January 01, 2015

Like a Sitting Duck: Taking Aim at Modernizing ESA to Balance Species Conservation and Energy Extraction

Brandon H. Barnes and Bennett E. Resnik

While the goal of the Endangered Species Act (ESA) is to protect endangered and threatened species by restricting human use of their habitats, the statute has been accused of unduly impairing the ability of industry and property owners to productively use their land. Over the last decade, listing species under the ESA has substantially impacted economic interests, disproportionately affected energy producers, and burdened land owners. Modernizing the ESA could harmonize species conservation with oil and natural gas activities, wind farms, and hydropower operations. With growing concerns over “sue and settle” tactics from environmental advocacy groups using the ESA to block energy development and corresponding economic harms to property owners and developers, we need to reexamine the ESA to balance species conservation, land use, and development. The following reviews a brief history of the ESA, some perceptions of the law’s impacts on interest groups, and an overview of some of the case law focusing on energy extraction-related issues. In conclusion, we propose three fundamental changes to the ESA rulemaking and implementation process.

The ESA’s history is not unlike other environmental statutes: born out of the conservation movement in the 1960s and ’70s, amended through the ’80s, and mostly left alone since its enactment. Congress passed the Endangered Species Preservation Act (ESPA) in 1966. The ESPA provided a means for listing endangered native animal species, thereby providing limited protection by the Departments of Interior, Agriculture, and Defense. The ESPA’s goals were preservation and acquisition of land serving as habitats for listed endangered species. Following international negotiations, Congress changed the ESPA into the Endangered Species Conservation Act (ESCA) in 1969, which expanded on the 1966 act by placing a prohibition on the import and sale of listed species. Later, in 1973, after the Convention on International Trade in Endangered Species Wild Fauna and Flora, Congress passed the ESA.

The ESA of 1973, 16 U.S.C. §§ 1531–1544 (2012) classifies species as either endangered or threatened. An endangered species is defined as one “in danger of extinction throughout all or a significant portion of its range[.]” 16 U.S.C. § 1532 (2012). A threatened species is one that is “likely to become an endangered species within the foreseeable future throughout all or a significant portion of its range.” Id.

A current, detailed listing of endangered and threatened animal and plant species is provided in the Code of Federal Regulations. See 50 C.F.R. §§ 17.11–17.12 (2014). As of July 3, 2014, some 1,535 American and 628 foreign animal and plant species are listed as endangered or threatened. Summary of Listed Species Listed Populations and Recovery Plans, U.S. Fish & Wildlife Service Environmental Conservation Online System [hereinafter ECOS] (July 3, 2014). In all, 2,163 species (both animal and plant) are listed by the ESA. Id.

Although five amendments have been made to the ESA since 1973, key amendments took place in 1978 and 1982. In 1978, Congress amended the ESA to require the designation of critical habitats concurrently with the listing of a species as endangered or threatened. The 1982 amendments require listing determinations to be made solely on the basis of biological and trade information. A 1982 amendment to Section 10 of the ESA also allows, by permit, the “taking” of listed species incidental to otherwise lawful activities, provided that the permit holder implemented a Habitat Conservation Plan for the species. To “take” a species means to “harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct.” 16 U.S.C. § 1532(19) (2012).

The federal courts have differed on the term “harm” in the context of the ESA. The U.S. Court of Appeals for the Fifth and Ninth Circuits interpreted the taking prohibition to include habitat modification. See Palila v. Haw. Dep’t of Land & Natural Res., 639 F.2d 495 (9th Cir. 1981); Sierra Club v. Yeutter, 926 F.2d 429 (5th Cir. 1991). However, the U.S. Court of Appeals for the District of Columbia, in Sweet Home Chapter of Communities for a Great Oregon v. Babbitt, 17 F.3d 1463 (1994), overturned regulations that included habitat modification within the definition. On appeal, the Supreme Court held that habitat destruction that “actually kills or injures” an endangered or threatened species constitutes a violation of the ESA. Babbitt v. Sweet Home Ch. of Communities for a Great Or., 515 U.S. 687 (1995). In 1999, a final rule was published defining harm as “an act which actually kills or injures fish or wildlife. Such an act may include significant habitat modification or degradation which actually kills or injures fish or wildlife by significantly impairing essential behavioral patterns, including, breeding, spawning, rearing, migrating, feeding or sheltering.” 64 Fed. Reg. 60,727 (Nov. 8, 1999) (codified at 50 C.F.R. § 222.102).

The majority of Justices in Babbitt v. Sweet Home held that a prohibited “take” in violation of the ESA can be caused by an indirect act as well as by a direct act. This decision brought issues of habit modification and degradation to the forefront, as it was the first case to highlight them. The case law has established sweeping implications for property rights; yet, views of the statute differ. Though not directly addressing the issues in Babbitt v. Sweet Home, Congress has intended to rewrite the ESA aimed at loosening restrictions on private landowners, arguably providing a more balanced approach to species conservation and land development. See generally Endangered Species Act Congressional Working Group.

The ESA on Balance: Pros and Cons

The ESA, like any statute, presents pros and cons specific to each group it impacts (which are relevant considerations when assessing possible reforms). The following briefly reviews certain of those interest-specific issues. For purposes of this article, understanding how each stakeholder in the energy extraction process views the ESA is necessary to crafting and evaluating the efficacy of our proposed changes to the ESA and its implementation.

For environmentalists and environmental associations, the ESA succeeds at raising awareness of the plight of threatened or endangered species. Indeed, it has successfully brought a number of species back to safe population levels. The ESA achieves conservation, though to what extent and how completely, continues to be debated by various factions within the environmental community, as well as among other interest groups. The ESA can be a tool for environmental groups and landowners to slow down or stop large-scale development; that approach may focus on possible impacts to the aesthetics of, and particular prioritized resources in, a given area.

Conversely, some environmental groups maintain that the ESA lacks strength and speed with respect to listing under section 4. Certain of these groups also object to implementation of the ESA and, in particular, the corresponding “take” of species consistent with its permitting. Critics cite to the 1 percent success rate for moving listed species to delisted status. See ECOS (listing both plants and animals). Others argue that the ESA promotes perverse incentives such as “Shoot, Shovel and Shut-Up,” in which homeowners destroy the habitat critical to the species at issue in order to avoid the strictures of the ESA. See, e.g., Stephen Dubner & Steven Levitt, Unintended Consequences, N.Y. Times (Jan. 20, 2008).

Some private landowners regard the ESA and its enforcement as classic government infringement into the private right to own property. These infringements are often reported in terms of economic losses related to land use value. For example, farmers in the Klamath Basin of Oregon lost an estimated $53.9 million of crop value in 2001 when irrigation was cut off to protect endangered fish. Randy T. Simmons & Kimberly Frost, Accounting for Species: The True Costs of the Endangered Species Act, PERC.org (Apr. 1, 2004).

For energy extraction operators, the economic consequences of the ESA’s requirements outweigh the perceived benefits. One of the main ESA-related concerns is the lack of certainty inherent in projects that could trigger ESA review. Those uncertainties include: (1) whether the ESA applies at a given site; (2) inability to quantify ESA compliance costs and timelines; (3) protracted permitting and consultation processes; (4) uncertain outcomes from those processes; (5) postpermitting and postconsultation litigation and judicial review; (6) long-term stability in permit and consultation outcomes; and (7) the contingency of new species listings during any stage of development through operation. See J.B. Ruhl, Harmonizing Commercial Wind Power and the Endangered Species Act Through Administrative Reform, 65 Vand. L. Rev. 1769, 1795 (2012).

On the other hand, the ESA and its regulations give some measure of certainty by providing a permitting process for “incidental takes” of species on the property at issue. Energy extraction stakeholders may seek out this cushion, at least in part, because of the inherent difficulty in identifying the species at issue. See 16 U.S.C. § 1533(e) (2012) (listing species that are not endangered or threatened but so closely resemble other listed species such that enforcement personnel have “substantial difficulty” differentiating between the unlisted and listed species).

To many, the ESA is perceived as the “pit bull” of environmental litigation. Kalyani Robbins, Awakening the Slumbering Giant: How Horizontal Drilling Technology Brought the Endangered Species Act to Bear on Hydraulic Fracturing, 63 Case W. Res. L. Rev. 1143, 1150 (2013). The threat to a federally funded project is clear; the ESA can shut down a nearly completed, multimillion dollar project to protect a “tiny fish.” Id. (citing Tenn. Valley Auth’y v. Hill, 437 U.S. 153, 184 (1978)).

ESA and Hydraulic Fracturing

Proposing changes to the ESA and implementation of the ESA requires understanding stakeholder viewpoints as well as judicial interpretation of the statute and its regulations. This section focuses on how the judiciary has treated challenges to natural gas extraction and other energy extraction activities to better understand how changes can be made to the statute to reduce protracted litigation and to explore risk areas for industry.

Orders restricting natural gas development have arisen from successful National Environmental Policy Act (NEPA) challenges involving the failure to take a “hard look” at impacts on endangered species. See, e.g., Anglers of the Au Sable v. U.S. Forest Serv., 565 F. Supp. 2d 812 (E.D. Mich. 2008) (holding that the U.S. Forest Service violated the procedural requirements of NEPA in approving exploratory gas and oil drilling in Huron-Manistee National Forest without taking a hard look at the effect on Kirtland’s warbler). The ESA alone, however, has yet to be successfully used to limit or challenge hydraulic fracturing activities directly.

To date, it appears that only one district court has applied the ESA to the hydraulic fracturing process. In New Mexico ex rel. Richardson v. BLM, 459 F. Supp. 2d 1102 (D. N.M. 2006), the State of New Mexico and a coalition of environmental groups argued that the Bureau of Land Management (BLM) violated its section 7 duty to engage in consultation with the U.S. Fish & Wildlife Service (FWS) to evaluate the adverse impact on the Aplomado falcon. The court concluded that the BLM had not violated the ESA. Id. On appeal, the Tenth Circuit determined that the ESA issues were effectively made moot by a subsequent BLM agreement to reintroduce the falcon to the area. New Mexico ex rel. Richardson v. BLM, 565 F.3d 683 (10th Cir. 2009).

Other citizen suit challenges have asserted very indirect effects to species. For example, in The Arkansas Project v. Shaw, et al., Order, No. 13-40317 (5th. Cir. June 30, 2014), the plaintiff sought to enjoin the Texas Commission on Environmental Quality (TCEQ) from issuing new permits to withdraw water from rivers that feed into an estuary where federally protected whooping cranes make their home. Plaintiff suggested that TCEQ withdrawal permits were increasing the salinity in the estuary, resulting in a “take” of whooping cranes in violation of the ESA. The Fifth Circuit applied a proximate cause analysis to the issue and found that the permitting was too attenuated to the whooping crane deaths for liability to attach. Id. at 29–31. Given the subjective nature of proximate cause analyses, it should come as no surprise that other courts have found liability in similar factual scenarios. See, e.g., Strahan v. Coxe, 127 F.3d 155, 163 (“[A] governmental third party pursuant to whose authority an actor directly exacts a taking of an endangered species may be deemed to have violated . . . the ESA.”).

In another recent example that could have far reaching impacts on energy extraction in the Midwest, a group of challenges were filed in mid-2014 in various courts concerning the FWS determination to list the lesser prairie chicken as threatened under section 4(d). Several environmental groups challenged the FWS listing’s sufficiency and sought an “endangered” listing across parts of Colorado, Kansas, New Mexico, Oklahoma, and Texas. See, e.g., Okla. Indep. Petroleum Assoc. v. Dep’t of Interior, No. 4:14-cv-00307-JHP-PJC (N.D. Okla., filed June 8, 2014). The complaint cites oil and gas development as one of the primary threats to the lesser prairie chicken. Id. at ¶¶ 4, 105 (estimating take from oil and gas activities at 10,778 birds over thirty years). If successful, the suits could prevent oil and gas development in areas across five fossil fuel-rich states.

Natural gas extraction through hydraulic fracturing will likely continue to be challenged under the ESA in the future. The main avenues for possible challenges can be categorized into three groups. First, it is well known that fracking uses large amounts of water, which can potentially cause impacts to plant and animal species as water sources are drawn down. See Ark. Proj. v. Shaw, et al., Order, No. 13-40317 (5th. Cir. June 30, 2014). Second, the USGS has recently issued a report concluding that fracking activities in Pennsylvania “create potentially serious patterns of disturbance on the landscape.” E. T. Slonecker, et al., U.S.G.S., Landscape Consequences of Natural Gas Extraction in Bradford and Washington Counties, Pennsylvania, 2004–2010 1 (2012). A land disturbance theory can be used to support an ESA challenge to existing or future extraction projects. Third, numerous bird and fish kills have resulted from improper storage or disposal of fracking waste, the technology for which has seemingly lagged behind the exploration and production phases. See John Guerrerio, Ark. Earthquakes, Fish Kill, Bird Deaths Related to Fracking Wastewater Disposal, Examiner.com (Mar. 14, 2011). Stakeholders should be aware of these risks prior to and during hydraulic fracturing activities.

Recommendations for Modernizing the ESA and Its Interaction with Oil and Gas Activities and Property Owners

Environmental organizations, oil and gas companies, and private landowners would like to see revisions made to the ESA, though in different ways. Despite numerous attempts, there has yet to be any concrete action from Congress to support substantive amendments to the ESA. No major revisions to the Act have been passed by Congress in more than twenty-five years. Developing bipartisan efforts to modernize the ESA and its interaction with oil and gas activities and property owners, while maintaining a strong conservation policy for endangered and threatened species, would be best for all stakeholders. The following recommended policy measures could be implemented to promote such a balance.

First, before labeling an area as critical habitat to an endangered or threatened species, the Secretary of the Interior must consider “the economic impact, and any other relevant impact.” 16 U.S.C. § 1533(b)(2) (2012). The D.C. Circuit Court held that there is no obligation to conduct studies which provide “the best scientific data possible,” only that the “best scientific data available” must be utilized. Bldg. Indus. Ass’n of Superior Cal. v. Norton, 247 F.3d 1241, 1246 (D.C. Cir. 2001). The economic costs of implementing the ESA should include its total impact on the economy. The current cost-benefit analysis typically takes into account the pure administrative cost of promulgating the regulation. This economic analysis ignores the more significant economic impacts of the regulation to labor markets and other aspects of economic activity, including, but not limited to, secondary activities such as business’s reliance on property that has been claimed for habitat conservation. In fiscal year 2012, federal and state governments spent over $1.7 billion to conserve endangered and threatened species under the ESA. U.S. Fish & Wildlife Service, Federal and State Endangered Species Expenditures (2012). This amount does not take into account lost opportunity-costs resulting from ESA restrictions on economic activities, which include the reduced economic profit from restricted development and use of land. This data should be included in the analysis. Using the best data possible and taking account of all economic impacts will paint a better picture of future results in listing an animal or plant species.

The second recommended policy change is to increase the use of the negotiated rulemaking process. The process contemplates multiparty involvement in the rulemaking; for example, representatives from a state and/or federal agency and concerned interest groups can work to “negotiate” a proposed rule. Negotiated rulemaking represents an opportunity to reverse the lengthening timeline required to obtain certainty and finality in the ESA process because it would, if implemented properly, incorporate the interests of, or engage, stakeholders “upfront.” The process could result in earlier certainty for operators and expedited protections for species if early engagement of interested parties forestalls later challenges.

The third recommended policy change would establish a compensation scheme aimed at private property owners with land encumbered by designated protected habitats for endangered or threatened species. See Robert Meltz, Cong. Research Serv., RL31796, The Endangered Species Act (ESA) and Claims of Property Rights “Takings” (Jan. 7, 2013) (discussing cases). Such a policy could address (at least in part and without conceding) longstanding claims by property rights advocates that ESA’s regulation of private property is a violation of the Fifth Amendment. It would incentivize the FWS to be more targeted with its protected land designations. The policy could also encourage property owners to self-report if follow-up restrictions relative to private property uses could be better addressed. If the ESA has perversely encouraged property owners to destroy listed species, then compensation could be the motivator to end such acts. Outright compensation for acquired land and annual tax credits could be a selling point for a modernized ESA. Economic incentives for landowners to preserve habitats of endangered or threatened species provide for a balanced approach to the intended goals of the ESA, while accounting for the plight of the landowner.

In future deliberations, federal agencies will likely begin to identify candidate species based on climate change threats to populations, thus reexamining habitat conservation efforts and increasing the number of species listed under the ESA. It is possible that climate change considerations will require changes to recovery plans and other requirements under the Act. Plans that provide measureable goals for species recovery (e.g., habitat quantity, quality, and species population) are to be expected, as policies with increased accountability are more probable under future amendments to ESA. Habitat conservation plans should be revisited if the monitoring of a species finds that a significant decline or growth of the species would result if the change were to be implemented. A modernized ESA could anticipate these issues and provide a better framework for future issues.

Next Steps and Possible Future Outcomes

For the past thirty years, the ESA has transformed the conservation of species in the United States, preventing the possible extinction of hundreds of animal and plant species and protecting millions of acres of habitat. Simultaneously, the ESA has imposed high costs and inflicted market changes in the design and practice of economic activities, such as transportation, farming, fishing, drilling, and housing. Debate over the law’s efficacy remains, with environmentalists touting its successes and industry and private landowners emphasizing the economic burdens associated with conservation efforts.

The Endangered Species Act Congressional Working Group reported its findings and recommendations in a February 4, 2014, report. The report lays out significant topics and questions, inter alia: (1) How is ESA success defined, and how is progress measured? (2) Is the ESA working to achieve its goals? (3) Is species recovery effectively prioritized and efficient? (4) Does the ESA ensure property and water rights compatible with species protection?and (5) Is litigation helpful in meeting ESA’s goals? About the Working Group, ESA Working Group.

These questions appeal to further inquiries, such as whether recovery is the proper measure of success under the ESA, and what amount of time is sufficient to allow for recovery of threatened or endangered species? Congress has acted, albeit slowly, to the call for amendments to the ESA that bring the act up-to-date with realistic goals and provide equal treatment for industry and landowners. The answer to these questions will assist in developing an ESA that works in a variety of landscapes; bringing together states, local governments, tribes, private landowners, nongovernmental entities, and industry stakeholders.

The next step is for Congress to take measured actions in implementing an amended, modernized, and equitable ESA that accounts for the needs of conservationists, oil and gas industry, landowners, and the public at-large. Such an undertaking will ensure transparency in ESA decision making of listing species and recovery efforts, discourage “sue and settle” tactics by urging settlement reforms, and provide for increased accountability on the part of government, industry, and landowners.

Brandon H. Barnes and Bennett E. Resnik

Mr. Barnes is the senior litigation analyst on energy at Bloomberg L.P. in Washington, D.C. Mr. Resnik is a J.D. candidate at Vermont Law School.