Final ESA Rule Changes to Impact Analyses in Critical Habitat Designations

Effective October 30, 2013, a final rule issued jointly by the U.S. Fish and Wildlife Service and the National Marine Fisheries Service (collectively, the "Services") modifies when and how the Services analyze impacts, including economic impacts, of 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. To that end, the ESA requires federal agencies to ensure that their actions are not likely to destroy or adversely modify that critical habitat. Such designations can be controversial because they may discourage or impair activities on public or private lands, or otherwise devalue lands designated as critical habitat.

Most notably, the final rule codifies an "incremental," or "baseline," approach to evaluating impacts of critical habitat designations – an approach that had been adopted by the Ninth Circuit but rejected by the Tenth Circuit. This 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. In practice, when applying the incremental approach, the Services consider only the de minimis costs associated with the Services' consideration of critical habitat impacts in future Section 7 consultations. The Services typically do not consider the costs associated with a broader range of regulatory impacts outside of the ESA context even though agencies implementing other environmental laws can, and do, impose mitigation for actions that take place in critical habitat. By minimizing the projected economic impacts of critical habitat designations, the approach codified by the Services could result in fewer economic-based exclusions from critical habitat designations.

Additionally, the final rule gives the Services wide discretion when determining whether to exclude areas from designated habitat. Specifically, the Services are entitled to "assign the weight given to any benefits relevant" to finding that the benefits of exclusion outweigh the benefits of designation. The only limitation concerns areas that must be designated critical habitat because the failure to do so "will result in the extinction of the species concerned." Because such decisions are entirely discretionary, it will be difficult for would-be challengers to demonstrate that the Services should have excluded a particular area from critical habitat for any reason, including due to its economic impacts.

Finally, under the final rule, the Services will now issue a draft economic analysis for public comment at the same time the proposed critical habitat designation is published. This modification should result in a more streamlined designation process and allows the public to meaningfully comment on the Services' economic impact analyses at the same time a critical habitat designation is proposed.

In sum, the final rule essentially codifies what has been the Services' approach to critical habitat impact analyses over the past several years (outside of the Tenth Circuit). The Services have argued that this approach allows them unreviewable discretion in deciding whether or not to exclude areas from critical habitat designations based on economic impacts. Parties seeking exclusions from a proposed critical habitat designation will need to provide specific and substantial evidence of economic impacts resulting solely from the designation. Under the final rule, even if this evidence conclusively establishes that the economic impacts far outweigh the benefits of a designation, the Services may still decline the exclusion request.