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ESA Rule on Economic Impacts Takes Effect Next Month

September 3, 2013

Effective October 30, 2013, a new rule will limit the economic impacts that federal regulators may consider when designating property as “critical habitat” under the ESA. The rule, jointly proposed last year and promulgated last month by the U.S. Fish and Wildlife Service (“USFWS”) and NOAA Fisheries (together, the “Services”), also requires the Services to publish a draft economic analysis for public comment at the time they propose critical habitat for listed species. It codifies the Services’ use of a “baseline” approach, limiting the scope of economic impacts considered in habitat designations to “incremental” (but for) effects.

By not considering the broader context of overall ESA regulation when designating critical habitat, the magnitude of economic effects will likely be minimized in regulatory documents, potentially skewing public perception of the actual consequences of the action being proposed. For example, a proposed designation of nearly 14 million acres of habitat for Northern spotted owls is characterized as “minor” under the incremental approach, despite the larger impacts of listing-based ESA regulation over the past two decades (i.e., reduction of Pacific Northwest timber jobs by over 50%—a decline attributable, according to the USFWS, to the owl listing as well as market globalization and industrial modernization).[1] However, the ESA explicitly prohibits consideration of economic impacts in listing decisions—including coextensive impacts of listing and critical habitat designation. The rule will not be welcomed by property owners and users affected by habitat designations.

Statutory and Case Law Background: Coextensive v. Incremental Approaches in Critical Habitat Analyses

Under the ESA, the Services may not consider purely economic impacts when making listing determinations.[2] They must, however, consider economic, national security, and other impacts of critical habitat designation before designating habitat, and may exclude an area from designation if 1) the benefits of exclusion exceed the benefits of designation and 2) exclusion will not result in a species’ extinction.[3]

Listing alone creates protections for species by, for example, activating the ESA’s take prohibition and consultation requirements, requiring that federal agencies “insure that any action authorized, funded, or carried out by such agency ... is not likely to jeopardize the continued existence of any endangered species or threatened species.”[4] These protections often impose economic burdens on federal, state and local governments, as well as on private actors.

Once critical habitat is designated, federal agencies must also “insure that any action authorized, funded, or carried out by such agency ... is not likely to ... result in the destruction or adverse modification” of critical habitat.[5] Parties have long argued in various contexts over whether the Services’ economic analysis in the critical habitat stage must “attribute to the critical habitat designation economic burdens that would exist even in the absence of that designation.”[6] Two general approaches have been used, termed: a) “baseline” or “incremental” and b) “coextensive.”

Under the baseline approach typically advocated by environmental groups and the Services, any economic impacts of protecting a species “that will occur regardless of the critical habitat designation—in particular, the burdens imposed by listing … –are treated as part of the regulatory ‘baseline’ and are not factored into the economic analysis of the effects of the critical habitat designation.”[7]

Under the coextensive approach, typically advocated by regulated entities and property rights groups, the Services “must ignore the protection of a species that results from the listing decision in considering whether to designate an area as critical habitat. Any economic burden that designating an area would cause must be counted in the economic analysis, even if the same burden is already imposed by listing the species and, therefore, would exist even if the area were not designated.”[8]

Over a decade ago, in New Mexico Cattle Growers Association v. U.S. Fish and Wildlife Service, 248 F.3d 1277 (10th Cir. 2001), the Tenth Circuit held that the baseline approach violated the ESA. It reached this conclusion by relying on a USFWS regulation that defined the phrase ““destruction or adverse modification” in ESA section 7 as “effectively identical to the standard for determining whether an agency action places a species in ‘jeopardy.’”[9] The Tenth Circuit decided that the approach “rendered an economic analysis relying on the baseline approach ‘virtually meaningless’ because it allowed the agency, in all cases, to find no economic impact to the critical habitat designation.”[10] Since the Tenth Circuit issued its decision in New Mexico Cattle Growers, however, the Ninth Circuit in Gifford Pinchot Task Force v. U.S. Fish & Wildlife Service invalidated the USFWS’s definition of “adverse modification” as too narrow, deciding, inter alia, that the regulation “effectively eliminated the independent significance of critical habitat as a measure to protect endangered species”[11] by not triggering “the adverse modification threshold … until there is an appreciable diminishment of the value of critical habitat for both survival and recovery.”[12]

Accordingly, when directly presented with a choice between analytical approaches in Arizona Cattle Growers' Association v. Salazar in 2010, the Ninth Circuit explicitly rejected the Tenth Circuit’s holding in New Mexico Cattle Growers as “relying on a faulty premise[,]” and held that the Service “may employ the baseline approach in analyzing the critical habitat designation.”[13] Plaintiffs in Arizona Cattle sought certiorari, and the U.S. Supreme Court denied the request last year.[14] No court outside of the Tenth Circuit has followed New Mexico Cattle Growers since Gifford Pinchot.

2012 Presidential Memorandum

Following resolution of the Arizona Cattle litigation, President Obama issued a memorandum to the Secretary of Interior directing him to revise the ESA regulations to require the USFWS to publish draft economic analyses at the time it proposes critical habitat for designation.[15] In response to that memorandum, the Services proposed the rule promulgated last month that mandates not just simultaneous publication of economic analyses,[16] but employment of the “baseline” approach that was rejected by the Tenth Circuit. The Services added language to 50 C.F.R. § 424.19 to “clarify that impact analyses evaluate the incremental impacts of the designation.” For purposes of economic impacts analysis under ESA section 4(b)(2), governing critical habitat, incremental impacts are:

those probable economic, national security, and other relevant impacts of the proposed critical habitat designation on ongoing or potential Federal actions that would not otherwise occur without the designation. Put another way, the incremental impacts are the probable impacts on Federal actions for which the designation is the ``but for'' cause. To determine the incremental impacts of designating critical habitat, the Services compare the protections provided by the critical habitat designation (the world with the particular designation) to the

combined effects of all conservation-related protections for the species (including listing) and its habitat in the absence of the designation of critical habitat (the world without designation, i.e., the baseline condition).[17]

Practical Implications

The new rule formalizes the Services’ interpretation of the ESA and reiterates the Ninth Circuit’s affirmation of that policy. The results in application will vary; the nuances of the particular baseline employed will have significant consequences for regulated entities. Whether Congress intended to isolate incremental effects caused by habitat designation from overall effects of ESA regulation is, arguably, ambiguous in the statute. The baseline approach will almost always ensure that the balance between economic harms and species benefits provided by critical habitat designation tips in favor of species protection.

For more information or for assistance with your comments on the proposed ESA rule, contact Jessica Ferrell or another member of Marten Law’s Natural Resource practice group.

[1] See Industrial Economics for USFWS, Economic Analysis of Critical Habitat Designation for the Northern Spotted Owl at ES-3 through ES-9 (May 29, 2012).

The final critical habitat designation, published in November 2012, covers 9.29 million acres of critical habitat on federal land and 291,570 acres on state land. This reduced the amount of critical habitat originally proposed last February in California, Oregon and Washington by 4.2 million acres. See generally USFWS, Northern Spotted Owl Recovery Information Site Critical Habitat (linking to regulatory documents).

 For more detailed analysis of this example in the proposal context, see J. Ferrell Proposed Rule Would Limit Extent of Economic Impacts Considered in ESA Critical Habitat Designations, Marten Law News (Oct. 2012).

[2] See 16 U.S.C. § 1533(a); see also N.M. Cattle Growers Ass'n v. U.S. Fish & Wildlife Serv., 248 F.3d 1277, 1282 (10th Cir. 2001).

[3] See 16 U.S.C. § 1533(b).

[4] See id. §§ 1538, 1536.

[5] Id. § 1536(a)(2); see also Gifford Pinchot Task Force v. U.S. Fish & Wildlife Serv., 378 F.3d 1059, 1069 (9th Cir. 2004), amended, 387 F.3d 968 (9th Cir. 2004)).

[6] Arizona Cattle Growers' Ass'n v. Salazar, 606 F.3d 1160, 1172 (9th Cir. 2010), cert. denied, 131 S. Ct. 1471 (2011).

[7] Id.

[8] Id.

[9] Id. (quoting New Mexico Cattle Growers’ Ass’n v. U.S. Fish and Wildlife Serv., 248 F.3d 1277, 1283-85 (10th Cir. 2001)).

[10] Id. at 1173 (citing New Mexico Cattle Growers, 248 F.3d at 1283-85).

[11] See Gifford Pinchot, 378 F.3d at 1065; see also Arizona Cattle Growers, 606 F.3d 1160 (citing cases).

[12] Gifford Pinchot, 378 F.3d at 1069.

[13] Arizona Cattle, 606 F.3d at 1173 (9th Cir. 2010). The court reasoned:

The baseline approach is, if anything, more logical than the co-extensive approach. The very notion of conducting a cost/benefit analysis is undercut by incorporating in that analysis costs that will exist regardless of the decision made. Moreover, the practical relevance of the economic analysis under the ESA is to determine the benefits of excluding or including an area in the critical habitat designation: if there is no net benefit (such as a reduction in economic impacts) to excluding the area, the agency must designate it. See 16 U.S.C. § 1533(b)(2). The baseline approach, in contrast to the co-extensive approach, reflects this purpose.

Id. (footnote omitted).

[14] 131 S. Ct. 1471 (U.S. 2011).

[15] Presidential Memorandum of February 28, 2012, Proposed Revised Habitat for the Spotted Owl: Minimizing Regulatory Burdens Memorandum for the Secretary of the Interior 77 Fed. Reg. 12985 (March 5, 2012).

[16] “NOAA already issues draft economic analyses concurrent with a proposed designation of critical habitat, so the proposed rule will codify an existing practice for the agency.” NMFS press release (2012).

[17] 77 Fed. Reg. at 51507.

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