HomeMy WebLinkAboutAquifer Protection Cost Benefit USING CDST BENEFIT ANALYSIS
IN AQUIFER PROTECTION DECISIONS
Frieda Reitman
The University of Connecticut
Frieda Raitman
Assistant Professor of Business Environment and Policy
~ISA Pro9ram at Stamford
School of Business Administration
University of Connecticut
Stamford, CT 06903
203-322-8398
Prepared for presentation at the Eastern Economics
Association meetings, April 10, 1981.
The work upon which this paper is based was supported in part
by funds provided by the Office of Water Research and Technol-
ogy Project No. B-O15-CONN, U. S. Department of the Interior,
· ashington~ D.C., as authorized by the Water Research and
Development Act of 1978 (P.L. 9'5-467.) The opinions expressed
are solely those of the author.
I would like to acknowledge tho. help o~ my graduate, assistant,
L. Golub.
INTRODUCTION
This paper attempts to evaluate the uae of cost benefit
analysis in aquifer protection decisions. It builds on previous
papers mhich identified the aquifer protection problems, set up
a framework for and analy~ed the problems of measuring benerits~
end analysed the effect of protection on business comte.1 The
perspective or the paper le on evaluation rot the 5tats or
Connecticut, although the analysis is applicable alsemhere, also.
Currently, many people ere concerned a§out the futura
adequacy of our natural resource water. The recent drought in
the Northeast accentuated the problem. We know that there is
water in the Northeast. That water is underground in aquifers.*
LOCATION OF WAT£R SUPPLY
Fresh Liquid Water Supply
Other
geologic formations capable of yielding usable amounts
or water. In some areas aquifers are smell, in othere very large.
Sometimes aqOifers interconnect; sometimes not. Although ground-
mater not in aquifers may provide enou9h water for family wells,
mater useful for public systems is in aquifers.
As the diagram shoms, 97% o? the ?rash liquid aster supply
2
ia underground. However this water is becoming polluted. I?
this continues, our water reserves will be contaminated and severe
shortages could result. There?ore, there has been considerable
interest in protecting aquifers.3
The major activities which lead to groundwater pollution are~
Sources o? Groundwater Contamination 4
1. Solid Haste Disposal (Lend?ills, etc.)
2. Septage Disposal
3. Storage, Transfer and Spills o? 011 and Gas
4. Industrial Development (wastes, accidental
spills, storm water runoff)
5. Road Salt
6. Septic Systems
?. Water Softener Hastes
8. Agriculture (fertilizers, pesticides)
In order to protect groundwater, a number o? regulations have
been enacted. TOSCA (1976), RCRA (lg?6)*end Super?und (lg80)
are federal regulations which among other objectives, are expected
to help control pollution. At the state level, the Department o?
Health and the Department of Environmental Protection have protec-
tive rules. In addition, a few loc~communities have applicable
planning and zoning ordinances.
Additonal regulations have been
regulations are;
proposed. Some suggested
1. A ban on landfills
2. A ban on septic and industrial lagoons
3. A ban on septic systems
4. A ben on storage and trane?er o? oil and gas
5. A ben on storage o? road salt
Should the state and/or the local communities pasO:theSe regulations
end continue to implement those already on the books?
TOSCA is the Toxic Substance.Control
Conservation and Recovery Act.
Act. RCRA is the Resource
NEED FOR COST BENEFIT ANALYSIS
At this time there is considerable dissatisfaction with the
~te~'bf.9~e~n~h%:,', regulation and many a~e hoping fo~ e
change in this area. Some people imply that they would support
a large scale dismantlin9 of the ~eguletory apparatus. Others,
like ~ur~ay Wiedenbeum, cu~ent Chai~men of the Council of
Economic Advisors~ take the position that some regulation is
necessary, but that the benefits of each ~egulation should out-
5
· ei9h its costs. In the current political climate, therefore,
it is likely that le9islators and administ~ato~Hill seek
evidence on the benefits and costs of particular ~egulstions to
p~otect g~oundwater before proceedin9 ~ith the ~eguletions.
The concept of applying cost benefit analysis is eminently
reasonable. However, it is generally recognized that problems
exist in the application.5 There era problems in identifying the
benefits - direct and indirect - and in measuring them; often no
simple valuation scheme exists. The~e ara problems identifying
costs = explicit and oppo~tunit~ net of benefits - and in
measuring them. An appropriate discount rata is a p~oblem.
Therefore, a careful evaluation of e 9ovarnment regulation by
cost benefit analysis is costly itself. Should this be undertaken
in ~e9a~d to aquifer analysis? In oths~ wo~ds, do the benefits
of cost benefit analysis outwei9h the cost?
~EASURING BENEFITS OF AQUIFER PROTECTION
What is involved In meaaur[ng the beneflts of aquifer pro-
faction? In order to'measure the benefits of aquifer protection
it is necessary to relate water quality to water use. This
invoiveat (1) e clea~ eva[uat[on of the "environmental quality"
to be protected
(2) a clearly expressed relationship between the
activity to be reoulatad and its effect on environmental quality
(3) another clearly expressed relationship between
the change in environmental quality and its effect on [he "uae"
of that environment.7
(1) ~ater quality cannot be expressed with a simple number.
However, quality classes have been distinouished and [t is
reasonable to use the standards. ("AA" ia drinking water
quality~ "A" may be of that quality.) The quality o? water in
an aquifer is not always known, : · · Connecticut ia attempting
to acquire this information ?o~ many of the aquifers. However,
it is not clear that adequate funds ars available.
(2) The exact effect of activities to be regulated on water
quality is not clearly ascertainable, many factors affect the
relationship. There is work bain9 done (notably by Le trend)8
in devisin9 a system to relate activity to quality change
dependin9 on contaminant, type of geologic formation, water table
level, rate o? water ?low, etc. Thus ?ar, no system is regarded
as adequate to evaluate the effect o? activities. Even Le Grand
acknowledges that many geologists and hydrologists insist that
only a case-by-case investi~titnwill yield usable answers?
It is not clear that' this is so - but at the moment there is no
way to evaluate this relationship with confidence at low cost.
(3) The effect of change in water quality on change in water use
depends on the type of delivery system, the type of contamination
and the type of user (residential, industrial, agricultural,
commercial). This relationship is also complex and no system
for 9ettin9 e single answer exists. Scientists do not always
agree on the "standards" for different uses of water. The ~elation-
ship between specific levels of contaminants and the problems
caused by the contaminants is rarely clear cut.
Considering all these factors makes it impossible to specify the
benefits to:measure. ~akin9 three assumptions helps considerably.
1. Assume that only sources of existing and potential public
water systems (aquifers rathe~ than groundwater) are to be pro-
tected. 2. Assume that an aquifer which does not meet the
drinkin9 water standard is "contaminated." 3. Assume that any
"contaminated" water supply will be replaced.
These assumptions are reasonable for today*s water delivery
arrangements. Consi'derin9 private wells. (which today provide
about 24% of Connecticut's residents with water) when writing
aquifer protection laws, would add considerably to the cost of
protection. It would mean that much more extensive land areas
would come under the rules. It is also difficult to measure the
"benefit" of protectin9 these walls because it is not clear
where "alternative" supplies could be obtained. ~ould expensive
public supplies be brought in? ~ould tank trucks of water deliver
supplies? Both coats and benefits would increase
herd to measure.
Assumptions 2
one mater delivery
mater quality. I?
but both are
and 3 ?ollom ?rom assumption 1. ~e have only
system and insist that all meter be o? drlnking
good mater becomes scarce, there might be some
consideration given to provid~ng tmo systems - mater o? "AA"
quality and mater o? lesser quality ?or those purposes mhlch do
not need "AA" mater. This mill change the cost-bens?it plcture
in many mays not clearly perceived nom.
Under these assumptions, the major bens?it or protecting
aquifers nom is avoiding the costs o? providing alternatives
later. To measure this benefit (essentially the future cost of
clean meter), it is necessary to estimate the cost of alternate~
supplies. There are three major mays to provide alternative
supplies: brin9 in a nam mater source, "clean up" the polluted
water, obtain more mater from conservation.
6~hen one examines the alternatives ?or one particular
aquifer, it seems as though a reasonable cost estimate might be
obtained. Analysis su99ests that conservation may be the lomest
cost alternative. Homever, the available water sevin9 may not
be sufficient. Acquiring an alternate source of aquifer mater
appears less expensive than treatin9 mater. Even this alternative
may ." increase delivered mater costs by perhaps 50%. This is
based on current conditions. I? most communities choose not to
protect their aquifers, and i? many aquifers become polluted, the
cost o? acquiring additional supplies could be much higher. This
is an instance mhere the total cost to a region/state/nation
could easily be much 9rester than the sum of the costs to. each
toen. As each toen seeks another source it is competing eith the
others° Also, as clean eater sources decrease, costa will increase.
Acquiring supplies from nearby sources is obviously much less ex-
pensive than transporting it from sources further secy. Ho one csn
predict now hoe much inter-area exchange sill one day be necessary.
Treating wate~ nos appears more expensive than alternative
sources. Hoeever, if treatment becomes more eides~read, technological
changes might reduce these costs. These estimates e~e based on
cur;ant technologies and do, of course, vary eith the contaminant.
When projecting for the future, there are many.'unknoens in this
aces too. There a~e contaminants for ehich there is no knoen
treatment. If these pollute an aquifer, the damage may be l;rever-
sible. On the other hand, cork is going on to discover means of
detoxifying certain =astes and perhaps technology sill solve that
problem on day.
Thus, although it is possible to come up elth some measure.~
of this major "benefit" there are many unknoens (at least one or
ehich involves i;;eversible damage) making it very difficult to
assess probability.
A number of other benefits can be identified, but these are
almost impossible to measure° The inadequacy of techniques for
estimating prices for non-priced outcomes are eel1 described.10
Preve~t~'~m of undesirable end/or costly events likely to
occur if en aquifer ts not protected
1. use of water with unidentified contaminants
2. uae of water ~lth levels of contaminants harmful
only [o some portion of the population (people with
aZlergies~ children, elderly)
3. trauma involved dlth discovering "impure water" and
worrying about Its Implications
4. costs Involved tn immediate reaction to such dis-
covery (bringing in bottled water)
S. costs for damages done before discovery
Desirable events likely to be fostered by protection
1. sense of well-bain9 of population - freedom of
fear of contaminated water
2. protection of all sources of =afar (includin9
private) on en aquifer
3. benefits which may occur as use end discharge
patterns change in response to awareness, regulation
and price increases
ability to sell "pure" water to other communities
which need it (this is only an added benefit to the
particular community - not for the region or state,
o¢ course)
Thus, an examination of the benefits side indicates that
minimum estimate of the "bens?its" of equl?er protection la
possible under simplifying assumptions and many qualifications.
However, it is not clear when this benefit would occur - our
scientific information is not yet adequate to tell us this.
8
g
~EASURING COSTS OF AQUIFER PROTECTION
Usually the cost Side or the cost/benefit equation is
easier to estimate. 8ut there are many problems in calculating
the costs of protecting the aquifer, too.
First we have to identify the regulations to be studied.
This is a problem because regulation in this area is new end
growing, application and enforcement are changing rapidly, and
new rules ere constantly being proposed. A choice has to be mede.
However, since eli these regulations have a common goal, there is
a good deal of overlap in rules and enforcement and clear cut
choices ere difficult. Results will very with the'choice of time
period end geographic area.
Next it is necessary to discover the activities which have
changed, are changing, or will change es a result o? regulation.
For those activities where significant change is required,
identification is easier. Presumably
activities to investigate.
Once the changes are identi?ied, the cost
must be measured. One commonly used method or
these ere the most important
o? these changes
measurement is to
ascertain the cost o? the best available technology (BAT) ?or
doin9 the. job and use that estimate ?or all comparable changes.
These ere engineering estimates and do not necessarily re?lect
experience. This method does not indicate the extent or com-
pliance.
Another method is to collect in?ormation ?rom industry
sources (or other sources making changes) on the coats o? those
changes. ~eny industries e~e providing that in?ormetion and the
Department o? Bommerce collects and publishes it.11 This
10
provides some estimate of future expenditures.
Neither of these methods provides information on two fEcets
of measurement which should be included in projections of costs.
(1) Any benefits which are obtained through these chsn~should
be deducted from costs. For example some firms have found it
possible to recover and reuse or sell "wastes" as they meet
regulations on waste disposal. Reyston listed over 200 Haste-
sevin9 technologies ~hich have been profitable.12 As regulations
remain in force, technologies to meet them mort efficiently Hill
undoubtedly develop. Today's costs do not necessarily represent
tomorroH's costs. (2) The measure of costs Hhich is really needed
is "opportunity" cost~ ~hat could be accomplished if money
allocated to protectin9 aquifers Has used in other ways? This
is really difficult to ascertain, and very difficult to evaluate.
Often the alternatives., particularly for 9overnment expenditures,
are other programs whose benefits are~ually difficult to measure.
Overall, the costs to be evaluated ere costs borne (initially)
by business and by 9overnment.
For business, the largest expenditures involve the disposal
of wastes, and if the wastes are toxic, it also involves their
handling and transportation. Up ~o 1978, the bulk of these
expenditures were in the chemical, electric utilities, pulp and
paper, metals and food processing industries. In addition, the
chemical industry is bain9 assessed to fund the clean-up of past
contamination through the superfund.
many of these costs are passed on to the consumers of the
products~ in some cases, market conditions do not permit this.
One result of the changes has been the growth of · new
industry dealin9 with methods of regulatory compliance. Ia this
a "benefit" of these reguletiona~ or is it a ,coat?"
~overnment must beer the cost o~ implementing end de~ending
the regulations, as they affect others, and must bear the coat
of meeting regulations in those areas that apply to government.
Implementin9 the regulations involves assassin9 water quality,
monitorin9 aquifers, monitorin9 sewer systems and disposal sites,
promulgating rules and supervisin9 compliance. Oefending.~egula-
tions entails administrative and judicial activities. Meetin9
regulations p~imeril¥ involves spendin9 money on imp~ovin9 the
handlin9 and disposal of community westea~
road salt.
It is possible to make some estimates
end the handling of
of each of these.
However, situations diffe~ and firm estimates, applicable to
many s~tuations, are difficult to develop. Many costs may be
omitted~ understating the total. Many benefits may be ignored,
overstatin9 the total.
12
SEL£CTZNC THE DISCOUNT RATE
The only way to compare costa and, beneFits is to compare
their present values. It is always difFicUlt to choose the
appropriate discount rate. In today's environment aith tepidly
changing interest rates it is even more dl?r£cuit than uauaio
The ?act that interest rates are so high (relative to the lest
30 years or so) means that events which will occur 15 or 20 years
From now have very iow present value.
Thus, in this situation, where the costs mill be incurred
in the near Futura, and benefits wil! be received in the Far
~uture, it is vary likely that measurable costa will be larger
than measurable benefits.
THE USEFULN£$$ OF THE E£$ULT$
Setting up the Framework For measuring the benefits end
costs of aquifer protection end attempting to discove~ ways to
estimate the various items leads to the conclusion that the
cost of doing the analysts may be greeter than benefits derived
From the results. ~aking the best estimates possible will be
costly.' The results alii have the Following deficiencies:
1. Many benefits are not quantifiable and will therefore
be omitted,
2. In order to make any estimates, simplifying assumptions
are necessary. These lead to omission of the benefits and the
costs to some groups.
5. Scientific information is not adequate to relate
activities to water degradation ~ith numerical precision.
4. Scientific information is not adequate to relate
contamination to health problems with accuracy,
5, It is not possible to take into account changes in
technology and behav£or ~hich occur as a result of regulations.
These probably reduce costs and may reduce benefits.
6. Those estimates ~hich can be ma~e tend to have wide
bands, (For example, the Council of Environmental Quality gave
an estimate or benefits From air pollution control rot 1970 to
1978 of between $5 billion to $51 billion.) The bends Fo~
benefits are probably wider than the bands For costs.
7. The question of the lrreversibility of the.pollution of
an aquifer or the lrreversibllity of problems caused by polluted
wate~ is not end cannot be addressed.
It appears, therefore, that cost-beneFit analysis mill
not offer adequate enamors to the question of protecting aquifers.
The overall concept of protection is one =hich has to be accepted
or rejected on the political level. An attempt et analysis -
a listin9 of appropriate variables and an estimate of dollar
ranges where easily obtainable - provides a useful input. 8ut
the factors which cannot be measured are so large,that cost-
benefit analysis can be no more than one input.
In time, more information - scientific, technological end
economic - may make it easier to obtain meaningful answers.
Currently, cost benefit analysis may be useful For making more
bounded decisions, such as choosin9 between alternative regu-
lations if both cannot be implemented. However, the underlying
decision to protect or not to protect water in aquifers will
have to be reached on the basis of other information.
15
FOOTNOTES
1. Frlsds Reit'men. Will Water Follo~ 0tl as a Scarce
R~source, May, 1980, unpublished.paper.
Evaluatlnq the B~nefits of Protectinq
Aquifers. October, 1980, unpublished.psper.
Protec~inq the Water Supply: Effect on
8us~ness Costs. November, I980, unpublished paper.
2. Gilbert F. White, "Introduction, Symposium on Water
Resources Management in s Changing World" Natural Resources
J@urnal, vol 16, No. 4, October 1976.
Robert Hanley. "Spread of Pollution Feared in Wells
Around Naa York" New York Times, April 6, 1981.
Environmental Protection Agency,'Offtce of Drinking
Water,Proposed. Grouod Water Protection Strateqy, November 1980.
4. Connecticut Areawide Waste Treatment ~lanagement Planning
Program. A Guide to Groundwater. and Aquifer Protection. Draft
6/?9, middletown, CT.
5. ~lerty Falconer, "Associations and Government Regulation9
Leadership, American Society of Association Executives, 5spt. igBO.
6. John F. Due and Ann F. Friedlaender, Government Finance
Homewood: I11: Richard D. Irwin, Inc., 1981, p. 177.
Arlen J. Large. The Risk-Benefit Debate, Wall St. Journal
June 11, 1980.
7. The adapts the analysis in A,.~yrlck Freeman, The Benefits
of Environmental ImproVement. Baltimore: Johns Hopkins University
Press, lgTg.
B. ~arry E. LeGrand, "System for Evaluation of Contamination
Potential of 5oma Waste Disposal Sites." Journal American Water
Works Association, vol. 56 (1984) p. 9?2.
see also: National Water Well Association A Standardized
System fo~ Evaluatinq Waste-Disposal $i~es, 1980.
g. Harry E. LeGrsnd, "~anagement Control Plan for Protecting
Grojnd Water Quality" Groundwater. Jan-Feb. 1980.
10. Committee on Governmental Affairs, United States Senate,
Bens?its of Environmentala Health & Safety Reqylation, Match 25,
1980. (Prepared by the Center for Policy Alternatives at the
massachusetts Institute o? Technology.)
11. Chemical ~anu?acturers Association. Protsctin9 the
Environment: What We're Doinq About It. Washington, D.C. 20009.
12. michael G. Royston. "Making Pollution Prevention Psy."
Harvard 8~siness Review, Nov.-Dec. 1980.