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Natural Resource Damage Assessment: Methods and Cases

Natural Resource Damage Assessment: Methods and Cases

of the injury by simply

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). 46

ased funding for the program was provided for in the Minnesota Landfill Cleanup Act of 1994. The 1996 Amendments to that Act (Minn. Stat. Ch. 115B.441 – 115B.445) set forth a mechanism for obtaining contributions from insurance carriers to the funding for the program. In many cases, the people who bore legal responsibility for environmental response costs at these facilities (the owners or operators, those who hauled waste to the facility, or those who produced waste that was disposed of at the landfills) held liability insurance for environmental response costs at the landfill. The Minnesota Pollution Control Agency (MPCA) works with the Attorney General’s Office to obtain appropriate payments from those insurance carriers which have outstanding exposure for cleanup liability at the closed landfill sites. In order to have a foundation for the settlement negotiation process, the MPCA has developed estimates of the environmental response costs the state expects to incur at each of the landfills in the program. The agency has also developed estimates of NRDs, since the carriers can request settlement for NRDs at the time they settle for response costs and thus be granted immunity from future legal action regarding NRD compensation. As of November of 2001, the NRD portion of the settlements paid to the state totaled $3,359,072. 11 The MPCA chose to base its NRD estimates on groundwater contamination at the 66 landfills at which groundwater contamination exceeds the state’s Health Risk Limits (HRL). The method they used was simplified, and used only data that was already readily available. Total damages at the 66 landfills were estimated to be $50,712,046. The approach involves four steps: 12 (1) Estimate average cost of lost groundwater services at a landfill ($/gallon). (2) Estimate the volume of groundwater contaminated at each of the 66 sites. (3) Calculate value of the groundwater injury as (volume * average cost). (4) Allocate damages among carriers by multiplying the total groundwater damages at a landfill by each carrier’s percentage share of the liability for costs at that landfill. The average cost of lost groundwater services was estimated as the amount by which source groundwater contamination increases the cost of providing potable municipal water. The average cost to design, construct, operate, and maintain a groundwater treatment system over 30 years was calculated (based on information from six landfills in the program) to be .57 cents/gallon. The cost of supplying drinking water based on uncontaminated groundwater supplies was estimated (based on five municipalities) to be .1 cents per gallon. Thus, the average cost of groundwater services lost due to contamination was assumed to be .47 cents/gallon (the difference between the two numbers). Discussion of Minnesota method The MPCA’s simplified valuation method is employed for a somewhat different purpose than New Jersey’s groundwater damage assessment method. The MPCA is seeking to file damage claims against those companies that insured the PRPs rather than the PRPs themselves, and insurance carriers have often settled with the state with a single payment that releases them 11 Personal correspondence with Shawn Ruotsinoja at the MPCA. 12 Ruotsinoja (1997). 47

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