By Joe Nelson

Do not mistake the mundane for the unimportant.  With two routine notices, one published in January and the second posted on an Office of Management and Budget (OMB) website at the end of April, the U.S. Fish and Wildlife Service (FWS) gave notice of its intent to redefine what constitutes “adverse modification” for purposes of a Section 7 consultation under the Endangered Species Act (ESA).  FWS has indicated that it would take this action as part of a joint rulemaking with the National Marine Fisheries Service (NMFS), which has jurisdiction over anadromous and marine species under the ESA.

Federal actions, including permitting and leasing decisions relating to oil and gas development, are subject to a requirement to “consult” with FWS or NMFS on the effects of the proposed federal action on threatened and endangered species as well as designated critical habitat.  A key element of this consultation is whether the proposed action will result in the destruction or “adverse modification” of designated critical habitat.

In 2001 and 2004, separate federal circuit court decisions overturned the regulatory definition of “adverse modification.”  The challenged definition considered adverse modification to occur only when there was an appreciable diminishment in the value of the critical habitat to contribute to the survival and recovery of the species.  The courts faulted this definition as “setting the bar too high” and inconsistent with the purpose and scope of the critical habitat designation.  After the second negative decision in 2004, FWS and NMFS issued guidance to field offices that the adverse modification inquiry should simply “rely on the statutory provisions of the ESA.”

For almost a decade, FWS and NMFS have routinely promised, but have not issued, a new definition.  The wait may be over.   In January, the annual Regulatory Plan for FWS stated:

In regard to the designation of critical habitat for listed species, we will issue rules to revise the timeframe for our issuance of economic analyses pertaining to critical habitat designations, to clarify definitions of “critical habitat” and “destruction or adverse modification,” to improve our consultation process in regard to issuing incidental take statements, and otherwise make improvements to the process of critical habitat designation.

Moving forward, at the end of April, the Office of Information and Regulatory Affairs for OMB published a notice of its receipt of a proposed rule from FWS for “Definition of ‘Destruction or Adverse Modification’ of Critical Habitat.”  At this time, FWS has three other ESA rulemakings under review at OMB.

The implication of any new definition of “adverse modification” extends beyond its potential scope, to the changed landscape in which it will be applied.   Since 2004, the number of species with designated critical habitat and the overall acreage covered by such designations has grown significantly.   Moreover, as part of the 2011 “listing settlement” that is likely to result in an increase of more than 20% in the number of listed species by 2016, FWS committed to propose critical habitat for such species concurrent with listing, where prudent and determinable.  With these events, the likelihood of having activities within designated critical habitat has significantly increased.   Further, a new definition of “adverse modification” is likely to raise the bar with respect to the habitat protections and mitigation imposed upon federal permittees, leaseholders and licensees.

Preparation is often the key to success.   Having been given notice, the regulated community should mobilize and consider strategies for engagement in this rulemaking.  To effectively engage, stakeholders need to consider a host of questions.  What is the appropriate role of critical habitat designations under the ESA and how does that role inform the “adverse modification” inquiry under ESA, Section 7?  Since 2004, the overall understanding of the constituent elements of habitat, their relationship to species health and interaction with resource use activities has significantly advanced.  How are those advances in knowledge and science integrated into what constitutes “adverse modification” of critical habitat?  Should adverse modification be measured through both qualitative and/or quantitative means?  Can only temporary impacts constitute an adverse modification?  If so, how and when?

Most importantly, individuals and businesses must recognize and plan for the implications of a proposed and final rule re-defining “adverse modification”—particularly with respect to planned or ongoing projects that may be subject to an ESA Section 7 consultation.   Any new definition could have significant impact on the timing and scope of the consultation inquiry to a project and materially change the nature and amount of mitigation measures that may be required to avoid an adverse modification finding.   As mundane as the notice of this proposed rule may have been, its implications should not be underestimated.

Joe Nelson is a Partner at Van Ness Feldman, LLP, where he counsels clients on project compliance and permitting matters arising under the Endangered Species Act, Clean Water Act, National Environmental Policy Act and other environmental statutes.

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This article was originally published under the Endangered Species Watch section of the Independent Petroleum Association of America's newsletter. The article can be accessed here.