WMRC Reports
Waste Management and Research Center
A Division of the Illinois Department of
Natural Resources
Na
tur
al R
esour
ce
Natur
tural
Resour
esource
Damage Assessment:
Methods and Cases
Amy W. Ando
1
Madhu Khanna
2
Amy Wildermuth
1
Suzanne Vig
1
1
2
University of Illinois
University of Utah
RR-108
July 2004
http://www.wmrc.uiuc.edu
E
This report is part of WMRC’s Research Report Series. Mention of trade
names or commercial products does not constitute endorsement or
recommendation for use.
RR-108
Natural Resource Damage Assessment:
Methods and Cases
1
Amy W. Ando
Madhu Khanna
3
Amy Wildermuth
4
Suzanne Vig
2
1
Department of Agricultural and Consumer Economics, University of Illinois at UrbanaChampaign. To whom correspondence should be addressed.
2
Department of Agricultural and Consumer Economics, University of Illinois at UrbanaChampaign.
3
S.J. Quinney College of Law, University of Utah.
4
Department of Urban and Regional Planning, University of Illinois at UrbanaChampaign.
July 2004
Submitted to the
Illinois Waste Management and Research Center
(A Division of the Illinois Department of Natural Resources)
One Hazelwood Dr.
Champaign, IL 61820
The report is available on-line at:
http://www.wmrc.uiuc.edu/main_sections/info_services/library_docs/RR/RR-108.pdf
Printed by the Authority of the State of Illinois
Rod R. Blagojevich, Governor
Table of Contents
ii.
Table of Contents
iii.
Acknowledgements
iv.
Overview
p. 1
Tables and Figures: Chapter 1
pp. 2 – 16
Chapter 1: Survey of Natural Resource Damage Assessment Tools Used
by State Trustees
Authors: Amy W. Ando and Madhu Khanna
pp. 17 – 23
Appendix to Chapter 1
p. 24
Tables and Figures: Chapter 2
pp. 25 – 53
Chapter 2: Simplified Methods for Natural Resource Damage Assessment
Authors: Amy W. Ando and Madhu Khanna
p. 54
Tables and Figures: Chapter 3
pp. 55 – 80
Chapter 3: Ground water Damage Assessment - Methods and Values
Authors: Madhu Khanna and Suzanne Vig
pp. 81 – 103 Chapter 4: Natural Resource Damages Legal Overview and Sample Cases
Authors: Amy Wildermuth and Amy W. Ando
ii
Acknowledgments
Funding was provided by the Waste Management and Research Center of the Illinois
Department of Natural Resources (Contract No. HWR01170). This material is also based
in part upon work supported by the Cooperative State Research, Education, and
Extension Service, U.S. Department of Agriculture, under Project No. ILLU 05-0305.
We are grateful to John Braden and to staff members at the Illinois Department of
Natural Resources for helpful comments and advice. We thank our team of excellent
research assistants for their assistance: Wallapak Polasub on Chapters 1, 2, and 3, and
Nada Djordevic, Matthew Kuenning, Phillip Russell, and Jason Yonan on Chapter 4.
Many thanks go as well to the staff members of all the agencies that responded to our
requests for information about their programs. Their cooperation and hard work was vital
to the success of this project. All errors remain the responsibility of the authors.
iii
Overview
State agencies have had legal standing to sue for damages to the natural resources
in their respective states for decades. Some state agencies have been active in pursuing
settlements with responsible parties for damages resulting from releases of oil or
hazardous materials into the environment. Other agencies are just beginning to explore
how a program to deal with natural resource damages (NRD) cases might look.
In order to secure NRD settlements, trustees must engage in the process of NRD
Assessment (NRDA). Much has been written to describe and improve upon the state of
the art in NRDA. However, most state programs lack the funding or staff capacity to
effectively use such sophisticated and expensive assessment methods. Furthermore, most
of the cases that a state agency might have to grapple with are, in fact, very small, and
may be poorly documented. In suc h cases, it may be infeasible or nonsensical to conduct
a case-specific NRDA.
This multi-part project reviews how state agencies with NRD programs have
chosen to conduct NRDAs for their projects (Chapter 1), evaluates simplified assessment
methods developed at the state level that might be adapted for use in other states (Chapter
2), and examines how trustees and academics have wrestled with the particularly thorny
issue of evaluating NRDs when the damaged resource is groundwater (Chapter 3.) The
project report also includes a document which may be of use in states where the trustees
are just beginning to pursue NRD cases; it gives a summary of the federal statutes that
give trustees the authority to pursue NRD cases, and provides summaries of illustrative
cases (Chapter 4).
iv
Chapter 1: Tables and Figures
Table 1.1: State Office Responses ............................................................................................ 4-5
Table 1.2: Number of Agencies Reporting Statutory Authority under State Law........................6
Table 1.3: Year in Which Offices Began NRD Activity ..............................................................6
Table 1.4: Staffing of NRD Programs (in FTE) ...........................................................................6
Table 1.5: Number of Cases Settled by Agency Prior to 1995 .....................................................7
Table 1.6: Number of Cases by Agency from 1995 to 2001 ........................................................8
Table 1.7: Statutory Authority Invoked ........................................................................................8
Table 1.8: Number of Trustees Involved in a Case ......................................................................8
Table 1.9: Number of Potentia lly Responsible Parties (PRPs) .....................................................9
Table 1.10: Distribution of Cases among Statutes and Year of Onset of Injury ..........................9
Table 1.11: Type of Event Responsib le for Natural Resource Injury...........................................9
Table 1.12: Type of Contaminant .................................................................................................9
Table 1.13: Injured Resources
....................................................................................................................................
10
Table 1.14: Cost to Trustee of Performing NRDA .....................................................................11
Table 1.15: Damage Estimates from NRDA ..............................................................................11
Table 1.16: NRDA Methods Used by Different Agents .............................................................11
Table 1.17: NRDA Methods Used for Varied Types of Injured Resources ...............................11
Table 1.18: Amount of Settlement .............................................................................................12
Figure 1.1: Mean Settlement by NRDA Method .......................................................................13
Figure 1.2: Mean Settlement by Statute Invoked........................................................................13
Figure 1.3: Mean Settlement by Resources Injured ....................................................................14
Figure 1.4: Relationship between NRD Estimates and Final Settlements..................................14
1
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 valuatio n 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
Table 1.1 State Office Responses
Responded with
information about
an active program:
20
Responded with no
program on which
to report: 14
No responseb : 30
Agency name
Florida Department of Environmental Protection
Illinois Department of Natural Resources
Indiana Department of Natural Resources
Louisiana Department of Environmental Quality
Massachusetts Executive Office of Environmental Affairs
Maryland Department of Natural Resources
Michigan Attorney General Office
Michigan Department of Environmental Quality
Minnesota Pollution Control Agency
Montana Department of Justice
New Jersey Department of Environmental Protection
New York State Department of Environmental Conservationa
Ohio Environmental Protection Agency
Oregon Department of Environmental Quality
Rhode Island Department of Environmental Management
South Carolina Department of Health and Environmental Control
South Dakota Department of Environment and Natural Resources
Virginia Department of Environmental Quality
Washington State Department of Ecology – OPA Office
West Virginia Division of Natural Resources
Arizona State Land Department
Georgia Environmental Protection Division
Iowa Department of Natural Resources
Kansas Department of Health and Environment
Kentucky Department for Natural Resources
Montana Department of Fish, Wildlife & Parks
North Dakota Department of Health, Environmental Health Section
Nebraska Department of Environmental Quality
Nebraska Game and Parks Commission
New Hampshire Department of Environmental Services
New Hampshire Department of Fish and Game
Virginia Department of Conservation and Recreation Vermont
Department of Environmental Conservation
Wyoming Game and Fish Department
Alaska Department of Environmental Conservation
Alabama Department of Environmental Management
Arkansas Department of Environmental Quality
Arizona Office of the Attorney General
Arizona Department of Environmental Quality
California Department of Fish and Game
Colorado Department of Public Health and Environment
Connecticut Department of Environmental Protection
District of Columbia Department of Health
Delaware Department of Natural Resources & Environmental Control
Hawaii Office of Hazard Evaluation and Emergency Response
Idaho Department of Environmental Quality
Indiana Department of Environmental Management
Kentucky Department for Environmental Protection
Maine Department of Environmental Protection
Missouri Division of Environmental Quality
Mississippi Department of Environmental Quality
Montana DNRC
New Mexico Natural Resource Trustee
4
Acronym
FLDEP
ILDNR
INDNR
LADEQ
MAEOEA
MDDNR
MIAGO
MIDEQ
MNPCA
MTDOJ
NJDEP
NYSDEC
OHEPA
ORDEQ
RIDEM
SCDHEC
SDDENR
VDEQ
WAECY- OPA
WVDNR
AZSLD
GAEPD
IADNR
KDHE
KYDNR
MTFWP
NDDH
NEDEQ
NEGPC
NHDES
NHDFG
VDCR
VTDEC
WYGFD
AKDEC
ALDEM
ARDEQ
AZAGO
AZDEQ
CADFG
CODPHE
CTDEP
DCDH
DENDREC
HIHEER
IDDEQ
INDEM
KYDEP
MEDEP
MODEQ
MSDEQ
MTDNRC
NMNRT
Nevada Division of Environmental Protection
Oklahoma Department of Environmental Quality
Pennsylvania Department of Environmental Protection
South Carolina Department of Natural Resources
South Carolina Office of the Governor
Texas General Land Office
Texas Natural Resource Conservation Commission
Texas Parks and Wildlife Department
Utah Department of Environmental Quality
Washington State Department of Ecology
Wisconsin Department of Natural Resources
NVDEP
OKDEQ
PADEP
SCDNR
SCOG
TXGLO
TXNRCC
TXPWD
UTDEQ
WAECYCERCLA
WIDNR
All: 64
a
The agency from New York provided a completed one-page questionnaire but declined to provide any completed
case-information forms.
b
In some cases, the agency would not respond to our initial attempts to make contact and obtain a mailing address,
and thus a mailing was never sent. Other agencies did respond to our mailing with informal communication but were
unable to provide completed questionnaires.
III. State NRD programs
All states are authorized to pursue compensation for NRDs under federal statutes.
However, some states have additional state legislation under the auspices of which NRD
recovery is conducted. Of the 22 agencies that provided information about state- level NRD
legislation, 15 indicated that their state does have independent state authority to address NRD
issues, while six reported that their state did not have such a state law (see Table 1.2). Four of the
20 agencies with NRD programs reported that their programs were not active at the time we
requested information.
Table 1.3 shows that most of the agencies reporting active programs had begun NRD
activity in the 1990s. The state trustee agencies generally have few staff members spending time
on NRD assessment and recovery. As Table 1.4 shows, several agencies have no personnel who
regularly dedicate time to NRD activities; the largest 1 program has only 13. Most of the agency
personnel devoted to NRD programs are natural or physical scientists. In contrast, very few
programs have an economist working on NRD issues.
The next section of this chapter reviews the information states provided regarding
individual NRD cases that were active after 1995. This report focuses on those cases because the
federal regulations governing NRDA changed significantly in the mid-1990s (see Chapter 4).
However, Table 1.5 shows that some of the agencies had obtained settlements for NRDs in a
significant number of cases prior to that point in time.
1
Maryland reported having a very large staff (totaling 70 people), but this seems likely to be the size of the entire
agency and not the staff devoted to NRD activity.
5
Table 1.2 Number of Agencies Reporting Statutory Authority under State Law
State law authorizing
NRD recovery?
Yes
No
All states reporting
Agency
Number
FLDEP, ILDNR, LADEQ, MAEOEA, MIDEQ, MNPCA, MTDOJ, NJDEP,
OHEPA, ORDEQ, RIDEM, SCDHEC, SDDENR, VDEQ, WAECY-OPA
NDDH, NEDEQ, NHDES, NYSDEC, SCDHEC, VTDEM/VTDEC, WVDNR
15
7
22
Table 1.3 Year in Which Offices Began NRD Activity
Year
1980-1989
1990-1994
1995-1999
2000+
All agencies reporting
Agency names
FLDEP, MA EOEA
LADEQ, MIDEQ, MNPCA, MTDOJ, NJDEP, NYSDEC, ORDEQ,
SCDHEC, WAECY-OPA
ILDNR, RIDEM, SDDENR, WVDNR
KDHE, MDDNR
Table 1.4 Staffing of NRD Programs (in FTE)a
Economist(s) Scientist(s)
FLDEP
1
3
ILDNR
2
4
INDNR
0
1
KDHE
0
0.2
LADEQ
0
1.25
MAEOEA
0
0
MIDEQ
0
0.5
MNPCA
0
0.1
MTDOJ
0
3
NJDEP
0
1
NYSDEC
1
3
OHEPA
0
0
ORDEQ
0
0
RIDEM
0
0.25
SCDHEC
0
0.1
SDDENR
0
0.1
VDEQ
0
0
WAECY-OPA
0
7
WVDNR
0
2
Average
.21
1.39
a
Attorney(s)
2
1
1
0.1
0.1
0
0
0.1
2
0
1.25
0
0
0.25
0.1
0
0
0.1
0
.42
Other(s)
7
2
0
0
0
0
0
0.5
1
2
0
0
0
0.25
0
0
0
0
0
.37
Total
13
9
2
0.3
1.35
0
0.5
0.7
6
3
5.25
<.01
0
0.75
0.2
0.1
0
7.1
2
2.70
Maryland is dropped here because it reported total agency staff, not staff devoted to NRD activity.
6
Number
2
9
4
2
17
Table 1.5 Number of Cases Settled by Agency Prior to 1995
Number of cases
0
1 - 10
11 - 100
400+
All agencies reporting
Names of agencies
ILDNR, KDHE, MDDNR, MTDOJ, OHEPA, SCDHEC,
SDDENR, WVDNR
LADEQ, MAEOEA, MIDEQ, MNPCA, RIDEM, VDEQ,
NJDEP
NYSDEC, WAECY-OPA
FLDEP
Number of agencies
8
7
2
1
18
IV. NRD cases
Case information forms were received for a total of 88 NRD cases. However, because of
incomplete responses, information for Tables 1.8 – 1.14 was not provided for all 88 cases in our
sample. Washington and Florida each handle a very large number of NRD cases each year, but
they use compensation formulae to conduct the NRDA and reach a settlement with the
responsible party (for detailed information on those simplified methods, see Chapter 2 of this
report or Ando and Khanna, 2002.) Staff in those states’ trustee agencies could not fill out a form
for each case they handle; thus, those cases are not included in this report. Table 1.6 shows that
while the agencies from New Jersey and Louisiana each reported on more than ten cases, all the
others had fewer than ten cases, either settled or unsettled, since 1995.
Table 1.7 shows the cases in our sample were brought largely under the authority of
federal statutes. A significant number appealed to state law, but 17 of the 29 cases listed as such
were handled under federal laws as well. About half of the cases in our sample (and nearly all the
small cases) were handled by a single state agency acting as trustee, though many NRD cases
were brought by multiple state trustees, or even by state and federal trustees working together
(the federal trustee agencies are the Fish and Wildlife Service (FWS) and the National Oceanic
and Atmospheric Administration (NOAA)); see Table 1.8. Similarly, most cases involved only
one PRP, though a fair number involved more than one and a handful of cases sought to recover
NRDs from more than ten PRPs; see Table 1.9.
Tables 1.10 through 1.13 provide information about the natural resource injuries that
were the subjects of the cases in our sample. Most of the injuries resulted from accidental spills,
though a large number of cases involve injuries associated with contaminated sites on the
National Priorities List (NPL) under CERCLA. Thus, while most of the events that led to the
injuries occurred during the 1990s, many of the events occurred in earlier decades; some even
pre-date the 1950s.
In most cases, the contaminant in question was either petroleum or hazardous substances,
such as polychlorinated biphenyls (commonly known as PCBs), though there were a few cases of
natural-resource injury caused by other materials not ordinarily classified as “hazardous”, such
as salt water. Injuries were spread across several categories of resources, though fish and wildlife
were most commonly affected, and categories such as recreation, cultural resources, and air were
affected somewhat rarely.
7
Table 1.6 Number of Cases by Agency from 1995 to 2001
State agency
FLDEPa
ILDNR
INDNR
LADEQ
MAOEA
MDDNR
MIDEQb
MNPCA
MTDOJ
NJDEP
OHEPA
ORDEQ
RIDEM
SDDENR
VDEQ
WAECY-OPA
WVDNR
All agencies reporting
Number of cases
2
4
3
13
4
1
6
4
1
32
4
1
5
1
1
5
1
88
a
Florida also sent several case-information forms for cases related to damaged coral reefs; they are not included in
this report because they are qualitatively different from all the other cases in the sample.
b
Two case-information forms were sent for one of the Michigan cases – one from the MIDEQ, the other from the
MIAGO. That case has been categorized under the MIDEQ.
Table 1.7 Statutory Authority Invoked
Law
Number of cases a
OPA
41
CERCLA
35
Other-state law
29
Any statute reported
85
a
The top three entries sum to more than 85 because some cases are brought under state and federal law or under
both federal statutes.
Table 1.8 Number of Trustees Involved in a Case
Number of trustees
1
2
3
4
5
6
Any number reported
Number of cases
39
11
9
8
10
8
88
8
Table 1.9 Number of Potentially Responsible Parties (PRPs)
Number of PRPs
1
2-10
>10
Any number reported
Number of cases
59
14
4
77
Table 1.10 Distribution of Cases Among Statutes and Year of Onset of Injury
Year in which the
event or activity
responsible for
injury began
a
<1950
1950-1959
1960-1969
1970-1979
1980-1989
1990-1999
2000-2001
Any year reported
OPA
0
0
0
0
3
27
7
37
Statute invoked a
CERCLA State/other Any statute reported
3
2
4
6
3
7
2
1
2
6
4
7
3
3
6
6
9
38
0
2
8
26
24
72
Multiple statutes were reported for 15 cases.
Table 1.11 Type of Event Responsible for Natural Resource Injury
Type of event
National Priority List (Superfund) site
Spill
Voluntary release
“Other”
Any event reported
a
Number of cases
16
47
1
14
76 a
Multiple event types were listed for two cases.
Table 1.12 Type of Contaminant
Type of contaminant
Petroleum
Hazardous substances
Other
Any contaminant reported a
a
Number of cases
50
41
8
87
Multiple contaminant types were reported for 11 cases.
9
Table 1.13 Injured Resources
Type of resource injured
Groundwater
Surface water
Wetland
Fish
Wildlife
Recreation and/or cultural
Air and/or other resources
Any resources reported a
a
Number of cases
32
51
42
36
32
23
26
83
The right-hand column sums to much more than 83 because only 25 cases involved injury to a single resource.
The trustees reported that an NRDA had been performed on the entire injury for only 33 of
the 88 cases in our sample. Injury assessments were performed for the 32 cases submitted by
New Jersey, but the agency did not consider those assessments to have been NRDAs. Tables
1.14 through 1.17 give information about the 33 assessments. These tables apply only to those
cases that were reported to have been the subject of an NRDA, and information for these tables
was not provided for even all of those cases.
Trustee agencies reported hiring a consultant to assistant with the damage assessment
process for 10 of the 33 cases for which they gave NRDA information. This may contribute to
the fact (seen in Table 1.14) that the cost to trustees of conducting an NRDA varies
tremendously. While most cases cost less than $10,000 to assess, several assessments in the data
bear price tags in the millions; though the median assessment cost is only $30,000, the average is
$643,000. Estimated damages (Table 1.15) were similarly quite diverse. While some estimates
are lower than $10,000, there are enough estimates in excess of 10 million to pull the mean
damage estimate up to 40 million and the median to over one million.
Trustees were asked which of a range of assessment methods were used by their staff, the
staff of other trustees, and any consultants in the process of estimating the damages associated
with the case at hand. Note that the methods listed in Tables 1.16 and 1.17 are defined and
described in the Appendix to Chapter 1. The single most commonly- used method was habitat
equivalency analysis (HEA), while a few methods (factor- income analysis, hedonic analysis,
Department of Interior (DOI) Type A models, NOAA compensation formulas, and conjoint
analysis/contingent ranking) were not reported to have been used for any of the cases in our
sample. Many cases were reported to have been assessed using a tool of the trustee’s own design
or some unspecified method that was not among those we listed. This feature of the data captures
everything from New Jersey’s method for assessing groundwater damage (Ando and Khanna,
2004) to back-of-the-envelope analysis based on applied professional judgment.
10
Table 1.14 Cost to Trustee of Performing NRDA
Cost ($)
0 - $10,000
$10,001 - $100,000
$100,001 - $1,000,000
$1,000,001+
Any cost reported
Number of cases
10
7
3
3
23
Table 1.15 Damage Estimates from NRDA
Estimated damages ($)
0 – 10,000
10,001 - 100,000
100,001 - 1,000,000
1,000,001 – 10,000,000
10,000,001 +
Any estimate reported
Number of cases
2
3
5
8
3
21
Table 1.16 NRDA Methods Used by Different Agents
Own valuation tool, other
Benefit transfer
Appraisal method, market price analysis
Travel cost, averting behavior analysis
Contingent valuation
Habitat equivalency analysis
Type A model; NOAA formula; factor
income , hedonic, or conjoint analysis
Number of cases in which method was used by:
Reporting
Another
Consultant to
At least one trustee
trustee
trustee
trustees
or consultant
27
3
1
29
5
3
2
9
5
0
6
11
3
1
6
13
1
0
4
5
8
10
3
15
0
0
0
0
Table 1.17 NRDA Methods Used for Varied Types of Injured Resources
Own valuation tool, other
Benefit transfer
Appraisal method, market price
analysis
Travel cost, averting behavior
analysis
Contingent valuation
Habitat equivalency analysis
Number of cases in which method was used and the following resource was
among those injured:
Ground
Surface
Wetland
Air,
Fish,
Recreation,
water
water
other
wildlife
cultural
18
16
8
6
13
2
4
8
4
3
6
5
5
7
2
5
4
2
5
7
5
6
6
5
5
7
5
11
3
8
3
6
3
11
2
3
11
Sophisticated assessment methods such as contingent valuation or the indirect valuation
methods (averting behavior and travel cost analyses) are not strictly tools of consultants. Table
1.16 shows that while most such tools were wielded by consultants, trustees report having
performed some such studies themselves. Similarly, trustees are not the only analysts using
simplified methods; they report their consultants having used such methods as well. A
breakdown of methods by injured resource, Table 1.17, also shows a lack of specialization across
resources; varied NRDA methods are used to assess damages from injuries of all sorts.
Of the cases in the data, 61 have been settled completely, six have been the subject of a partial
settlement, 20 remain unsettled, and one was reported without information on settlement status.
Among the 41 cases for which information was provided about both the date of injury and the
date of settlement, some settlement s were reached less than a year after the event that led to the
NRDs, while others took decades to reach. When two Superfund outliers are dropped from the
calculation (contamination at those sites began in the 1870s), the average length of time between
event and settlement is about 11 years, and the median is four. A few cases settled for less than
$10,000. However, the median settlement is close to $300,000 and the mean settlement is over
eight million dollars. Five cases settled for more than ten million dollars (see Table 1.18).
Figure 1.1 indicates that settlements have been higher for cases that were assessed using
relatively sophisticated NRDA tools. While this probably reflects the fact that trustees do not
choose to use expensive assessment methods when the damages are likely to be small, it is
possible that it is easier for trustees to land larger settlements when they can back up their
estimates with highly credible analyses.
Figure 1.2 indicates that the largest recent settlements have been for NRDs associated
with big Superfund sites, and that only small cases have been pursued under the auspices of state
law. This is consistent with the data shown in Figure 1.3. The largest mean settlements are
associated with the sort of uncommonly-claimed resource injuries (such as injuries to cultural
resources) that tend to be associated with CERCLA cases. Finally, Figure 1.4 shows that there
has not been a great gap between NRD estimates made by trustees and the settlements that are
finally achieved. The points in the scatter-plot are visibly clustered around the 45-degree line,
and the correlation coefficient between NRD estimates and settlements is .9956.
Table 1.18 Amount of Settlement a
Total settlement ($)
0 – 10,000
10,001 - 100,000
100,001 – 1,000,000
1,000,001 - 10,000,000
10,000,001 +
Any settlement reported
a
Number of cases
5
12
12
10
5
44
This value includes cost estimates of compensatory restoration or acquisition done by the PRP under the settlement.
12
90
83.78
Mean Settlement (million $)
80
70
58.34
60
50.33
50
40
30
20
6.43
10
1.40
0.46
Own tool,
"other"
Benefit
transfer
0
Appraisal,
market price
Travel cost,
averting
behavior
CV
HEA
NRDA Method
Figure 1.1 Mean Settlement by NRDA Method
18
17.11
Mean Settlement (million $)
16
14
12
10
8
6
4.69
4
2
0.20
0
OPA
CERCLA
State law only
Statute Invoked
Figure 1.2 Mean Settlement by Statute Invoked
13
$45
40.30
Mean Settlement (million $)
$40
$35
28.18
$30
$25
$20
17.19
14.95
$15
16.45
13.22
$10
$5
$0
ground water surface water
wetland
air, other
fish, wildlife
recreational,
cultural
Injured Resource
Figure 1.3 Mean Settlement by Resources Injured
NRD Settlement (million $)
25
20
15
10
5
0
0
5
10
15
NRD Estimate (million $)
Settlement
45° line
Figure 1.4 Relationship between NRD Estimates and Final Settlements a
a
One case with extremely large damages was removed to make the rest of the figure more readable.
14
20
V. Conclusions
Trustees have had reasonable success in achieving settlements for the damage estimates
that emerge from their NRDAs. While HEA is certainly the most common single assessment
method in the current era of NRD activity, methods that place a dollar value on damages are still
successfully in use. Indeed, trustees employ a wide range of assessment methods, seemingly
matching the sophistication (and expense) of the method to the expected magnitude of the
damages. Though state trustees often hire consultants or team up with federal trustees when a
complicated NRDA needs to be done, state offices sometimes carry out relatively sophisticated
analyses in- house.
A trustee agency just beginning to develop an NRD program can take heart from the fact
that a wide variety of assessment methods have been shown in practice to be successful tools for
generating damage estimates that will stand up in the settlement- negotiation process.
Furthermore, it is appropriate for a trustee to opt for a less complex method that is inexpensive to
implement when one is faced with a relatively small case.
Economists need to realize that traditional economic valuation approaches have not been
supplanted entirely by HEA. Thus, there is still useful work to be done in refining damage
assessment methods that estimate the monetary value of lost resources. It would be valuable for
economists to turn more attention to developing economically rational simplified methods that
can easily and inexpensively be used in- house by a small NRD group within a state trustee
agency. There also may be some value to synthesizing the work that has been done on complex
valuation methods, and facilitating the transfer of that expertise to staff me mbers of trustee
agencies.
15
References
Ando, A. W. and M. Khanna. 2004 (forthcoming). “Natural Resource Damage Assessment
Methods: Lessons in Simplicity from State Trustees.” Contemporary Economic Policy.
The Association of State and Territorial Solid Waste Management Officials (ASTSWMO). 1997.
Survey of State Remedial Program Activities in Natural Resource Damages (website
version). www.astswmo.com.
Baumol, W. J. and W. E. Oates. 1988. The Theory of Environmental Policy, 2nd Ed. Cambridge
University Press: Cambridge, England.
Environmental Law Institute (ELI). 1998. An Analysis of State Superfund Programs: 50-State
Study, 1998 Update. Environmental Law Institute: Washington, D.C.
Jones, C.A. 1997. “Use of Non- market Valuation Methods in the Courtroom: Recent
Affirmative Precedents in Natural Resource Damage Assessments.” Water Resources
Update 109: 10-18.
16
Appendix: Materials in Information-Gathering Mailings
Note that the appearance of these materials in the actual mailings was slightly different since
there were no page numbers at the bottom of the pages. A cover letter accompanied the
questionnaires and instruction forms.
pp. 18-20:
Survey Response Instructions
p. 21:
One-page questionnaire about overall NRD program
pp. 22-23:
Two-page case information form. These were printed on double-sided sheets of
paper; a number of them were provided with each envelope that was mailed.
17
Survey Response Instructions
The survey has two components. When you have finished filling out all forms, please put them in the
enclosed self- addressed pre-stamped envelope and return them to us via U.S. mail. We would
appreciate receipt of your responses within four weeks of the date on the cover letter.
1) Please fill out the one-page “Survey of State Natural Resource Damages (NRD) Programs”. There
is only a single copy of this in the survey packet.
2) For each NRD case your office handled from 1995 to the present, please fill out one “NRD
Case Information Form”. We are only interested in cases that were active during this time period.
This excludes cases that were settled prior to calendar year 1995.
We have included a number of copies of this form in your survey packet. If necessary, you may
make more copies, contact us to have more forms sent to you, or request that we send you the
electronic file for you to use in your response effort.
There is extra space on the back of each case information form that you can use if the space provided
for any particular question is too small for your answer. You may also attach descriptive material
from other documents if that facilitates your response. Note that for unsettled cases, most of page 2
of the form does not need to be answered. For cases that have not yet been the target of a NRD
assessment, the second half of page 1 should also be left blank.
If you wish to seek our assistance in filling out the case information forms for a large number of
cases, or if you have any questions about the survey, please contact one of the people listed below:
Prof. Amy W. Ando
Department of Agricultural and Consumer Economics
University of Illinois at Urbana-Champaign
326 Mumford Hall, 1301 W. Gregory Drive
Urbana, IL 61801
amyando@uiuc.edu, (217) 333-5130
Prof. Madhu Khanna
Department of Agricultural and Consumer Economics
University of Illinois at Urbana-Champaign
326 Mumford Hall, 1301 W. Gregory Drive
Urbana, IL 61801
khanna2@uiuc.edu, (217) 333-5176
18
Guide to Terms and Acronyms Used in the Survey
NRD: Natural resource damages.
NRDA: Natural resource damage assessment. This process may or may not be done in formal compliance
with federal regulations.
OPA: Oil Pollution Act of 1990.
CERCLA: Comprehensive Environmental Response, Compensation and Liability Act.
Pre-assessment screen: First step in the process of pursuing a NRD claim, during which the trustee determines
whether a hazardous substance release may have caused injury to a natural resource whic h is likely to warrant
pursuit of damages recovery. In the Oil Pollution Act regulations, this would simply be referred to as preassessment.
NRDA methods listed in the Case Information Form:
Own valuation tool: This refers to any formal damage-assessment tool (such as a lookup table, decision tree,
or computer program) you might have described in question 6 on the cover page of this survey.
Benefits transfer: This approach could more generally be named “value transfer.” It is a practical valuation
alternative when direct survey data concerning the resource in question are unavailable. This valuation
method relies on approaches for "transferring" existing studies, value estimates, and willingness to pay
function to the damage estimation problem at hand. The “unit value method” described in the CERCLA
regulations is a particular kind of benefits transfer.
DOI Type A computer models: The Department of the Interior has developed two computer models that are
approved for use in Type A “simplified” assessments. They are the Natural Resource Damage Assessment
Model for Coastal and Marine Environments (NRDAM/CME) and the Natural Resource Damage Assessment
Model for Great Lakes Environments (NRDAM/GLE).
NOAA compensation formulas: The National Oceanic and Atmospheric Administration included a
compensation formula in its Oil Pollution Act regulations on 1/7/94; that formula was for use in assessing the
damages from small oil spills in estuarine and marine environments. Variants of that formula can be derived
using the NRDAM/CME.
Appraisal method: This method measures compensable value, to the extent possible, in accordance with the
applicable sections of the "Uniform Appraisal Standards for Federal Land Acquisition." The measure of
compensable value under this method will be the difference between the with- and without-injury appraisal
value determined by the comparable sales approach as described in the Uniform Appraisal Standards.
Factor income analysis (a.k.a. "reverse value added" methodology): If the injured resources are inputs to a
production process, which has as an output a product with a well-defined market price, this method can be
used to determine the economic rent associated with the use of resources in the production process.
Market price analysis: If the natural resources are traded in the market, and if the market for the resources (or
the services provided by the resources) is reasonably competitive, the diminution in the market price of the
injured resources, or the lost services, can be used to determine the compensable value of the injured
resources.
19
Hedonic price analysis : This may be used to determine the value of non-marketed resources by an analysis of
private market choices. The demand for non-marketed natural resources is thereby estimated indirectly by an
analysis of wage rates or of commodities, such as houses, that are traded in a market.
Travel-cost analysis : An individual's incremental travel costs to an area are used as a proxy for the price of the
services of that area. Compensable value of the area to the traveler is the difference between the value of the
area with and without a discharge or release. Regional travel cost models may be used.
Averting behavior analysis : This method infers values from observation of how changes in the quality and
quantity of natural resources induces changes (often “defensive” in nature) in human behavior.
Contingent valuation: This includes a body of techniques that set up hypothetical markets to elicit an
individual's economic valuation of a natural resource. This method can determine use values and explicitly
determine option and existence values, and thus be used to determine lost values of injured natural resources.
Conjoint analysis/contingent ranking: Stated preference methods that ask respondents to make choices
between two or more resource alternatives (conjoint analysis) or rank multiple resource alternatives
(contingent ranking) that differ in at least some of their attributes can be used to estimate the value of
changes in the attributes of the alternatives.
Habitat equivalency analysis (a.k.a. resource equivalency analysis): This is a common way to scale
compensatory restoration projects. The goal is to ensure that the quantity of replacement services provided
equals the quantity of lost services. Services are quantified in physical units and not valued in monetary terms.
NOTE: Definitions are taken and/or adapted from the following sources:
1) U.S. Department of the Interior. 1996. U.S. Department of the Interior Natural Resource Damage
Assessment Regulations, 43 CFR PART 11 (1995), as amended at 61 Fed. Reg. 20609, May 7, 1996.
http://www.doi.gov/oepc/wp_docs/43cfr11.html .
2) National Oceanic and Atmospheric Administration, Damage Assessment and Restoration Program. August,
1996. Specifications for Use of NRDAM/CME Version 2.4 to Generate Compensation Formulas. Guidance
Document for Natural Resource Damage Assessment Under the Oil Pollution Act of 1990.
http://www.darcnw.noaa.gov/cfd_cov.pdf.
3) Wisconsin Department of Natural Resources. November, 2000. Lower Fox River and Bay of Green Bay:
Summary of Basis of Natural Resource Damages Settlement among State of Wisconsin and Fort James
Corporation.
http://www.dnr.state.wi.us/org/water/wm/lowerfox/Sediment/summary_nrd_settlement_final.pdf.
4) CH2M Hill. February 2000. Phase II Final Report: Human Effects Analysis of the Multi-Species
Framework Alternatives. Prepared for Northwest Power Planning Council.
http://www.edthome.org/framework/humaneffects/1.htm.
5) National Oceanic and Atmospheric Administration, Damage Assessment and Restoration Program.
December 1997. Natural Resource Damage Assessment Guidance Document: Scaling Compensatory
Restoration Actions (Oil Pollution Act of 1990). http://www.darp.noaa.gov/pdf/scaling.pdf
6) National Oceanic and Atmospheric Administration, Damage Assessment and Restoration Program.
2000. Habitat Equivalency Analysis: An Overview. http://www.darp.noaa.gov/pdf/heaoverv.pdf .
20
Survey of State Natural Resource Damages (NRD) Programs
1) Name of agency: ______________________________________________________________
2) Person/office responding to the survey (name, office, telephone, email, address):
3) List other agencies/offices in your state with Trustee authority/activity: ______________________
4) Does your state have independent state authority to address NRD issues?
___ yes
___ no
5) How many staff (in FTE) do you have working on NRD assessment and/or recovery?
Economists: _____ Natural scientists: _____
Attorneys: _____
Other: _____ Total: ________
6) What is your annual budget for NRD activity in the current fiscal year?
Damage recoveries:
$___________ State funds: $____________
Assessment costs recovered: $___________ Other:
$____________
Total: $____________
7) In what calendar year did your office begin its NRD activity?
______
8) How many NRD cases did your office settle prior to 1995?
______
9) From 1995 to the present, how many pre-assessment screens did you carry out?
______
Of those, how many cases met the criteria for potential further action?
______
Of those, how many cases do you actually intend to pursue further?
______
10) Do you have any particular original, simplified method(s) for assessing natural resource damages that
is(are) designed especially for use by staff members of your office? (This could be a lookup table,
decision-making protocol, computer program, etc.)
___ yes
___ no
If so:
(a) Briefly describe the method(s) in the space below.
(b) Do you have documentation for that method that you would be willing to share with us for the purposes of
our project?
___ yes
___ no
(c) Please provide a name and contact information for any staff member who would be willing to talk further
to us about the nature of the method(s) you have developed:
21
1) Name and location of case: ______________________________________________________
2) Under which statute(s) is(are) this case pursued? ___OPA ___CERCLA ___Other (
)
define
3) Trustees involved: ____________________________________________________________
4) How many responsible parties are involved?
#____
5) When did the event/activity responsible for the injury begin?
How long did it last?
6) Event/activity was: ___ NPL site ___ Spill
CY ______
# months ______
___ Voluntary ___ Other (
___ )
describe
7) What was the nature of the contamination? (Check each that applies)
___ Petroleum ___ Hazardous substances (
) ___ Other (
describe
)
describe
8) What was the mass or volume of contaminant(s) released? _____________________________
______________________________________________________________________________
9) The duration (actual or expected) of the injury is (answer one):
# months _______
In perpetuity since CY _______
10) What kinds of resources were injured? (Check each that applies)
___ Groundwater
___ Surface water
___ Wetland
___ Air
___ Fish
___ Non-fish wildlife
___ Recreational area ___ Cultural resource ___ Other (
)
describe
11) What was the magnitude of the injury? (e.g. miles of stream damaged, # animals killed, volume
groundwater contaminated) _________________________________________________________
______________________________________________________________________________
12) When was the pre-assessment screen performed?
13) Was a NRDA done for this case? ___ yes ___ no
CY _______
(IF NOT YES, FORM IS DONE)
14) When was the NRDA completed?
CY _______
15) Did you hire a consultant to assist with the damage assessment process? ____ yes
____no
16) What was the total cost to your office of the NRDA (including fees)?
$ ___________
17) What total estimated damages emerged from your NRDA?
$ ___________
In-house
Other Trustee
Consultant(s)
22
Travel-cost analysis
Averting behavior
analysis
Contingent valuation
Conjoint analysis/
contingent ranking
Habitat equivalency
analysis
Other (specify):
Hedonic analysis
Benefits transfer
DOI Type A
computer models
NOAA compensation
formulas
Appraisal method
Factor-income
analysis
Market price analysis
Own valuation tool
Do not know
Not applicable
18) Many methods are available to determine damages. For this case, check each of the following
methods that were used by your staff, another Trustee, or consultants hired by the Trustees:
19) Has this case been settled? (Check one) __ yes __ no __ partially
(IF NOT YES, FORM IS DONE.)
20) When was the final settlement reached?
CY _______
21) How was the final settlement document developed? (Check one)
___ Consent decree ___ Covenant not to sue ___ Other: ( ___________________________ )
describe
22) What was the estimated cost to the responsible parties of the settlement? Total: $ _________
Trustees’ assessment costs reimbursed: $__________
Compensatory damages paid: $__________ Other payment ( _______________ ): $__________
describe
Primary restoration activity: $__________ Compensatory restoration activity:
$__________
Other in-kind compensation ( ________________________________________ ): $__________
describe
23) Did the settlement include non-use values (either implicitly or explicitly)? ____ yes ____no
If so, do you have an estimate of the compensated non-use values?
$ _________
Please use the space below for any extensions of answers (give the number of the question to which the
answer responds) or additional comments that you wish to make:
23
Chapter 2: Tables and Figures
Figure 2.1 Number of Spills by Size of Spill in 2000..............................................................27
Figure 2.2 Volume of Oil Spilled in U.S. Waters by Spill Size in 2000 ..................................27
Figure 2.3 Oil Spills in U.S. Waters by State in 2000 ..............................................................28
Figure 2.4 Damages in Washington Cases, 1991-2001 ............................................................35
Figure 2.5 Value of Claim by Gallons Spilled in WA State, 1991-2001..................................35
Figure 2.6 Damages in Florida Cases, 1995-2001 ....................................................................40
Figure 2.7 Superfund Sites by State..........................................................................................41
24
Chapter 2
Simplified Methods for Natural Resource Damage Assessment 1
I.
Introduction
Natural resources can be injured when hazardous materials, such as oil and toxic
chemicals, are released into the environment. It can be difficult to assess the value of those
natural resource damages (NRD) because the lost benefits are often not the subject of market
trades, and thus do not have prices that analysts can use to evaluate the loss to society due to
degradation or destruction. Nonetheless, the state agencies that have been designated to act as
trustees for the people of their states have fiduciary responsibility to engage in NRD Assessment
(NRDA). Otherwise, they have no basis on which to file a claim to recover the value of lost or
damaged resources according to the NRD provisions of the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA), the Oil Pollution Act (OPA), or related
state law.
Economists have built up an extremely large body of work which develops sophisticated
valuation methods, such as contingent valuation, averting behavior analysis, hedonic analysis,
and travel cost analysis. While these methods may be used to generate reasonably accurate casespecific estimates of NRDs, they have drawbacks that make them difficult to use. They are timeconsuming, since a study must be conducted to evaluate the exact magnitude and nature of the
injury to natural resources, and then additional analysis must be carried out in order to ascertain
the value of the injured resources to society. If a trustee opts for one (or more) of these valuation
methods, much time will pass before the case is settled and the potentially responsible party
(PRP) compensates the public for the lost values. A full- fledged assessment requires extensive
data, which may not be available for old or small releases. Finally, these methods are expensive
– it can cost millions of dollars to carry out a sophisticated NRDA. The data collection involved
is costly, and substantial expertise is required to carry out these valuation efforts that may require
the trustee to retain (or contract out to) highly trained, and thus costly, personnel.
In practice, many states use valuation methods that are faster, less costly, less information
intensive, and less precise than case-specific methods such as those mentioned above. Such
methods may be simple formulas or computer programs. Of 38 cases about which we have
gathered information, state trustees used some sort of simplified in- house valuation method for
13 of them, benefits transfer for six of them, and a simplified method designed by a federal
agency2 for three of them. In addition, hundreds of cases are assessed and settled by states such
as Washington and Florida using state-specific simplified assessment methods.
This chapter describes and critiques some of the more formal simplified methods used by
the trustee agencies of four states: Florida, Washington, New Jersey, and Minnesota. We work to
1
We are grateful to staff members at the Washington Department of Ecology, the Florida Department of
Environmental Protection, the New Jersey Department of Environmental Protection, and the Minnesota Pollution
Control Agency for sharing information about their assessment methods with us.
2
This could be either the Type A computer model designed by the Department of the Interior or the compensation
schedule designed by the National Oceanographic and Atmospheric Administration.
25
evaluate the potential for other states to adopt similar methods, and identify ways in which
economists could conduct research to improve the accuracy of such methods without sacrificing
their simplicity.
II.
Simplified NRDA methods for oil spills
State trustees obtain authority to pursue NRD recovery for oil spills largely from OPA,
passed in 1990, and from various state laws. The passage of OPA was prompted at least in part
by the enormous Exxon-Valdez spill. However, Figures 2.1 and 2.2 make clear that while most
of the oil spilled comes from large releases, most oil-spill incidents are very small. It seems
sensible to have a method to assess damages from such small spills in a manner that is not
resource intensive.
Oil spills are not limited to coastal areas (they occur in overland transport, at refineries,
and around compromised pipelines), but coastal states do have the largest numbers of reported
spills. As can be seen from Figure 2.3 below, a few states bear the effects of a disproportionate
number of oil spills in U.S. waters. One might expect those states to have the most to gain from
developing a simplified assessment method to deal with their heavy case load. While the state of
Texas has state law dealing specifically with recovering NRDs from oil spills, that law does not
authorize or specify a simplified assessment method. Louisiana trustees are investigating the use
and/or modification of a Wetland Value Assessment methodology that was originally designed to
evaluate wetland enhancement projects proposed for funding under the Coastal Wetlands
Planning, Protection, and Restoration Act (CWPPRA). At the time of our survey, the trustee
agency in California did not use a compensation table or formula, opting instead to use casespecific Habitat Equivalency Analysis for all the spills it handled. Since then California staff
members have developed a simplified method for use in small cases; for details, see Ando and
Khanna (2004). In this chapter, we report on the assessment methods used by agencies in
Florida and Washington (marked in black on the figure) for all but the biggest spills; each of
those methods is established by state law.
A. Washington
Environmental contamination of the navigable waters of Washington by spills from
vessels transporting oil into the state is a matter of concern to the state. Oil spills are recognized
to cause injuries to fishing, tourism, recreation and the aesthetic value of natural resources in the
state. The technology for containing and cleaning up an oil spill is not very well developed;
therefore, prevention is a less costly and more effective way of protecting the environment.
Among efforts to establish a spill prevention and response program, the state acts as the trustee
of the state’s natural resources to ensure that PRPs respond to spills and provide compensation
for all costs and damages. The legislature has declared that while some damages are easily
quantifiable and recovered by the state, it is also true that “compensation should be sought for
those damages that cannot be quantified at a reasonable cost and for unquantifiable damages that
result from oil spills. This compensation is intended to ensure that the public does not bear
substantial losses caused by oil pollution for which compensation may not be otherwise
received” (Washington, 2001, § 010.) In addition to compensating the state for damages, the PRP
is obliged immediately to collect and remove the contaminant and is liable for reimbursing
26
1,000
There were 8,058 spills in this category
Number of Spills
800
600
400
219
200
37
0
1-100
12
101-1,000 1,001-3,000 3,001-5,000
16
6
4
2
0
5,00110,000
10,00150,000
50,001100,000
100,0011,000,000
1,000,000+
50,001100,000
100,0011,000,000
1,000,000+
Size of Spill (gallons)
Figure 2.1 Number of Spills by Size of Spill in 2000
Source: USCG (2002).
800
Total Volume Spilled (1000 gallons)
700
600
500
400
300
200
100
0
1-100
101-1,000
1,001-3,000 3,001-5,000
5,00110,000
10,00150,000
Size of Spill (gallons)
Figure 2.2 Volume of Oil Spilled in U.S. Waters by Spill Size in 2000
Source: USCG (2002).
27
1800
1600
Number of Spills
1400
1200
1000
800
600
400
0
AK
AL
AR
AZ
CA
CO
CT
DC
DE
FL
GA
HI
IA
ID
IL
IN
KS
KY
LA
MA
MD
ME
MI
MN
MO
MS
MT
NC
NE
NH
NJ
NM
NV
NY
OH
OK
OR
PA
RI
SC
SD
TN
TX
UT
VA
VT
WA
WI
WV
WY
200
State
Figure 2.3 Oil Spills in U.S. Waters by State in 2000
Source: USCG (2001).
expenditures incurred by the state in responding to the spill.
Following Washington State law (Washington, 1992), after an incident causing damages
to natural resources of the state, the Department of Ecology (DECY) conducts a formal
preassessment screening. 3 That screening determines whether restoration or enhancement of the
injured resource is not technically feasible, damages are not quantifiable at reasonable cost and
restoration or enhancement projects proposed by the liable parties are insufficient to adequately
compensate the public for damages. If these three conditions apply to the case, then a
compensation schedule will be used to determine damages. If the screening committee
determines that a compensation schedule should not be used, then a case-specific damage
assessment will be performed. The PRP is required to provide compensation for cost of restoring
the resource to its pre- injury condition (if feasible) and for the value lost during the period
between the injury and the restoration. This interim lost value is to include consumptive values,
non-consumptive and indirect use values (which may include existence, bequest, option and
aesthetic values), and lost taxes and other revenues.
In 1991, the DECY was authorized to establish a compensation schedule for oil
discharges. The amount of compensation is between $1 per gallon and $50 per gallon of oil
spilled. This schedule is to provide adequate compensation for unquantifiable damages or for
3
The DECY has two offices that deal with NRDs. One handles cases to be pursued under CERCLA, and the other
handles oil spills.
28
damages not quantifiable at reasonable cost for adverse environmental effects caused by the spill.
Compensation should be based on the characteristics of the oil spilled (such as its toxicity and
persistence) and the sensitivity of the affected area. The latter depends on the location of the
spill, the habitat sensitivity, seasonal distribution of this sensitivity, importance of the area for
recreational, aesthetic or archaeological use and proximity of the spill to wildlife habitats.
Washington’s compensation-schedule method 4 uses minimal spill-specific information,
and only pre-existing information about resource vulnerability to the type of oil spilled. The
method has four major components:
(1) A relative “harmfulness” ranking of each of the classes of oil involved as determined
by their known chemical, physical and mechanical properties and factors that affect
severity and persistence of the effects of the spill on the environment.
(2) A relative vulnerability ranking of the receiving environment which takes into
account location of the spill, habitat and sensitivity of the resource to the spill,
seasonal distribution of the resources, areas of recreational use and aesthetic
importance, the proximity of the spill to important habitats for birds, aquatic
mammals, fish or other species listed as threatened or endangered, and areas of
special ecological or recreational importance.
(3) A method for calculating the resource damages from the oil spill based on (1) and (2).
(4) A method for adjusting the damages calculated in (3) based on actions taken by the
PRP such as immediate removal of oil from the environment, enhancing or impeding
the detection of the spill and extent of damage.
Part 1: Ranking of “harmfulness”
There are several facets to the “harmfulness” ranking of the released material. All three
rankings are on a scale of one to five. Acute toxicity indices (OILAT), which depend on the
properties of the oil and its solubility in seawater, have been developed by the state agency for
seven different types of oil. An acute-toxicity ranking of one represents the least harmful
substance. Relative scores for mechanical injury (OILMI) have been developed based on the
specific gravity of the oil spilled. Persistence scores (OILPER) have been developed on a one to
five scale depending on the length of time the spilled oil is known to persist in a variety of
habitat types. For example, a score of five is assigned if the effects of the oil spill will persist for
five to ten years while a score of one is assigned if these effects will only last for days or weeks.
Part 2: Ranking of “vulnerability”
Scores indicating how vulnerable an environment is to an oil spill are determined
separately for each of sixteen marine and estuarine regions and one hundred and thirty-one sub
regions in the state. There are vulnerability scores for spills in: marine and estuarine waters; the
4
For complete details including values of scores, see Washington (1992).
29
Columbia River estuary; 5 freshwater streams, rivers, and lakes; and freshwater wetlands.
(a) Marine and Estuarine Waters: For marine and estuarine environments excluding the
Columbia River, spill vulnerability scores (SVSME) for three oil effects (acute toxicity,
mechanical injury and persistence) are calculated at the time of the spill for the most sensitive
sub-region and season affected by the spill. 6 Each SVSME is determined by summing the
vulnerability scores for habitats, marine birds, marine animals, fishery species, and recreational
use. For each of 37 habitat types in the state, a score for vulnerability to acute toxicity,
mechanical injury and persistence has been developed. Furthermore, each of the marine and
estuarine sub-regions are ranked and scored on a one to five scale for each season for
vulnerability of marine birds, marine fisheries, shellfish, salmon, mammals, and recreation. For
example, the recreation vulnerability score is determined based on seasonal level of participation
in recreational activities, number of recreation sites and types of recreational amenities available
in a sub region for each of the four seasons. The formula used to calculate the SVSME for each of
the three oil effects is given by Equation 1:
SVSiME = HVSi + BVS + MVS + MFVS + SFVS + SAVS + RVS , where
(1)
SVSiME = Spill vulnerability score for oil effect i in a marine or estuarine environment
i = Index for effect of oil: i ∈ {acute toxicity (AT), mechanical injury (MI), or
persistence (PER)}
K = Total number of habitats to be considered
PCk = Percent coverage 7 of habitat type k
hv ik = Habitat vulnerability score for habitat type k and oil effect i
HVSi = Total habitat vulnerability to oil effect i :
K
HVSi = ∑ hv ik PCk
k =1
BVS
MVS
MFVS
SFVS
SAVS
RVS
=
=
=
=
=
=
Marine bird vulnerability score for most sensitive season affected by spill
Marine mammal vulnerability score for most sensitive season affected by spill
Marine fisheries vulnerability score for most sensitive season affected by spill
Shellfish vulnerability score for most sensitive season affected by spill
Salmon vulnerability score for most sensitive season affected by spill
Recreation vulnerability score for most sensitive season affected by spill.
The vulnerability scores are increased if species of particular importance are likely to
have been affected by the spill. A number of the vulnerability scores (BVS, MVS, SFVS, and
SAVS) are increased by a multiplicative factor of 1.5 if any state or federal threatened or
endangered species are exposed to the spill. In addition, the habitat vulnerability scores for a
particular habitat type is increased by a multiplicative factor of 1.5 if sea grass or kelp is present.
5
The Columbia River estuary has been distinguished from other estuarine waters of the state because it resides
within the jurisdiction of two states, Washington and Oregon.
6
There are 16 regions and 131 sub-regions defined for the purposes of this regulation.
7
For very small spills (fewer than 1000 gallons) percent coverage is given by the percentage of each habitat type in
the affected subregion(s). For spills of 1000 or more gallons, percent coverage is given by the composition of only
those habitats exposed to the spilled oil, requiring more data collection.
30
(b) Columbia River Estuary: Bird, fish, mammal, invertebrate, habitat and human use
resource sensitivity have been evaluated for each square kilometer cell in the region of the
Columbia River Estuary for each season. These scores range from one to five. The vulnerability
score for a particular cell i (VSi) is determined by adding the sensitivity scores assigned to each
cell for each of five “uses” during the most sens itive season affected by the spill.
VSi = BSSi + FSSi + MSSi + ISSi + HSSi + HUSi
(2)
where:
VSi
BSS
FSS
MSS
ISS
HSS
HUS
=
=
=
=
=
=
=
vulnerability score for cell i
Bird sensitivity score for most sensitive season affected
Fish sensitivity score for most sensitive season affected
Mammal sensitivity vulnerability score for most sensitive season affected
Invertebrate sensitivity score for most sensitive season affected
Habitat sensitivity score for most sensitive season affected
Human use sensitivity score for most sensitive season affected.
If there are N cells exposed to the spill, the overall spill vulnerability score (SVSCR) is
calculated as the average of the vulnerability scores (VSi) for the cells exposed to the spill.
N
SVS
CR
=
∑ VS
i =1
i
N
(3)
(c) Freshwater streams, rivers, and lakes: For freshwater surface water bodies, such as
streams, rivers, and lakes, spill vulnerability (SVSFW) is simply determined by multiplying a
freshwater vulnerability score (FVS) with a habitat index score (HIS) as:
SVSFW = FVS * HIS.
(4)
The FVS ranges from one to five depending on the type of water, where a score of five is
assigned to the most sensitive category and one is assigned to the least sensitive category.
“Sensitivity” in this context is, in large part, a function of the importance of the waters to
domestic water supplies, recreation, fish or wildlife habitat, or water-quality protection. The HIS
is an index representing existing stream conditions prior to the oil spill, and is estimated based on
the following habitat quality parameters: barriers to natural fish movement, urbanization, land
use of watershed, flow alteration, channel modification, water quality, and condition of riparian
vegetation, floodplain, and streambed. The HIS can vary from 0 to 10, with high values
associated with freshwater systems that are not highly degraded.
(d) Freshwater wetlands: The spill vulnerability of freshwater wetlands (SVS WL) is set
equal to a wetlands-vulnerability score, WVS, according to:
SVSWL = WVS.
All wetlands are grouped into four categories based on the sensitivity of habitat, plants,
31
(5)
animals and recreational use to oil spills. The WVS for a particular spill site ranges from one to
five depending on the category into which the site has been placed. The highest sensitivity score
goes to wetlands that, for example, harbor endangered species, while the lowest score goes to
small, hydrologically- isolated wetlands full of invasive species.
Part 3: Calculation of damages using compensation schedule
The formula used to calculate monetary damages for spills into marine and estuarine
waters is:
Damages ($) = V*m*[(OilAT* SVSAT) + (OilMI* SVSMI) + (OilPER* SVSPER)] (6)
and the formula used to calculate monetary damages for spills into the Columbia River Estuary,
freshwater bodies, or wetlands is:
Damages ($) = V*m*SVS [OilAT +OilMI+OilPER] , where
V
SVS
OILAT
OILMI
OILPER
j
m
=
=
=
=
=
=
=
(7)
volume of spill (gallons)
spill vulnerability score
acute toxicity score for the oil
mechanical injury score for the oil
persistence score for the oil
most sensitive season affected by the spill
multiplier to adjust the damages to a range of $1-50 per gallon; equal to:
0.10 for marine and estuarine waters
0.20 for Columbia River
0.08 for freshwater bodies
0.81 for freshwater wetlands.
When oil spills affect more tha n one type of environment, damages are calculated using
the methods described above for each of the receiving environment types exposed to the spilled
oil. Total damages are then estimated as the greatest of the damages calculated for the receiving
environment types exposed to the spill. This allows damage assessment to proceed without trying
to ascertain how much oil spread onto each of the different types of environments.
Part 4: Adjusting damages for PRP mitigation
The damages estimated above may be modified based on actions taken by the PRP, such
as preventing spill injury to certain types of species and restoring resources injured by the spill.
The extent to which damages are reduced is determined by the natural resource damage
assessment committee. If the PRP contains the oil spill before it comes in contact with the shore
and removes a part of the spilled oil then the damages assessed are reduced. For the portion of
the oil that is removed damages are assessed after reducing the OILMI and the OILPER scores by
10%. These damages are then added to damages assessed for the portion of the oil not
immediately removed from the receiving environment. However, damages are not to be reduced
to less than one dollar per gallon of oil spilled.
32
Example of the Washington method in use:
Suppose there were a spill of 30 gallons of asphalt sealant in an estuarine area during the
summer. Of the area covered by the spill, 50% was open water, 20% was mud flats, and 30%
was open rocky shores. The habitat vulnerability scores are calculated as:
% coverage HVSAT HVSMI HVSPER
Open water
.50
5
3.2
2.2
Mud flats
.20
3.7
2.6
4.1
Open rocky shores
.30
3
3.5
3
Overall:
4.14
3.17
2.82
Other parameters for the area and season of the spill are:
Notation
BVS
MVS
MFVS
SFVS
SAVS
RVS
Parameter
Marine bird vulnerability score
Marine mammal vulnerability score
Marine fisheries vulnerability score
Shellfish vulnerability score
Salmon vulnerability scorea
Recreation vulnerability score
Sum of vulnerability scores:
Value
2
1
3
2
4.5
2
14.5
The two tables above imply that the spill vulnerability scores for the three oil effects are SVSAT =
18.64, SVSMI = 17.67, and SVSPER = 17.32.
For this particular kind of oil, the harmfulness rankings are given by OilAT = .9, OilMI = 5, and
OilPER = 4.
Damages are thus equal to: Damages ($) = 30 * .1 * [(.9*18.64) + (5* 17.67) + (4* 17.32)]
= $523.22
a
The salmon vulnerability score is calculated with a page- long table that is omitted here in the
interest of clarity.
Source: Adapted from cases provided by the Washington Department of Ecology.
Discussion of Washington method
We have data from the DECY on NRD cases during the years 1991 to 2001. During that
time, 90% of the oil releases in Washington were handled using this compensation method. The
single most common pollutant was diesel oil, which accounted for 64% of all cases; the
remaining cases were spread widely among at least 15 other categories of petroleum products.
Most cases were either in freshwater streams and lakes (34%) or marine environments (51%). Of
the cases for which claims have been filed, 84% are recorded as having been paid. Figure 2.4
33
gives a histogram of the claims made in cases that used the Washington state compensation
schedule method. These claims are mostly moderate in size. While few exceed $25,000 (though
the largest case involved a claim for over a million dollars), almost none are lower than $100.
Figure 2.5 provides a scatter-plot of the value of NRD claimed against the volume of the
spill in each of the cases for which the compensation schedule was used. The biggest cases were
dropped from the graph in order to make the rest easier to display. While the claims do tend to be
larger when the spill is bigger, the schedule is complex enough that the correlation between these
two values is not perfect. For all 209 cases in the data set the correlation coefficient is 0.94, but
when the largest five spills are dropped the correlation coefficient drops to 0.80.
The Washington compensation schedule has many desirable features. It is inexpensive
and easy to use, since it is designed to produce an estimate of damages using little more
information than the type and volume of oil released and the location of the spill. Given its
simplicity, this assessment method has a surprising amount of spill specificity, since the factors
used to scale damages are calculated separately for each of a very large number of different
geographic regions within the state. Many of the parameters used in the method were developed
with the input of a knowledgeable scientific advisory board.
The damage assessment formulas discussed above yield damage estimates that increase
with the magnitude of the spill, proxies for the magnitude of the injury (e.g. vulnerability of
different habitat types to mechanical injury and acute toxicity) and the length of time the injury is
likely to persist. Damage estimates are likely to be higher in cases where the injured resources
are of relatively great value. There are many places in the schedules where judgments of relative
values are implicitly being made; four examples can be readily identified. First, spill
vulnerability scores are higher in marine and estuarine areas if species of special importance
(such as those thought to be endangered) are likely to have been affected. Second, spill
vulnerability scores are higher in freshwater areas if the water system in question is important for
benefits such as municipal water supply, recreation, or wildlife habitat. These scores are also
higher if the water system is relatively pristine. Pristine water systems may actually be better
able to recover from a spill than systems that are already highly degraded; this element of the
SVS for freshwater spills seems to act as a measure of variation in the value of what is being
injured. Third, the index of recreation vulnerability includes factors relevant to the social value
of the damaged resource, since recreation vulnerability is a function of how many people
participate in recreational activities in the area affected by a spill. Fourth, spill vulnerability
scores are higher for freshwater wetlands that are important (for example, those that harbor
endangered species) or unusual.
However, there is no unified, transparent mechanism through which the value to society
of damaged resources is brought into the calculations; many features of the assessment schedules
seem to impose arbitrary and possibly undesirable structures on the damages that are assessed.
For example, the multipliers used to adjust monetary damages to lie between $1 and $50 are
arbitrary; there is no a priori reason that the monetary damages caused per gallon of oil spilled in
each of the four types of receiving environments should adhere to the same numerical range. In
general, placing a cap on the amount of damages assessed may reduce incentives to prevent the
most harmful oil spills. Also, in the marine and Columbia River compensation schedules,
34
35
65 cases
30
57 cases
% of All Cases
25
40 cases
20
15
28 cases
10
14 cases
5
5 cases
0
$0-$100
$101-$500
$501-$1,000
$1,001-$5,000 $5,001-$25,000
$25,001+
NRD $ Billed
Figure 2.4 Damages in Washington Cases, 1991-2001
Source: Data from Washington Department of Ecology – OPA Division
70
60
NRD Claim ($1000)
50
40
30
20
10
0
0
1000
2000
3000
4000
Volume of Spill (gallons)
Figure 2.5 Value of Claim by Gallons Spilled in WA State, 1991-2001
Source: Data from Washington Department of Ecology – OPA Division.
Note the five largest spills have been removed from the graph to improve readability.
35
5000
6000
vulnerability and sensitivity scores for a variety of potentially injured resources are added
together in a manner that forces the different uses to have identical weights. Thus, a spill that
causes maximal damage to shellfish but leaves salmon untouched will be deemed as damaging as
a spill of similar volume that causes maximal damage to salmon but leaves shellfish untouched.
The equality of values implied by these formulas is questionable.
How could the link to real economic damages be strengthened without sacrificing the
great simplicity of the Washington compensatio n tables? One possibility would be to excise the
implicit value judgments from the current method and use vulnerability scores solely to generate
estimates of the quantity of resources likely to have been injured. Those quantity estimates could
then be translated into monetary damages per-unit value estimates from meta-analyses of casespecific damage assessments of the resources in question. Meta-analysis involves the statistical
analysis of previous research results to show how environmental values obtained from various
studies vary with environmental characteristics, socio-economic characteristics or other
particular features of these studies (see Loomis and White (1996) for an example). In this case,
very simple analysis could be done to find the mean damage associated with a unit of injury to a
type of resource. Those mean values could provide a link between proxies for extent of physical
injury and estimates of monetary damages.
In order to perform the relevant meta-analyses, more case-specific NRDAs would need to
be done to provide accurate estimates of economic damages. The results of those studies then
become the data for the meta-analyses. Analysts in Washington could at least use such a
technique to verify whether per-gallon damages do, in fact, range from $1 to $50 in each of the
four types of receiving environments enumerated by the regulations.
Finally, with the exception of recreation vulnerability, there is no way for this assessment
tool to produce larger damage estimates in situations where more people were using or otherwise
benefiting from the resource that is injured. This weakness is present in all of the other
assessment tools described in this paper, and is further discussed in the conclusions.
B. Florida
Florida has the nation’s second longest coastline, rich ecological resources, and a large
number of oil spills and toxic chemical releases every year. Florida’s Department of
Environmental Protection (DEP) is the agency vested with trustee responsibility and authority to
assess and recover the damages to the state’s natural resources associated with oil spills and
chemical releases. The agency has used relatively complex assessment methods (such as travel
cost analysis, in conjunction with NOAA and consultants, and habitat equivalency analysis) in
cases of large spills and groundings that led to coral-reef damage. However, the great majority of
NRDAs in Florida are conducted using a simplified method set out in Florida law under Chapter
376, Pollution Discharge Prevention and Removal.
Section 121 of that Chapter states the Legislature’s finding that PRPs should reimburse
the public for damages to natural resources even when restoration is infeasible and lost values
are difficult to quantify. It sets forth a compensation schedule that is designed to allow damages
to be collected when resource values are lost as a result of a moderate or small discharge, while
36
preventing excessive expenditures on the assessment process. Most of the details of the
compensation schedule and its proper use are stipulated in the law itself, except that the law
charges the DEP with the task of ranking non-petroleum pollutants on a one-to-three scale of
harmfulness. Section 121 grants rebuttable presumption in judicial and administrative
proceedings to any NRDA performed in accordance with the rules established by this law.
The statute claims that the compensation schedule is based upon both restoration costs
and the loss of a wide range of use (economic, scientific, recreational, educational, consumptive,
and aesthetic) and non-use (ecological and intrinsic) values associated with injured or destroyed
resources. The law addresses damages due to discharges into coastal and offshore waters; the
compensation schedule is not readily applied to land-based discharges that result in damages to
terrestrial natural resources. While the schedule utilizes less data than would a full damage
assessment, it does scale the required compensation on the basis of variation in the volume of the
discharge, the harmfulness of pollutant discharged, proximity of the discharge to the Florida
coastal shore and/or special management areas, the type and quantity of habitat affected, and the
number of endangered or threatened species that are killed as a result of the discharge.
When a discharge occurs, that discharge must be reported to the proper authorities
(according, for example, to provisions in the Oil Pollution Act of 1990). A Pollution Discharge
Report is completed within a very short time frame (roughly six working days). If the discharge
is less than 30,000 gallons, the DEP uses the compensation schedule to assess the damage s. In
case of a discharge greater than 30,000 gallons, the PRP may choose either to pay the amount
calculated with the compensation schedule or to have a case-specific damage assessment
performed and pay the damages determined by that assessment. If the PRP wants to opt for the
extended damage assessment, it must notify the DEP within fifteen days of the discovery of the
discharge. That choice is irreversible, even if the damages estimated using the damage
assessment are greater than the damages calculated by applying the compensation schedule.
Even if the PRP opts for a full damage assessment, all payment is not delayed until the
assessment is complete. Within 90 days, the PRP is required to pay an amount calculated by
application of the compensation schedule to the discharge assuming a volume of 30,000 gallons.
Once the damage assessment is complete, the PRP must pay the state for any damages in excess
of the early payment that was made. However, that initial payment represents a lower bound on
the total payment for which the PRP is responsible even if the assessment yields a lower value.
The details of the Florida assessment method are as follows. 8 Basic parameters for the
spill and its effects are determined, and values for each of a number of scaling factors are chosen.
All of these numbers are entered into Equation 8 (this formulation tracks the language of the law
very closely) to determine a dollar value for the natural resource damages:
Damages ($) = (($1 / gal * V * LDF * SMAF ) + (HF * H * SMAF )) * PC F + E + C
(8)
where:
V
= Volume of spill (gallons)
8
This representation of the schedule and the boxed example of its use are courtesy of Nick Stratis from the Florida
DEP.
37
LDF
SMAF
H
HF
PCF
E
C
= Location-of-discharge factor, equal to:
8 if inshore origin
5 if nearshore origin
1 if offshore origin or origin outside state waters
1 if small release in terminal facility or port authority
= Special- management-area factor, equal to:
1 if origin outside special management area
2 if origin inside special management area
2 if origin outside SMA but discharge enters SMA
= Amount of habitat
= Habitat factor for areas damaged, equal to:
$10/sq.ft. if coral reef
$1/sq.ft. if mangroves, sea grasses
$1/ft.
if sandy beach
$.50/sq.ft. if live bottom, oyster reef, worm rock, perennial algae,
salt marsh, freshwater tidal marsh
$.05/sq.ft. if sandy bottom, mud flat
= Pollution-category factor, equal to:
8 if Category 1 (bunker, residual fuel)
4 if Category 2 (waste, crude, lubricating oils; asphalt, tars)
1 if Category 3 (e.g. diesels, heating oil, jet fuels, gasoline)
= Compensation for death of imperiled species, equal to:
$10,000*number of animals if species listed as endangered
$5,000*number of animals if species listed as threatened
= Cost of damage assessment.
The first segment of the equation assigns some damages just for the existence of a
release, even if there is no relevant contact with habitat or harm done to endangered animals.
That amount of base damages increases with the volume of the release and proximity to shore.
Base damages are also higher if the release is in (or spreads to affect) a “special management
area” such as a state or national park or aquatic reserve. Each factor is multiplicative, not
additive. Thus, inshore status and the presence of a special management area act to increase
damages by a larger absolute amount for larger spills.
The second segment of the equation adds to total damages in cases where habitat has
been affected. That amount of damages increases with the amount of habitat. Damages are
greater per unit of habitat for some habitat types than for others (coral is valued at $10 per square
foot, while a mud flat is valued at only five cents per square foot), and damages are greater for
the same amount of a given habitat type if it is located in a special management area. Habitat is
deemed affected if the pollutant comes in contact with it; the agency need not demonstrate harm.
Both of the damage components outlined above are increased by a multiplicative factor
of four or eight if the material discharged is deemed to fall into a category of pollutants that is
more harmful than Category 3 (which includes motor fuel and heating oil). The total bill is
calculated by adding that amount to the costs of doing the assessment and a fine for the deaths of
animals that are listed as being endangered ($10,000 each) or “threatened” ($5,000 each).
38
Example of the Florida formula in use:
Suppose there were a spill of 1,000 gallons of waste and crude oils in a nearshore area within
the boundaries of a coastal protection area. The resources damaged are: 100 square feet of
coral reef, 200 square feet of mangroves, 1,000 feet of beach, 100 square feet of live bottom,
and 100 square feet of sandy bottom. The cost of conducting the assessment is $40,000.
NRD ($) =
{($1*1,000*5*2) + [($10*1,000) + ($1*200) + ($1*1,000) + ($.50*100) + ($.05*100)]*2}*4
+ $40,000
= $170,040
Source: Nick Stratis, Florida DEP
Discussion of Florida method
The Florida DEP has applied this simplified method to over 4,000 cases since 1992. The
distribution of damages assessed since 1995 can be seen in Figure 2.6. Over 80% of all cases
have had damages billed of $50 or less – the oil- spill equivalent of a speeding ticket. While 33
cases have been assigned damages of over $5,000, the monetary value of claims made in Florida
are generally much lower than the NRD damages being charged in the state of Washington.
Recovery rates (damage payments as a percent of damages assessed) have been approximately
75-80% in cases where the PRP is identifiable; this is comparable to the rates observed in the
Washington data.
One key to the use of this simplified method of NRDA is that Florida state law grants
rebuttable presumption to any results of its proper use. The agency staff need not worry about a
PRP challenging their NRD estimate in court just because they use a simplified NRDA method.
Other state agencies interested in adopting a method like this might have little success unless
they can convince their state legislatures to bless its use in their own body of state law.
The correct damages associated with the deaths of endangered and threatened species
may or may not be $10,000 and $5,000, respectively (see Loomis sand White (1996) for some
estimates of values of endangered species.) However, it does make sense for some value to be
added to the other damages in cases where species of particular importance are lost. This may be
the only feasible way to incorporate that value given the large number of listed species. If there is
the potential for a large number of such species to be killed, it is worth considering a
modification to the schedule that recognizes that the marginal value of species killed is probably
not linear. One would need to study the literature on endangered-species valuation to ascertain
whether the incremental value of a threatened creature is increasing or decreasing with the
number of such creatures that are lost.
39
70
2,597 cases
60
% of All Cases
50
40
30
20
644 cases
360 cases
10
157 cases
120 cases
103 cases
501-1,000
1,001-5,000
33 cases
0
0-49
50
51-100
101-500
5,000+
NRD $ Billed
Figure 2.6 Damages in Florida Cases, 1995-2001
Source: Data from Florida DEP.
The habitat factors have the appearance of mean values per unit of resource damaged.
Such values could be obtained from a meta-analysis of previous valuation studies. It is not clear
from the statute where the habitat factors in the Florida assessment method come from. If they
are based on some such analysis, then this forms a reasonably good foundation for a simplified
assessment of the value of the damaged resources.
However, it is not clear why there should be a term for damages associated with the
volume of the spill which is added to a term for damages associated with injured habitat. If
affected habitat does not fall into one of the listed categories (coral reef, sandy beach, etc.) then it
may make sense to estimate the damages just as a function of the volume, type, and location of
the spill. If, on the other hand, oil is spilled right on top of a sandy beach, then it seems as though
adding damages from the first term to damages from the second term is redundant, and may
amount to double counting. This equation only makes sense if there is some damage associated
with the mere fact of a discharge that is independent of the exposure of ecological systems to
pollutants and the deaths of endangered species.
III. Simplified NRDA for groundwater contamination
CERCLA provides trustee agencies with a mandate to recover NRDs from parties
responsible for discharging hazardous materials into the environment. While some NRD cases
that states have pursued under CERCLA have been for recent releases, most have pursued
40
damages to natural resources at contaminated sites on the National Priorities List (“Superfund
sites”). As Figure 2.7 makes clear, New Jersey has the largest number of Superfund sites. For
this reason it is perhaps not surprising that the trustee agency in New Jersey has developed a
simplified method for assessing at least some of the NRDs associated with chemical
contamination of the environment.
As pollutants move through the environment, groundwater is commonly contaminated by
releases of hazardous materials even when the initial release is not directly into that resource.
While all NRDA is challenging, it is particularly difficult to value the loss to society when
groundwater resources are compromised (NRC, 1997). Thus, it may be of special use to trustees
to use a simplified assessment when pursuing damages associated with groundwater
contamination. Here, we outline and discuss two such methods developed by trustees in New
Jersey and Minnesota.
140
Number of Superfund Sites
120
100
80
60
40
0
AK
AL
AR
AZ
CA
CO
CT
DC
DE
FL
GA
HI
IA
ID
IL
IN
KS
KY
LA
MA
MD
ME
MI
MN
MO
MS
MT
NC
NE
NH
NJ
NM
NV
NY
OH
OK
OR
PA
RI
SC
SD
TN
TX
UT
VA
VT
WA
WI
WV
WY
20
State
Figure 2.7 Superfund Sites by State
Source: Environmental Defense Fund. Data from Scorecard. Downloaded from http://www.scorecard.org/envreleases/land/ [7/02].
41
A. New Jersey
The Department of Environmental Protection (DEP) is the designated trustee for New
Jersey’s natural resources. At the time of our survey, the Office of Natural Resource Damages
(ONRD) was responsible for implementing the NRDA program to address and ensure that PRPs
compensate the public for injuries to natural resources; that office is now named the Office of
Natural Resource Restoration (ONRR). The New Jersey Legislature has declared groundwater to
be one of the resources most vulnerable to contamination by hazardous discharges. Groundwater
is an important natural resource for New Jersey. It is a major source of water for drinking and
irrigation, and provides non-consumptive ecological services such as prevention of salt water
intrusion, maintenance of freshwater wetlands, and base flow to surface waters.
In addition to the Federal statutes previously discussed (notably OPA and CERCLA),
there are multiple state statutes establishing the DEP’s authority to require the investigation and
restoration of natural resource injuries. These include the Water Pollution Control Act, the Spill
Compensation and Control Act, the Industrial Site Recovery Act and the Brownfield and
Contaminated Site Remediation Act in addition to the Public Trust Doctrine under which the
State is responsible as the trustee of the State’s natural resources to manage these resources.
These statutes specify that PRPs should compensate the public for the loss associated
with injuries to natural resources by paying monetary damages the State, committing to restore
the injured resources to their former state, or engaging in restoration projects elsewhere in the
watershed that achieve similar restoration benefits. The federal court has stated that “while it is
not irrational to look to market price as one factor in determining the use value of a resource, it is
unreasonable to view market price as the exclusive factor or even the predominant one… natural
resources have values that are not fully captured by the market system” (NJDEP, 1999). The
New Jersey Legislature also recognizes that the public value of a resource is distinct and could
exceed the private value.
At a minimum, NRDs include restoration costs and the cost of assessing the damages.
Restoration costs are the costs of actions that return natural resource services to their baseline
condition sooner than natural recovery. Assessment costs are the “reasonable” costs of
performing the damage assessment; those expenditures must be commensurate with the
estimated amount of damages. NRDs could also include interim losses. NRDs do not include
punitive damages; thus, they do not depend on the conduct of the PRP.
The DEP promulgated a document titled Technical Regulations for Site Remediation
(New Jersey, 1999) which provides a mechanism for assessing the natural resource injuries
required as part of the site remediation process. This chapter summarizes the 1999 policy and
regulations, though some amendments to these regulations have been made recently. The
assessment process involves a baseline ecological evaluation and an ecological risk assessment.
The baseline assessment involves identifying if there is a contaminant of ecological concern at
the site, if there are environmentally sensitive natural resources at or near the site and if there is a
pathway that would link the contaminant with an environmentally sensitive natural resource. If
these three criteria are met then an ecological risk assessment is required to evaluate the
likelihood that adverse ecological effects to natural resources have occurred or may occur as a
result of the discharge. The ecological risk assessment is used to identify the impact of the
42
discharge on receptors studied in the ecological risk assessment. In the case of groundwater,
however, an ecological risk assessment is not required.
The Department developed a method for determining the injuries to groundwater that is
inexpensive and less time consuming than the methods applied to other resources. This method is
applied to all groundwater that is classified as Class II pursuant to the State’s Groundwater
Quality Standards. The simplified method utilizes only information that is already available or
that must be collected as part of the remediation process by following the technical regulations
for site remediation. This chapter describes and analyzes the method as it existed at the time of
our survey. Unlike the simplified methods used by Washington and Florida, New Jersey’s
simplified NRDA method is not codified by state legislation and thus is subject to change.
Several changes have been made to the method since then. Some of those changes will be
mentioned in the following discussion; however, for an updated description of the simplified
method used by New Jersey, see the website of the state’s ONRR (Currently
http://www.nj.gov/dep/nrr/nri/nri_gw.htm.)
The basic steps in New Jersey’s 1999 simplified assessment process are as follows; note
that steps four and five have been dropped in recent modifications:
(1) Characterize extent of groundwater contamination.
(2) Identify remedial action for groundwater contamination.
(3) Determine duration of natural resource injury.
(4) Determine applicability of onsite exemption.
(5) Determine applicability of de minimis exemptions.
(6) Determine which water supply planning area the contaminant plume is located in and
the projected status (e.g. surplus, deficit) of that area in the year 2040.
(7) Determine annual groundwater recharge rate.
(8) Determine dollar value of potable water.
(9) Calculate surrogate value of the groundwater injury.
The first three steps are based on information obtained as part of the remedial
investigation of the groundwater for the site as required by the Technical Requirements for Site
Remediation. The most typical nondepletive remedial actions used for contaminated groundwater
are, pump and treat systems that reinject the treated groundwater either on-site or off-site, natural
attenuation, and in situ treatment. The duration of injury is defined as time in years between
when the remedial decision is made and when the water meets New Jersey groundwater quality
standards or 30 years, whichever is smaller.
There were a variety of limits on assessed damages under this approach which seem to
have been eliminated by recent changes to the policy. The Department did not require restoration
of natural resource injuries to groundwater if the contaminated plume has not traveled beyond
the current boundaries of the property where the discharge occurred, the remedial action is a nondepletive action, and no other natural resources (such as wetlands or surface waters) are affected
by the contaminated groundwater. Even if the contaminant plume has moved off-site, the
department specified de minimis criteria on the size and duration of the plume for which it would
not require restoration of natural resource injuries to groundwater. Additionally, it was specified
43
that for contemporary injuries, only prospective lost use will be assessed (past lost use will not
be added to the damages assessed), and the prospective duration of groundwater injury was
limited to a maximum of 30 years.
Injury designation is based on the projected status of the water supply planning area
where the contamination occurs, with a higher injury designation for areas projected to be in
deficit in 2040. The groundwater recharge rate over the duration of the existence of the
contaminant plume is used to determine the volume of water that may be expected to be
contaminated by coming into contact with the groundwater contamination plume. Alternatively,
an estimate of the site-specific volume of the contaminated groundwater plume will be used if it
can be obtained, since that is more likely to reflect the extent of contamination.
The next step is to identify the dollar cost to consumers for potable water in the area of
the site. Of the multiple potable water rates applicable in the area, the Department uses the high
potable water rate for valuing injuries in deficit water planning areas, and the low potable water
rate for surplus areas. These water rates are established by the New Jersey Board of Public
Utilities. In the last step, the surrogate groundwater injury value which establishes the magnitude
of the restoration remedial action necessary to compensate for the injury to groundwater is
determined as follows under the 1999 policy:
NRD $ = PA * RR * 7.48 * DI * WR
(9)
where the constant 7.48 is just a conversion factor from cubic feet to gallons, and the notation is
defined as
:
PA = off-property plume area (sq. ft.)
RR = recharge rate (ft./yr.)
DI = duration of injury (yrs.)
WR = water rate ($/1000 gal.)
Example of the New Jersey formula in use:
Annual Groundwater Recharge Rate: 1.33 feet/yr
Water Rate: $4.11 per 1000 gallons
Extent of Contaminant Plume: 217,800 square feet
Duration: 15 years
STEP 1: Multiply extent of plume by annual recharge rate to get a measure of volume.
(217,800 sq. ft.) x (1.33 ft./yr) = 289,674 cubic ft./yr
STEP 2: Convert the volume from cubic feet to gallons
(289,674 cubic ft./yr) x (7.48 gallons/cubic ft.) = 2,166,761 ga llons injured/yr
STEP 3: Multiply total gallons injured by the water rate and duration for the total value
(2,166,761 gallons/yr) x (15 years) x ($4.11 /1000 gallons) = $133,580.00
44
Information for this calculation is obtained from various sources. The Planning Area of
the site and the projected water status of that area are identified from the New Jersey Statewide
Water Supply Plan (1996). The annual groundwater recharge rate is the value in feet for the
Planning Area, and is also determined from New Jersey Statewide Water Supply Plan (1996).
The water rate is the current value in dollars per thousand gallons for the Planning Area, and is
obtained from the New Jersey Board of Public Utilities. The aerial extent of the contaminant
plume includes only the off- site plume in squa re feet, and is determined in a remedial
investigation under the Technical Requirement for Site Remediation N.J.A.C.7:26E.
There has been some interest in using this method elsewhere. For example, a rough
calculation of groundwater value at a contaminated site in Illinois has been performed using the
New Jersey formula. 9 The site studied was Kankakee, Illinois, where a pipeline break in 1988
released thousands of gallons of gasoline into the environment. Although most of this spill
evaporated or was cleaned up, some gasoline percolated into the underlying aquifer. The
contaminant of concern was MTBE, a fuel additive that may be carcinogenic. The contaminant
plume for MTBE in this area was studied from 1989-1994. Those studies yielded three different
estimates of the extent of the contamination, depending on the size of the plume, the shape of the
plume, and the movement of the contaminant through the aquifer. These were 1.45 square miles
(40,400,000 sq. ft.), 0.91 square miles (25,500,000 sq. ft.), and 7.2 square miles (201,000,000 sq.
ft.). The average annual recharge rate was estimated at approximately 5.7 inches per year, and a
water rate of $2.00 per 1000 gallons was used. Calculations were made with two different
durations, either 10 years or 30 years. The resulting values ranged from approximately $1.8
million to approximately $42.8 million, depending on the size of the plume used in the
calculation as well as the duration of the pollutant in levels exceeding water quality standards in
the aquifer.
Discussion of New Jersey method
The method used by the New Jersey DEP has low assessment costs, which ensures that
assessment costs will not exceed estimated damages. In addition, the method is valid in the sense
that it attempts to value the loss of consumptive services that people gain from public supplies of
groundwater. It assigns higher values in places where water is likely to be in excess demand, and
thus there will be a higher price of water. This method is used as a surrogate or a substitute for
the actual value of the injury because the state is yet to identify the best way to place a dollar
value on the non-consumptive human services and the ecological services provided by
groundwater. However, the method has various limitations. Some of them are necessary features
of a simplified assessment method. Other weaknesses could be remedied without sacrificing the
simplicity of the approach. Desvousges et al. (1999) have written a fairly detailed critique of this
valuation tool, outlining its strengt hs and weaknesses. We will touch upon some of the same
points, but aim to highlight some of the most important limitations of this method from the
viewpoint of economics. In general, it is impossible to say whether damage estimates produced
using this method will be biased up or down since there are biases of both types built into the
method; the net results will vary with the details of the assessment at hand.
First, the New Jersey method considers the lost use value to be the same over the duration
9
Correspondence with Al Wehrmann, Illinois State Water Survey. February 26, 2002.
45
of the injury by simply multiplying the per annum loss by the number of years of lost use. To the
extent that a dollar lost in the future is worth less than a dollar lost today because of a positive
time value of money; that leads to an upward bias in estimates of the losses due to groundwater
contamination. The method also does not recognize that future generations may impute different
values to groundwater than does the current generation depending on prices and social
preferences in the future.
Second, injuries were considered under the original formulation of the method to last for
a maximum duration of 30 years. This was similar to the limit set for injuries from Superfund
sites and provided a modeling horizon accepted by other agencies. Given the slow moving nature
of many contaminants in aquifers and the irreversible impact of some contamination, this could
underestimate the duration of the injury. This limitation on duration of natural resource injuries
has now been eliminated by the state of New Jersey.
Third, there are many problems associated with the use of the water rate as a proxy for
the value of lost services. These are not market prices, which would reflect the cost of acquiring
the next unit of water in the least expensive manner. Rather, they are regulated rates. These tend
to be based on average, rather than marginal, costs, are slow to adjust to changes in supply and
demand, may not accurately reflect variation in the value of groundwater to its users, and are
chronically too low. It is not clear that a simple fix is available for this problem in the assessment
method, since water-rate information is so easy to obtain and measures of marginal costs are so
difficult to acquire. We should recognize, however, that these features of water rates and their
use in the assessment method may tend to bias estimates of damage to water-consumption
services.
In addition, water rates (or even true market prices of potable water) only value
consumptive use of groundwater. Non-consumptive values, such as ecosystem services provided
by groundwater, are not included. Non-use values, such as existence and bequest values, are also
excluded, though there is reason to believe that groundwater is not likely to have large non-use
values (NRC, 1997). Economists have found it difficult to measure the non-consumptive values
of groundwater even with sophisticated, expensive valuation methods (Mitchell and Carson,
1989). It may, therefore, not be possible at this time to include those values in a simplified
assessment method. However, those who work with the results of such assessments should bear
in mind that an entire category of value is excluded.
Finally, the use of the price of water tends to bias damage estimates upwards to the extent
that this practice does not take into account the existence of substitute sources of water or the
possibility that contaminated groundwater could be de-contaminated and then used. As the next
section of this chapter shows, the state of Minnesota uses an approach that avoids at least some
of this particular bias.
B. Minnesota10
In 1994, the state of Minnesota launched a Closed Landfill Program to clean up and
handle the long-term care for over 100 closed municipal solid waste landfills in the state. Broad10
Background information comes from MPCA (2002).
46
based funding for the program was provided for in the Minnesota Landfill Cleanup Act of 1994.
The 1996 Amendments to that Act (Minn. Stat. Ch. 115B.441 – 115B.445) set forth a
mechanism for obtaining contributions from insurance carriers to the funding for the program. In
many cases, the people who bore legal responsibility for environmental response costs at these
facilities (the owners or operators, those who hauled waste to the facility, or those who produced
waste that was disposed of at the landfills) held liability insurance for environmental response
costs at the landfill. The Minnesota Pollution Control Agency (MPCA) works with the Attorney
General’s Office to obtain appropriate payments from those insurance carriers which have
outstanding exposure for cleanup liability at the closed landfill sites.
In order to have a foundation for the settlement negotiation process, the MPCA has
developed estimates of the environmental response costs the state expects to incur at each of the
landfills in the program. The agency has also developed estimates of NRDs, since the carriers
can request settlement for NRDs at the time they settle for response costs and thus be granted
immunity from future legal action regarding NRD compensation. As of November of 2001, the
NRD portion of the settlements paid to the state totaled $3,359,072. 11
The MPCA chose to base its NRD estimates on groundwater contamination at the 66
landfills at which groundwater contamination exceeds the state’s Health Risk Limits (HRL). The
method they used was simplified, and used only data that was already readily available. Total
damages at the 66 landfills were estimated to be $50,712,046. The approach involves four
steps:12
(1) Estimate average cost of lost groundwater services at a landfill ($/gallon).
(2) Estimate the volume of groundwater contaminated at each of the 66 sites.
(3) Calculate value of the groundwater injury as (volume * average cost).
(4) Allocate damages among carriers by multiplying the total groundwater damages at a
landfill by each carrier’s percentage share of the liability for costs at that landfill.
The average cost of lost groundwater services was estimated as the amount by which
source groundwater contamination increases the cost of providing potable municipal water. The
average cost to design, construct, operate, and maintain a groundwater treatment system over 30
years was calculated (based on information from six landfills in the program) to be .57
cents/gallon. The cost of supplying drinking water based on uncontaminated groundwater
supplies was estimated (based on five municipalities) to be .1 cents per gallon. Thus, the average
cost of groundwater services lost due to contamination was assumed to be .47 cents/gallon (the
difference between the two numbers).
Discussion of Minnesota method
The MPCA’s simplified valuation method is employed for a somewhat different purpose
than New Jersey’s groundwater damage assessment method. The MPCA is seeking to file
damage claims against those companies that insured the PRPs rather than the PRPs themselves,
and insurance carriers have often settled with the state with a single payment that releases them
11
12
Personal correspondence with Shawn Ruotsinoja at the MPCA.
Ruotsinoja (1997).
47
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 values13 , 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
Both of these states’ methods could be modified by using benefit transfer methods to
incorporate resource values estimated using economic valuation methods. This would enable
better identification of how these values are being assessed, the types of values that are included
(such as use or non-use values), the time over which lost value is being assessed, and the human
population whose lost values are being assessed.
If another state wants instead to design its own groundwater damage assessment tool, it
should try to adopt the best features of the New Jersey and Minnesota simplified methods. For
example, the New Jersey method allows the damage associated with groundwater contamination
to vary across parts of the state based on plume size recharge rate, water rate and duration. On
the other hand, the Minnesota method reflects a better understanding of the true economic
damage associated with groundwater contamination, in that it moves towards a formula that
calculates the damage as the increased cost of providing municipal water as a result of the
contamination. A more accurate assessment method would assign damages as the lower of the
cost of decontamination or of providing water from alternative sources altogether. However, that
specificity may be beyond the scope of a simplified method.
This sort of simplified assessment method is relatively easy for a state trustee agency to
design because damages to only one resource are being assessed there are not too many statespecific parameters that need to be developed. However, while a price is available for water, that
price ignores ecological service benefits. These valuation tools would benefit from being
expanded to include non-consumptive and non- use values using benefit transfer methods.
Economists have much work to do in this area if these tools are to capture more than the simplest
use values of groundwater.
All of these simplified assessment methods need to be tested. Trustees should be wary of
a formula that yields results that are highly sensitive to the exact values chosen for the
parameters (as seems to be the case of the New Jersey groundwater valuation method). Research
should be done which conducts non-simplified NRDAs for a set of cases in states such as
Washington and Florida, and compares the damages that emerge from the more costly casespecific methods to the damage estimates yielded by the simplified methods. This sort of study
could determine at least whether the simplified methods are subject to chronic over- or underestimation of damages. If such bias is found, the simplified methods can be modified to correct
it. While it is surely desirable to develop tools capable of yielding NRD estimates in a quick and
inexpensive manner, we can still strive to make them as accurate as they can be.
50
References
Cozine, M. H. 1999. “Natural Resource Damages: A Sleeping Giant Awakes.” New Jersey Law
Journal. CLVII-No. 1-INDEX 6, July: 156-158.
Desvousges, W. H., R. W. Dunford, K. E. Mathews, C. L. Taylor and J. L. Teague. 1999. A
Preliminary Economic Evaluation of New Jersey’s Proposed Groundwater Damage
Assessment Process. Prepared for New Jersey Site Remediation Industry Network by
Triangle Economic Research, Durham, NC.
Loomis, J. B. and D. S. White. 1996. “Economic Benefits of Rare and Endangered Species:
Summary and Meta-analysis.” Ecological Economics 18: 197-206.
Minnesota Pollution Control Agency (MPCA). Closed Landfill Program – Insurance Recovery
Effort . Downloaded from http://www/pca.mn.us/cleanup/landfill-closed.html [7/02].
Mitchell, R. C. and R. T. Carson. 1989. Existence Values for Groundwater Protection. Draft
Final Report Prepared Under Cooperative Agreement CR814041-01 between the U.S.
Environmental Protection Agency and Resources for the Future.
National Research Council. 1997. Valuing Groundwater: Economic Concepts and Approaches.
Washington, D.C.: National Academy Press.
New Jersey Department of Environmental Protection (NJDEP). 1999. Frequently Asked
Questions about Natural Resource Damages in New Jersey. Office of Natural Resource
Damages, NJDEP.
Ruotsinoja, S. 1997. Natural Resource Damages Calculations for Closed Landfill Program
Insurance Settlements. State of Minnesota Office Memorandum.
Shrestha, R. K. and J. B. Loomis. 2001. “Testing a Meta-analysis Model for Benefit Transfer in
International Outdoor Recreation.” Ecological Economics 391: 67-83.
State of New Jersey (New Jersey). 1999. Technical Requirement for Site Remediation
N.J.A.C.7:26E.
State of Washington (Washington). 1992. Preassessment Screening and Oil Spill Compensation
Schedule Regulations. Title 173 Washington Administrative Code, Chapter 173-183.
Downloaded from http://www.leg.wa.gov/wac/index.cfm?fuseaction=title&title=173
[9/01].
State of Washington (Washington). 2001. Oil and Hazardous Substance Spill Prevention and
Response. Revised Code of Washington Chapter 90.56. Downloaded from
http://search.mrsc.org/nxt/gateway.dll?f=templates&fn=legpage.htm$vid=rcwwac:leg
[9/01].
U.S. Coast Guard (USCG). 2001. Pollution Incidents In and Around U.S. Waters – Internet
Version. Created August 2001. Downloaded from http://www.uscg.mil/hq/g51
m/nmc/response/stats/ac.htm [7/02].
U.S. Coast Guard (USCG). 2002. Polluting Incident Compendium, Cumulative Data and
Graphics for Oil Spills 1973-2000. Downloaded from http://www.uscg.mil/hq/gm/nmc/response/stats/Summary.htm [7/02].
52
Chapter 3: Tables and Figures
Table 3.1
Summary of Studies Estimating Averting Expenditures ...................................66
Table 3.2
Contingent Valuation Studies of Groundwater Values ......................................67
Table 3.3
Using Benefits Transfer for Estimating Willingness to Pay...............................70
Table 3.4
Groundwater Case Studies ..................................................................................74
Figure 3.1
Market Price Method .........................................................................................59
Figure 3.2
Reductions in Profits from Groundwater Contamination...................................60
Figure 3.3
Frequency of Use of Alternative Methods for Groundwater
Damage Assessment ...........................................................................................71
Figure 3.4
Frequency of Damage to Other Resources in Cases Involving Groundwater ....72
Figure 3.5
Number of Assessment Methods Used by Number of Resources Damaged ....72
54
Chapter 3
Groundwater Damage Assessment: Methods and Values
I. Introduction
Groundwater is an important natural resource which can be pumped through wells and
used in homes, agriculture, and in industry. In rural areas it may be the only source of drinking
water. Groundwater can also be a source for surface water discharges and wetlands, and can
support ecosystems and recreational activities. Precipitation percolates through the subsurface,
becoming part of the groundwater supply. Contamination of groundwater develops slowly. Some
contaminants occur naturally in the rock below the surface and enter the groundwater. Other
contaminants found in groundwater, such as pesticides, fertilizers, road salt, and oil, are the
result of human activities. Furthermore, underground tanks, septic systems, and landfills pose a
threat to the quality of groundwater. As groundwater flows through permeable rock and sand
beneath the earth’s surface, some harmful substances may be naturally filtered and broken down
by microbes. However, because of slow flow rates and dilution, it takes long periods of time for
aquifers to recover naturally from harmful pollution (IEPA, 1985).
A National Research Council study (NRC, 1994) assessing the feasibility of restoring
groundwater quality at hazardous waste contamination sites found that it could be resource
intensive and technically difficult. Natural resource damage assessment (NRDA) provides a
mechanism to impose liabilities on potentially responsible parties (PRPs) after contamination has
occurred and also create incentives for PRPs to take actions to protect groundwater quality. The
purpose of NRDA is to compensate the public for the direct loss of use of the resource as well as
for the interim lost use and services that the resource provided. This compensation takes the form
of either monetary damages paid by the responsible parties or a commitment from the PRPs to
restore the injured resources to their former state. This compensation could include the cost of
assessing the injuries to the resource, the cost of restoration and the value of the interim lost use.
Assessment of groundwater damages caused by contamination requires that monetary values be
assigned to groundwater and that these values recognize the many unique services provided by
groundwater. The economic value of groundwater should be determined prior to deliberating
regulatory guidelines designed to prevent contamination and implement remedial actions.
Groundwater valuation should quantify its total economic value which consists of use
values and nonuse va lues. Use values arise from consumptive uses, such as drinking water or
irrigation supply and nonconsumptive uses such as water supply for wetlands. Nonuse values
include option, existence and bequest values (Freeman, 2003). These values may arise because
people might wish to preserve the environment to have the option for future use, to bequeath to
their heirs or simply to preserve the resource in its current state even if they may never demand
in situ the services it provides. Groundwater is a non- market good. This means that unlike goods
that are traded in an open market for a pre-determined price, groundwater does not have an
attached price that reflects its total economic value. Estimation of the total value of groundwater
may therefore require either analytic techniques that elicit the values that people place on
groundwater or indirect approaches that reveal the value they place on groundwater through
choices they make regarding market goods that are closely related to groundwater.
55
This chapter will examine the extent to which available direct and indirect valuation
methods are able to estimate the total value of groundwater and the range of estimates for the
value of groundwater obtained by existing studies using these methods. Available studies and
estimates are examined to determine how they might be used in obtaining values for
groundwater. Finally, the difficulties in mechanically transferring non-market values from the
literature to assess damages in a different context are discussed.
II. Classification of Groundwater Services
Groundwater in an aquifer provides a reserve with given quantity and quality dimensions
for consumptive and non-consumptive uses. In addition, groundwater discharges to surface water
contribute indirectly to the services provided by surface water and wetland ecosystems. These
two functions provide a variety of services that can be classified into human- use and ecological
(those provided to the ecosystem as a whole). Classifying groundwater in this manner is helpful
in determining an appropriate valuation method and its use values. Human-use services can be
further categorized into consumptive use services and non-consumptive use services. Examples
of consumptive use services include drinking water irrigation and for manufacturing. Examples
of non-consumptive uses include subsidence protection due to low groundwater levels, as a
resource stock, and as a barrier against saltwater intrusion. Groundwater may protect water
quality by maintaining the capacity to dilute and assimilate groundwater contaminants, support
surface water supplies, provide ecological services to wetlands and riparian habitat, and prevent
erosion and flood control through absorption of surface water runoff. It can facilitate habitat and
ecological diversity and provide discharge to support recreational activities. Groundwater
recharge provides nonuse services to surface water bodies or wetlands and other ecosystems
(Bergstrom et al., 1996).
III. A Conceptual Framework for Valuing Groundwater
Valuation of groundwater damages requires a determination of injury, quantification of
injury and damage assessment. Determination of injury requires technical data on current or
baseline conditions of the aquifer in terms of quantity and quality, delineation and size of the
contaminated plume, effect on water quality caused by the contamination, and changes in
groundwater services as a result of quantity and quality changes. Quantity dimension includes
the location of the plume relative to public water supply or private drinking water wells, amount
of groundwater available within a specific geographic region in a given period of time, and the
change in this quantity over time from recharge and extraction. Changes in groundwater quality
could impact human health, plant density, and habitat of species depending on those plants.
Quantifying the share of surface water services that can be credited to groundwater is a challenge
and may involve modeling the interaction between groundwater and surface water services so
that incremental contributions of groundwater can be identified. In doing this double counting of
service flows should be avoided.
The extent of loss of services due to groundwater contamination is quantified using a
with-and-without analysis, by comparing the services provided following the injury to the
services that would have been provided in the absence of the injury. Since services that would
56
have been provided in the absence of the injury cannot be observed, they must be estimated. One
approach is to use services provided in an uncontaminated reference area to predict the services
in an injured area. The other approach is to predict such services using historical information on
the services in the injured area prior to the injury. It is important, however, to recognize that a
‘with-and-without analysis’ is different from a ‘before-and-after’ analysis. Comparing the
services provided by an aquifer before and after an injury may not be a valid method for valuing
the damages due to an injury. This method does not account for changes that may have taken
place to affect the quantity and quality of the resource.
Once the losses of economic and ecosystem services ha ve been quantified, the next step
is to assess the value of those changes. Potential changes in services that may occur with
groundwater contamination are availability of drinking water, human health risks measured by
changes in mortality, morbidity, cancerous and non-cancerous health effects, costs of medical
treatment, increased fear and anxiety within a community, averting or defensive expenditures to
protect oneself from groundwater contamination, property value loss, ecological injury and loss
of recreational use and loss in nonuse values (Abdalla, 1994). Dose-response models that link
contaminant sources to changes in contaminants in groundwater and then to changes in economic
and ecosystem services may be needed to estimate the damages due to groundwater
contamination.
The final step in the groundwater benefit estimation process is to assign monetary values
to the changes in groundwater services. A number of techniques are available depending on the
groundwater services that are being valued. After the economic value of groundwater to an
individual is determined, the aggregate economic value is estimated by summing individual
economic values over the total number of people who benefit from groundwater services. This
requires determining the spatial distribution of consumers and producers who benefit from the
groundwater resource. There is no consens us in the literature on how to determine market size,
particularly when nonuse values are involved. Since contamination can affect groundwater
services over a long time horizon, its total economic value to the current generation is the
discounted sum of va lues in each time period over the entire time horizon required to restore
groundwater quantity or quality to baseline levels. Both the length of the time horizon and the
choice of discount rate can affect the estimates of groundwater values. Data regarding the
quantity and quality of groundwater are imperfect and there is uncertainty about the actual
changes in the current level of services projected into the future and the alternative level of
services. Thus the change in service flows is an expected change and is not known with certainty.
Expected changes in groundwater service flows are a function of possible alternative changes in
current and future groundwater conditions and the probabilities of each of those alternatives
occurring (Bergstrom et al., 1996).
IV. Economic Valuation Methods
Many economic methods may be used to value natural resources, although some methods
may be more applicable to certain resources than others. Although there may be other methods
that can be applied to the task of valuing groundwater, the following list provides an introduction
to some of the economic methods that can be used and the complexity involved in applying
them. The following methods were chosen because most are authorized for use by the
57
Comprehensive Environmental Response, Compensation, and Liability Act (NRD Task Force,
1998), key legislation that helps to protect groundwater resources. Because of the limited extent
of actual use of some of these methods to value groundwater, many of these methods have not
been fully assessed for their advantages, disadvantages, and practicality in determining an
appropriate value for groundwater. Specific case studies in which some of these methods have
been used to value groundwater are included later in this chapter.
A. Market Price Method
The market price of water can be used to provide a measure of the economic value of a
change in the quality or the quantity of groundwater due to an injury under certain restrictive
conditions. If the quality of the service flow is reduced due to an injury to it, then the price of
water would fall in a competitive market. The change in the market price multiplied by the
number of units of flow gives the value of the loss. This assumes that the quantity of water
supplied is fixed as in Pane l A of Figure 3.1.
Suppose the groundwater contamination reduces the quality of the groundwater, which in
turn reduces demand for it. The demand curve shifts down from D0 to D1 . With a given supply of
groundwater, this reduces price from P0 to P1 . The area between the two demand curves ABCK
shows the extent to which contamination has reduced the value of groundwater. This area can
also be approximated by the area P0 CKP1 . This sum represents the result of the market price
method of valuing damages to groundwater. It is estimated by multiplying the fixed quantity of
groundwater by the change in the price of groundwater. However, this method is appropriate
only if the quantity of groundwater sold in the market, Q0, is not affected by the contamination
(that is, the supply of groundwater is fixed and not responsive to its price). If that is not the case
and the supply curve of groundwater is instead upward sloping, then Panel B of Figure 3.1 is
applicable. A reduction in the quality of the groundwater still shifts the demand curve to the left;
however, market price falls by less than the amount by which the demand curve shifts since the
supply curve is upward sloping. True damages are still given by the area ABCK. However, in
this case the market price method wo uld lead to an estimate of damages only equal to P0 CJP1 ,
which would be an underestimate of the true damages. In this case, additional information on the
demand curve for groundwater is needed to obtain an estimate of the loss in value of
groundwater. In either case, the market price method can only measure consumptive uses of
groundwater and thus provides a lower bound on the total economic value of groundwater (NRC,
1997). The advantage of this method is that it is based on observable data and is relative ly
inexpensive to use.
B. Production Cost Technique
This technique can be used when groundwater is used as an input into a production
process and groundwater contamination affects profits. Suppose that a firm uses groundwater to
produce some output whose supply curve is given by S0 in Figure 3.2. Suppose the
contamination of groundwater requires the firm to acquire water from a more costly source. This
raises the cost of producing the output and shifts the supply curve to the left to S1 . At a given
output price P0 , this reduces the output being produced and the profits of the firm. The reduction
in profits is given by the area between the two supply curves, ABCD.
58
Price of groundwater
Supply
A
B
P0
C
P1
J
K
Panel B: Upward-sloping supply
D0
D1
Quantity of
groundwater
Q0
Price of groundwater
D
A
Supply
B
P0
C
P1
K
Panel A: Fixed supply
D0
D1
Quantity of
groundwater
Q0
D
D0 is the demand for groundwater before contamination.
D1 is the demand for groundwater after contamination.
P0 is the price of groundwater before contamination.
P1 is the price of groundwater after contamination.
A, B, C, and K identify key points on the graphs; see text.
Figure 3.1: Market Price Method
59
S1
Output price
P0
A
B
Q1
Q0
S0
C
D
Output quantity
S0 is the supply of a product before groundwater contamination.
S1 is the supply of a product after groundwater contamination.
Q0 is output of a product before groundwater contamination.
Q1 is output of a produce after groundwater contamination.
A, B, C, and D identify key points on the graph; see text.
Figure 3.2: Reductions in Profits from Groundwater Contamination
Reductions in profit can also be measured by the price of the output times the change in the
quantity of the good being produced. This can be treated as an estimate of the value of water if it
is assumed that the price of the output is fixed and the price of the remaining inputs is
unchanged. This method ignores the potential for substitution of other inputs for water in the
production process. It can also lead to incorrect estimates if groundwater values or output prices
are distorted due to government programs.
C. Appraisal Method
The appraisal method can be used in accordance with the applicable sections of the
“Uniform Appraisal Standards for Federal Land Acquisition” incorporated into Title 43 of the
Code of Federal Regulations. When contamination occurs, the value of the loss due to this
contamination is determined by the difference between the va lue of the groundwater with
contamination and without contamination. The value of groundwater in the absence of
contamination could be its market value if groundwater rights are marketable. For example,
suppose that the water at a site is potable prior to the contamination and is only suitable for
60
irrigation after contamination. Suppose further that the rights for drinking water and irrigation
are valued at $2,500/acre foot and $50/acre foot respectively. The value of damages is obtained
by multiplying the volume of water injured by $2,450 (=$2,500-$50). This represents the
diminished market value of a perpetual- use right for one acre-foot of local groundwater. Market
prices are determined with the help of local water brokers. To use this method, however,
groundwater must have a predetermined value, and its quality before contamination must be
known. Although this method only captures use values, the advantage is that given the value of
the resource with and without contamination, it is relatively easy to determine the value lost due
to pollution (NRD Task Force, 1998).
D. Cost-of-Illness Method
Groundwater contamination can lead to long term or chronic illnesses and possibly death.
This method involves estimating the expenses resulting from illness and the lost earnings due to
sickness. The limitations of this method are that it does not consider the disutility caused by
illness. It also does not take into account that individuals faced with contamination undertake
defensive or averting expenditures to protect themselves. This method will therefore
underestimate the true willingness to pay for pollution reduction.
E. Averting Expenditures Method
Averting-expenditure analysis relies on observed data on expenditures incurred by
individuals to avoid consuming contaminated water. Examples include the purchase of bottled
water and water filters if groundwater is being used as a source of drinking water. How much
people are willing to spend on these items to avoid contaminated water helps to determine the
value that they place on good water quality. A drawback of this method is that it does not take
into account all losses from the contamination of the resource. This method can provide a lower
bound for willingness to pay if the following assumptions hold: averting actions are perfect
substitutes for pollution reduction; the household does not obtain any direct utility from averting
behavior; there are no income effects because of loss of work through illness; averting behavior
does not require significant fixed costs such as drilling new wells.
This method is easy to implement and it is relatively inexpensive to obtain the
information required (Abdalla, 1994; 1991). It must, however, be noted that the average
expenditure on avoidance by those who chose to undertake that expenditure is not a measure of
the average value for the entire population since it does not incorporate the lack of expenditure
by some portion of the population who are either unaware or chose not to spend on avoidance.
The appropriate average avoidance cost measure for the entire population should average
expenditures over all individuals including those with zero expenditures. Additionally, averting
expenditures are based on an individual’s expectations regarding what the government (or
others) will do to reduce an individual’s exposure to contamination. Low expenditures may
simply reflect the expectation that the problem will be addressed publicly and rather than a low
value for groundwater (Segerson, 1994).
F. Travel Cost Method
61
Travel-cost analysis can be used for determining the value of groundwater if it enhances
the value of outdoor experiences by recharging surface water supplies, such as lakes or wetlands,
from which recreational value is derived. This method examines the travel costs, in terms of
money and time, which people incur to travel to a specific site or resource. Changes in the
environmental quality of an area may change the demand for that resource and imply a lower
value for the resource. An advantage of this method is that it uses actual behaviors and
preferences. The major disadvantage of this method for valuing groundwater is that it is difficult
to determine the share of recreational value that can be attributed to groundwater alone (NRC,
1997).
G. Hedonic Pricing Metho d
Yet another method of valuing groundwater is hedonic price analysis, which is based on
the premise that people value a good because of the attributes of that good rather than the good
itself. The hedonic pricing method can use market data (such as housing values) to determine the
implicit price of groundwater, by examining the differences in property values of houses with
different environmental attributes (such as groundwater quality and proximity to wetlands) while
controlling for other factors that might explain differences in property values. An advantage of
this method is that, like the travel cost method, it measures actual behaviors and preferences. A
disadvantage of this method is that the connection between the groundwater quality for each
house, if known, and real estate price may be technically complex or unclear (NRC, 1997).
Additionally, like the travel cost method, this method values only use values and does not
consider nonuse values.
H. Contingent Valuation (CV) Method
CV involves elicit ing the value of a groundwater resource by using a survey or
questionnaire that assesses an individual’s willingness to pay for that resource. The questions are
usually hypothetical. The survey first provides a scenario of groundwater contamination. This
scenario may take an ex ante perspective by including a probability of contamination or an ex
post perspective by presenting the effects of groundwater contamination. After the scenario is
presented, respondents are asked what they would be willing to pay to achieve or avoid the given
scenario. This is the only method that can be used to estimate use values and nonuse values.
Final regulations promulgated in 1994 by the Department of Interior (DOI) define nonuse values
as values that are not dependent on the use of the resource. These values include an existence
value, which is the value of knowing a resource exists and a bequest value which is the value of
knowing that a resource will be available for future generations (59 Federal Register 14263).
There are a number of problems associated with obtaining unbiased and valid value statements
from individuals using the CV method (NRC, 1997; Diamond and Hausman, 1994; Freeman,
2003). These include errors due to misrepresentation of values, the hypothetical nature of the
scenario, lack of connection between willingness to pay and budgets, and insensitivity of
responses to the scope of the nonmarket good being measured. For familiar goods like drinking
water, this method has been shown to compare favorably with other nonmarket valuation
techniques such as travel cost and hedonic methods (Mitchell and Carson, 1989). However, using
this method for estimating nonuse values is controversial.
62
Nonuse values are likely to be more important for unique or rare resources and for
irreversible changes. Resources such as ordinary streams or lakes are not likely to generate
significant nonuse values because of the availability of close substitutes (Freeman, 2003). Final
regulations put forth by DOI in 1994 and the National Oceanic and Atmospheric Administration
(NOAA) in 1996 state that only reliably calculated values should be included in estimates of
compensable value. This is particularly difficult in the case of nonuse values for groundwater
because unlike surface resources, groundwater is not readily visible and people lack experience
with it. Studies have shown that people have misconceptions about the nature of the groundwater
resource, the speed with which groundwater moves, and whether contamination can be contained
(Mitchell and Carson, 1989). These misconceptions make it more difficult to measure nonuse
values for groundwater.
I. Benefits Transfer Method
Benefits transfer uses information from existing studies to develop use and nonuse values
for groundwater. Suppose existing CV studies have obtained the willingness to pay at one or
more sites for protecting groundwater quality and related it to variables such as income,
demographic characteristics, probability of contamination, and so forth. Then a benefits transfer
procedure can be used to transfer the benefits developed at the original site(s), A, to the new site,
B. It is based on the assumption that individuals in area A have the same underlying preferences
as in area B. The validity of the estimates however, will depend on the quality of the original
studies and on errors associated in transferring these estimates to the policy site1 . The advantage
of this method is that it is relatively fast and inexpensive. There are three versions of this
method.
The first version is called a “point transfer” and involves transferring the average
willingness to pay obtained for study site A to a new site B. Adjustments can be made to the
willingness to pay estimate based on the characteristics of the original site and the new site and
on the socioeconomic and demographic characteristics of the affected population. The
application of this method requires an assessment of the relevance of the commodity being
valued in the original study and at the new site B. The quality of the original study in terms of
sample size, response rates and significance of findings in statistical analysis should be evaluated
before undertaking a point transfer of values.
The second version involves a weaker assumption that the preferences of residents in A
are the same as those of residents in B, but the socio-demographic characteristics are different
between the two populations. In this case, one uses a “transfer function” to estimate willingness
to pay while controlling for differences in demographic characteristics (Crutchfield et al., 1997).
This is done by using the willingness to pay relationships estimated for A and substituting data
about socio-economic and other characteristics of individuals or group means for variables in
1
McConnell (1992) lists five main sources of error in estimating benefits in the study site A. These include choosing
the wrong functional form for the benefits function, omitting important variables in the benefits function, measuring
the dependent and independent variables incorrectly and misspecifying the random process that generated the data.
Sources of error in the calculation of benefits at site B include errors of aggregation in calculating group means for
the independent variables, errors in calculating the number of affected households and the extent of the market for
the environmental service being valued.
63
area B and computing willingness to pay in area B. Economists prefer the second method since it
is based on less restrictive assumptions. Criteria for selection of studies to use for benefits
transfer are discussed in Boyle and Bergstrom (1992) and in McConnell (1992) and include
considerations of sample size, theoretical appropriateness of the benefits measure used in the
original study, correct specification of the valuation equation and availability of data for site B
that matches the explanatory variables used in the original study.
The third version, meta-analysis, can be used to adjust the willingness to pay estimates
obtained using the procedures described above (Boyle et al., 1994). 2 For example, a comparison
across studies to see how willingness to pay estimates vary with changes in contamination levels
can be useful for adjusting existing benefit estimates for benefits transfer. A meta-analysis is a
statistical procedure that treats unique point estimates of willingness to pay from different studies
as observations and estimates a meta- function which shows the effect of study or scenario
characteristics on willingness to pay. This can be used to determine the extent to which
willingness to pay estimates can be explained by characteristics of different studies, for example
the types of contaminants, the probability of contamination etc. Relevant scenario characteristics
for site B are input into the meta-function to derive a value for site B.
The consumptive services provided by groundwater directly or indirectly through
discharges to surface water, such as provision of drinking water, irrigation water, water for
industrial processing and power generation as well as nonconsumptive uses such as erosion and
flood control benefits, can be measured using the market price technique, the production cost
method, appraisal method, CV or benefits transfer. Value of human health affected by
groundwater quality can additionally be measured by averting behavior and hedonic price/wage
methods.
V. Results from Past Groundwater Valuation Research
Most of the research has focused on groundwater as a drinking water source and
estimated damages to human health, fear and anxiety and averting expenditures or avoidance
costs. Some studies have used the CV method to estimate use and nonuse values for
groundwater. Avoidance cost estimates can be obtained at the municipality level or the
household level. At the municipality level these include costs of water treatment that depend on
the size of the population served. Nielson and Lee (1987) estimate that annual pesticide removal
costs ranged between $67 and $333 per household for water systems serving between 5,000 and
500,000 customers. Walker and Hoehn (1990) estimated the economic damages associated with
removing nitrates from groundwater via central or point-of-use treatment. Annual costs for
typical rural communities in Michigan were estimated at $40 to $330 per household.
A. Averting Expenditure Studies
Several studies have sought to determine the value of groundwater by measuring averting
2
A meta-analysis is based on the assumption that underlying preferences and willingness to pay for environmental
improvements are the same in the study region and the region to which benefits are being transferred, and that any
differences in mean willingness to pay across studies are due to differences in measurable variables.
64
expenditures, that is, money spent to avoid consuming contaminated water. These are
summarized in Table 3.1. Powell (1991) obtained household bottled water expenditures as part
of a CV study of groundwater benefits in eight clean and seven contaminated communities in
Massachusetts, New York and Pennsylvania. Although half of the communities surveyed had
recent contamination problems, only 16% of the respondents were aware of the contamination.
He found that average expenditures on bottled water were $32 per year. Households aware of the
contamination were willing to pay $82 per year for increased water supply protection and those
relying on private wells were willing to pay $14 per year more for protection than those relying
on the public system. Another study used the averting expenditures method to determine how
much households actually spent in avoidance costs in College Township, Pennsylvania, where
perchloroethylene (PCE), a volatile organic compound, was discovered in the groundwater that
served as the source of the public water supply (Abdalla, 1991). Over the 6-month period
between when customers were notified of the PCE contamination and when an alternative water
supply for the community was put in place, over 76% of the households surveyed undertook
averting activities such as purchasing bottled water, bringing water in from elsewhere, boiling
water, using home water treatment systems, and purchasing food and beverages that did not
require the addition of water. Averting expenditures included costs of bottled water, cost of
transportation and lost leisure time hauling water, energy costs and lost leisure time boiling water
and costs of home water treatment devices. The total costs, in 1987 dollars, were estimated to
range between $137,371 and $160,343 depending on the imputed value of leisure. The mean
value was $148,900 for the entire community over the 6- month period, or an average of $21 per
month per household for those households who undertook averting activities (Abdalla, 1991).
Abdalla et al. (1992) used averting expenditures to estimate the economic costs to
households in southeastern Pennsylvania affected by groundwater contamination over an 88week contamination period. The area studied was Perkasie, Pennsylvania, where
trichloroethylene (TCE) had been detected in a public well. Over the 88-week period between
the time when public water supply customers were notified and when this study was conducted,
customers undertook such actions as buying bottled water and home water treatment systems.
Less than half of those affected by the TCE contamination were aware of the pollution, despite
the fact that the public water supply was to notify their customers of the contamination. Of those
that knew of the contamination, slightly less than half undertook actions to avoid the
contamination. Costs averaged $123 for each household that chose to avoid the contaminant.
Regression analysis showed that households were more likely to make averting expenditures if:
they received information about TCE; they rated the cancer risks associated with the levels of
TCE to be relatively high; children between ages three and 17 were present in the household.
Households with children younger than three years of age incurred larger averting expenditures
than others.
Collins and Steinback (1993) found that 85% of rural households, relying on individual
wells in West Virginia, engaged in averting behavior (such as cleaning and repairing water
systems, hauling water, and water treatment) when informed about contamination. Average
avoidance costs were estimated to be $320, $357 and $1,090 for households with bacteria,
minerals and organic contamination problems, respectively. Table 3.1 highlights the facts from
the above studies.
65
Table 3.1: Summary of Studies Estimating Averting Expenditures
Location
MA, NY,
PA
College
Township
PA
Perkasie,
PA
West
Virginia
Source of
contamination
TCE in six
communities;
diesel fuel in one
PCE (a volatile
organic
compound)
TCE (a volatile
organic
compound)
Bacteria, minerals
and organics
Groundwater
use valued
Drinking water
Municipal public
water supply
Municipal public
water supply
Drinking water
from private
individual wells
Average household
avoidance cost
$32, $82 and $14 per year for bottled
water, water supply protection and by
private well owners, respectively
Average: $252/HH/year
Average costs of a filtration system:
$383/HH/year (1987 dollars)
Average avoidance cost: $123/HH/year
Average bottled water exp:
$75/HH/year (1989 dollars)
$320-$1,090 per year per household
(1990 dollars)
Reference
Powell, 1991
Abdalla, 1991
Abdalla et al.,
1992
Collins and
Steinback,
1993
These studies show that households do undertake expenditures to avoid exposure to
groundwater contaminants in their drinking water. These expenditures can be substantial, with
annual costs ranging from $125 to $330 per household per year. Expenditures on bottled water
alone ranged from $32 to $330 per year. The magnitude of these costs varies with: the
contaminant and its health risks; type of water supply; cost of averting actions; household and
community characteristics. Households with individual water supplies were found to spend more
than those served by the public system. Extent of public notification, confidence in the local
water supplier, amount of information about contaminant or its health risk, and presence of
children were also factors that influenced the extent of averting expenditures.
B. Contingent Valuation Studies of Groundwater
Studies using the CV method to estimate groundwater values are summarized in Table
3.2. These studies are typically eliciting ex ante values for programs to prevent groundwater
contamination. The willingness to pay values reported here are measured for the year of the
study and not corrected for inflation. The study by Edwards (1988) used the CV method to elicit
a household’s total maximum willingness to pay to prevent uncertain nitrate contamination in
Cape Cod’s only aquifer. A discrete choice willingness to pay question was posed to respondents
with annual payments ranging from $10 to $2,000. Alternative payment vehicles were described
such as a bond, a contribution and a higher water bill. Willingness to pay increased with income,
with an increase in the probability of living in Cape Cod at the time of the contamination, and as
the proposed management plan increased the probability of low cost groundwater supplies.
Bequest motives (protecting groundwater for use by future generations) were found to have a
strong influence on willingness to pay. The annual willingness to pay per household was
estimated to be $1,623. This value is higher than those found in other studies for several possible
reasons. These include the uniqueness of the aquifer in Cape Cod, the inclusion of option price
and option values and the high mean income of the sample compared to the typical mean income
of rural water users.
66
Table 3.2: Contingent Valuation Studies of Groundwater Values
Action evaluated
Uses of water
Cape Cod,
MA
Protection from nitrates
Increased water supply
protection
$1,623/HH/year to increase
probability of supply from 0 to 1.
$815/HH/year for a 25% reduction
in risk
Mean = $129/HH/year.
Median = $40/HH/year.
Edwards,
1988
Dover, NH
Drinking water
Omitted health effects;
included option values
and bequest values
Current personal use
values, option values
and bequest values
MI
Protection from
pesticides and nitrates
Increased water supply
protection from
agricultural chemicals,
nitrates and pesticides
Groundwater
Rural: $43-46/HH/year.
Urban: $34-69/HH/year.
Mean = $641/HH/year
Caudill,
1992
Sun, et. al.,
1992
National
Protection from landfill
leachate
Groundwater;
Included health effects
$84/HH/year
McClelland
et al., 1992
GA
Protection from nitrate
contamination
Drinking water;
Included health effects
Public water: mean = $121/HH/year Jordan and
median = $66/HH/year
Elnagheeb,
Private water: mean = $149/HH/year 1993
median = $89/HH/year
MA, NY,
PA
Increased water supply
protection (TCE
contamination and
diesel fuel)
Protecting rural
drinking water fro m
contamination by
agricultural chemical
residues
A filter that would
reduce or completely
eliminate nitrates from
drinking water
Groundwater protection
program to ensure
nitrate standard for
drinking water after
testing water
Municipal public water
supplies
Mean: $62/HH/year
Powell, et.
al., 1994
Drinking water
Mean: $128-$639/HH/year
Crutchfield
et al., 1995
Municipal public water
supplies; mentioned
human health effects
WTP for safer water: $545$661/HH/year (mean = $634).
WTP for nitrate-free water: $580$781/HH/year (mean = $654).
$207/HH/year if subjective
probability of exceeding nitrate
standard is 0.5 and $516 if
probability is one
Crutchfield
et al, 1997
Groundwater protection
program to ensure
nitrate standard for
drinking water after
testing water
Delaying nitrate
contamination of water
supply by 10, 15 and 20
years
Private well drinking
water quality
$412/HH/year
Poe and
Bishop,
1999
Private well drinking
water quality
$118/HH/year for 10 year delay
$191/HH/year for 20 year delay
Hurley, et
al., 1999
Dougherty
Co., GA
IN, NE,
WA,
Lower
Susquehanna
Same as in
above
study
Portage
County,
Wisconsin
Portage
County,
Wisconsin
Clark and
Adam
counties,
Iowa
Municipal public water
supplies and rural
private wells;
Included health effects
Private well drinking
water quality
Approximate WTP
Reference
Location
NOTE: “HH” = household; WTP = willingness to pay. Values rounded off to the nearest dollar.
67
Shultz &
Lindsay,
1990
Poe, 1998
Schultz and Lindsay (1990) estimated the willingness to pay for a hypothetical
groundwater protection plan by households in Dover, New Hampshire. Dover was currently
considering alternative plans to protect their groundwater supplies. Although Dover had not had
any significant groundwater contamination incidents aside from some benzene contamination,
neighboring towns had recent pollution problems involving toxic chemicals. Therefore, the study
sought to quantify Dover’s willingness to pay for an increase in groundwater protection in
comparison with the costs of the proposed protection policies, namely zoning near particular
groundwater use areas. The payment vehicle was an annual increase in property taxes. They
found that age of the respondent and the dollar amount of the bid presented to respondents had
significant negative impacts on willingness to pay whereas income and land values had
significant positive impacts. Other characteristics such as education and awareness of past water
contamination did not have significant impacts on willingness to pay.
In Michigan, Caudill (1992) estimated the option price of groundwater, or the maximum
willingness to pay to remediate contamination from landfills to secure the option of using
groundwater in the future. However, they did not specify the contaminants.
Sun et al. (1992) estimated the benefits of protecting the currently “safe” groundwater
from potential future contamination from agricultural chemicals in Dougherty County, Georgia.
The groundwater in this area was considered safe at the time of the study by standards set by the
Environmental Protection Agency (EPA). However, due to the heavy use of pesticides and
fertilizers in the area, groundwater in the study area was deemed at risk for contamination. This
study sought to quantify the benefits of increased water supply protection measured in
willingness to pay compared to the costs of new policies to reduce agricultural chemical use in
the area. Groundwater provides the sole source of public and private water supplies in that
county. The payment vehicle was a reduction in the amount of money available to spend on other
goods and services. Income, own health concern, subjective contamination probability and
probable length of future residence in the county had a significantly positive impact on
willingness to pay whereas bid value and age had significant negative effects.
McClelland et al. (1992) estimated nonuse values for groundwater. A review by EPA’s
Science Advisory Board, however, concluded that the researchers did not develop reliable
estimates of nonuse values for groundwater because they were unable to convey the
characteristics of the resource, the nature of the contamination and the availability of substitutes
to respondents successfully (Desvousges et. al., 1999).
Powell et al. (1994) used the CV method to determine if households that received water
from a municipal public water supply would be willing to pay for increased protection of their
groundwater supply, and if so, how much. Respondents were selected from several towns in
Massachusetts, New York, and Pennsylvania. Some had past experience with water
contamination, especially trichloroethylene (TCE), which is a volatile organic compound. The
results of the mailed survey indicated that each household was willing to pay an average of
$61.55 per year for an increase in water supply protection. They also found that willingness to
pay increased $26.01 when the household had previous experience with water contamination.
Willingness to pay also increased with income, perception of water supply safety, amount spent
on bottled water and private water supply. Surprisingly, age and existence of children in the
68
household were not significant predictors of willingness to pay.
Poe (1998) examined willingness of private well owners to pay for a groundwater
protection program that would ensure that nitrate standards remain below 10mg/L in Portage
County, Wisconsin. Willingness to pay was found to be significantly positively related to
existing nitrate levels in the well, and either age, education, or income.
Poe and Bishop (1999) estimated willingness to pay for a groundwater protection
program that would reduce nitrate levels in all Portage County wells by 25%. They found that
willingness to pay increased with nitrate concentrations, but the rate of increase was diminishing
with contamination levels. They also found that nonuse concerns for the health of others had a
positive significant effect on willingness to pay. Actual averting actions that have been
undertaken did not negatively impact willingness to pay. The estimated willingness to pay for a
25% reduction from 14.5 mg/L was $412 per year per household. This study was based on a
well-developed theoretical model of willingness to pay and the researchers provided respondents
with information on the nitrate levels in the researchers’ own well.
Crutchfield et al. (1997) examined the willingness to pay for installation of a water filter
that could either reduce nitrates in tap water to safer levels or completely eliminate nitrates from
drinking water to households in the White River Region in Indiana, Central Nebraska, Lower
Susquehanna and Mid-Columbia Basin in Washington State. They found that willingness to pay
was positively related to income, extra income, and number of years lived in the zip code, but
negative ly related to age. The higher estimate obtained by Crutchfield et al. (1997) as compared
to that obtained by Poe and Bishop (1999) could reflect the incremental benefits of reducing
nitrates from safe levels to zero.
Hurley et al. (1999) used data from a CV study in Clark and Adams counties in Iowa to
determine rural residents’ willingness to pay to delay nitrate contamination of their water supply
from large animal confinement facilities by 10, 15, and 20 years. Both counties relied heavily on
surface water supplies for drinking water. The researchers found that higher education, income
and expected length of time to remain in the community were positively and significantly related
with willingness to pay values. Willingness to pay ranged from $118/HH/year for a 10 year delay
to $191/HH/year for a 20 year delay by a household with sample mean characteristics. However,
the study suffered from a low overall response rate, a small sample of private well users that
would be affected by nitrate contamination, and the fact tha t over 50% of the survey respondents
rejected the scenario and stated no willingness to pay for any delay in nitrate contamination.
Benefit transfer methods are one way to use these estimated values for policy analysis or
for inferring the value of groundwater in other regions. Crutchfield et al. (1995) used benefits
transfer methods using the three previous studies summarized in Table 3.3 (Shultz and Lindsay,
1990; Jordan and Elnagheeb, 1993; and Sun et al., 1992) together with farm and county level
data for four regions (the White River Region in Indiana, Central Nebraska, the Lower
Susquehanna River, and the Mid-Columbia Basin in Washington State) and estimated the
benefits of protecting rural drinking water from contamination caused by agricultural che mical
residues. They use the data collected from the four regions being studied to substitute for the
explanatory variables used in the three original studies and estimated willingness to pay for those
69
Table 3.3: Using Benefits Transfer for Estimating Willingness to Pay
Original Study
Shults & Lindsay, 1990
Jordan and Elnagheeb, 1993
Sun et. Al. 1992
Original WTP $.HH/Yr
$129
$120.8
$641
Transferred WTP
$/HH/Yr
$128
$233
$637
Total WTP
(1.1M HHs, $M)
$197
$241
$730
Source: Crutchfield (1995).
regions. They found that the benefit estimates after being adjusted for differences in
characteristics at the sites of interest were very similar to those obtained by the original studies in
two out of the three cases as shown below. Aggregate estimates of groundwater (summed up
over the 1.1 million households in the four regions) varied considerably depending on the study
that was used to generate those estimates.
Giraldez and Fox (1995) also used benefit transfer methods and estimated the cost of
controlling groundwater pollution from agricultural use of nitrogen in the village of Hensall in
southwestern Ontario. They used three approaches for estimating values for reducing nitrates:
value of human life as present value of lifetime average earning, value of statistical life based on
wage-risk premiums, and CV. Aggregate values were reported for benefits for the entire village
and varied greatly with the assumptions of the analysis resulting in considerable uncertainty
about the benefits of reducing nitrate concentrations. Boyle et al. (1994) did a meta-analysis
using seven of the CV studies included in Table 3.2 above and one study by Poe (1993). They
found that willingness to pay estimates obtained in these studies increase if nitrates were
mentioned as a source of contaminant, if the probability of contamination was included in the
survey, and as income increases. Willingness to pay was lower if the study primarily focused on
use values and higher if cancer risks were mentioned in the study. A limitation of the Boyle et al.
(1994) study is the inconsistent definition of groundwater contamination across the studies used
in their analysis.
VI. Natural Resource Damage Assessments for Groundwater in Practice
A. Overview
Although academic studies have tended to rely on averting expenditure methods and CV
to value groundwater, assessment of damages to groundwater in practice has been based on
simpler and more pragmatic methods, such as the market price approach and production cost
approach. These approaches rely more on engineering or accounting methods than on economic
theory to assess damages. Several states such as New Jersey, Washington, Florida and Minnesota
have developed compensation tables or simplified rules to assess damages. These compensation
tables are discussed in more detail in Chapter 2 of this report. Here we discuss patterns in
groundwater damage assessments done by the states, with a focus on some of the methods used
in specific cases.
Figure 3.3 uses data from 29 cases from 10 state agencies in which groundwater was one
70
of the resources damaged, and shows that compensation tables were the most frequently used
tool for damage assessment. Habitat equivalency analysis and market price methods were the
second and third most frequently used methods. The frequency of use of sophisticated economic
valuation methods was only about 20%. Two cases had used methods other than those discussed
above, including the replacement cost method and the restoration planning approach. Figure 3.4
shows that the 29 cases considered here also involved damages to natural resources other than
groundwater, such as surface water, wetlands, air, fish, wildlife, and cultural resources.
Damage assessment methods often vary with the type of resource damaged. Some
methods are mo re suitable for assessing damages to certain resources. For example, the travel
cost method may be more suitable to measure damages to recreational values and surface water
than to groundwater. Figure 3.5 shows that agencies have tended to use a greater va riety of
methods as the number of resources damaged increased.
HEA
16%
other
4%
own tool
34%
CV
9%
averting exp.
4%
benefits transfer
9%
travel cost
9%
appraisal
4%
market price
11%
Figure 3.3 Frequency of Use of Alternative Methods for Groundwater Damage Assessment
71
Number of Cases
30
25
20
15
10
5
0
ground
water
surface wetlands
water
air
fish
wildlife recreation cultural other
resources resources
Figure 3.4 Frequency of Damage to Other Resources in Cases Involving Groundwater
Number of Methods Used
8
7
6
5
4
3
2
1
0
0
2
4
6
8
Number of Resources and Uses Damaged
Figure 3.5: Number of Assessment Methods Used by Number of Resources Damaged
72
10
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 19th 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
Scale of study
Source of
contamination
Uses of
groundwater
resource
Contaminated Mining operations
Public water
groundwater: which led to dangerous supply
8,235 acft/yr
levels of metals in
over 50 years water
Affected area of Charles George
Private wells
aquifer over 50 Landfill
years
(a Superfund site)
Bingham
Pit, UT
1987
Charles
George
Landfill,
MA
Washoe
County,
Nevada
1990
1991
Aquifer
Clark
Fork,
Montana
1993
600,000 acft of Mining, milling and
groundwater smelting operations
Petroleum products andPublic water
volatile organic
supply
compounds
Method used
Approximate
value
With and
$37 million
without
contamination
Replacement
costs
$7.9 million
Benefits
transfer
$10 million
Private wells and Replacement
public water
costs and CV
supply
$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.
74
C. An Application of the Benefits Transfer Method for Valuing Groundwater
We briefly describe the case study conducted by Crutchfield et al. (1995) to show how
estimates of groundwater quality benefits can be transferred to areas beyond the original study
sites. They selected three studies from those listed in Table 3.2 because of the small amount of
information needed to compute willingness to pay estimates and because these studies had been
published in peer-reviewed literature. These three studies are Jordan and Elnagheeb (1993),
Shultz and Lindsay (1990) and Sun et al. (1992). Each of these studies estimated a willingness to
pay function for groundwater protection given by
WTP = f(b,x,z),
where WTP is willingness to pay for preventing contamination or cleaning groundwater to safe
levels for drinking, and the other notation is defined as follows:
f(.) is a valuation function
b= hypothetical bid value
x = variables proxying for price of access to the resource, quantity and quality of resource
z =demand determinants such as income, education, age etc.
The three original studies had included variables such as income, gender, race, age,
education, status of current water quality, land value, future demand for clean water and bid
value. Crutchfield et al. (1995) used USDA data from surveys of farmers in four Area Studies
regions in 1991 to obtain comparable data about socio-economic characteristics of farmers in
their study region. A proxy variable for income was constructed using data from the USDA Farm
Costs and Returns Survey. County level data on sex and racial composition was obtained from
the latest Census of Agriculture. Since the researchers did not have information on farmers’
attitudes about pollution probabilities for sites for which benefits were being estimated, they used
mean values from the original studies. They used these data to estimate willingness to pay for
groundwater quality in four areas on a county-by-county basis. County averages were then used
to estimate willingness to pay per househo ld. The per-household values were multiplied by the
number of rural households in each county to obtain an estimate of aggregate willingness to pay
at the county level. These estimates were further improved by correcting for differences in the
distribution of risks across households based on the whether the region was classified as
hazardous, risky, slightly risky or safe, and by assuming that households whose water supplies
are not at risk will not be willing to pay.
D. Legislation Applying to Groundwater
As already established, ground water is an important natural resource with many uses. In a
majority of situations, it is more expensive to clean up contaminated groundwater than it is to
prevent its contamination. Therefore, legislation to prevent or reduce contamination of
groundwater, as well as clean up the contamination when it does occur, has been instituted.
Unfortunately, the effectiveness of these laws in protecting groundwater may be limited, as many
of these laws focus on surface water rather than groundwater. Additionally, water protection
programs are split between federal, state, and local levels, making the enforcement of these laws
75
and overall protection of the resource more difficult (NRC, 1997).
At the federal level, there are several laws that relate to maintaining groundwater quality.
The Comprehensive Environmental Response, Compensation, and Liability Act, also known as
CERCLA or Superfund, requires that groundwater contaminated with waste be cleaned up and
holds responsible the polluters for the costs of the cleanup. The Resource Conservation and
Recovery Act regulates waste disposal and underground storage tanks that may pollute
groundwater. The Clean Water Act aims at pollution control, although regulation of polluting
sources applies mainly to surface water (NRC, 1997). The Safe Drinking Water Act provides for
clean public drinking water supplies specifying maximum contaminant levels for pollutants that
are found in public water supplies. These maximum contaminant levels are also used in
determining the amount of cleanup of groundwater supplies necessary at Superfund sites.
Additionally, the 1996 amendments to the Safe Drinking Water Act allow funding for greater
protection of groundwater supplies in areas where groundwater is the primary source of the
public water supply (NRC, 1997).
In Illinois, the Illinois Groundwater Protection Act serves as the main piece of legislation
that aims to maintain a high level of quality of our groundwater supplies. Enacted in 1987, the
Illinois Ground water Protection Act focuses on maintaining the quality of groundwater supplies
through prevention of groundwater contamination. It calls for cooperation between local and
state authorities and places emphasis on the protection of wells (IDNR, 2000).
It is difficult to determine the effect that these policies have had on reducing groundwater
contamination or on cleaning up the contamination that does occur. Few case studies make
reference to these laws, and the ones that do are cleanup sites based on CERCLA. The
groundwater protection program under the Illinois Ground water Protection Act sets a good
foundation for the prevention of groundwater contamination in Illinois, yet it is also difficult to
quantify how much groundwater pollution has been prevented by this program.
VII. Conclusions
As can be seen from the results of various studies and cases reported above, the estimates
of groundwater values vary widely, and there are no single values that can be attached either to
groundwater quality or to the damages caused to water quality by human activities. The
valuation of these damages will depend on the impact of those activities on concentrations of
contaminants in groundwater as well as the monetary value of damages caused by those
contaminants and is a site-specific problem. The physical impact of activities such as spills,
agricultural production and landfills on groundwater is site-specific because of differences in
factors such as the physical impact of soils, topography, depth of water table, and recharge rate
of water into the aquifer, which will influence the amount of leaching and its effect on the
concentration of contaminants in groundwater. The monetary value of damage caused by
contaminants will vary with factors such as the uses of the groundwater, ecological services
provided by the groundwater, the type of contaminant, and the preferences and socio-economic
characteristics of heterogeneous individuals affected by the contamination.
Several methods for determining the value of groundwater are available. A National
76
Research Council study (NRC, 1997) concluded that it is hard to generalize about the validity or
reliability of specific valuation approaches – the appropriateness of an approach depends on the
valuation context and the groundwater services being valued. Different approaches may be
needed to value different uses. The current empirical knowledge of the values of groundwater is
fairly limited and is restricted to valuing a few uses such as the consumptive uses of drinking
water. Ind irect valuation methods (such as averting expenditure analysis, travel cost analysis, and
hedonic price methods), when used correctly, can only estimate use values of groundwater. CV
methods allow the estimation of the total value of groundwater. However, few if any, of the
existing studies have met the stringent conditions set by the NOAA panel, to produce defensible
estimates of nonuse values (NRC, 1997; Desvousges et al., 1999). The pervasiveness and
magnitude of nonuse values for groundwater cannot be reliably ascertained from existing studies.
Estimates of consumptive use value are more common and reliable, but may underestimate total
value when groundwater has a strong connection with surface water and contamination will
substantially alter surface water quality.
Academic studies conducted thus far have focused on CV and averting expenditures
methods. The results of these studies show that environmental values depend not only on the
physical measures of the extent of contamination but also on the demo graphic and socioeconomic characteristics of the affected population. In practice, however, state agencies have
relied primarily on compensation schedules, habitat equivalency analysis, and market price
methods. These simplified methods disregard the characteristics and preferences of the affected
population in estimating the value of damages.
Alternative approaches that could be used for damage assessment while taking into
account both the physical level of damages and characteristics of the affected population are
benefits transfer methods. Benefits transfer and meta-analysis provide mechanisms which
provide information about the benefits of groundwater quality without requiring analysts to
gather extensive new data or conduct expensive and time consuming original stud ies. However,
the quality of the benefits measures will depend on the quality of the original studies themselves
and requires analysts to assume that individual preferences are the same at the new site and the
site in the original study. Care needs to be taken before conducting a benefits transfer exercise to
evaluate the quality and comprehensiveness of the published research and its suitability for
obtaining estimates for a new site. Though appropriate for preliminary evaluations, benefits
transfer may need to be supplemented with primary studies using new data when site-specific
measures are required for determining compensation and liability for damages.
77
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Function Approach.” Water Resources Research 34(12): 3627-33.
Poe, G. L. and R. C. Bishop. 1999. “Valuing the Incremental Benefits of Groundwater Protection
When Exposure Levels Are Known.” Environmental and Resource Economics 13(3):
341-67.
Powell, J. R. 1991. The Value of Groundwater Protection: Measurement of Willingness to Pay
Information and Its Utilization by Local Government Decision-Makers. Ph.D.
Dissertation, Cornell University.
Powell, J. R., D. Allee, and C. J. McClintock. 1994. “Groundwater Protection Benefits and Local
Community Planning: Impact of Contingent Valuation Information.” American Journal
of Agricultural Economics 76(5): 1068-75.
Segerson, K. 1994. “The Benefits of Groundwater Protection: Discussion.” American Journal of
Agricultural Economics 76(5): 1076-1978.
Shultz, S. D. and B. E. Lindsay. 1990. “The Willingness to Pay for Groundwater Protection.”
Water Resources Research 26(9): 1869-75.
Sun, H., J. C. Bergstrom, and J. H. Dorfman. 1992. “Estimating the Benefits of Groundwater
Contamination Control.” Southern Journal of Agricultural Economics 24(2): 63-71.
Walker, D. R. and J. P. Hoehn. 1990. “The Economic Damages of Groundwater Contamination
in Small Rural Communities: An Application to Nitrates.” North Central Journal of
Agricultural Economics 12(1): 47-56.
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Chapter 4
Natural Resource Damages: Legal Overview and Sample Cases
I. Introduction
When the state exercises its statutory authority to bring natural resource damage claims
against responsible parties under the federal (and in some cases, state) legisla tion, there can be
great benefit. However, there are costs to any state associated with this activity. Among other
things, the state can incur substantial administrative costs in the process of reaching an
appropriate final settlement with a polluting firm. Both the costs of negotiation and the
probability that a case will lead to expensive litigation are greater when a firm’s beliefs about
reasonable damages diverge widely from the judgment made by state officials.
This document presents information tha t may be useful in narrowing the gap between the
bargaining positions of the state and potentially responsible parties (PRPs). First, it presents an
overview of key features of the federal statutes under which any state may bring natural resource
damage (NRD) claims. Second, it gives extensive summaries of five settled NRD cases in a
manner consistent with the legal overview, such that the reader can quickly get a sense of the key
features of the cases and their settlements.
Cases were chosen for inclusion in this chapter from a pool of settled cases that satisfied
two criteria. First, this chapter focuses entirely on cases that were settled after 1995. That
restriction helps ensure that the cases included here are relevant to any future NRD activity, since
the statutory and regulatory environment for NRD cases changed substantially in the mid-1990s.
Second, this chapter summarizes only cases that were not pursued under any particular state law,
since similar legislation may not be present in other states.
II. Natural Resource Damages: Legal Overview
A. The Federal Statutes
Natural resource damage (NRD) claims are statutory causes of action. They are designed
to compensate the public for the loss of services when publicly owned natural resources are
damaged or destroyed. Any compensation awarded in an NRD suit is used to restore or replace
the damaged site.
There are several federal statutes that authorize NRD claims. The best known of these is
the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
Section 107 of CERCLA, 42 U.S.C. § 9607, provides that “damages for injury to, destruction of,
or loss of natural resources, including the reasonable costs of assessing such injury, destruction,
or loss resulting from such release.” CERCLA § 107(a)(4)(C).
The Clean Water Act (CWA) also provides a cause of action for recovery of NRDs.
Under § 311(f)(4) of the CWA, 33 U.S.C. § 1321(f)(4), if a party is liable under CWA § 311(b)
for the discharge of “oil or hazardous substances” “into or upon the navigable waters of the
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United States, adjoining shorelines, or into or upon the waters of the contiguous zone,” or in
connection with activities under either the Outer Continental Shelf Lands Act or the Deepwater
Port Act of 1974, that party is also liable for the costs and expenses incurred by the federal or
state government “in the restoration or replacement of natural resources damaged or destroyed as
a result of [the] discharge.” CWA § 311(b)(3), (f)(4).
Section 1002 of the Oil Pollution Act of 1990 (OPA), 33 U.S.C. § 2702, also provides a
cause of action for NRDs. When oil is discharged “into or upon the navigable waters or
adjoining shorelines or the exclusive economic zone” and the discharge is not exempted from
liability as a discharge authorized by permit, a release from a “public vessel,” or an onshore
facility subject to the Trans-Alaska Pipeline Authorization Act, a United States trustee, a State
trustee, and Indian Tribe trustee, or a foreign trustee may recover for “[d]amages for injury to,
destruction of, loss of, or loss of use of, natural resources, including the reasonable costs of
assessing the damage.” OPA § 1002(b)(2)(A).
There are other statutes that authorize recovery of NRDs. Most of these, however, do so
in the context of certain designated natural resources under the jurisdiction of the federal
government. For example, the National Park System Resource Protection Act provides that “any
person who destroys, causes the loss of, or injures any park system resource is liable to the
United States for response costs and damages resulting from such destruction, loss, or injury.” 16
U.S.C. § 19jj-1(a) “[P]ark system resources” are limited in scope; the term is defined as “any
living or non-living resource that is located within the boundaries of a unit of the National Park
System, except for resources owned by a non-Federal entity.” 16 U.S.C. § 19jj(d).
CERCLA, the CWA, and OPA designate trustees to recover NRDs. Under CERCLA, the
designated trustees include the United States government, the State, if the State controls,
manages, or owns the natural resources that were damaged, and an Indian tribe, if the tribe
controls, manages, or owns the natural resources or if the natural resources are held in trust for
the Indian tribe, or if a member of the tribe owns the land and there is a trust restriction on
alienation on the resources. CERCLA § 107(f)(1). The President designates the federal officials
who act on behalf of the public as trustees. CERCLA § 107(f)(2)(A). Likewise, the Governor
of each State designates State officials to act as trustees under this statute. CERCLA §
107(f)(2)(B).
The duties of the trustees are outlined in each of the statutes. See CERCLA § 107(f)(1),
CWA § 311(f)(5), OPA § 1012(a)(2). But in general, as the National Association of Attorneys
General has stated: “The states and the Federal Governments [sic] are trustees for the people, and
. . . their trust corpus includes this nation's glorious natural resources. We, as trustees, have an
obligation to protect these often irreplaceable resources from harm, and those that harm them
have the obligation to restore them for all the people.” That is, “NRD trustees do indeed have a
fiduciary duty to protect and restore the public's resources, as well as to refrain from abusing
their power in carrying out their responsibilities.” Kevin R. Murray et al., Natural Resource
Damage Trustees: Whose Side Are They Really On?, 5 Envtl. L. 407, 423 (2000).
Because CERCLA, the CWA, and OPA are the only NRD statutes that allow a State to
act as a trustee and recover NRDs, we will only focus on the NRD provisions of those statutes.
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B. CERCLA NRD Claims
CERCLA allows the federal government and the state government--acting on behalf of
the public--and Indian tribes to assert claims for NRDs that result from the “release” of a
“hazardous substance.” CERCLA § 107(a)(4)(C). Private entities may not bring an NRD claim
under CERCLA. See Lutz v. Chromatex, 718 F. Supp. 413, 419 (M.D. Pa. 1989). “Natural
resources” are defined in the Act as “land, fish, wildlife, biota, air, water, groundwater, drinking
water supplies, and other such resources belonging to, managed by, held in trust by, appertaining
to, or otherwise controlled by the United States, . . . any State or local government, any foreign
government, any Indian tribe, or, if such resources are subject to a trust restriction on alienation,
any member of an Indian tribe.” CERCLA § 101(16). Accordingly, “purely private” property
does not fall within the definition of natural resources and an NRD claim cannot be brought for
damages to purely private property. See Ohio v. U.S. Dep’t of the Interior, 880 F.2d 432, 460
(D.C. Cir. 1989). But to be deemed “natural resources” under this Act, the Government need not
own the resources; “a substantial degree of government regulation, management, or other form
of control” over the property will be sufficient to make the natural resource damages provisions
apply. See id. at 461.
CERCLA does not specify which resources are under state trusteeship and which
resources are under federal trusteeship. That is, there may be times where there are “coexisting
or contiguous natural resources or concurrent jurisdictions.” As a result, multiple trustees may
have a claim with respect to a single NRD incident. When this happens, trustees must coordinate
their claims as provided in 40 C.F.R. § 300.615.
A “release” is defined under CERCLA to include “spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the
environment.” CERCLA § 101(22). The definition of hazardous substance under CERCLA
includes both what has been designated as hazardous under CERLCA as well as a number of
substances designated as hazardous, toxic, or an imminent hazard under other statues. In
particular, a hazardous substance under CERCLA is defined as:
(1) anything designated as hazardous under CWA § 311(b)(2)(A)
(2) anything designated as hazardous under RCRA § 3001 (unless regulation of the waste
has been suspended by Congress)
(3) any toxic pollutant listed under CWA § 307(a)
(4) any hazardous air pollutant designated under the Clean Air Act § 112
(5) certain imminently hazardous chemicals under the Toxic Substances Control Act § 7
(6) anything designated as a hazardous substance under CERCLA § 102.
See CERCLA § 101(14). Petroleum, including oil, gasoline, and natural gas, is excluded
from this definition. See id. Therefore, NRDs cannot be recovered under CERCLA for oil spills
or any other release of petroleum, unless the petroleum is contaminated with other hazardous
substances not normally found in petroleum. See In re Montauk Oil Trans. Corp., 1996 WL
340000 (S.D.N.Y. June 19, 1996); Robert L. Glicksman, Pollution on Federal Lands IV:
Liability for Hazardous Waste Disposal, 12 J. Envtl. L. 233, 243-45 (1994).
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Once there is a “release” of a “hazardous substance,” the trustee must show that there has
been “injury to, destruction of, or loss of natural resources resulting from such a release.”
CERCLA § 107(a)(4)(C). The terms injury, destruction, and loss are not defined in CERCLA.
The Department of the Interior (DOI), however, has defined “injury” in its natural resource
damage assessment regulations as “a measurable adverse change, either long- or short-term, in
the chemical or physical quality or the viability of a natural resource resulting either directly or
indirectly from exposure to a discharge of oil or release of a hazardous substance, or exposure to
a product of reactions resulting from the discharge of oil or release of a hazardous substance.”
43 C.F.R. § 11.14(v). The regulations allow proof of injury either by using empirical evidence
of an adverse change in a particular case (e.g., increased tumors) or by relying on a prior
regulatory determination such as water quality standards, which make the presence of a
hazardous substance in excess of that prescribed limited injury per se.
The courts have not settled on what constitutes “resulting from such release.” The D.C.
Circuit has explained that “CERCLA left it to Interior to define the measure of damages in
natural resource damage assessment cases . . . . While the statutory language requires some
causal connection between the element of damages and the injury--the damages must be ‘for’ an
injury ‘resulting from a release of oil or a hazardous substance’--Congress has not specified
precisely what that causal relationship should be.” Kennecott Copper Utah Corp. v. U. S. Dep’t.
of Interior, 88 F.3d 1191, 1224 (D.C. Cir. 1996). As such, the D.C. Circuit later upheld
regulations that allow for the use of computer models to determine what injuries “result from a
release,” finding that the reliance on computer models was reasonable under the statute. See
National Ass’n of Mfrs. v. U. S. Dep’t of Interior, 134 F.3d 1095 (D.C. Cir. 1998).
Another important part of an NRD claim is figuring out who is liable under CERCLA.
Subject to the requirement that there must some causal connection between the release and the
injury, the potentially liable parties, more commonly known as PRPs, include the following:
current owners/operators of the site; past owners/operators of the site if “disposal” occurred
during their ownership/operation of the site; arrangers for disposal or treatment of the hazardous
substance; and transporters of the hazardous substances who selected the site to which the
substances were taken.
The first category of PRPs, the present owner/operator of the site, is liable even if the
owner/operator had no involvement with or responsibility for the release. It is useful to note that
federal, state, and municipal governments are all included in the definition of owners and
operators. In fact, CERCLA § 120(a)(1) expressly waives the federal government’s sovereign
immunity with respect to NRD suits. There are some limited exceptions to liability available to
governments if they acquired the land involuntarily. See CERCLA § 101(20)(D) (exempting
units of State and local governments from the definition of owner or operator if the unit acquired
ownership involuntarily such as through bankruptcy or tax delinquency); CERCLA §
101(35)(A)(ii) (providing a defense to liability for governmental entities that acquire land
through escheat, eminent domain, or the like). There are also several other limited defenses to
liability available to all categories of PRPs, including current owners and operators. See
CERCLA § 101(35)(A) (outlining the innocent landowner defense and the inheritor defense);
CERCLA § 107 (providing an exemption to liability for an act of God, an act of war, and
federally permitted releases).
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With respect to the second category of PRPs, past owners/operators of the site, liability
will attach if there was “disposal” during their ownership. CERCLA defines “disposal” to
include “the discharge, deposit, injection, dumping, spilling, leaking or placing of any solid or
hazardous waste into or on any land or water so that such solid waste or hazardous waste or any
constituent thereof may enter the environment.” 42 U.S.C. § 6903(3) (incorporated by reference
in 42 U.S.C § 9601(29)). Courts, however, have split on whether the passive migration of
hazardous waste during the ownership of a prior owner/operator constitutes disposal. Compare
Nurad, Inc. v. William E. Hopoper & Sons Co., 966 F.2d 837 (4th Cir. 1992) (holding that
passive migration during prior ownership constituted “disposal” under CERCLA), with United
States v. CDMG Realty Co., 96 F.3d 706 (9th Cir. 1996) (rejecting the view of Nurad).
Accordingly, it is possible that a past owner/operator will not be liable for NRDs if the
“disposal” that took place while it owned or operated the site was simply passive leaking.
Ultimately, the resolution of this issue, however, will depend on the court where litigation is
brought. Moreover, past owners and operators have the defenses to liability noted above (such
as the innocent landowner defense) available to them as well.
The third category of PRPs, those that have arranged for the disposal or treatment of
hazardous waste, is quite broad. To be liable as an arranger, most courts have held that it is
enough if it is shown that: the arranger sent a hazardous substance to the site; the arranger’s
hazardous waste or some like it is fo und at the site; there is a release or threatened release of any
hazardous substance from the site; the release or threatened release is causes the incurrence of
costs. See United States v. Wade, 577 F. Supp. 1326 (E.D. Pa. 1983). A corporate officer may
be individually liable as an arranger under CERCLA if he or she was closely involved and had
direct supervisory powers over the events that led to the wrongful conduct. See Kelley v. ARCO
Indus., 723 F. Supp. 1214 (W.D. Mich. 1989). Again, as with the other categories of PRPs, the
limited defenses available to all PRPs, like the federally permitted release, are also available to
arranger PRPs.
The final category of PRPs, transporters to the site, may also be held liable for NRDs, but
only if the transporter selected the site. See Tippins Inc. v. USX Corp., 37 F.3d 87 (3d Cir.
1994). Transporters that ultimately select the site are included as well as transporters that have
“substantial input into the disposal decision.” Id. at 95. Like arrangers, transporter PRPs have
the limited defenses like the act of God defense available to them as well.
Once PRPs are identified, their liability is strict. This means that PRPs are liable even if
they were not negligent in their handling of the hazardous substance at issue. In addition,
liability is joint and several. Therefore, a PRP is potentially responsible for 100% of the cost of
NRDs regardless of how much hazardous waste the PRP contributed to the site.
Although liability under CERCLA is intended to be broad, the re are a few limits on
recovery for NRDs. First, CERCLA limits the recovery of NRDs per release to $50 million
unless the release was the result of willful misconduct, willful negligence, or a violation of
federal safety or operating standards. CERCLA § 107(c)(1)(D), (c)(2). The Ninth Circuit has
held that “incident involving release” means “an occurrence or series of occurrences of relatively
short duration involving a single release or a series of releases all resulting from or connected to
the event or occurrence.” United States v. Montrose Chemical Corp., 104 F.3d 1507 (9th Cir.
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1997).
Second, there can be no recovery if the release that caused the damages and the damages
themselves occurred “wholly before December 11, 1980.” CERCLA § 107(f)(1). A trustee can
recover, however, for all damages that occur after December 11, 1980, regardless of whether
they result from pre-enactment or post-enactment releases. If damages are divisible and it can be
shown that the damages occurred before December 11, 1980, the trustee cannot recover for the
pre-December 11, 1980 portion of the damages. But if damages are not divisible and the release
and/or damages continue post-December 11, 1980, the trustee can recover for the entire amount
of non-divisible damages. See generally In re Acushnet River & New Bedford Harbor:
Proceedings re Alleged PCB Pollution, 716 F. Supp. 676 (D. Mass. 1989).
Third, the statute of limitations period for NRDs under CERCLA is different than that for
response costs. If the damaged site is listed on the National Priorities List (NPL) or is a federal
facility, the statute of limitations is slightly different: an action for NRDs need only be filed
within three years after the completion of the remedial action. CERCLA § 113(g)(1). Under
CERCLA § 113(g)(1), if the site is not on the NPL and it is not a federal facility, an action for
NRDs must begin within three years of the later of “(A) [t]he date of the discovery of the loss
and its connection with the release in question” or “(B) [t]he date on which regulations [on
natural resource damage assessment procedures] are promulgated under [CERCLA § 301(c)].”
This date of regulations prong is irrelevant for future cases because the courts have ruled that the
regulations were promulgated, at the latest, as of March 20, 1987. See Kennecott Copper, 88
F.3d at 1212-13. Accordingly, the trustee is left with the “date of discovery” prong, which is not
defined by CERCLA. But it is important to remember that even where there is a release, the
nature and extent of the injury as well as the connection of the injury to the release is often not
known until much later in time. As a result, the clock may not begin to run as quickly as one
might anticipate. Nevertheless, trustees have entered into tolling agreements at some sites to
avoid any statute of limitations problems.
Once the PRPs are determined and liability seems appropriate, the next question is how
much damage was done. Or, more simply, what do the PRPs owe for NRDs? Although the
proper measure of damages is discussed in more detail in the other chapters, there are a few basic
components. CERCLA § 301(c) provides that regulations shall be promulgated that specify
“standard protocols for simplified assessments,” known as the Type A rules, and “alternative
protocols for conducting assessments in individual cases to determine the type and extent of
short- and long-term injury, destruction, or loss,” known as the Type B rules. These regulations
“shall identify the best available procedures to determine such damages, including both direct
and indirect injury, destruction, or loss and shall take into consideration factors including, but not
limited to, replacement value, use value, and ability of the ecosystem or the resource to recover.”
CERCLA § 301(c)(2).
Thus far, DOI has promulgated only two types of Type A procedures. One is for coastal
and marine environments and the other for Great Lakes environments. See 43 C.F.R. § 11.40;
see also National Association of Manufacturers v. United States Dep’t of the Interior, 134 F.3d
1095 (D.C. Cir. 1998) (detailing procedures under Type A rules and upholding the rules).
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The Type B rules, however, have a more complicated history. The first set of Type B
rules was promulgated in 1986. After a court challenge, the rules were amended and the
amended rules were finally promulgated on May 25, 1994. See 59 Fed. Reg. 14,262 (codified at
43 C.F.R. §§ 11.60-.84). These rules were then challenged in Kennecott v. Department of the
Interior, 88 F.3d 1191 (D.C. Cir. 1996), but the court upheld most of the new rules.
The Type B rules set up a four stage administrative process. First, there is the
“preassessment screen,” during which the trustee determines whether a hazardous substance
release may have caused injury to a natural resource. Next, during “assessment planning,” the
trustee decides what methodologies to apply during damage assessment and plans the assessment
process, often with the help of the PRPs. The third step is the “damages assessment.” During
this stage, the trustee determines the injury to the natural resources, quantifies the injury and the
lost “services provided by the resources,” determines the release pathways of the hazardous
substance to the injury (satisfying the causation requirement), and quantifies the damages.
Finally, there is “post-assessment” phase that takes place after a settlement is reached or
litigation has concluded. At this point, the trustee knows how much money is available and can
develop the final plan for restoration, replacement, or acquisition of equivalent resources based
on that amount.
The goal of NRDs is to return the natural resources to their “baseline” condition. The
baseline condition, however, is not necessarily the condition of the resource before the release of
the hazardous substance. It is, instead, the condition the resource would have been in if it had
not been exposed to the reservoir of hazardous substances to which the defendant contributed.
See 43 C.F.R. § 11.14(e). Congress also realized, however, that trustees could not always restore
the exact resources that were injured. As a result, there is no general preference expressed in the
DOI rules for restoration over acquisition of replacement resources. See Kennecott v. Interior,
88 F.3d at 1224. But DOI has made clear that restoration/replacement is complete only if the
services are returned to their baseline level. In addition, NRDs may also include lost use values
(benefits derived from the availability of a resource for current and future uses by identifiable
people), lost non-use or passive values (benefits derived from the knowledge of the existence of
resources), and any other indirect costs so long as they are “necessary” to “support” the selected
remedial option.
Compliance with the DOI NRD regulations is optional with trustees. See 40 C.F.R. §
300.615(c)(4); 43 C.F.R. § 11.10. If the trustee conducts the damage assessment in accordance
with the DOI rules, the assessment will be entitled to a “rebuttable presumption” in any legal
proceeding. See 42 U.S.C. § 9607(f)(2)(C). It is unclear what the practical significance of this
“rebuttable presumption” is. But it is clear that a trustee that is willing to forego this statutory
presumption may use any injury tests and/or methods of damage quantification it chooses, even
though the DOI has not adopted them.
Trustees may settle NRD claims under CERLCA. Some have settled natural resource
damages claims before the remediation process. While the statute does not prohibit settlement
prior to remediation, courts have frowned upon this approach. See Utah v. Kennecott Corp., 801
F. Supp. 553, 568 (D. Utah 1992); In re Acushet River and New Bedford Harbor: Proceedings re
Alleged PCB Pollution, 712 F. Supp. 1019, 1035 (D. Mass. 1989) (ultimately approving
87
settlement of NRD claim prior to and independent of the clean up and remediation process, but
imposing conditions including a requirement to “protect and restore.”). In addition, if a federal
trustee is involved in the settlement, it may include a covenant not to sue for additional money.
CERCLA § 122(j)(2). But in order to receive such a covenant, the PRP must agree to “protect
and restore the natural resources damaged” by the release. Id. And some courts have been quite
strict whe n interpreting this phrase. See Kennecott Corp., 801 F. Supp. at 569-70 (holding that
the settlement at issue did not satisfy the “protect and restore” standard because the agreement
did not provide protection against further contamination of groundwater). Moreover, the DOI
has adopted a policy of including a reopener provision for unknown NRDs in settlements of this
sort under the “extraordinary circumstances” standard found in CERCLA § 122(f)(6)(B) is
satisfied.
C. CWA NRD Claims
The CWA also allows for recovery of NRDs. Liability for NRDs attaches if one
discharges “oil or hazardous substances” “into or upon the navigable waters of the United States,
adjoining shorelines, or into or upon the waters of the contiguous zone,” or in connection with
activities under either the Outer Continental Shelf Lands Act or the Deepwater Port Act of 1974.
The CWA does not define “hazardous substance” but leaves the definition to regulations. See
CWA § 311(b)(2)(A). The regulations, in turn, provide that “hazardous substance” has the same
meaning that the term has under CERCLA. See 43 C.F.R. § 11.14(u). Therefore, the difference
in coverage between CERCLA and the CWA is that the CWA applies only to certain bodies of
water but the CWA includes discharges of both hazardous substances as well as oil.
To be liable under the CWA, one must “discharge” oil or hazardous substances.
“Discharge” includes such things as leaking, spilling, pumping, pouring, emitting, or dumping,
but does not include those discharges that are permitted under the CWA. CWA § 311(2). In
addition, the discharge must be in a quantity that the President has deemed harmful. See CWA §
311(b)(3). The amount of oil that has been designated as harmful is found in 40 C.F.R. § 110.3
(the discharge of oil not deemed harmful is found in 40 C.F.R. § 110.5); the amount of particular
hazardous substances deemed harmful is found in 40 C.F.R. § 117.3.
Aside from some difference in scope, NRD assessment under the CWA is the same as
under CERCLA because both operate under the same set of DOI assessment regulations. As a
result, a trustee should follow the same procedures to assess and recover NRDs under both
statutes.
D. OPA NRD Claims
OPA allows for recovery for damages for “injury of, loss of, or loss of use of, natural
resources including the reasonable cost of assessing the damages” recoverable by a trustee. OPA
§ 1002(b)(2)(A). Trustees are designated according to the process outlined in OPA § 1006(b).
Unlike CERCLA, however, OPA also allows recovery for damages “for injury to, or economic
losses resulting from destruction of, real or personal property by a claimant who owns or leases
that property”. OPA § 1002(b)(2)(B). OPA also allows for other recovery as well such as for
loss of revenue, loss of profits, and loss of subsistence use. See OPA § 1002(b)(2)(C)-(F).
88
“Natural resources” are defined in OPA as they are in CERCLA to include “land, fish,
wildlife, biota, air, water, groundwater, drinking water supplies, and other such resources”
managed, owned, or otherwise controlled by any level of government or an Indian tribe. OPA §
1001(20). Once damages are recovered under OPA, they must be used only for costs incurred
with respect to NRDs; they may not be placed in the general revenues. OPA § 1006(f).
One is liable under OPA for NRDs if one discharges oil “into or upon the navigable
waters or adjoining shorelines or the exclusive economic zone” of deep ocean waters. OPA §
1002(a). Exempt discharges are those that are permitted under a permit is sued under federal,
state, or local law, those from a public vessel, e.g., one owned by the federal or state
government, and those from an onshore facility subject to the Trans-Alaska Pipeline
Authorization Act. OPA § 1002(c). In addition, there are several defenses to liability such as if
the discharge was caused by an act of God or an act of war. See OPA § 1003.
Like CERCLA, OPA imposes strict as well as joint and several liability. Also like
CERCLA, OPA has a three-year statute of limitations that begins to run when “the loss or the
connection of the loss with the discharge in question are reasonably discoverable with the
exercise of due care” or when the natural resource damage assessment is completed. OPA §
1017(f). Finally, OPA caps total liability, not just that for NRDs, depending on the type of
facility or vessel discharging the oil. See OPA § 1004. For example, offshore facilities are liable
for up to $75 million; onshore facilities are liable for up to $350 million.
Because there can be some overlap in coverage between OPA and the CWA, 15 C.F.R. §
990.15 makes clear that for oil discharges that would be covered under OPA, damage
assessments that begin after February 5, 1996 must follow the OPA regulations, not those
promulgated for CERCLA and the CWA, in order to obtain the rebuttable presumption. For
discharges that include a mixture of oil and hazardous substances, trustees must use the
CERCLA and the CWA regulations in order to obtain the rebuttable presumption. See id. §
990.15(c).
The measure of NRDs under OPA is slightly different than that under CERCLA. Under
OPA, a trustee can recover “(A) the cost of restoring, rehabilitating, replacing, or acquiring the
equivalent of, the damaged natural resources; (B) the diminution in value of those natural
resources pending restoration; plus (C) the reasonable cost of assessing those damages.” OPA §
1006(d)(1).
The National Oceanic and Atmospheric Administration (NOAA) promulgated the NRD
regulations under OPA. Because the NOAA regulations were drafted after the DOI regulations
by a different agency and under a different statutory mandate, there are some differences. For
example, in a situation where there is more than one trustee with jurisdiction to seek recovery of
NRDs, the NOAA regulations call for the designation of one or more “Lead Administrative
Trustees.” See 15 C.F.R. § 990.14(a)(1).
The stated goal of the NOAA NRD regulations is “the return of the injured natural
resources and services to baseline and compensation for interim losses of such natural resources
and services from the date of the incident until recovery.” 15 C.F.R. § 990.10. The OPA
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regulations divide the assessment procedure for NRDs into three phases: a preassessment phase,
a restoration planning phase, and a restoration implementation phase. See 15 C.F.R. § 990.12.
During the preassessment phase, the trustee must determine whether there has been a discharge
to which OPA applies. In the restoration phase, the trustee determines the type and degree of
injury to the natural resources and evaluates the restoration alternatives. One unique feature of
the NOAA rules is that, rather than including the economic value of interim lost use and passive
use, the rules focus the entire damage claim on the costs of restoration projects. This then
consists of “primary restoration,” which includes the restoration needed to return the injured
resource to its baseline condition, as well as “compensatory restoration,” which refers to
enhancing or restoring resources to compensate for interim losses of resource services, including
both use and passive use losses.
Finally, in the restoration implementation phase, the trustee selects and implements a
restoration alternative. When the trustee selects a restoration method, it is to evaluate a range of
alternatives for primary and compensatory restoration, including natural recovery. See 15 C.F.R.
§ 990.53. The six criteria that must be included when evaluating the different alternatives are:
(1) the cost to carry out the alternative
(2) the extent to which each alternative is expected to meet the trustees' goals and
objectives in returning the injured natural resources and services to baseline
and/or compensating for interim losses
(3) the likelihood of success of each alternative;
(4) the extent to which each alternative will prevent future injury as a result of
the incident, and avoid collateral injury as a result of implementing the
alternative
(5) the extent to which each alternative benefits more than one natural resource
and/or service
(6) the effect of each alternative on public health and safety (15 C.F.R.
990.54(a)).
Under the OPA regulations, trustees have the authority to enter into settlement
agreements of claims. See 15 C.F.R. § 990.25. In addition, if a trustee follows NOAA’s
regulations for NRD assessment, its determination under those regulations has “the force and
effect of a rebuttable presumption.” OPA § 1006(e)(2). And, like the DOI regulations, use of
the NOAA regulations is optional. See 15 C.F.R. § 990.11.
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III. Natural Resource Damages: Cases
A. Tulalip Landfill Superfund (CERCLA) Site
Site: The site is a 147-acre landfill on North Ebey Island in the delta of the Snohomish
River, north of Seattle, Washington. The island was a relatively undisturbed wetland owned by
the Tulalip Indian Tribe before the Tribe leased the land to the Seattle Disposal Company for use
as a landfill.
Release: Insufficient grading of the soil covering the landfill permitted rainwater to
penetrate the landfill and create a pool of contaminated groundwater (leachate) in the landfill.
The leachate seeped both into the surrounding wetlands and into the groundwater below. Mixed
commercial and industrial wastes were released into the landfill. The contaminants consisted of:
benzo (a) anthracine; benzo (a) pyrene; chrysene; fluorine; naphthalene; pyrene and several
others. Metals found at the site include: arsenic, lead, and chromium. Three to four million tons
of waste was deposited at the site between 1964 and 1979.
Injury: Groundwater, wetland water, and slough water near the site all contained heavy
metals in excess of the EPA maximum under the Safe Drinking Water Act. The leachate leaving
the site exceeded water quality criteria for a number of pesticides, heavy metals, and other
contaminants. The contaminated resources were the habitat for many species of animal,
including the bald eagle and the stellar (northern) sea lion, both of which are considered
threatened under State and Federal law. The contamination at the site spread to surrounding
wetlands, tidal mudflats, and the Snohomish River.
Attachment of Liability: CERCLA permits NRDs here because there was a “release” of
“hazardous substances” that resulted in injury to natural resources.
Trustees:
• Tulalip Tribes of Washington, the current owner/operator of the site who leased it to
Seattle Disposal Company
• National Oceanic and Atmospheric Administration
• The State of Washington
• The United States Department of the Interior.
Potentially Responsible Parties: There were a large number of PRPs, including the
current owner/operator of the site, several former owner/operators, several arrangers for disposal
or treatment, and also transporters of the hazardous substances. Some of the more heavily
involved parties are:
• Seattle Disposal Company, a former owner/operator of the site and a transporter of
hazardous substances to the site.
• Rubatino Refuse Removal, Inc., a transporter of hazardous substances to the site.
• Entities now under Washington Waste Hauling Inc., transporters of hazardous
substances to the site.
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Damages: The trustees calculated the total damages associated with the injury as the
amount of money necessary to engage in a cost-effective plan to “restore, replace, rehabilitate, or
acquire the equivalent” of the habitat services of the 147 acres of wetlands that comprised the
area of the landfill itself. In order to decide how large the restoration project needed to be, the
trustees used habitat equivalency analysis. Their conclusion was that 290 to 360 acres would be
needed to replace the habitat services of the 147 acres of Category 1 wetlands from 1980 through
project completion. This approach was conservative in two ways:
• It did not take into account damage to the resources surrounding the landfill.
• It used a conserva tive replacement ratio. Washington State uses a wetlands model that
recommends a replacement ratio of six acres for every one acre injured. A previous
project near the Tulalip site used a replacement ratio of three to one.
Available documentation does not explain how the trustees calculated the cost of their
desired restoration project.
Settlement: Five separate consent decrees have been reached, totaling more than $1.85
million. Most of the settlements to date have been with parties with de minimis involvement.
Other settlements are expected in the future. The money will be used to fund a restoration project
that will involve a combination of various strategies, including creating and restoring habitats,
enhancing existing habitats, and taking actions to restore specific species that had been harmed.
Restoration plans do not include the construction of hatcheries.
References
U.S. Department of the Interior, State of Washington, Department of Ecology, National Oceanic
and Atmospheric Administration, The Tulalip Tribes of Washington. 1997. Draft
Programmatic Natural Resources Restoration Plan and Environmental Assessment for
the Tulalip Landfill CERCLA Site. http://www.darcnw.noaa.gov./tulalip.htm.
U.S. Environmental Protection Agency. 2002. NPL Site Narrative Listing.
http://www.epa.gov/superfund/sites/npl.nar1318.htm.
National Oceanic and Atmospheric Administration. 2001. Tulalip Landfill Superfund Site.
http://www.darcnw.noaa.gov/tulalip.htm, last updated October 10, 2001.
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B. Lower Fox River
Site: The site is the Lower Fox River in Wisconsin, which flows from Lake Winnebago
into Green Bay, which in turn empties into Lake Michigan. The source of the contamination was
the Appleton Coated Paper facility, as well as several other paper mills located in Appleton,
Wisconsin, on the banks of the Lower Fox River.
Release: Polychlorinated biphenyls (PCBs), which contain ink and solvent and are used
to make carbonless copy paper, were released into the Lower Fox River. The Wisconsin
Department of Natural Resources estimated that 660,000 lbs. of PCBs were released into the Fox
River between 1950 and 1997.
Injury: PCBs contaminated fish and other wildlife in the River. PCBs cause death,
deformity and disease in fish and other wildlife. PCBs have been linked to a number of health
problems in humans, including cancer. PCBs are bioaccumulative pollutants; low concentrations
at low levels in the food chain lead to higher concentrations at higher levels.
Attachment of Liability: CERCLA permits the recovery of NRDs because there was a
“release” of “hazardous substances” that caused injury to natural resources.
Trustees: Wisconsin Department of Natural Resources (WDNR)
Potentially Responsible Parties: There were seven companies in the “Fox River
Group”:
• Fort James Corp., owner of Green Bay West Mill which processed waste and scrap
NCR paper. The WDNR estimates that Fort James was responsible for 19 - 39% of the
660,000 lbs. of PCBs released into the river.
• National Cash Register (NCR) Corporation, for which the mills were producing
carbonless copy paper.
• Appleton Papers, Inc. (API), which made the carbonless copy paper and which owned
the facility from which the PCBs were released.
• P.H. Glatfelter Co.
• Riverside Paper Corp.
• U.S. Paper Mills Corp.
• Wisconsin Tissue Mills, Inc.
Damages: Most information is available for the damage assessment done in support of
the Fort James settlement. In general, these damage estimates were made using a compensatory
restoration approach. Under this approach, damages are calculated as the money needed to fund
projects that will both restore the injured resource and compensate society for interim or residual
losses. A value is never explicitly placed on the lost resources. The Fort James settlement was
based specifically on two kinds of natural resource damages: lost habitat services for birds (terns
and bald eagles) and mammals (especially mink) and lost recreational services arising from
formal advisories not to eat fish from the Fox River due to PCB contamination.
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The State hired consultants (ARCADIS JSA, 2000) who used Habitat Equivalency
Analysis (HEA) to calculate what the PRPs could fairly be required to do to compensate for the
loss of habitat they had caused. HEA is based on the idea that it is possible to calculate, for each
affected species, a quantity of restored or newly created habitat that has a present value equal to
the present value of the quantity of habitat that has been injured and will render a lower level of
“ecological services” to that species because of the contamination. Losses and gains in habitat
services are measured in “acre years”.
In order to estimate the damages associated with recreation losses, consultants used
random- utility models to analyze recreational-trip data (Desvousges, MacNair, and Smith, 2000).
They used survey data about both the actual and hypothetical recreational behavior of Wisconsin
residents. That is, residents were asked both about what they had done during periods in which
formal PCB advisories were in effect, and what they would do in response to such an advisory.
Based on that data, the consultants calculated both the loss in utility or personal satisfaction from
fishing recreation attributable to the release of PCBs and the gain in utility from the various
facilities that Fort James is required to construct under the settlement.
The trustees aimed to settle with Fort James for an amount of restoration that was
equitable given that multiple PRPs contributed to the injury. Thus, they stipulated in the Consent
Decree that Fort James must add features to various fishing sites – e.g. docks, boat ramps, picnic
areas, and more fish – such that the present value of the utility added by those features will at
least equal the present value of the utility that Fort James’s share of the PCBs removed.
Similarly, the trustees sought to require habitat restoration of Fort James that was consistent with
that company’s share of the initial release of contaminants.
Settlement: Fort James agreed to the following terms in a Consent Decree:
• Contribute to restoration of Cat Island habitat: $300,000
• Convey approximately 700 acres of wetlands along the Peshtigo Creek to the State
• Expand a spotted muskellunge hatchery: $300,000
• Northern Pike habitat preservation and restoration: $200,000
• Recreation enhancement projects
• Reimburse trustees for assessment costs: $50,000
The Fort James settlement was estimated to restore 32 – 65% of the recreational services
that were lost as a result of the injury (Desvousges, MacNair, and Smith, 2000). More recently,
API and NCR Corp. agreed to the following terms in a Consent Decree:
• Payments totaling $40 million over four years for restoration projects
• Payments to DOI equaling $1.5 million over four years to pay for expenses incurred in
the NRDA process.
References
ARCADIS JSA. 2000. Lower Fox River and Green Bay Potential Natural Resource Damages
and Restoration Offsets for Ecological Losses. Prepared for the Fort James Corporation
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for settlement purposes.
http://www.dnr.state.wi.us/org/water/wm/lowerfox/sediment/jsa_final_offset_report_111
300.pdf .
Desvousges, William, Douglas MacNair, and Ginger Smith. Lower Fox River and Bay of Green
Bay: Assessment of Potential Recreational Fishing Losses and Restoration Offsets.
Prepared for Fort James Corporation, for settlement purposes.
http://www.dnr.state.wi.us/org/water/wm/lowerfox/sediment/ter_final_offset_report_111
500.pdf.
Stratus Consulting. 1999. PCB Pathway Determination for the Lower Fox River / Green Bay
Natural Resources Damage Assessment.
http://www.stratusconsulting.com/Staff/PDFs/pathway.pdf.
U.S. District Court for the Eastern District of Wisconsin. Consent Decree for State of Wisconsin
v. Fort James Operating Company and Fort James Corporation.
http://www.dnr.state.wi.us/org/water/wm/lowerfox/sediment/nrd_cd_final.pdf.
U. S. Environmental Protection Agency. 1997. U.S. EPA’s Superfund Role: Lower Fox River
Cleanup. http://www.epa.gov/region5/pdf/lowerfox.pdf .
Wisconsin Department of Natural Resources. 2000. Summary of Basis of Natural Resources
Damages Settlement Among State of Wisconsin and Fort James Corporation.
http://www.dnr.state.wi.us/org/water/wm/lowerfox/sediment/summary_nrd_settlement_fi
nal.pdf.
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C. Lake Barre/Texaco
Site: The site is Lake Barre, Louisiana, part of the Barataria – Terrebonne estuary system
on the Gulf Coast, south and slightly west of New Orleans. The lake averages a depth of about
two meters and consists mostly of salt marsh. Many species of plants and animals inhabit the
lake and the adjacent marshes, including several listed as endangered or threatened, such as the
bald eagle. The area is an important site for both commercial and recreational fishing, hunting
and trapping, and of wildlife viewing and other forms of tourism.
Release: A sixteen- inch crude oil pipeline operated by Texaco Pipeline, Inc. ruptured in
Lake Barre and dispersed oil over the surface of the lake and onto the surrounding marshland.
An estimated 4,165 acres of vegetated marsh were lightly oiled, and 162 acres of vegetated
marsh were heavily oiled.
Injury: Crude oil dispersed over the surface of the lake and onto the surrounding
marshland. In small areas of the affected marsh acreage, oil collected in “streamers”, resulting in
the death of all above ground biomass. Across most of the affected marshland the damage was
less dramatic. Two oiled birds were found dead, along with some brown shrimp. Other oiled
birds were observed alive. Small numbers of dead fish, brown shrimp, and blue craps were
recovered in the cleanup process.
Commercial oyster harvesting in Lake Barre was halted for 74 days. The cleanup
operations prevented recreational access to the affected area for a few days. The oil caused
increased stress to plants, which lowered their productivity and resulted in a partial loss of the
services provided by the marsh land.
Attachment of Liability: NRDs are permitted under OPA because there was a nonexempt “discharge” of oil on the navigable waters or adjoining shorelines of the United States
covered by OPA.
Trustees:
•
•
•
The National Oceanographic and Atmospheric Administration
The U.S. Fish and Wildlife Service
Several agencies of the State of Louisiana
Potentially Responsible Parties: Texaco Pipeline, Inc., the entity responsible for the
discharge.
Damages: Pursuant to OPA, Texaco was invited to join in the damage assessment
process and participated throughout.
To calculate the amount of marsh restoration that would compensate the public for the
damage caused by the spill, the trustees and Texaco each calculated the amount of aquatic animal
and bird life destroyed, and translated the total loss of life into an equivalent in marsh acre- years.
The trustees and Texaco cooperated to calculate the amount of marsh acreage affected by the oil,
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and translate that into marsh acre-years. They then calculated how long it will probably take the
damaged resources to recover. Texaco then offered to create new marshland so that the present
value of the acre- years of new marsh would compensate for the present value of the acre-years
lost.
To calculate the number of aquatic animals and birds killed by the spill, the trustees and
Texaco agreed to use models to estimate the figure based on the amount of oil spilled, rather than
attempt to count carcasses. They decided not to try to count because it would be expensive.
Moreover, a count would likely be inaccurate because of the difficulty of finding dead animals in
the lake and marsh and because of the difficulty of knowing whether variations in plankton
counts were caused by the spill or by other factors. In addition, the small number of dead birds
and marine animals found during the containment and cleanup indicated that the loss of life was
relatively small. The trustees estimated that the spill killed 7,650 kg of marine biomass and 333
birds. Texaco estimated that the numbers were significantly smaller. However, because the
trustees found that Texaco’s restoration offer was more than sufficient to compensate for the
high estimate, there was no need to resolve that disagreement.
To calculate the amount of marshland services lost, the trustees and Texaco conducted a
joint field study in July and October of 1997 and in June of 1998. Based on these studies and on
observations of the size and shape of the oil slick during the containment and cleanup, they
divided the damage to marshland into four categories of severity and estimated the amount of
marsh in each category. Based on that, they then estimated the amount of acre- years of marsh
services lost to the spill. The total damage to marshland in acre-years was estimated at 75.6.
The trustees determined that human use of the area was not significantly affected, since
alternative resources were easily available during the time the affected area was unavailable, and
the cost of estimating any loss would probably outweigh the loss itself. The trustees did consider
that there was some loss of human use in deciding on the appropriate compensation.
To calculate how many acres of salt marsh grass Texaco should plant, the trustees
considered several factors, including: the amount of time it would take the planted marsh to
reach maturity, the amount of time it would take marsh grass to grow on the site through natural
colonization, the fact that the grass will be planted in strips so that unplanted areas will be
colonized by the planted grass, and the fact that the planted grass will prevent erosion and thus
preserve the site. Texaco was required to plant enough grass so that the number of acre-years,
discounted to present value, created on the site through Texaco’s efforts, minus the number of
discounted acre-years that would arise naturally, equals the amount of acre-years of damage.
The trustees calculated that Texaco must plant 18.6 acres.
Settlement: Texaco agreed to implement a restoration project that consists of planting
marsh grasses on 18.6 acres of East Timbalier Island and to pay approximately $480,000 to
cover response and assessment costs.
The trustees held public meetings and other consultations to consider what restoration
projects would most effectively compensate for the damage. The trustees found that, because all
of the directly affected area, except for 0.28 acres, was recovering rapidly, primary restoration
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would be inefficient and unnecessary. The trustees decided that the best compensatory
restoration would be to create new marshland, since such projects would create new habitats for
the species of bird and aquatic animal that suffered losses because of the spill, and because such
projects are cost effective and likely to succeed.
References
Federal Register. October 7, 1999 (Volume 64, Number 194), p. 54643.
Louisiana Oil Spill Coordinators Office, Louisiana Department of Environmental Quality,
Louisiana Department of Natural Resources, Louisiana Department of Wildlife and
Fisheries, National Oceanic and Atmospheric Administration, United States Fish and
Wildlife Service. Damage Assessment and Restoration Plan, Texaco Pipeline, Inc., Lake
Barre, Louisiana, May 16, 1997. 1999. http://www.darp.noaa.gov/publicat.htm.
98
D. M/V Formosa Six
Location: The site is in the Gulf of Mexico, about three miles off the Southwestern pass
of the Mississippi River. On April 11, 1997, the M/V Formosa Six, a chemical tanker, collided
with the M/V Flora, causing a large chemical release from the M/V Formosa Six into the water.
Release: 1,500 to 1,800 metric tons of ethylene dichloride (EDC) were released from the
M/V Formosa Six into the Gulf waters.
Injury: Because EDC has a much higher specific gravity than sea water, the trustees
estimated that most of the EDC sank rapidly to the sea floor below, with minimal exposure to
marine animals on the surface or in the water column. Sampling of the sea floor, done in May
1997, revealed that EDC was present in the sea bed at a concentration of greater than 100 parts
per million (ppm) over a 12 acre area. The highest concentration found was greater than 26,000
ppm. Approximately 50 acres showed concentrations between one and 100 ppm. EDC
biodegrades slowly, and was expected to gradually disperse into the water column. Dispersion
occurs more rapidly when the water is turbulent. Hurricane Daniel passed near the area in July of
1997. Based on these facts, the trustees believed that by May 1999, the affected area had
recovered completely.
Although the accident caused vessel traffic to be rerouted, any effect on commercial or
recreational use of the area was negligible. The only significant loss of resources was the effect
on services provided by benthic bacteria on the sea floor. Benthic bacteria breaks down organic
matter that settles on the sea floor, and they serve as prey for larger organisms, including the
commercially important brown shrimp. Concentrations of EDC over 100 ppm occurred over an
area of 12 acres, and are estimated to have caused a loss of services from benthic organisms for
approximately two years.
Attachment of Liability: NRDs are permitted under both CERCLA and CWA because
of the “release” or “discharge” of a hazardous substance into the waters of the adjoining
shorelines of the United States or into a contiguous zone of the United States.
Trustees:
• National Oceanic and Atmospheric Administration
• Louisiana Department of Wildlife and Fisheries
• Louisiana Department of Environmental Quality
• Louisiana Departme nt of Natural Resources
Potentially Responsible Parties:
• Formosa Plastics Tanker Corporation, owner and operator of the M/V Formosa Six at
the time of the incident.
• EFNAV Co., LTD, manager of the M/V Flora at the time of the incident.
• Segesta Shipping Co., LTD, owner of the M/V Flora at the time of the incident.
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Damages: The U.S. Coast Guard required the responsible parties to arrange for sampling
of the sea bed below the site of the collision. This sampling provided the statistics for EDC
concentration on the sea floor. It was determined that the acres of benthic bacteria with
concentrations higher than 100 ppm would suffer a service loss caused by toxicity to those
benthic organisms. The trustees used a compensatory restoration approach to quantifying
damages.
The trustees found that the creation of intermediate marshland would be the most
efficient and otherwise appropriate form of restoration to compensate the public for the loss of
ecological services in the affected area from the time of the inc ident until full recovery. The
marsh will contribute organic matter to offshore environments like the 12-acre area where the
concentration of EDC was over 100 ppm. The trustees also found that the marsh would provide
services to species that also used the damaged area, such as the brown shrimp. Using Habitat
Equivalency Analysis, the trustees determined that at least one to two acres of marsh would have
to be created to compensate for the loss of the services in the affected area of sea floor.
Settlement: The responsible parties agreed to pay $65,000 in compensatory damages and
$25,000 to reimburse the trustees for the costs of investigating the incident.
The money paid in compensatory damages was applied to a wetland-restoration project
that was already being funded with state and matching funds. The project is being carried out
under the Wetlands Reserve Program, which is administered by the U.S. Department of
Agriculture’s Natural Resource Conservation Service. Through this program, private landowne rs
are given the opportunity to enter into a conservation easement or a cost-share restoration
agreement; both options preserve private ownership of the land. This allows marginal farmland
to be converted back into valuable wetlands. The original project aimed to remove levees in low
lying coastal areas, causing approximately 500 acres of land that had been converted from
estuarine marsh to farmland to return to wetland status. The Formosa Six settlement funds will
enable an additional 140 acres of land to be converted to marsh.
References
Formasa Six Spill Agreement. 1999. http://www.darcnw.noaa.gov/download.htm.
Kern, John, Brian Julius, John Iliff, Stephanie Fluke, LisaMarie Frietas, Heather Finley, Him
Hanifen, Chris Pichler, Linda Pace. 1999. Damage Assessment and Restoration Plan and
Environmental Assessment: M/V Formosa Six Ethylene Dichloride Discharge, Gulf of
Mexico, Louisiana, April 11, 1997. http://www.darcnw.noaa.gov/download.htm#rest.
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E. Blackbird Mine CERCLA Site
Site: Blackbird Mine consists of more than 10,000 acres of mining claims in Salmon
National Forest, which is in east central Idaho, 20 miles west of the town of Salmon, Idaho.
There are mine tunnels, waste rock piles, and a 10.5 acre open pit at the headwaters of Bucktail
and Meadow Creeks, which drain into Big Deer and Blackbird Creeks, which in turn drain into
Panther Creek, a major tributary of the Salmon River. Cobalt and copper mining began at the
site in the late 19th century and mining activity peaked in the 1940s and 1950s. By 1982, the
current owner, the Noranda Mining Company, had ceased operations.
Release: Copper, cobalt, arsenic, and other hazardous materials have leached out of the
mine tunnels and waste rock piles and into the watershed. Surface water and sediment in the
creeks contain high levels of these contaminants.
Injury: There has been no accurate measure of the quantities of contaminants due to the
protracted nature of the release. However, the hazardous substances leached into the waters of
Panther Creek and into the surrounding watershed, contaminating surface water and sediments in
the creeks.
Panther Creek had historically supported substantial runs of Chinook salmon. By the
early 1960s, these fish had been completely eliminated from Panther Creek by contamination
from the Blackbird Mine. The sockeye and Chinook salmon and the Steelhead and Bull trout
downstream in the Salmon River are threatened by the poor water quality. The populations of
other species of fish have also been reduced. The Idaho Department of Fish and Game found
that the population density of rainbow trout in Panther Creek upstream from the mining influence
were 35 to 50 times higher than in the part of that stream most directly affected by the mine.
Attachment of Liability: NRDs are permitted under both CERCLA and CWA because
of the “release” or “discharge” of a hazardous substance into the waters of the adjoining
shorelines of the United States or into a contiguous zone of the United States.
Trustees:
• State of Idaho
• National Oceanic and Atmospheric Administration
• U.S. Forest Service
Potentially Responsible Parties:
• Noranda Mining, Inc. and Noranda Explo ration, Inc., the current owner of the site
• M.A. Hanna Company and Hanna Services Company, a former owner of the site
• Alumet Corporation, a former owner of the site
• Blackbird Mining Company Limited Partnership
Damages: The reduction of fish populations entails some injury in the form of lost
ecosystem services. There are also damages due to the recreational activity surrounding Panther
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Creek and the cultural importance of Panther Creek fish to certain Native American tribes.
Damages were determined using a compensatory restoration approach. The service-toservice scaling methodology used in this case calculates the size of the compensatory restoration
project necessary to ensure that the present discounted quantity of replacement services is equal
to the present discounted quantity of services lost during the time between the beginning of the
injury and the accomplishment of primary restoration. The key to this approach is that it equates
quantities, rather than values, of services lost and restored.
In the damage assessment and in the settlement, primary and compensatory restoration
activities were assumed to be conducted concurrently, since that approach was deemed to be
cost-effective. It was also assumed that water quality would return to baseline cond itions in 2005
as a result of remediation conducted under the auspices of the U. S. EPA.
The trustees established a baseline by determining that, but for the contamination, there
would have been a population of 200 adult Chinook salmon spawning in Panther Creek each
year. The trustees selected the Chinook salmon population as the baseline measure for all the
environmental services lost because of the contamination, on the assumption that salmon vitality
is a good measure of the overall health of the habit at. This assumption makes sense because the
conditions necessary for salmon vitality also support the other fish and streambed resources that
the mine damaged.
The baseline was used to identify actions that would return the salmon population to
baseline and compensate for losses due to reduced fish populations between 1980 and the date
when fish populations were restored to the baseline. Using a salmon life-cycle model, the
trustees estimated that if salmon recovery efforts began in 2005, baseline populations would be
restored in 2021. However, in order to compensate for interim losses, salmon populations need
then to be restored to levels exceeding the baseline. The trustees calculated the present value of
the total number of salmon years lost since 1980, which is 200 (baseline number) times 15 years
times 3% per year, and equated that to the present value of a certain number of salmon years
above the baseline over the life of the restoration project. The responsible parties therefore were
required to provide that extra amount of restored salmon years to compensate for the salmon
years that they destroyed.
Settlement: The PRPs agreed to:
• Clean up the mine site and restore water quality according to a cleanup program
selected by the EPA
• Implement a Biological Restoration and Compensation Plan (BRCP) to restore,
enhance, and create anadromous and resident salmonid habitat in site- impacted and outof-basin streams
• Put $2.5 million in a fund for hatchery operation
• Pay $1-2 million for trustee oversight costs associated with the BRCP
• Pay government agencies $328,742 for past response costs associated with the site
• Pay $4.7 million for reimbursement of damage assessment costs
Restoration activities in Panther Creek are being designed to improve water quality;
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restore, enhance, and create Chinook salmon and steelhead habitat; and reintroduce
spring/summer Chinook salmon. Those activities include:
• Restore water quality in Panther Creek to support all life stages of salmonids
• Reintroduce spring/summer Chinook salmon to Panther Creek
• Realign a section of Panther Creek to create and improve salmon and steelhead
spawning and rearing habitat
• Create off-channel habitat in Panther Creek to improve juvenile salmonid rearing
conditions
• Construct livestock exclusion fencing to restore degraded riparian habitats and improve
spawning and rearing conditions for salmon and steelhead
The responsible parties will implement components of the restoration plan with trustee
oversight. Implementation will proceed over a period of years, with measures timed to coincide
with water quality remediation. All decisions regarding implementation will be made by a
Trustee Council comprised of representatives from NOAA, the U.S. Forest Service, and the State
of Idaho. The trustees are working closely with EPA to ensure a coordinated, cost-effective
remediation and restoration strategy.
References
Chapman, David, Nicholas Iadanza, and Tony Penn. 1997. Calculating Resource Compensation:
An Application of the Service-to-Service Approach to the Blackbird Mine Hazardous
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