NON-PAPER SUBMITTED UNDER AGENDA ITEM 7 (i)
Resource Mobilization and Sustainable Financing
Ninth Meeting of the Conference of the Parties
23-27 June 2008
Bali
Draft Paper
Implementation of the Basel Convention: The Costs of Inaction
Basel Convention
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Table of Contents
I. Introduction ..................................................................................................................................................... 2
II.
Context ....................................................................................................................................................... 3
III.
The Costs of Inaction ................................................................................................................................. 3
A. What is ‘Inaction’? ..................................................................................................................................... 3
B. The Private and Social Costs of Inaction ................................................................................................... 5
C. Calculating the Costs of Inaction ............................................................................................................... 8
i.
Private Costs .......................................................................................................................................... 8
ii.
Nonmarket Valuation of Social Costs ................................................................................................... 8
D. Other Important Considerations ................................................................................................................. 9
i.
Distributional Impacts ........................................................................................................................... 9
ii.
Uncertainty .......................................................................................................................................... 10
iii. Collective Public Action on Welfare Loss Estimates .......................................................................... 10
iv. Substitutability and Irreversibility ....................................................................................................... 10
v.
Separating out Costs of Inaction from Overall External Costs ............................................................ 10
vi. Gender ................................................................................................................................................. 11
IV.
Avoided Monetary Costs ......................................................................................................................... 11
A. Remediation Costs ................................................................................................................................... 11
B. Environmental Fines ................................................................................................................................ 13
C. Compensation Payments .......................................................................................................................... 13
V.
Pollution Reduction.................................................................................................................................. 13
A. Ecosystem Goods and Services and Hazardous Waste ............................................................................ 13
B. Natural Disasters and Pollution Risks from Hazardous Waste ................................................................ 14
C. Irreversible Loss of Ecosystem Goods and Services ............................................................................... 14
D. Valuation of Degradation of Ecosystems and their Services ................................................................... 14
i.
Hedonic Studies ................................................................................................................................... 15
ii.
Contingent Valuation Studies .............................................................................................................. 15
VI.
Savings on Human Mortality and Health Impacts ................................................................................... 15
A. Valuations for Health Impacts from Hazardous Waste Mismanagement ................................................ 16
VII.
Reduced Negative Reputation Impacts .................................................................................................... 17
A. Firm Level Impacts .................................................................................................................................. 17
B. National Competitiveness and Environmental Policy.............................................................................. 18
i.
Corporate Responsibility Impacts on National Competitiveness ........................................................ 18
ii.
Tourism................................................................................................................................................ 18
VIII. Reduced Property Price Impacts .............................................................................................................. 18
IX.
Summary and Key Questions for Further Research ................................................................................. 19
I. Introduction
One of the most important aspects for both existing and potential Parties (national governments acceded to the
Convention) to the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and
their Disposal is the question of resource mobilization. Many donors request information upfront on the costs
and benefits of implementing the Convention as a basis on which to decide how best to assign limited resources.
However, the availability of this information is itself deficient.
The objective of this draft document is to present and discuss the likely private and social costs of not fully
implementing Basel Convention guidelines. A review of available information is presented to illustrate what the
likely ‘Costs of Inaction’ are, and what information gaps exist for future work. As such, this document generates
the literature review and establishes an analysis framework for further, more in-depth, research to generate
information on advantages of implementing the Convention in their jurisdictions.
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II. Context
Hazardous waste risks have substantial financial, environmental and social ramifications if not adequately
addressed.
Since the Convention entered into force in 1992, the Basel Secretariat has worked towards minimising these
risks through promoting environmentally sound management (ESM) of hazardous wastes. The Convention has
170 member countries (Parties) and aims to protect human health and the environment against the adverse
effects resulting from the generation, management, transboundary movements and disposal of hazardous and
other wastes.
The Basel Convention contains specific provisions for the monitoring of implementation and compliance. A
number of articles in the Convention oblige Parties to take appropriate measures to implement and enforce its
provisions, including measures to prevent and punish conduct in contravention of the Convention. It is
important to note however that the Basel Convention itself has no enforcement mechanism.i
Further information is required on the economic cost of excessive generation, mismanaged transboundary
movement and environmentally unsound treatment of hazardous waste in order to build a stronger case for
accession of new national governments to the Convention – and to encourage existing Parties to implement
Convention provisions to the utmost of their capabilities.
In terms of methodology, two studies in particular have much to offer this analysis. The recent OECD study on
Costs of Inaction (2007) provides a useful framework for developing a specific case study on hazardous waste
management. Not only does it provide the general context on costs of environmental policy inaction, it also
identifies some existing studies relevant to this current analysis. The second is a 2007 report on the Global
Mechanism international workshop on the cost of inaction in combating desertification. For the most part, the
costs identified consisted of avoided damage costs that would be suffered if the Convention had not been
enacted, largely consisting of clean-up and replacement costs.
This document is part of a broader proposal for a Cost Benefit Analysis (CBA) of the implementation of the
Convention. The underlying supposition is that what counts as a benefit or loss to one part of society, does not
necessarily count as a benefit or loss to the economy as a whole.1 CBA weighs all costs and benefits of a
particular action, project or policy – often versus the costs and benefits of the status quo – on a single monetary
scale. This process determines the efficacy of a project or programme, not only in terms of its direct monetary
costs, but also its wider nonmarket environmental and social impacts (externalities) not taken into account in
standard financial accounting analyses.
The proposed CBA, and particularly the work of this draft report, will contribute a crucial perspective to the
evaluation of the Basel Convention proposed for the 10th Conference of Parties in 2009.
III. The Costs of Inaction
For the purposes of this paper, the term ‘Costs of Inaction’ infers both market and nonmarket impacts of not
implementing fully the regulations on generation, transport and treatment of hazardous and other wastes, as set
out in the Convention. However, it is important to define further what is meant by ‘inaction’ and how this
translates into private and social costs at different scales.
A. What is ‘Inaction’?
The OECD (2007) uses an assumption of “no new policies beyond those which currently exist” as the basis for
its analysis of inaction. In the context of this analysis, this translates as no new policies that fully enforce the
ESM standards set out in the Convention, i.e. the counterfactual scenario to signing up and fully implementing
the Basel Convention.
What is involved in implementation? The Convention obliges its Parties to ensure that hazardous and other
wastes are managed and disposed of in an environmentally sound manner. Strong controls are expected to be
applied from generation of hazardous waste, to its storage, transport, treatment, reuse, recycling, recovery and
final disposal.
1
Mishan, 1982: Foreword xix
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The Convention regulates the transboundary movements of hazardous and other wastes through applying a
“Prior Informed Consent” (PIC) procedure. Shipments to and from non-Parties are illegal unless there is a
special agreement. Each Party is required to introduce appropriate national or domestic legislation to prevent
and punish illegal traffic in hazardous and other wastes. Secondly, the Convention obliges its Parties to ensure
that hazardous and other wastes are managed and disposed of in an environmentally sound manner. To this end,
Parties are expected to minimize the quantities exported and imported, to treat and dispose of wastes as close as
possible to their place of generation and to prevent or minimize waste generation at source. 2
In short, a properly integrated national enforcement programme would include: a regulatory infrastructure and
enforcement that ensures compliance; tracking of hazardous waste shipments; visits to waste treatment, transfer
and disposal sites; transport control/checks/inspections; sampling and testing; and an international information
exchange mechanism. Enforcement personnel (competent authorities, police, customs officers, port or airport
authorities and coast guards) must be trained in identification of hazardous wastes; knowledge of the United
Nations Recommendations on the Transport of Dangerous Goods (all modes of transport); understanding of
laboratory results on sampling and testing; familiarities with Basel Convention’s Notification and Movement
Document, tracking documents, permits, contracts andfinancial guarantees.3
Full enforcement of the Basel Convention ESM obligations is assumed to result in (i) reduced waste generation,
(ii) a lower probability of storage and transport accidents and (iii) more controlled treatment and final disposal,
i.e. reduced risk of accidents, lower negative health, environment and social impacts (See Box 1). Based on the
OECD study definition (2007:6), the baseline for ‘inaction’ can be described as a situation whereby waste
management policy continues in its existing form; a form assumed to be less stringent than the Convention’s
guidelines. As such, the counterfactual to full enforcement of the Basel Convention – ‘inaction’ – will result in
continued increases (or at least no further reductions) of hazardous waste, a significantly higher probability of
waste transport and treatment accidents and more severe negative environmental impacts than if Convention
was implemented.
Secretariat of the Basel Convention, ‘The Basel Convention at a Glance’ information leaflet, available online at
http://www.basel.int/convention/bc_glance.pdf, last accessed 11 June 2008
3 This paragraph has been based on a useful discussion published on 17 November 2007,
http://greeneconomics.blogspot.com/2007/11/pollution-havens-evidence-from-china.html. Accessed online, 4 June 2007
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Box 1
Does implementing the Convention reduce the Costs of
Hazardous Waste Mismanagement?
In most cases, present day investments in Environmentally Sound
Management (ESM) of hazardous waste will result in avoided future
remedial costs that are likely to result from less stringent waste
management strategies.
Certain ESM policy strategies such as Extended Producer
Responsibility (EPR) and the Polluter Pays Principle (PPP) shift the
financial burden of hazardous waste management from the public to the
private sector. In the short run, these initiatives lead to decreases in
overall government expenditures on waste management, that are likely
to be only partially offset by increased private investments.
High technical standards for hazardous waste disposal facilities can
have a significant impact on the probability and severity of
environment-related accidents. Massey (2005) analyzed the financial
benefits of environmentally sound production processes, paying
particular attention to the long term savings attributable to reducing
water, energy usage and toxic chemical production. This report, which
was prepared for the Swedish Chemicals Inspectorate, examined a large
number of case studies from small and medium enterprises globally
during the adoption of particular ESM strategies.
The study found that in certain countries, the private sector reaped
considerable benefits from reduced use of raw materials including
reduced waste removal and treatment costs, lower fees for water
consumption, fewer punitive fines for noncompliance and reduced costs
resulting from government mediation.
B. The Private and Social Costs of Inaction
The burden of long-term effects of mismanagement of hazardous waste is not borne solely by the producers of
that waste. Third parties – often the general public living in areas where hazardous waste is produced,
transported through or treated in – must live with the consequences of these actions without having control over
accumulation or treatment.
The external impacts from waste management infrastructure have been identified as being either fixed or
variable. Fixed externalities are impacts that result from the existence of a hazardous waste landfill site or
incinerator, for example, property-value loss through stigmatization of the locality, visual pollution and
environmental damage related to the construction of the facility. Variable externalities, on the other hand,
concern impacts related to the volume of waste being treated at the facility: traffic volumes and related
emissions, emissions to air and leakage to groundwater.
Many of these impacts, including human health effects and ecosystem degradation, are not normally considered
in monetary terms and thus are often omitted from financial analyses. Furthermore, positive spillover effects –
such as reduced risk for human health, avoided monetary costs or improved reputation - often remain unpriced
and therefore not taken into account. This analysis takes account of both market and nonmarket costs of inaction
within the context of the Convention in order to present an accurate picture of the real costs of not implementing
the Convention fully.
In welfare economics, “value” is disaggregated into ‘use’ and ‘non-use’ categories. Use values include: (i) direct
use value – which tend to be privately captured – and (ii) indirect use values reflecting the impact of
externalities such as improvements in water quality or likely air pollution levels without Basel standards in
place.
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This Total Economic Value4 (TEV) framework also allows for non-use values such as existence value and
bequest values to be incorporated. Therefore a change in individual welfare resulting from just the knowledge
that inadequate controls are in place for hazardous waste management is recognized– even though this has no
direct impact on that person (Existence Value).5 Furthermore, the loss of environmental quality ‘now’ can have
consequences for future generations also. Impacts of poor hazardous waste management are either significant
enough to be felt over a long period of time or so marginal as to not have any immediate impact, but are known
to have severe cumulative consequences. This too may be important for some individuals in society (Bequest
Value). These non-use values are likely to be minor in comparison to the direct and indirect use values.
However, a thorough appraisal should attempt to take them into account, given available information.
A third type of value is that of Option Value.6 This is the value which individuals place on the options for future
use. For example, a hazardous waste incident will perhaps limit the future options for the use of the land on
which this accident occurs. Some individuals will value having some measures in place to reduce the risk of this
happening, so as to protect this land for future use, even though perhaps they do not presently ‘use’ this land.
Table 1 lists the probable negative consequences of ‘inaction’ on implementing the Convention, providing a
framework of costs to be considered in this paper.
4
See Freeman (1993) for further discussion on TEV
‘existence value’ occurs because humans sometimes place an intrinsic value on nature or natural resources, even though they may
never, for example, see the wildlife or visit these habitats for which they hold this value (Krutilla, 1967; Pearce and Turner, 1990).
6 See Freeman (1993)
5 This
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Table 1
The Costs of Inaction on Implementation of the Basel Convention
Use Values
Direct Use Values







Environmental fines imposed by national
governments or regional entities for waste
mismanagement
Clean-up and remediation costs from poorly
managed hazardous waste transport and
treatment
Clean-up and remediation costs from severe
hazardous waste transport and treatment
incidents
Compensation payments (by individual firm or
national government) to individuals affected
by hazardous waste mismanagement
Monetary costs of human health impacts
attributable to waste mismanagement recorded
Negative property value impacts resulting from
mismanaged hazardous wastes (also used as
‘shadow prices’ for environmental impacts)
Costs to economy of reduced reputation
resulting from mismanagement of waste–for
individual firms (costs to competition) or for
the nation as a whole (reduced foreign direct
investment).
Non Use Value
Indirect Use Values


Irreversible environmental pollution along soil,
air and water impact pathways
Pain, suffering and death as a result of negative
health impacts attributable to mismanaged
hazardous wastes
7
Existence Values

Anxiety experienced by
individuals based on the
knowledge that
hazardous wastes are
not being managed
correctly in
jurisdictions where the
Convention has not
been implemented
Option Val
Bequest Values

Lasting impacts of
hazardous waste
mismanagement that
will be borne by future
generations

Limitations on
land use wher
hazardous was
incidents have
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C. Calculating the Costs of Inaction
With respect to costs – for both market and non-market impacts – it is often difficult to obtain reliable
information regarding financial (private) costs, as well as the estimates of the social costs that are not reflected
(directly or indirectly) in market prices and national accounts.
i. Private Costs
Although available data is limited, certain existing sources will be helpful in guiding future empirical research
in this regard. The Basel Secretariat, under the obligations of Article 13 of the Convention, manages a wealth of
information on national policy initiatives, and the generation and transboundary movement of hazardous and
other wastes. Due to variation in national categorizations, measurement techniques and frequency of reporting
between Parties, it is difficult to draw robust conclusions from this data however. For this reason, further work
to standardize this data must be conducted in order to truly understand the impact of implementing the
Convention on public waste management system expenditure.
For the purposes of this report, private cost information is yielded from existing literature and case studies on
the costs of remediation and clean-up for hazardous waste incidents, evidence of compensation payment
amounts7 and estimation of property price depreciation.
ii. Nonmarket Valuation of Social Costs
Observable prices do not generally exist for environmental goods as they are not traded in markets. Therefore
the marginal social cost of damage is difficult to value in monetary terms. However, while challenging, it is not
impossible to value and integrate these costs into assessment frameworks using nonmarket valuation.
The essential function of nonmarket valuation is to estimate a monetary value for social costs and benefits that
otherwise do not have a market price. The basic underlying principle is that people’s willingness to pay (WTP)
for a given environmental improvement (or removal of the source of environmental degradation) or their
willingness to accept (WTA) compensation for a corresponding environmental cost provides a basis for
economic valuation of the relevant externalities. While controversial, the advantage of this approach is that all
facets of a project or policy – environmental impact, capital investment, causal incidence of disease…etc. – can
be weighed on a single scale within a Cost Benefit Analysis framework. This process determines the worth of a
project or programme, not only in terms of its direct monetary costs and benefits, but also its wider nonmarket
environmental and social impacts (externalities) not taken into account in standard accounting practices.
Once the appropriate nonmarket valuation technique is chosen, good quality data is available and care taken in
conducting the study itself, economic valuation exercises have been found to generate credible results. Such
information has been used extensively in Cost Benefit Analysis (CBA) of projects and policies, liability
assessment and determining marginal damages as the basis for environmental taxes.8
Nonmarket valuation techniques can be divided into Stated Preference and Revealed Preference methods.
Revealed Preference techniques rely on indicators from existing markets that ‘shadow’ the nonmarket price for
a change in environmental quality. For example, property prices are thought to reflect local environmental
quality, amongst other attributes related to the property itself. As such it is used in hedonic pricing to estimate
values for environmental goods.9 Similarly, the price of transport and/or the value of time spent with regard to
enjoyment of environmental goods can be used to estimate a marginal price for a change in level of provision
for those goods (Travel Cost Method). Stated Preference techniques assess the WTA or WTP by directly
surveying individuals or households and asking them what they would be WTP or WTA for a (hypothetical)
change in environmental quality. Contingent Valuation Method (CVM) and Choice Experiments (CE) are the
two most commonly employed Stated Preference survey methods.10
7
It is important to note however, that compensation payments often include components relating to indirect use costs such as reduced
quality of life, proven health negative impacts and disamenity or nuisance factors. This is discussed further in section IV.C.
8 See Cropper and Oates (1992); Arrow et al. (1993); Bateman et al. (2002) and Carson et al. (2003)
9 See Kiel (2006) in Carruthers and Mundy (2006).
10 See Eshet et al. (2005), pg 489-490 for further discussion.
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Interest has grown in the area of stated preference methods due to their ability – unlike revealed preference
techniques – to capture both use and nonuse values.11 However, in reality, choosing between these methods
often depends on available resources.
Costs of inaction on the Basel Convention are illustrated by situations whereby generation, trade, treatment and
final disposal of hazardous (and other wastes) has resulted in observable or presumable negative impacts. This
draft document reviews existing studies on these impacts to give an indication of current estimates for changes
in environmental quality and subsequent impacts on quality of life.
D. Other Important Considerations
There are also a number of general issues which make accurate estimation of the total costs of inaction difficult.
Uncertainty, distributional impacts, impact of collective public action and the questions of substitutability and
irreversibility for environmental goods and services are all important considerations. These issues will therefore
need to be explicitly addressed in any future estimates of the costs of inaction.
i. Distributional Impacts
Discounting. Finally, with environmental impacts that extend over long periods, even intergenerationally, it is
necessary to express the costs of inaction borne far in the future in a manner which is comparable with costs
borne that are today. 12 In order to be able to compare costs and benefits generated at different moments in time,
all monetised values are discounted to a point “zero” in time and referred to as the Net Present Value. An
appropriate discount rate determines the change in value of a single unit of a cost (or benefit) for each year in
the future – taking into account inflation, interest and other macroeconomic factors –compared to the value of
the same unit today. Thus with discounting, the benefits or costs of a particular policy programme can be
viewed on a constant scale over a long period of time.13
Equity. If the distribution of costs of inaction over time is taken into account by discounting, the distribution
over space must also be taken into account. The nature of waste treatment and transport infrastructure means
that their environmental impacts are concentrated on relatively few individuals living in close proximity to
treatment facilities, accident ‘hot spots’ or transportation routes.14
Everything else being equal, an entity that generates negative externalities (i.e. a hazardous waste treatment
facility) is likely to locate where its social damage will be least (Coase, 1960). That is to say, where the
population likely to be impacted upon by its activities is lowest or where potential compensation to be paid is
least.
This is particularly relevant in the context of the hazardous waste trade and developing countries. Even within
nations, wealthy households or individuals will have the opportunity to distance themselves from the negative
consequences of policy inaction on hazardous waste management, leaving the poorer segments of the population
to carry the burden. 15 Ultimately however, the cost of waste mismanagement has significant impacts upon
relative wealth within countries and across boarders. So much so “there may be no means by which the
‘winners’ can compensate the ‘losers’”16 in reality.
Solving environmental problems associated with growth generally must amount to more than passing these
costs on to people in other places.17 The OECD working group on costs of environmental policy inaction has
proposed weighting of impacts to take distributional impacts into account when assessing the costs of inaction.18
By attaching a greater weight to impacts which affect areas of exceptional natural beauty, developing countries
or the poor, for example, equity concerns can be accounted in cost estimates.19
11
Smith (1993)
OECD (2007), pg 5; Mishan (1982)
13 See Mishan (1982)
14 See Carson and Mitchell (1986)
15 See Gawande et al., 2000; Talih and Fricker (2002)
16 OECD (2007), pg 5
17 See Rothman (1998)
18 OECD (2007), pg 6
19 This approach can have a significant impact on the aggregate estimates of the costs of inaction (OECD, 2007).
12
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ii. Uncertainty
There is considerable uncertainty associated with all aspects of costing the consequences of implementing
environmental management standards lower than those of the Convention.
Lack of Information. Little reliable data exists on the creation, transboundary movement and treatment of
hazardous waste prior to the creation of the Conventions’ national reporting mechanism in 1993 (required under
Article 13). For this reason, it is difficult to determine the actual economic situation relating to hazardous waste
management before this time. As such, the Basel Convention’s national reporting mechanism is the source of
the majority of available data on these activities. This data is largely inconsistent however. As the Basel
Convention Secretariat has no mechanism for enforcing mandatory yearly reporting, many Parties choose to
send data sporadically, if at all.
Uncertainty of transaction costs. The valuation of the costs of inaction for depend on understanding how
individuals, households, firms and governments are likely to respond to changing economic and environmental
conditions. Assuming a short-run focus and inability to adapt will result in overestimation of costs. Conversely,
an assumption of limitless ability to find technical solutions to waste mismanagement (costless adjustment) will
result in significant underestimates. 20
Discount Rate. Although traditional CBA application has utilized a single discount rate to calculate the timevalue of a particular benefit, debate has ensued in recent years over whether the rate should in fact be variable
and which are the most accurate rates to use. Depending on the choice that is made, the total costs of inaction
can vary greatly. The OECD uses the results reported for Stern (2007a) to illustrate the effect of changing the
discount rate. Table 5 in this study shows the estimated costs of inaction falling to 4.2% when a value of 1.5 is
applied (rather than 0.1) for the pure rate of time preference (PRTP).21 Current thinking suggests that, with the
uncertainty concerning future interest rates and economic growth, a declining discount rate over time; which in
the long run resemble the “lowest possible” rates of approximately 1%.22
iii. Collective Public Action on Welfare Loss Estimates
In the real world, effectiveness of collective action to demand stricter environmental standards or higher
compensation (an indicator of negative environmental impact) depends on factors such as the strength of
community organisation, available information and ability to be heard (within media and political systems). As
a result, firms can end up locating where public opposition is least.23 This not only has implications for equity
(see previous section), but also for any nonmarket valuation surveying conducted to generate estimates of the
social damage from hazardous waste mismanagement. Who should be surveyed? Is there a distance decay
function for negative impacts? How will the estimates be impacted upon by level of collective action?
iv. Substitutability and Irreversibility
As discussed above in Section III.B, the costs of inaction must include the cost of losing any potential benefits
of the resources irreversibly impacted on by improper hazardous waste management, at any time in the
foreseeable future (i.e. option. value).24 Similarly, there are limits to which environmental goods and services
can be substituted for by other inputs and goods (i.e. compensation payments, imported resources), depending
how easily substitutable the resource in question is. In general, the less replaceable the resource, the greater the
associated cost of inaction to prevent its degradation or depletion.25
v. Separating out Costs of Inaction from Overall External Costs
Even with the highest standard of environmental management in place, waste production, treatment, transport
and final disposal will have some negative impacts. It is important when assessing the costs of inaction, not to
confuse these with the standard negative externalities naturally associated with waste management. This must be
taken into consideration in assessing current information and conducting further research.
20
OECD (2007), pg 27
Ibid, pg 17
22 Pearce et al. (2006), p186
23 Hamilton (1993)
24 Freeman (1993)
25 See Brown (2005)
21
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vi. Gender
Some existing research has shown a difference in the way men and women ‘value’ environmental risk and their
conceptions of social impacts.26 This difference should be taken into consideration in both assessing current
information and the conduct of future studies.
IV. Avoided Monetary Costs
Uncontrolled hazardous waste sites are a major environmental and public health concern. Improper disposal can
often lead to clean-up, site management, emergency response and compensation costs that often impose a
considerable financial burden to society. As the OECD (2007) states: “to the extent that the frequency and
severity of environment-related industrial hazards and natural disasters are affected by factors subject to policy
control, they can be considered as costs of inaction”.27
Although it is rarely studied and difficult to calculate, illegal dumping is an important aspect of hazardous waste
management. This is especially true in the developing world. According to Pearce and Turner (1994), in some
developing countries as much as 20-40% of waste is not collected at all and usually is handled by unregistered
scavengers.28 When such a high percentage of potential waste is left unmanaged, these countries are forced to
deal with the issue in subsequent years through costly clean-up and public health initiatives.
At the firm level, most corporations involved in activities that have potential to affect environmental quality
face the threat of legal and financial liabilities 29 as a result of poor environmental management practices,
including improper waste disposal. 30 A related type of cost – and probably the most obvious – is ex-post
remediation, restoration and reconstruction costs, incurred following an event.31 These costs are relevant for
both firms and national governments, and include not only the cost of the remediation project but environmental
fines and compensation payments as well.
A. Remediation Costs
Information on costs of remediation after environment-related
waste accidents is more readily available for Europe and the
United States than any other jurisdictions.
As discussed in OECD (2007), annual expenditures on the
remediation of contaminated sites in Europe have been
estimated at 0.05-0.1% of GDP (in the countries for which
data is available). There are a small number of European
countries for which these costs are much higher (EEA CSI,
2005). Significantly, these estimates only represent
approximately 2.5% of the total estimated remediation costs,
i.e. the undiscounted value of costs of remediation is between
2% and 4% of a single year’s GDP.32
In the United States, List, Hamilton and Viscusi (1999)
estimated that the costs of remediation per event site was over
USD 25 million, based on a sample of 257 sites on the USEPA
Superfund National Priorities. Furthermore, Greenstone and
Gallagher (2005) find that, as of 2000, approximately USD 30
billion had been spent on cleaning-up Superfund sites.
An earlier study (Russell et al., 1991) projected that
26
Box 2
Insurance: A Sufficient Alternative to
ESM for Avoiding the Costs of Waste
Mismanagement?
For companies operating in the hazardous
waste market, insurance may be required for
the possibility of a catastrophic event. This
includes during transport, treatment and after
final disposal of the waste. However, Ness
(1992) shows that liability insurance may be
unavailable or may contain provisions that
exclude coverage for potential release of
hazardous wastes. Even when commercial
insurance is purchased, the risk is not
completely eliminated because of high
deductibles, relatively low individual and
aggregate coverage limits, and short time
limits on claims-made policies (Frano 1991;
Paek 1996).
Source: Nemerow and Agardy (1998)
See for example Stern et al. (1993); Dupont (2003); Teal and Loomis (2000)
OECD (2007), pg 17-18
28 Pearce and Turner (1994), p7
29 Liability risks can include Phase I and II property assessments, site investigations and sampling, feasibility and remediation studies,
permit authorization, facility compliance audits and industrial hygiene surveys (Dixon 1996).
30 See Surma and Vondra (1992); Voorhees and Woellner (1997)
31 It is important to consider total costs post-clean up, as initial cost estimates are often far lower than the real cost of remediation. For
example, Lerche and Glaesser (2006) cite two studies (Al-Bahar and Crandell 1990; Diekmann and Featherman 1998) showing that in
1997, the average cost for private sector, environmental remediation projects in the United States was 25-50% over the initial budgets
32 See Section III.D.ii
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cumulative clean-up costs for all sites in the U.S. from 1990 - 2020, will amount to approximately $750 billion,
with plausible lower bound at $500 billion and upper bound at approximately $1 trillion. Their analysis included
both federal and nonfederal sites and covered National Priorities List (NPL) sites, state and private sector waste
remediation programs, underground storage tanks, and Resource Conservation and Recovery Act, United States
(RCRA) sites requiring corrective action.
Box 3
UNEP News Release 2006/58 (Summary)
Liability for Côte D’Ivoire Hazardous Waste Clean-Up
Nairobi, 24 November 2006 --International financial assistance should be swiftly mobilized to pay for the clean up and
rehabilitation of contaminated sites in Côte D’Ivoire as a result of fresh information indicating that the final costs of a
dumping incident in August could reach into the millions of dollars.
[…] the issue of illegal shipments of hazardous materials to vulnerable countries by unscrupulous operators is also likely to
be high on delegates’ minds as a result of the Côte D’Ivoire case in which a ship sailing from Europe dumped wastes in the
West African country.
Mr Steiner said he had been informed by the Ivorian authorities that, following initial emergency assistance, the country was
now having to use its own public funds to pay a private company for the retrieval, shipment and processing of the toxic
waste in France.
The costs of this operation allied to the medium and long term rehabilitation of affected sites could approach $30 million,
according to the Ivorian authorities.
“Irrespective of who will or who will not be held liable for this incident, it is the people of one of the world’s poorest
countries who have already paid dearly for this irresponsible act of hazardous waste dumping, who are now being forced to
actually pay the bill for removal and clean up operations,” said Mr Steiner.
[…] Mr Steiner said urgent assistance to meet Côte D’Ivoire’s costs was in the spotlight but emphasized that this was by no
means a unique case.
Indeed he warned that cases like this could escalate unless existing international regulations on toxic wastes, including those
under the International Convention for the Prevention of Pollution from Ships (MARPOL), are properly enforced and gaps
between various treaties closed.
A 2005 report by the European Network for the Implementation and Enforcement of Environmental Law (IMPEL) indicates
that illegal trade is on the rise.
A joint enforcement operation carried out in 17 European seaports examined 3,000 shipping documents and physically
inspected 258 cargo holds. Of these, 140 were waste shipments, of which 68 – or some 48% – turned out to be illegal.
“We must assist Côte D’Ivoire now, but it cannot end there. We must enforce existing laws in both OECD and developing
countries alongside building the capacity for customs authorities and local waste management at ports and elsewhere to
minimize the chances of such an incident occurring in the future,” added Mr Steiner.
Mrs. Kuwabara-Yamamoto, the Executive Secretary of the Basel Convention said: “One of the important lessons from the
situation in Abidjan is that we have a serious problem with enforcement. National and international laws are in place to
regulate these exports, but problems arise because of the lack of legal and technical institutional capacity in many
developing countries to monitor traffic across their borders. Strengthening the enforcement capacity of the Parties will
therefore remain a priority for the Basel Convention in years to come”.
Mr Steiner added: “One practical step forward that the international community must consider urgently is the ratification and
thus bringing into force of the Liability and Compensation Protocol of the Basel Convention”.
The Protocol, which has as its objective the provision of a comprehensive regime for liability and compensation for damage
resulting from the transboundary movements of hazardous and other wastes, including illegal traffic in those wastes, has so
far been ratified by just seven countries when it needs 20 ratifications to enter into force.
[…]
For more information please contact UNEP Spokesperson Nick Nuttall at +254-207-623084, +254-733-632755 (cell), E-mail: nick.nuttall@unep.org or
Michael Williams at +41-22-917-8242/8196/8244, +41-79-409-1528 (cell), E-mail: michael.williams@unep.ch; Nicole Dawe, Basel Convention
Information Officer, on + 41 79 212 47 26, E-mail: Nicole.Dawe@unep.ch
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B. Environmental Fines
Though not relating to hazardous waste mismanagement alone, Telego (1998) reports that in 1997, the U.S.
Environmental Protection Agency (EPA) levied fines of about $169 million against corporations for violations
of environmental laws. Moreover, the EPA referred 278 criminal and 426 civil cases to the U.S. Department of
Justice. During the same period, accrued liability for environmental risks related to real estate property was
estimated at $2 trillion; approximately 16-20% of the total value of all property in the United States.33
In Europe, as of April 2007, the European Commission has published proposals to severely punish
environmental crime – including irresponsible and illegal handling of hazardous waste. At the organised end,
UNEP estimates that “green crime” could be worth as much as $31 billion annually. Although hazardous waste
mismanagement is just a subset of this, the proposed legislation and expected revenue from these environmental
indicates that the costs of inaction are set to increase in the near future.34
C. Compensation Payments
Compensation for environmental disasters associated with the mismanagement of hazardous waste is legislated
for in many industrialized countries, though probably best established in the United States (US). 35
Compensation transfers can be categorised into monetary payments, in-kind benefits and packages that mix the
two.36 These payments can be made to off-set actual damage related to the negative environmental and social
impacts 37 of hazardous waste management facilities generally. But in terms of costs of inaction, it is the
compensation for disaster events that would have been avoided if Convention-level ESM was in place that is of
interest.
V. Pollution Reduction
Hazardous waste management is indubitably linked with pollution. Improved environmental management, as a
result of adoption and enforcement of the Basel Convention, will lead to direct pollution reduction and should
therefore be included in the CBA of implementation. This section discusses the proven environmental impacts
of poor waste management and their estimated costs, including the case of irreversible loss of environmental
goods and services.
A. Ecosystem Goods and Services and Hazardous Waste
The need for the protection of ecosystem services – not just environmental resources – is increasingly
dominating environmental policy discourse. According to the UN Millennium Ecosystem Assessment (2005):
“Ecosystem services are the benefits people obtain from ecosystems. These include provisioning services such
as food and water; regulating services such as flood and disease control; cultural services such as spiritual,
recreational, and cultural benefits; and supporting services, such as nutrient cycling, that maintain the conditions
for life on Earth”.38
Combining the OECD’s (2007) analysis of costs of environmental policy inaction and the MA’s (2005)
identification of drivers of change in ecosystems and their services: To the extent that national decision-makers
have some control over many indirect drivers of hazardous waste-related pollution, such as environmental
policy, incentives for technology development, property rights, trade barriers, prices and market regulations
(which in turn influence localised decision-makers’ choice of technology, changes in land use...etc.),
33
See Freeman and Kunreuther (1997)
on the proposal by the European Commission on protecting the environment through criminal law (COM(2007)0051 – C60063/2007 – 2007/0022(COD)). Available at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=//EP//NONSGML+REPORT+A6-2008-0154+0+DOC+PDF+V0//EN, last acccessed 13 June 2008
35 In the US, the Love Canal and Warren County, North Carolina protests brought local environmental damage from toxic waste sites
into the public and political arena. These incidents contributed to the emergence of compensation or equity-oriented siting policies at
state and federal level. The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or
‘Superfund’) was enacted in response to environmental pressure groups to finance the environmental restoration of hazardous waste sites
(White and Ratick, 1989).
36 See Jenkins-Smith and Kunreuther (2001)
37 See. Mitchell and Carson (1986); Kunreuther and Easterling (1996). It is important to recognise that compensation payments proxy
these externalities (transaction costs being zero) and should not be double-counted in any analysis if valuation estimates are also included
to represent environmental damage
38 Costanza et al. (1997), pg 253; MA (Framework for Assessment, 2005), pg 49
34Report
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degradation of ecosystem services by improper management of hazardous waste can be considered as a cost of
inaction.39
The commonly analyzed impact pathways for improper waste management are air, water and soil. It terms of
costs of inaction, it has been shown that pollution of these media can lead to impacts such as degradation of
drinking water resources40, pollution of the marine environment41 and negative impacts on broader ecosystem
functions. Specific impacts depend largely on the scale of the management activity and of any accidental
discharges, type of material and source of discharge (i.e. emissions to water versus those to air or soil) and sitespecific characteristics.
B. Natural Disasters and Pollution Risks from Hazardous Waste
Mismanagement of hazardous wastes can cause depletion of certain ecosystem goods and services that naturally
help to control water storage, storm protection, flood mitigation, shoreline stabilization, erosion control,
landslide and avalanche protection, safeguards against droughts and even the reduction of hurricane risks and
tidal surges.42 Although little research on the link between environmental degradation and “natural” disasters
has been completed, most scientists agree that the two environmental concerns are at least loosely linked. As
such, while the extent to which the impacts of natural disasters could be mitigated through implementation of
the Convention can not be quantified at this time, the concept should be included in the current costs of inaction
analytical framework.
C. Irreversible Loss of Ecosystem Goods and Services
Even with remediation, restoration and reconstruction efforts, partial or total permanent loss of environmental
quality can occur as a result of hazardous waste disaster events. The resulting market and non-market recreation
and amenity costs may be significant; and losses in terms of non-market ecological damages considerable.
Restoration and remediation costs frequently represent less that 100% of costs of inaction because the ex-post
costs associated with returning the environment to its previous state would be exorbitant - certainly greater than
the ex post benefits of restoration. On the other hand, some damages are irreversible. In such cases, it is not
possible to return the environment to its previous state, regardless of money invested.43
The latter point presents a strong case here for prevention of irreversible environmental degradation. The
introduction of technical standards which reduce the frequency and severity of hazardous waste accidents will
cost less than restoration in the face of irreversible damage. Liability regimes also provide incentives for
prevention.
D. Valuation of Degradation of Ecosystems and their Services
To date, the majority of nonmarket valuation literature has focused on the health impacts of hazardous waste
mismanagement (See Section VI.A for a detailed discussion of health impacts and literature concerning the
economic loss due to health impacts from hazardous waste mismanagement). However, broader impacts such
as: groundwater contamination and associated impacts on agricultural production or availability of drinking
water44, degradation of coral reefs45 and quality of life impacts including perceived risks to health, disamenity
(nuisance) impacts46, as well as sociocultural and intrinsic values47, also have implications for estimating costs
of inaction.
39
OECD (2007, pg 5 and MA (Framework for Assessment, 2005), pg 85
See for example Slack et al. (2007) and Shah et al. (2007).
41 Neşer et al. (2008), pg 355
42 ADCP 2004, p6
43 OECD (2007), pg 20
44 Van der Leeden and Troise (1990), pg 496-498; The potential implications of the degradation of groundwater resources are
considerable. Groundwater accounts for over 97% of all freshwater available on earth. According to one estimate almost half of the
world’s population relies on groundwater for drinking water. Shah et al. (2007).
45 Wielgus et al. (2002), pg 253-259
46 See Eshet et al. (2005), Table 4, pg 496 for an overview of some existing disamentiy studies for municipal solid waste.
47 MA ( Framework for Assessment, 2005), pg 128
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i. Hedonic Studies
Existing hedonic pricing literature shows that a “distance premium” exists for property prices in the range of
1.7% to 8.0% increases per mile distance from a landfill site with no price effects for houses further than four
miles (6.4 km) away.48 Timing is also important. Solid waste incinerator property price impacts were studied by
Kiel and McClain (1995) over the phases of siting and construction. During construction, property price values
were found to increase by $2,671 per mile from the facility in question. When brought on-line, the facility was
found to depress local property values and produce an increasing price gradient of $9,497 per mile from the
incinerator. After being operational for some time, the property price suppression was found to ease and
decrease to a value of $7,746 per mile. McClelland et al. (1990) find that for one hazardous waste landfill site,
the total estimated depression in property values (for 4,100 homes near the site) was estimated to total about
$40.2 million before the site was closed and to be about $19.7 million after closure.
The previous studies serve as an indicator of property price impacts. However, they concern sites that are
considered to be operating within normal acceptable environmental risk standards. As such they are relevant for
this study in the context of benefits to be gained from reducing the overall production of hazardous waste. In
terms of property price changes from poor waste management, Greenstone and Gallagher (2005) compare
housing price growth in the areas surrounding 400 hazardous waste sites remediated through the Superfund
program to the areas surrounding the 290 sites that narrowly missed qualifying for this program. They find that
the clean-ups had a positive effect on local housing price growth, nearly two decades after these sites became
eligible under Superfund.
ii. Contingent Valuation Studies
Despite the dominance of hedonic studies, stated preference approaches are ususally recommended for
valuations where both use and nonuse values are implict, as is the case with hazardous waste treatment in a
globalized context.49 Though contingent valuation (CV) is the most widely applied of the stated preference
methods, little research has been carried out using this method to value the externalities associated with waste
management infrastructure. Groothuis et al. (1998) estimate WTA compensation for a hazardous waste landfill
site producing a median values ranging from $1,054 to $1,415 per household per annum
VI. Savings on Human Mortality and Health Impacts
Although it is generally accepted that long-term exposure to hazardous waste has a negative effect on human
health, there is little agreement regarding the exact health effects or burden of disease attributable to such
exposure. This is largely due to an overall lack of consistent scientific research on both the potential levels of
exposure and the adverse medical effects of toxic waste treatment.
The hazard presented to the public by hazardous waste sites is a complex issue. Assessing public health impacts
requires identify all completed exposure pathways50 for the site. Any examination must consider the extent of
environmental contamination and possible contact with human populations, the toxicology of released
substances, and nature and extent of potentially exposed populations. The likely impacted populations include
community residents and workers on site, however particular attention must be paid to vulnerable members such
as children and pregnant women.51
Previous studies have shown links between hazardous waste handling and contamination of environmental
mediums such as drinking water52, contamination of soil, air pollution leading to increased prevalence of birth
defects and increased rates of lung, bladder, stomach and rectum cancer. 53 Incineration of unsuitable waste
materials, particularly those containing polyvinyl chloride, leads to the generation of dioxins, furans and coplanar polychlorinated biphenyls (PSBs), substances classified as human carcinogen. Long-term, low-level
exposure to these substances may lead to the impairment of the immune system, the impairment of the
48
Guntermann (1995); DEFRA (2003).
See Arrow et al. (1993).
50 A completed exposure pathway consists of the following five elements: a source of contamination, an environmental medium, a point
of exposure, route(s) of exposure, and a receptor population (Johnson and DeRosa, 1997).
51 It is important to note that residence near a hazardous waste site does not necessarily translate to actual exposure to substances
(Johnson and DeRosa, 1997).
52 WHO (2000)
53 Vrijheid (2000), p102
49
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development of the nervous system, endocrine system and reproductive functions, and certain cancers. 54
Similarly, the incineration of heavy metals or materials with high metal contents, particularly lead, mercury, or
cadmium, can lead to the spread of heavy metals in the environment, causing a wide range of adverse health
effects.55
For example, Johnson and DeRosa (1997) show that data from 1992 through 1996 indicate 46% of Superfund
sites in the United States were a hazard to public health. Thirty substances are found at 6% or more of sites with
completed pathways. Eighteen of the substances were known human carcinogens or reasonably anticipated to be
carcinogenic. Many of the 30 substances also possessed systemic toxicities.
Rabl (2003) and Vrijheid (2000) have each contributed helpful reviews of recent studies on this issue. Rabl’s
work concentrates on epidemiological studies of air pollution mortality. Although this accounts for only a
portion of the health issues linked to exposure to hazardous waste, Rabl’s analysis can be a solid starting point
for research. Particularly relevant is Rabl’s attempt to quantify short term and long term exposures, an issue
which has compromised the validity of many waste-related health studies. The review also demonstrates the
importance of analyzing the loss of life expectancy (LLE) attributable to an environmental issue as opposed to
mere premature deaths, especially given the cumulative nature of the health effects resulting from long-term
exposure. This analysis also accounts for inconsistencies in age and sensitivities to exposure in a given
population, two considerations which are essential to the hazardous waste issue.56
Vrijheid’s work concentrates on the health effects of
hazardous waste specifically, particularly pertaining to
December 2, 1984: a storage tank at a pesticide plant
landfilling practices. The review presents findings from a
in Bhopal, India exploded. A cloud of methyl
number of single-site and multi-site studies in an attempt
isocyanate gas was released toward the town
to expose a recurrent conclusion. As in Rabl’s study,
Jayaprakash Nagar that bordered the plant. A former
Vrijheid acknowledges the difficulty in drawing
New York Times correspondent, Sanjoy Hazarika,
dependable conclusions from this analysis, as many
reported that the children and adults alike were
studies suffer from methodological difficulties of
“struck down, gasping for breath, clutching at
accurately quantifying hazardous exposures. The author
burning, hurting eyes and chests, frothing at the
also comments on the weakness of current evidence
mouth… and then choking on their own vomit and
regarding the relationship between hazardous waste
blood” (Hazarika, 1984). The accident claimed more
exposure and cancers.57 In order to fully understand the
than 6000 lives within a week; and over 16,000 to
economic costs of these health effects, further
date (French, 2000).
toxicological and epidemiological research must first be
completed regarding the specific risks attributable to exposure to hazardous waste.
Box 4
Bhopal, India
A. Valuations for Health Impacts from Hazardous Waste Mismanagement
The estimation of economic loss from health impacts relies on the Value of Statistical Life (VOSL).
Theoretically, VOSL is secured by a contingent valuation method, taking a particular change in risk of death
and dividing this into a population’s average WTP for that risk reduction.58 For example, if a particular action
will reduce an individual’s risk of dying from 5 in 10,000 to 3 in 10,000 ( Δr of 2 in 10,000), and the average
WTP for this reduction is $50, then the VOSL would be calculated as:
WTP / Δr = (50 x 10,000) / 2 = $250,000
Although this simplified equation seems relatively straightforward, there is considerable inconsistency in past
estimations of VOSL for environmental economic studies. In 2004, for example, the US EPA established VOSL
at $6.1 million during an analysis of how far to go in removing arsenic from drinking water.59 Other studies have
suggested that a value of $3-5 million is more suitable for the USA, compared to just $2 million in the UK and
considerably less for Japan.60
54
WHO (2004)
WHO (2000)
56 Rabl (2003),pg 14
57 Vrijheid (2000), pg 110
58 Pearce et al. (2006), pg 196
59 New York Times, 28 March (2004)
60 Pearce et al, (2006), pg 199
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Occupational fatality should also be taken into account. For example, Cohen et al. (1997) present a hypothetical
case study using the Years of Potential Life Lost (YPLL) metric to compare cancer risks incurred by residents
living near a Superfund site to occupational fatality risks incurred by workers employed in that site's
remediation. Since cancer occurs late in life, and because we assume its mortality rate is 60%, each case results
in 8.8 YPLL. Each occupational fatality, which typically occurs earlier in life, results in 38.1 YPLL. In our case
study, the residential population of 5000 incurred 1.3 YPLL, compared to 5.7 YPLL incurred by the 500
workers.61
In order to accurately quantify the health risks associated with hazardous waste, it is important to consider the
role of age in determining the overall burden of these risks. There are considerable differences in health risk to
children compared to adults, both because of differences in exposure and susceptibility. In terms of exposure,
metabolic activity is usually higher for children than for adults, implying higher daily requirements for food,
water, and oxygen per unit of body weight. For this reason, children tend to experience a larger effective dose
than adults for equal exposure. Also, children can be expected to experience greater exposure due to certain
activities (such as crawling and “hand-to mouth” behavior), but less occupational exposure than adults. In terms
of susceptibility, children’s still-developing bodies tend to respond differently to similar exposures as they are
less able to metabolize, detoxify or remove pollutants.62 For these reasons, it is generally accepted that (i) health
benefits to children should be considered separately from the general population and (ii) the willingness to
protect children from environmental threats to a greater extent than protecting adults facing similar risks.63
In economic terms, children in a society do not have the same WTP to reduce fatal risks as adults. This does not
mean, however, that a child’s VOSL should be less than that of an adult, especially given their larger expected
life span. The difficulty with determining a reasonable VOSL for children in a society stems from an inability to
accurately measure the change in social welfare associated with a risk reduction for children. As children lack
both the cognitive capacity and financial independence for long-term health decisions, the best way to measure
this adjusted WTP is through the “parental perspective.” This strategy states that parental choice (or that of a
primary caregiver) are the appropriate proxy for children’s preferences and provide a reliable source for
economic information.64 After all, parents and primary caregivers are the closest possible individuals to the
population at risk with the ability to make rational economic decisions.
There are a number of potential problems with valuation of WTP through the parental perspective, however.
First, one must consider the effect of altruism, where a parent may feel an irrational propensity to value their
child’s health over their own. Also, parents may have additional economic incentives to keep their children
healthy (personal health, income considerations, etc), potentially causing double-counting that can further
inflate WTP data. Also, empirical evidence has shown vast differences between parental WTP values for
mortality compared to morbidity. Economic research on risk reduction for children must be carefully structured
to account for these inconsistencies and ensure that the WTP data is as accurate as possible.
VII. Reduced Negative Reputation Impacts
Hazardous waste, especially when dumped illegally or disposed of in an environmentally unsound manner, can
cause offensive sights and smells that are unattractive to both members of the community and visitors. Often,
this leads to negative perceptions of communities, sparking a decrease in capital investment, private business
development and tourism revenues.
A. Firm Level Impacts
Voorhees and Woellner (1997) discuss how most corporations involved in activities that can affect the
environment, now face the threat of legal and financial liabilities for poor environmental management practices,
improper waste disposal methods, changes in environmental regulations, and inadequate risk management, all
coupled with the potential loss of reputation.65
It is important to note that occupational risks may be viewed as “voluntary” risks compared to the risk “imposed” on local residents
(Cohen et al., 1997).
62 OECD (2005), pg 6
63 OECD (2005), pg 10
64 OECD (2005), p9
65 See also Labatt and White (2002), pg 148
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It is widely recognised that consumers and investors have the potential to exert significant influence on
environmental performance. Essentially, the underlying principle is that consumers and investors that care about
the environment should support products and manufacturers that perform best in the environmental domain –
provided these potential customers have accurate information regarding performance.
National programmes exist to disseminate environmental performance information relating to hazardous waste
management. In the US for example, the Toxics Release Inventory (TRI) and the Enforcement and Compliance
History Online (ECHO) database provide the public with reliable information. More generally, new markets
such as the FTSE4GOOD66 and the Dow Jones Sustainability Index67 measure the performance of companies
that meet globally recognised corporate responsibility and sustainability standards, and facilitate investment in
those companies.
A number of case studies already show the effect of information disclosure regarding environmental
performance – and how this incentives a noncompliant firm to become compliant. Sometimes beyond what
more traditional enforcement measures would achieve solo.68 Particular to the hazardous waste market, Stafford
(2007) examines changes in the quantity of waste managed by commercial hazardous waste management
facilities relative to information disclosures concerning non-compliance. They find that past noncompliance
decreases the quantity of waste sent to a facility. Muoghalu et al. (1990) examine firms by hazardous waste
mismanagement lawsuits filed between 1977 and 1986 in the United States. Furthermore, they find that
stockholders suffer a statistically significant 1.2 percent loss in market value at the filing of the lawsuit on
average, with no significant abnormal returns at the disposition of the suit. The “abnormal loss” translates to a
33.3 million dollar loss in equity value.
B. National Competitiveness and Environmental Policy
At the national level, environmentally unsound waste management is likely to bring its own costs. National
economies have become ever more integrated into a global economy, with the exception of a number of least
developed countries. With globalization, national competitiveness increasingly significant; and international
reputation progressively more important for a number of foreign direct investment (FDI) streams.69
i. Corporate Responsibility Impacts on National Competitiveness
AccountAbility70 have found that how a nation deals with social and environmental issues has a direct impact on
its international economic competitiveness and prospects for growth. Their 2007 report on Responsible
Competitiveness suggests that nations who do not address Corporate Responsibility issues, including those
related to environmental performance, expose businesses to potential costs. Through its Responsible
Competitiveness Index, which covers 108 countries and 96% of global economic activity, AccountAbility
compares and publishes the relative performance of nations on Corporate Responsibility issues. Continued ‘bad
press’ is likely to reduce the attractiveness of poorly performing nations as places to live and work, and as
destinations of investment capital belonging to responsible investors.
ii. Tourism
Tourism is an industry particularly vulnerable to negative international reputation impacts resulting from poor
management of hazardous waste. The relationship between tourism and hazardous waste is under researched.
VIII. Reduced Property Price Impacts
As discussed in Section V.B, a number of studies have shown that localities hosting hazardous waste treatment
infrastructure have been ‘stigmatised’, reflected in decreased property prices for those areas. 71 Furthermore,
Gawande and Jenkins-Smith’s study (2001) shows that hazardous waste transport has a negative impact on
property prices along the route of transport. These property price decreases result in real economic losses for
66
http://www.ftse.com/Indices/FTSE4Good_Index_Series/index.jsp, last accessed 14 June 2008.
http://www.sustainability-index.com/, last accessed 14 June 2008.
68 See Foulon et al. (2002)
69 See OECD (2001)
70 http://www.accountability21.net/default2.aspx?id=982, last accessed 14 June 2008.
71 See Groothuis and Miller (1994); McClelland et al. (1990); Lober and Green (1994)
67
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local communities. The negative public perception driving the property price drops is largely the result of
previous examples of hazardous waste mismanagement.
IX. Summary and Key Questions for Further Research
Based on the framework developed in this paper, this section identifies key questions further analyses on the
costs of inaction on implementing the Convention.
A. Effectiveness of the Basel Convention
The discussion in this draft is been based on the assumption that Basel reduces the likelihood of a nation
assuming the above costs. This assumption needs testing however. This requires information from Parties for
the following questions.
Research Question 1: Has there been a quantifiable reduction in hazardous waste
accidents in implementing Parties?
Research Question 2: Has there been a quantifiable reduction in illegal dumping in
implementing Parties?
B. Developing Country Information Gaps
Research on all aspects of the costs discussed in this draft paper is required in developing countries if the
benefits of ESM and the Basel Convention are to be fully accounted for.
It is important to understand firstly the scale of hazardous waste mismanagement in developing countries.
Secondly, existing sources of cost data, however limited, must be identified. Although it will most likely prove
difficult to attain retrospective data, it is essential to gather more information regarding current costs.
C. Nonmarket Valuation
Estimating the change in value of ecosystem benefits involves estimating the change in the physical flow of
benefits along a chain of causality between these changes in ecosystem condition and impacts on human wellbeing. The discussion in Section V.D illustrates that cost information on hazardous waste externalities is scarce
however. This identifies a need for further nonmarket valuation exercises in the area of hazardous waste
management impacts.
Nonmarket valuation studies can be costly to conduct however. Benefits Transfer may in part provide a solution
to this difficulty. For example, does the cost of remediation and full restoration proxy the nonmarket
environmental values degraded in the case of hazardous waste mismanagement? This option should be explored
in further work on costs of inaction for the Convention; particularly in the case of Developing Countries where
such information is, more or less, nonexistent.
Ecosystem goods and services are often valued in nonmarket valuation from an anthropocentric concept of
value. As discussed in Section III.C.ii, the categorization of values centers around the utility people derive from
their use, either directly or indirectly (use values) and those they are not currently using (non-use values).
However, non-utilitarian value – non-human centered valuation – are also important if ecological values are to
be represented.
D. Health
The overall change in the economic burden of disease attributable to exposure to hazardous waste since the
implementation of the Convention is required to test both the severity of health risks due to hazardous waste
exposure and the effectiveness of the Convention in reducing these risks.
This will require extensive analyses of the health economics literature on economic impacts attributable to
hazardous waste health impacts to first establish the state of current research in this field. Based on this review,
a methodology for filling the identified gaps will be developed.
E. Reputation Impacts
Section VII.B discusses the general impacts of poor international reputation on the competitiveness of
companies and nations alike. However, little research has been conducted specifically on the reputation impacts
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of obvious improper disposal of hazardous waste. Further work is required to identify case studies of how
competitiveness has been damaged by mismanaged hazardous waste, specifically within the tourism industry.
F. Assessing Stigmatization
Section V.D.i and VIII. illustrate that hazardous waste treatment and transport infrastructure have impacts on
property values. It is important to understand how this stigmatization is created, i.e. reporting in the media, and
how it impacts on property prices. Property price changes are primarily used to reflect the economic value for a
change in environmental quality in the literature reviewed. However, it is also important what the direct
financial impacts are for the residents impacted on directly by these changes. Finally, further research is
required to identify any patterns in stigmatization with respect to implementation of the Basel Convention.
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X. References
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