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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.