Originally published on Law360 on May 20, 2014. Posted with permission.
Law360, New York (May 21, 2014, 1:04 PM ET) -- On May 12, 2014, federal regulators announced proposals to issue new rules concerning critical habitat under the Endangered Species Act, with the intent of clarifying three key areas of uncertainty. As proposed, the U.S. Fish and Wildlife Service and the National Marine Fisheries Service, collectively referred to as "the Services,” will issue a rule revising the process and criteria for designating the critical habitat of species listed under the ESA, a rule to define “destruction or adverse modification” of such critical habitat, and a draft policy regarding exclusions from critical habitat designation. The new rules, as proposed, will affect a broad swath of government and business activity and will engender controversy, debate and, likely, litigation.
Comments on the proposed regulations and the draft policy regarding exclusions from critical habitat may be made until July 11.
Designating Critical Habitat
Critical habitat includes the habitat essential for the conservation of a listed species and is subject to special protections. The designation of critical habitat under the ESA both facilitates conservation efforts by identifying areas that are essential to species recovery and establishes the scope of the Services’ obligation to safeguard critical habitat. Any federal project, or any project with a federal permit or funding, must consult with the FWS or NMFS under Section 7 of the ESA to ensure the federal action would not result in the “destruction or adverse modification” of critical habitat.
The federal designation of critical habitat can also influence the scope of review under certain state statutes, such as the California Environmental Quality Act. Given the ESA’s impact on development, environmental review and the process to obtain federal permits, any proposed changes to rules implementing the ESA have significant implications, particularly those affecting the definition and scope of critical habitat.
Although the Services characterize the first proposed rule on the designation of critical habitat as one intended to simply clarify procedures, the rule would also affect the substantive criteria for designating critical habitat. The bulk of the proposed changes are indeed minor in effect, however the Services also propose defining for the first time the “geographical area occupied by the species” at the time of listing — the key geographic determinant of the scope of critical habitat.
In keeping with recent court decisions, such as Otay Mesa Property LP v. U.S. Department of Interior, the proposed rule would allow the Services to make a postlisting determination of species occupancy based on the currently known distribution of the species. The rule would also clarify that “occupied” includes even those areas only used periodically or temporarily by a listed species at some point in its life history, so long as the Services make such determination using evidence of regular periodic use.
Defining “Destruction or Adverse Modification” of Critical Habitat
The second proposed rule would interpret the ESA’s term “destruction or adverse modification” of critical habitat. Courts previously held that the prior regulation defining this clause was invalid and inconsistent with the ESA’s purpose of ensuring survival as well as facilitating recovery of listed species. See, for example, Sierra Club v. U.S. Fish and Wildlife Service and Gifford Pinchot Task Force v. U.S. Fish and Wildlife Service. Subsequently, the FWS issued guidance in 2004 instructing the regions to ignore the invalidated definition and to designate critical habitat to achieve both survival and recovery of listed species.
The new proposed rule is designed to conform to the courts’ rulings and reflects the current practice to find “adverse modification” if the proposed action’s impacts would appreciably diminish habitat value for either survival or recovery of the species. The proposed rule states:
After considering relevant case law and our collective experience in applying the “destruction or adverse modification” standard over the last three decades, the [s]ervices propose to amend the definition of “destruction or adverse modification” to[:] (1) more explicitly tie the definition to the stated purpose of the Act; and, (2) more clearly contrast the definitions of “destruction or adverse modification” and “jeopardize the continued existence of.” To achieve these purposes, the [s]ervices propose the following definition:
“Destruction or adverse modification” means a direct or indirect alteration that appreciably diminishes the conservation value of critical habitat for listed species. Such alterations may include, but are not limited to, effects that preclude or significantly delay the development of the physical or biological features that support the life-history needs of the species for recovery.
According to the FWS news release, the proposed definition “reflects the definition the [s]ervices have employed since 2004 ... and we do not expect it to be substantially more or less protective of critical habitat ...”
The new language replaces consideration of survival in favor of an emphasis on recovery, apparently in an effort to clarify that recovery — and not merely survival — must be the ultimate goal. But the newly proposed language also raises a new set of questions.
What is the scope of “effects” of a direct or indirect alteration? What effects would “preclude” or “significantly delay” the necessary physical or biological features?
The draft regulation’s preamble clarifies the intended meaning of “conservation value,” a new term which the service is proposing to insert into the definition of “destruction or adverse modification.” “Conservation value,” as proposed, is specifically linked to the “role critical habitat should play for the recovery of the species.” Perhaps more importantly, however, the preamble sets clear benchmarks for how the Services will determine the “conservation value” of critical habitat, and how the service will determine whether such conservation value has been “appreciably diminish[ed].” Although there may be some remaining ambiguity in the proposed language, on the whole, the regulation would provide more certainty regarding the scope of actions that would result in “appreciably diminish[ing] the conservation value of critical habitat.”
Draft Policy on Exclusions From Critical Habitat
Under Section 4(b)(2) of the ESA, the Services evaluate economic, national security and other impacts of a proposed critical habitat designation and may exclude particular areas if the benefits of doing so are greater than the benefits of designation. The proposed policy would clarify the Services’ policy position for considering certain impacts, including impacts to voluntary conservation agreements, national security and economic activity. The proposed policy is designed to complement 2013 revisions to regulations governing the process and standards for implementing Section 4(b)(2).
The policy would also clarify that land covered by a habitat conservation plan, safe harbor agreement or candidate conservation agreement with assurances will not be categorically excluded from a critical habitat designation, but would instead be evaluated on a case-by-case basis under a clear set of guidelines.
The new policy would focus this exclusion inquiry on a series of benchmarks that center on the efficacy of existing conservation plans in meeting the needs of the species under consideration. While there is a concern that this appears to be a reversal from prior service practice to not establish critical habitat on lands covered by an HCP, environmentalists have argued that the change does not go far enough to ensure that all critical habitat has the same legal protection.
As the Services note, the two proposed rules and draft policy clarify the process of designating critical habitat, the definition of “destruction or adverse modification” of critical habitat, and the Services’ approach to discretionary exclusion of proposed critical habitat. However, the effects resulting from those proposed rules and draft policy, if finalized, may not be as benign as the Services suggest.
 79 Fed. Reg. 27,066 (May 12, 2014)
 ESA regulations currently state: “Destruction or adverse modification means a direct or indirect alteration that appreciably diminishes the value of critical habitat for both the survival and recovery of a listed species. Such alterations include, but are not limited to, alterations adversely modifying any of those physical or biological features that were the basis for determining the habitat to be critical.” 50 C.F.R. § 402.02 (emphasis added to show language that has been altered)
 79 Fed. Reg. 27,060 (May 12, 2014)
 79 Fed. Reg. 27,052 (May 12, 2014)