Natural Resource Damages, Mitigation Banking, and the Watershed Approach

• Date: 01 November 2018

11-2018 NEWS & ANALYSIS 48 ELR 11001

ARTICLES

Natural Resource

Damages,

Mitigation

Banking, and the

Watershed

Approach

by Cynthia R. Harris and

James M. McElsh, Jr.

Cynthia R. Harris is a Sta Attorney at the

Environmental Law Institute. James McElsh is a Senior

Attorney at the Environmental Law Institute.

Summary:

is Article examines potential opportunities for state

and tribal natural resource trustees to integrate resto-

ration and compensation for Natural Resource Dam-

ages (NRD) with other ecological restoration programs

and coordinating with mitigation banks and in-lieu

fee (ILF) programs developed under Clean Water Act

§404. e Oil Pollution Act and the Comprehensive

Environmental Response, Compensation, and Liability

Act provide for recovery of funds from responsible par-

ties to restore natural resources damaged by the release

of petroleum or hazardous substances. Programs under

other laws are designed to oset permitted impacts to

waters of the United States. Integrating §404 banking

and ILF programs, the watershed approach, and con-

servation banking with the NRDA process oers three

potential advantages: (1) It may reduce the time period

until active restoration occurs; (2) it provides for poten-

tial eciencies in evaluating ecosystem services, iden-

tifying restoration options, and implementing needed

actions; and (3) it may produce a more regionally ori-

ented outcome by identifying sites that can serve mul-

tiple ecosystem goals.

Spills of petroleum and releases of hazardous sub-

stances give rise to liability not only for cleanups,

but also for damages to natural resources, includ-

ing wetlands and waterways. Under the Oil Pollution Act

(OPA )1 and the Comprehensive Environmental Response,

Compensation, and Liability Act (CERCLA),2 as well as

under state laws, federal agencies, states, and tribes can

act as trustees for recovery of damages and restoration of

these resources.3

Natural resource trustees may be able to leverage

existing watershed plans, mitigation banks, and in-lieu

fee (ILF) programs associated with CWA §404 compen-

satory mitigation programs and state and tribal aquatic

resource programs (regulatory and nonregulatory) to

produce eciencies and la ndscape-scale improvements

in the resolution of NRD claims. Such approaches may

also provide more diverse options for restoration, possibly

facilitating settlements with potentially responsible par-

ties (PRPs).

is Article examines opportunities to integrate res-

toration and compensation actions for natural resource

damages (NRDs) with other ecological restoration pro-

grams—specically, programs that use a “watershed

approach” to compensate for authorized impacts to state

and tribal waters and waters of the United States under

the federal Clean Water Act (CWA)4 and state laws. Part

I discusses the lega l and policy framework for NR D and

for compensatory mitigation and conservation bank ing.

Part II reviews existing guidance on use of banking-type

approaches in the NRD context, and provides exa mples

of this approach in practice. Part III identies challenges

to integrating the two regimes. Par t IV oers feedback

from participants in these proces ses on the factors that will

aect the integration of these approaches. Part V oers

some conclusions.

Author’s Note: is Article is adapted from a report prepared by the

Environmental Law Institute (ELI) with funding support from the

U.S. Environmental Protection Agency (EPA), Oce of Wetlands,

Oceans, and Watersheds Wetlands Division, under Wetlands Program

Development Grant WD-83695901. ELI is solely responsible for its

contents, and no ocial endorsement by EPA should be inferred.

Additional ELI sta contributing to the report include Azi Akpan

and ien Chau.

1. 33 U.S.C. §§2701-2761, ELR S. OPA §§1001-7001.

2. 42 U.S.C. §§9601-9675, ELR S. CERCLA §§101-405.

3. NRD claims may also be brought under §311 of the CWA, but only federal

and state agencies may be trustees. 33 U.S.C. §1321, ELR S. FWPCA

§311.

4. 33 U.S.C. §§1251-1387, ELR S. FWPCA §§101-607.

Copyright © 2018 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

48 ELR 11002 ENVIRONMENTAL LAW REPORTER 11-2018

I. Legal and Policy Framework

e processes for assessing NR Ds are governed by regula-

tions adopted by the federal trustee agencies. ese pro-

cedures are detailed a nd complex. At the same time, the

regulations dening compensatory mitigation for CWA

§404 permitting of authorized impacts to waters of the

United States also are detailed. Both of these regimes aim

to identify eective ways to oset or replace injuries to nat-

ural resources and to the ecological services t hey provide.

A. NRDs

Both the OPA and CERCLA provide for recovery of

funds to restore natural resources damaged by the release

of petroleum or hazardous substances, a nd to compensate

for the injury to the resources. Natural resources include

“land, sh, wildlife, biota, air, water, ground water, drink-

ing water supplies, and other such resources.” A natural

resource is dened as “belonging to, managed by, held in

trust by, appertaining to, or otherwise controlled by” the

United States, any state, an Indian tribe, a loca l govern-

ment, or a foreign government.5 Responsibility for pro-

tecting these resources and directing their restoration lies

with natural resource “tru stees,” which usually include the

U.S. Department of the Interior (DOI), National Oceanic

and Atmospheric Administration (NOAA), state natural

resource agencies, and aecte d Indian tribes (depending on

the location and type of resource da maged by the release).6

Trustees are responsible for assessment of the injury

to natural resources, a nd for planning and implementing

restoration of the resources injured and services lost due

to the release. Restoration actions are designed to return

the damaged resource s to “baseline” conditions and to

compensate the public for interim losses to the damaged

resources between the time of injury and full restoration.

A natural resource da mage assessment (NR DA) is car-

ried out under regulations adopted by DOI or NOAA.7

Assessments conducted in accordance with the regulations

are accorded a “rebuttable presumption” in a court action

for recovery of damages from a PRP (see Table 1).8 e

laws authorize trustees to recover expenses incurred by the

trustees during the NRDA process.

NRDA regulations specif y processes for quantifying

damages and recovering funds for:

1. Restoration: Direct impacts to injured natural

resources;

2. Interim losses: e reduction in services (ecologi-

cal productivity, water quality, storm surge protec-

5. 33 U.S.C. §2701(20); 42 U.S.C. §9601(16).

6. Tribes’ status as trustees may be based on injuries to natural resources on res-

ervation and trust lands, as well as injuries to resources on lands and waters

where tribes have reserved treaty rights (hunting, shing, gathering).

7. 43 C.F.R. pt. 11 and 15 C.F.R. pt. 990, respectively. e DOI regula-

tions apply to CERCLA and the NOAA regulations to both CERCLA

and the OPA.

8. 42 U.S.C. §9607(f)(2)(C); 33 U.S.C. §2706(e)(2).

tion) those resources provide to humans or to other

natura l resourc es—specica lly, recover y of ecologi-

cal services’ economic value under CERCLA and

compensatory restoration under the OPA; and

3. Reasonable assessment costs: Recovery of costs

incurred by trustees for assessment.

NRDA’s scope encompasses injuries that rema in after

the U.S. Environmental Protection Agency (EPA) and/or

a responsible party (RP)9 conducts the required removal

and remedial actions, as well as interim loss of services

from those resources. ere are four phases of NR DA:

(1) pre-assessment, or the initial screen to determine

whether tr ustees should proceed with conduc ting an

assessment; (2) injury determ ination and quantica-

tion; (3) damage assessment, which determines the

costs of restoration, replacement, or acquisition of in-

kind resources to restore natural resources to the baseline

condition, plus compensation for interim losses (which

may be based on lost value of the services, or the cost

of projects that will compensate for interim losses); and

nally (4)restorat ion implementation.

Figure 1. The Four Phases of NRDA

Pre-

assessment

Injury

determination

&

quantif‌ication

Damage

assessment

Restorati ve

implementation

A lead agency is designated, and coordinates these

processes with other aected agencies; these agencies

are encouraged to work with the RP(s). Both the RPs

and the public are entitled to notice and comment at

various ju nctions.

e trustees identify restoration alternatives that can

restore or replace the injured resources and services a nd cal-

culate the costs for achieving these results. Under the OPA

regulations, scaling of compensatory restoration is required

for interim losses. Trustees determine the appropriate spa-

tial and temporal extent of restoration actions, and gen-

erally may use one of three methods, ra nked as follows:

(1) resource-to-resource/service-to-service (which is typi-

cally used for ecological and resources losses); or (2)one of

two valuation approaches—value-to-value or value-to-cost

(most often used for recreational losses). In developing the

restoration plan, trustees must evaluate various alterna-

9. A responsible party is a PRP that has been found liable or agreed to liability

for the discharge or release.

Copyright © 2018 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.