require the Services to issue a draft economic analysis for public comment at the same time the proposed critical habitat designation is published, thus allowing them to consider those comments in preparing a final designation.

Because of the implications of the intended revisions, the effort may affect a range of ESA concerns relevant to a variety of commercial and industrial sectors. The Services are accepting comments on the proposed rule until October 23, 2012.

Stoel Rives has a broad depth of experience covering all aspects of the ESA, including advising on critical habitat issues and assisting clients with preparing and submitting comments on significant regulatory revisions.

If you have any questions about the issues raised in this alert, or other legal matters relating to the ESA, please contact a key contributor.

Key Contributors

Barbara D. Craig
Cherise M. Gaffney
Jason T. Morgan
Ryan P. Steen
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