5 years ago

Natural Resource Damage Assessment: Methods and Cases

Natural Resource Damage Assessment: Methods and Cases

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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. 48

a spill occurs in a high income area. In order to incorporate such considerations into a simplified assessment tool, the designers need to think about exactly what the values are that are being assessed, and exactly who loses when those values are lost. None of the four methods we have studied have provisions to account for the characteristics of those citizens to whom the lost benefits would have accrued. This review of existing simplified methods also yields some useful guidelines and lessons for states trying to decide whether they should try to adopt similar methods, and if so, how. First, there is likely to be a big up-front cost to designing a simplified assessment method if the creators want the numbers that emerge from such assessments to be meaningful for their own states. It may only make sense to try to use such a tool if you are in a state with a large case load. Second, a state’s choice of simplified method should depend on the types of resources that are most commonly damaged in the state and the types of cases that comprise the bulk of the state’s case load. Damages from oil spills can be assessed using a fairly rich simplified method (such as those used in Washington and Florida). Since there is a short list of damaging materials that are released into the environment by such a spill, a schedule can be designed that outlines the damage that is likely to be done by those materials to the most commonly affected resources in the state. 14 In contrast, it is difficult to design a simplified method that captures all of the damages associated with a site that is contaminated by releases of materials that are old, or mixtures of materials, or both. In such cases, it may be that the only simplified method possible is one that values the damage associated with contamination of a very small number of commonly damaged resources. New Jersey and Minnesota have both singled out groundwater for this purpose; Minnesota has also contemplated valuing the loss associated with wetland destruction from landfill formation. Compensation formulas such as those in Florida and Washington assess damages to multiple types of ecosystems and species which do not have readily associated market prices. These existing methods use a variety of ranking indices to ascertain the extent and harmfulness of the damage caused by the spill. The details of these compensation schedules are in many ways specific to the states in which they were developed. However, another state could adopt a similar method if an effort were undertaken to generate parameters that make sense for the state in question. For example, few states other than Florida have coral reef. A modified compensation schedule would need to include “habitat factors” for the habitat types found in the adopting state. Florida’s method is somewhat more transparent than Washington’s in that the damage depends quite clearly on four components: one depends on the volume of spill and area of spill, the second depends on the pollution intensity of the spill and the value of the habitat damaged, the third depends on the value of species damaged, and the fourth is assessment costs. While there may be some potential for double-counting between the components, such transparency facilitates communication about the method and damages assessed to PRPs. 14 Recent releases of other hazardous materials might also be handled in such a fashion because at least one can identify the quantity and identity of the material released in such an event. However, it should be noted that while Florida law has provisions for that state’s assessment method to be applied to non-petroleum hazardous materials, such application has rarely been made. 49

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