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In February, a group of prominent economists led by Robert Hahn and Paul Portney, which was funded by the American Enterprise Institute, Resources For the Future, and the Annapolis Center for Environmental Quality published a report which concluded that decision makers should formally consider the economic costs and benefits associated with environmental, safety, and health regulations. The economists were brought together due to the mischaracterization and misunderstanding of benefit cost analysis in recent congressional regulatory reform debates. Members of Congress failed to comprehend the uses and limits of these tools.

The economists noted that Republican supporters of cost benefit analysis did not disclose how imprecise the analysis can be, while Democrats need to learn that it is a tool which should be taken more seriously. They strongly recommended that laws which have been interpreted to prohibit the consideration of costs should be revised. A copy of the 13 page report is available free from Megan Hayward at the Annapolis Center for Environmental Quality (419) 268-3302

Benefit-Cost Analysis in Environmental Health and Safety Regulation Annapolis Center for Environmental Quality (419) 268-3302


Through the East River Integrated Crop Management (ICM) Program in northeast Wisconsin farmers in the 219 square mile East River watershed adjusted their use of fertilizer to actual crop needs, saving money and improving the environment. The program showed farmers how to take into account nutrient levels already in the soil and the value of nutrients in manure applications.

In 1993, farmers in the program saved, on average, $5,700 ($18.26 per acre) by cutting back on the use of commercial fertilizers.=20 In 1994 the program kept 2,500 tons of unneeded nutrients from being applied to fields, reducing potential pollution from excess nitrogen. Figures for 1994 were slightly lower than the 1993 results, as savings depend on weather conditions, feed needs, the number of fields in the program, and crop rotation.

The government subsidized program included 52 producers with a total of 16,000 acres, while another 52 producers practiced ICM on their own or through other programs, bringing a total of 22,000 acres under ICM.

During the fall, farmers gather information on weeds and insects whose larvae will hatch in the spring. In addition, soils are tested periodically. Producers then plan their use of nutrients and chemicals based upon research regarding precisely how much their crops need--and how much can be supplied by existing on site nutrients like manure and legumes. A consultant calculates the additional nutrients needed from fertilizer. Fields are monitored frequently by a professional crop consultant, who then recommends treatment with chemicals only if crop losses will exceed the cost of control. Each producer is required to file a comprehensive crop plan at least 30 days before planting.

In 1993 $771 per farm was saved on starter fertilizer which is used to warm the soil and encourage early crop growth. An additional $1,276 was saved by taking credit for nitrogen already introduced into the soil by legumes. Legumes convert atmospheric nitrogen into a form that plants can use. The greatest savings ($3,977 per farm) was obtained by crediting and analyzing the nutrient value of manure, and by spreading manure more efficiently on fields that need it most. A ton of dairy manure contains three pounds of phosphate and eight pounds of potash.

A survey before the program began found that over 60 percent of farmers were applying more nitrogen then University of Wisconsin-Extension recommendations, while 84 percent were applying more phosphorus than necessary. By 1995 manure application rates had decreased by 47 percent. Soil phosphorus levels were high from repeated manure application. Monitoring and improved analysis of pests saved approximately $188 per farm.

The authors also point out that 77 percent of the phosphorus entering Green Bay via the Fox River is from rural and urban on-point sources. A survey of participants in late 1994 found that 85 percent planned to continue using ICM after cost sharing ends. Bob and Susan Van Dorn, who milk 220 cows at two sites cut fertilizer and pesticide costs by more than $50,000 over three years.

Kevin Erb and Jim Hunt, Water Quality Demonstration Project East River Integrated Crop Management: A pilot project 1991-1994 Water Quality Demonstration Project-East River and US Department of Agriculture Soil Conservation Service, 1150 Bellevue, Green Bay, WI 54302 (414) 391-4610


Loomis and King find that a traditional mail survey produces nearly double the willingness to pay as that resulting from a combined mail booklet with telephone interview format.=20 Correcting for demographic variables, attitudes, and recreation participation behavior narrows the differences only slightly.

Willingness to Pay for five wildlife programs was measured through a dichotomous choice Contingent Valuation Survey fielded in California's San Joaquin Valley. The questionnaire was pre-tested using telephone interviews and focus groups. In both mail and telephone-mail surveys respondents received a multi-color booklet that presented three wildlife programs using text, pictures and graphics. Participants were asked to evaluate: (1) a wetlands and wildlife program that increases the acreage of wetlands and provides dependable water supplies to existing wetlands with two quality levels--maintenance and improvement; (2) a wildlife contamintion control program that reduces exposure of wildlife to contaminated agricultural drainage water (also with two levels--maintenance and improvement); and (3) A San Joaquin River and salmon improvement program.

As expected the telephone survey had a statistically higher overall response rate, and a higher item response rate.=20 Differences in responses resulted from significant differences in demographics, in recreation activity participation, and in knowledge about issues, but not from attitudes toward the importance of preserving wildlife. The logit equations were statistically different for responses to questions regarding three of five equations. Most of the changes resulted from sample selection effects.

The resulting Willingness to Pay Estimates are presented below


Program                    Combined    Mail    Telephone

Wetlands Maintenance        $308.48   $365.88   $206.13
Wetland Improvement         $359.35   $503.39   $226.81
Contamination Maintenance   $384.23   $684.07   $188.92
Contamination Improvement   $407.69   $516.74   $257.07
River & Salmon Improvement  $254.50   $251.70   $262.36

John Loomis and Michael King "Comparison of Mail and Telephone--Mail Contingent Valuation Surveys" Journal of Environmental Management (1994) 41 pages 309-324


V. Kerry Smith notes that firms appear to recognize differences in the propensities for collective action exhibited by different communities. The companies often use this information in their decisions about siting new (or expanding existing) facilities which might cause externalities. Hamilton (1993, 1995) documented these relationships by using differences in the rates of voter participation as a proxy for the likelihood of pursuing collective action opposing the location or expansion of an undesirable activity.

Smith estimates a "probit" statistical model with data from a special supplement to the National Opinion Research Center's 1993 General Social Survey of 1,606 individuals. The supplement focuses on knowledge about science related to environmental issues, as well as participation in voluntary activities. It also contains information about educational background and demographic characteristics. Dependent variables in Smith's study are participation in recycling programs, frequency of donations to environmental groups, and likelihood of signing petitions. Activity was positively related to household income and general science knowledge. Education may therefore change willingness to pay, and thus prospective benefits found in studies.

Economics and business majors were the only persons among the more highly educated individuals who were less likely to participate in pro-environmental activities. The findings with respect to economics and business majors are consistent with those of Robert Frank, et. al. (1993).

V. Kerry Smith "Does Education Induce People To Improve the Environment" Journal of Public Policy Analysis and Management Volume 14, Number 4 1995

Robert H. Frank, Thomas Gilovich and Dennis T. Regan (1993) "Does Studying Economics Inhibit Cooperation?" Journal of Economic Perspectives 7 (Spring) pages 159-172

James T. Hamilton (1993) "Politics and Social Costs: Estimating the Impact of Collective Action on Hazardous Waste Facilities," Rand Journal of Economics 24 (Spring) pages 101-125

James T. Hamilton (1995) "Testing for Environmental Racism: Prejudice, Profits, Political Power?" Journal of Policy Analysis and Management 14 (Winter) pages 107-132


The EPA issued a rule on March 1st that is intended to reduce smog-causing emissions and toxic air pollutants from landfills by half. The rule requires large landfills that emit volatile organic compounds in excess of 50 megagrams per year to control emissions by drilling collection wells into the landfill and routing the gas to a suitable energy recovery or combustion device. In the April 1995 issue of EDV&CBN we reported on the economics of such recovery systems. Large landfills will also be required to monitor surface methane on a quarterly basis, and to expand their collection system if the concentration exceeds 50 parts per million. Only landfills which handle everday household waste, not those handling hazardous materials, are subject to the rule. Only the largest four percent of existing landfills (280) and five percent of new ones built in the next five years will be subject to the rule.

EPA Administrator Carol M. Browner claims that "today's controls are the smog-fighting equivalent of removing 3.5 million cars =66rom the road, . . . and with respect to fighting global warming, todays rule is the equivalent of taking 20 million cars off the road." The rule will cut emissions of smog-causing volatile organic compounds and air toxics (such as benzene, vinyl chloride and chloroform from existing and new landfills by more than 90,000 tons a year.

EPA's regulations will also significantly reduce emissions of methane, an explosive and potent greenhouse gas by 37 million metric tons of carbon equivalent (about six million tons of methane). Landfills are the largest anthropogenic source of methane emissions in the country, contributing about 40 percent of all emissions. Methane accounts for approximately 18 percent of all global warming emissions. It is about 25 times more powerful than carbon dioxide (the primary greenhouse gas) with respect to trapping heat in the earth's atmosphere. The controls can capture enough reusable methane to power 2.3 million homes.

Approximately 7,000 landfills exist in the U.S. In 1990, Americans produced nearly 196 million tons of municipal waste, or about 4.3 pounds per person per day (almost a ton of waste per person per year). Currently 60 percent of all municipal solid waste is landfilled, 24 percent is recycled and 16 percent incinerated.

The rule will cost new and existing landfills nationwide about $778 million in one-time capital costs ($2.2 million a year per landfill affected) and $93 million a year in annualized costs ($190,000 per landfill affected). Residential customer costs will increase about 20 to 40 cents per month per household.=20 Energy recovery systems will reduce the cost per household.

Ian Fisher "E.P.A. Rules Require Curbs On Landfills' Gas Emissions" New York Times, March 3, 1996

Information obtained from the recycle@envirolink.org internet list March 12, 1996 10:45:55.80 provided by KirkWorks from an=20 EPA press release. Additional information is available through EPA's electronic bulletin board system, the Technology Transfer Network (TTN) at (919) 541-5742 under "Recently Signed Rules" (filename: LANDFILL) or from Martha Smith of EPA's Office of Air Quality Planning and Standards at (919) 541-2421. The EPA Landfill Methane Outreach Program can be reached via telephone at (202) 233-9042


A Guide to Reviewing Environmental Policy Studies: A Handbook for the California Environmental Protection Agency by Steven Moss, Richard J. McCann and Marvin Feldman provides an excellent and comprehensive review of environmental economics for the educated layman. Moss and McCann are with M.Cubed and Feldman is employed by Resource Decisions.

The handbook was designed to help the staff at the California Environmental Protection Agency fully understand analytical reports, the underlying methodology employed, the measurement techniques used, and key assumptions. It can also be used to facilitate the development of studies or as a reference tool for policy analysts.

Steven Moss, Richard J. McCann and Marvin Feldman A Guide to Reviewing Environmental Policy Studies: A Handbook for the California Environmental Protection Agency Spring 1994 contact Malcolm Dole (919)



In "Trading Emissions to Clean the Air: Exchanges Few but Savings Many", which appeared in the Winter 1996 issue of Resources, Dallas Burtraw argues that the allowance trading program for sulfur-dioxide (SO2) is both an environmental and an economic success. According to Butraw the program is reducing annual emissions of SO2 by nearly 50 percent and is doing so for about one-half to one-third of the cost that would have been incurred using the approach taken throughout the first twenty years of federal air pollution control. However, the volume of allowance trading is well below original expectations at about 2 to 3 million allowances in 1995

The largest share of benefits come not from trading, but from "dynamic efficiency"--innovation, competition, and discovery of new ways to comply with limits. The regulations freed utilities =66rom regulatory constraints which spelled out exactly how requirements were to be met and instead gave the utilities flexibility. This flexibility has led some utilities to replace high with low sulfur coal whose price has fallen substantially over the last five years. Others have blended coals.=20 Deregulation of the railroad industry has also led to a sharp drop in the cost of shipping low sulfur coal.

Before passage of the Clean Air Act of 1990 estimates of marginal emission abatement costs were as high as $1,500 per ton, which is the figure stipulated in the act for direct allowance sales by the EPA. In 1990 the EPA estimated a price of $750, but early trades came in at only $250 per ton. In early 1995, the price of allowances traded privately was about $170 per ton and fell to the low $100s by year end. The marginal price of 1995 allowances in the EPA auction administered by the Chicago Board of Trade ranged from $122 in 1993 to $140 per ton in 1994, but fell to $126 in 1995. State rules, regarding cost recovery, prohibitions on trades that might undermine local economic activity, and other issues, as well as the decline in the cost of low sulfur coal, have inhibited trading. Many analysts have criticized EPA's annual auction which offers 2.8 percent of allowances, in a discriminating-price, sealed-bid format, and provides incentives for bidders and sellers to underbid their reservation prices.

Dallas Burtraw "Trading Emissions to Clean the Air: Exchanges Few but Savings Many" Resources Winter, 1996 Resources for the Future, 1616 P Street NW


On February 26th Corning Inc. introduced an automobile pollution control system that could cut emission far in excess of the strict limits to be in place by the year 2000. Allied Signal Inc said it expected to have a similar system ready later this year.

Both systems use a gas-trapping substance called zeolite--a crystal of two minerals, alumina and silica--to trap and hold hydrocarbon molecules until the catalyst reaches operating temperature. They reduce cold state emissions, the hydrocarbons emitted during the first minute or so after an engine is started, before the catalytic converter becomes hot enough to operate. Cold start emissions account for 70 to 80 percent of the total pollutants produced by a converter-equipped car.

Corning's system uses a conventional catalytic converter split in two. Zeolite based technology is expected to add $50 to $75 to the cost of converters. Corning said tests on a 1991 Buick with a 3.8 liter engine achieved hydrocarbon emissions of 0.03 grams a mile, an 88 percent reduction over the current Federal standard.

Reuters, February 26, 1996


In "Choosing Among Fuels and Technologies for Cleaning Up the Air" Hahn provides an integrated framework for assessing the cost effectiveness of emission control options. The options involve a combination of vehicle and fuel changes. He studies the cost effectiveness by combining data on costs and environmental impact of reformulated gasolines, low emission vehicles (with improved catalysts and fuel preparation systems), and zero emission vehicles. The key parameters in determining cost effectiveness are fuel costs, vehicle costs, and emission factors. The study demonstrates the importance of an integrated analysis and the need to consider decentralized regulatory approaches, such as effluent taxes and marketable permits, when the data are chaacterized by large uncertainties. Hahn divides costs into fixed and variable. The potential cost savings from a market based approach are calculated by constructing a linear program that minimizes the costs of achieving reductions associated with the mandate. He performs several sensitivity analyses.

Cost effectiveness measures are based on several previous studies which are summarized in the table below.


Study          Fuel/           Incremental  Pollutant     Average
               Reformulation      cost                       cost
                               cents/gallon         Effectiveness
                                                        $ per ton

US OTA (1989)  Reduced RVP     0.5-3.2      VOC           100-900

ARCO (1990)    ARCO EC-1       2-15         NMOG=20

CARB(1990a)    Reduced         0.4-0.6      VOC        2400-10100
               RVP             0.1-1        HC              3,500
               Deposit                      NOX             5,000
               Control                      CO                400

Gushee         Federal FRG     4-16         VOC

CARB (1991b)   Calif. Phase 2  14-20        VOC,NO      6400-9200

Colucci &=20
Benson (1991)  Fed Phase 1     4-7          CO,SO2
               ARCO EC-X       16
               Calif Phase 2   13-23

Sierra         Federal RFG     7.9          ROG,NOX   59000-69000
Research       ARCO EC-X       16.7             =20
(1991)         Calif Phase 2   15.9-23.1              74000-89000

Texaco (1991)  Federal RFG     14.1         HC        218,000+

Pechan &       Fed Phase 2     8.6          NMHC,    24600-323000
Walsh (1992)   Calif Phase 2   17           NOX      20400-134000

Seisler et al  Calif Phase 2   11-30      =20

Weaver &       Fed Phase 1     3-4.5                 50000-168000
Turner         Calif Phase 2   11-19                126000-420000
(1993)   =20

Austin &       Reduced RVP     0.7                      1100-1900
Lyons          Federal RFG     5.4-7.9                  4600-5200
(1994)         Calif Phase 2   11-12.3                  6100-7200

 Please refer to the study for more details about the sources


Study         Vehicle     Incremental Pollutant           Average
                            cost                             Cost
                          $/vehicle                 effectiveness
                                                        $ per ton

CARB           TLEV            $80     NMOG & NOX      $4,400
(1990)         LEV            $190     NMOG & NOX      $4,400
               LEV            $190     NMOG & NOX      $4,400

Pechan &       ULEV           $190     HC              $900-2,300
EEA (1991)     LEV/ULEV       $190     NOX           $1,900-3,200
               ZEV          $2,900     HCX,NOX         $1,500

Pechan &       LEV       $170-$230     NMOG & NOX  $1,300-$12,200
Walsh          ULEV           $350     NMOG & NOX   $2,700-16.900
(1992)         ZEV          $2,900     NMOG & NOX       $5,600

Radian (1992)  LEV       $415-$645     VOC & NOX  $11,000-$23,900

Austin &       Tier 1    $144-$273     HC,NOX & CO     $12,100
Lyons          TLEV      $344-$463     HC,NOX & CO $9,800-$26,200
(1994)         LEV     $775-$1,019     HC,NOX & CO 16,100-$40,600
               ULEV    $610-$1,475     HC,NOX & CO 24,900-$72,800
               ZEV $12,588-$21,034     HC,NOX & CO 10,200-173,600

Please refer to the study for more details about the sources
The analysis suggests that a modest improvement in vehicle control technology is probably a cost effective strategy for reducing ozone; but that using a severely reformulated gasoline or electric vehicle is unlikely to be cost effective. The cost savings from introducing a market-based approach instead of a vehicle mandate in the Northeast are estimated to range from $7 billion to $29 billion.

Robert W. Hahn "Choosing Among Fuels and Technologies for Cleaning Up the Air" Journal of Policy Analysis and Management Volume 14, Number 4 pages 532-554


Ozone Action estimated that up to 22,000 tons of chlorofluorocarbons (CFC's) enter the country illegally. Last year the Federal government estimated that figure at 10,000 tons.

Many of the CFCs are smuggled from Russia and other countries in the former Soviet Union. A 30-pound cylinder that costs $70 in Europe is sold in the U.S. for $242. The group estimates that duties and excise taxes lost could amount to more than $200 million. In September the U.S. Attorney in Miami said two dealers in the chemicals had pleaded guilty to importing the material without required permits. They face a maximum penalty of 10 years in jail, and fines of $8.8 million. Scientific studies that led to the Montreal Protocol's limits on ozone production all assumed 100 percent compliance with the quotas.

Matthew L. Wald, "Group Sees Ozone Danger In illicit Chemical Trade" September 17, 1995



Survey respondents reported 20,000 brownfield sites in 39 cities in a poll of municipal officials conducted for a report entitled The Impact of Brownfields on U.S. Cities. In 36 of the reporting areas the sites cover 43,000 acres. The report estimated that more than $121 million is lost each year in local tax revenues in the 39 cities. "Using conservative estimates" the report suggested that municipalities nationwide could be losing billions of dollars each year in local tax receipts. More information on the survey and a brownfields action agenda is available from the U.S. Conference of Mayors at (202) 293-7330.

U.S. Conference of Mayors The Impact of Brownfields on U.S. Cities, (202) 293-7330


On December 14th Unocal agreed to pay $530,000 to resolve claims that the company failed to promptly clean up a leaking underground storage tank at one of its Phoenix service stations (Arizona v. Union Oil Co. of California, Ariz SuperCt, Maricopa County, No. CV-94-05376, 12/14/95). The company will spend $280,000 to hire personnel responsible for overseeing the company's storage tank compliance and cleanup efforts. Unocal disputed its liability but agreed to pay a $250,000 fine to resolve litigation.

"Settlement With UNOCAL Resolves Claims, Will Expedite UST Cleanups, Officials Say" Environmental Reporter, Bureau of National Affairs, Inc. Washington DC, January 26, 1996 page 1799


Chalmers and Jackson assert that "despite recent exhortations to reemphasize the sales comparison approach and the cost approach in the valuation of contaminated property, the dominant theme in the relevant literature has been that the effects of contamination are best understood and analyzed through the income capitalization approach." The authors concur with the consensus view, and present a general framework for analyzing value. The framework accounts for the cash flow consequences or direct costs imposed by contamination, and the way in which the risk implications of contamination affect the cost of capital. The authors attempt to incorporate the attitudes and behavior of users, lenders, investors into a mortgage equity model to analyze value diminution from contamination. The effect of contamination is thus measured primarily through the cost of capital.

In analyzing the quantification of risk they cite several previous studies. A survey in 1990 conducted by Patricia and John Healy, published in The Appraisal Journal found that almost 50% of the lenders did not believe there was any diminution in value for previously contaminated property that had been cleaned up. Only 19% perceived any stigma effect on previously contaminated property. Of seven specific environmental issues or conditions, lenders would be most likely to advance loans to propertiest with underground storage tanks (61% would lend), and least likely to lend for properties with unencapsulated asbestos (38% would lend). Forty percent would grant a loan for a property in the process of being remediated. Eighty-four percent would lend to previously contaminated property. Overall 52% of the lenders would advance loans to properties with one of the environmental problems. The Healy's also found that 52% of the lenders would adjust loan-to-value ratios for contaminated properties and 21% would change interest rates.

In 1991 Mundy & Associates conducted a survey which found that institutions with formal policies on contaminated property rose =66rom 41% in 1987 to 88% in 1991; 4% of those surveyed indicated that the likelihood of making a loan would increase significantly with an indemnification, while 29% said it would have no effect; and that a majority of lenders would not advance a loan to a previously contaminated site that had been "certified clean" (only 8% would be likely to make a loan, while 46% would be unlikely to loan, and one-third would deny the loan). The 8% figure stands in stark contrast to the 52% result in the Healy study. An updated survey in 1992 found that 25% to 32% of lenders adjusted loan to value ratios, 14% to 23% changed loan terms, and 14% to 20% raised interest rates. The 1992 survey found that 53% of lenders indicated that few to no loans were denied solely because of concern with contamination.

Chalmers and Jackson also found significant variations in lending policies by region. Concern for environmental issues was minimal in central California, but strong in New Jersey due to strict state environmental laws.

They present four scenarios for evaluating with contaminated properties ranging from low contamination to high contamination.=20 The table below describes changes in market parameters which can be used by appraisers to evaluate contaminated properties


Estimated Value         Uncontaminated  Scenario 1  Scenario 4

Market equity yield          .17            .17        .17
Risk premium                 .00            .03        .15
Adjusted equity yield        .17            .20        .32
Loan-to value ratio          .7             .7         .00
Capitalization rate         9.90%         11.00%     30.00%
Property Value           $1,200,000    $1,080,000   $396,000
Property Value Decline       N/A         $120,000   $804,000
Diminution Percent           N/A          10%        67%

James A. Chalmers and Thomas O. Jackson "Risk Factors in the Appraisal of Contaminated Property" The Appraisal Journal January 1996 pages 44-58

Patricia R. Healy and John J. Healy Jr. "Lenders' Perspectives on Environmental Issues" The Appraisal Journal (July 1992): pages 394-398

Mundy & Associates "Lender Concern Increases, Surveys Find: EPA Rule No Cure-all" Environmental Watch (Summer, 1992) page 2

Victoria Adams and Bill Mundy "Attitudes and Policies of Lending Institutions toward Environmental Impairment" Environmental Watch (Winter, 1993) pages 2-4


Publicker Industries of Old Greenwich Connecticut owned a site in Philadelphia between 1912 and 1986 which was first utilized as a liquor and alcohol distillation plant and later as a fuel storage site. In 1986 Publicker sold the property to Overland Corp., which declared bankruptcy and abandoned the site shortly thereafter. In 1987 the EPA began addressing fire and explosion threats at the site, and ultimately performed soil cleanup work and asbestos removal. The EPA removed approximately 2 million gallons of hazardous materials and contaminants, and hundreds of miles of process lines, some of which still contained product.=20 The contaminants found in the soil and sediment at the site, and in slip areas of the adjacent Delaware River included arsenic, chromium, copper, lead, mercury, zinc and polychlorinated biphenyls. A complaint was filed under the Comprehensive Environmental Response, Compensation and Liability Act in 1990 alleging that hazardous substances were disposed at the site between 1928 and 1987.

A consent decree was filed in federal court on January 11th (U.S. v. Publicker Industries Inc., DC Epa, No. 90-7984, 1/11/96) calling for Publicker and its subsidiary to pay a total of $13.4 million plus interest over six years to the U.S. government and $1 million plus interest over four years to Pennsylvania. The payments cover reimbursements for cleanup costs and damage to natural resources.

The site is currently being developed through an EPA brownfields program under a prospective purchaser agreement between the EPA and Holt Industries. Holt will operate the property as a marine terminal. Remaining cleanup involves removing contaminants from electrical and other utilities and from storm water trenches, eliminating metal debris and empty drums, and sealing and abandoning on-site monitoring wells.

"Publicker Industries to Pay $14.4 Million to Resolve Cleanup, Resource Damage Claims" Environmental Reporter, Bureau of National Affairs, Inc. Washington DC, January 26, 1996 page 1799


The Town of Oyster Bay, New York received a Recycling Achievement Award on January 24th, 1996. In 1994 more than 90% of the town's 86,000 households recycled plastic, glass, metal, mixed paper and newsprint. It would have cost $1.6 million to haul the recyclables away as garbage. Instead $2 million was generated rom the sale of recyclables, resulting in a $3.6 million net gain

"Realty & Environment Briefs" Long Island Business News February 12, 1996 page 34


Boyd, Harrington, and Macauley claim"there is a common, but flawed, perception that development of greenfield sites necessarily enjoys a cost advantage over brownfield development."

However, commercial or industrial development of greenfield sites is itself costly, as zoning laws and community opposition can often impede such development. In addition, theoretically, prices of brownfield should fall to adjust for the disadvantage of owning a contaminated site.

Their theoretical model shows that uncertainties arising from CERCLA (the Comprehensive Environmental Response, Compensation, and Liability Act) do not necessarily reduce the likelihood of efficient property transfers and development decisions even when sellers and buyers are risk averse. However, they show that the information asymmetries between buyers and sellers and imperfections in the detection and regulation of liability are more likely to have a substantial negative effect on property development.

James Boyd, Winston Harrington, and Molly K. Macauley "The Effects of Environmental Liability On Industrial Real Estate Development" The Journal of Real Estate Finance and Economics Volume 12 Number 1, January 1996 pages 37-58



The Economist reports that the price of wind power has fallen =66rom about 30 cents per kilowatt hour to about 5 cents/kWh at its best sites. Shell International Petroleum estimates that renewables such as wind and sun power could satisfy half the world's energy demand by the year 2060.

The Economist, October 7, 1995


Recent research in investment theory emphasizes the importance of sunk investment costs (irreversibility), uncertainty in returns, and flexibility in investment timing. Metcalf and Rosenthal argue that because traditional rules do not consider these costs, many advocate investing at a lower rate-of-return than is optimal. They claim that these factors explain the presence of high discount rates used by investors in energy-efficient capital, and note that researchers who measure these discount rates did not include the option value associated with delaying investment. The measured discount rate is actually a combination of a true discount rate plus a mark-up to incorporate the option value.

The authors cite Hausman's 1979 study which found discount rates ranging from 20 to 30 percent. Train (1985) reported on studies which found discount rates for energy efficient refrigerators ranging from 40 to 100 percent. Others have found discount rates for thermal integrity (wall and ceiling insulation) ranging from 10 to 30 percent, and for space heaters from 5 to 35 percent.

Between 1972 and 1991 energy efficiency has increased at an annual rate of 6.2%, while the real price of refrigerators has fallen 1.6% annually, even before adjusting for quality. Energy prices were roughly constant, though they varied widely. The return per dollar invested (electricity price divided by the quality adjusted refrigerator price) was rising at 5.2% per year and varied about 11 percent per year. Based on uncertainty arising from improvements in energy efficiency the expected present discounted value of the return on an energy conservation investment in a refrigerator (e.g. the hurdle rate) has to be roughly 2.5 times as large as it would be if there were no uncertainty in the price of electricity or refrigerators. Thus, if the measured discount rate is 11.6 percent the true discount rate is 5%.

Gilbert E. Metcalf and Donald Rosenthal (1995) "The =91New' View of Investment Decisions and Public Policy Analysis: An Application to Green Lights and Cold Refrigerators" Journal of Policy Analysis and Management Volume 14, Number 4 pages 517-531

Jerry Hausman (1979) "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics 10 pages 33-54

Ken Train (1985) "Discount Rates in Consumers' Energy-Related Decisions: A Review of he Literature" Energy 10 pages 1243-1253.


In January, the Scottsdale Village Square Nursing home installed an on-site electric cogeneration unit that burns natural gas, can meet a peak load of 100 kW, and supply one-third of the facility's total electric needs. Waste heat is used at the home and an adjacent apartment complex. At the nursing home, waste heat will provide hot water for cooking, cleaning and laundry.

The electricity cost is one third below what the local electric company charges, and annual utility bill savings could be as high as $122,000. Based on an installation cost of $340,000, the return on investment is about 36% per year, and thus the installation could pay for itself within three years.

The cogeneration system was installed by The Energy Group (63 North Arizona Place, Chandler, AZ 85225 (602) 814-0150.

"Nursing Home Saves with Cogen System" Energy Conservation News February 1996 page 3 Editor: Kevin Gainer, BCC Newsletter Group Norwalk CT 06855 (203) 853-4266



The generation of electricty at the Glen Canyon Dam causes significant daily fluctuations in river levels below the dam.=20 These fluctuations can decrease the size and number of beaches and change the habitat of both terrestrial and aquatic species, including endangered fish species. Dam operations have also reduced the quality of recreation on the river downstream from Glen Canyon Dam. However, changes to benefit the downstream environment and the quality of recreation will cut the value of power produced.

Nine alternative policies were evaluated in the Glen Canyon Dam Environmental Impact Statement. Non-use values were measured through a contingent valuation mail survey for three of the nine alternatives: 1) the moderate fluctuating flow alternative, 2) the low fluctuating flow alternative, and 3) the seasonally adjusted steady flow alternative. Respondents were first asked if they would vote in favor of a referendum on a proposal to change dam operations assuming that passage of the proposal would cost them nothing. Those in favor of the proposal were then asked how they would vote if passage would cost them a specified amount of money. Responses to this second question were used to make inferences about the value, or willingness-to-pay, placed by respondents upon the proposal being evaluated.

Willingness to pay was measured for a national sample, and a sample of individuals living in areas obtaining power produced at Glen Canyon. Best estimates were based on "Definitely Yes" models, adjusted to reflect values of nonrespondents, and to reflect the belief that the respondent would actually have to pay if the proposal passed. Under this approach respondents who said that they would probably vote for the proposal were assumed to have voted against it. Assuming that individuals responding "probably yes" actually support the proposal would increase the estimates by 370% to 440%. Results were analyzed using a logistic model which included several variables to estimate the probability that a respondent would vote in favor of a proposal, such as education and income. Estimated Willingness To Pay is presented below:

Water Release Alternative     Average Annual      Aggregate
                                Value Per        Annual Value
                                Household        (Millions of=20


Moderate fluctuating flow        $13.56            $2,286.4
Low fluctuating flow             $20.15            $3,375.2
Seasonally adjusted steady flow  $20.55            $3,442.2


Moderate fluctuating flow        $22.06               $62.2
Low fluctuating flow             $21.45               $60.5
Seasonally adjusted steady flow  $28.87               $81.4

Michael P. Welsh, Richard C. Bishop, Marcia L. Phillips, and Robert M. Baumgartner "GCES Non-Use Value Study: GCES Non-Use Values Final Study Summary Report" Hagler Bailly Consulting, University Research Park 455 Science Drive, Madison WI 53711-1058; September 8, 1995


According to a new study by the Water Environment Research Foundation of Alexandria Virginia, the U.S. could save up to $26 million a year in the cost of municipal wastewater treatment by controlling the use of polymers, which are synthetic organic compounds used to dewater solid wastes. The study indicates that treatment plant operators use up to 20% more polymers than necessary. Reducing polymers could increase reuse options for treated sludges known as biosolids.

"Cut polymers and save" Engineering News Record February 12, 1996 page 44

Environmental Damage Valuation and Cost Benefit News

Editor & Publisher: Kenneth Acks
Associate Editor: Cindy Grant
Assistant Editor: Anthony Benanti
Environmental Damage Valuation and Cost Benefit News is produced by Damage Valuation Associates, a professional consulting firm specializing in measuring the economic and financial impacts of environmental hazards.

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Copyright 1996 Kenneth Acks


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