1

Introduction

The objective of the Clean Water Act (CWA) is “to restore and maintain the chemical, physical, and biological integrity of the Nation's waters” (Federal Water Pollution Control Act, Public Law 92 –500). Accordingly, Congress articulated the more measurable goal of attaining water quality to provide for recreation and to protect fish, shellfish, and wildlife. Toward achievement of this goal, the CWA prohibits the discharge of dredged or fill material into waters of the United States unless a permit issued under Section 404 of the CWA authorizes such a discharge. The CWA vests the U.S. Army Corps of Engineers (Corps), or a state with a U.S. Environmental Protection Agency (EPA)-approved program, with the authority to issue Section 404 permits and to decide whether to attach conditions.

The Corps and EPA define the “waters of the United States” to include most wetlands. Wetlands are included as waters of the United States for purposes of the Clean Water Act because it is recognized that some wetlands may improve water quality through nutrient cycling and sediment trapping and retention. The objective of the Clean Water Act, described above, cannot be achieved if wetlands are not protected. From a legal perspective, defining waters of the United States to include wetlands is also reasonable, at least with respect to wetlands adjacent to traditionally navigable waters (United States v. Riverside Bayview Homes, Inc., 474 U.S. 121 (1985)). The U.S. Supreme Court has observed that the broad goal of the Clean Water Act is the improvement of water quality



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COMPENSATING FOR WETLAND LOSSES UNDER THE CLEAN WATER ACT 1 Introduction The objective of the Clean Water Act (CWA) is “to restore and maintain the chemical, physical, and biological integrity of the Nation's waters” (Federal Water Pollution Control Act, Public Law 92 –500). Accordingly, Congress articulated the more measurable goal of attaining water quality to provide for recreation and to protect fish, shellfish, and wildlife. Toward achievement of this goal, the CWA prohibits the discharge of dredged or fill material into waters of the United States unless a permit issued under Section 404 of the CWA authorizes such a discharge. The CWA vests the U.S. Army Corps of Engineers (Corps), or a state with a U.S. Environmental Protection Agency (EPA)-approved program, with the authority to issue Section 404 permits and to decide whether to attach conditions. The Corps and EPA define the “waters of the United States” to include most wetlands. Wetlands are included as waters of the United States for purposes of the Clean Water Act because it is recognized that some wetlands may improve water quality through nutrient cycling and sediment trapping and retention. The objective of the Clean Water Act, described above, cannot be achieved if wetlands are not protected. From a legal perspective, defining waters of the United States to include wetlands is also reasonable, at least with respect to wetlands adjacent to traditionally navigable waters (United States v. Riverside Bayview Homes, Inc., 474 U.S. 121 (1985)). The U.S. Supreme Court has observed that the broad goal of the Clean Water Act is the improvement of water quality

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COMPENSATING FOR WETLAND LOSSES UNDER THE CLEAN WATER ACT and that adjacent wetlands “play a key role in protecting and enhancing water quality.” As a legal matter, the CWA does not regulate all activities in all wetlands. For example, early in 2001 the U.S. Supreme Court ruled that the assertion of federal jurisdiction over some isolated waters is an unreasonable interpretation of the CWA (Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers 2001). This ruling came soon after other court rulings that, taken together, have limited the scope of the federal permitting program. However, numerous states and other nonfederal governments have wetland permitting programs that complement and supplement the federal authority (Want 1994). While the committee's charge is to focus on the CWA Section 404 program, its conclusions and recommendations are applicable to both federal and state regulatory programs. Over the nation's history, wetlands have been drained and filled for farmland and urban development, mosquito control, and many other activities. However, when wetlands are lost, so are the many functions that they provide within landscapes (Mitsch and Gosselink 2000). Although not all wetlands provide all functions, wetland functions can include water-quality improvement; water retention, which helps to ameliorate flood peaks and desynchronizes high flows in streams and rivers; groundwater recharge; shoreline stabilization; and provision of a unique environment, part aquatic and part terrestrial, that supports a diversity of plants and animals, including a majority of the nation's rare and endangered species. In recognition of these functions and their significance to the CWA, the goal of no net loss of wetland area and function was introduced at a national wetland policy forum by the Conservation Foundation in 1988, endorsed by the federal administration in 1990, and supported since. The no-net-loss goal lies behind the federal agencies' efforts to develop Section 404 guidelines that will secure compensation for permitted wetland impacts. The goal was articulated by the agencies in their 1990 Mitigation Memorandum of Agreement (MOA) (see Chapter 4). In its work, the committee accepted the no-net-loss goal as a basis for national wetland policies. When there is a proposal to discharge dredged or fill material into a wetland, the CWA expects that the Corps, in cooperation with other agencies, will consider the public-interest consequences of issuing a permit. In practical terms, implementation of Section 404 and related programs has followed a general policy that the deliberate discharge of materials must be avoided where possible and minimized when unavoidable. Then if a permit is issued and wetland functions are compromised, some kind of compensatory mitigation may be required to replace the loss of the wetland's functions in the watershed. The Committee on Mitigating Wetland

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COMPENSATING FOR WETLAND LOSSES UNDER THE CLEAN WATER ACT Losses was established by the National Research Council to evaluate whether compensatory mitigation required of Section 404 permit recipients was contributing to achieving the CWA's overall objective of restoring and maintaining the quality of the nation's waters. In completing its work, the committee assumed that these steps were being followed and focused its efforts on the last step of reviewing compensatory mitigation for unavoidable permitted loss that could not be otherwise minimized. First, the committee reviewed both the potential and the limits of scientific and technical abilities to replace the function of wetlands in watersheds. Second, the committee examined the likelihood that compensatory mitigation, as provided by the permittee or a third party (e.g., a mitigation bank or an in-lieu fee program), was being executed in a way to secure the goal of the CWA. The committee did not set up an experimental design for comparing in-lieu fee programs, permittee-sponsored and banking mechanisms for securing compensatory mitigation. Such an approach would have required the committee to identify a single mitigation target and then determine which mechanism would most likely meet it. There simply were no data that could be used for such an assessment. As a practical alternative, the committee chose to define the procedural requirements that were most likely to secure mitigation that would meet legal and ecological end points, and the committee compared mechanisms accordingly. IMPORTANT TERMS The scientific literature and wetland laws and regulations often attribute different meanings to the same term. Precise definitions are important because confusion about the exact meanings of terms can cloud the arguments being made. To avoid such confusion the committee adopted definitions for the following italicized words. A wetland is defined as “an ecosystem that depends on constant or recurrent, shallow inundation or saturation at or near the surface of the substrate” (NRC 1995). Wetland restoration refers to the return of a wetland from a disturbed or altered condition by human activity to a previously existing condition (NRC 1992). The wetland may have been degraded or hydrologically altered, and restoration then may involve reestablishing hydrological conditions to reestablish previous vegetation communities. Wetland creation refers to the conversion of a persistent upland or shallow water area into a wetland by human activity. Of these, constructed wetlands, also referred to as treatment wetlands, are created for the primary purpose of contaminant or pollution removal from wastewater or runoff (Hammer 1997). Wetland enhancement refers to a human activity that increases one or more functions of an existing wetland. Wetland preservation

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COMPENSATING FOR WETLAND LOSSES UNDER THE CLEAN WATER ACT refers to the protection of an existing and well-functioning wetland from prospective future threats. Preservation does not involve alteration of the site. A compensatory mitigation project is the creation, restoration, enhancement, or preservation of a wetland designed to offset permitted losses of wetland functions in response to special conditions of a permit. The mitigation project provides a desired set of hydrological, water quality, and/ or habitat functions in the watershed. (A process for identifying the desired functions for a watershed is described in Chapter 7.) As noted above, wetland functions include water quality, water retention, and habitat contributions of wetlands to watersheds. Functional assessment methods provide useful guidelines for measurement of wetland functions. Such methods that consider how wetland structure (see below), location in the watershed, and the resulting hydrological, geochemical, and biological processes related to that structure and location give rise to certain wetland functions. (Functional assessment is described in Chapter 7.) The no-net-loss goal is focused on wetland functions; however, the area of a wetland type is often used as a proxy for wetland functions. Wetland type describes wetlands according to the U.S. Fish and Wildlife Service's (FWS) classification system (Cowardin et al. 1979; see also Box 1–1). If wetland type is used as a proxy to represent wetland function, compensatory mitigation projects might be expected to result in some number of acres that can be classified as a wetland. Wetland types in the Cowardin system are differentiated by their BOX 1–1 Wetland Classification System of the U.S. Fish and Wildlife Service Cowardin et al. (1979) developed a hierarchical system to classify wetland types for purposes of mapping and inventory. It has at its highest level the “system,” of which five are defined (marine, estuarine, riverine, lacustrine, and palustrine). Subsystems further define hydroperiod attributes of the first four systems. Wetland classes are based on substrate type and flooding regime (six classes: rock bottom, unconsolidated bottom, rocky shore, unconsolidated shore, streambed, and reef) or on vegetation types (five classes: aquatic bed, moss-lichen wetland, emergent wetland, scrub-shrub wetland, and forested wetland). Finally, wetlands are classified by their dominance type, based on dominant plants or animals. Various modifying terms are added to describe water regimes, salinity, pH, soil type, or human modifications.

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COMPENSATING FOR WETLAND LOSSES UNDER THE CLEAN WATER ACT structure. Following the three-part wetland delineation procedure adopted by federal agencies for defining wetlands in the CWA Section 404 program, wetland structure can be understood as some combination of hydrology, soil, and vegetation (NRC 1995). When planning a compensatory mitigation project, a wetland 's structure and location in the watershed are chosen to secure particular wetland functions. The plan might be based on a functional assessment that relates a wetland's structure and location to its function; alternatively, a compensatory mitigation project plan might seek to secure a particular type of wetland. A compensatory mitigation site is initiated to satisfy a legal requirement of a permit program. A mitigation requirement is a condition of a permit that makes the permit recipient responsible for undertaking and executing a compensatory mitigation site or for paying a third party to take on that responsibility. As a legal matter, the mitigation requirement should establish a measurable outcome, called a performance standard, of a mitigation project. Performance standards can be measures of wetland structure or type or a functional assessment score. It may take several years before some measures of functional performance can be achieved at a mitigation project. However, mitigation agreements may avoid performance measures and instead require that, as a measurable outcome, the mitigation project be developed and implemented according to an approved plan. This can be referred to as a project design standard. Legal compliance with the compensatory mitigation requirement can vary from simply constructing a project according to some approved design (design standard) and/or to being tied to some measure of functional outcome (performance standard). Wetlands occur in watersheds, which are defined in the glossary of this report as “land area that drains into a stream, river, or other body of water. ” However, a watershed is not area specific, because it can range from a small area near a creek to the entire Mississippi River basin. When positions or management of wetlands within watersheds are discussed, the larger scale is indicated. Discussion of planning for wetland mitigation within watersheds indicates a scale on the order of an ecoregion. The terms landscape and watershed are often used interchangeably. It follows that there are distinct stages in any compensatory mitigation project; each stage requires an action to be taken that will increase the probability that the compensatory mitigation project will attain its intended results. First, there must be a concept and a general watershed location for the compensatory project. Second, that concept must be translated into a set of site design plans that are expected to secure the target functions over time. Third, the site would be acquired and construction (or other modifications to it) would be undertaken in accord with the design. Inspection of the site would be made to establish whether the

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COMPENSATING FOR WETLAND LOSSES UNDER THE CLEAN WATER ACT construction followed the design plan; the inspection would determine whether design standards had been met and whether some adjustment might need to be made to the project design. Fourth, physical monitoring of the site would continue past design and project construction to determine whether the project was trending toward the desired wetland type or functions; the monitoring would determine whether performance standards were being met. Fifth, there is a regulatory certification that the site has achieved the specified design or performance criteria. At a designated point in the process, there are verifications that the site will be protected and managed in perpetuity. The requirement for establishing mitigation compliance purposes may stop with any of these actions. Also, as noted in Chapters 4, 5, and 8, there can be transfers of legal responsibility for any of these actions from the recipient of the original permit to a third party. NO NET LOSS AND THE SECTION 404 PROGRAM According to the FWS, 53% of the conterminous United States presettlement wetland area was lost between the 1780s and 1980s (Dahl 1990). However, there have been dramatic changes in the rate and magnitude of wetland loss in the past 20 years. Wetlands can be lost through direct conversions, such as draining and filling. Wetlands are also lost as the indirect result of other activities that may alter the hydrological regime. Furthermore, not all direct wetland conversions are regulated, and almost none of the indirect losses are regulated. Unfortunately, the available data cannot be used to fully distinguish among these causes. That being said, it is instructive to consider the reported changes in order to put the Section 404 permitting program into perspective and to understand its achievements and possible weaknesses. Doing so means relying on the data published by the FWS and the Corps. Because these two data sets were developed for different purposes and there are important differences in how wetlands are identified, the data cannot be combined (see Box 1–2). However, some useful perspectives can be gained by looking at the two data sets together. Data for the two most recent FWS reports on the status of and trends in the nation's wetlands were compared (see Table 1–1). The data are for the 10-year period from the mid-1970s to the mid-1980s and an 11-year period from 1986 to 1997. The losses were reportedly due to agricultural and other (nonagricultural) causes. Nonagricultural uses were not reported as separate categories in the earlier report published in 1991; they include silviculture, urban, and rural development uses. Also, the FWS tables include wetland gains through creation and restoration and do not reflect changes that may have occurred in wetland type. In fact, open-water wetlands continue to increase relative to other types in both time periods.

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COMPENSATING FOR WETLAND LOSSES UNDER THE CLEAN WATER ACT BOX 1–2 U.S. Fish and Wildlife Service Loss Data and Wetland Delineation for Permitting FWS relies on air photo interpretation and soil surveys for its national wetland inventory. Therefore, it cannot use the three-part—wetland hydrology, hydric soil, and hydrophytes—delineation system that defines wetlands in the CWA Section 404 program. Instead, FWS must assume that wetland hydrology is present using one of the other two attributes as an indicator. Therefore, it is possible that some areas classified as wetlands by the FWS are not jurisdictional wetlands under Section 404 or the U.S. Department of Agriculture's Swampbuster program. For example, in the southeastern United States, hydrophytes tend to extend across the jurisdictional line “up the hill” relative to either soil or hydrology. If agricultural modifications have occurred on the drier end of the range, areas that may be classified as losses to these causes may not have satisfied jurisdictional criteria. FWS understands this possibility: “The emergent wetlands that continue to be lost are geographically scattered and generally small wetlands: some were already partially drained by surface ditches or completely eliminated through intensified use of existing farmland” (Dahl 2000, p. 45). Under the Food Security Act and CWA Section 404, this represents historical wetland loss, not recent wetland loss. Elsewhere, the authors refer to some of the wetland losses as being “non-jurisdictional ” (p. 46). The best estimate of net acres lost fell from an annual average of about 254,800 acres per year to 58,500 acres per year, a 77% decline (coefficients of variation are included with the original data). Losses to agriculture fell from about 138,000 acres per year to about 15,000 acres per year, almost a TABLE 1–1 Wetland Losses Due to Agricultural and Nonagricultural Causes Time Period Wetland Losses Due to Agriculture Rate of Wetland Loss Due to Nonagriculture Total Acreage Lost and Annual Average Loss Mid-1970s to mid-1980sa (10 years) 137,540 acres/yeara 54% of lossa 117,230 acres/yeara 46% of lossa 2,547,700 acres;b 254,770 acres/yeara 1986–1997c (11 years) 15,222 acres/yearc 26% of lossc 43,324 acres/yearc 74% of lossc 644,000 acres;b 58,545 acres/yearc a Dahl and Johnson (1991). b Total acreage lost was determined by multiplying the annual average loss by the total number of years evaluated in the study. c Dahl (2000).

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COMPENSATING FOR WETLAND LOSSES UNDER THE CLEAN WATER ACT 90% decline. This decline might be attributed to unfavorable agricultural economic conditions and reforms to federal farm programs that together discouraged wetland conversion and encouraged restoration (Kramer and Shabman 1993; Heimlich 1999). As a result, agricultural losses fell from 54% to 26% of the total loss. While losses to nonagricultural causes increased as a proportion of total loss, the amount of loss to these causes fell from about 117,000 acres per year to 43,000, a 63% decline. This decline is especially remarkable because the 1990s were a time of significant and rapid economic expansion in areas of the nation, such as much of the southeast coast, where wetlands are abundant. In fact, a 1994 report showed that this region accounted for 89% of the total national loss from the mid-1970s to mid-1980s (Hefner et al. 1994). This 63% decline in nonagricultural wetland losses at a time of sharp economic expansion might be attributed to the presence of, and increased understanding about, Section 404 and nonfederal wetland permitting programs. A reasonable conclusion is that these programs may be encouraging those responsible for land development to avoid wetlands. If this is the case, the Section 404 permitting programs may be among the causes for reduced national wetland losses. FWS reported losses for the 1986 to 1997 period by the more disaggregated categories of urban development (30%), agriculture (26%), silviculture (23%), and rural development (21%). (see Table 1–2). Considering that agricultural and silvicultural activities resulting in wetland losses generally fall outside the scope of Section 404 program and many wetland permit programs (Chapter 4), it might be assumed that the urban and rural development losses were the ones that could have been subject to Section 404 permitting. However, there are exemptions from permitting that go beyond the silvicultural and agricultural exemptions, and these exemptions continue to expand and contract with administrative and court decisions ( Chapter 4). Furthermore, because the FWS criteria for defining wetlands differ from the regulatory criteria for wetlands delineation, it might be expected TABLE 1–2 Percent Loss by Cause and Acres Lost Cause of Loss Wetland Losses 1986–1997 (%) Annual Average Acreage Lost (Acres) Urban development 30 17,560 Agriculture 26 15,220 Silviculture 23 13,465 Rural development 21 12,300 SOURCE: Dahl and Johnson (1991); Dahl (2000).

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COMPENSATING FOR WETLAND LOSSES UNDER THE CLEAN WATER ACT that some of the losses reported may not have been considered wetlands for purposes of permitting. With these caveats in mind, FWS-estimated losses to urban and rural development between 1987 and 1997 were just under 30,000 acres per year. Data provided by the Corps for its Section 404 permitting program during the 1990s suggest a net gain in wetland area (see Figure 1–1). The Corps' Headquarters, Operations, Construction, and Readiness Division compiles data submitted by the district offices on the area of wetland losses and the compensatory mitigation required in permits. The area of permitted impacts was approximately 24,000 acres per year during the 1990s. Compensatory mitigation required as a condition of these Section 404 permits averaged over 42,000 acres per year. This required mitigation, once implemented, would compensate for the permitted wetland impacts, resulting in a net gain of over 18,000 acres per year. It should be noted that preserved and enhanced wetland acres are counted as equivalent to a newly created or restored wetland in these data for the purpose of estimating net wetland loss or gain, but there were no data on how much preservation or enhancement was represented in the total. Likewise, there FIGURE 1–1 Area of wetland impacts permitted, mitigation required by the permit, and the anticipated gain in wetland area as a result of permits issued by the U.S. Army Corps of Engineers regulatory program from 1993 to 2000. 1 hectare = 2.47 miles. SOURCE: Data from U.S. Army Corps of Engineers Headquarters, Operations, Construction and Readiness Division.

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COMPENSATING FOR WETLAND LOSSES UNDER THE CLEAN WATER ACT are no data on how much of the mitigation was by created or restored wetlands. Therefore, one cannot draw firm conclusions about such changes in wetland area. For every 100 acres of permitted fill, 178 acres of wetland were to be restored, created, enhanced, or preserved. However, these data report the mitigation required as a condition of the permit. There are no data on whether the required compensation was initiated. Nor are there data on whether the initiated compensation resulted in a wetland that would be recognized by the jurisdictional criteria used by the Corps or by FWS approach to wetland identification. Assuming that most mitigation that has been required by the Corps was initiated and resulted in jurisdictional wetlands, the Section 404 program has achieved no net loss of wetland area. This would mean that wetland losses to urban and rural development, as reported by FWS, are occurring outside the scope of the Section 404 program. If this is the case, the program may be discouraging wetland-damaging activities (see above) and is more than replacing the wetlands when such activities are permitted. From this perspective, continued wetland loss to urban and rural development would have to be addressed by expanding the Section 404 program or by some other means. If, by contrast, it is assumed that little of the required mitigation is undertaken in a way that replaces lost wetland area, the acres permitted by the program are about equal to the acres lost to urban and rural development. The committee is unable to determine the precise extent to which compensatory mitigation is initiated and results in wetlands that would be identified by the FWS inventory process. Indeed, there are no data that would support such an assessment. However, the preceding paragraph does highlight the importance of effectively implementing the required compensatory mitigation when wetland permits are issued. The committee recognizes that the Corps districts now do routinely require mitigation. Hence, this report focuses on increasing the likelihood that this legal requirement will be implemented by those responsible for compensation and that their efforts will result in wetlands that provide important functions in the nation's watersheds. THE COMMITTEE'S TASK The Committee on Mitigating Wetland Losses (see Appendix J) was established by the National Research Council, Division on Earth and Life Studies, under the aegis of two boards: the Board on Environmental Studies and Toxicology and the Water Science and Technology Board. The committee's Statement of Task, in the context of Section 404 of the Clean Water Act, is the following:

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COMPENSATING FOR WETLAND LOSSES UNDER THE CLEAN WATER ACT A multidisciplinary committee will be established to review the scientific and technical and institutional literature on wetland structure and functioning, and options for mitigating wetland loss through restoration, enhancement, creation, and where applicable, in-lieu fee programs. The committee will evaluate the current ability of practitioners to restore various aspects of wetland functioning in a variety of environments and will evaluate options for mitigating wetland loss. The study will address such questions as how wetlands' size and place in the landscape, the ecoregion in which they occur, the kinds of animals and plants that comprise them, their hydrological regime, and other factors affect their structure and functioning in ways that are likely to affect the success of wetland restoration and mitigation of loss. The main criterion for the evaluation will be the degree to which the structure and functioning of the restored wetland match those of naturally occurring wetlands in the same region. The committee will also evaluate other options for mitigating wetland loss, such as in-lieu fee programs. A similar criterion will be used, i.e., to what degree do those options protect or replace the ecological role of naturally occurring wetlands. The committee will analyze an illustrative set of wetland mitigation projects, including individual projects, mitigation banks, and in-lieu fee programs to the extent that they have ecological goals. As part of its efforts, the committee will consider questions in these three areas: Goals for mitigation and criteria for selecting mitigation project type. Compliance. Mitigation success or failure. The committee will also consider the following: The degree to which experience with success and failure can be extrapolated to other areas and wetland types. Whether available information leads to recommendations about circumstances in which compensatory mitigation of various types is more and less likely to succeed. What research is likely to improve our success with compensatory mitigation in the near and medium terms. This report is organized into three sections. Chapters 2 and 3 report on the scientific and technical capacities to create and restore wetland acres and functions in watersheds. Chapters 4, 5, and 6 review the regulatory program that has developed under the authority provided by Section 404. These chapters also comment on the mitigation experience as reported in the literature and as described to the committee during its deliberations. Chapters 7 and 8 point toward the future. These chapters provide technical and institutional suggestions for improving the practice of compensatory mitigation.