New Wetland Mitigation Rules Issued for Section 404 Permits
New wetlands mitigation rules issued last month by the U.S. Army Corps of Engineers (“the Corps”) and the Environmental Protection Agency (“EPA”) significantly change how the government views compensatory mitigation under Section 404 of the Clean Water Act. Each year, the Corps issues 80,000 Section 404 permits for wetland fills, and developers spend over $3 billion on compensatory mitigation projects. In the new rule, the Corps and EPA have harmonized the standards for different types of mitigation (i.e. permittee-responsible mitigation, mitigation banks, or in-lieu fee programs), created new mitigation performance standards, and encouraged watershed-based decision making. The new mitigation rule will take effect on June 12, with certain exceptions. In many instances, projects currently in review have been utilizing the new regulations based on draft versions which have been available since 2006. Such project may provide useful examples of implementing the new requirements.
Wetland Compensatory Mitigation
The Clean Water Act (“the Act") prohibits unpermitted discharges of dredged or fill material into waters of the United States, which include many wetlands. Section 404 of the Act establishes a “dredge and fill” permitting program, implemented by the Corps or by a state under an EPA-approved program, which allows certain types of wetland fills. In order to obtain a Section 404 permit, applicants must avoid or minimize the adverse wetlands impacts associated with the proposed projects, and provide mitigation for any remaining impacts consistent with the Section 404(B)(1) Guidelines. Mitigation can generally be accomplished by: (1) restoring existing wetlands or reestablishing former wetlands; (2) enhancing the functional values of degraded wetlands; (3) creating new wetlands in upland areas; and (4) preserving wetlands through conservation easements, land-use restrictions, or transferring title to a governmental agency or a conservation NGO.
Compensatory wetland mitigation can be undertaken by an individual permittee to offset the impacts associated with a specific project (i.e. permittee-responsible mitigation). The individual permittee retains responsibility for ensuring that the mitigation is successful. Permittee-responsible mitigation is the most traditional form of compensatory mitigation and represents the majority of compensation acreage per year. Alternatively, permittees can satisfy mitigation requirements through mitigation banks or in-lieu fee programs. Mitigation banks and in-lieu fee programs both involve off-site mitigation projects performed by third parties. Under both types of third-party programs, the responsibility for performing, and ensuring the success of, compensatory mitigation shifts to the mitigation bank or in-lieu project program.
There are significant differences between mitigation banks and in-lieu programs. Mitigation banks are generally for-profit entities that use private investment to conduct mitigation activities, then sell mitigation “credits” after the physical mitigation projects have begun. In other words, mitigation bank compensation projects occur prior to the permitted impact that is being offset by mitigation credits. Prior to selling credits, mitigation banks must achieve certain milestones, including site selection, plan approval, and financial assurances.
In-lieu fee programs, on the other hand, are generally administered by state or local governments or non-profit organizations, and use the funds collected from permittees to perform mitigation projects. In contrast to mitigation banks, in-lieu fee programs generally implement mitigation projects after the permitted impact has taken place. Furthermore, in-lieu fee programs have generally not been required to provide financial assurances similarly to mitigation banks. In 2005, the price of wetland mitigation from mitigation banks ranged from $1,000 to $400,000 per acre or credit. The price of wetland mitigation through in-lieu fee programs ranged from $3,000 to $350,000 per acre or credit.
No Net Loss Policy
In 1989, President George H. W. Bush announced a short-term goal of “no net loss” of wetland functions and values and a long-term goal of net wetland function and value gain. Twelve years later, the National Research Council (“NRC”) reported that the Corps was falling short of the no net loss goal. Between 1993 and 2000, the Corps permitted approximately 24,000 acres of wetland fills, and required approximately 42,000 acres of compensatory mitigation. The NRC, however, noted that the Corps did not have sufficient data to determine whether required mitigation was performed and successful at restoring lost wetland function. Indeed, the NRC also noted that compensatory mitigation studies indicate that mitigation projects were often not undertaken or failed to meet permit conditions. Furthermore, the NRC concluded that mitigation performance standards have often been unclear and support for regulatory decision making is inadequate. Therefore, the NRC concluded that it was “not convinced that the goal of no net loss for permitted wetlands is being met for wetland functions.”
In order to achieve the no net loss goal, the NRC issued a number of recommendations, including establishing a national database which tracked lost and regained wetland function, selecting mitigation sites on a watershed scale in order to maintain wetland diversity and connectivity, and establishing measurable performance standards for mitigation projects. Congress subsequently instructed the Corps to “issue regulations establishing, to the maximum extent practicable, equivalent performance standards and criteria for the use of on-site, off-site, and in-lieu fee mitigation and mitigation banking as compensation for lost wetland function in … permits issued under Section 404 of the Clean Water Act.”
The Final Rule
On April 10, 2008, the Corps and EPA issued their new mitigation rule, which incorporates key recommendations from NRC’s 2001 wetland report. According to EPA, the new rule will “enable the agencies to promote greater consistency, predictability and ecological success of mitigation projects under the Clean Water Act.”
The new rule clarifies that the Corps’ Section 404(b)(1) Guidelines still apply to mitigation projects, and permit applicants are still required to demonstrate that they have taken all appropriate and practicable steps to avoid and minimize adverse impacts to waters of the United States.
According to the Corps and EPA, the primary goals of the new rule are:
- Implement environmentally effective standards for compensatory mitigation that are based on best available science and incorporate key NRC recommendations for improving the success of compensatory mitigation;
- Create a “level playing field” among the three compensatory mitigation mechanisms through equivalent standards and greater accountability, so that providers of timely, high-quality mitigation are preferred, because there is greater assurance that the compensatory mitigation will be successful;
- Increase the efficiency and predictability of the process of proposing compensatory mitigation and approving new mitigation banks and in-lieu fee programs; and
- Enhance public participation in compensatory mitigation decision-making.
(c) Mitigation Hierarchy & Performance Standards
The rule establishes a new mitigation hierarchy that encourages the use of mitigation banks because mitigation banks “typically involve larger, more ecologically valuable parcels, and more rigorous scientific and technical analysis … than permittee-responsible mitigation.” The rule also states that in-lieu fee programs should be given preference over permittee-responsible mitigation in areas serviced by an approved program that has sufficient credits. If approved mitigation bank or in-lieu credits are not available, the new rule allows permittee-responsible mitigation. For permittee-responsible projects, the new rule expresses a preference for on-site and in-kind mitigation.
While some commentators suggested phasing out in-lieu programs, the final rule concludes that in-lieu programs play an important role in regions not serviced by mitigation banks and where permittee-responsible mitigation is not feasible. The new rule, however, increases the up-front planning required for in-lieu fee programs. For example, in-lieu fee programs are now required to develop a watershed plan that will be used to select, secure, and implement restoration projects. Additionally, in-lieu programs must limit the number of credit sales that can occur before specific mitigation sites are secured and mitigation plans approved. Significantly, in-lieu programs must provide sufficient financial assurances to ensure a high level of confidence that compensatory mitigation projects will be performed and comply with applicable performance standards.
The new mitigation hierarchy that encourages the use of mitigation banks and in-lieu fee programs over permittee-responsible mitigation may result in a fundamental shift in how developers mitigate wetland impacts. Traditionally, permittee-responsible mitigation has been the principal form of mitigation. Indeed, in 2003, permittee-responsible projects accounted for 60 percent of mitigation acreage, while mitigation banking and in-lieu programs accounted for 33 percent and 7 percent, respectively.
(d) Equivalent Mitigation Plans
Under the new rule, compensation projects provided by mitigation banks, in-lieu fee programs, and permittee-responsible projects must include the same twelve components:
- Site selection criteria;
- Site protection instruments;
- Baseline information;
- Credit determination methodology;
- Mitigation work plan;
- Maintenance plan;
- Ecological performance standards;
- Monitoring requirements;
- Long-term management plan;
- Adaptive management plan; and
- Financial assurances.
(e) Watershed Approach
The new rule also requires the Corps to establish compensatory mitigation standards based on a watershed approach in which mitigation is designed to improve watershed, rather than site-specific, goals. The watershed approach may either take the form of a formal watershed plan developed through regional planning efforts, or less formal analyses of trends in development and resource conversion. The new rule does not require permit applicants to develop watershed plans and gives the Corps discretion to require watershed planning and assessment only “to the extent appropriate and practicable.”
(f) Compensatory Mitigation Standards for Streams
One particularly controversial aspect of the new rule is that it applies to stream mitigation projects in addition to wetland mitigation projects. Many commentators requested that mitigation for stream impacts should not be included in the compensatory mitigation rules because scientific literature regarding stream establishment and re-establishment is limited. The final rule, however, includes stream mitigation requirements, but notes that there are some aquatic resources, such as streams, that are difficult to replace. In light of the evolving science of stream mitigation, the final rule gives District engineers the discretion to evaluate the likelihood of success for stream mitigation proposals prior to requiring such mitigation.
(g) Existing Banks and In-Lieu Funds
Significantly, mitigation banks approved prior to, or within 90 days of, April 10, 2008 may continue to operate under existing terms unless there are significant substantive changes such as adding or expanding mitigation sites. Similarly, in-lieu instruments approved prior to, or within 90 days of, April 10, 2008 may continue to operate under their existing terms for two years.
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