backOn November 3, 2015, President Obama directed key federal agencies to adopt new or more extensive compensatory mitigation policies over the next six to twenty-four months. Once implemented, these policies could block development of certain sensitive areas and substantially increase the cost of mitigation required for energy projects to obtain federal permits and approvals.
The new policy, entitled Mitigating Impacts on Natural Resources from Development and Encouraging Private Investment, applies to federal land management agencies, as well as those with permitting and regulatory jurisdiction. These include the Department of Agriculture (US Forest Service), the Department of Interior (Bureau of Land Management, US Fish & Wildlife Service, Bureau of Ocean Energy Management), the Environmental Protection Agency, the Department of Defense (US Army Corps of Engineers), and the National Oceanic and Atmospheric Administration (National Marine Fisheries Service). Independent agencies, such as the Federal Energy Regulatory Commission, also are expected to address the implications of the new policy, at the very least, in their role as lead agencies with whom the directly affected agencies cooperate.
Expanded mitigation requirements will impact projects throughout the energy sector that depend on federal permits and authorizations. Examples of affected projects include both traditional and renewable energy development, particularly on federal lands; pipelines; mining and mineral extraction; shipping terminals; and any other activities affecting species protected under the Endangered Species Act. Any project affecting wetlands covered under the newly expanded Waters of the United States Clean Water Act rule could also be impacted.
Reciting a moral obligation to leave Americas natural resources in better condition than when we inherited them, the new Presidential policy expands mitigation requirements in three important ways.
First, it adopts a new net benefit goal for the mitigation of natural resource impacts. This appears to go well beyond simply avoiding, minimizing, or offsetting impacts associated with activities permitted or approved by federal agencies, instead imposing an affirmative obligation on the regulated community to improve the condition of affected natural systems. Proponents of energy projects will need to incorporate the higher standard into their planning and budgeting tasks.
Second, it directs federal agencies to use large-scale plans and analysis to identify areas more appropriate for development and those where development should be prohibited. This mirrors and expands on a landscape-scale mitigation policy adopted by the Department of Interior just one week earlier, and could be used to support regional mitigation strategies for large-scale developments. However, it also suggests that areas could be placed off-limits to certain activities based on agencies assessment of the resources value. The impact on a projects critical path could vary significantly, depending on the location of the proposed installation and the status of relevant agency plans.
Third, it instructs federal agencies to give preference to advance compensation mechanisms that achieve the agencys environmental objectives prior to the harmful impacts of a project. While the mechanism for this advance compensation is unclear, and it could enhance the use of off-site mitigation bank approaches, this appears to expand on the problematic practicealready employed by some districts within the Corps of Engineersof requiring costly, upfront mitigation of impacts from all phases of a multi-phase development, even when the ultimate impacts are highly uncertain or when upfront mitigation is not financially feasible until initial phases of the project have been completed. This aspect of the policy could present a substantial hurdle for projects whose financing requires upfront permitting.
Agencies must issue their new mitigation policies within six months to two years. It is not clear whether or to what extent the agencies will seek public comment on their various mitigation policies. However, there are strong arguments that requiring a net benefit goal would exceed certain agencies statutory authority. Companies in the energy sector should be prepared to provide substantive comments regarding mitigation policies that may affect them. They also should vigilantly guard against overreaching as any final policies are applied by agency staff.