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Natural Resource Damage Assessment: Methods and Cases

Natural Resource Damage Assessment: Methods and Cases

that for contemporary

that for contemporary injuries, only prospective lost use will be assessed (past lost use will not be added to the damages assessed), and the prospective duration of groundwater injury was limited to a maximum of 30 years. Injury designation is based on the projected status of the water supply planning area where the contamination occurs, with a higher injury designation for areas projected to be in deficit in 2040. The groundwater recharge rate over the duration of the existence of the contaminant plume is used to determine the volume of water that may be expected to be contaminated by coming into contact with the groundwater contamination plume. Alternatively, an estimate of the site-specific volume of the contaminated groundwater plume will be used if it can be obtained, since that is more likely to reflect the extent of contamination. The next step is to identify the dollar cost to consumers for potable water in the area of the site. Of the multiple potable water rates applicable in the area, the Department uses the high potable water rate for valuing injuries in deficit water planning areas, and the low potable water rate for surplus areas. These water rates are established by the New Jersey Board of Public Utilities. In the last step, the surrogate groundwater injury value which establishes the magnitude of the restoration remedial action necessary to compensate for the injury to groundwater is determined as follows under the 1999 policy: NRD \$ = PA * RR * 7.48 * DI * WR (9) where the constant 7.48 is just a conversion factor from cubic feet to gallons, and the notation is defined as : PA = off-property plume area (sq. ft.) RR = recharge rate (ft./yr.) DI = duration of injury (yrs.) WR = water rate (\$/1000 gal.) Example of the New Jersey formula in use: Annual Groundwater Recharge Rate: 1.33 feet/yr Water Rate: \$4.11 per 1000 gallons Extent of Contaminant Plume: 217,800 square feet Duration: 15 years STEP 1: Multiply extent of plume by annual recharge rate to get a measure of volume. (217,800 sq. ft.) x (1.33 ft./yr) = 289,674 cubic ft./yr STEP 2: Convert the volume from cubic feet to gallons (289,674 cubic ft./yr) x (7.48 gallons/cubic ft.) = 2,166,761 gallons injured/yr STEP 3: Multiply total gallons injured by the water rate and duration for the total value (2,166,761 gallons/yr) x (15 years) x (\$4.11 /1000 gallons) = \$133,580.00 44

Information for this calculation is obtained from various sources. The Planning Area of the site and the projected water status of that area are identified from the New Jersey Statewide Water Supply Plan (1996). The annual groundwater recharge rate is the value in feet for the Planning Area, and is also determined from New Jersey Statewide Water Supply Plan (1996). The water rate is the current value in dollars per thousand gallons for the Planning Area, and is obtained from the New Jersey Board of Public Utilities. The aerial extent of the contaminant plume includes only the off-site plume in square feet, and is determined in a remedial investigation under the Technical Requirement for Site Remediation N.J.A.C.7:26E. There has been some interest in using this method elsewhere. For example, a rough calculation of groundwater value at a contaminated site in Illinois has been performed using the New Jersey formula. 9 The site studied was Kankakee, Illinois, where a pipeline break in 1988 released thousands of gallons of gasoline into the environment. Although most of this spill evaporated or was cleaned up, some gasoline percolated into the underlying aquifer. The contaminant of concern was MTBE, a fuel additive that may be carcinogenic. The contaminant plume for MTBE in this area was studied from 1989-1994. Those studies yielded three different estimates of the extent of the contamination, depending on the size of the plume, the shape of the plume, and the movement of the contaminant through the aquifer. These were 1.45 square miles (40,400,000 sq. ft.), 0.91 square miles (25,500,000 sq. ft.), and 7.2 square miles (201,000,000 sq. ft.). The average annual recharge rate was estimated at approximately 5.7 inches per year, and a water rate of \$2.00 per 1000 gallons was used. Calculations were made with two different durations, either 10 years or 30 years. The resulting values ranged from approximately \$1.8 million to approximately \$42.8 million, depending on the size of the plume used in the calculation as well as the duration of the pollutant in levels exceeding water quality standards in the aquifer. Discussion of New Jersey method The method used by the New Jersey DEP has low assessment costs, which ensures that assessment costs will not exceed estimated damages. In addition, the method is valid in the sense that it attempts to value the loss of consumptive services that people gain from public supplies of groundwater. It assigns higher values in places where water is likely to be in excess demand, and thus there will be a higher price of water. This method is used as a surrogate or a substitute for the actual value of the injury because the state is yet to identify the best way to place a dollar value on the non-consumptive human services and the ecological services provided by groundwater. However, the method has various limitations. Some of them are necessary features of a simplified assessment method. Other weaknesses could be remedied without sacrificing the simplicity of the approach. Desvousges et al. (1999) have written a fairly detailed critique of this valuation tool, outlining its strengths and weaknesses. We will touch upon some of the same points, but aim to highlight some of the most important limitations of this method from the viewpoint of economics. In general, it is impossible to say whether damage estimates produced using this method will be biased up or down since there are biases of both types built into the method; the net results will vary with the details of the assessment at hand. First, the New Jersey method considers the lost use value to be the same over the duration 9 Correspondence with Al Wehrmann, Illinois State Water Survey. February 26, 2002. 45

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