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Natural Resource Damage Assessment: Methods and Cases

Natural Resource Damage Assessment: Methods and Cases

B. State Groundwater

B. State Groundwater Damage Assessment Cases New Jersey has pursued more cases for groundwater damages than any other state. The trustee agency of that state uses a simplified method for valuing damages to groundwater which is based on market prices for municipal water supplies. For more details on this approach, see Chapter 2 of this report. Other state agencies have assessed the value of groundwater contamination and held parties responsible for it. As discussed below, these cases differ in the variety of methods used to determine damage and the types of groundwater services valued; four such settled cases are summarized in Table 3.4. In one case, the state of Utah filed suit against the Kennecott Utah Copper Corporation in the early 1990’s. Mining operations in Bingham Pit led to high levels of metals such as arsenic, cadmium, lead, copper, and zinc in the groundwater and restoring the groundwater back to baseline conditions was considered infeasible. Damages were estimated by determining the volume of contaminated water that would need to be treated and the volume of water that would be lost during treatment. It was estimated that 8,235 acre-feet of groundwater per year would become contaminated. The total claim for the injured groundwater using a withand-without contamination scenario amounted to $37 million over a 50-year period using a 7% discount rate. These costs included the costs of pumping and treating contaminated water, lost use during treatment and assessment costs plus future oversight costs (NRD Task Force, 1998). In a second case, the state of Massachusetts assessed damages to groundwater at the Charles George Landfill, a federal Superfund site. Private wells had been contaminated in the area due to this site. A replacement cost method was used to value the loss of consumptive use services of water to residential and non-residential users of the aquifer for 50 years due to groundwater injury. By subtracting the costs of the current private well system without contamination (~$3.1 million) from the cost of replacing this water with a municipal distribution system (with contamination = $11 million), it was determined that damages were approximately $7.9 million (NRD Task Force, 1998). A third case involved the State of Nevada vs. Santa Fe Pacific Pipelines, Inc. and involved the release of 2.5 million gallons of petroleum products into an aquifer in 1991. Damages for lost nonconsumptive use values were estimated using a benefits transfer approach based on a modified CV study performed on residents near the site. A settlement of $10 million was agreed to (NRD Task Force, 1998). A fourth NRD case was filed by the state of Montana against the Atlantic Richfield Corporation (ARCO) in 1983 to recover damages for injury to natural resources caused by mining, milling and smelting operations since the 19 th century. Natural resources that were damaged included aquatic and terrestrial biota, surface water, and groundwater. The State’s natural resource damage assessment report covered natural resource injuries at 150 river miles (Silver Bow Creek and the Clark Fork River from Butte to Milltown Dam), the city of Butte, and the Anaconda area, including surrounding mountains and opportunity ponds. The state claimed that about 600,000 acre-feet of groundwater in the Upper Clark Fork River were injured; substantial injuries had occurred to surface water, fish, sediment, wildlife and vegetation in the hills around Anaconda. 73

Table 3.4 Groundwater Case Studies Location Date of study Bingham Pit, UT Charles George Landfill, MA Washoe County, Nevada Clark Fork, Montana Scale of study Source of contamination 74 Uses of groundwater resource 1987 Contaminated Mining operations Public water With and groundwater: which led to dangerous supply without 8,235 acft/yr levels of metals in contamination over 50 years water 1990 Affected area of Charles George Private wells Replacement aquifer over 50 Landfill costs years (a Superfund site) 1991 Aquifer Petroleum products and Public water volatile organic compounds supply 1993 600,000 acft of groundwater Mining, milling and smelting operations Private wells and public water supply Method used Approximate value Benefits transfer Replacement costs and CV $37 million $7.9 million $10 million $40 - $80 million The damages to groundwater used for drinking purposes were estimated as the difference between costs to provide drinking water services with and without the mining related injuries. These costs were computed by identifying the number of households that would have benefited from having access to the contaminated aquifer, estimating the economic loss per household and calculating the product of these two quantities for each year from 1981 into perpetuity. The economic loss per household was estimated as the sum of the extra cost of being connected to the existing Butte municipal water system compared to the cost of a system based on groundwater and the averting expenditures by households to improve the quality of the Butte municipal system tap water. Additionally, a site-wide CV study was conducted to estimate lost compensable (use and non-use) values for the site. Public willingness to pay for each of the different injured resources, terrestrial habitats, aquatic and surface water habitats and groundwater were estimated separately (NRD Task Force, 1998). The total cost of conducting the natural resource damage assessment was about $8 million. The compensable damages for past lost use and non-use of the injured natural resources going back to 1981 were estimated to be approximately $300 million. The present value of future compensable damages was estimated to be about $10 million. The value of lost recreational fishing in the river was estimated to be $2.5 million. Montana’s total claim for damages against ARCO, including litigation and assessment costs were $765 million. A partial settlement was reached in 1999. Under the consent decree Montana received $215 million, which included $15 million for assessment and litigation costs, $80 million for Silver Bow Creek remediation, $120 million for natural resource restoration, and $15 million in interest. ARCO received a release of State’s compensable value claims and the restoration claims for all sites except three. Restoration damages for these three sites are estimated to be $180 million. Litigation and efforts at settlement of these remaining damages are still ongoing.

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