Natural Resource Damage Assessment: Methods and Cases

from liability for cleanup costs and NRDs at all closed landfills in the state. However, the two
methods have some weaknesses in common that come as the cost of simplification. Like the New
Jersey method, the MPCA’s approach implicitly assumes all groundwater is being used in
municipal water supply and neglects non-consumptive values in its estimates of damages due to
contamination. The Minnesota method also imposes a simplified assumption about the duration
of the injury, though rather than placing an upper bound on injury duration at thirty years, it
seems implicitly to assume that all injuries will last exactly thirty years.
The key feature of the Minnesota method that is different from the method developed in
New Jersey is that the MPCA does not use the water rate to measure the damage associated with
contaminating a gallon of groundwater (thereby treating the contaminated water as a total loss).
Instead, this method recognizes that contamination can be dealt with by additional treatment.
This mitigates some of the upward bias embodied in the New Jersey method. The Minnesota
estimates of the damages to use values are still likely to be somewhat inflated, however, since the
least-cost response to contamination of source groundwater might be to switch to a different
source rather than treating the contamination.
In addition, the Minnesota method does not allow the per gallon damages to vary among
contaminated landfills, not even as a function of the level of contamination or the price of water
in different areas. This extreme simplification probably reflects the fact that the MPCA is not
using its NRD calculations in case-by-case negotiations with PRPs. Rather, the agency was
interested largely in devising a very rough estimate of what the NRDs at all sites in the Closed
Landfill Program might be.
IV. Conclusions
There are some very general lessons to be learned from reviewing some of the
weaknesses of the simplified damage assessment methods currently in use by these four states.
First, states should avoid fixing dollar values into a compensation schedule that are not indexed
for inflation, especially if the details of the assessment method are going to be written into law.
Such values are fixed by Washington and Florida state law; making appropriate changes to the
monetary parameters of those assessment methods will therefore be relatively difficult.
Second, any agency or legislature trying to develop even a simplified assessment method
should pay attention to discounting. Damages that society bears in the future have a lower
present discounted value than similar damages that are borne today. This distinction should be
reflected in the formulas of simplified methods, but is neglected in the New Jersey method and
obscured or neglected in the formulas used by Washington, Florida, and Minnesota.
Third, if the damages arise from lost use values 13 , then economic theory would indicate
that damages will be higher in places where many people benefit from the resource in question,
and where people have high willingness-to-pay (WTP) for the resource. Since WTP is higher
when income is higher (holding preferences constant), then lost use-values may well be greater if
13 If the lost benefits are thought to be largely non-use values, such as existence or bequest values, then one might
argue that damages from a spill are not very sensitive to the human demography of the particular location of the spill
because non-use values can accrue to people across a very large geographic area.
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