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Natural Resource Damage Assessment: Methods and Cases

Natural Resource Damage Assessment: Methods and Cases

Chapter 1 Survey of

Chapter 1 Survey of Natural Resource Damage Assessment Tools Used by State Trustees I. Introduction A set of federal environmental statutes, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and the Oil Pollution Act (OPA), contains important natural-resource liability provisions. These provisions give designated state agencies the right and responsibility to act on behalf of the public to recover damages for injuries to natural resources. Those damages may include restoration costs and interim loss (the economic value of the resource that is lost during the time that passes between injury to a resource and full recovery of that resource (Jones, 1997).) These liability provisions give states a powerful tool that may encourage private firms and individuals to take appropriate measures to reduce resource contamination (Baumol and Oates, 1988.) Many states have begun to make use of these statutes in their efforts to preserve the quality of public resources (ELI, 1998.) The public may reap great benefits when a state exercises its statutory authority to bring natural resource damage claims against responsible parties. However, there are costs to the state associated with this activity. In particular, it can be expensive for the state to develop its own estimate of the value of the injury caused by contamination. State-of-the-art valuation methods (Kopp and Smith, 1993) are complex, time-consuming and expensive to implement. In practice, most contaminant releases are small, and often the state has limited data regarding the affected resource or its injury. In such cases it may be impractical to perform a sophisticated analysis to estimate the damages which are due the state. The statutes allow for states to recover assessment costs as part of any settlement it might make, but only if those costs are “reasonable,” and certainly not if the costs exceed the value of the damages assessed. For this reason, some state agencies have begun to use methods for valuing changes in the quality of natural resources without conducting extensive new research and based on information already available. Hence, there exists a spectrum of methods available for use in conducting natural resource damage assessments. States may opt to use simplified methods that are inexpensive and can be carried out by personnel with little specialized training. The estimate that emerges is, however, likely to be somewhat inaccurate and more vulnerable to challenge by a potentially responsible party (PRP) if the case can not be settled out of court. At the other end of the spectrum, trustees or their paid consultants may conduct a sophisticated case-specific valuation study of the injured resources in question. There have been two surveys of state-level natural resource damage (NRD) assessment and recovery activity (ELI, 1998; ASTSWMO, 1997.) However, neither of them gathered information that identifies which methods trustees have chosen to employ for natural resource damage assessments (NRDAs). Such information can help economists to target their methodological research towards methods that are in relatively high demand by practitioners. In addition, knowledge of patterns in NRDA methodology might provide helpful guidance to the 2

staff of agencies that are just beginning to exercise their authority to pursue NRDs as natural resource trustees for their states. This chapter reports on the results of an effort made by the authors of this report to gather such information about state-level NRD programs. II. Method for gathering information Two questionnaires were designed to gather factual information about state NRD programs. The first was a one-page form which asked for information about the basic parameters of the agency’s program (e.g. staffing and funding levels) and any assessment methods the state trustees might have developed for their own use in conducting NRDAs. The second form was a case-information form, constructed to gather information about cases that agencies had assessed and/or settled in the years following major revisions to the federal regulations pertaining to NRD assessment and recovery. Each agency was asked to fill out one such form for each NRD case it had been handling since 1995. Copies of the questionnaires and the instruction sheet sent to the agencies are found in the Appendix. In order to choose where to mail these requests for information, a list was developed of up-to-date contact names and addresses at all state trustee agencies in the country. This effort began with lists from earlier studies (e.g. ASTWMO (1996) has a list of contacts) and from staff at the Illinois Department of Natural Resources (IDNR). People on the preliminary list were contacted either to confirm that they were appropriate contacts or to suggest other names that would be more suitable. During this process, some states were identified as having no program relevant to the survey, and were dropped from the mailing list. When the list was complete, a packet was sent to each of the 64 agencies on the list. Each packet contained a cover letter, the instructions, one general survey form, and either 10 or 20 NRD case-information forms (depending on how large we expected their programs to be). The initial mailing was made in August 2001. One round of follow-up telephone calls and emails was made a month after the initial mailing; other reminders were made throughout the following months. As shown in Table 1.1, 20 of the 64 offices contacted responded with information a bout their NRD programs and 14 responded to inform us that they had no NRD program; several of the agencies with no current program did state that they are preparing to start engaging in NRD activity. The remaining offices did not submit completed questionnaires (though only two agencies sent official refusal to provide information). Many of the agencies that did not respond to our request for information are quite likely not to have had NRD programs at the time of our survey. However, offices in California and Texas, which have thriving NRD programs, were not able to respond to our request for information. To the extent that we can not include information about these programs in our report, any picture we draw of state-level NRD activity is necessarily incomplete. It is also true that many of the responses were incomplete; we report here as much information as was provided to us. 3

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