Natural Resource Damage Assessment: Methods and Cases

of the injury by simply multiplying the per annum loss by the number of years of lost use. To the
extent that a dollar lost in the future is worth less than a dollar lost today because of a positive
time value of money; that leads to an upward bias in estimates of the losses due to groundwater
contamination. The method also does not recognize that future generations may impute different
values to groundwater than does the current generation depending on prices and social
preferences in the future.
Second, injuries were considered under the original formulation of the method to last for
a maximum duration of 30 years. This was similar to the limit set for injuries from Superfund
sites and provided a modeling horizon accepted by other agencies. Given the slow moving nature
of many contaminants in aquifers and the irreversible impact of some contamination, this could
underestimate the duration of the injury. This limitation on duration of natural resource injuries
has now been eliminated by the state of New Jersey.
Third, there are many problems associated with the use of the water rate as a proxy for
the value of lost services. These are not market prices, which would reflect the cost of acquiring
the next unit of water in the least expensive manner. Rather, they are regulated rates. These tend
to be based on average, rather than marginal, costs, are slow to adjust to changes in supply and
demand, may not accurately reflect variation in the value of groundwater to its users, and are
chronically too low. It is not clear that a simple fix is available for this problem in the assessment
method, since water-rate information is so easy to obtain and measures of marginal costs are so
difficult to acquire. We should recognize, however, that these features of water rates and their
use in the assessment method may tend to bias estimates of damage to water-consumption
services.
In addition, water rates (or even true market prices of potable water) only value
consumptive use of groundwater. Non-consumptive values, such as ecosystem services provided
by groundwater, are not included. Non-use values, such as existence and bequest values, are also
excluded, though there is reason to believe that groundwater is not likely to have large non-use
values (NRC, 1997). Economists have found it difficult to measure the non-consumptive values
of groundwater even with sophisticated, expensive valuation methods (Mitchell and Carson,
1989). It may, therefore, not be possible at this time to include those values in a simplified
assessment method. However, those who work with the results of such assessments should bear
in mind that an entire category of value is excluded.
Finally, the use of the price of water tends to bias damage estimates upwards to the extent
that this practice does not take into account the existence of substitute sources of water or the
possibility that contaminated groundwater could be de-contaminated and then used. As the next
section of this chapter shows, the state of Minnesota uses an approach that avoids at least some
of this particular bias.
B. Minnesota 10
In 1994, the state of Minnesota launched a Closed Landfill Program to clean up and
handle the long-term care for over 100 closed municipal solid waste landfills in the state. Broad-
10 Background information comes from MPCA (2002).
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