other commenters said that co-permitting is not an appropriate
mechanism for transferring responsibility. Some commenters said that a
sponsor should only sign documents that deal exclusively with the
credits, debits, and use of a mitigation bank for compensatory
mitigation. Two commenters stated that transfer of responsibility from
the permittee to a mitigation bank is an incentive for using mitigation
banks. Several commenters supported the use of the suggested permit
conditions and instrument provisions provided in the preamble to the
proposed rule, when credits are to be secured from a mitigation bank.
    After evaluating these comments, we have determined that the most
effective approach for transferring compensatory mitigation
responsibilities from a permittee to a mitigation bank or in-lieu fee
program sponsor is through the use of permit conditions and instrument
provisions. The rules governing this transfer are provided at Sec.
332.3(l) [Sec.  230.93(l)]. This process requires submittal of
appropriate documentation after the permittee has secured the
appropriate number and resource type of credits from the sponsor. These
requirements are discussed in greater detail in the preamble discussion
of Sec.  332.3(l) [Sec.  230.93(l)].
Other Issues
    A couple of commenters submitted questions about the Corps permit
application, other publications, and record-keeping. Commenters
requested better guidance on the information required for permit
applications, such as sample drawings and checklists, and recommended
electronic filing of permit applications.
    Many Corps districts have posted information on their web sites to
assist permit applicants. Such information includes tips on providing
complete permit applications, as well as sample drawings and
checklists. The Corps regulations at 33 CFR 325.1(d) discuss what is
required for a complete application for an individual permit. Project
proponents should also review the general conditions for the nationwide
permits and regional general permits to determine what is necessary for
a complete general permit verification request. The Corps is developing
an electronic permit application, which will allow its districts to
accept permit applications through the Internet. As discussed above,
the Corps is implementing a new automated information system to better
track impacts authorized by authorized activities, and any required
compensatory mitigation.
    One commenter said that poor record-keeping has made it difficult
to evaluate the successes and failures of individual projects and the
regional and national impacts of the program. Commenters also asked
that the public have easy access to all relevant planning documents
during the public comment period on permits. One commenter recommended
creating a clearinghouse for wetlands funding or information needs with
a single person to track follow-up and successes. This could provide
information to support a watershed approach in specific areas

and possibly to support in-lieu fee programs. One commenter said the
rule should not apply to ephemeral washes.
    Archiving of monitoring reports for compensatory mitigation
projects is done in accordance with district-specific practices and
resources. Monitoring reports are part of the administrative record for
a permit action or third-party mitigation instrument, and are public
information. However, a Corps district may charge reasonable fees for
duplication to provide those reports to interested parties. It is
impractical to make all planning documents available during public
notice comment periods. Typically, not all of this information is
provided to the Corps prior to the public comment period. However, the
rule requires that public notice for DA permits include a discussion of
mitigation plans, including any compensatory mitigation. Public comment
can then help inform the development of detailed planning documents.
The Corps does not intend at this time to create a clearinghouse for
wetlands funding and wetlands-related information; however, the Corps
will provide information to the public on mitigation required and
fulfilled under the section 404 program. This rule only applies to
compensatory mitigation for activities in waters of the United States
authorized by DA permits. It does not alter the definition of ``waters
of the United States'' at 33 CFR part 328 or 40 CFR 230.2(s).
Discharges of dredged of fill material into features that are not
waters of the United States do not require permits under section 404 of
the Clean Water Act, and therefore would not require compensatory
mitigation that would be subject to this rule. In cases where ephemeral
washes are determined to be waters of the U.S., this rule applies;
there are no technical reasons for addressing them differently from
other waters of the U.S.
    Several commenters highlighted general concerns regarding climate
change. Some of these commenters cited important ecosystem services
provided by wetlands, streams and other aquatic resources such as
absorbing storm surges, providing drinking water, and sequestering
carbon and noted that these ecosystem services will be of increasing
importance as climate patterns shift. A few commenters wanted to know
how concerns about climate change were considered in the development of
today's rule.
    We agree that protecting our Nation's existing aquatic resource
base is an important way to help foster ecological and economic
resilience as climatic patterns shift. Today's rule reaffirms the
existing requirement to avoid and minimize impacts to the nation's
aquatic resources and to require, in cases where it is appropriate and
practicable to do so, compensatory mitigation for impacts that cannot
be avoided or minimized. Compensatory mitigation projects planned and
designed using the watershed approach and the standards provided by
today's rule are likely to provide ecosystem functions and services
that, in addition to offsetting losses resulting from activities
authorized by DA permits, also provide the ecological and economic
resilience needed to address climate change. For example, the
reestablishment of a forested wetland may also provide carbon
sequestration benefits, over the long term, through the growth of
trees. As another example, coastal wetland restoration projects could
be designed to take into account reasonably foreseeable rises in sea
level.

III. In-Lieu Fee Programs

    In the proposed rule we proposed to phase out in-lieu fee programs
and require existing in-lieu fee programs to comply with the same
standards and requirements as mitigation banks. In the preamble to the
proposed rule, we also explained the differences between mitigation
banks and in-lieu fee programs, and the agencies expressed concern that
providing less stringent oversight or up-front requirements for in-lieu
fee programs might not ensure that the compensatory mitigation is
performed. Another concern was compliance with section 314 of NDAA,
which directs us to apply equivalent standards and criteria to each
type of compensatory mitigation to the maximum extent practicable. At
the time, the agencies could not find strong grounds for concluding
that meeting the same requirements as mitigation banks is not
appropriate or practicable for in-lieu fee programs. The agencies also
acknowledged that phasing out in-lieu fee programs would pose some
challenges for the ability of the Corps Regulatory Program to support
the objectives of the Clean Water Act and ensure high-quality
mitigation in all parts of the country.
    In response to the proposed rule, many commenters, including 29
states, as well as industry groups and environmental organizations,
supported retaining in-lieu fee programs as a separate mechanism for
providing compensatory mitigation for DA permits. These commenters said
that an alternative form of third-party mitigation is needed in areas
not serviced by mitigation banks. Many of these commenters also stated
that the desired performance of in-lieu fee programs can be achieved by
imposing appropriate rules and standards, with Corps oversight. Some
commenters indicated that the proposal to phase out in-lieu fee
programs is contrary to section 314, because it wouldn't comply with
the statutory requirement for the rule to ``maximize available
credits.'' Over 30 commenters described successful in-lieu fee
programs.
    After carefully considering all comments, for and against, we have
decided to retain in-lieu fee programs as a distinct third-party
compensation option, subject to equivalent ecological standards as the
other types of compensatory mitigation (mitigation banks and permittee-
responsible mitigation) but somewhat different administrative and
procedural requirements. We agree that in-lieu fee programs are
important sources of compensatory mitigation in areas that do not have
mitigation banks, because they can provide consolidated compensatory
mitigation projects that have greater ecological benefits than small,
geographically separated, permittee-responsible mitigation. We also
agree that in-lieu fee programs can provide important ecological and
societal benefits by focusing primarily on the watershed needs and by
siting multiple compensatory mitigation projects in strategic locations
in a watershed. We believe that this final rule achieves the statutory
mandate of section 314 in that it establishes, to the maximum extent
practicable, equivalent standards for all three types of compensatory
mitigation.
    Commenters suggested various approaches to in-lieu fee programs.
One commenter suggested that the agencies delay the effective date of
the final rule until more conclusive data are available to support the
decision of whether to retain or eliminate in-lieu fee programs. One
commenter recommended forming a technical working group to evaluate the
effectiveness of in-lieu fee programs and their role in compensatory
mitigation. Another commenter recommended comparing poorly performing
in-lieu fee programs to more successful programs, to evaluate the
differences in organization, oversight, mitigation approach and quality
of mitigation, and to develop appropriate standards and requirements.
Many commenters proposed rule language to provide accountability and
ensure ecological success for in-lieu fee programs.
    We do not believe it is necessary to delay issuing a final rule
until further studies can be done on in-lieu fee programs. We
structured the proposed rule to solicit comment on appropriate

standards and criteria that could be established to ensure that in-lieu
fee programs provide successful compensatory mitigation in a timely
manner. Many of the requirements that apply to mitigation banks are
applied to in-lieu fee programs, although some requirements will not be
exactly the same, because of the fundamental differences between
mitigation banks and in-lieu fee programs. Where it is necessary to
promulgate different requirements for in-lieu fee programs, we believe
those requirements will ensure the same level of success for in-lieu
fee programs as for the other types of mitigation, and produce
mitigation that meets the same high ecological standards. We have
examined several successful in-lieu fee programs to establish effective
standards and requirements.
    In the preamble to the proposed rule, we posed a set of questions
on the proposed phase-out of in-lieu fee programs, and solicited public
comment on retaining in-lieu fee programs as a distinct regulatory
entity. We asked for public comment on 7 specific areas in which
requirements for in-lieu fee programs might differ from mitigation
banks if they were retained: (1) The degree of up-front planning
required before credits could be sold (e.g., in-lieu fee programs might
not be required to identify and secure a site and provide detailed site
plans for the compensatory mitigation project); (2) the level and types
of financial assurances that would be required; (3) the types of
projects for which they could be used (e.g., in-lieu fee programs might
be limited to providing compensatory mitigation only for nationwide
permits and other general permits, or for projects below a specified
acreage cutoff, such as 1 acre); (4) the required compensation ratios
(e.g., these could be higher for in-lieu fee programs than for
mitigation banks); (5) the credit release schedule (e.g., in-lieu fee
programs might be permitted to sell more credits at an earlier point in
the planning process); (6) the specific types of aquatic resources for
which they could be used to compensate (e.g., not allowing in-lieu fee
programs for tidal wetlands or in coastal areas); and (7) the types of
permitted sponsoring entities (i.e., in-lieu fee programs might be
limited to government agencies and/or non-profit land stewardship
entities with proven track records). Comments received in response to
these questions are provided below. We also solicited comments on other
ways in which the requirements for mitigation banks and in-lieu fee
programs might differ.
    Degree of up-front planning required before credits can be sold.
Several commenters stated that in-lieu fee programs should be subject
to the same amount of up-front planning as mitigation banks. Other
commenters suggested that instead of identifying a specific site (which
is required for proposed mitigation banks, except for umbrella banks),
in-lieu fee programs should identify specific types of sites (e.g.,
impounded salt marshes) that their program would target. Another
commenter suggested that in-lieu fee programs should submit a full
mitigation plan to the district engineer for approval before the start
of each project. Commenters representing in-lieu fee programs said that
it would be challenging in some cases to identify sites and provide
detailed plans before selling credits, and that such a requirement
might make it impossible for them to operate.
    In recognition of these challenges, the final rule does not require
the same level of up-front planning by in-lieu fee programs as it does
for banks before credit sales can occur. However, it does require that
a comprehensive program instrument be submitted to the Corps, reviewed
by the IRT, and approved by the district engineer before any credit
sales take place. Several new requirements have been added to the
provisions for in-lieu fee program instruments, designed to ensure
greater accountability and success in providing mitigation to fulfill
credit sales in a timely manner. First, we have added a requirement in
the rule for in-lieu programs fees to develop a compensation planning
framework that will be used to select, secure, and implement aquatic
resource restoration, establishment, enhancement, and/or preservation
activities within the service area(s) for the in-lieu fee program.
Specific sites may or may not be identified, but selection of the sites
must be consistent with the compensation planning framework. The
comprehensive planning framework is essentially a watershed plan for
the service area of the in-lieu fee program. A mitigation plan that
meets the requirements of Sec.  332.4(c) [Sec.  230.94(c)] and is
consistent with the comprehensive planning framework must subsequently
be submitted and approved by the district engineer, in consultation
with the IRT, for each in-lieu fee project site prior to commencing
work. Second, the instrument will specify a limited number of advance
credit sales that can occur before specific sites are secured and
mitigation plans approved. Once that number of credits is sold, no more
advance credits can be sold until an equivalent number of credits, tied
to a specific site and mitigation plan, has been released in accordance
with an approved credit release schedule. Third, the instrument must
provide for the establishment of an account that will segregate funds
received from credit sales and ensure that these funds, including
interest earned, are used only to provide the required mitigation,
minus a small allowance for administrative costs.
    Required level of financial assurances. A number of commenters
stated that in-lieu fee programs should be required to provide the same
level of financial assurances as mitigation banks. Two commenters
asserted that these financial assurances would ensure a more successful
completion of mitigation projects. Other commenters indicated that
providing the same level of financial assurances as banks prior to
beginning credit sales would be challenging for in-lieu fee programs,
which usually do not have up-front investors, and might prevent them
from operating. In addition, government agencies often face legal or
procedural restrictions that prevent them from providing the same types
of financial assurances that are generally required of banks.
    The agencies believe that financial assurances are important to
ensure successful initiation and completion of compensatory mitigation
projects, but also recognize the challenges faced by in-lieu fee
programs in this regard. Therefore, the rule states that the district
engineer shall require sufficient financial assurances to ensure a high
level of confidence that the compensatory mitigation project will be
successfully completed, in accordance with applicable performance
standards. There may be cases where financial assurances are not
necessary because an alternate mechanism is available to ensure a high
level of confidence that the compensatory mitigation will be provided
and maintained (e.g., a formal, documented commitment from a government
agency or public authority). Consideration of the sponsor's past
performance in providing ecologically successful mitigation projects
would also influence the district engineer's determination regarding
the level of financial assurances necessary to ensure a high level of
confidence in successful project completion--this is true for banks as
well as in-lieu fee programs.
    Types of projects for which in-lieu fee program credits could be
used. Several commenters stated that in-lieu fee programs should be
limited to certain types of projects, such as those resulting in minor
impacts. One commenter suggested limiting in-lieu fee programs

to activities that have less than 0.25 acre of impacts, and another
commenter recommended restricting in-lieu fee programs to general
permit activities resulting in less than one acre of impacts. Another
commenter suggested that in-lieu fee programs should be available to
provide compensation for impacts from linear transportation projects
because those activities undergo environmental reviews and the
compensatory mitigation is usually identified in advance of the
proposed impacts. One commenter stated that in-lieu fee programs should
not be restricted to a specific type or impact size. Two commenters
said that in-lieu fee programs should only be used for activities
authorized by general permit. A number of commenters stated that use of
in-lieu fee programs should not be limited to a specific project size
or permit type.
    In most cases, in-lieu fee programs implement compensatory
mitigation projects after the impacts authorized by DA permits have
occurred. Therefore, the timing of compensatory mitigation projects
provided by in-lieu fee programs results in some risk and uncertainty.
To address that risk and uncertainty, and to reduce temporal losses of
aquatic resource functions, we have established a preference hierarchy
for mitigation options at Sec.  332.3(b) [Sec.  230.93(b)]. This
hierarchy, which is discussed in greater detail elsewhere in this
preamble, generally provides a preference for mitigation bank credits,
when the permitted activity is in the service area of an approved bank
with the appropriate types of credits available. In the absence of an
approved bank, in-lieu fee programs have certain advantages over
permittee-responsible mitigation. They generally involve larger
parcels, have access to appropriate scientific and technical expertise,
may have a proven track record in establishing successful mitigation in
the past, and will generally have a more fully developed watershed
approach, developed through their required comprehensive planning
framework. For these reasons, we do not believe it is appropriate to
limit the use of lieu fee programs to any particular impact type or
size. Rather, we believe the preference hierarchy described above will
ensure that a mitigation option is selected with the highest
probability of delivering successful, high-quality mitigation among the
available choices in a given case.
    Required compensation ratios. A number of commenters stated that
in-lieu fee programs should be required to mitigate at a certain ratio
that should take into account temporal loss of wetland functions when
compensatory mitigation is not fully functional at the time the
permitted impacts occur. One commenter asserted that increasing the
required mitigation ratios for in-lieu fee programs unfairly penalizes
applicants in areas that do not have operating mitigation banks. Two
commenters recommended higher mitigation ratios where in-lieu fee
programs funds are used for preservation.
    We have added Sec.  332.3(f)(3) [Sec.  230.93(f)(3)] to allow
district engineers to require additional compensatory mitigation in
cases where released credits are not available to provide the
appropriate type of compensatory mitigation. This additional
compensatory mitigation is to account for the higher risk and
uncertainty associated with compensatory mitigation projects that will
be implemented after the permitted impacts have occurred. For all
sources of compensatory mitigation, the amount of required compensation
must be sufficient to replace lost aquatic resource functions. Other
factors to be considered when determining the appropriate amount of
compensatory mitigation to offset permitted impacts are: The method of
compensatory mitigation (i.e., restoration, establishment, enhancement,
preservation), the likelihood of success, differences between the
functions lost at the impact site and the functions expected to be
produced by the compensatory mitigation project, temporal losses of
aquatic resource functions, the difficulty of restoring or establishing
the desired aquatic resource type and functions, and/or the distance
between the affected aquatic resource and the compensation site. The
preference for released credits does not unfairly penalize permittees,
since it is appropriate to require higher amounts of compensatory
mitigation to account for risk and uncertainty. The rationale for the
required compensation ratio must be documented in the administrative
record for the permit action. In cases where preservation is used to
provide compensatory mitigation, district engineers will generally
require higher compensation ratios. While the rule does not explicitly
differentiate between mitigation banks and in-lieu fee programs in the
determination of ratios, the factors to be considered will generally
result in higher ratios for in-lieu fee programs.
    Credit release schedule. One commenter stated that fewer credits
should be released to in-lieu fee programs than to mitigation banks. In
contrast, other commenters said that in-lieu fee programs should have
100 percent of their credits released in advance, and/or that they
should have no limit on advance credit sales.
    We do not agree that in-lieu fee programs should be allowed
unlimited credit sales prior to providing any mitigation; this would
not provide adequate assurance that credits will be fulfilled in a
timely manner. However, in recognition of the fundamental differences
between mitigation banks and in-lieu fee programs, the final rule does
allow an in-lieu fee program to sell a limited number of credits before
securing a compensatory mitigation project site and conducting aquatic
resource restoration, establishment, enhancement, and/or preservation
at that site. Those credits are called ``advance credits'' and the
sponsor can only sell such credits up to the limit specified in its
approved instrument--under no circumstances may credits be sold prior
to approval of an instrument meeting the requirements of Sec.  332.8
[Sec.  230.98]. The number of advance credits will be determined by the
district engineer, in consultation with the IRT, and will be specified
in the instrument by service area. The amount of available advance
credits will be based on an evaluation of the compensation planning
framework, the size of the service area(s), the resources available to
the program (e.g., an independent funding stream for government
sponsored in-lieu fee programs) and other considerations identified by
the district engineer during consultation with the IRT. If the in-lieu
fee program instrument covers more than one service area, the advance
credit limit will be specified for each service area. In addition, as
each in-lieu fee project is approved by the district engineer (in
consultation with the IRT), it will have an associated credit release
schedule. As in-lieu fee projects are implemented and credits released,
advance credits are converted to released credits and the sponsor can
sell additional advance credits in that service area. In certain
limited cases, such as when there is insufficient permitted activity in
a given service area to support a viable mitigation project within a
reasonable time frame, the district engineer may authorize the use of
released credits from a different service area to fulfill advance
credits sales. This might occur, for example, with a state-wide program
managed by a government agency. In such cases, the district engineer
should ensure that the approved mitigation compensates for the lost
resources to the extent feasible, even though it may be some distance
away, or in a different watershed.

    Limiting the establishment and use of in-lieu fee programs to
specific types of aquatic resources or geographic regions. Three
commenters stated that in-lieu fee programs should be used only to
provide compensatory mitigation for specific aquatic resource types.
One commenter suggested that in-lieu fee programs should be retained
solely for rapidly developing urban watersheds and coastal watersheds,
and two commenters suggested that these programs be used specifically
for stream compensatory mitigation. Two commenters said that use of in-
lieu fee programs should not be restricted by resource type, but
credits from in-lieu fee programs should be accepted only when those
credits are different from the credits provided by a mitigation bank
operating in the same service area.
    In this final rule, we have not limited in-lieu fee programs to
providing compensatory mitigation for specific types of aquatic
resources or geographic regions, for much the same reasons that we have
not limited them to specific project types or sizes. Instead, as
discussed above, we have established a preference hierarchy in Sec.
332.3(b) [Sec.  230.93(b)] that will ensure that mitigation options
with the highest likelihood of success and greatest value to the
watershed will be selected from the available choices. This flexibility
is needed because there is great regional variation in aquatic resource
types and watershed needs, and there is also much variability in the
types of credits produced by both mitigation banks and in-lieu fee
programs. We do not agree that in-lieu fee programs should be limited
to certain types of aquatic resources, because in some cases they may
provide the greatest assurance of delivering successful, high-quality
mitigation for the resource in question, especially in areas where
there are no mitigation banks.
    Types of sponsoring entities. Several commenters suggested that
only federal or state governmental entities or non-profit land
stewardship organizations be allowed to be in-lieu fee program
sponsors, because they have the capacity to provide permanent
stewardship of compensatory mitigation project sites. However, one
commenter stated that there is no evidence that government agencies or
non-profit organizations provide compensatory mitigation that is
superior to that provided by for-profit entities.
    Through the definition of ``in-lieu fee program'' provided in Sec.
332.2 [Sec.  230.92], we have limited sponsorship of in-lieu fee
programs to governmental or non-profit natural resources management
entities. In this rule, we have established different requirements for
mitigation banks and in-lieu fee programs that reflect basic
differences in how those types of compensatory mitigation are provided
and managed. In general, mitigation banks are established at single
sites, to provide compensatory mitigation for pre-determined types of
aquatic resource losses in a single or several neighboring watersheds.
In contrast, in-lieu fee programs often provide compensatory mitigation
at multiple sites within multiple service areas, and may serve areas
where a mitigation bank is not economically viable because there is not
sufficient development activity to ensure that enough credits can be
sold within a reasonable time frame. For these reasons, in-lieu fee
programs have fewer up-front planning requirements than mitigation
banks, and are not expected to be operated as commercial ventures. The
agencies thus believe it is appropriate to limit sponsorship of in-lieu
fee programs to governmental or non-profit land management entities
that operate explicitly in the public interest, rather than to serve
the needs of investors. We are not aware of any independent studies
that have examined the quality and ecological success of compensatory
mitigation projects provided by for-profit entities versus governmental
or non-profit entities, however we believe the rule provides
appropriate safeguards and incentives to ensure that both types of
entities (commercial and non-commercial) will provide successful
compensatory mitigation given their differing organization, purposes,
and constraints.
    Preference for ``in-place'' compensatory mitigation. Five
commenters stated that in-lieu fee programs should be retained but that
the rule should contain a preference for in-place compensatory
mitigation. One commenter indicated that in-lieu fee programs and in-
place mitigation should have the same level of preference. One
commenter said that adding such a provision would promote poor
environmental stewardship because in-lieu fee programs would be
excluded from areas where there are high credit demands. Another
commenter said that a preference for in-place compensation would not be
desirable if it led to approved mitigation banks having large service
areas, because the compensatory mitigation could be a substantial
distance from the location of the permitted impacts. This commenter
stated that in-lieu fee programs should be retained in the final rule
to provide ecologically appropriate compensatory mitigation in areas
with thin markets for mitigation bank credits.
    In Sec.  332.3(b) [Sec.  230.93(b)] we have established a
preference hierarchy for compensatory mitigation options (i.e.,
mitigation banks, in-lieu fee programs, and permittee-responsible
mitigation). We have established a preference for mitigation bank
credits, because a secured site, an approved mitigation plan and other
assurances must be in place before an initial allocation of credits can
be sold or transferred to permittees. Before additional credits can be
sold, the mitigation bank must achieve appropriate ecological
milestones set out in its credit release schedule. Therefore,
mitigation bank credits are generally more likely to be fulfilled
sooner (or to be already fulfilled), than in-lieu fee program credits.
We recognize, however, that this is not always the case. Some in-lieu
fee programs may have the appropriate number and resource type of
released credits available, and the final rule allows the district
engineer to modify the hierarchy in cases where the reasons underlying
it do not apply (e.g., an in-lieu fee program has available released
credits that are just as certain and close to fulfillment as credits
from a bank). When considering the options in Sec.  332.3(b)(2)-(6)
[Sec.  230.93(b)(2)-(6)], district engineers have the discretion to
modify the hierarchy in order to approve the use of the environmentally
preferable compensatory mitigation. Another example is when a permittee
with a proven track record and access to appropriate scientific
expertise proposes a high-value mitigation project, even though credits
from an approved in-lieu fee program or mitigation bank are available.
    Differences between the standards for mitigation banks and in-lieu
fee programs. Several commenters noted that the fundamental difference
between in-lieu fee programs and mitigation banks is timing. Two of
these commenters pointed out that mitigation banks, like in-lieu fee
programs, receive credit before compensatory mitigation projects are
implemented. Another commenter suggested that in-lieu fee programs
should adhere to the same standards as mitigation banks for the
implementation of compensatory mitigation projects, but should be
allowed to collect funds before acquiring a compensatory mitigation
project site. Two commenters stated that the rule should recognize the
inherent differences between mitigation banks and in-lieu fee programs
but that all sources of compensatory mitigation should be held to
standards that assure successful performance. Another

commenter said that if the standards were the same for mitigation banks
and in-lieu fee programs, private mitigation banks would dominate the
process, resulting in poor geographic distribution of compensatory
mitigation, significantly reduced ecological diversity, and less
protection and restoration of important aquatic resources.
    According to the 2001 NRC Report, the principal difference between
mitigation banks and in-lieu fee programs is timing. Mitigation banks
and in-lieu fee programs are financed and planned differently, which
creates the timing difference observed by the NRC. Since commercial
mitigation banks sponsors have up-front financing, they can acquire and
plan their mitigation bank sites before submitting their proposals to
district engineers for consideration. In contrast, in-lieu fee programs
do not generally have this up-front financing available, so they must
obtain funds from permittees (under an in-lieu fee program instrument
or agreement) before they can acquire and plan in-lieu fee project
sites, and implement those projects.
    We agree that mitigation banks and in-lieu fee programs should be
held to the same standards, to the maximum extent practicable, as
required by NDAA section 314. We believe the final rule accomplishes
this goal. The standards provided in this rule will help ensure that
the compensatory mitigation provided by mitigation banks and in-lieu
fee programs both offset the impacts incurred by permittees who secure
credits from these third-party mitigation providers. To maximize
compensatory mitigation options, the inherent differences between
mitigation banks and in-lieu fee programs warrant somewhat different
procedural requirements. The most substantial differences relate to
timing and financing. We recognize that in-lieu fee programs are
usually not able to capitalize compensatory mitigation projects up-
front. Instead, they must collect funds from permittees before they can
secure a suitable site and develop and implement a compensatory
mitigation project. For this reason, in-lieu fee programs, but not
banks, are allowed to sell advance credits. Unless an in-lieu fee
program has a surplus of credits available in a service area (i.e.,
released credits), the compensatory mitigation will take place after
the permitted impacts have occurred. To help ensure that the collected
funds are used in a timely manner to initiate compensatory mitigation
projects, we are including a time limit of three growing seasons for
fulfillment of advance credits (see Sec.  332.8(n)(4) [Sec.
230.98(n)(4)]) and requiring in-lieu fee programs to establish accounts
to retain the collected funds. Those funds can only be used for the
selection, design, acquisition, implementation, and management of in-
lieu fee projects, with a small percentage allowed for administrative
costs.
    However, the substantive mitigation requirements, as well as many
of the procedural requirements are the same for both banks and in-lieu
fee programs. Both are subject to the same requirements for plan
approval, performance standards, monitoring, adaptive management and
long-term stewardship. Proposed mitigation banks and in-lieu fee
programs will both be required to undergo review by Interagency Review
Teams, both for their instruments and for their specific mitigation
project plans, though in the case of mitigation banks these two steps
are usually accomplished simultaneously, while for in-lieu fee programs
instrument review and approval will usually take place prior to
development of a particular project. Public involvement is required in
the same way for both types of third-party providers as well. By
including equivalent substantive ecological standards while recognizing
certain administrative and procedural differences, the rule will also
help maximize available credits from sponsors willing to provide third-
party mitigation in a range of service areas, from high-development
areas that can support economically-viable banks to remote areas that
cannot, but that still have occasional mitigation needs. We recognize
that in-lieu fee programs have sometimes provided compensatory
mitigation for different types of aquatic resources than mitigation
banks, and this rule does not interfere with that practice.
    Proposed in-lieu fee regulatory text. A few commenters proposed in-
lieu fee regulatory text. One commenter suggested that the district
commander may only consider in-lieu fee preservation as the primary
mitigation if no other form of mitigation is available, feasible or
practicable. Another commenter proposed that each in-lieu fee program
should draft a program agreement that is submitted for public review
and comment and the review of the district engineer and the Interagency
Review Team (IRT). Under that agreement, fees paid to each in-lieu fee
program would be determined by the market rate of mitigation bank
credits within a watershed and would be reviewed periodically by the
IRT. One commenter suggested that all in-lieu fee programs should be
required to have an approved operating agreement or instrument. This
commenter said that an in-lieu fee program should have to project the
type and location of impacts and receive advance payments so that the
compensatory mitigation would be implemented in advance of permitted
impacts. Another commenter suggested that each in-lieu fee program be
required to have an approved Memorandum of Understanding and a program
manager responsible for administering the program. This commenter also
said that district engineers should determine acceptable fee amounts
for the required compensatory mitigation and should be the final
approval authority for all proposed expenditures of funds collected for
compensatory mitigation for DA permits.
    We have considered the regulatory text proposed by these
commenters. The final rule requires a prospectus, public notice and
comment period, and IRT review of proposed in-lieu fee program
instruments. The use of preservation as compensatory mitigation will be
determined by district engineers on a case-by-case basis in accordance
with Sec.  332.3(h) [Sec.  230.93(h)]. In-lieu fee programs must have
approved instruments before they can be used to provide compensatory
mitigation for DA permits. We do not believe it is practical to require
in-lieu fee programs to receive advance payments so that they could do
compensatory mitigation in advance of permitted impacts. If it were
possible for in-lieu fee programs to fulfill such a requirement, they
could operate as mitigation banks. We do not believe it is appropriate
for district engineers to determine credit costs for in-lieu fee
programs, but they will review the fees set by sponsors to determine
whether they comply with the requirement for full cost accounting to
ensure that the required compensatory mitigation is provided and
maintained.

IV. Compliance With Section 314 of the NDAA

    Section 314 of the NDAA requires the issuance of standards and
criteria for compensatory mitigation that, to the maximum extent
practicable, (1) maximize available credits and opportunities for
mitigation, (2) provide flexibility for regional variations in wetland
conditions, functions and values, and (3) apply equivalent standards
and criteria to each type of compensatory mitigation.
    With respect to maximizing available credits and opportunities for
mitigation, the preference established in today's rule for the use of
credits provided by

mitigation banks (see Sec.  332.3(b) [Sec.  230.93(b)]) should
stimulate an increase in the number of mitigation banks and
correspondingly the number of bank credits available for use. Also,
today's rule provides greater efficiency and predictability to the
process of authorizing new mitigation banks and in-lieu fee programs
and associated projects by establishing clear standards and criteria
for instruments and mitigation plans, and setting reasonable timelines
for review and decision-making. These improvements in regulatory
efficiency and predictability should serve to stimulate an increase in
the number of mitigation banks and in-lieu fee programs, and therefore
an overall increase in the number of third-party compensatory
mitigation credits available to offset permitted impacts. Additionally,
our decision to retain and reform in-lieu fee mitigation, rather than
eliminate it, will provide a range of compensation options for permit
applicants, and help to ensure that viable options are available in
areas not served by banks. Thus, consistent with the NDAA, today's rule
maximizes available credits and opportunities for mitigation to the
maximum extent practicable.
    With respect to providing flexibility for regional variations in
wetland conditions, functions and values, as previously noted, we
believe that today's rule achieves the proper balance of binding
requirements and flexibility necessary to ensure that compensatory
mitigation decisions are reasonable and based on case-specific
circumstances. An adequate degree of flexibility is necessary for this
rule because practices for restoring, establishing, and enhancing
aquatic resources vary by resource type and by geographic region. For
example, today's rule does not proscribe a one-size-fits-all set of
ecological performance standards to evaluate the success of all
compensation projects. Instead, the rule recognizes that ecological
performance standards will vary depending upon aquatic resource type,
geographic region, and compensation method but requires that they be
based the best available science that can be measured or assessed in a
practicable manner. Thus, consistent with the NDAA, today's rule
provides flexibility for regional variations in wetland and aquatic
resource conditions, functions and values to the maximum extent
practicable.
    Additionally, today's rule requires ``equivalent'' standards, to
the maximum extent practicable, for all three mechanisms for providing
compensatory mitigation: permittee-responsible compensatory mitigation,
mitigation banks, and in-lieu fee mitigation. Because there are
fundamental differences in how these three types of compensatory
mitigation are structured and conducted, we do not believe that
Congress intended to require the promulgation of identical standards
for all three methods of compensation. Instead, we interpret
``equivalent'' standards to mean standards which are equal in value,
force, or meaning (See, e.g., The American Heritage Dictionary of the
English Language, Fourth Edition). With that goal in mind, today's rule
requires that compensation projects provided by all three compensation
mechanisms have mitigation plans which include the same 12 fundamental
components: objectives; site selection criteria; site protection
instruments (e.g., conservation easements); baseline information (for
impact and compensation sites); credit determination methodology;
mitigation work plan; maintenance plan; ecological performance
standards; monitoring requirements; long-term management plan; adaptive
management plan; and financial assurances (see 33 CFR 332.4(c) [40 CFR
230.94(c)]). There are minor differences in the specific requirements
for these components in order to accommodate the different nature of
the three mitigation approaches. There are also procedural and timing
differences among the requirements for the three types of mitigation.
For example, in-lieu fee programs are allowed to sell a limited number
of credits before having an approved site and mitigation plan, while
banks are not. However, to compensate for this difference and ensure
that the standards are ``equivalent'' to the maximum extent
practicable, in-lieu fee programs are required to develop a
compensation planning framework and adhere to strict accountability
requirements for all fees collected, requirements which go beyond those
applied to banks. We have also included a preference for bank credits
over advanced credits from in-lieu fee programs, and limited in-lieu
fee program sponsorship to qualified governmental and non-profit
resource management agencies. We thus believe that the final rule
fulfills the statutory directive to provide ``equivalent'' standards
for the three types of mitigation to the maximum extent practicable.
Specific rule provisions that apply to each of the types of
compensatory mitigation, and the reasons for their differences, are
discussed throughout today's preamble.

V. Organization of the Final Rule

    The proposed compensatory mitigation regulation in 33 CFR part 332
[40 CFR part 230], is organized into the following sections:
    Section 332.1 [230.91], Purpose and general considerations,
describes the basic purpose of the proposed rule and general principles
concerning compensatory mitigation.
    Section 332.2 [230.92], Definitions, provides definitions of
important terms relating to compensatory mitigation and the Corps
Regulatory Program.
    Section 332.3 [230.93], General compensatory mitigation
requirements, describes general compensatory mitigation requirements
for DA permits, including permit conditions and financial assurances.
This section also describes the watershed approach to compensatory
mitigation.
    Section 332.4 [230.94], Planning and documentation, describes the
review of proposed compensatory mitigation activities, as well as
requirements for mitigation plans.
    Section 332.5 [230.95], Ecological performance standards, describes
principles for establishing ecological performance standards for
compensatory mitigation projects.
    Section 332.6 [230.96], Monitoring, describes general requirements
for monitoring compensatory mitigation projects.
    Section 332.7 [230.97], Management, describes general requirements
for site protection, sustainability, adaptive management, and long-term
management of compensatory mitigation projects.
    Section 332.8 [230.98], Mitigation banks and in-lieu fee programs,
provides requirements that are specifically applicable to mitigation
banks and in-lieu fee programs.

VI. Discussion of Specific Sections of the Final Rule

    The final rule is presented in two parallel sections: Changes to
Corps regulation in 33 CFR and changes to EPA regulation in 40 CFR. The
two sections are almost entirely the same, with minor exceptions. These
include: (1) Corps changes to permit application requirements at 33 CFR
325.1; (2) Conforming changes to EPA's existing mitigation regulations
at 40 CFR part 230, making appropriate citations for the addition of
new Sec. Sec.  230.91 through 230.98; and (3) References to the Rivers
and Harbors Act of 1899, in which the EPA does not have a regulatory
role, have been omitted from the text in 40 CFR part 230.

33 CFR 325.1 Application for Permits

    In the proposed rule, the Corps proposed to modify Sec.  325.1(d)
by adding a new paragraph requiring a mitigation statement for section
404 permit applications. Several commenters supported the proposed
requirement. One commenter said that geographic coordinates and
monitoring data should also be required for this mitigation statement.
A number of commenters objected to the proposed requirement. One
commenter believed requiring this statement is unnecessary because some
impacts to waters of the United States are unavoidable. Another
commenter said that determining whether the proposed avoidance and
minimization is sufficient, appropriate, or practicable is highly
subjective and may invite litigation. This commenter remarked that it
is the Corps' responsibility to determine whether appropriate and
practicable avoidance, minimization, and compensation has been provided
prior to making a decision on a section 404 permit. Several commenters
said that this provision should be modified, to clarify that the
mitigation statement is to be brief, since it is provided at the
beginning of the permit application process and is likely to change as
a result of the evaluation process. One commenter stated that this
paragraph should be modified to allow the permit applicant to explain
why compensatory mitigation should not be required, since many
individual permits are issued under section 404 that do not require
compensatory mitigation.
    This requirement has been adopted in the final rule because it will
provide useful information for the permit evaluation process. Section
325.1(d)(7) has been changed to allow permit applicants to explain why
they believe compensatory mitigation should not be required for
particular activities. The mitigation statement should be brief,
because the permit evaluation process is an iterative process, and
district engineers often require additional avoidance and minimization
as they evaluate permit applications. The Corps does not agree that it
would be appropriate to require geographic coordinates or monitoring
data with the mitigation statement. The permit application will
indicate the location of the proposed work. Monitoring data may be
required at a later time, depending on the conditions of the issued
permit. See the discussion of section 332.4(b)(1) below for a
description of public notice requirements for the mitigation statement.

33 CFR 332.1 and 40 CFR 230.91 Purpose and General Considerations

    (a) Purpose. Many commenters stated that the proposed rule
restricts flexibility for mitigation options for both the permit
applicant and the Corps, and therefore it is inconsistent with section
314. Many commenters declared that the proposed elimination of in-lieu
fee programs conflicts with this statute, because it reduces mitigation
opportunities available to permittees as well as the quality and
success of compensatory mitigation projects. One commenter said that to
comply with the statutory mandate to maximize available credits and
opportunities for mitigation, the rule should specify that mitigation
banks are the preferred choice when available. A number of commenters
believe that the proposed rule unfairly promotes mitigation banking and
restricts other compensatory mitigation opportunities.
    In response to the comments, we have made substantial changes to
this rule to better comply with the statutory mandate. We have retained
in-lieu fee programs as a separate mechanism for providing compensatory
mitigation, with clear and stringent standards to help ensure
performance in replacing aquatic resource functions and services lost
as a result of activities authorized by DA permits. We have also
established a preference for mitigation bank credits, because of the
lower risks associated with mitigation banks. This preference is
discussed in greater detail below. In this final rule, we have applied
equivalent standards to all sources of compensatory mitigation, to the
extent it is practicable to do so, given the fundamental differences
among permittee-responsible mitigation, mitigation banks, and in-lieu
fee programs.
    Many commenters said that the rule should apply equivalent
standards and criteria to each type of compensatory mitigation. A
number of commenters expressed concern that the proposed rule does not
accomplish that objective. One commenter suggested establishing
equivalent levels of interagency review for proposed compensatory
mitigation projects. Several commmenters said that the statute should
be interpreted as requiring the establishment of similar levels of
accountability for mitigation banks, in-lieu fee programs, and
permittee-responsible mitigation. This would allow the retention of in-
lieu fee programs as a separate mechanism for providing compensatory
mitigation for DA permits. One commenter remarked that the proposed
rule goes much further than establishing equivalent standards and
criteria by providing a strong preference for the use of mitigation
banks. This commenter said that the proposed rule incorrectly asserts
that mitigation banks are always successful and therefore other forms
of compensatory mitigation should be held to the same standards as
mitigation banks in order to achieve success. One commenter stated that
the objective of this rule should be to effectively mitigate for losses
of aquatic resources, not to level the playing field between mitigation
banks and in-lieu fee programs. Three commenters said that the proposed
rule provides equivalent standards for different types of compensatory
mitigation, but it needs to focus on improving success, regardless of
whether permittee-responsible mitigation, mitigation banks, or in-lieu
fee programs are used.
    This final rule applies equivalent standards and criteria to all
sources of compensatory mitigation, to the maximum extent practicable.
It is not practicable to apply exactly the same standards and criteria
to mitigation banks, in-lieu fee programs, and permittee-responsible
mitigation, nor are the agencies required to do so, as discussed above.
There are inherent differences among these sources of compensatory
mitigation. As many commenters pointed out, there are many areas of the
country where there are no mitigation banks or in-lieu fee programs.
Flexibility in compensatory mitigation requirements is needed to
account for regional variations in aquatic resources, as well as state
and local laws and regulations. There also needs to be flexibility
regarding the requirements for permittee-responsible mitigation.
Practicability is an important consideration when determining
compensatory mitigation requirements. We agree that the final rule
should provide similar levels of accountability among the three sources
of compensatory mitigation. We strongly agree that the focus should be
on ecological success of compensatory mitigation projects, not the
source of the compensatory mitigation. The preferences provided in
Sec.  332.3(b) [Sec.  230.93(b)] are based primarily on administrative
criteria that take into account risk and uncertainty in providing the
required compensatory mitigation. This rule provides tools to help
improve ecological success of compensatory mitigation projects, but the
rule itself cannot guarantee that success. Ecological success is
dependent upon effective project planning, site selection, and
implementation.
    One commenter said that the agencies should clarify that they may
conduct

rulemaking without public notice and comment and still comply with the
Administrative Procedure Act.
    We acknowledge that, in limited circumstances, agencies can conduct
rulemaking without a public notice and comment process. For example, an
agency may issue a direct final rule for routine and non-controversial
regulations, if the agency believes the rule would not result in
adverse comments. It is unlikely that any rulemaking related to
compensatory mitigation would result in no adverse comments. In the
interest of transparency, the agencies have agreed that any future
changes to this rule will involve notice and comment rulemaking.
    Many commenters said that stream compensatory mitigation should not
be included in this rule. A number of commenters stated that there is
no scientific evidence that streams can be created or replaced, or that
other approaches taken in this rule can compensate for stream losses.
Many of these commenters asserted that the agencies should conduct
further research on stream mitigation and demonstrate its success
before including standards for stream mitigation in the rule. Some
commenters noted that the statute requiring the promulgation of this
rule refers only to wetlands. Several commenters expressed support for
applying the rule to streams and other open waters. One commenter said
that physical alteration of the nation's waters should be mitigated to
the extent possible to support the objective of the Clean Water Act.
Since section 404 of the Clean Water Act authorizes discharges of
dredged or fill material into lakes, streams, and wetlands, mitigation
for those impacts should be provided.
    We believe that is appropriate to apply this rule to all types of
aquatic resources, not just wetlands. This rule addresses the basic
requirements of compensatory mitigation projects: planning and
documentation, performance standards, monitoring, and management.
Stream compensatory mitigation projects also require these basic
elements. The final rule recognizes the challenges associated with
stream restoration and provides in Sec.  332.3(e)(3) [Sec.
230.93(e)(3)] that compensation for difficult to replace resources,
such as streams, should be provided through in-kind rehabilitation,
enhancement or preservation if practicable. The feasibility and
appropriateness of compensatory mitigation for a particular aquatic
resource type is to be addressed on a case-by-case basis by district
engineers. Effective implementation of this rule, including the
ecological performance of compensatory mitigation projects, is
dependent upon critical thinking by decision-makers to determine
whether a particular compensatory mitigation proposal at a specific
site is technically feasible and capable of providing the desired
aquatic resource functions and services. Stream restoration and
rehabilitation activities have been conducted all across the country,
with varying levels of success. There are areas of the country, such as
the southeastern coastal plain, where it may be possible to
rehabilitate functioning streams if appropriate geologic and hydrologic
conditions are present. Compensatory mitigation required by the Corps
helps support the objective of the Clean Water Act, by offsetting
losses of aquatic resource functions that result from activities
authorized by DA permits.
    (b) Applicability. One commenter said that the proposed rule is
inconsistent with 33 CFR 320.4(r), which limits requirements for
compensatory mitigation to ``significant resource losses.''
    This final rule does not alter the circumstances when compensatory
mitigation is required. The Corps has required compensatory mitigation
for minor activities, such as activities authorized by nationwide
permits, for many years to ensure that those activities result in
minimal individual and cumulative adverse effects on the aquatic
environment and are in the public interest. Prior to issuing an
individual permit, the Corps determines on a case-by-case basis whether
compensatory mitigation is necessary to ensure that the authorized
activity is in the public interest and, if it involves a discharge of
dredged or fill material, complies with the 404(b)(1) Guidelines.
    Several commenters supported the use of areas not subject to
regulatory jurisdiction under the Clean Water Act and/or sections 9 and
10 of the Rivers and Harbors Act of 1899 to provide compensatory
mitigation for DA permits. One commenter said that using non-
jurisdictional areas as compensatory mitigation can support a watershed
approach.
    We agree with these comments, and have retained this provision in
the final rule.
    A number of commenters believe that the rule should clarify the
Corps' authority to require mitigation in light of the U.S. Supreme
Court Decisions in Solid Waste Agency of Northern Cook County v. Army
Corps of Engineers (2001) and Rapanos et ux., et al. v. United States
(2006) (Rapanos). Some commenters noted that if the Corps cannot
directly regulate discharges of dredged or fill material into a non-
jurisdictional wetland, then the Corps cannot require that particular
wetland to be used to mitigate impacts to other wetlands. Such an
approach would allow the Corps to indirectly regulate non-
jurisdictional wetlands. One commenter stated that the Rapanos decision
should apply not only to determining whether a particular water body or
wetland is jurisdictional under the Clean Water Act, but it should also
guide the development of criteria and standards that inform mitigation
decisions.
    This rule is not the appropriate venue for addressing Clean Water
Act jurisdiction. The Corps does not generally require that any
particular wetland or resource be used to provide compensatory
mitigation. Rather, the project sponsor proposes a mitigation option
and the Corps determines whether the proposed option is adequate to
compensate for resource functions and services lost at the impact site.
We believe that non-jurisdictional waters can be used to provide
compensatory mitigation for activities authorized by DA permits, if the
rehabilitation, enhancement, and/or preservation of those waters is
determined to be appropriate compensation for authorized impacts. The
Rapanos decision is limited to the question of Clean Water Act
jurisdiction, not decision-making for compensatory mitigation
    (c) Sequencing. Many commenters stated that the rule should
emphasize avoidance and minimization, not just compensatory mitigation.
They said that compensatory mitigation should not be considered until
all efforts have been made to first avoid and then minimize unavoidable
impacts to waters of the United States. Many commenters believe that
the proposed rule grants district engineers too much discretion to
determine that permit applicants have avoided and minimized impacts to
aquatic resources. Two commenters said that the rule needs to be
rewritten to treat compensatory mitigation as a last resort to ensure
protection and enhancement of the nation's streams and wetlands.
    This rule addresses only the compensation component of the section
404 mitigation sequence. Avoidance and minimization are addressed
through other regulations, such as the Section 404(b)(1) Guidelines for
activities involving discharges of dredged or fill material into waters
of the United States. Activities involving discharges of dredged or
fill material into waters of the United States must comply with all

applicable provisions of the 404(b)(1) Guidelines before a section 404
permit can be issued. For activities that require DA permits pursuant
to sections 9 or 10 of the Rivers and Harbors Act of 1899, avoidance
and minimization requirements are provided through application of the
Corps Regulatory Program's mitigation policy at 33 CFR 320.4(r).
    A number of commenters said that the proposed rule is inconsistent
with the 404(b)(1) Guidelines as they relate to the consideration of
practicable alternatives. They indicated that allowing permit
applicants to use compensatory mitigation instead of using practicable
alternatives will result in significant adverse impacts to the
environment. Two commenters recommended that the rule include measures
to be used to avoid impacts to wetlands, and limit permit issuance to
those impacts that were truly unavoidable. Several commenters said that
the sequencing provision in the proposed rule fails to recognize
changes that occur to wetlands over time, and it does not take into
account innovative steps in wetland management that can be used to
benefit society.
    Consideration of practicable alternatives is provided through
application of the 404(b)(1) Guidelines for activities that involve
discharges of dredged or fill material into waters of the United
States. Using compensatory mitigation to minimize adverse effects to
the aquatic environment is consistent with the 404(b)(1) Guidelines
(see 40 CFR 230.75). Avoidance and minimization are achieved through
application of the 404(b)(1) Guidelines for activities that require
section 404 permits. We have added a new paragraph (c)(1) to this
section to clarify that nothing in this rule affects the requirement
that all section 404 permits comply with applicable provisions of the
404(b)(1) Guidelines. Paragraph (c)(2) of this section has been
modified to clarify that individual section 404 permits will be issued
only when compliance with applicable provisions of the 404(b)(1)
Guidelines has been achieved, including those which require the permit
applicant to take all appropriate and practicable steps to avoid and
minimize adverse impacts to aquatic resources. For general permits,
compliance with the 404(b)(1) Guidelines is addressed through
application of 40 CFR 230.7. There are many reasons why wetlands change
over time, most of which are not under the control of the Corps.
Paragraph (c) of this section can only address those changes that
result from discharges of dredged or fill material into waters of the
United States, including jurisdictional wetlands.
    Several commenters said that the final rule should include
exemptions to the mitigation sequencing requirements when the discharge
is necessary to avoid environmental harm or can be reasonably expected
to result in environmental gains or insignificant impacts. Other
commenters expressed concern that strict adherence to mitigation
sequencing will prevent the implementation of large scale compensatory
mitigation projects. Some commenters asserted that rigid rules for on-
site avoidance often result in small areas for compensatory mitigation
projects, which are unlikely to function properly.
    Potential exemptions to the mitigation sequence are beyond the
scope of today's rulemaking. However, we do note that these exemptions
to the mitigation sequence are addressed through specific provisions of
the 1990 Mitigation Memorandum of Agreement (MOA) between the U.S. EPA
and the Department of the Army. Those provisions of the 1990 Mitigation
MOA are not affected by this final rule. The 404(b)(1) Guidelines and
the provisions of the 1990 Mitigation MOA that are retained after this
final rule goes into effect provide sufficient flexibility to allow the
development of large scale compensatory mitigation projects. Avoiding
waters of the United States to the maximum extent practicable on the
project site does not result in small areas for compensatory mitigation
that may be required by the district engineer, since this rule does not
require on-site compensatory mitigation. This rule takes a watershed
approach to compensatory mitigation, and emphasizes that compensatory
mitigation projects should be placed in appropriate locations within a
watershed.
    One commenter stated that the definition of ``practicable'' should
take into account public safety and maintenance. Another commenter
suggested that the rule should require the district engineer to
consider whether the wetland functions lost as a result of a permitted
activity can be practicably replaced.
    The definition of ``practicable'' provides sufficient flexibility
to take into account public safety and maintenance when making
decisions on applications for DA permits. In Sec.  332.3 [Sec.
230.93], there are several provisions that require the district
engineer to consider the likelihood of success when determining
appropriate and practicable compensatory mitigation.
    We have also added a new provision at Sec.  332.1(c)(3) [Sec.
230.91(c)(3)] reminding the public that in some cases that district
engineer may determine that a proposed permit cannot be issued because
of the lack of appropriate and practicable mitigation options. While
the Corps envisions that this will be an unusual situation, it is
possible that the impacts at a particular site would be so significant,
and the avoidance, minimization and compensation options are so
limited, that it is simply not possible to adequately mitigate the
project impacts.
    (d) Public interest. We received no comments on this provision. In
the proposed rule, this provision was in paragraph (c) of this section,
which discusses the mitigation sequence under the Clean Water Act
Section 404(b)(1) Guidelines. Since the public interest review is a
different process than mitigation sequencing, we have moved this
sentence to a separate paragraph.
    (e) Accounting for regional variations. Many commenters said that
the rule should provide flexibility to address regional issues relating
to compensatory mitigation. For example, a number of commenters
discussed implementation of section 404 of the Clean Water Act in the
State of Alaska, where there is a clear understanding that compensatory
mitigation is not always warranted or practicable. Some of these
commenters cited the May 13, 1994, ``Statements on the Mitigation
Sequence and No Net Loss of Wetlands in Alaska'' issued by the U.S. EPA
and the Department of the Army. These commenters said that the final
rule should identify Alaska as a special case in which local
flexibility is needed and will be applied. In Alaska, there are limited
opportunities to create or restore wetlands because of its
environmental conditions.
    As discussed elsewhere in this preamble, this rule does not change
the circumstances under which compensatory mitigation is required for
DA permits. Therefore, it does not change the May 13, 1994, Alaska
mitigation statement cited above. We have modified appropriate
provisions of this rule to clarify the flexibility and discretion
available to district engineers when determining compensatory
mitigation requirements for DA permits.
    Some commenters cited examples where regional flexibility is needed
to maximize available mitigation credits. An important tool for
regional flexibility is to be able to use all three mechanisms
(permittee-responsible mitigation, mitigation banks, and in-lieu fee
programs) for providing compensatory mitigation. One commenter said
that there is only one small mitigation bank

in Alaska because of its climate, geography, and limited opportunities
for wetland establishment or restoration. Other commenters stated that
opportunities to develop mitigation banks in southern Nevada and other
areas of the southwest are extremely limited because of the low
availability of water. Another commenter noted that in areas where most
of the land is owned by the federal government, opportunities to
develop mitigation banks are substantially limited.
    This rule supports all three mitigation sources used in the Corps
Regulatory Program: permittee-responsible mitigation, mitigation banks,
and in-lieu fee programs. We acknowledge that there are areas where
mitigation banks are unlikely to be established. In such areas, in-lieu
fee programs may be established. Permittee-responsible mitigation may
also be required if there are no third-party mitigation options and the
district engineer determines that compensatory mitigation is necessary
to offset losses of aquatic resource functions.
    One commenter suggested that each Corps district establish region-
specific methodologies for calculating compensatory mitigation needs.
According to this commenter, this would allow regional experts to set
regional strategies for compensatory mitigation. One commenter said
that this rule should provide district engineers with operational
standards for regional variations, but only to the extent necessary to
promote ecologically sound and successful restoration of wetland
functions.
    Regional methods for determining compensatory mitigation
requirements can be developed by Corps districts and other entities.
District engineers are also encouraged to establish regional strategies
for compensatory mitigation, through watershed planning or other means.
The development of regional methods and watershed plans is a resource-
intensive enterprise, and any Corps district efforts towards developing
such products are dependent on available resources. We do not believe
it would be appropriate to provide operational standards in a national
rule, because regional standards are more effectively developed at the
local level.
    (f) Relationship to other guidance documents. Many commenters
recommended adding a provision to the rule that clarifies whether
previously issued guidance documents relating to compensatory
mitigation in the Corps Regulatory Program are superseded by this final
rule. These commenters cited the 1995 Mitigation Banking Guidance, the
2000 In-Lieu Fee Guidance, and the 1990 Mitigation Memorandum of
Agreement between the U.S. EPA and the Department of the Army as
documents about which such clarification is needed.
    We agree that such a provision is appropriate to provide clarity
for the regulated public and government agencies. We have added
paragraph (f)(1) to this section, which states that this rule replaces
the mitigation banking guidance issued on November 28, 1995, the in-
lieu fee guidance issued on November 7, 2000, and Regulatory Guidance
Letter 02-02 which was issued on December 24, 2002. Since this rule
does not address all provisions of the 1990 Mitigation MOA that relate
to compensatory mitigation, paragraph (f)(2) discusses which provisions
of this MOA are superseded by the rule. This rule supersedes only those
provisions of the MOA relating to the amount, type, and location of
compensatory mitigation, and the use of preservation as a mitigation
component.
    Other Corps guidance documents that relate to compensatory
mitigation for DA permits, such as local guidance issued by Corps
districts, should be revised as necessary so that they are consistent
with this final rule.

33 CFR 332.2 and 40 CFR 230.92 Definitions

    Adaptive management. Two commenters supported the proposed
definition of adaptive management. Two commenters suggested that the
definition should require consideration of likely risks to compensatory
mitigation project sites. Other commenters stated that the definition
should clarify that adaptive management involves a strategy that
addresses challenges faced in the restoration of dynamic systems. Two
commenters said that there is potential to use this definition to relax
or modify project-specific performance criteria to account for poor
design or unexpected as-built conditions to achieve project goals.
    We have modified this definition to account for two aspects of
adaptive management: (1) Addressing challenges that are likely to occur
with compensatory mitigation projects, and (2) addressing unforeseen
changes to those projects. The likely challenges are those that are
reasonably foreseeable, which may typically occur for the restoration,
establishment, or enhancement of a particular aquatic habitat type in a
specific area. For the purposes of this rule, adaptive management does
not require anticipation of all potential challenges, since that would
be impossible to accomplish. We have also changed this definition to
state that adaptive management requires consideration of the risk,
uncertainty, and dynamic nature of compensatory mitigation projects.
Consideration of those factors can help proponents optimize the
ecological performance of compensatory mitigation projects. The last
sentence of this definition has been modified to clarify that the
adaptive management process involves the selection of appropriate
measures that will provide aquatic resource functions. Another change
to the last sentence acknowledges that analysis of monitoring results
will be used to identify and implement measures to rectify problems.
    Advance credits. We have adopted this new definition to define one
of the two types of credits that can be provided by in-lieu fee
programs. Advance credits are compensatory mitigation credits available
for sale by an in-lieu fee program sponsor prior to being fulfilled
through implementation of an approved mitigation plan for an in-lieu
fee project. An approved in-lieu fee project will have a credit release
schedule, and as the milestones in the credit release schedule are
achieved, the credits that are produced will be released to fulfill the
sponsor's obligation for credit production on behalf of the permittees
who secured credits from that sponsor. The number of advance credits
that a sponsor may make available to permittees is specified by service
area in the in-lieu fee program instrument. In-lieu fee programs cannot
sell advance credits until they have an approved instrument specifying
the maximum allowable number of advance credits and a schedule for
fulfilling any advance credit sales. Considerations for determining the
appropriate number of advance credits for a given service area are
discussed elsewhere in this preamble.
    Buffer. Two commenters recommended modifying this definition to
include areas providing upland habitat next to aquatic resources, in
addition to protecting those resources from disturbance. Another
commenter said that this definition should include buffers associated
with ephemeral channels. One commenter noted that there is
inconsistency in the proposed rule: in one section the term ``buffer''
includes upland areas, but in another section of the proposed rule it
implies that buffers do not include uplands. This commenter recommended
using this term consistently throughout the rule to eliminate
confusion. One

commenter said that buffers may include wetlands.
    Although upland buffers usually provide habitat next to aquatic
resources, we do not believe it is necessary to explicitly state that
in this definition. Upland buffers can be established and maintained
next to ephemeral channels, but we do not believe such clarification is
needed. We have modified this definition by adding the word ``wetland''
since buffers may be comprised of uplands, wetlands, and/or riparian
areas. Riparian areas may or may not be wetlands.
    Compensatory mitigation. Two commenters suggested that this
definition should not be limited to aquatic resources. It should also
acknowledge ecological improvements in uplands. Another commenter said
that the definition should clarify that preservation is always a
required component of compensatory mitigation, and in certain
circumstances it may be the sole component. One commenter stated that
this definition should be expanded to include functional surrogates for
hydrology, such as integrated storm water management facilities.
    This rule is limited to compensatory mitigation for impacts to
aquatic resources, since the Corps regulates activities in waters of
the United States, including navigable waters. Mitigation required by
district engineers to address impacts to other resources, such as
endangered species or historic properties, is governed by other
provisions in the Corps regulations. Preservation is not always a
required component of compensatory mitigation, although long-term
protection through real estate instruments or other mechanisms is
usually required for compensatory mitigation project sites.
Preservation is one means of providing compensatory mitigation;
compensation may also be provided through restoration, enhancement, or
establishment, or any combination of those four methods. Preservation
is rarely the sole source of compensatory mitigation for a DA permit;
in most cases, aquatic resource restoration, establishment, and/or
enhancement is required to achieve a minimum of one-to-one replacement
of lost aquatic resources and any required preservation augments that
replacement. Use of various techniques to offset losses of hydrologic
functions, such as integrated storm water management facilities, is
considered to be an action to minimize effects in accordance with 40
CFR part 230, Subpart H. District engineer can consider the use of such
features when determining the appropriate amount of compensatory
mitigation required for DA permits.
    Compensatory mitigation project. Two commenters recommended
expanding this definition to include ecological improvements in
uplands, where appropriate. One commenter said it was unclear whether
forms of third-party mitigation other than mitigation banks are
considered to be compensatory mitigation projects. One commenter
suggested adding in-lieu fee programs to this definition.
    This definition has been simplified by replacing the phrase ``a
restoration, establishment, enhancement, and/or preservation activity''
with ``compensatory mitigation.'' In this rule, district engineers have
the discretion to include uplands, such as non-wetland riparian areas
and buffers, as part of the overall compensatory mitigation project if
those features are essential to maintaining the ecological viability of
adjoining aquatic resources. We do not believe it is necessary to state
this concept in the definition, since it is addressed in Sec.  332.3(i)
[Sec.  230.93(i)]. We have removed the term ``third-party'' from this
definition, and added the phrase ``or an in-lieu fee program'' to
clarify that compensatory mitigation projects include mitigation banks
and in-lieu fee programs.
    Condition. We have adopted this new definition since methods other
than functional assessments can be used to evaluate permitted impacts
and compensatory mitigation projects. This definition is based on
concepts provided in the 2004 report entitled ``Review of Rapid
Assessment Methods for Assessing Wetland Condition'' which was
published by the U.S. EPA (EPA/620/R-04/009).
    Credit. One commenter noted that the proposed definition is based
on measures of function. This commenter said that if there are no units
of measure included, measures of function cannot be used to calculate
credits. Another commenter stated that units of measure are needed to
calculate numbers of credits.
    We have modified this definition by adding the phrase ``or other
suitable metric'' to the list of examples of potential measures. There
are a variety of methods that can be used to determine the number of
credits provided by a compensatory mitigation project. In some cases,
condition assessments may be used to determine available credits. The
units of measure will depend on the method of determining credits. We
have also inserted the word ``aquatic'' before ``functions'' in the
last sentence, to clarify that credits are to be based on aquatic
functions provided by resource restoration, establishment, enhancement,
or preservation.
    For the purposes of this rule, credits from a mitigation bank or an
in-lieu fee project are produced in accordance with a credit release
schedule associated with an approved mitigation plan. For permittee
responsible mitigation, credits are produced when a compensatory
mitigation project is implemented in accordance with the approved
mitigation plan.
    DA. There were no comments received on the proposed definition.
This definition is adopted as proposed.
    Days. There were no comments received on the proposed definition.
This definition is adopted as proposed.
    Debit. One commenter noted that the proposed definition is based on
measures of function. This commenter said that if there are no units of
measure included, measures of function cannot be used to calculate
debits. Another commenter stated that units of measure are needed to
calculate numbers of debits.
    For the same reasons provided in the preamble discussion of the
term ``credit,'' we have modified this definition to refer to other
suitable metrics. The units of measure depend on the method of
determining debits.
    Enhancement. One commenter expressed support for the proposed
definition. Several commenters requested changes to this definition to
provide clarification. They said that it is difficult to distinguish
between enhancement, restoration, rehabilitation, and re-establishment.
Two commenters suggested that this definition should not be limited to
aquatic resources, since ecological improvements could be made to
uplands. Two commenters stated that the definition should limit
enhancement to increases in function within the normal range of the
particular type of ecosystem. Two commenters disagreed that enhancement
does not result in an increase in aquatic resource area.
    Enhancement differs from restoration, rehabilitation, and re-
establishment because the objective of enhancement is usually to
improve one or two functions, which may result in a decrease in the
performance of other functions. Increasing those particular functions
does not change the amount of area occupied by the aquatic resource. In
contrast, re-establishment and rehabilitation (which are forms of
restoration) are intended to return most, if not all, natural and/or
historic functions to a former or degraded aquatic resource. We
acknowledge that ecological functions of uplands can be

augmented through enhancement activities, but the scope of this rule is
focused on aquatic resources. Enhancement activities are likely to
result in limited changes in functional performance, because of
inherent limits to functional capacity at a particular compensatory
mitigation project site. If a compensatory mitigation activity results
in an increase in aquatic resource area, in addition to increases in
one or more aquatic resource functions, then it would probably be more
appropriately classified as restoration. However, there may be cases
where an increase in aquatic resource area is considered to be an
adverse effect (e.g., impoundment of a forested wetland and adjacent
uplands that kills the trees and changes habitat types). While
enhancement does not result in a gain in aquatic resource area for
purposes of tracking ``not net loss'' of wetlands, this does not mean
that it cannot be used to compensate for a loss in resource area at the
impact site. The district engineer will determine on a case-by-case
basis the appropriate type and amount of mitigation to compensate for
permitted impacts.
    Establishment (creation). One commenter said that establishment
should not be used in areas with poor hydrology. Two commenters stated
that this definition should not be limited to aquatic resources, since
ecological improvement can be made to uplands. One commenter
recommended using the term ``creation'' instead of ``establishment''
because the term ``establishment'' does not convey the difficulties and
risks associated with wetland creation. Another commenter said that
deepwater sites are regulated waters and filling those waters to make a
wetland is conversion, not establishment (creation).
    District engineers will evaluate proposed establishment (creation)
projects to determine if there is appropriate hydrology to support the
desired aquatic resource. As discussed above, we acknowledge that
ecological functions of uplands can be enhanced, but that is outside
the scope of this rule. The term ``establishment'' is used in this
rule, to be consistent with the terminology developed by the White
House Wetlands Working Group (WHWWG) in 2000 to track wetland gains and
losses. The WHWWG terminology continues to be used for wetland
reporting, such as the Council on Environmental Quality's reports on
implementation of the President's wetlands goals. We acknowledge that
deepwater sites are usually considered to be waters of the United
States and we have struck the phrase ``or deepwater'' from this
definition.
    Fulfillment of advance credit sales of an in-lieu fee program. This
definition was developed for use in the regulations governing in-lieu
fee programs. The fulfillment of advance credits from in-lieu fee
programs is accomplished when an approved mitigation plan for an in-
lieu fee project is implemented by the in-lieu fee program sponsor.
Each approved mitigation plan for an in-lieu fee project will have a
credit release schedule. As each milestone of the credit release
schedule is achieved, a number of credits will be produced. The number
of credits produced will fulfill that sponsor's obligations for that
same number of advance credits. Only after all previously sold advance
credits in a service area have been fulfilled can additional released
credits from the project be sold. As advance credits within a service
area are fulfilled through the approved release of credits for an in-
lieu fee project, an equal number of new advance credits in that
service area become available to be provided or transferred (sold) to
permittees.
    Functional capacity. There were no comments received on the
proposed definition. This definition is adopted as proposed.
    Functions. A few commenters supported the proposed definition. Many
commenters recommended that the agencies provide clarification to this
definition. Several commenters said that this definition should either
identify which functions are to be measured or define standard
protocols for functional assessment methods. One commenter suggested
that the assessed functions should include primary and secondary
production, nutrient uptake and transformation, nutrient and organic
matter input, storage, and export, and organic matter decomposition
rates. Another commenter said that the definition should apply only to
wetlands, not streams.
    District engineers will determine appropriate functional
assessments to use for particular permitting situations. We do not
believe it is necessary to specify the type of functions provided by
aquatic resources, since this definition is intended to have general
applicability. We have removed the phrase ``aquatic resources and
other'' from this definition, since the term ``functions'' applies to
physical, chemical, and biological processes that occur in any
ecosystem. Even though the focus of the Corps Regulatory Program is on
functions provided by aquatic resources, we believe this definition
should be based on the general concept of what an ecosystem function
is.
    Impact. Two commenters said that the proposed rule incorrectly
assumes that all impacts are adverse, and that the definition should
recognize that some impacts may be beneficial.
    We acknowledge that not all impacts authorized by DA permits are
adverse, but the focus of this rule is on providing compensatory
mitigation for losses of waters of the United States. Activities
authorized by DA permits that benefit aquatic resources do not
generally require compensatory mitigation. When determining the
compensatory mitigation requirements for a particular permit, district
engineers should consider environmentally beneficial activities that
are provided by components of the overall project. In cases where
environmentally beneficial activities or mitigation measures related to
the aquatic environment are incorporated into the overall project, a
smaller amount of compensatory mitigation may be required to offset the
authorized adverse impacts to waters of the United States.
    In-kind. Several commenters said that the proposed definition is
too vague. Two of these commenters stated that in-kind compensation
should be structurally and functionally similar. One commenter
requested that the definition clarify the difference between
``functionally similar'' and ``structurally similar''. Two commenters
suggested that the final rule adopt the current definition of in-kind
mitigation, which refers to specific ecological types of wetlands.
    We have changed the phrase ``and/or'' to ``and'' to define in-kind
mitigation as being of a similar structural and functional type as the
impacted resource. The modification of this definition will also help
clarify that in-kind mitigation should provide similar types of
structure and functions as the impacted resource, while accommodating
high quality compensatory mitigation projects. In-kind mitigation
projects should result in resource structure and functional capacity
that are comparable to reference aquatic resources. In other words, in-
kind mitigation should not consist of replacing a degraded aquatic
resource with a degraded compensation resource. An in-kind compensatory
mitigation project should result in a high quality aquatic resource.
Thus, a mitigation project that was the same class of wetlands as the
impacted resource, but with greater species diversity and habitat
quality, would be considered appropriate in-kind mitigation.

    In-lieu fee program. Many commenters said that the rule should
define the term ``in-lieu fee program.'' Several commenters stated that
such a definition is necessary to clarify which programs would be
subject to new regulations governing in-lieu fee programs.
    We have added a definition of this term to the final rule. It is
parallel to the definition of ``mitigation bank'' while recognizing
basic differences between mitigation banks and in-lieu fee programs.
This definition discusses how an in-lieu fee program is similar to a
mitigation bank, but it also clarifies that the rules governing the
operation and use of in-lieu fee programs differ from those that govern
mitigation banks.
    In-lieu fee program instrument. We have added a definition of this
term that is parallel to the definition of ``mitigation banking
instrument.''
    Instrument. We are adding this new definition to clarify that the
use of the generic term ``instrument'' in this final rule may refer to
either a mitigation banking instrument or an in-lieu fee program
instrument.
    Interagency Review Team. One commenter suggested modifying this
definition to clarify that an Interagency Review Team (IRT) can review
documents for more than one mitigation bank. Another commenter said
that the term ``mitigation bank review team'' should be used instead
since in-lieu fee programs would be phased out under the proposed rule.
    We do not believe it is necessary to change this definition to
state that an IRT can review more than one proposed mitigation bank at
a time. A different IRT may be established for each proposed mitigation
bank or in-lieu fee program, or the same IRT may be involved in all
proposed mitigation banks or in-lieu fee programs in an area. Since
this final rule provides for both mitigation banks and in-lieu fee
programs, it would be inappropriate to revert to using ``mitigation
bank review team.''
    Mitigation bank. Three commenters recommended using the word
``aquatic'' in place of ``similar'' to clarify that the district
engineer can require out-of-kind compensatory mitigation. Two
commenters said that this definition should acknowledge that ecological
improvements to uplands may be provided through a mitigation bank. One
commenter stated that this definition should include language to
reflect the fact that a mitigation bank cannot be used to offset
impacts to aquatic resources unless certain performance standards have
been met.
    We have modified the first sentence of this definition by removing
the word ``aquatic'' and adding examples of resource types that could
be used as compensatory mitigation for impacts authorized by DA
permits: wetlands, streams, riparian areas. This change is consistent
with the practice of allowing out-of-kind compensation. Compensatory
mitigation may be provided through the establishment and maintenance of
non-wetland riparian areas, which are not aquatic resources. The
changes to the first sentence also allow recognition that upland areas
may provide important ecological functions within a mitigation bank,
and compensatory mitigation credit can be provided by those functions.
We do not believe it would be accurate to state in this definition that
performance standards must be met before a mitigation bank may be used
to provide compensatory mitigation for authorized impacts to aquatic
resources. When a mitigation bank is approved, and certain
administrative activities are accomplished, a limited number of credits
may be released which can be sold or transferred to permittees to
fulfill their compensatory mitigation requirements.
    Mitigation banking instrument. One commenter suggested modifying
this definition to allow federal facility management plans, integrated
natural resource management plans, or other acceptable documentation to
be used as mitigation banking instruments.
    Federal facility management plans, integrated natural resource
management plans, and similar documents are more appropriately
considered as site protection instruments, not mitigation banking
instruments. A mitigation banking instrument governs the establishment
and operation of a mitigation bank, which involves more issues than how
the site will be managed.
    Off-site. Many commenters requested a more explicit definition of
this term. Several commenters said that the term ``near'' is subjective
and should be more clearly defined. One commenter suggested using
``hydrologically connected'' instead of ``near.'' Two commenters
expressed support for the flexibility provided by the use of the term
``or near'' in this definition. One commenter said that the term
``parcel'' should be defined in measurable units, to establish
reasonable distances and areas for parcels. Another commenter suggested
that the agencies should consider loosening the definition of off-site
mitigation instead of allowing for more opportunities for out-of-kind
mitigation.
    We have removed the phrase ``or near'' to simplify this definition
and to remove ambiguity. Off-site compensatory mitigation is located on
a parcel of land other than the parcel containing the impact site or a
parcel contiguous to the impact site. The revised definition does not
establish minimum distances for a compensatory mitigation project to be
considered off-site. The use of in-kind mitigation versus out-of-kind
mitigation is more appropriately addressed by district engineers on a
case-by-case basis in response to project-specific circumstances,
instead of modifying this definition.
    On-site. Many commenters requested a more explicit definition of
this term. Several commenters said that the term ``near'' should be
more clearly defined because it is subjective. One commenter stated
that the term ``near'' should be replaced with ``hydrologically
connected.'' Some commenters expressed support for the flexibility
provided by the use of the term ``near'' in this definition. Two
commenters said that the term ``parcel'' should be defined more
clearly.
    For the same reasons as provided in the preamble discussion of the
changes to the definition of ``off-site,'' we have modified the
definition of ``on-site'' by removing the phrase ``or near.'' These
changes will help ensure that these two definitions complement each
other.
    Out-of-kind. Two commenters said that the word ``or'' should
replace the phrase ``and/or'' in this definition, to state that out-of-
kind mitigation should be structurally or functionally similar. One
commenter remarked that this definition should provide clarification on
what are accepted forms of out-of-kind mitigation. Two commenters
suggested that this definition refer to specific ecological types of
wetlands.
    We have removed the phrase ``and/or'' and replaced it with the word
``and'' since out-of-kind mitigation differs from the resources
impacted by the authorized work in both structure and function.
Providing clarification on accepted forms of out-of-kind mitigation is
beyond the scope of this definition. Appropriate out-of-kind mitigation
will be determined by a district engineer on a case-by-case basis in
response to an application for a DA permit. There are a number of
classification systems for the various ecological types of aquatic
resources. For the purposes of a regulatory definition that applies to
a wide variety of aquatic resources, it would not be appropriate to
modify this definition to refer to a particular classification system.

    Performance standards. One commenter requested that the agencies
expand this definition to explain, in greater detail, what performance
standards are.
    We do not believe it would be appropriate to provide greater detail
regarding performance standards in this definition. Performance
standards will vary by aquatic resource type, and those standards are
also likely to vary among geographic regions. Performance standards are
also dependent on the techniques used to measure how well a
compensatory mitigation project is meeting its objectives. General
criteria for establishing appropriate ecological performance standards
are provided in Sec.  332.5 [Sec.  230.95].
    Permittee-responsible mitigation. There were no comments on this
proposed definition. This definition is adopted as proposed.
    Preservation. Some commenters said that this definition should be
clearer, while other commenters stated that the proposed definition is
adequate. Two commenters recommended modifying this definition to
explicitly state that the preserved site will be permanently protected
through appropriate real estate or legal instruments. One of these
commenters noted that making such a change would avoid passive
mitigation that results in little or no mitigation benefits. Two
commenters said that preservation should not be limited to aquatic
resources, but should also include ecological improvements in uplands
when appropriate. One commenter suggested revising this definition to
acknowledge gains in aquatic resource functions, services, and values.
    The protection of a compensatory mitigation project site is more
appropriately addressed through the rule provisions for site protection
in Sec.  332.7(a) [Sec.  230.97(a)]. This definition merely explains
what preservation is, in the context of compensatory mitigation for DA
permits. As part of an overall compensatory mitigation project, uplands
such as non-wetland riparian areas may be included with preserved
aquatic resources, if they help protect or sustain those aquatic
resources. Although preservation helps sustain the functions and
services provided by the preserved aquatic resources, by preventing
direct impacts through land use changes, there is no gain in acreage.
There may be a ``passive'' gain in functions and services over the
long-term, if the preservation activity serves to remove or reduce
stressors on the resource, however the main purpose of preservation is
to prevent a future loss of resources, not to provide a gain. For this
reason, higher compensation ratios are generally required.
    Release of credits. This definition has been added to describe
actions where the district engineer, in consultation with the IRT,
determines that credits associated with an approved mitigation plan for
a mitigation bank are available for sale, transfer, or debit, or in the
case of an in-lieu fee program, for fulfillment of advance credit
sales. The credit release schedule for an approved mitigation bank or
in-lieu fee project plan will be used to determine the number and
resource type of credits that are released, as long as appropriate
milestones specified in that schedule are achieved. A proportion of
projected credits for a specific mitigation bank or in-lieu fee project
may be released upon approval of the mitigation plan.
    Re-establishment. Three commenters said that this definition should
be deleted from this rule. One commenter found this definition useful,
while others remarked that this definition is unclear and difficult to
distinguish from ``restoration'' and ``enhancement.'' Two other
commenters recommended expanding this definition to include ecological
improvements in uplands, instead of limiting it to aquatic resources.
    Re-establishment is a form of restoration, where the functions are
returned to the site where an aquatic resource previously existed. The
other form of restoration is rehabilitation, which results in an
improvement in most, if not all, aquatic resource functions at a
degraded site. Re-establishment differs from enhancement because
enhancement is the augmentation of certain functions in an existing
aquatic resource. It is not appropriate to address ecological
improvements to uplands in this definition, since it is focused on
aquatic resource functions. Ecological improvements to uplands that are
conducted as part of a compensatory mitigation project can be
considered by the district engineer when determining the amount of
credits provided by that compensatory mitigation project.
    Reference aquatic resources. Three commenters said that the
proposed definition contradicts extensive scientific literature that
describes the use of reference conditions in ecological assessment.
These commenters stated that the range of variability encompassed by
anthropogenic disturbances should not be included in this definition.
One commenter added that the term ``reference condition'' is used to
describe aquatic systems that are stable and highly functional, and
restoration projects should use reference streams and wetlands as
models to establish objectives. Another commenter recommended modifying
this definition to describe the use of reference sites.
    We have revised this definition to make it consistent with its
current application in ecological assessment. Reference aquatic
resources represent the full range of variability exhibited by a
regional class of aquatic resources. That variability is due to both
natural processes and anthropogenic disturbances. The term ``reference
standard'' is used for the subset of reference aquatic resources that
are the least disturbed and exhibit the highest levels of functions.
Aquatic resources are not stable; instead, they are dynamic ecosystems
that change over time. For the purposes of compensatory mitigation for
DA permits, reference sites are used to help establish realistic
objectives for compensatory mitigation projects, but these sites have
other uses as well.
    Rehabilitation. Many commenters said that the proposed definition
is unclear. One commenter recommended eliminating this definition and
another commenter stated that the term ``enhancement'' should be used
instead. One commenter supported the proposed definition. Two
commenters suggested that this definition should not be limited to
aquatic resources, but should also include ecological improvements to
uplands where applicable. One commenter recommended modifying the
second sentence of this definition to read: ``Restoration of an aquatic
resource can result in an increase in function with or without an
increase in size.''
    Rehabilitation differs from enhancement in that rehabilitation is
intended to result in a general improvement in the suite of the
functions performed by a degraded aquatic resource. In contrast,
enhancement activities focus on increasing one or two functions, rather
than all the functions being performed by an existing aquatic resource.
For the purposes of this rule, ecological improvements to uplands are
more appropriately addressed through the crediting of compensatory
mitigation projects. We do not believe it is necessary to add the
suggested sentence to this definition, since rehabilitation does not
include re-establishment, which is the other type of restoration. The
lack of gain in aquatic resource area is already addressed by the last
sentence of the definition of ``rehabilitation.'' We note that, while
rehabilitation does not result in a gain in aquatic resource area for
purposes of tracking ``not net loss'' of wetlands, this does not mean
that it cannot be used to compensate for a loss

in resource area at the impact site. The district engineer will
determine on a case-by-case basis the appropriate type and amount of
mitigation to compensate for permitted impacts.
    Restoration. Several commenters requested clarification of the
proposed definition, and one commenter said that the definition should
explain how restoration differs from enhancement. One commenter said
that rehabilitation should not be considered as a form of restoration
because rehabilitation does not result in an increase in wetland
acreage, even though it improves wetland functions and/or values. Two
commenters stated that this definition should not be limited to aquatic
resources, so it should also include ecological improvements to uplands
when appropriate.
    Restoration differs from enhancement in that it results in either
the re-establishment of an aquatic resource or the rehabilitation of a
suite of functions at a degraded aquatic resource. In contrast,
enhancement activities focus on the improvement of a subset of specific
functions of an aquatic resource. Rehabilitation results in a general
improvement in the amount of functions performed by aquatic resources,
and is considered to be a form of restoration. As stated above,
ecological improvements to uplands are more appropriately addressed
through crediting of compensatory mitigation projects.
    Riparian areas. One commenter suggested defining this term more
narrowly, to specify the type of vegetation that characterizes riparian
areas. One commenter recommended modifying this definition to limit it
to open waters, since wetlands are also considered to be waterbodies.
    We have modified the first sentence of this definition to clarify
that riparian areas are lands adjacent to streams, rivers, lakes, and
marine-estuarine shorelines. To simplify this definition, we have also
removed the second sentence of the proposed definition.
    Service area. There were no comments on this proposed definition.
This definition is adopted as proposed.
    Services. Several commenters said that the proposed definition of
this term is unclear and too subjective. According to one commenter,
using a subjective measure such as services to assess mitigation
success will hinder the government's administration of the program. In
addition, it will create compliance problems for industry, because they
will not be able to effectively plan future activities as a result of
this uncertain, subjective measure. Two commenters said that the
definitions of services and values should be combined. Other commenters
recommended removing both terms from the final rule. One commenter
stated that the reference to aquatic resources should be deleted
because services are provided by all types of ecosystems, not just
aquatic ecosystems.
    This definition has been simplified by deleting the phrase
``aquatic resource and other'' since services may be provided by any
type of ecosystem, including non-aquatic ecosystems. The concept of
ecosystem services is important for considering where compensatory
mitigation projects should be located. The relative locations of
compensatory mitigation projects in the landscape helps address certain
public interest factors, such as water quality, flood hazards, and fish
and wildlife protection.
    Sponsor. One commenter suggested that this definition should
include an entity responsible for establishing and operating a
mitigation bank or in-lieu fee program.
    We have changed this definition to clarify that the sponsor is
responsible for establishing, and in most cases operating, a mitigation
bank or in-lieu fee program. There may be cases where sponsor turns
over the long-term management (and ownership) of the mitigation bank
site or in-lieu fee project site to another entity, so the word
``operating'' is modified by the phrase ``in most circumstances'' to
reflect those situations.
    Standard permit. There were no comments received on the proposed
definition. It is adopted as proposed.
    Temporal loss. We have added a definition of temporal loss which
clarifies that temporal loss is the time lag between the loss of
aquatic resource functions caused by the permitted impacts and the
replacement of aquatic resource functions at the compensatory
mitigation site. Temporal loss is one factor that must be considered in
determining compensation ratios. The definition also provides that the
district engineer may determine that compensation for temporal loss is
not necessary when a mitigation project is initiated prior to or
concurrent with the permitted impacts, except for resources with long
development times (e.g., forested wetlands). This is intended to
provide an additional incentive for timely mitigation.
    Values. Two commenters said that the definitions of services and
values should be combined. Several commenters said that the proposed
definition of this term is unclear and too subjective, and others
indicated that this definition should be deleted. One commenter stated
that using value as a measure of mitigation success reduces the
predictability and regulatory certainty needed for industry and
government to operate efficiently.
    We have deleted this definition, since the term ``services'' is the
current term being used to signify the importance of ecosystem
functions to human populations. The use of the term ``values'' in the
Regulatory Program during the past few decades has been similar to the
way ``services'' is used today in most of the academic environmental
literature, as well as policy documents. The use of the term
``services'' instead of ``values'' will provide a more objective means
of assessing how impacted aquatic resources and compensatory mitigation
projects relate to people.
    In addition, ecosystem services can be more easily described than
values. They are usually simply presented in qualitative terms as the
benefits that are being provided to people in the watershed or other
area of interest. The term ``value'' can have different meanings (e.g.,
monetary versus non-monetary values; landowner versus societal values).
The valuation of aquatic resources and their functions is a complicated
issue, and one that is unnecessary to resolve for this rule. Use of the
term ``services'' will assist in program implementation, since agencies
and stakeholders are more likely to reach a common understanding
through descriptions of the ecosystem services being provided by a
particular site.
    Watershed. Many commenters recommend adding a definition of
``watershed'' to the rule. One commenter said that the definition
should recognize that watersheds vary from region to region. On the
other hand, another commenter stated that the definition should be
interpreted and applied in a consistent manner regardless of the
geographic location of the compensatory mitigation project. This
commenter also suggested that the rule specifically identify the
watersheds that are eligible for use as locations for compensatory
mitigation projects.
    We have adopted a definition for this term, based on the definition
provided in EPA's Watershed Plan Handbook, which was published in
December 2006. District engineers will determine appropriate watershed
scales for compensatory mitigation projects, including services areas
for mitigation banks and in-lieu fee programs. We do not believe it
would be appropriate to identify specific watersheds in which
compensatory mitigation can be conducted. In general, compensatory
mitigation projects should be located in

the same watershed as the permitted impacts, at a scale determined to
be appropriate by the district engineer based on the factors specified
in the rule.
    Watershed approach. Two commenters asked that the final rule
include a definition of this term. We have added a definition of
``watershed approach'' that is based on concepts in this final rule.
    Watershed plan. Several commenters said that there should be
opportunities for local watershed groups or non-governmental
organizations to develop watershed plans. Two commenters stated that
this definition should be limited to plans with a specific goal of
aquatic resource restoration and preservation to ensure that the
watershed plan goals are consistent with federal, tribal, and state
regulations. One commenter said that watershed plans should not include
priority sites for aquatic resource restoration. On the other hand,
another commenter stated that a watershed plan should identify priority
sites for restoration and should also have a goal of ecosystem
restoration. One commenter said that the proposed rule implies that any
available watershed plan should be used to identify compensatory
mitigation sites. This commenter stated that such an approach would be
inappropriate unless the watershed plan is developed for the purpose of
compensatory mitigation, including the protection of both natural and
built environments.
    We have modified this definition to include appropriate non-
governmental organizations, such as local watershed groups, as
potential developers of watershed plans. We have also changed this
definition to clarify that, for the purposes of this rule, watershed
plans are developed for the specific goal of aquatic resource
restoration, establishment, enhancement, and preservation. This
clarification is necessary because there are many different types of
watershed plans, and those plans may be intended to fulfill a wide
variety of purposes. We believe it is appropriate for watershed plans
to identify priority sites for compensatory mitigation projects. In
addition, we have replaced the word ``ecological'' with the phrase
``aquatic resource'' to clarify that a watershed plan appropriate for
use in implementing this rule should address aquatic resource
conditions in a watershed. In the last sentence of this definition, we
have replaced the phrase ``watershed management plans'' with ``wetland
management plans'' to avoid a circular definition. As discussed below
in Sec.  332.3(c) [Sec.  230.93(c)], district engineers will determine
whether a particular watershed plan is appropriate for use in a
watershed approach to compensatory mitigation.
    Several commenters said that key terms in the proposed rule are
either undefined or vaguely defined. A number of commenters suggested
additional terms to define in the final rule. These terms include
``larger projects'' and ``smaller projects.'' We do not believe it
would be appropriate to provide specific definitions to distinguish
between large and small projects. The difference between large and
small is subjective, and should be at the discretion of the district
engineer after considering site-specific and project-specific criteria.
Other requested definitions are discussed in more detail below.
    One commenter requested a definition of the term ``aquatic resource
function'' since it is used repeatedly throughout the rule. We have
provided a general definition of the term ``functions'' in this
section, which applies to aquatic resources as well as other types of
ecological resources.
    Two commenters asked for a definition of ``aquatic resource type''
since it is used throughout the rule. Three commenters said that the
final rule should define ``aquatic resources.'' We do not believe it is
necessary to define these terms in this rule. Different aquatic
resource types may be distinguished through a variety of classification
systems. What constitutes an aquatic resource is also dependent on the
classification system used. Different regions may have different
thresholds for making distinctions among aquatic, mesic, and xeric
resources.
    Two commenters said that the rule should include a definition of
``successful mitigation.'' One commenter proposed a set of criteria to
be used to determine if the mitigation is successful.
    Successful compensatory mitigation projects will be identified by
evaluating those projects against their ecological performance
standards. Therefore, successful mitigation will be determined on a
case-by-case basis.
    Two commenters asked for a definition of ``mitigation type.'' We
have defined mitigation types in the final rule: restoration (which
includes re-establishment and rehabilitation), establishment,
enhancement, and preservation. We have also defined the terms ``in-
kind'' and ``out-of-kind.''
    One commenter said that the rule should have a definition of
``complete prospectus.'' A complete prospectus contains the items
listed at Sec.  332.8(d)(2) [Sec.  230.98(d)(2)].
    One commenter requested a definition of ``umbrella mitigation
banking instrument.'' We do not believe it is necessary to define this
term, because it is described at Sec.  332.8(h) [Sec.  230.98(h)].
    One commenter said that the final rule should include a definition
of ``unavoidable impacts.'' It is not necessary to define this term,
since unavoidable impacts are identified on a case-by-case basis when a
district engineer evaluates a permit application.
    One commenter stated that this rule should provide a definition of
``conversion'' as it relates to man-made changes to aquatic resources.
This commenter also requested that the final rule contain guidelines to
determine when a conversion would be ecologically appropriate.
    We do not believe it is necessary to define the term ``conversion''
since it is commonly understood to refer to an action that changes an
area from one resource type to another resource type. Establishing
guidelines for evaluating conversion is beyond the scope of this rule.
For proposed changes to aquatic resources that require DA
authorization, district engineers will determine on a case-by-case
basis whether those activities constitute conversions and whether
proposed conversions are in compliance with applicable regulations.
    One commenter suggested adding a definition of ``aggregate
mitigation site,'' to account for cases where a permittee desires to
provide a single compensatory mitigation project for multiple impacts
to waters of the United States. We do not believe it is necessary to
define this term. District engineers can consider compensatory
mitigation that has been provided in advance by permittees when
evaluating compensatory mitigation options (see 33 CFR 332.3(b) and 40
CFR 230.92(b)).
    One commenter said that the rule should include a definition of
``degraded.'' It would not be appropriate to define this term, since it
is subjective. Assessment methods can be used to determine whether a
particular resource is degraded, based on a threshold chosen by the
district engineer. Best professional judgment may also be used to
identify degraded resources in situations where appropriate assessment
methods are not available.
    One commenter stated that the term ``stream'' should be defined. We
do not believe it is necessary to define this term. District engineers
can determine on a case-by-case basis whether a particular waterbody is
a stream.
    One commenter requested a definition of ``ecoregion.'' We do not
believe it is necessary to define this term. There are a number of
classification systems for

identifying ecoregions. Ecoregions may also be identified through local
criteria. District engineers will use appropriate criteria if
ecoregions are to be used to define service areas for mitigation banks
or in-lieu fee programs.

33 CFR 332.3 and 40 CFR 230.93 General Compensatory Mitigation
Requirements

    Three commenters suggested that paragraph (c) of this section
should be put in front of paragraph (b) of this section. Two commenters
proposed that the Corps automated information system used for
compensatory mitigation should include a regional list of rare habitat
types.
    We do not agree that paragraph (c) of this section, which discusses
the watershed approach, should be placed in front of paragraph (b),
which presents criteria concerning the type and location of
compensatory mitigation. As discussed below, paragraph (b) has a
preference hierarchy that includes the watershed approach. Although
mitigation banks and in-lieu fee projects should be strategically
located in areas that support a watershed approach to compensatory
mitigation, the preference hierarchy in paragraph (b) will be first
considered when determining the compensatory mitigation required for a
DA permit. If a mitigation bank or in-lieu fee program does not have
the appropriate number and resource type of credits available, then
permittee-responsible mitigation should be determined using the
watershed approach described in paragraph (c) of this section. District
engineers have the discretion to add appropriate data layers to the
Corps automated information system to include information on rare
habitat types, but it is not necessary to make that a requirement in
this rule.
    (a) General considerations. One commenter remarked that the
proposed rule does not provide criteria, standards, or meaningful
guidance to ensure that the district engineer will require mitigation
that will protect water quality. Another commenter said that there
should be sufficient flexibility in the final rule to support new
approaches or strategies that meet the standards identified, but do not
fall into one of the existing categories.
    Water quality standards are more appropriately addressed through
the water quality certification process under section 401 of the Clean
Water Act. A district engineer can require water quality management
measures as part of the overall compensatory mitigation package
required for a particular DA permit. Even though this rule is focused
on a watershed approach, it provides flexibility for district engineers
to use innovative approaches or strategies for determining more
effective compensatory mitigation requirements that provide greater
benefits for the aquatic environment. We have added to this section a
provision that allows the district engineer, when evaluating
compensatory mitigation options, to consider what would be
environmentally preferable, taking into account the likelihood for
ecological success and sustainability, the location of the compensation
site relative to the impact site and their relative significance within