EPA-600/5-73-008a
October 1973
Socioeconomic Environmental Studies Series
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RESEARCH REPORTING SERIES
Research reports of the Office of Research and
Monitoring, Environmental Protection Agency, have
been grouped into five series. These five broad
categories were established to facilitate further
development and application of environmental
technology. Elimination of traditional grouping
was consciously planned to foster technology
transfer and a maximum interface in related
fields. The five series are:
1. Environmental Health Effects Research
2. Environmental Protection Technology
3. Ecological Research
H. Environmental Monitoring
5. Socioeconomic Environmental Studies
This report has been assigned to the SOCIOECONOMIC
ENVIRONMENTAL STUDIES series. This series
describes research on the socioeconomic impact of
environmental problems. This covers recycling and
other recovery operations with emphasis on
monetary incentives. The non-scientific realms of
legal systems, cultural values, and business
systems are also involved. Because of their
interdisciplinary scope, system evaluations and
environmental management reports are included in
this series.
EPA REVIEW NOTICE
This report has been reviewed by the Office of Research and
Development, EPA, and approved for publication. Approval
does not signify that the contents necessarily reflect the
views and policies of the Environmental Protection Agency,
nor does mention of trade names or commercial products consti-
tute endorsement or recommendation for use.
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EPA-600/5-73-008a
October 1973
STATE-OF-ART REVIEW:
WATER POLLUTION CONTROL
BENEFITS AND COSTS
VOLUME I
by
Samuel G. Unger
M. Jarvin Emerson
David L. Jordening
Contract No. 68-01-0744
Project 21-AQJ-05
Program Element 1HA094
Project Officer:
Fred H. Abel
Economic Analysis Branch
Implementation Research Division
Washington, D.C. 20460
AGEXCY
Li] -_?--»/ } n^icii 7
1 Uorth Udc]:er> Drive
Chicago, IIIinoj.3 6CC06
Prepared for
OFFICE OF RESEARCH AND MONITORING
U.S. ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20402 - Price $1.45
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ABSTRACT
This report presents a survey and assessment of the state-
of-art of economic analyses dealing with water pollution control
benefits and costs. The investigation includes the extension of
traditional benefit cost analysis into the area of pollution control.
Implications for planning and research plus some directions of
needed study are also developed.
A conceptual basis for benefit cost analysis involving water
quality management is suggested. An economic concept of a social
welfare function is presented as the most widely accepted public
criterion which embodies environmental quality concerns. Problems
of efficiency, equity, externalities and social discount rates are
summarized.
Water pollution control costs are a function of a host of factors
including water quality criteria, specific pollutants, treatment strategy
and design capacity. These and other factors are described. The
types of available cost estimates--both fixed point and functional, are
outlined. Also, the adequacy of such information is assessed.
Benefit measurements of water quality factors are meager
and underdeveloped. A variety of partial-equilibrium approaches to
benefit measurement are outlined and some problems, including the
planning horizon (time profile), are described.
To assess benefit cost impacts of water pollution control,
location-preserved analyses are necessary. An aggregation frame-
work which accounts for spatial interdependencies is needed, and
an assessment approach is also proposed.
General systems analysis approaches are implicitly required
to measure benefits and costs of pollution control. Recent developments
in the literature have begun to directly assess impacts of environmental
quality management. In this setting, benefit cost analysis effectively
becomes a supplementary analysis of alternative sets of simulated
general equilibrium types of economic solutions.
This report was submitted in fulfillment of Project Number
21-AQJ-05, Contract Number 68-01-0744 by Development Planning
and Research Associates, Inc., Manhattan, Kansas, under the spon-
sorship of the Environmental Protection Agency. Work was completed
as of May, 1973.
ii
ENVIRONMENTAL PROTECTION AGENCY
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\J
CONTENTS
Page
Abstract ii
List of Exhibits tv
Acknowledgments vl
Sections
I Introduction 1
II Scope 12
III Benefit Cost Framework 15
IV Pollution Control Costs 23
V Benefit Measurement 42
VI Benefit Cost Aggregation Framework 49
VII General Equilibrium Models 59
VIII Summary Observations 67
IX Implications for Planning and Research 71
X Selected References 106
XI Appendices HI
111
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LIST OF EXHIBITS
Exhibit No. Page
1-1 Outline Description of Environment Impacts of
Water Pollution and Its Control 8
1-2 Environmental Biosphere 9
III-l Total and Marginal Social Welfare Concept 15
III-2 Socially Optimum Market Conditions vs. Cost
Externality 17
III-3 Socially Optimum Market Conditions vs. Benefit
Externality 17
IV-1 Surface Water Criteria for Public Water Supplies 22
IV-2 Summary of Specific Quality Characteristics of
Surface Waters That Have Been Used as Sources
for Industrial Water Supplies 25
IV-3 Design Capacities, Operating Conditions, and
Unit Factor Costs at Capacity of 27 Plants
Reported by Koenig 28
IV-4 Typical Relationship Between Capacity and Capital
Cost or Total Operating Cost for Capacity Operation 30
IV-5 Unit Cost Functions of Factors of Water Treatment
and Their Variability with Daily Use 30
IV-6 Most Significant Determinants in Unit Treatment
Cost Functions 31
IV-7 Cost Functions of Municipal Waste Treatment 32
IV-8 Treatment Processes that can be Costed by the
Wastewater Treatment Plant Cost Estimating
Program 33
iv
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LIST OF EXHIBITS (continued)
Exhibit Page
IV-9 Summary of Total Costs of Achieving Objective
Sets 1, 2, 3 and 4 38
V-l Flow Diagram, Colorado River Basin Input-
Output Projections 42
V-2 Schematic Three-stage Battelle Recreation Model 44
VI-1 Water Resources Council, Water Resource Regions
of the United States 49
VI-2 Water Resources Council, Water Resources Sub-
regions, For Use in 2nd National Assessment 50
VI-3 Water Resources Council, Water Resources
Subareas, For Use in National Assessment 51
VI-4 Sample data, National Assessment of Water and
Related Land Resources 52
VI-5 Water Pollution Control, Cost Aggregation Schema 54
VI-6 Water Pollution Control, Benefit Aggregation Schema 55
VII-1 A Flow Chart of a Simplified Subregional Model 63
VII-2 The Three Major Sectors of a Subregional Model 63
VII-3 Two Submodels Forming the Regional Model 64
VII-4 Diagram of the Water-Flow Submodel 64
IX-1 World Model with "Unlimited" Resources,
Pollution Controls and "Perfect" Birth Control 84
IX-2 Hypothetical Net Social Benefits Over Time 103
A-l Outline Description of Tasks Involved in National
Water Quality Management
B-l Effects of Water Pollution on Health
C-l Summary of Types of Economic Impacts Expected
with Internalized Waste Treatment Costs
v
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ACKNOWLEDGMENTS
This report represents a, group effort. Various Environ-
mental Protection Agency (EPA) and Development Planning and
Research Associates, Inc. (DPRA) personnel were involved and
thanks goes to all who directly participated.
The EPA Economic Analysis Branch staff in general,
but especially Fred Abel, Chief and Dennis Tihansky, project
liaison representative, assisted generously by providing infor-
mation and integrative ideas. Alan Carlin, Director, Implemen-
tation Research Division, also contributed perspective viewpoints
and suggestions.
Many DPRA staff members and associates contributed
to this project. Samuel Unger, Jarvin Emerson and David Jordening
shared responsibility in writing this report. We, as economists,
especially thank Larry Erickson and L. T. Fan for general 'engineer-
ing' inputs. Linda Erickson, Ron Dorf, Keith Leitner and M. Y. Chow
provided technical support. Fred Mangum and Arlo Biere served as
reviewers of draft materials and provided a variety of suggestions to
help shape the final report. Frances Moyer and other secretarial
support staff worked diligently to prepare draft and final materials.
Finally, we thank the many persons and authors whose ideas
we have reviewed and summarized. We hope we accurately repre-
sented the views of others in this report. We believe the problem
of water quality management can be better understood given this type
of overview effort.
VI
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STATE-OF-ART REVIEW: POLLUTION CONTROL BENEFITS
AND COSTS WITH EMPHASIS ON WATER"
SECTION I
INTRODUCTION
The state-of-art survey presented attempts to classify and
assess benefit cost analyses applied to water resource manage-
ment problems in light of relatively recent serious concerns in-
volving environmental quality issues. Rather piece-meal analyses
have been completed. Traditional benefit cost analyses have in-
corporated little regarding either costs or benefits which fall out-
side market-oriented systems. Qualitative factors of value which
are not reflected in some market exchange system have generally
not been quantified in past studies. Only recent studies have intro-
duced 'proxy1 type variables which indirectly measure benefits and
costs in common-denominator dollar terms.
Critics (or fear by economists of alledged critics) of non-
traditional quantification procedures--to place some value on
qualitative non-market phenomenon—have perhaps stifled efforts
to incorporate externalities in economic-oriented benefit cost
studies to date. As a consequence, past experiences by econ-
omists involving empirical benefit and cost (especially benefits)
results are glaringly meager.
Report Objectives
Two principal objectives of this report are to present:
(1) A state-of-knowledge summary concerning both
water pollution control costs and benefits, and
(2) A general statement of implications for planning
and research (theoretical, methodological and
data implications).
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This report covers developments in the first of a three-
phase program:
Phase I: State-of-Art Review
Phase II: Specification of Research Needs and Priorities
Phase III: Selected Implementation Research
A major function of this report is to provide a needed assessment
of both 'what is1 and perspective viewpoints of 'what ought to be'
based on theoretical and applied experience in developing benefits
and costs of water pollution control.
Emphasis is given toward an economic approach and
assessment of water pollution control problems. The rationale
for doing so is that a public awareness exists and a national
commitment is planned for water pollution control. Alterna-
tives for control have been identified and associated implemen-
tation research efforts are being pursued. Choices among alter-
native policies, programs and other control activities need to be
made, in many cases urgently, and economic analyses are de-
sired in decisions of choice.
As will be described, the needed 'economic' assessment
of benefits and costs and trade-off implications require embodi-
ment of factors and variables from virtually all disciplines of
knowledge. A particular branch of economics, i.e., welfare
economics, has historically embodied the kinds of inter-
disciplinary factors required in environmental quality manage-
ment issues such as the one proposed. However, numerous
gaps in knowledge, and particularly understanding of complex
interrelationships among the many factors involved, result in
failures of traditional economic methods and approaches. Hence,
while emphasis is cauched mainly in economic terminology,
general systems theory concepts and approaches, which are
deliberately expansive versus contractive, are clearly needed
to achieve comprehensive understanding of environmental pollu-
tion control problems.
Basic Problem Definition
Water pollution control, or more broadly, water qual-
ity management implies and involves regulation of effluents,
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emissions and substances into water receptors which contam-
inate or otherwise alter the quality of water.
Pollution refers to the act of being or of making unclean,
but pollution control does not necessitate, per se, the exclusion
of pollutants from receptors of concern. Control (regulation)
includes but is not limited to, exclusion of pollutants.
A generally recognized characteristic of most water
receptors, especially flowing rivers and streams, is the natural
assimilative capacity to absorb and/or adsorb foreign substances
without detrimental impact upon the affected intermediate or
terminal receptors and/or processes therein. In fact both natu-
rally occurring organic and inorganic substances are integral
elements in diverse and complex life-support ecosystems which
have and are evolving. Without some 'pollution1, or perhaps
for the purpose of distinction, without residuals (wastes) from
both natural/physical and biological processes, various life-
support ecosystems (food-chains) would collapse.
In contrast, residual flows containing undesired volumes
of wastes and/or specific toxic contaminants (including various
natural and synthesized chemicals) may 'exceed1 the assimilative
capacity of receptors to the detriment of desired ecosystem func-
tions. Detrimental impacts may be local and/or global in scope.
While much is known concerning impacts of many organic
and inorganic (and other, e.g., radioactive) substances in water,
in terms of their impact on affected ecosystems, much more is
probably unknown. Consequences of the presence of persistent
residuals, e. g. , heavy metal molecules such as mercury, have
only recently been discovered in relation to human health. Cum-
ulative impacts, or build-up over time of other chemicals and
chemical compounds, e.g. , DDT, have also only been recently
discovered.
Renewed focus is now being placed by scientists on the
possible impacts of other identified persistent and potentially
toxic substances. Water quality management entails complex
and possibly long-term concerns. Unknown as well as known
factors are involved. 'Mixing1 effects of various residuals ap-
pears generally unexplored.
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Economic analysis of benefits (in many cases damage
reductions) and costs of water pollution control is at best lim-
ited to the known aspects of water quality management. (Al-
though, as is subsequently presented, the concept of assigning
and insurance-value for risk and uncertainty pertaining to un-
known elements of water quality management is believed appli-
cable.) As will also be explained, economic analyses fall far
short in assessing economic and social impacts of known aspects
of water quality management. Esthetic properties of water qual-
ity appearance involve additional dimensions of concern which
are introduced by the social sciences, e. g. , sociology and psy-
chology. Such concerns also have economic implications and
consequences.
The basic problem addressed in this study is to survey
and assess the state-of-art of economic analyses dealing with
water pollution control benefits and costs. _'
An Introductory Perspective
Water pollution control is one aspect of a larger environ-
mental quality management problem which not only the U.S.,
but other nations of the world, are vitally concerned. Water
quality management cannot, however, realistically be divorced
from air, land and other ecosystem quality issues. Neither can
environmental quality management efforts be pursued as a unique
problem of the U.S. public. That is, other major issues are
also of current critical concern, such as population control,
malnutrition, energy supplies, natural resource depletion,
international relationships and national security.
The above problem areas are both directly and indirectly
intertwined. Some cause-effect relationships can be cited. Also,
the political environment calls for concurrent efforts such that
only limited resources and commitments can be expected toward
any single issue.
In such a setting water pollution control (or more broadly,
water quality management) is seen as but one of numerous serious
problem areas of collective responsibility.
_' A conceptual management framework suggesting needed consider-
ations in water quality management is outlined in Appendix A.
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The aim of this report is to separate so far as possible
the water pollution control problem from other problems and
to focus on pollution control costs and benefits. Such a pro-
cedure is desired in order to bring into sharper focus the nature
of water quality problems.
As is described herein, the scope and severity of water
quality problems is believed serious throughout our nation.
Damages have already reached phenomenal levels and continued
degradation of water quality in general is believed by many as
a threat to human survival--often in very subtle and seemingly
obscure ways.
Control of water pollution will require numerous types
of effort and cost. Perhaps even life-styles and changing pro-
duction/consumption patterns will be required for control to be
effective. Such costs and possible changes will naturally be re-
sisted by those most directly affected. Collective and public
decisions and commitments are required. Costs of control
are ultimately a collective and public cost.
Benefits of pollution control are also ultimately collective
and public. Unanswered in this logic, however, are equity
issues both in terms of cost burdens and benefit distribution.
During perhaps a rather long transitional period, various
inequitable disruptions and consequences of water pollution
control can be expected. Efforts to compensate for such
transitional costs must also be considered in policies, pro-
grams and actions associated with water pollution control.
Benefits from water pollution control will be both tangi-
ble and intangible. Tangible benefits will include numerous
'damage reductions' to water users as outlined below. Intangible
benefits involving sight, color, odor, taste and other esthetic
qualities of clean water are expected.
Benefits of water pollution control are expected to be
publicly demanded as well as desired as long as such benefits
exceed perceived and actual costs of control. Herein lies the
main general reason for this review of water pollution control
benefit and cost studies.
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In our representative form of government, political lead-
ers will adopt and support policies and programs which can be
shown to collectively benefit the public. Such actions require
public support and commitment, however. Also, as briefly
noted, water pollution control competes with numerous other
issues for both political and public support.
Reasoned and objective study of water pollution control
costs and benefits is needed. Benefit cost tradeoffs can be ex-
pected in comparing water pollution control alternatives rela-
tive not only to other environmental quality management issues,
but other critical issues as well.
Public awareness and concern toward water pollution
in general has reached a point where it is clear that: "Water
pollution control is a desired national objective."
Damages (negative benefits) have, are and/or are ex-
pected to occur in a variety of ways. As mentioned, intangible
values are also placed on clean water. A brief listing of some
of the known private and public concerns involving water qual-
ity in oceans, lakes, reservoirs, rivers, streams and under-
ground aquifers is shown in Exhibit 1-1. These factors, even
though they may lack adequate empirical quantification, are
nonetheless the type of concern giving substance to the notion
that water pollution is a serious problem deserving of conscious
and concerted effort by the American public.
A final introductory perspective viewpoint is a mate rials -
balance concept of the residuals (waste) and related pollution
control problems. As depicted in Exhibit 1-2, the environmental
biosphere is both the source of materials and the receptor of
residuals from human-controlled extraction/processing, produc-
tion, distribution, and consumption activities. The law of Con-
servation-of-Mass indicates that, aside from rather short-
term accumulations, all materials extracted from the environ-
ment are necessarily returned to the environment even though
their form and location may change. In other words, residual
mass is effectively equal to that initially extracted. The earth
is for all practical purposes a 'closed system' with respect to
mass. Mass can be transformed but not destroyed. Pollution
of air, water and land receptors can and does occur in the
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biosphere if residuals are not returned to the biosphere in an
environmentally acceptable form.
Although not pursued further here, another fundamental
law, known as Conservation-of-Energy, is also important. In
effect, energy can also neither be created nor lost in a universal
setting. However, unlike mass, the earth is considered to be
an 'open system1 with respect to energy. Solar energy is per-
haps the most obvious energy source originating outside the
earth's biosphere. The economic value of energy is dependent
on energy forms (electrical energy is more valuable than heat).
Energy conversion often results in material residuals especially
when fossil fuels provide the primary energy source. Consider-
ation of pollution due to energy-induced residuals may signifi-
cantly affect energy policies. Such policies in turn affect water
pollution control activities and associated economic consequences.
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Exhibit 1-1: Outline Description of Environmental Impacts of Water Pollution and Its Control
General
Environmental
Impact
HEALTH^/
ESTHETICS
Type of
Economic Consequence
Medical Service Demands
Productive Work (Man-
Hours Lost
Human Life Lost
Private property damage
and subsequent value re-
duction
Public property damage
and subsequent value re-
duction
Recreation alterations
"Quality of life"
Type of
Water Pollutant
Microbiological
Inorganic Chem-
icals
Organic chemicals
Radioactivity
Physical
Description
Health effects on man include acute and chronic
illnesses, alteration of physiological function,
and sensory irritations. Water quality may af-
fect health through public water supplies, food
chains, transmission of communicable diseases,
bodily contact with water and through other en-
vironmental changes resulting from water pollu-
tion. Examples of health impacts include hepatitis,
cholera, malaria, mercury poisoning, eye irri-
tations, leptospirosis, salmonellosis, dysentery,
endemic fluorosis, cadmium poisoning, altera-
tion of liver function, schistosimiasis and methe-
mo globinemia.
Materials that will
settle to form ob-
jectionable deposits.
Floating debris, oil,
scum and other mat-
ter.
Esthetic effects include all direct and indirect
public and private property damage and subse-
quent value reduction resulting from undesirable
qualities of surface water. It further includes all
alteration in water quality (including subjective
qualities) so as to destroy or alter the esthetic
Substances producing qualities intrinsic with the water itself or the
objectionalbe color, surrounding environment including all primary
odor, taste or turbid-and secondary contacts with the environment.
ity
_' Appendix B presents a representative summary of known health impacts stemming from primary and
secondary exposure to surface waters possessing various undesirable characteristics or components.
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Exhibit 1-1 (continued)
General
Environmental
Impact
PRODUCTION
(ACTIVITY)
IMPACTS-'
Economic Consequence
Raw material refine-
ment, treatment and
substitution
Process changes
Employment changes
Industrial structure
changes
Regional and area
dislocations
Final product prices
Input costs
Income redistribution
International trade
Type of
Water Pollutant
Materials including
radionuclides in con-
centration or com-
binations which are
toxic or which pro-
duce undesirable
physiological re-
sponse in animal
and plant life.
Physical constituents
Microbiological or-
ganisms
Inorganic chemicals
Organic chemicals
Description
Esthetic impacts are frequently associated with
but not limited to material spills, acid mine run-
off, feedlot runoff, turbidity, marine discharges,
industrial discharges and thermo pollution all
of which directly or indirectly alter water qual-
ity. These factors are frequently grouped under
a single heading--quality of life. Both public
and private property values reflect some esthetic
qualities but suitable market-based valuation re-
flecting all esthetic qualities either have not been
discovered or do not exist in current exchange
systems.
Production impacts include all raw material
refinement, treatment and substitution changes
necessitated by deteriorating water quality or
stemming from water quality controls that were
heretofore unnecessary due to adequate water
quality or absence of controls. It further in-
cludes all agricultural, municipal and industrial
structure changes, resulting capital losses,
employment impacts and relocation losses re-
sulting from environmental degradation and/or
manditory pollution abatement standards.
_' Appendix C presents a summary of various economic impacts frequently associated with internalized
waste water treatment costs.
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Exhibit I-1 (continued)
General
Environmental
Impact
UNCERTAIN
ECOLOGICAL
DISRUPTIONS
Type of
Economic Consequence
Unknown economic con-
sequences affecting all
health, esthetic, produc-
tion and consumption
facets of life.
Type of
Water Pollutant
Any unknown undesir-
able concentration and
combination of physical,
microbiological, unor-
ganic chemicals, or-
ganic chemicals and
radioactive pollu-
tants.
Description
The disruptions of presently unknown but vital
life support cycles and systems resulting in
unknown and unpredictable social, economic
and ecological consequences.
An increasing array of toxic and potentially
harmful persistent pollutants have become
the focus of scientific physical/biologic re-
search. Among the most threatening classes
of pollutants thus far identified are mercury,
lead, arsenic, sodium-nitrilotriacetate acid
(NTA), cadmium, polyclorinated biphenyl
compounds (PCB), beryllium, dioxins, and
others.
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SECTION II
SCOPE
A state-of-the-arts survey of benefits and costs of pollu-
tion control is an elusive goal in this new and rapidly changing
field. As will become apparent, most of the relevant literature
has appeared in the last five years.
The boundaries of the investigation include the extension
of traditional benefit cost analysis into the area of pollution con-
trol. It is constrained by the relatively meager state of knowl-
edge that currently exists. As with any state of knowledge re-
view, the process must be selective but representative. This
report is no exception.
It is instructive to outline the scope of the following sur-
vey and the general approach taken. The main remaining sec-
tions and a brief description of contents in each are as follows:
Section
Benefit Cost Framework
Pollution Control Costs
Content Description
A conceptual basis for benefit
cost analysis is suggested.
An economic concept of a social
welfare function is presented as
the most widely accepted public
criterion which embodies en-
vironmental quality concerns.
Problems of efficiency, equity,
externalities and social dis-
count rates are introduced and
briefly summarized.
Control costs are a function of a
host of factors or variables including
water quality criteria, specific pol-
lutants, treatment strategy and de-
sign capacity. These and other
factors are described. The types
of available fixed cost estimates
and cost function estimates are out-
lined. Also, the adequacy of such
information is assessed.
12
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Section
Benefit Measurement
Benefit Cost Aggregation
Framework
General Equilibrium
Models
Summary Observations
Content Description
A variety of partial-approaches to
benefit measurement are outlined
and some problems, including the
planning horizon (time profile) are
indicated. Benefit measurements
of water quality factors are meager
and underdeveloped. Some problems
in estimating pollution control bene-
fits are outlined.
Benefit cost impacts of water pollu-
tion and its control are intrinsically
location dependent. Location-
preserved analyses are necessary.
An aggregation framework which
accounts for spatial inter dependencies
is needed. An assessment approach
is also proposed based on develop-
ment by the Water Resources Council.
Benefit cost analysis effectively
becomes a supplementary analysis
of alternative sets of simulated
general equilibrium types of econ-
omic solutions. This conclusion
seems to follow given the types of
recent developments in the liter-
ature which have begun to directly
assess impacts of environmental
quality management. General
system analysis approaches are
implicitly required.
A number of summary observations
regarding the current state-of-art
are presented. Some conceptual
problems, data problems and others
are briefly sketched.
13
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Section Content Description
Implications for Planning This final section outlines some
and Research directions of needed study. As
a foundation for 'prescribing1 such
directions, some procedures, per-
spective viewpoints and a refinement
of the problem definition are pre-
sented.
The primary intent of this report is to provide a working
framework for subsequent research. The final section draws on
information and knowledge outside the scope of the state-of-art
survey, per se. Such a step is needed, however, if water quality
management problems are to realistically be analyzed and eval-
uated in the desired benefit cost framework.
14
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SECTION in
BENEFIT COST FRAMEWORK
A variety of conceptual issues are fundamentally involved
in discussions of water pollution control benefits and costs. In
this section, the principal concepts are briefly presented to form
a framework for describing and assessing benefit cost analyses.
Welfare Economics: A Conceptual Basis for
Benefit Cost Analysis
Maximization of social welfare (the sum of both public
and private net benefits) is the generally accepted public criteria '
or objective expressed by a branch of economics known as wel-
fare economics. This branch of study endeavors to formulate
propositions (policies and rules) by which to rank economic alter-
natives open to society. That alternative or situation which maxi-
mizes social welfare might therefore be identified.
Problems not only of efficiency but equity are of concern.
Values and tastes enter the analysis. Social (public and private)
values are the foundation of the implied social welfare function.
The issues, as described, are in large measure precisely
the types of concerns embedded in environmental quality manage-
ment problems. That is, implied if not actual social values and
preferences affect policy choices toward achievement of desired
environmental quality. Movement toward improved environmental
protection will involve efficiency and equity questions. Values and
tastes are changing, and consequences on matters of social choice
need to be assessed.
Unfortunately, the discipline of welfare economics has it-
self1 failed to resolve questions of efficiency and equity involving
the aggregation of complex interpersonal relationships implicit
in identifying social values and social welfare. Problems in
determining collective rationality, in choosing among alternatives
which yield efficient solutions but only with some inequities pre-
sent, and in internalizing all externalities not expressed in mar-
ket-based exchanges are among the difficult unresolved questions.
Valuation of social welfare in common-denominator terms (whether
15
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in dollars or in some non-dollar terms) is critical in such dis-
cussions .
Despite this clouded picture of the state-of-art of applied
welfare economics, it remains as a primary discipline in which
individual values and concerns to protect individual liberties
within a collective value system are studied. Lessons from
welfare economics, however weak they may at first appear,
are nonetheless relevant in a most fundamental way in matters
of environmental quality in our democratic society. The free-
dom and right of individual expressions of value and preference
are basic to the notion of a collective social welfare function in
a democracy.
Social welfare ideas, as only briefly and partially outlined
above, are implicitly embodied in benefits and costs of water pol-
lution control. The relevancy of this brief background setting will
hopefully become more apparent in the following discussion.
Efficiency Criterion
The problem of evaluating water pollution control mech-
anisms is basically a problem in efficient resource allocation.
As such the decision-making criterion becomes an evaluation of
total social costs and total social benefits in an effort to arrive
at a position where the positive difference between the two is
greatest. Alternatively stated, net social benefits should be
maximized. The decision criterion can also be viewed in a
marginal context. The relationship between the two is expressed
in Exhibit III-l. Marginal social benefits (MSB) are equal to
marginal social costs (MSC) where the difference between total
social benefits and costs is greatest.
A problem arises when there is significant divergence .
between private costs and benefits and social costs and benefits.
Markets frequently do not reflect total social costs and benefits
and actual or potential inefficiencies occur. Some benefits and
costs are accurately registered by market prices, some are in-
accurately reflected by market prices, some are not registered
in markets although simulated market values can be computed,
while for others it is nearly impossible to conceive of an adequate
market (dollar-based) valuation process.
16
-------
Exhibit III-l. Total and Marginal Social Welfare Concept
Total
Value
Quantity
Total Social Benefits and Costs of Production
and Consumption of a Commodity
. MSC
I
Marginal
Value
MSB
Quantity
Marginal Social Benefits and Costs
of Production and Consumption of a Commodity
17
-------
Externalities
An externality exists where an economic action affects
parties not directly involved in the transaction. Benefits or
costs spillover on parties other than the primary participants
in the transaction thereby falling outside the reach of the price
system. A negative externality exists where a person incurs
identifiable costs for which he receives no compensation. A
positive externality occurs where a person benefits from the
action of another without being required to make compensation.
The concern over externalities stems from the breakdown
in the market mechanism and a corresponding divergence of equity
and efficiency solutions expected of the free market. From an
equity viewpoint some persons are "harmed" and others "helped"
through no action of their own. Also, if externalities are pre-
sent in the production of a good, a nonoptimal quantity of the good
will be produced. Lets examine this latter statement in more
detail.
Suppose that the market equilibrium price and quantity
for a product is represented by PQ and QQ in Exhibit III-2 where
SS and DD are the corresponding supply and demand curves with
all costs and all benefits embodied in each. At this equilibrium
marginal benefit equals marginal cost. But if there are exter-
nalities, some of the benefits and/or costs are not included in
the demand and supply curves. For instance, if some of the costs
are excluded from the market supply curve as in S'S", the mar-
ket price will be lower and the quantity produced will be greater
than the optimal price and quantity, PQ and QQ. Conversely,
where benefits are excluded from the market demand curve, the
output and price will be lower than the socially optimum level. This
situation is illustrated in Exhibit III-3. In either the case of the
cost or the benefit externality, a less than socially satisfactory
market solution is achieved. Examples of externalities are numer-
ous throughout the economy. One example might involve a meat-
packing plant where, although the private costs of processing meat
are included in the supply curve, any uncontrolled water pollution
costs are not. These spill over on society in general.
The inability of markets to correctly reflect total social
costs and benefits necessitates a variety of conceptual and em-
pirical challenges called benefit cost analysis.
18
-------
Exhibit III-2. Socially Optimum Market Conditions vs. Cost Externality
gro
D
Q0 QI
Quantity
Exhibit III-3. Socially Optimum Market Conditions vs. Benefit Externality
QZ Q0
Quantity
19
-------
Traditional Benefit Cost Analysis
Benefit cost analysis is often the approach used to assess
the desirability of a particular investment or pricing alternative.
Changes in resource allocation are expected. Traditionally bene-
fit cost analysis has focused on investment projects undertaken
by a governmental unit. The need for such analysis usually re-
flects -weak or non-existent price signals in the market.
The history of benefit cost analysis originates with Dupuit1 s
classic paper on the utility of public works in 1844 (Dupuit, 1844).
The major thrust for such studies in the United States came from
the River and Harbor Act of 1902 as an administrative device to
evaluate navigation improvement projects. Subsequent alterations
in the framework of benefit cost studies attempted to increase the
scope of the benefits and costs included in the analysis, but nearly
all analyses were of specific investment projects and were con-
fined to tangible costs and benefits.
The basic problem of benefit cost analysis is to maximize
the present value of all benefits less that of all costs, subject to
certain constraints. Operationally this breaks down into identi-
fying the costs and benefits to be included, determining how the
costs and benefits are to be valued, determining the discount rate,
and specifying the relevant constraints.
The first issue is externalities, the spillovers of benefits
and costs to parties other than the direct participants. Because
of externalities, the identification of costs and benefits may be a
difficult task. Both neglect of externalities and controversy over
appropriate estimation characterize the literature.
In valuing costs and benefits in monetary terms, common
price levels are sought which usually involves adjustments for
relative price changes. If the project is of sufficient size, it
may exert a significant influence on market prices which creates
the problem of the proper prices for valuing the change in output
levels. But, market prices cannot be used to value benefits which
are not capable of being marketed. Since most water projects are
of the collective goods nature, revealed consumer preferences are
elusive, if nonexistent. In addition numerous intangible benefits
and costs complicate the valuation process.
20
-------
The interest rate is an attempt to reflect the marginal
productivity of investment and time preference. On one hand,
it has been argued that social discount rates should be higher
than private discount rates because private interests tend to
undervalue the future. 'In contrast, it is also argued that the
social discount rate should be lower than the private (market)
rate to better reflect long-term consequences on future gener-
ations (both benefits and costs, including externalities).
The relevant constraints must be specified to reflect
physical and institutional realities. Technology dictates a feas-
ible range of production possibilities which may be further con-
strained by legal provisions. A project may have a significant
impact on the distribution of income. Such an effect may be
considered desirable within certain limits such that the optimal
solution becomes constrained by such considerations.
Weaknesses of Traditional Benefit Cost Analysis for
Dealing with Environmental Quality
Traditional benefit cost analysis has numerous short
falls as a management tool to evaluate policies designed to im-
prove environmental quality.
"Most benefit cost approaches are inadequate not because
there is anything wrong with using a benefit cost ratio per se, but
because frequently the benefit estimations, a good many of the cost
estimations, the treatment of uncertainty, and all of the time dis-
count rates are improperly derived." (Whipple, 1971)
Two general limitations of benefit cost analysis have been
concisely summarized by Prest and Turvey (1965). "First, cost
benefit analysis as generally understood is a technique for taking
decisions within a framework which has to be decided upon in ad-
vance and which involves a wide range of considerations, many of
them of a political or social character. Secondly, cost benefit
techniques as so far developed are least relevant and serviceable
for what one might call large-size investment decisions. If in-
vestment decisions are so large relatively to a given economy . . .
that they are likely to alter the constellation of relative outputs
and prices over the whole economy, the standard technique is
likely to fail us, for nothing less than some sort of general
equilibrium approach would suffice in such cases."
21
-------
The Prest-Turvey critique implies that benefit cost
analysis can be applied to environmental problems only with
great difficulty and may be conceptually and empirically in-
appropriate.
Traditional benefit cost analysis has evolved as an ana-
lytical device for measuring development effects rather than en-
vironmental repercussions. The result is that a general conceptual
framework for evaluating pollution abatement policies has not been
formulated which has received a generally favorable review. The
major difficulty revolves around the identification and measure-
ment of benefits from pollution abatement. Traditional benefit
measures used in evaluating development projects have limited
application to environmental repercussions because they have
failed to embody externalities on affected processes. It is noted,
however, that development effects are also a major component of
social welfare. Both private and public asepcts are involved.
22
-------
SECTION IV
POLLUTION CONTROL COSTS
Pollution control costs depend on many diverse physical,
engineering and economic factors and consequently are difficult
to estimate in aggregate. Some factors that heavily influence
pollution control costs are type of treatment, plant capacity, ef-
fluent removal efficiency, influent loads, effluent loads, type and
concentration of effluents, desired water quality objectives and
a host of other economic, engineering, climatic, physical and
spatial considerations.
The diversity, complexity and interaction of the deter-
minants of water pollution control costs necessitate approaching
national pollution cost estimates through a regional or highly
disaggregated framework. For the same reason, almost all
available water quality control cost data are project oriented in
that they refer to specific treatment strategies, specific engi-
neering parameters and stipulated effluent flow objectives.
Some of the more salient factors influencing pollution
control costs—water quality criteria, design capacity, speci-
fic pollutants and treatment strategy--are discussed below.
Water Quality Criteria
One critical factor (perhaps the most important factor)
influencing the cost of water quality management is the desired
or target water quality. The imposed quality requirements di-
rectly influence the selection of the appropriate treatment strat-
egy. If the imposed quality standard is, for example, designed
to satisfy the Public Health Service drinking water standards,
the treatment of all waste water discharges would require multi-
stage treatment and in general a more sophisticated treatment
process than if the water quality objectives tolerated higher ef-
fluent loads.
Realizing that surface water is often withdrawn for pub-
lic use with the major treatment being disinfection, one water
quality criteria that has been advocated for adoption is that all
surface waters meet Public Health Service drinking water stand-
ards. Exhibit IV-1 presents the permissible and desirable
-------
Exhibit IV-1. Surface Water Criteria for Public Water Supplies
Permissible Desirable
Constituent or characteristic criteria criteria Paragraph
Physical:
Color (color units) 75 <10 1
Odor Narrative Virtually absent 2
Temperature * do Narrative 3
Turbidity do Virtually absent 4
Microbiological:
Coliform organisms 10,000/100 ml1 <100/100 ml1 .5
Fecal conforms 2,000/100 ml1 <20/100ml1 5
Inorganic chemicals: (mg/i) (mg/l)
Alkalinity Narrative Narrative 6
Ammonia 0.5 (as N) <0.01 7
Arsenic * 0,05 Absent 8
Barium* 1.0 _ do 8
Boron * 1.0 do 9
Cadmium * 0.01 do 8
Chloride * 250 <25 8
Chromium,* hexavalent 0.05 ___' Absent 8
Copper* 1.0 Virtually absent 8
Dissolved oxygen >4 (monthly mean) Near saturation 10
>3 (individual sample)
Fluoride * Narrative Narrative 11
Hardness* do do 12
Iron (filterable) 0.3 Virtually absent 8
Lead * 0.05 Absent 8
Manganese* (filterable) 0.05 do ...8
Nitrates plus nitrites * 10 (as N) Virtually absent 13
pH (range) 6.0-8.5 Narrative 14
Phosphorus* Narrative do 15
Selenium * .0.01 Absent 8
Silver * 0.05 do 8
Sulfate * 250 <50 8
Total dissolved solids * 500 <200 16
(filterable residue).
Uranyl ion * 5 Absent 17
Zinc * —5 Virtually absent 8
Organic chemicals:
Carbon chloroform extract * (CCE)_ —0.15 <0.04 18
Cyanide * 0.20 —Absent 8
Methylene blue active substances * 0.5 Virtually absent 19
Oil and grease * Virtually absent Absent 20
Pesticides:
Aldrin * 0.017 do 21
Chlordane * 0.003 do 21
DDT * 0.042 do 21
Dieldrin » 0.017 do 21
Endrin * 0.001 do 21
Heptachlor* =. 0.018 do 21
Heptachlor epoxide * 0.018 do 21
Lindane * 0.056 do __.21
Methoxychlor* 0.035 do 21
Organic phosphates plus O.I2 do 21
carbamates.*
Tpxaphene * 0.005 do 8
Herbicides:
2,4-D plus 2,4,5-T, plus 2,4,5-TP * 0.1 do 21
Phenols* 0.001 _. do 8
Radioactivity: (pc/i) (pc/l)
Gross beta* 1,000 <100 8
Radium-226 * 3 <1 8
Strontium-90 * 10 <2 8
* The defined treatment process has little effect on this limit may be relaxed if fecal coliform concentration does not
constituent. exceed the specified limit.
1 Microbiological limits are monthly ar'thmetic averages - As parathion in cholinesters-e inhibition. It may be neces-
based upon an adequate number of samples. Total conform sary to resort to even lower , jncentrations for some com-
pounds or mixtures. See par. 23.
Source: Report of the National Technical Advisory Committee to the
Secretary of the Interior, Water Quality Criteria, Federal
Water Pollution Control Administration, Washington, D. C.
April, 1968.
24
-------
characteristics for surface waters used to satisfy public sup-
plies. It is not advocated herein that this criteria be adopted
but only suggested that the selected quality criteria is one of
the most critical water management cost variables. The de-
sired water quality objective generally dictates the type of
treatment required.
Design Capacity
In several studies, design capacity, or a proxy variable
for design capacity such as population served or average daily
effluent loads, has been shown to be a dominant variable in esti-
mating waste water treatment plant costs for a given treatment
strategy. While it is recognized that many factors influence
treatment cost, several studies have indicated that this one fac-
tor is frequently the most significant (Tihansky, 1972). In situa-
tions where a fixed quantity of waste effluent is treated, waste
removal efficiency or effluent quality replaces plant capacity as
the single most important cost determining variable (Tihansky,
1972).
Specific Pollutants
Water quality management costs also depend on the spec-
ific pollutants present and the volume and concentration of such
pollutants. Along with the volume and type of emissions, many
other physical and ecological factors influence the severity and
subsequent cost of local water quality management.
One very broad indication of the nature and magnitude of
local water quality management problems can be acquired by
assessing the socio-economic profile of a region. For example,
the distributions of population and industry throughout a given
region can indirectly provide a broad indication of the type and
concentration of specific pollutants and may also be suggestive
of the area resource management problems. Data on industrial
and municipal waste discharge is therefore useful to help iden-
tify specific pollutants and further refine the problem.
25
-------
Exhibit IV-2 is a summary of specific characteristics or
constituents of surface waters that have been used by selected
industries. This type of data along with the knowledge of existing
water treatment facilities and the assimilative capacity of local
streams can be used to ascertain the area effluent flows, the
severity of local pollution, the required treatment strategies
and the subsequent cost incurred from water quality management.
Other studies have addressed these particular questions
by correlating surface water quality and specific pollutants to
the social, economic and physical characteristics of the river
basins. One such study is MRI1 s report on "Systems Progress
for the Analysis of Nonurban Nonpoint Sources of Pollutants in
the Missouri Basin Region." (1971). In this report, data was
collected in the following categories:
Water Quality
Climatology
Hydrology
Land Use
Topography
Soil Classification
Livestock Distribution
Pesticide Use
Fertilizer Use
Demography
From the above information, the following two-parameter
correlations were developed:
(1) BOD in the river streams versus number of cattle
in the immediate upstream drainage area
(2) Sediment yields versus percentage of land covered
by forest, range and pasture
(3) Fertilizer application versus nitrates in water
(4) Fertilizer application versus crop value
(5) Acres in pasture versus acres treated with herbicides
(6) Pesticides versus fertilizers
(7) Streamflow characteristics versus basin characteristics
Although these relations are very loose, they might be
applied to estimate pollution variation in each region contributed
26
-------
fO
Exhibit IV-2. Summary of Specific Quality Characteristics of Surface Waters That Have Been
Used as Sources for Industrial Water Supplies
[Unless otherwise indicated, units are mg/l and values are maximums. No one water will have all the maximum values shown.]
Boiler makeup water
Characteristic
Silica (SiO2)
Aluminum (Al)
Iron (Fe) _
Manganese (Mn)
Copper (Cu)
Calcium (Ca)
Magnesium (Mg)
Sodium and potassium
(Na+K).
Ammonia (NH3) _'
Bicarbonate (HCOa) __
Sulfate (SCX) .
Chloride (Cl)
Fluoride (F)
Nitrate (NO3)
Phosphate (PO,)
Dissolved solids
Suspended solids
Hardness (CaCO3) . _
Alkalinity (CaCO3)
Acidity (CaCO3)
pH, units
Color, units
Organics:
Methylene blue ac-
tive substances.
Carbon tetrachloride
extract.
Chemical oxygen de-
mand (O2).
Hydrogen sulfide
ft I O\
Temperature, F
0 to 1,500
psig
150
3
80
10
600
1,400
19,000
35,000
15,000
5,000
500
1,000
1,200
2*
100
100
120
Utility
5,000
psig
150
3
80
10
600
1,400
19,000
50
35,000
15,000
5,000
500
1,000
1,20~0
10
100
500
120
Cooling water
Fresh
Once
through
50
3
14
2.5
500
600
680
600
30
4
1,000
5,000
850
500
0
5.0-3.9
1.3
0
100
Makeup
recycle
150
3
80
10
500
600
680
500
30
4
1,000
15,000
850
500
200
3.5-9.1
1,200
1.3
100
100
120
Brackish 1
Once
through
25
1.0
makeup industry, industry,
recycle SIC-22 SIC-24
25
1.0 0.3
0.02 0.02 1.0
1,200
180
2,700
22,000
5
35,000
250
7,000
150
0
5.0-8.4
(')
4
100
0.5
1,200
180
2,700
22,000
5
35,000 150
250 1,000 O
7,000 120
150
0
5.0-8.4 6.0-8.0 5-9
1.3
100
200
4
120
Process water
Pulp and
Prim.
industry, industry, industry, industry.
SfC-26 SIC-28
50
2.6 5
2
200
100
600
850
200 ' 500
1,080 2,500
„ . 10,000
475 1,000
500
4.6-9.4 5.5-9.0
360 500
95 '
SIC-29
50
15
220
85
230
480
570
1,600
1.2
8
3,500
5,000
900
6.0-9.0
25
SIC-33
500
1,500
3,000
1,000
200
75
3-9
30
100
Food and
products, industry,
SIC-20 SIC-31
For the above 2
categories the
quality of raw
surface supply
should be that
prescribed by
the NTA Sub-
committee on
Water Quality
Requirements
for Public
Water Supplies.
1 Water containing in excess of 1,000 mg/l dissolved solids.
2 May be < 1.000 for mechanical pulping operations.
3 No large particles < 3 mm diameter.
* 1 mg/l for pressures up to 700 psig.
5 No floating oil.
•Applies to bleached chemical pulp and paper only.
NOTE.—Application of the above values should be based on Part 23, ASTM book of
standards (1) or APHA Standard methods for the examination of water and waste-
water (5).
Source: Report of the National Technical Advisory Committee to the Secretary of the Interior,
Water Quality Criteria, Federal Water Pollution Control Administration, Washington,
D. C. , April, 1968.
-------
by agriculture, forest and farm animals. Quantification of the
above relationships is an additional aid in the selection of the
appropriate treatment strategy.
The above factors--water quality criteria, design capa-
city and specific pollutants--are not an exhaustive listing of the
determinants of waste water treatment costs; but they are repre-
sentative of factors that vary throughout the spatial landscape
influencing local water pollution control costs. A summary
listing of these plus some additional key economic, engineering
and physical factors influencing water pollution control costs is
presented below:
Natural effluent flows or loads
Topography
Climatic and water temperature
Industrial discharge
Municipal discharge
Plant capacity
Type of treatment strategy
Peak effluent loads
Influent loads
Type and concentration of effluents
Desired water quality objective
By-product recovery
Recirculation
Removal efficiency
Wage rate differentials
Water transport distance
Local land costs
Assimilative capacity
Considering the number of variables and the interdepend-
ence and interaction of these variables, it is not surprising to
find that most water pollution control cost data are highly project
oriented, reflecting specific engineering parameters, and local
physical and economic environments. This also explains the
abundance of fixed cost or point estimates and the relative scar-
city of cost functions.
28
-------
Fixed Cost Estimates
The most sizeable body of literature related to benefit
cost analysis of water pollution control is fixed cost studies
for specific treatment strategies. The large number of such
studies is at least partially explained by their relative simplic-
ity. The results of such studies are essentially single observa-
tions on the cost of a specific, type of pollution control.
This type of study potentially offers two contributions
to a more rigorous analysis. First, the cost components of
a pollution control strategy are identified. Most frequently
these are direct investment costs within an engineering frame-
work. Second, such studies may provide the basis for con-
structing cost functions.
Among the major deficiencies of such studies are their
lack of generality (no functions) and the inability to consider
trade-offs. Further, in most instances only one or a few of the
costs are considered, generally the cost of the pollution control
equipment. Costs such as installation, operating power, and
engineering design are too often omitted.
Fixed cost estimates are generally concerned with direct
fixed capital investments at a point in time and space. Rules of
thumb are generally used to determine indirect costs. A com-
mon ratio of indirect to direct costs is one-fourth. The spatial
variation in costs maybe substantial. Because of large differences
in land costs from place to place, these are most often not in-
cluded in the estimates. But even equipment and installation
charges may vary significantly from area to area (Zepp and
Leary, I960, Hummel and Smith, 1970).
An example of one of the better industry cost studies is
Koenig's study which resulted from cost audits made on 30 plants
in 1965 (Koenig, 1967). The study includes unit costs of invest-
ment and water treatment factors, a portion of which are con-
tained in Exhibit IV-3. Investment costs were confined to the
treatment plant and pumping station and did not include peripheral
equipment such as conveyance lines for water or booster station.
All investment da^a were adjusted to 1964 prices and for regional
variatin.; - . Operating costs included chemicals, energy, man-
p'-'V,t;r, maintenance and repair and a miscellaneous category.
29
-------
Exhibit IV-3. Design Capacities, Operating Conditions, and Unit Factor Costs at Capacity
of 27 Plants Reported by Koenig
u>
o
Design
Capacity
Plant K,
No. mgd
1
2
3
4
5
0
7
8
9
10
12
13
14
15
17
is§
10
21
22
23
24
25
20
27
28
29
30
0.00
9.00
8.00
0.00
0.500
0.500
0.500
0.500
C.OO
0.300
12.00
4.00
O.<132
12.00
12.00
0.300
S.OO
7.50
G.81
0.57G
0.50-1
0.504
0.500
0.480
1.00
8.00
G.Si
Average
Pi eduction,
mgd
1.S7
7.09
5. 82
4.71
0.106
0.103
0.342
0.157
1.57
0.078
11.3
1.87
0.198
4.91
9.25
0.109
5.06
S.87
2.11
0.129
0.328
0.127
0.174
0.440
0.297
5.29
3.51
Operating
Use Rate
u,
fraction
0.31
0.79
0.73
0.79
0.33
0.33
O.GS
0.31
0.20
0.20
0.94
0.47
0.46
0.41
0.77
0.56
0.71
1.18
0.31
0.22
0.05
0.25
0.35
0.89
0.30
0.00
0.52
Conditions
Average
Operation
Time,
hrs/diiy
24
24
24
24
S.I
8.7
17
7.7
15
24
24
10
24
23
24
24
24
24
24
24
15
11.5*
18
15
S
24
24
Days 32°
and Below,
days/yr
11
17
48
33
81
03
03
80
37
85
94
100
148
144
144
144
144
11
G5
05
S3
73
70
70
06
59
05
Capital
Cost per
Unit
Capacity,*
fVKpd
10.6
17. S
37.3
32.2
48. 6
40.0
70.0
5.5
10.1
47.0
17.7
15.0
29.5
13.7
24.0
14.2
23. S
30.0
34.8
41.2
27.1
22.0
Chemicals
O.SS
1.27
1.04
0.05
1.30
2.30
2.00
O.SO
0.53
4.40
1.78
0.75
0.23
0.01
0.24
O.S1
0.33
0.44
1.22
2.20
3.50
2.70
0.00
1.77
1.23
0.09
Unit
Pumping
1.59
1.S9
0.74
2.04
3.20
3.50
3.25
4.30
3.90
4.8
1.42
1.72
4.03
1.79
0.97
3.2
0.75
2.08
2.02
4.30
1.46
2.89
1.01
1.15
Costs at Capacity! ((Vkgal.)
Heating
0.04
0.03
0.04
0.82
0.09
0.08
0.32
0.13
0.006
0.02
0.01
Manpower
0.44
1.5S
1.05
2.10
8.5
0.0
7.80
7.40
0.91
1.98
•O.S9
2.20
5. SO
1.76
2.81
3.30
4.16
1.39
O.SS
7.20
0.7
7.38
4.82
3.08
4.80
1.79
O.S9
Mainte-
muicej
0.06
0.15
0.40
0.07
0.51
0.51
0.50
0.72
0.29
0.58
0.03
0.34
2.92
0.03
0.04
1.57
0.59
0.48
0.20
0.18
0.34
0.17
0
0
0.16
Mv=c. -
0.03
0.20
0.07
0.20
0.11
0.11
1.65
0.00
0.03
0.11
0.11
0.11
0.11
0.11
0.02
0.09
0.13
0.12
0.11
0.02
0.05
0.16
0.11
0.11
O.H
*Data caver the treatment plant and the raw water pumping station. They have been adjusted to 1904 price levels and deregionali/ed with the Water
Treatment Plant construction index.
f All cosls are at 19G1 price levels.
J Values represent t/~°-6 times the costs at actual use rates reported by Koenig.
§ Thu only plant using slow sand filtration.
Source: H- Hinomoto, "Unit and Total Cost Functions for Water Treatment Based on Koerug's
Data," Water Resources Research. October, 1971.
-------
Cost Function Estimates
Koenig's average cost estimates were developed into unit
and total cost functions by Hinomoto (1971). Hinomoto points out
that theoretically the relationship between capacity and capital
cost can be illustrated by Exhibit IV-4. The capital cost or total
operating cost increases with an increase in capacity but at a
decreasing rate as indicated in the concave region. The cost
then increases at an increasing rate in the convex region of the
curve. Such a relationship would indicate why economies of scale
dictate the installation of a large unit rather than several smaller
units. Using this relationship, Hinomoto uses Koenig's data to
obtain the results indicated in Exhibit IV-5.
A variety of factors influence unit cost functions, the most
significant of which are summarized in Exhibit IV-6 (Tihansky,
1972; Eckenfelder and Ford, 1967).
Municipal waste treatment cost functions have also been
estimated by Smith and Eilers (1970) and Smith and McMichael
(1969) based on field surveys. Exhibit IV-7 presents the regres-
sion results of these two studies, to indicate the cost components
considered in an investigation of this sort.
A digital computer program has also been developed for
estimating the capital cost, the amortization cost and the oper-
ating and maintenance cost for conventional wastewater treatment
plants made up of subsets of the processes listed in Exhibit IV-6,
as reported by Eilers and Smith (1971). In this program approxi-
mately one hundred cost relationships developed by Black and
Veatch Consulting Engineers, Kansas City, Missouri under the
terms of Contract No. 14-12-462 with the EPA (1971) were used.
Exhibit IV-8 lists the processes that can be costed.
Opportunity Cost Framework
Trade-offs are ignored in the majority of the literature.
A notable exception is a study by Krutilla, Cicchetti, Freeman
and Russell (1972) in Kneese and Bower (1972).
31
-------
Exhibit IV-4. Typical Relationship Between Capacity and Capital
Cost or Total Operating Cost for Capacity Operation
Total
Investment
and
Operating
Cost
(At Capacity)
Capacity
Exhibit IV-5. Unit Cost Functions of Factors of Water Treatment
and Their Variability With Daily Use
Ratetf
Regression Analysis
Factor of Water
Treatment
Capital investment*
Chemicals
Pumping energy
Heating energy (140 'lays
below 32°F)t
Manpower!
Maintenance and rcp.-iir
Miscellaneous
Data
Points
Used
21
26
IS
5
15
24
25
Coefficient of
Determina-
tion, r*
0.595
0.192
0.517
O.S27
0.320
0.311
0.013
Unit Cost Function for
Capacity Operation,
plant capacity K, nigd
30 .SO K-»-ns ((f/gpd)
1.20 K-«-u« ((i/kgal.)
2. 78 K-«-»M (ff/kgal.)
0.307 K-«-«" WAgal.)
2.73 K-o-"3 (fi/kgal.)
0.405 K-«-<-' ((i/kgal.)
0.102 K-i.070 (j!/kgal.)
Cost Variability
with U
Fixed
Variable with U
Variable with U
Fixed
Fixed
Variable with U"-f
Fixed
* Data points do ti'it include plant IS, the only plant using slow sand filtration.
t Data points arc related to plants in the climatic zone having 140 days below 32°F & year.
t Data points an: related to plants operating 24 hours a day.
Source: H. Hinomoto, "Unit and Total Cost Functions for Water
Treatment Based on Koenig's Data," Water Resources
Research, October, 1971.
32
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Exhibit IV-6. Most Significant Determinants in Unit
Treatment Cost Functions
P rima r y Treatment
Equalization
Neutralization
Oil Separation
Sedimentation
Biological Treatment
Activated Sludge
Aerated Lagoons
Aeration Basin
Final Clarifier
Lagoons
Tertiary Treatment
Adsorption (carbon)
Filtration
Ion Exchange
Sludge Handling and Disposal
Flotation Thickening
Thickening
Total Sludge Disposal
Vacuum Filtration
Basic Determinant
Volume (gal.)
Flow rate (mgd)
Flow rate (mgd)
Surface Area (ft. 2)
Volume (mg)
Volume (mg)
Volume (mg)
Surface Area (ft. 2)
Surface Area (acre)
Flow Rate (mgd)
Flow Rate (mgd)
Flow Rate (mgd)
Flow Rate (mgd)
Volume (gal)
Flow Rate (mgd)
Area (ft.2)
Source: Tihansky, Dennis. Water Pollution Cost of Control
Functions: A State-of-the-Art Review, Economic
Analysis Branch, EPA, Washington, D. C. , 1972.
(Unpublished Report)
33
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Exhibit IV-7. Cost Functions of Municipal Waste Treatment
Degression Coefficients
Capital Costs O & M Costs
Technology a b d e
Ordinary Treatment
Primary Sedimentation
Activated Sludge
Trickling Filter
Waste Stabilization Ponds
Upgrading Primary to
Activated Sludge
Ancillary Works*
675.7
912. i
942.0
2,863. 1
1,484.0
86.3
-.33
-.31
-.31
-.61
-.41
-.09
25.0
30. 1
55.0
17.4
_ _
—
-.26
-.25
-.36
-.42
-. —
- -
Tertiary Treatment
Micro screening
Filtration
Two -Stage Lime Clarification
-Less than 10 mgd
-Greater than 10 mgd
Lime Recalcination
-Less than 10 mgd
-Greater than 10 mgd
Ammonia Stripping
-Less than 10 mgd
-Greater than 10 mgd
Carbon Adsorption
-Less than 10 mgd
-Greater than 10 mgd
9.4
207. 1
140.9
50. 1
1,903.2
22.7
1,439.6
76.0
-. 12
-.34
0.26
-. 18
-.50
-. 10
-.40
-.14
.3
51.3
148.6
12.0
30.0
9.4
35.5
3.5
1,418.9
23.9
-.04
-.38
-.44
-.23
-.30
-.21
-.33
-.13
-.55
-.20
Source: Tihansky, Dennis. Water Pollution Cost of Control Functions:
A State-of-the-Art Review, Economic Analysis Branch, EPA,
Washington, D. C. 1972.
Smith, R. and R. Eilers, "Cost to the Consumer for Collection
and Treatment of Wastewater," NTIS, July, 1970, PB210 199,
Rept. 17090.
Smith, R. and W. McMichael, "Cost and Performance Estimates
for Tertiary Waste Water Treating Processes," EWQA, Cin-
cinnati, June, 1969.
34
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Exhibit IV-8. Treatment Processes that can be Cos ted by the
Wastewater Treatment Plant Cost Estimating Program
Raw Sewage Pumping
Preliminary Treatment (Grit Removal, Flow Measurement)
Preliminary Treatment (Grit Removal, Flow Measurement, Screening)
Primary Sedimentation (Single Basin)
Primary Sedimentation (Multiple Basin)
Primary Sludge Pumping
Aeration Basin Structure
Aeration Diffused Air
Mechanical Aeration Equipment
Flocsillator
Trickling Filter
Intermediate Pumping
Final or Intermediate Sedimentation (Single Basin)
Final or Intermediate Sedimentation (Multiple Basin)
Recirculation Pumping
Stabilization Ponds
Sludge Thickener
Anaerobic Digestion and Building
Aerobic Digestion
Sludge Holding Tanks
Vacuum Filtration (Landfill Disposal of Sludge)
Vacuum Filtration (Incineration Disposal of Sludge)
C entrif ugation
Sludge Drying Beds
Sludge Lagoons
Multiple Hearth Incineration
Fluidized Bed Incineration
Chlorination Building and Equipment
Chlorination Contact Basin
Administrative and Laboratory
Garage and Shop
Yardwork
Laboratory - Activated Sludge
Laboratory - Trickling Filter
Laboratory - Primary Plant
Source: R. G. Eilers and Robert Smith, "Wastewater Treatment
Plant Cost Estimating Program," Environmental Protection
Agency, Water Quality Office, Advanced Waste Treatment
Research Laboratory, Cincinnati, Ohio, April 1971.
35
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The basic objective of this study is to provide a framework
of analysis to determine the opportunity cost as well as the pre-
servation value of an irreplaceable asset. Although three types of
irreplaceable assets are mentioned, the main portion of the paper
emphasizes "gifts of nature" irreplaceable assets resulting from
accidents of geomorphology, biological evolution, and ecological
succession. For the purpose of developing their model as well as
for illustrative purposes, the authors use the Hells Canyon case
in discussing the economics of irreplaceable assets.
The model is developed by first considering the proposed
hydroelectric alternative in the Hells Canyon case. A rather
straightforward approach is utilized for this purpose by deriving
a formula which gives the present value of the development alter-
native for the Hells Canyon region. One interesting modification
co the traditional present value technique is the fact that it takes
into consideration the depreciation through obsolescence resulting
from changing technology in the production of energy from alter-
native nonhydroelectric sources. This tends to give a more ac-
curate account of the benefit derived from developing an irreplace-
able asset.
For the purpose of evaluating the benefits derived from
the development alternative, the authors consider at this point
in the analysis the preservation alternative. It is found that as
a result of changes in income, population and tastes, a point will
be reached beyond which the use of the area by one or more indi-
vidual per unit time will result in a lessening of the utility obtained
by others using the area.. The authors define this point to be the
capacity of Hells Canyon for the purpose of the analysis since it
provides for a quantity of constant quality services.
Growth in the demand for services of the area and a capa-
city constraint introduce some complications in the analysis.
First, as income, population, and tastes change through time,
f-.e usual ceteris paribus assumption must be relaxed. Accordingly,
the shape and area under the demand curve may be expected to
change with temporal shifts in the demand curve. Such shifts are
incorporated into the benefit estimating procedure and are treated
separately. Secondly, the capacity constraint presents another
complication since it sets a limit on the range over which the
quantity demanded can be summed without further adjustments.
36
-------
With these complications acknowledged, the authors proceed to
derive the present value formula for the preservation alternative.
While some of the values of the preservation alternative
are measurable, the values of others are not yet open to economic
measurement according to the authors. As a result, the analysis
does not try to calculate the present value of services yielded from
Hells Canyon. Instead, the authors ask what this value would need
to be in order to equal or exceed the present value of the develop-
ment alternative. Additionally, they ask what the base year's an-
nual benefit would need to be to have a present value equal to or
greater than the development alternative. This latter step is of
considerable analytic assistance by virtue of the difference in the
relation between the initial year's benefit and the total present
value for the two alternative uses of the area. This is because
of the asymmetry in the behavior of the value of the output streams
from the two incompatible uses of the site. Accordingly, although
the annual benefit of the developmental alternative in the initial
year may be quite large, given the relation between the rate of
growth in annual benefits for the preservation alternative and the
discount rate in the present value computational model for preser-
vation benefits, the initial year's benefits of the latter may need
to be only very modest.
At this state in the analysis, the computational results
of the model for the Hells Canyon region were presented. Since
the readily observed initial year's benefits appeared to be in ex-
cess of the minimum that would be required to have their present
value exceeded by the present value of developmental benefits, it
was concluded that the preservation alternative should be preferred
to the development alternative for the Hells Canyon case.
One final complication considered in evaluating preserva-
tion benefits referred to the option value of a preservation alter-
native. According to the authors, when an irreplaceable asset
providing services without close substitutes is under consideration
for development, there are individuals who are uncertain potential
demanders of the services of such an existing asset who should
also be taken into account in a decision regarding the continuation
or discontinuation of the services of the facility in question. The
option value may, therefore, be a very important factor in terms
of whether the irreplaceable asset is preserved or developed. As
37
-------
a result, the analysis proceeds to consider the two measures
of consumer surplus and to define option price and option value
rigorously and to distinguish these concepts from the two measures
of consumer surplus so that double counting does not arise.
Programming Models
Because of the difficulties in estimating benefits, a common
approach is that of assuming certain standards to be met and pro-
ceeding to minimize costs in attaining these standards. A variety
of linear and non-linear programming models have emerged (Lee,
Erickson and Fan, 1971;Kneese, 1967).
These models are more concerned with form than data.
The optimizing techniques provide a framework within which
certain trade-offs can be considered. Most frequently the models
are developed without data.
New techniques more efficient in dealing with nonlinearities,
stochastic variables and other complications have increased the
practicability of many heretofore unrealistic programming models.
One promising type of programming model that is becoming in-
creasingly useful is the river basin simulation model. This model
allows one to introduce a variety of institutional, economic and
physical changes in the model area and observe the various im-
pacts as well as trace the interactions through the system via the
simulation framework.
Even though there are limitations in the number and type
of functions that can realistically be incorporated in programming
models, as well as computer storage and time constraints, an in-
creasing number of programming models are being developed and
utilized with increasing success.
Many of the programming models prevalent in the literature
deal with quantity as opposed to the quality facets of water manage-
ment. It is further characteristic of many programming models to
develop theoretical relationships and mathematical formulations
that offer little in the way of application or implementation value.
One notable exception, however, is the pioneering Delaware estuary
study. The preliminary report was issued by the Federal Water
38
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Pollution Control Administration in 1966 --Delaware Estuary
Comprehensive Study: Preliminary Report and Findings, in
Kneese, Rolfe and ^
With the aid of a rigorous mathematical model an attempt
was made to represent the assimilative and waste transport capa-
city of the estuary to ascertain the effects of increased or decreased
waste discharges on any part or all of the estuary. The study further
combined many physical, biological and chemical water quality
relationships of the estuary into an economic optimization (linear
programming) model with the objective of developing a systematic
analysis of regional water quality.
An explicit attempt was also made to measure all external
costs and to determine the total cost of meeting various selected
water quality standards. For example, Exhibit IV-9 presents the
computed cost of achieving four water quality objective functions.
One of the more interesting and unique features of this
study is that it also explored the feasibility of implementing ef-
fluent taxes or charges as an economic incentive for controlling
waste discharge. The consensus of the Federal Water Pollution
Control Administration staff was that the imposition of effluent
taxes or charges should be seriously considered as a method of
attaining and maintaining water quality improvement. Further
advances have been made with this large-scale study, including
linkages between water quality and other environmental resource
qualities.
Pollution Control Cost Summary
Water pollution control cost estimates are by the intrin-
sical nature of the problem highly project and area oriented and
consequently are not amenable to generalization. First of all
water quality control cannot be characterized by a single variable
but instead depends on many interrelated physical, engineering,
economic and social factors which, due to their varying nature
cannot be easily generalized. Secondly, there are unique costs
associated with varying degrees of control, effluent loads, in-
fluent loads and treatment strategies.
39
-------
Exhibit IV-9
Summary of Total Costs of Achieving Objective Sets 1, 2, 3, and 4
(Costs include cost of maintaining present (1964) conditions and reflect
waste-load conditions projected for 1975-80.)
Flow at Trenton = 3,000 cfs
(million 1968 dollars)
Uniform treatment
Zoned treatment
Cost minimization
Objec-
tive
set
1
2
3
4
Capi-
tal
costs
180
135
75
55
O&M
costs3
280
(19.0)
180
(12.0)
80
(5.5)
75
(5.0)
Total
costs
460b
315C
155°
130
Capi-
tal
costs
180
105
50
40
O&M
costsa
280
(19.0)
145
(10.0)
70
(4.5)
40
(2.5)
Total
costs
460C
250C
120C
80
Capi-
tal
costs
180
115
50
40
O&M
costs9
280
(19.0)
100
(7.0)
35
(2.5)
25
(1.5)
Total
costs
460C
215°
85C
65
aoperation and maintenance costs, discounted at 3 per cent, twenty-year-time
horizon; figures in parentheses are equivalent annual operation and maintenance costs
in millions of dollars/year.
^High-rate secondary to tertiary (92-98 per cent removal) for all waste
sources for all programs. Includes in-stream aeration cost of $20 million.
cincludes $l-$2 million for either sludge removal or aeration to meet goals in
river sections #3 and #4.
Source: A. V. Kneese and B. T. Bower, Managing Water Quality: Economics,
Technology, Institutions (Baltimore: Johns Hopkins Press, 1968).
40
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To further complicate the problem, the economic and
physical properties of any area are not static, but dynamic in
nature. That is, demographic and production patterns change
over time, thereby creating or changing economic and demo-
graphic agglomerations which in turn create differential impacts
on effluent flows and consequently environmental quality. There
is also evidence to indicate that as the degradation of the environ-
mental quality increases, the costs associated with restoring or
maintaining a given level of environmental quality may increase
at an exponential rate.
Changing pollution abatement technology (also in an
infancy-stage of development) further increases the uncertainty
of estimating waste management control costs.
These factors further reiterate the need to devise an aggre-
gation framework to arrive at national water pollution control cost
estimates. There is also the obvious need to develop methods
whereby pollution control cost estimates can be generalized to
the extent that they can be applied to homogeneous regions, pro-
cesses and pollutants.
41
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SECTION V
BENEFIT MEASUREMENT
Estimation of benefits of water pollution control is the
most underdeveloped aspect of benefit cost analysis. It is both
difficult to determine the nature of the benefits and to measure
them once they are identified. The lack of price signals to in-
dicate private benefits plus the existence of strong externalities
which would result in a departure between social benefits and
private benefits complicates the task of benefit identification
and measurement.
Numerous benefits result from water pollution control
programs such as a more economic utilization of natural re-
sources, preservation of fish and wildlife, and protection of
the region's health and welfare. Detailed specification and
quantification of such benefits is meager, first, because the
area has only recently come under serious investigation, and,
second, because the benefits are primarily intangibles. How
much is more palatable drinking water worth? From a recrea-
tional standpoint how much is a "clean" river worth? A wide
spectrum of benefits are of this elusive type. Industrial water
quality benefit estimate problems are little different as a re-
sult of variations in operating policy, type of construction,
method of water use, and degree of water treatment.
Some Benefit Measurement Approaches
A variety of approaches to benefit measurement resulting
from and/or expected with water pollution control have appeared
in the literature. In general each approach only attempts to
partially estimate benefits rather than to comprehensively assess
health, esthetic, production and other ecologic-based benefits.
A brief outline of these approaches is as follows.
(1) Direct Benefit Measurement. Several attempts have
appeared in the literature to directly estimate benefits. Among
the benefits specified are factors of improved health, esthetics,
and greater production or income. Most of the studies choose
to focus on a single measure of benefit based on the assumption
(or hope) that the single variable will capture the effects of
42
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a multiplicity of benefits. The difficulty with direct measures is
both conceptual and empirical. No single measure is adequate
and it is difficult to quantify several measures in an additive
manner.
Estimation of actual or potential damage reductions as a
result of water pollution control have also been attempted. The
users of polluted water incur some type of harm which may be
translatable into a pecuniary cost. Often studies of this sort
may be concerned only with estimating damages from imposing
water quality constraints. An example of such a study which
can be translated into a useful measurement of benefits is the
Colorado river study. A flow diagram of the projections model
used in that study appears below in Exhibit V-l (Miernyk, 1969).
(2) Attitudinal Analysis. An effort has been made by
psychologists to provide cardinal measures of consumer value
of water projects via attitude analysis, (Deal and Halbert, 1971).
Attitude factors toward recreation which were analyzed included
feelings about self and nature, sociability, feelings for the ocean,
physical comfort, physical activity and accomplishment in hiking,
privacy and solitude, opposition to park development, the exist-
ence of parks, and rest. Factor analysis was used to answer a
multiplicity of questions asked of park visitors in order to ob-
tain a dollar value of a particular park.
(3) Intangible Benefit Analysis. Intangible benefits have
been approached from several directions: the monopoly and dis-
criminating monopoly methods, consumer surplus method, the
expenditures method, the Gross National Product method, cost
method and the market value method. The discriminating mono-
poly approach was developed by Clawson (1959) and set off a
series of extensions (Knetsch, 1963 and 1964; Merewitz, 1966;
Stevens, 1966).
Merewitz computed consumer surplus in estimating
recreational benefits for part of the Lake of the Ozarks. Stevens
utilized the same concept explicitly in a recreation study where
he identified recreational benefits as the consumer surplus that
would result from the prevention of water pollution. Stevens
used market demand curves for sport fishery expressed in terms
of both price and quality of water.
43
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Exhibit V-l. Flow Diagram, Colorado River Basin
Input-Output Projections
Quantity - Constrained
Project a ,j and invert
*'' (I-A), 1980 and 2010
Projected input-output Tobies
Project Final Demand, 1980
18)
Compute
honges in Instream
Water Quality
Project input -output
(3) Tables, 1980and 2010
Project Wj, I980and
2010
(5)
Compute
Demand-Supply
Relationships ,
1980S 20IO
w
Adjust
Projected
Final
Demand
Due to (9)
Invert New (I-A),
Compute New
1-0 Tobies
Quantity-Constrained
Projections Completed
Quantity -Quality-Constrained
Projections Completed
a/No Additional Changes in a
b/With Additional Changesma^
Legend
Quantity Constraints
Only
Quantity -i- Quality
Constraints
Source: Miernyk, William H. , An Interindustry Forecasting Model
with Water Quantity and Quality Constraints, Reprint Series
III, No. 8, Reprinted from Systems Analysis for Great Lakes
Water Resources, Proceedings of the Fourth Symposium on
Water Research of Ohio State University, Water Resources
Center, October 1969, Regional Research Institute, West
Virginia University, Morgantown, 26506
44
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A major recent contribution to benefit estimation enables
the derviation of the willingness to pay for public goods on the
basis of information on demand functions for private goods
(Maler, 1971). The key to the approach is the identification
of a private good that is complimentary to a public good. Re-
vealed preferences in the market can then be transferred from
the private good to the public good. The approach can specify
both Marshallian and Hicksian demand functions.
(4) 'Proxy' Variable Approaches. Various attempts have
been made to associate water pollution control benefits with
quantifiable 'proxy1 variables such as property value levels and
travel cost estimates. These variables are believed to repre-
sent multiple health, esthetic and production-oriented impacts.
The property value method can be represented in the
following manner (Rothenberg, 1967).
AP = APe + APd
where
AP = the total change in property price
AP = the change in property price attributalbe to
technical enhancement
AP(j = the change in property price attributable to
demolition of previous existing properties
A Pi = the change in property price attributable to
changes in locational advantages
Benefits of urban water resources property values were
analyzed with regression analysis which included distance from
an urban lake and quality of property with benefits in the $1.3
to $1.5 million range.
45
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The property value model has two theoretical limitations.
The value of property does not reflect consumer surplus and
benefits to users outside of the region are not captured.
The travel cost proxy method is of the following form
(Merewitz, 1966 and 1968):
where
V- = visitor days per year from zone i
PJ = population of zone i
t| = travel cost from zone i
f = gate fee
a,b = parameters
Consumer surplus was estimated for the same lake with 20, 50,
and 100 year life with estimated benefits of $165,000 to $201,000
for residents within 3,000 feet.
(5) Multiple Benefit Component Approaches. The com-
bined effects of several variables are included in Battelle1 s
three stage recreation model (Cesario, 1971). A schematic dia-
gram of the model is presented below. The resulting output of the
model are demand curves for recreation. Participation is
measured via population, socioeconomic characteristics and
accessibility. This phase of the model is essentially a travel
cost model. The distribution component a gravity model to the
analysis. A demand curve is developed using cost increments
corresponding to travel costs.
Population
Opportunity
Socio-economic
characteristics
Participation
Component
I
\ttrac
tiveness
Capacity
Pistribution
C9ffiponent
2
Time Money
costs costs
Added
costs
Benefits
Component
3
Total
•willingness
to pay
Exhibit V- 2.
Schematic Three-stage Battelle
Recreation Model
46
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Time Profile
The question of the time path of benefits of water pollu-
tion control has been investigated to determine temporal bene-
fit functions (Parker and Crutchfield, 1968). Parker and Crutch-
field conclude that there are three benefit functions over time:
constant, increasing at a constant rate, and increasing at a. com-
pound rate. The latter two types result in the significant portion
of the benefits accruing in the later years.
In order to adequately measure benefits over time, pro-
jections are required for the factors benefiting from a pollution
control project.
An important aspect of the analysis of public policy alter-
natives which operate over several years is the choice of the
proper interest rate for discounting future (projected) net bene-
fits. If one alternative has a greater net benefit in each year
than that of any other, there is no question as to the identification
of the superior alternative. If no alternative dominates over all
periods, it is necessary to compare the present value of the net
benefits generated by each. In order to compute the present value,
the rate of interest must be specified. A high interest rate is
favorable to alternatives with high initial net benefits and short life,
A low interest rate is favorable to extremely long benefit streams
which may initially be quite low.
It is proposed by some that the social rate of time pefer-
ence is the proper choice of interest rate for discounting public
benefit streams. Externalities in the consumption sphere will
result in a social rate of time preference that differs from the
private rate of time preference. Marglin (19 63) has demon-
strated the situation in which each individual is not willing to
provide for future generations separately, but operating as a
group they find it desirable to provide for the future. Eckstein
(1961) concludes that even from the narrow view of economic
efficiency the selection of a discount rate cannot be solved with-
out the use of strong value judgments. Marglin, as well as
others, suggests that the solution of the social rate of time
preference is determined by the community through the political
system. It might seem logical that society as a whole may place
a higher value on providing for future generations than would
be demonstrated in the market.
47
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Problems in Estimating Pollution Control Benefits
The benefit measurement approaches outlined reflect
that only fragmentary and non-comprehensive approaches have
been used to estimate water pollution control benefits. Ap-
proaches used have a common characteristic of being indi-
vidual-receptor oriented.
The latter condition is appropriate, but little serious
attention has been previously given to "aggregating1 receptor-
oriented benefits on region-wide or national bases. This could
be anticipated, however, since no single agency has heretofore
been responsible for such aggregations.
Even now that EPA has at least an implicit if not explicit
responsibility to pursue such aggregations-of-benefit from pollu-
tion control, then the first mentioned problem remains. That
is, only fragmentary approaches which are non-independent and
incomplete are known. It is not expected that the sum of frag-
mentary pieces, even if they could readily be estimated, would
necessarily equal the as yet unidentified 'total1 benefit. Criticism
would be aimed at the presumed overlapping benefits of multiple
approaches, especially the proxy variable approaches. While
one might attempt to only aggregate a single type of benefit,
e.g. esthetics, so as to avoid the problems of double counting,
then it remains that such an aggregate would fail to comprehen-
sively estimate pollution control benefits.
These types of problems need to be dealt with directly
rather than side-stepped as in the past if meaningful benefit
cost analyses are to evolve. Conventional procedures appear
inadequate in dealing with the types of benefits involved with
environmental quality issues. In order to discover improved
methods of 'quantifying1 or otherwise valuing environmental
benefits, it should be expected that innovative and thus uncon-
ventional procedures will become involved.
Some implications for planning and research are subse-
quently presented in this report. A conclusion at this point is
simply that traditional benefit measurement methods have failed
to adequately value the consequences of water pollution exter-
nalitie s.
48
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v: VI
BENEFIT. COST AGGREGATION FRAMEWORK
Two distinct sets of information arid data are important
in this study: (1) pollution control benefits and (2) pollution con-
trol costs. This information and data should be generated so
that comparable aggregations of benefits and costs (estimates
and functions) can be made. In this way economic trade-offs
can be measured and various policy alternatives assessed. Such
a framework is also desired in order to meaningfully develop
research needs and priorities.
Source-Receptor Orientation
As has been described, water pollution control costs
are highly variable and dependent on many diverse factors. The
spatial inter- and intradependence of many facets of water pollu-
tion control are critical. Effluents of one geographic area affect
the influents of downstream river reaches and receptors. Attempts
to modify effluent loads through pollution abatement activities
directly impacts the controlled region and also indirectly all
downstream receptors. For example, pollution abatement in
headwater regions may result in favorable externalities in down-
stream areas by way of reduced influent loads. The actions in
one segment of a basin thereby influence water pollution control
costs in downstream segments of the same basin (but not influent
loads nor water pollution control costs in upstream river reaches
or in other independent drainage basins). The thrust of the dis-
cussion is that water pollution control costs within a basin are
typically spatially interdependent and may not be additive nor
easily generalized to accurately represent national water pollu-
tion control cost estimates or functions.
The benefit side of the analysis encounters the same com-
plications. Location-preserved analyses are necessary. These
conclusions indicate the need for an aggregation framework to
reflect source-receptor orientations.
49
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An Operational Hydrologic Framework
The above mentioned physical intrabasin relationships and
the desirability of tracing or tracking specific pollutants through
the hydrologic basin suggest that the most realistic approach to
benefit and cost aggregation is on a hydrological basis. Other
political, economic and geographic aggregation schemes fail
to capture the 'location-dependent1 aspects of pollution control
costs and benefits.
Such a framework has been suggested and partially imple-
mented on a hydrologic-geographic basis by the Water Resources
Council. The Water Resources Council is charged with maintaining
a continuing study and preparing an assessment of the adequacy of
supplies of water necessary to meet the water requirements in
each water resource region of the United States (Exhibit VI-1).
As a part of this responsibility, the Water Resources Council has
developed a National Assessment of Water and Related Land Re-
sources. A system for definition of water resource regions and
subregions according to various geographic units is contained in
their Assessment.
The twenty major U. S. water resource regions are further
broken into subregions on hydrologic bases (Exhibit VI-2); and,
furthermore, into subareas on a county basis (Exhibit VI-3). The
latter breakdown/aggregation system is proposed as the key to
integrating much of the existing benefit/cost data available. Thus,
it is possible to aggregate from a county basis to subareas, which
in turn approximate subregions. (Subregions may be aggregated
to water resource regions to a national basis. This aggregation
system is most logical in terms of assessing benefits of pollution
control because benefits/damage-reductions typically occur within
hydrologic oriented areas.) Since the Assessment breaks down
to a county basis it is compatible with many available sources of
economic and other secondary data.
Asa final note concerning the proposed suitability and
general completeness of the Assessment framework for cross-
classification of various geographic units, a sample table is
shown in Exhibit VI-4. This Exhibit and the results of the first
National Assessment were published July, 1970 by the Water
Resources Council under the title "Water Resources Regions and
50
-------
( r x w .-
WATER RESOURCES COUNCIL
Water Resource Regions of the United States
Exhibit VI-1
-------
••£ i\- M ^ 'V-xX^
•S- *rv'^ '^-.i - f , y •3-X v 1
WATER RESOURCES COUNCIL
WATER RESOURCES SUBREGIONS
FOR USE IN 2ND NATIONAL ASSESSMENT
Exhibit VI-2
-------
Exhibit VI-3
-------
06.—TENNESSEE REGION—The drainage of the Tennessee River
Subregions
0601.—Upper Tennessee:
The Tennessee River above Watts Bar Dam, which includes the Clinch,
Holston, French Broad, and Little Tennessee Rivers
Ol
_ . : Sub-
Rdacrl /"\yi - - - - -- - --
rvcg-LUJl , , v*- a
; '" County
06 01 Avery
Buncombe
Graham
Haywood
Henderson
Jackson
Macon
Madison
Mitchell
Swain
Transylvania
Yancey
Anderson
Blount
Campbell
Carter
Claiborne
Cocke
Cumberland
Grainger
Greene
Hamblen
Hancock
Hawkins
Jefferson
Name
State
North Carolina
North Carolina
North Carolina
North Carolina
North Carolina
North Carolina
North Carolina
North Carolina
North Carolina
North Carolina
North Carolina
North Carolina
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
37
37
37
37
37
37
37
37
37
37
37
37
47
47
47
47
47
47
47
47
47
47
47
47
47
:
j . County
Oil
021
075
087
089
099
113
115
121
173
175
199
001
009
013
019
025
029
035
057
059
063
067
073
089
Economic
area
027
027
027
027
027
027
027
027
027
027
027
027
050
050
050
051
050
050
050
050
051
050
051
051
050
Land
Group
58
58
58
58
58
58
58
58
58
58
58
58
59
59
58
58
59
58
58
59
59
59
59
59
59
Resource
\ Area
130
130
130
130
130
130
130
130
130
130
130
130
128
128
125
130
128
130
125
128
128
128
128
128
128
SMS A
0480
3840
3840
Exhibit VI-4. Sample data, National Assessment of Water and Related Land Resources.
Source: Water Resources Regions and Subregions for the National Assessment of Water and Related
Land Resources, Water Resources Council. Wash. , D. C. , July 1970.
-------
Subregions for the National Assessment of Water and Related
Land Resources." The National Assessment provides a general
appraisal of the overall water supply and requirements situation,
including environmental quality aspects, and of the future national
needs for water-related goods and services based upon correlated
projections of population and economic activity in each region of
the Nation. The National Assessment process is a continuing
study reported every five years and will be based upon and serve
as a national constraint to regional framework studies.
Benefit and Cost Aggregation Schemata
To further indicate the proposed aggregation framework
in terms of this study, two preliminary framework schemata
are shown in Exhibit VI-5 and VI-6 for (I) Cost Aggregation
and (2) Benefit Aggregation, respectively.
As implied in Exhibit VI-5, pollution control cost data,
by major type of pollutant, are largely available on a sub-county
basis, e. g. , from the original 1962 inventory of municipal and
industrial wastes and subsequent updates carried out by the Fed-
eral Water Pollution Control Administration (now the Water Qual-
ity Office of EPA). This may be aggregated to a county-level and
subsequently aggregated in various ways to eventually derive a
national aggregate. In particular, given the Water Resources
Council National Assessment Areas framework, it is noted that
the cost aggregation may be displayed by water subregions and
regions (approximate).
In Exhibit VI-6, pollution control benefit data is also shown
in relation to the various ways of achieving a national aggregate.
However, it is proposed that county data, if derived, will neces-
sarily be related to basin and subbasin factors within each spec-
ific county. Hence, county estimates will involve hydrologic-area
considerations as appropriate. It is noted, however, that the county
level aggregation could be by-passed in terms of benefit aggrega-
tions in some cases if desired. The level-of-aggregation specified
when estimating benefit cost relationships will be important in actual
implementation efforts. The generalized framework shown is pro-
posed as one which could fulfill various needs (as yet not fully spec-
ified) implicit in the proposed study.
55
-------
National
Aggregate
Other
Geographic
Regions
Water
Subareas _'
Municipal
.Pollutants
/ Industrial
\ Pollutants
l\ /AgriculturalX
s / \ Pollutants /
/ Mining \
V Pollutants /
Other
Pollutants
c
Specific Pollutant Types
Exhibit VI-5. Water Pollution Control, Cost Aggregation Schema
JL' Based on Water Resources Council National Assessment Areas.
56
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States
Water
Subareas±
I/
Basin
(1)
Subbasin
National
Aggregate
Water ,
Regions-
Water
Subregionsi'
f Counties J
Basin
_J2)
Subbasin
Other
Geographic
Regions
Basin
(n)
Subbasin
Exhibit VI-6. Water Pollution Control, Benefit Aggregation Schema
_' Based on Water Resources Council National Assessment Areas
57
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Procedural Implications
If the above procedure were implemented and the inter-
relationships within and among hydrological basins assessed,
the inter- and intrabasin effects of alternative pollution control
practices could be simulated to observe specific benefit and cost
impacts. The above procedure further establishes a method
whereby the differential impacts of various pollution abatement
policies could be assessed. As long as subbasin boundaries, in-
cluding exogenous and endogenous water flows, were properly
specified, any subset of the hydrologic basin might be considered
as a separate operational-analytical entity.
Knowledge of interbasin boundaries and water flows facil-
itates quantification and simulation of interbasin dependencies and
relationships. Subsequent relationships among regions could be
determined and a method of arriving at national water pollution
control estimates or functions would be achievable.
58
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SECTION VII
GENERAL EQUILIBRIUM MODELS
Because of the complexities of a more satisfactory frame-
work for benefit cost analysis, a variety of general equilibrium
models have been developed. Ay res, Kneese, Isard and Leontief
have pioneered recent contributions in this area.
Benefit cost analysis effectively becomes a supplementary
analysis of alternative general equilibrium solutions or simulations.
This is compatible, however, with welfare economic concepts in-
volving social (public) choices.
A Materials -Process -Product Model
For the purpose of forecasting residuals and to facilitate
other kinds of analysis needed for environmental management
purposes, a new sort of model is developed by Ayres (1972) which
combines economic and technological elements. Since existing
economic measures or models do not take into consideration
social costs resulting from the production process, it is suggested
that a model must be designed to deal with quantity itself. How-
ever, this emphasis on physical materials flow rather than dollar
flow imposes a new set of requirements on the form of the model.
According to the author, the typical input-output model
which utilizes the Standard Industrial Classification (SIC) code,
does not allow one to observe the relationship between a product
and its process. Consequently, forecasts of economic growth or
residual production as a function of technological change can only
be accomplished by interindustry coefficient trend extrapolation.
Since this data is almost nonexistent, the author suggests that the
interrelationship between technological change and the economy
would appear to be far more tractable in a context that takes ad-
vantage of the production process.
In particular, a model based on three fundamental classi-
fications is proposed: (a) materials, based on physico-chemical
composition and a model of utilization; (b) processes, based on
the relations between the number and the type of material output;
and (c) final products, which is grouped in accordance with the
SIC code so that the results can be used in conjunction with the
typical input-output models.
59
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The proposed model is a generalization of the well-known
Walras-Cassel general equilibrium model, extended to include
intermediate consumption by process and also including unpriced
material inputs such as air and water, and unpriced outputs (resid-
uals) such as combustion products and solids. The mathematical
formalism of the model represents an elaborate attempt by the
author to show how mass or material can be conserved-extended;
and, if desired, the model could include conservation of energy.
Defining unit prices, or unit value-added, introduces the possi-
bility of describing a dynamic system, with one (or more) equilibrium
solutions.
One problem that is dealt with by the author in reference
to the mate rials-process-product model is the nomenclautre or
taxonomy required for such a framework. Just how much stress
should be put on disaggregation in terms of the classification of
materials and processes is an important question. For the purpose
of this paper, the author has chosen to select an industry (defined
by a SIC code) and to apply the materials-process taxonomy and
formulation within the confines of the industry. This is done in an
attempt to make the data acquisition problem more manageable.
Examples are given to show how this type of classification can be
used to form a matrix for micro-processes which are compatible
with both simple materials and composite materials.
It should be noted that the objective of the model is to
focus upon forecasts of industrial residuals and other environ-
mental problems by examining the prevailing technology or the
processes and materials used for final products. The author notes,
however, that materials flow relationships may also be affected
by factors other than changes in material processing technology.
For instance, changes in raw material characteristics as well as
changes in end-product demand may also have obvious effects on
material-flow relationships. Asa result of this complication, the
author suggests that residual forecasting should proceed as follows:
(1) identify major elements of demand; (2) identify major sources
of raw materials; (3) identify major existing processes; (4) project
one or more (e. g. , high, medium, low) future trends for each of
the above. Process trends will be given in terms of relevant figures-
of-merit such as energy requirement, etc.; and (5) look for possi-
bilities of major changes in demand pattern, raw material supplies,
policy, or technological breakthroughs that could lead to accelerated
rates of substitutes of one material or process for another. Finally,
60
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according to the author, a more interesting application of the
model for economists would be to examine the impact of changes
in the incentive structure, e.g., shifts in taxes, subsidies, etc.
An Ecologic-Economic Model
The purpose of Isard's (1972) book is to develop a con-
ceptual framework which takes into consideration both the eco-
logic and economic interrelations in regional development. By
extending and reformulating techniques employed in economic
and regional science, it is suggested that such critical problems
as air pollution, water pollution, and erosion can be analyzed
more effectively when decisions concerning resource development
are required.
A considerable amount of progress is made in developing
a more appropriate methodology for economic-ecologic analysis
by extending four basic analytic tools: the comparative cost ap-
proach, the input-output technique, industrial complex analysis
and the gravity model. Each one of these techniques represents
an important part in the methodology developed in the remainder
of the book.
A modified version of the input-output technique, which
can be adapted for programming, is employed for a description
of the data and relationships of an ecologic system. Three food
chains are incorporated into this format, as well as the basic
photosynthesis process and certain sub-cycles in the phosphorous
cycle. While this methodology deals with systematic ecologic
analysis, it is not very useful for the evaluation of development
alternatives. As it stands, it does not translate ecologic magni-
tudes into dollars and cents, or any other common unit useful in
welfare and planning analysis. Theoretically, however, this type
of methodology can be fused with the economic sector to provide
the framework for evaluating various alternatives relating to
repercussions on the environment in general. As a result, the
authors proceed to develop a fused framework for an input-output,
activity analysis approach to the combined economic-ecologic
system. It is suggested that such an interrelation table is useful
for systematic description, for comprehensive planning and pro-
gramming, and for thorough study of the direct and indirect im-
pacts of major developments.
61
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The importance of the conceptual framework is demon-
strated when it is employed in a very limited manner to examine
the problem of the proper development of a marina complex in
the Kingston Bay area. Since no mineral deposits of any signi-
ficance occurs in the Shelf of this area, and since it lacks potential
for fishing and industrial development, only its recreational possi-
bilities are examined at some depth. Several sites for recreational
development are identified. Through a comparative cost analysis
of the several sites, covering both ecologic and economic costs, a
least-cost site is determined. In the process, a recreational com-
plex following the traditional industrial complex approach is de-
veloped. Although the recreational complex does not encompass
the full range of relevant ecological processes and their relation-
ships, it is suggested how such a complex approach could be applied
more extensively to the ecologic system.
In order to estimate the benefit or demand side of the pro-
posed recreation project, a gravity model is employed. It is
determined that the market demand is the same at all the sites
and thus the least-cost site is the most profitable site for the
development project.
In summary, the methodology for the synthesis of econ-
omic and ecologic analysis developed in this book is based upon
the modification of existing analytical tools in regional science.
Through a comparative cost analysis of the several sites, covering
both ecologic and economic costs, an optimal site is determined.
For this site a recreational complex is developed. In addition,
a gravity model is employed to esimate demand, an input-output
model is utilized to check for consistency of total input require-
ments and to estimate total capital investment, and a standard
cost and revenue procedure is outlined to calculate profitability.
Finally, the industrial complex and comparative cost procedures
are employed to determine the relative profitability of complexes
of different sizes at the several sites.
The Kneese Approach
Kneese et al. (1970) see pollution as a physical phenomena
associated with production of goods or services. Production is
basically the transformation of physical raw materials into real
62
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physical products. During the transformation of raw materials
to final products quantities of the physical raw materials are
transformed to undesirable materials to be discarded of, these
undesirables are seen as pollutants. Thus, pollution is a func-
tion of final output (Y).
Pollution = f(Y)
Kneese takes a total approach to tut environment. There are
three types of pollution, dependent on the receptor of the jollu--
tion: water, air, and solid pollution TL.ere are also two
sectors of pollution, pollution associated with the production
sector and pollution associated with final consumption. The
first distinction indicates that pollution in any one receptor can
be reduced only at the increase of pollution in one of the other
two receptors if final output is to remain constant. The second
distinction shows the inevitability of pollution. First, there are
pollutants associated with the transformation of raw materials
into final products. Further there is the pollution associated
with the use of the final product up to its final discarding as
trash. Thus the majority of all resources used in production
ends up as a. form of undesirable discard or pollutant. There are
then two ways of attacking this pollution, without the transfor-
mation from one form of pollutant to another type of pollutant:
(1) to increase the efficiency of the transformation of raw materials
to final product, i.e. , less industrial pollution; and (2) to recycle
the final product after it has served its useful life.
Kneese sees the world as the natural receptor of discharge.
The natural environment operates to dispose of these discharges.
It is generally assumed that nature has three times the capacity
to clean itself of its discharge than it produces. Industrial man
has begun to use that natural capacity. The problem is when man
exceeds the natural capacity limits or introduces materials that
are impenetrable to natural organic processes. Both of the above
are being accomplished by modern industrial society. Kneese
envisions a systems approach where nature takes care of its own
discharge and part of mans. But because man's is so large and
complex he must design a system to reduce and reuse his dis-
charges for nature cannot cope with the quantity and types of dis-
charges man is capable of creating.
63
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Input-Output and Environmental Repercussions
Leontief (1970) uses his traditional input-output framework
to analyze pollution by including a pollution row and an anti-
pollution column. This is a straight-forward extension of the
usual I-O framework.
Inclusion of the pollution row indicates the level of pollu-
tion generated per dollar of delivery to final demand. The func-
tion is, of course, linear. Pollution is considered an integral
part of the economic process.
The proposed anti-pollution activity is viewed as a separate
industry requiring the usual type of inputs.
The net result is that the effects of both the generation
and elimination of pollutants can be analyzed in the usual I-O manner
including the resulting changes in prices.
Systems Analysis
During the first half of the 1960's the systems analysis
reached a fad stage of development. The systems approach
gained wide appeal for its ability to integrate numerous com-
ponents into a single framework.
An excellent study by Hamilton et. al. (1969) of the Susque-
hannah River Basin illustrates the systems analysis approach. The
selected diagrams below are illustrative of various components of
a systems model. A cursory examination of the format will indi-
cate that a, system of this type has a very large data requirement
because of the resources necessary to implement a systems frame-
work such as that designed by Hamilton. It is rarely feasible to
utilize that type of systems analysis.
However, systems analysis in general is simply an
orderly way of thinking through and integrating the various
components that relate to resource development. The major
contribution of the approach is to facilitate an orderly presentation
of the factors influencing factors such as the benefits and costs
of pollution control. (See Exhibits VII-1, VII-2, VII-3, VII-4.)
64
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Exhibit VII-1- A Flow Chart of a Simplified Subregional Model.
Total
Workers
Employed
a* — .
Growth of
Workers
Employed
Exhibit VII-2. The Three Major Sectors of a Subregional Model.
Demographic
Sector
Population by age groups,
births, deaths, migration, labor-
force participation
Upstream
Considerations
Employment
{Sector
Employment by category,
unemployment, wages, income
regional attractiveness to
industry, etc.
Water Sector
Water quantity and qua! ity, recreation,
critical geographic points, dams and
reservoirs
Downstream
Effects
Source: H. R. Hamilton, et al, Systems Simulation for Regional Analysis,
An Application to River-Basin Planning, TheM.I.T. Press, 1969.
65
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Exhibit VII-3. Two Submodels Forming the Regional Model
Regional Economic
JftUJfiL
1. Population
2. Employment
3. Electric Power
Consumption
4. Others
Demands for Water
Pollution of Wate.
Water-Cos! Effects
Water Mode)
1. Consumption
2. Withdrawal
3. Flow
4. Pollution
5. River Works
6. Others
Exhibit VII-4. Diagram of the Water-Flow Submodel
River
flow
1
Subregional
rivet flow
1
River
flow
Water
withdrawal
, Water
return
Regional
economy: water
con sumption and
withdrawal
Source: H. R. Hamilton, et al, Systems Simulation for Regional Analysis,
An Application to River-Basin Planning, The M. LT. Press, 1969-
66
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SECTION VIII
SUMMARY OBSERVATIONS
The state -of-the -arts in identifying and measuring bene-
fits and costs from pollution control is in an embryonic stage of
development as the foregoing review suggests. Only in the past
few years has significant attention been directed to evaluating
pollution control mechanisms in response to shifting public
priorities in the direction of environmental quality.
The conceptual and empirical base upon which benefit
and cost analysis of environmental policies could build has been
oriented primarily toward development objectives. The metrics
of traditional benefit cost analysis included income, output and
employment. But with regard to pollution, it was recognized
that policies designed to increase economic activity generally
resulted in an increase in pollution. The sources of pollution
stem from various types of activity. Likewise the receptors
of both pollution damage and benefits from pollution reduction
may be considered to be similar activities. Consequently, tra-
ditional benefit cost analysis has been of limited value as a
building block in evaluating policies designed to improve the
environment.
Conceptual Problems
Three major difficulties exist with the type of metho-
dologies used to evaluate pollution control policies. First, they
are unable to consider several alternatives and often the most
elementary trade-offs are neglected. Second, the approaches
are more rules of thumb than economic analyses. Third, the
framework used to evaluate development projects has been an
inadequate base upon which to build an analytical framework
for evaluating the benefits and costs of pollution abatement.
On the other hand, progress has been made toward more
general model development which takes account of environmental
repercussions of development (and other) activities. From these
more general studies, new possibilities arise for benefit cost
analysis.
67
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Data Problems
Regardless of the conceptual framework, the most glaring
void for economic analysis of anti-pollution policies is costs of
pollution damages, or conversely, the benefits from a reduction
in pollution. But water quality damages and/or cost implications
depend on the uses or users involved. Even water of drinking
quality may be damaging to steel rolling mills because of excessive
chlorides. Likewise water used as feed water in high pressure
boilers must be of high quality to prevent corrosion, scale for-
mation and biological slimes. Water used in the paper industry
may be of considerably lower quality but even then should not
contain much iron, mangenese or carbon dioxide. Thus, water
quality has no single standard for determining damages but a
multiplicity of standards that are linked via the users of water.
'Users' also include affected ecological systems.
The trade-offs become even more numerous when dom-
estic uses are considered. For instance, cool water desirable
as an industrial coolant requires greater energy to heat for some
domestic uses. Soft water requires less soap but increases the
sodium level which may be harmful to certain individuals.
Some General Problems Involving Water Quality
Past research and study has resulted in rather fragmentary
results. Problems (damages) are most frequently recognized at
various major water user-levels, but underlying cause-effect
knowledge and understanding has only recently become a serious
concern. Trade-offs among affected users are not generally
known.
For the purpose of this review, it can only be indicated
i.hr.t water quality problems are now widely recognized. In sum-
mary, a brief description of how various 'users' of water have
been affected is presented below. Pertinent cause-effect rela-
tionships and consequent feasible and economical problem solu-
tions have not been identified.
Municipal Watejr Supply User^s. Municipal water supplies
are distributed to a, wide variety of different users. A considerable
68
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array of quality standards are involved, but they may, in num-
erous cases, be conflicting. Considerable data exist on water
quality standards for different industries along with recent cost
estimates for accomplishing these objectives in particular situ-
ations. However, the intake water varies significantly in quality
from place to place so that treatment costs are spatially variable.
Industrial Water Users. Industrial water use is about
double that of municipalities with the heaviest use in cooling.
Because of a wide spectrum of differences in production pro-
cesses, it is difficult to generalize about industrial pollution
costs or damages. Although a significant number of fixed cost
estimates for particular treatment strategies exist, not enough
is known about the firm's response of internalizing the cost of
waste disposal. The cost data for specific treatment strategies
may be most relevant in that it is something that firms may try
to escape by shifts in production techniques. This flexibility
and adaptability poses serious problems for predicting or even
identifying the social costs of pollution control.
Water-Based Commercial Users. Commercial fishing
damages from water pollution have been discussed for sometime
but frequently in an isolated framework where trade-offs are
neglected. A variety of studies of the Great Lakes have sug-
gested that large losses have occurred from water pollution;
but the exact biological links have not been rigorously specified.
Agricultural Water Users. Agricultural pollution has
attracted several intensive studies in recent years. The Colorado
river, a relatively unpolluted river by most standards, was the
focus of attention a few years ago, partly because of the pollu-
tion of the river by agricultural chemicals. Aside from this
effort, relatively little is known about the trade-offs between
agriculture and industry water quality requirements.
Water-based Recreation Users. From a benefit analysis
standpoint, more is known about the value of cleaner water for
recreation than any other area. A variety of approaches have
been employed to get at the elusive intangible benefits associated
with recreation.
General Public Users. Public health problems associated
with water quality have the longest legacy of attention. Integrative
69
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information relating various cause-effect situations is lacking
however. Bacteriological contamination has been the leading
subject of surveilance by public health officials with resulting
standards based on empirically derived tolerances. Other
pollutants are less well documented; although recent information
suggests that serious contamination/toxicity induced health af-
fects from water pollution are occurring and/or can be expected.
In order to improve the state of knowledge of water pollu-
tion damages, both intensive and integrative approaches are
recommended. Heavy water users , including municipal, indus-
trial and agricultural, could be selected and thoroughly studied for
the cause-effect dama.ges that may result. Few studies of this
nature exist. By far the most benefit analysis of cleaner water
has focused on recreation. As implied, this area of focus by
economists leaves most environmental quality management issues
unanswered.
70
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SECTION IX
IMPLICATIONS FOR PLANNING AND RESEARCH
The above state-of-art survey indicates that water pollu-
tion control problems are both diverse and complex. Both inten-
sive and extensive efforts are needed to better understand the
scope and ramifications of these problems.
A variety of implications for research and planning are
apparent. Some of these implications are pursued in this report.
Also, however, a systematic procedure for developing research
needs and priorities has been planned as described first in this
concluding section of the Phase I report.
Procedure for Establishing Needs
Concern for environmental quality management involves
numerous factors and variables which have heretofore been inade-
quately considered in economic and other analyses. Consequently,
there exists an implicit need for further research and planning ef-
forts which incorporates pertinent additional environmental vari-
ables.
A statement such as: "More research is needed," fails,
however, to come-to-grips with this rather obvious conclusion.
Attention must be given to specific needs and establishment of
priorities among the needs defined.
Reflection upon processes which might be used to identify
specific needs involving water-based aspects of environmental
quality management (or similar concerns) leads to various means-
ends schema which might be used. A particular such framework
proposed here is as follows:
71
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Step
Description
1. Define Basic Problem
2.
Place Problem in Per-
spective
3.
Refine Problem De-
finition
4.
Determine Directions
of Study Needed
Without immediate regard to prob-
lem solutiona it is usually possible
to define a problem in terms of (1)
desired outputs or results and (2)
types of needed inputs which affect
the outputs desired.
Each problem identified has its
'environmental setting1 and a visual-
descriptive understanding of this
setting is needed in order to assess
whether the basic problem defini-
tion has validity. Realistic problem-
solution methods and approaches
must account for presumed exogenous
factors which can affect problem
solution efforts.
A concerted effort to place a prob-
lem in realistic perspective can
generally result in refinement of
the problem definition. Affected
audiences can be exposed to as-
pects of the problem and feedback
inputs can further alter problem
definition.
Different types of results, or com-
ponents of a given type of result,
may require alternative directions
and approaches of study. Diverse
directions may be required, but
each can contribute to the desired
whole. Care must be taken to pro-
ject expected results or findings
and how they relate to the whole,
however.
72
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Step
5. Establish Criteria for
Defining Needs and
Priorities
Description
A judgemental framework for ranking
and ordering sub-problems within the
basic problem needs to be established.
Also, preferences as to the ordering
of desired outputs can affect the state-
ment and ranking of needs. Input needs
and priorities are subsequently affected.
In reverse, evaluation of input needs can
result in re-ordering of needs and pri-
orities .
6. Subsequent Steps
Further processes and specifications
include (a) Development of approaches
and methods of analysis, (b) Deter-
mination of specific inputs, (c) Estab-
lishment of priorities given time/
budget constraints, and (d) Project
scheduling and operation.
At the outset of this report, an attempt was made to define
the basic problem of water pollution control independent of a
physical-social-political-economic setting. The survey of
state-of-art benefit cost analyses dealing primarily with water
pollution control indicates indirectly much of the setting in which
this problem is to be solved.
To pursue further the process for establishing research
needs (and subsequently the development of priority needs), a
brief overview of some broad perspective viewpoints available
in the literature is presented in the next section.
The intended stopping-point of this report is development
of ideas through step 4 as outlined above. Development of steps
5 and 6 are presented in a separate report.
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Some Perspective Viewpoints
At the outset of this report, an introductory perspective
was presented to suggest that water quality management prob-
lems can realistically neither be separated from other environ-
mental quality management nor other critical national issues.
Attention was not given to how one might proceed to integrate,
either analytically or operationally, the multiple or joint con-
cerns, however. Given the state-of-art survey above, it is
better realized how some of the major issues are interrelated.
For example, from the Materials-Process-Product general
equilibrium model approach described, it is more easily con-
ceived how raw material (energy source) substitutions could
significantly affect both the quantity and quality of residual waste
flows. Hence, energy resource use and water quality manage-
ment concerns may be significantly interrelated.
Attention has and is increasingly being given to multiple-
problem modelling and analysis in a general systems theory
setting. A variety of relatively recent publications have dealt
with environmental quality problems in a global framework.
Examples include the following:
(1) Albertson, P. and M. Barnett (ed.) Managing the
Planet, 1972.
(2) Boulding, K. The Economics of the Coming jipace-
ship Earth, in Jarrett (1966).
(3) Ecologist. A Blueprint_fp_r Survival, 1972.
(4) Forrester, J. W. , World Dynamics, 1971.
(5) Fuller, R. B. , Ope rating Manual for Spacesjiip
Earth, 1969.
(6) Kellermann, Henry J., Ecology; A World Concern,
1971.
(7) Kneese, A.V. , & B. T. Bower (ed.), Environmental
Quality Analysis. 1972.
(8) Kneese,, A.V. , S. E. RolfeandJ. W. Harned,
Managing the Environment: International Economic
Cooperation for Pollution Control, 1971.
(9) Meadows, D. H. , et al. , The Limits of Growth, 1972
(10) Ramsay, W. and C. Anderson. Managing the En-
vironment, 1972.
(11) Report of the National Goals Research Staff, Toward
Balanced Growth: Quantity with Quality, 1970.
74
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(12) Spilhaus, A., Ecolibrium, 1972.
(13) Train, R. E. , The Quest for Environmental
Indicies, 1972.
Concepts and ideas presented in the above type of publi-
cations provide much more complete perspective viewpoints of
dealing with environmental quality management problems. Some
of the ideas developed in these more general viewpoints can and
should affect the manner in which water pollution control prob-
lems are modelled and analyzed. Without some attention to
world-views involving environmental quality problems, it is
predicted that partial-studies may be not only incomplete but
misleading or incorrect. Hence, the following summaries are
presented as a pertinent step in establishing directions of needed
study.
Five specific references from the above listing are
briefly summarized in this report. They help provide a broader
perspective toward understanding of pollution and pollution con-
trol problems. Also, suggestions are given of how we might
collectively approach the complex task of environmental quality
management.
The selected references do not effectively deal with all
facets of the general problem, but various levels of concern
and some additional relevant perspectives are indicated. The
following brief general citing and categorical description of
each is an attempt to explain why these selections are included
herein:
Reference
Operating Manual for
Space ship Earth, by
H. Buckminister Fuller
(Fuller is a University
Professor at Southern
Illinois University. He
is the inventor of the
geodesic dome.)
Categorical Description
This statement by Fuller is philos-
ophical and comprehensive at this
level. Long-term perspectives are
introduced and the 'irrationality' of
current activities and behaviors are
pointedly stated.
Fuller indicates well what we need
to do, but detailed implementation
plans are yet to be developed.
75
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Reference
Categorical Description
An interview (see
Wheeler, 1972) with
Alexander King, a
spokesman for the Club
of Rome.
(King, a scientist, is
director-general for
Scientific Affairs of
the Organization for
Economic Cooperation
and Development)
"Ecolibrium," by
Athelstan Spilhaus,
--an address as re-
tiring president of
AAAS.
(Spilhaus is a fellow
of the Woodrow Wilson
International Center for
Scholars, Smithsonian
Institution)
Environmental Quality
Analysis, by A. V.
Kneese and B. T.
Bower (ed).
(Kneese is director
and Bower is associate
director of the 'Quality
of the Environment Pro-
gram' at RFF)
King, a founder of the Club of Rome,
discusses the alledged dooms-day
publication by Meadows, D.H. , et al. ,
The Limits of Growth and other Club
of Rome activities. "Trajectory1 con-
sequences of extrapolated traditional
human activities are indicated.
The need for changes in current-
types of activity and human behavior
are made clear with this type of per-
spective. Again no detailed imple-
mentation plans are yet agreed upon.
This article presents major issues
surrounding environmental quality
management and suggests kinds of
long-range planning efforts which
need to be pursued. Ideas presented
are part of the needed bridge-work to
pragmatically deal with environmental
management problems given current
socio-economic-political-legal structures
This book is a collection of selected
state-of-art papers by Resources
for the Future staff members and other
scholars involved in a current environ-
mental quality program. Emphasis
has been primarily theoretical and
methodological. The authors have
attempted to meaningfully segment and
classify both current and needed re-
search areas. While progress is
being made, it is clear that 'answers'
are still not available.
76
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Reference Categorical Description
5. "The Quest for Environ- A specific item of general and poli-
mental Indices" by tical concern are broad indicators
Russel E. Train—an of environmental quality. Train ex-
editorial opinion. plains the need for such indicators
both in terms of policy formulation
(Train is chairman of and dialogue.
the Council on Environ-
mental Quality) Most of this concise statement is
presented. It reflects many of the
specific problems currently being
faced to improve understanding and
assessment of environmental quality.
These five references are briefly summarized next. They
represent the type of general thinking and the kinds of developments
which place water quality management problems in realistic per-
spective.
Selected Reference No. 1
In a lucid, philosophic statement: Operating Manual for
Spaceship Earth, R. Buckminister Fuller systematically and
skillfully builds ideas to yield an experimentally-defined concept
of the universe. He then proceeds to systematically 'subdivide
progressively1 that which he built-up into its most relevant physical
and metaphysical bi-sected 'bits', including spaceship earth.
To bring into perspective how one might consider oper-
ating this spaceship, Fuller, by analogy, likens spaceship earth
to an automobile:
One of the interesting things to me about
our spaceship is that it is a mechanical
vehicle, just as is an automobile. If you
own an automobile, you realize that you must
put oil and gas into it, and you must put water
in the radiator and take care of the car as a
whole. You begin to develop quite a little
thermodynamic sense. You know that you're
either going to have to keep the machine in
77
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order or it's going to be in trouble and fail
to function. We have not been seeing our
Spaceship Earth as an integrally-designed
machine which to be persistently successful
must be comprehended and serviced in total.
Now there is one outstandingly important fact
regarding Spaceship Earth, and that is that
no instruction book came with it. (p. 47)
Fuller suggests that the 'instruction book' was purposely
not provided, and continues in the following manner:
The designed omission of the instruction
book on how to operate and maintain Space-
ship Earth and its complex life-supporting
and regenerating systems has forced man to
discover retrospectively just what his most
important forward capabilities are. His
intellect had to discover itself. Intellect in
turn had to compound the facts of his exper-
ience. Comprehensive reviews of the com-
pounded facts of experiences by intellect
brought forth awareness of the generalized
principles underlying all special and only
superfically-sensed experiences. Objective
employment of those generalized principles
in rearranging the physical resources of en-
vironment seems to be leading to humanity's
eventually total success and readiness to cope
with far faster problems of universe, (p. 49)
In order to tackle present world problems, Fuller pro-
ceeds with his operating manual theme using a variety of "power-
ful thought tools": topology, geodesies, synergetics, general
systems theory and operational 'bitting' (with reference to com-
puters). Using a general systems analysis framework, he pro-
gressively subdivides the universe into ordered relevant 'bits'
which he summarized as follows:
78
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Our first isolated bit is the system, which
at maximum is the starry macrocosmic and
at minimum the atomic nucleus; the second
bit reduces the macrocosmic limit to that of
the galactic nebula; the third bit separates out
cosmic radiation, gravity and the solar system;
and the fourth bit isolates the cosmic radiation,
gravity, sun, its energized, life-bearing Space-
ship Earth, together WITH the Earth's Moon as
the most prominent components of the life re-
generation on Spaceship Earth.
I would like to inventory rapidly the system
variables which I find to be by far the most
powerful in the consideration of our present
life- regenerating evolution aboard our space-
ship as it is continually refueled radiationally
by the Sun and other cosmic radiation. Thus
we may, by due process, suddenly and excitingly
discover why we are here alive in universe and
identify ourselves as presently operating here,
aboard our spaceship, . . . thinking effectively
regarding the relevant contemporary and local
experiences germane to the solution of humanity's
successful and happy survival aboard our planet.
We may thus discover not only what needs to be
done in a fundamental way but also we may dis-
cover how it may be accomplished by our own
directly-seized initiative, undertaken and sus-
tained without any further authority than that of
our function in universe, where the most ideal
is the most realistically practical, (p. 69-70).
At this point in the discussion, Fuller is ready to-take-
to-task the general problem of human survival, a problem to
which all others are subsidiary as indicated next:
Typical of the subsidiary problems within the
whole human survival problem, whose ramifi-
cations now go beyond the prerogatives of planners
and must be solved, is the problem of pollution in
general--pollution not only of our air and water
but also of the information stored in our brains.
79
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We will soon have to rename our planet
"Poluto." In respect to our planet's life
sustaining atmosphere we find that, yes,
we do have technically feasible ways of
precipitating the fumes, and after this we
say, "But it costs too much." There are
also ways of desalinating sea water, and we
say, "But it costs too much." This too nar-
row treatment of the problem never faces
the inexorably-evolving and solution-insistent
problem of what it will cost when we don't
have the air and water with which to survive.
(p. 70)
Rather obviously Fuller does not agree with our tradi-
tional benefit cost approaches of problem solving. He subse-
quently elaborates on his viewpoints as follows:
The adequately macro-comprehensive and
micro-incisive solutions to any and all vital
problems never cost too much. The produc-
tion of heretofore nonexistent production tools
and industrial networks of harnessed energy to
do more work does not cost anything but human
time which is refunded in time gained minutes
after the inanimate machinery goes to work.
Nothing is spent. Potential wealth has become
real wealth. As it is cliched "in the end"
problem solutions always cost the least if
paid for adequately at outset of the vital prob-
lem's recognition. Being vital, the problems
are evolutionary, inexorable, and ultimately
unavoidable by humanity. The constantly put-
off or under-met costs and society's official
bumbling of them clearly prove that man does
not know at present what wealth is nor how much
of whatever it may be is progressively available
to him.
We have now flushed out a major variable in
our general systems problem of man aboard
Earth. The question "What is wealth?" com-
mands our prime consideration, (p. 72-73)
80
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To conclude this brief perspective sururoariza'ion of
Fuller's book, three final parts of his book are presented. These
sections are both forward thinking and perhaps provacative. They
directly relate to this study however in terms of pollution (genei -
ation) control and our economic accounting systems (benefits and
costs):
Inasmuch as we now are learning more inti-
mately about our Spaceship Earth and its
radiation supply ship Sun on the one hand arid
on the other its Moon acting as the Earth's
gravitationally pulsing "alternator" which to-
gether constitute the prime generator and re-
generator of our life supporting system, I
must observe also that we're not going to sus-
tain life at all except by our successful im-
poundment of more of the Sun's radiant energy
aboard our spaceship than we are losing from
Earth in the energies of radiation or outwardly
rocketed physical matter. We could burn up the
Spaceship Earth itself to provide energy, but
that would give us very little future. Our space
vehicle is similar to a, human child. It is an
increasing aggregate of physical and metaphysical
processes in contradistinction to a withering,
decomposing corpse.
It is obvious that the real wealth of life aboard
our planet is a forwardly-operative, metabolic,
and intellectual regenerating system. Quite
clearly -we have vast amounts of income wealth
as Sun radiation and Moon gravity to implement
our forward success. Wherefore living only on
our energy savings by burning up the fossil fuels
which took billions of years to impound from the
Sun or living on our capital by burning up our
Earth's atoms is lethally ignorant and also utterly
irresponsible to our coming generations and their
forward days. Our children and their children
are our future days. If we do not comprehend
and realize our potential ability to support all
life forever we are cosmically bankrupt, (p. 78-79)
-------
Given the above viewpoints of how to better operate space-
ship earth plus an outline description of other topics which he de-
velops, attention is now turned to his viewpoints on our economic
accounting systems:
. . . Our economic accounting systems are un-
realistically identifying wealth only as matter
and are entering know-how on the books only as
salary liabilities; therefore, all that we are dis-
covering mutually here regarding the true nature
of wealth comes as a complete surprise to world
society--to both communism and to capitalism
alike. Both social co-operation and individual
enterprise interact to produce increasing wealth,
all unrecognized by ignorantly assumed lethally
competitive systems. All our formal accounting
is antisynergetic, depreciative, and entropic
mortgagization, meaning death by inversally com-
pounding interest. Wealth as anti-entropy develops
compound interest through synergy, which growth
is as yet entirely unaccounted anywhere around
Earth in any of its political economic systems.
We give an intrinsic value to the material. To
this we add the costs of manufacturing which in-
clude energy, labor, overhead, and profit. We
then start depreciating this figure assuming swift
obsolescence of the value of the product. With
the exception of small royalties, which are usually
avoided, no value is given for the inventiveness or
for the synergistic value given by one product to
another by virtue of their complementarity . . .
(p. 86-87)
Our common wealth is also multiplied in further
degree by experimentally-derived information
which is both multiplying and integrating the
wealth advantage at an exponential rate. The
synergetic effect upon the rate of growth of our
incipient world common wealth augmentation has
been entirely overlooked throughout all the ac-
counting systems of all the ideologically-divergent
political systems. Our wealth is inherently com-
mon wealth and our common wealth can only in-
crease, and it is increasing at a constantly self-
accelerating synergetic rate.
82
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However, we inadvertently dip into our real,
unaccountedly fabulous wealth in a very meager
way only when our political leaders become
scared enough by the challenges of an impress-
ively threatening enemy. Then only do socialism
and capitalism alike find that they have to afford
whatever they need. (p. 89)
And, finally, Fuller offers the following operating rules
or procedures for survival. He returns to his automobile analogy
to advise of some of these rules:
We have learned that only and exclusively
through use of his mind can man inventively
employ the generalized principles further to
conserve the locally available physical energy
of the only universally unlimited supply. Only
thus can man put to orderly advantage the var-
ious, local, and otherwise disorderly behaviors
of the entropic, physical universe. Man can and
may metaphysically comprehend, anticipate,
shunt, and meteringly introduce the evolutionarily
organized environment events in the magnitudes
and frequencies that best synchronize with the
patterns of his successful and metaphysical met-
abolic regeneration while ever increasing the de-
grees of humanity's space and time freedoms from
yesterday's ignorance sustaining survival pro-
cedure chores and their personal time capital
wasting, (p. 110) ...
We have thus discovered also that -we can make
all of humanity succesful through science's world-
engulfing industrial evolution provided that we are
not so foolish as to continue to exhaust in a split
second of astronomical history the orderly energy
savings of billions of years' energy conservation
aboard our Spaceship Earth. These energy savings
have been put into our Spaceship's life--regeneration-
guaranteeing bank account for use only in self-
starter functions.
83
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The fossil fuel deposits of our Spaceship
Earth correspond to our automobile's stor-
age battery which must be conserved to turn
over our main engine's self-starter. There-
after, our "main engine," the life regenerating
processes, must operate exclusively on our
vast daily energy income from the powers of
wind, tide, water, and the direct Sun radiation
energy. The fossil-fuel savings account has
been put aboard Spaceship Earth for the exclu-
sive function of getting the new machinery built
with which to support life and humanity at ever
more effective standards of vital physical energy
and reinspiring metaphysical sustenance to be
sustained exclusively on our Sun radiation's and
Moon pull gravity's tidal, wind, and rainfall
generated pulsating and therefore harnessable
energies, (p. Ill)
We have discovered that it is highly feasible
for all the human passengers aboard Spaceship
Earth to enjoy the whole ship without any indi-
vidual interfering with another and without any
individual being advanced at the expense of
another, provided that we are not so foolish as
to burn up our ship and its operating equipment
by powering our prime operations exclusively
on atomic reactor generated energy. The too-
shortsighted and debilitating exploitation of fossil
fuels and atomic energy are similar to running our
automobiles only on the self-starters and bat-
teries and as the latter become exhausted re-
plenishing the batteries only by starting the chain
reaction consumption of the atoms with which the
automobiles are constituted, (p. 112)
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Selected Reference No. 2
In 1970, The Club of Rome (an ad hoc group of worldwide
influential persons, founded by Alexander King and Aurelio Peccei
commissioned Jay Forrester and Dennis Meadows of M.I.T. to
undertake a projection of the world in the early two thousands as
it would look if present trends and policies continued. The results
of this study were published under the title: The Limits to Growth,
(Meadows, et al. , 1972). In essence the report indicated major
calamities would occur within about fifty years,,
Six major aggregate variables were considered in the
projection model (ninety equations with many feedback loops):
(1) world population, (2) food required (by an increasing popu-
lation), (3) the agricultural potential to supply food, (4) indus-
trial and economic growth, (5) depletion of raw materials, and
(6) pollution. Despite a variety of assumptions in projecting,
major collapses were expected by about the middle of the next
century. (A sample computer print-out picture is shown in
Exhibit IX-1).
This publication has been the subject of rather intense
international debate and discussion. In an interview by Wheeler
(1972), Alexander King explained some of the background for this
study and reflected on the basic issues involved. In a summary
statement, King believed the value of the study and publication was
as follows:
We think it's a magnificent first attempt,
that it's unfair to reproach it for not having
given all the answers. It has started an
international dialogue which is urgently
needed. This first work should not be re-
garded as a basis for policy--it's far too
tentative, too general. But it's a precursor
of perspectives for the reorientation of world
research and development efforts in relation
to real problems, (p.27)
King went on to outline some additional steps and projects
being supported or pursued under the auspices of the Club of Rome.
Three such new projects outlined were: (1) An alternative metho-
dological approach (a new method of model-making which starts
85
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Exhibit IX-1
WORLD MODEL WITH "UNLIMITED" RESOURCES,
POLLUTION CONTROLS, AND "PERFECT" BIRTH CONTROL
WORLD MODEL WITH "UNLIMITED" RESOURCES,
POLLUTION CONTROLS, INCREASED AGRICULTURAL
PRODUCTIVITY, AND "PERFECT" BIRTH CONTROL
Source: Center Report, Center for the Study of
Democratic Institutions, Oct., 1972.
86
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with a highly disaggregated system and attempts integration
after looking at various levels, including policy levels; (2)
Creation of a model to represent the less developed portions
of the world (this model is to reflect human resources, energy
resources, and material resources in dynamic terms, including
entropy considerations); and, (3) A study to consider how in the
next twenty to forty years the world might accommodate the next
doubling of world population. (The next doubling is assumed
as inevitable in the next thirty years or so.) Hence, what will
be the required infrastructure changes; the needed resources;
the economic, capital and trade-consequences; and the East-West
and North-South consequences.
Also, King indicated beginning of work towards a political
World Forum concept where continued dialogue is possible among
all people of the world.
Selected Reference No. 3
Spilhaus (1972) coined a word: "Ecolibrium," which he
defined to mean "balance in our earthly home." He then pre-
sented a plea for careful and continuous long-range planning to
achieve ecolibrium. The type of planning needed was indicated
in general as follows:
. . .planning not only to supply the basic
physical needs of shelter, water, food,
air, and fire (which is energy), but plan-
ning which is also sensitive to people's
"wants". These often may be ill-defined
psychological needs in mobility, communi-
cations, recreation, culture, and beauty
which keep us intellectually well and humanly
alive, (p. 711)
Asa basic guide or index to planning, Spilhaus believes
it is important for government to consider how to: ". . .multiply
choices for each individual in such a way as to impinge least on
the choices of other individuals." His reasoning in support of
this recommendation was as follows:
87
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Vague phrases such as the quality of
life, progress, standard of living, and
so forth are ill-defined; one measure,
however, is the kind and number of choices
that individuals may make. To increase
choices is to increase freedom. In-
creasing choices is democratic. In-
creasing choices enables individuals to
make combinations for themselves which
most closely fit their own views of "qual-
ity of life." Increasing choices, therefore,
preserves individuality, (p. 711)
In relation to environmental quality, Spilhaus believes
that pollution in general reduces the choices of a clean environ-
ment. He further indicates:
The solution here is not to limit the choices
of things and services that people want to
ease their lives, but to rebuild the
industries and works of man that pro-
vide these things and change them so
that they are saving and clean. . . .
The great challenge is how to continue
providing for people's needs and wants
and yet, at the same time, to manage
the environment by containing wastes in
the manufacturing plants--by recycling,
reprocessing, and reuse--and by rebuilding
industry to be saving of both materials and
energy. . . . all the efforts to maintain and
increase choices use energy. Hence, if we
are to continue to provide choice or increase
choices, we must expect and plan to increase
energy per capita in saving and clean ways.
But to come full circle, when we accomplish
these intermediate steps and increase energy
per capita, if, at the same time, there is a
continual increase in population, we will
eventually arrive at a point where getting rid
of the nonequilibrium heat generated on earth
will become a problem. Inescapably, there-
fore, population limits which will maintain choice
with no additional expenditure of energy are
fundamental and most urgent, (p. 711)
88
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Based on some ideas attributed to Professor Solow, Spil-
haus reflects also on an economic approach to pollution and its
control. He develops a theme of "Free costs everybody more"
(with special reference to air and water "commodities") as
follows:
"Free" is a word loosely used for things
we pay for without knowing it. We have
necessities which traditionally were free
and now are partially free in the sense that
their cost to the user is kept below the real
cost. Such unrealistically low costs promote
waste which in turn raises real cost by in-
creasing scarcity.
Water was free in the past. It was free
before there were so many of us. Clean
air, clean water, and even natural foods
were free for the taking before our numbers
made it necessary to produce them faster
than nature can supply them. Water is still
almost always priced far below its true cost,
even -where it is in short supply. Yet food,
equally fundamental to our bodies, is priced
according to its scarcity. We can no longer
think of water and air as free, inexhaustible
supplies. Nor can we think of fouled air and
water as natural bounties which can be cleaned
up at a price once and for all. As we continue
to use them we'll continue to dirty them and
must continue to clean them for reuse at a con-
tinuing cost of energy, (p. 713)
An additional concept which Spilhaus develops is his be-
lief as to what is meant by a. steady-state world. He discusses
this concept in view of his ideas concerning ecolibrium as ex-
plained above. He says:
In environment, steady state does not mean
and cannot mean conservation of nature as it
was 100 or 1000 years ago. Ecologies will
continue to be "engineered" as they have been
since the beginning of agriculture. We must
learn to change them in accord with the changing
needs of people, but maintain steadily the de-
sired qualities.
89
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Steady state does not mean that things for
living would not continually be improved or
changed as people's choices dictate. Neither
does it mean a static number of choices. There
can be exciting change, continual improvement,
without escalation of the amount of things. A
steady-state world should not inhibit experi-
mentation. On the contrary, it should open up
a great new field of scientific and technological
experimentation and discovery to develop the
"saving" industries to produce things to satisfy
new wants with less materials, using energy
more efficiently. In a steady state, there must
be continual invention to increase choices and
give variety to life.
Ideally, the steady-state world should remove
the day-by-day crises of human physical needs.
Then we will more clearly recognize that wel-
fare is not merely the provision of these needs,
but that to fare well is to have rewarding work
and convinual learning and, relieved of the chore
of keeping physically alive, time for the import-
ant business of being human.
All this requires the wisest, broadest, long-
term planning with its continuity ensured.
(p. 714)
In a final section, Spilhaus emphasized the need for long-
range planning efforts and made the following suggestions:
We should set up a permanent United States
Planning Board now to formulate long-range
directions for our society. Otherwise the
future serious realities will be lost in the
noise of immediacies and solutions by crises.
New initiatives, technological assessment, and
research applied to national needs can then be
meshed with the preservation of environment,
of beauty, and of the texture of cultures in long
range living design. ...
90
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Short-range planning tactics for living are
appropriately in the hands of the Executive
branch. But long-range planning, the strategy
of living, should be set up to have greater de-
tachment and continuity while still being responsible
to the Executive and Congress. This board
would not remove the prerogatives of existing
agencies. Neither would it federalize the private
long-range thinking that goes on in industry,
business, universities, and other institutions.
It would use all of these and provide a pathway
to national policy where they could be woven
into the long-range plans for man on earth.
While one thinks naturally of the parallel with
the Supreme Court, this permanent planning
board would probably not need a constitutional
amendment to give it its status. It would be
funded by Congress so that no removal of
Congress1 control of appropriations would be
involved.
The board should represent not only economics,
industry and natural and social sciences, but,
equally importantly, the arts, architecture,
and the humanities.
Only by ensuring a continuity of long-term
planning in our government can we hope to build
toward the harmony of a bountiful economy with
a beautiful environment.
The guideline would be that of preserving
and multiplying choices for people. To the old
statement "to govern is to choose" we may add
that to govern well is to provide people with
the opportunity to choose, (p. 715)
91
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Selected Reference No. 4
Kneese and Bower, in Environmental Quality Analysis,
classify theoretical and empirical projects dealing with the
quality of the environment into three broad areas:
(1) Environment and Economic Growth
Thr declining quality of the natural environment--
which is viewed by the authors to include the air mantel,
watercourses and oceans, landscapes, the electromag-
netic spectrum, complex ecosystems, climate, and rare
geornorphol jgical features of the earth--is shown to be
essentially due to the impact of economic growth. More
to the point, the impact of prior methods of handling
residuals (wastes) has resulted in degradation of environ-
mental quality.
A fundamental law, known as "Conservation of
Mass" is recalled to stress that resource inputs used in
production and consumption processes "do not disappear
into the void after they are burned and processed, but
that a residual mass about equal to that initially extracted
from nature must eventually be accommodated. Kneese
and Bower further stress that: "Unless economical and
carefully designed control of residuals generation and
recycling processes (emphasis added) is undertaken, the
common 'dumps' of air and water must suffer spectacular
quality degradation with grave effects on ecology and in due
course on man." Some attention is now being given to en-
vironmental quality problems in this 'materials-balance'
setting.
(2) Management Programs
The need for comprehensive management pro-
grams to deal with environmental quality management
problem has resulted in more emphasis toward de-
veloping management programs which embody environ-
mental impacts of mans' activities.
92
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Rather formal mathematical modeling is generally
required to aid in understanding the complex interrelation-
ships between human activities and environmental systems.
Also, various approaches might be taken to achieve im-
proved environmental quality; and, comprehensive planning
implies analysis of "salient public policy alternatives."
To outline the types of considerations required in
such modeling and analysis a, 'master model1 which con-
tains the following 'submodels' was suggested: (a) sub-
models of production and consumption activities, (b) sub-
models to represent modification of residuals after gener-
ation in such activities, (c) submodels to trace discharge
of residuals (with locations preserved), (d) submodels of
dispersion and degradation of residuals in the environment,
(e) submodels of effects on receptors, and (f) submodels
of mechanisms as required for feeding back information
for decisions in the production-consumption-residuals
modification segment. Because of the complexity and
scope of such modeling and analysis, regional applications
only are currently plausible. Aggregations are then re-
quired.
(3) Political and Legal Institutions
Special kinds of "collective-choices' are required
when dealing with 'common property resources' (such as
the environment) of a society. Unlike traditional resources,
such as land and minerals, which are usually valued in a
market system, the environmental resources will require
new or special kinds of decision-making procedures. Here,
concerns of leadership and institution building (with respon-
sibility, authority and power to act on behalf of society)
become involved.
Designing of political and legal institutions to ef-
fectively deal with environmental quality issues has thus
become a matter of general concern and a distinct area of
study. Development and analysis of public choice mechanisms
are needed as a basis for designing (and/or redesigning) the
requisite public institutions.
93
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Selected Reference No. 5
Russell Train concisely presents in the following state-
ment the need for indicator measurements of environmental
quality as one practical means for making practical use of
scientific evidence which is available:
Our indicators of gross national product,
cost of living, and unemployment are based
on somewhat arbitrary definitions that can
produce quite misleading results if their
assumptions and limitations are not fully
recognized. And yet these measures of the
economy are critical factors in both formu-
lating and evaluating economic policy. Des-
pite their shortcomings, they are adequate
for their purpose, and their use has improved
both policy formulation and the level of
political dialogue.
Is it possible to provide a similar set of
indices for environmental quality? The
Council on Environmental Quality and other
organizations concerned with the environ-
ment have been grappling with this question.
I am convinced that we not only can develop
such indices, but that we must if the level of
environmental policy and planning is to be
improved.
A limited number of environmental indices,
obtained by aggregating and summarizing
available data, could be used to illustrate
major trends and highlight the existence of
significant environmental conditions. These
indices could provide measures of the success
of federal, state, local, and private programs
in coping with environmental problems that
must be solved.
94
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Many obstacles lie in the path of developing
environmental indices. For some aspects of
the environment there are conceptual questions
that must be answered. For example, we know
that land use is a basic component of environ-
mental quality5 but at this point it is not clear
what aspects of land use we should be measuring.
Good indices depend upon good data, but the
environmental data now being collected are
deficient in many respects. Inadequate sampling
is probably the most pervasive problem. . . .
water pollution readings are only rarely ad-
justed to take into account the location of the
stations collecting the data. Another major
problem is the excessive length of time between
collections of data. Unsatisfactory systems for
data storage and dissemination are often notable
deficiencies.
Finally, in many cases the scientific knowl-
edge necessary to properly weight the com-
ponents of an index is lacking. How im-
portant is dissolved oxygen compared to
turbidity in estimating the quality of our
nation's water? How much park space does
a typical urban dweller need or want? Until
sound standards are set for the major as-
pects of the environmentj a number of some-
what arbitrary assumptions will have to be
made in the computation of indices.
Although there are formidable obstacles to
the development of environmental indices,
real progress has been made in this direction.
There has been a marked increase in interest
in the subject among federal, state, and local
agencies and also within the academic community.
The dialogue concerning environmental problems
has increasingly been based on empirical evi-
dence instead of on intuitive assumptions or
political interests.
95
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Policy-making neither can nor should become
totally "scientific." Vital decisions will always
depend ultimately on the values we hold and on
the way we express these values through the
political system. But we must also strive to
make maximum use of the scientific evidence
available to us, and the development of environ-
mental indices is one important way of doing this,
96
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Summary of the Problem in Perspective
Up to this point we have tried to accomplish two of the
outlined procedural steps toward establishing planning and re-
search needs. That is, the procedural steps taken have been:
Step 1 - Define Basic Problem
Step 2 - Place Problem in Perspective
We are now ready to consider:
Step 3 - Refine Problem Definition
We believe the basic problem definition presented in the
first section is still applicable, but a variety of interdependent
factors (and other problems) necessitate that water quality manage-
ment be considered in a general systems analysis framework.
Water quality management is not strictly isolatable or inde-
pendent from other environmental management problems.
Based upon the state-of-art survey and the selected per-
spective viewpoints, we believe the following 'types-of-refine-
ments' in problem definition are required: (Note--Further efforts
are needed to adequately reflect these considerations in a com-
prehensive definition of the problem.)
Factors Affecting Problem
Definition
1. Hydrologic Basis
Type-of-Refinement Required in
Problem Definition
Water is both a dispersed and
mobile resource. Location-
preserved analyses are required
to link and assess water quality
in affected receptors. (Sources
of effluents are also location-
dependent. )
97
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Factors Affecting Problem
Definition
Type-of-Refinement Required in
Problem Definition
2. World -wide Scope
3. Aggregation Framework
Social Welfare Setting
• Efficiency
• Equity
• Externalities
Other Environmental
Quality Management
Problems
• Air
• Land
• Other Eco-systems
Other Related Problems
• Economic Growth
• Natural Resource
Use
• Materials Balance
• Energy Sources and
Use
• Technology/Indus-
trialization
• Population
Types of Pollution and
Pollution Control Impacts
• Health
• Esthetics
• Production (Acti-
vity) Changes
• Ecological
Oceans are the final receptors and
hence water quality management be-
comes a wo rid -wide concern.
Jnterdependency of impacts (benefits
and costs) among receptors necessi-
tates a systematic aggregation frame-
work to generalize management needs
and results.
Social welfare maximization is an
implicit goal. Problems of efficiency
and equity are involved. Externalities
of pollution result in the need for a
social setting.
All environmental quality problems
are shown to be intertwined; and,
therefore, water quality management
is not an isolatable problem.
The cited factors are also integrally
related to water quality management
and must be considered in a compre-
hensive analysis.
As outlined in Exhibit 1-1, a vast
array of consequences are involved
in dealing with water quality manage-
ment. Comprehensive efforts are
called-for and need to be included.
-------
Factors Affecting Problem
Definition
8. Dynamic Setting
9. Thermodynamic Setting
(Entropy)
10. Management Approaches
• Regulation
• Taxes/Subsidies
• Licensing
• Others
11. Quantification/Measure-
ment Techniques
Type-of-Refinement Required in
Problem Definition
The entire water quality manage-
ment problem is cast in an on-
going and dynamic setting. This
affects the types of analysis needed.
Especially in a. global long-term
framework, the r mo dynamic laws
related to entropy must be con-
sidered. Water quality is involved.
A broad range of policy, program
and pollution abatement manage-
ment alternatives exist. Different
economic and social consequences
are involved.
Analytical and data requirements
will vary in relation to approaches
considered.
12.
13.
14.
Value Systems
• Physical/Meta-
physical
• Tangible/Intangible
• Economic/Meta-
economic
• Known/Unknown
• Quantity/Quality
Institutional Setting
and Legal Structures
National and International
Goals and Priorities
15. Management Framework
Environmental quality management
problems in general have caused
reconsideration of numerous types
of implicit, underlying value systems.
Management embodies values in terms
target criteria and objectives.
Social choice mechanisms (socially
and culturally dependent) involve
institutions and legal structures.
Changes are occurring in this regard
and such changes affect management
strategies.
Water quality management is one of
many concerns.
The sum-total of the above (plus other
factors) affect the needed water quality
management framework.
99
-------
One can hardly consider the above listing of factors af-
fecting water quality management to be a useful analytical re-
finement of the basic problem. However, perhaps we are ready
to "turn-the-corner" and get on with our principal concern of
identifying and quantifying relevant 'costs' and 'benefits' of water
pollution control.
Directions of Needed Study
From an economic point-of-view there appear to be four
major inadequately developed concepts which inter-link most, if
not all, of the identified factors of the water quality management
problem: (1) Externalities, (2) Value, (3) Time Profile, and (4)
Equity. The most needed directions of study stem from these
concepts as will be briefly described below.
First, however, it is taken as given that agreement can be
reached with the economists' contention that:
Maximization of social (public and private)
welfare is the implicit goal of a society.
Also, it is believed agreeable that society seeks the most effi-
cient means to achieve a. given level of social welfare.
Benefit measurement is the dominant problem to be faced
as we proceed from the current state-of-the-art. Current ap-
proaches to benefit measurement are derived from an economic
development orientation which 'flies-in-the-face' of environmental
quality. In other words, it is the objective function (social wel-
fare) which requires the most additional attention. What is it
that we are attempting to optimize? This leads us to basic con-
cepts such as externalities, value, time profile and equity.
Externalities
We believe that the single most critical problem which
needs further study relative to assessing benefits and costs of
water quality management is to identify, measure and quantify
externalities, i.e. , the spillover effects of controllable activity.
100
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Direct cost enumerations of pollution control are rela-
tively straightforward and not the main concern toward deter-
mining maximum social welfare.
The enumeration and evaluation of benefits (including
damage reduction) are much more complex. The existence of
externalities means that not all 'beneficiaries' may be enumer-
ated by observing market transactions. Benefits, as measured
by market prices, will therefore tend to be incorrectly esti-
mated since not all beneficiaries are included in the observed
market demand price. Buyers will falsify their true demand
price if a public good externality is involved.
For this reason, economists contend that maximization
of social (public and private) welfare is the implicit goal of a
society.
If we restrict our thinking to a nation, then it is noted
that the potential for additional externalities still exists and
should be taken into account. Further, then, economists (gen-
erally) say that our implicit objective as a nation is to maximize
Net Social Benefit which is a function (i. e. , the social welfare
function):
Net Social Benefit = Total Social Benefit -
Total Social Costs
In this function, externalities are 'conceptually' included. A
rather macrocosmic gap or void exists however in empirical
economic analyses to date to actually measure and quantify the
conceptual variable called externality.
If only one direction of needed study were mentioned, the
need for measurement and quantification of externalities of water
resource use would be it.
101
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Values
Even if externalities were adequately defined, a problem
remains in that all externalities are not included in our market-
exchange systems. Many externalities include intangible qual-
ities which have value.
A need exists to assign a 'value1 to intangibles which are
associated with environmental quality. Our market-exchange
system fails to capture intangible benefits. Numerous esthetic
qualities of clean water have expressed but intangible value to
citizens. Net social benefits as described above inherently in-
clude 'value' which may not be readily expressed in common-
denominator terms.
One notion expressed by some to include economic value
for intangibles is embodied in a new term: metaeconomics.
Briefly, by inference, this term would relate to other concepts
as follows:
Physical/ Metaphy s ical
Tangible/Intangible
Economics/Metaeconomics
Until the 'value' of intangibles (and non-market based
tangibles) is adequately developed in comparable terms with
tangibles, then we cannot really estimate the social welfare
function as described.
Time Profile
Efficient resource use depends on its relative scarcity
on one hand, but also temporal allocations must be more ade-
quately considered to assure social efficiency through time.
Natural resource use and their depletion is a case in point.
102
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In terms of water quality management, any predictable
deterioration of water quality should be projected and evaluated.
Otherwise we can expect to spend relatively more time, effort
and money in treating consequence of pollution rather than its
control. The long term aspects water quality management need
to be studied much more completely.
A major factor in this area is the discount rate which is
used in benefit cost types of studies. A high rate of interest
rapidly discounts future net benefit streams.
Equity
The final major area which we conclude needs further
study deals with equity. In brief, environmental quality manage-
ment in general, with the recent shift toward greater protection,
has and will cause various disruptions of past behaviors and
activities. Equity issues are involved both in terms of cost
burdens and benefit distributions.
From welfare economics we learn some things about
compensation principles to account for inequities. There is
need to consider this area further.
Four major categories of benefit cost impacts of water
pollution and its control were outlined in Exhibit 1-1: (1) Health,
(2) Esthetics, (3) Production (Activity) Impacts, and (4) Un-
certain Ecological Disruptions. We believe the above inade-
quately developed concepts must be cross-examined in terms
of each of these categories.
In this final section we have briefly sketched some of the
major directions of needed study based upon the review and per-
spectives presented. We admit that our own value judgements
affected our final conclusions; but, also, we tried to view the
problem from the point-of-view of ' society-at-large1. We pro-
pose to reserve further, more specific judgements to the Phase
II: Research Needs and Priorities report as originally planned.
A final visual-descriptive exhibit (Exhibit IX-2) is attached to
help convey some of the concerns and concepts (as only briefly
sketched) which are involved and which we believe need further study.
103
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Most assuredly, the needed further studies will not be
completed for some time. The implied benefits and costs con-
tinue however in their dynamic setting. Therefore, we close
this report with the following (Davidson, Garnsey and Hibbs,
1967):
" There is no acceptable substitute for
informed value judgements in the eval-
uation of benefits of public goods. In
fact, the only substitute is uninformed
value judgements."
104
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'Value' -
(Implicit
Measure
of Net
Social
Welfare)
NSB - = TSB-TSC
Primarily
'Intangibles'
(Externalities
and Metaeconomics)
Primarily
'Tangibles'
(Economics)
1970
1980
1990 'Time Profile'
Exhibit IX-2.
I/
2/
Hypothetical Net Social Benefits
Over Time
Value in common-denominator terms, e.g. dollar-based.
In welfare economic terms a. non-dollar concept of utility
is generally used. The term, 'Utils', has been introduced
to imply units of utility, but this leaves the concept abstract.
£' Net Social Benefit = Total Social Benefit - Total Social Costs
105
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SECTION X
SELECTED REFERENCES
Albertson, Peter and Margery Barnett, Managingjfche Planet,
Prentice-Hall, Inc. , New Jersey, 1972.
Ayres, R. , "A Materials-Process-Product Model, " Environmental
Quality Analysis, ed. by Kneese, A. V. , and B. T. Bower,
John Hopkins, 1972.
Boulding, Kenneth, "The Economics of the Coming Spaceship Earth,"
in Henry Jarrett, Environmental Quality in a Growing Econ-
omy, John Hopkins Press, Baltimore, 1966.
Cesario, F. J. , "A Method for Estimating Recreation Benefits,"
Appendix E in Resource Management in the Great Lakes
Basin, edited by F. A. Butrico, C. J. Touhill, and I. L.
Whitman, Heath Lexington, 1971.
Clawson, M. , Methods of Measuring the Demand for and Value of
Outdoor R
-------
Eckstein, Otto, A Survey of the Theory of Public Expenditure
Criteria, in Public Finances: Need and Utilization,
Princeton U. Press, 1961, pp. 439-494.
Eilers, R. G. and Robert Smith, "Wastewater Treatment Plant
Cost Estimating Program, " Environmental Protection
Agency, Water Quality Office, Advanced Waste Treat-
ment Research Laboratory, Cincinnati, Ohio, April, 1971.
Forrester, Jay W. , World Dynamics, Wright-Allen, Cambridge,
Mass., 1971.
Fuller, R. Buckminster, Operating Manual for Spaceship Earth,
, Southern Illinois University Press, Nov., 1970.
Goldsmith, Edward, Robert Allen, Michael Allaby, John Davoll,
and Sam Lawrence, "A Blueprint for Survival," from the
Ecologist, Vol 2, No. 1, January 1972.
Hinomoto, H. , "Unit and Total Cost Functions for Water Treat-
ment Based on Koenig's Data," Water Resources Research,
October, 1971.
Hummel, R. L. , and J. W. Smith, "Phosphate Recovery from
Secondary Sewage Waste: The Economics of the Process,"
Toronto U. , Ontario, Water and Pollution. Control, V. 108,
No. 2, Dec. 1970.
Isard, W. , et al. , Ecologic-Economic Analysis for Regional
Development, Free Press, N.Y., 1972.
Jarrett, Henry, Environmental Quality in a Growing Economy,
John Hopkins Press, Baltimore, 1966.
Kellermann, Henry J. , Ecology: A World Concern (1971) (In the
Great Ideas Today, 1971, Encyl. Britannica, Inc.)
William Benton, Publ. , Chicago, 1971.
Kneese, A. , "Approaches to Regional Water Quality Manage-
ment," Resources for the Future, 1967.
Kneese, A. V., Robert U. Ayres, and Ralph C. D'Arge, "Econ-
omics and the Environment, A Materials Balance Ap-
proach," Resources for the Future, Inc. , Distributed by
John Hopkins Press, 1970.
107
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Kneese, A. V., Sidney E. Rolfe and Joseph W. Harned, (ed.),
Managing the Environment, International Cooperation for
Pollution Control, Praeger, N. Y. , 1971.
Knetsch, J. L. , Outdoor Recreation Demand and Benefits, Land
Economics, 1963.
Knetsch, J. L. , Economics of Including Recreation as a Purpose
of Water Resource Projects, JFE, Dec., 1964.
Koenig, L. , "Cost of Water Treatment by Coagulation, Sedimen-
tation, and Rapid Sand Filtration,rr Journal of the American
Water Works Association, March, 1967.
Krutilla, J., C. J. Cicchetti, A. M. Freeman, andC. S. Russell,
"Observations on the Economics of Irreplaceable Assets,"
in Kneese and Bower (eds.) Environmental Quality Analyses,
John Hopkins, 1972.
Lee, E. S. , L. E. Erickson, and L. T. Fan, "Water Quality
Modeling and Prediction, " Kansas Water Resources
Research Institute, January, 1971.
Leontief, W. , "Environmental Repercussions and Economic
Structure: An Input-Output Approach, " Rev. Econ.
Statist. , Aug., 1970.
Maler, K. G. , A Method of Estimating Social Benefits from /
Pollution Control, Swedish Journal of Economics, 1971.
Marglin, Steven A. , The Social Rate of Discount and the Optimum J
Rate of Investment, Q.J.E., Vol. 77, Feb. 1963, pp. 95-111.
Marglin, Steven A. , The Opportunity Cost of Public Investments,
Q.J.E., Vol. 77, May, 1963, pp. 274-89.
Meadows, D. H. , D. L. Meadows, J. Randers, and W. W.
Behrens III, The Limits to Growth, a report for the
Club of Rome's Project on the Predicament of Mankind
(Potomac Associates—Universe Books, New York, 1972).
Merewitz, L. , "Recreational Benefits of Water Resource Develop-
ment," Water Resources Research, 4th Quar. , 1966.
108
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Merewitz, L. , Consulting Report for Plametrics, 1968.
Midwest Research Institute, "Systems Progress for the Analysis
of Nonurban, Nonpoint Sources of Pollutants in the Missouri
Basin Region, " 1971.
Miernyk, William H. , An Interindustry Forecasting Model with
Water Quantity and Quality Constraints^ Reprint Series III,
No. 8, Reprinted from Systems Analysis for Great Lakes
Water Resources, Proceedings of the Fourth Symposium on
Water Research of Ohio State University, Water Resources
Center, Oct. 1969, Regional Res. Inst. , West Virginia
Univ. , Morgantown.
Parker, D. and T. Crutchfield, "Water Quality Management and
Time Profile of Benefits and Costs," Water Resources
Research, April, 1968.
Prest, A. R. and R. Turvey, "Cost-Benefit Analysis: A Survey,"
Economic Journal, Dec., 1965.
Ramsay, William and Claude Anderson, "Manging the Environ-
ment, " (An Economic Primer), Basic Books, Inc.,
Publishers, New York, 1972.
Report of the National Goals Research Staff, Toward Balanced
Growth: Quantity with Quality, Wash. , D. C. , 4 July, 1970.
Report of the National Technical Advisory Committee to the
Secretary of the Interior, Water Quality Criteria,
Federal Water Pollution Control Administration,
Washington, D. C. April, 1968.
Rothenberg, J. , "Economic Evaluation of Urban Renewal: Con-
ceptual Foundations of Benefit Cost Analysis," Brookings
Instituion, 1967.
Smith, R. and R. Eilers, "Cost to the Consumer for Collection
and Treatment of Wastewater," NTIS, July, 1970, PB210
199, Rept. 17090.
109
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Smith, R. and W. McMichael, "Cost and Performance Estimates
for Tertiary Waste Water Treating Processes, " FWQA,
Cincinnati, June, 1969.
Spilhaus, Athelstan, Ecolibrium, From Science, Vol. 175, Feb.
18, 1972.
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A State-of-the-Art Review, Economic Analysis Branch,
EPA, Washington, D. C., 1972. (Unpublished Report)
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regions for the National Assessment of Water and Related
Land Resources," July, 1970.
Wheeler, H. (Interview), Alexander King: The Totality of the
World Problematique Must Now Be Addressed," Center
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Whipple, W. , Jr. , "Environmental Quality and Water Resources
Planning," National Symposium on Social and Economic
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NOTE: An extended Bibliography was prepared for this project
under a separate cover.
110
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SECTION XI
APPENDICES
Page
A. A Generalized Water Quality Management Framework 112
B. Health Impacts of Water Quality 114
C. Summary of Types of Economic Impacts Expected
with Internalized Waste Treatment Costs 120
111
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APPENDIX A
A GENERALIZED WATER QUALITY MANAGEMENT FRAMEWORK
Asa framework for establishing national water quality
management planning and research needs, it is instructive to
first identify a logical series of action-oriented tasks which are
typically associated with any on-going general management prob-
lem. For this purpose, we propose the following general tasks
be considered:
General Management-Problem Tasks
1. Establish Target
2. Estimate Trajectory
3. Determine Required Change(s)
4. Evaluate Methods to Accomplish
Required Changes
5. Select a Management Strategy
6. Implement Strategy
7. Monitor Results
8. Feedback Results for Assessment
Compositely these tasks make-up or form a continuous
process required in a dynamic setting.
The development of a dynamic management framework to
assist and give direction in the realization and evaluation of the
desired management objective is an implicit need. To translate
the water quality management problem of this study into the above
framework, a series of comparable task descriptions were de-
veloped. These are outlined in Exhibit A-l.
112
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Exhibit A-l. Outline Description of Tasks Involved in National
Water Quality Management
General Task
1. Establish Target
2. Estimate Trajectory
3. Determine Required
Change(s)
4. Evaluate Methods to
Accomplish Required
Change (s)
5. Select a Management
Strategy
6. Implement Strategy
7. Monitor Results
8. Feedback Results for
A ssessment
Water Quality Management Task
(By Receptor)
Specify water quality criteria
Estimate current and projected
water quality
Establish required effluent-level
changes
Determine and evaluate alterna-
tive methods for achieving re-
quired pollution control
Select a pollution abatement
strategy(s)
Develop, administer and execute
the pollution abatement strategy
Develop, administer and execute
a surveillance/monitoring system
Develop, administer and execute
a water quality control feedback
information system
113
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APPENDIX B
HEALTH IMPACTS OF WATER QUALITY
Pollutants in each of five broad categories (physical, micro-
biological, inorganic chemicals, organic chemicals, and radioacti-
vity) may in certain doses lead to undesirable human health effects.
The general categories of effects are: (1) acute illnesses, (2)
chronic illnesses (including shortening of life or impairment of
growth), (3) alteration of important physiological functions, (4)
sensory irritations or other symptoms v/hich might lead people
to seek medical attention, and (5) possible psychological effects.
The methods of transmission of the pollutants to the popu-
lation maybe categorized as:
1. Pollutants which enter through the public water supply.
a. Chemical impurities
b. Bacteria, viruses, etc.
2. Pollutants which enter through the food supply (where
the food is polluted by water, such as a buildup of
chemicals in fish which will be consumed by humans).
a. Chemicals in water supplies
b. Bacteria and viruses in water supplies
3. Effects of polluted water on transmission of com-
municable diseases by
a. Natural populations (such as mosquitoes)
b. Domesticated animals
c. Humans
4. Pollutants which enter the body through direct (bodily)
contact with the water.
5. Pollutants which lead to ecological changes which
affect human physical and/or psychological health.
This discussion presents some representative health im-
pacts which are based on water quality. In Exhibit B-l these im-
pacts and a number of additional diseases or undesirable effects
114
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are described. Also, specific pollutants which are implicated
in each effect and the method of transmission of the pollutants
involved from water to the population are presented.
Representative Health Effects Duetto Water Pollution
The first health impact given is an alteration of the liver
function, which is an example of the alteration of an important
physiological function (effect category 3). The pollutants involved
are polychlorinated biphenyls (PCBs) which are transmitted through
the food chain (method of transmission 2). The largest amounts of
PCBs reach the environment through industrial and municipal dis-
charges to inland and coastal waters. The water environment is
probably the principal sink and transport mechanism for PCBs.
PCBs are fat soluble and are stored in the fat of fish and animals.
Levels of PCBs 75,000 times the water concentration have been
found in fish. Other human health impacts resulting from PCBs
are chloracne (skin eruptions-category 4) and hydropericardium
(accumulation of fluid in the sac surrounding the heart).
Another health impact based on water quality is eye irri-
tation, which is an example of sensory irritations (effect category 4).
Eye irritations can be caused by a pH range (hydrogen ion concen-
tration) which is too high or too low to be tolerated by the lacrimal
fluid of the eye. The specific range of pH levels tolerated without
pain depends also on the buffering capacity of the water. pH of
water is affected when strong acids or bases are added. In this
case the undesirable effect is transmitted by direct contact of the
body with the water (transmission method 4). The pH of the lacrimal
fluid is 7.4 and ideally the pH of the water should be about the same.
However since the lacrimal fluid has a high buffering capacity a
range of pH values from 6.5 to 8.3 can be tolerated under average
conditions.
Another important health impact is hepatitis (inflamation
of the liver) which is in effect category 1 (acute illness). The
specific cause is a virus which grows in polluted water and is
spread through contaminated water or food (transmission methods
1 and 2). It is often carried to man when he eats raw oysters
or clams which live in polluted water. Oysters and clams are
scavengers which prefer to live where there is a combination of
115
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salt and fresh water, such as at the mouths of rivers which are
increasingly polluted. Thus they are particularly subject to in-
fection. If they are thoroughly cooked there is little danger, how-
ever many people eat them raw. Hepatitis can also be spread
from person to person and is one of the most common communi-
cable diseases.
Leptospirosis is caused by microscopic parasites (lepto-
spira) which enter the victim through scratches, wounds or the
mucous membranes of the nose, eyes or mouth. The effects are
fever, muscular pain and nausea, which are in effect category 1
(acute illness). The method of transmission is 4 (bodily contact
with water). These parasites are shed in the urine of infected
animals, they contaminate the soil and water and then enter the
victim. Most cases of leptospirosis are relatively mild but some
involve inflammation of the brain or the covering of the brain,
causing encephalitic or meningitic symptoms. In some cases the
disease also affects the kidneys and liver. More victims are
infected by swimming in contaminated ponds or streams than by
any other source.
The four health impacts discussed are representative of
the many undesirable effects which may result from lack of control
of water quality.
Acknowledgment ;
The Health Impacts of Water Quality summary of repre-
sentative impacts was prepared for this report by Linda G. Erickson
and Larry E. Erickson.
116
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Exhibit B -1: Effects of Water Pollution on Health
Type of Health Impact Type of Effect
Method of Transmission
Pollutants Involved
Alteration of liver
function
Chloracne
Eye Irritation
Cholera
Malaria
Schistosomiasis
Hepatitis
3-physiological
function
4-skin eruptions
4-eye irritation
1-diarrhea, vomiting
muscle cramps, low
blood pressure
1-2-fever, chills
back pain
1-rash, stomach pain,
dizziness
2,3-damage to inter-
nal organs, stunt
growth anemia, can-
cer of the liver
1-inflammation of the
liver
2-through food chain as Polychlorinated Biphenyls
PCB
same
same
4-through bodily con-
tact with water
Ib. -through water
supply or
2b. -food supply, in-
gestion orally of food
or water contaminated
with V. cholarae
3-transmitted by
Anopheles mosquitoes
1-b. enter through the
intestine when person
drinks contaminated
water and 4-enter
through the skin of
swimmers or waders
in contaminated water
1, 2 a virus which is
spread through con-
tamined water or food
esp. raw oysters or clams
Too high or low a pH range and buffer
capacity of water
Contamination of supply with V.
cholarae (through fecal contam-
ination)
Mosquitoes breeding in swampy areas
The schistosomiasis eggs in feces from
infected humans develop into larvae in
streams or ponds and seek an Austra-
lorbis glabratus snail. They burrow
into the snail and emerge as fee-swimming
organisms which can infect man if a vic-
tim is found \vithin 30 to 36 hours
A virus which grows in polluted water
(raw sewage)
-------
Exhibit @-l (continued)
Type of Health Impact Type of Effect
Leptospirosis 1-fever, muscular
pain, nausea
Salmonellosis
Minamata disease-
mercury poisoning
00
(Cadmium effects)
Cancer, renal effects,
itai-itai, hyper-
tension
Methemo globinemia
Endemic fluorosis
dental
skeletal
(secondary involve-
ment of the nervous
system)
Method of Transmission
4-bodily contact with
water
Pollutants Involved
1-stomach, upsets,
diarrhea, chills,
fever
1-weakening of
muscles, loss of
vision, paralysis
coma, death
1,2-both acute and
chronic effects
3-reduces blood's
ability to transport
oxygen
2-chronic toxic effects
on tooth enamel and on
bones
increased density of
bone, stiffness of spine,
limitation of movement
1, 2-contamined water
or food supply
2-food chain such as in
fish. Methyl mercury
is concentrated in food
chains because it is fat
soluble.
2-through food chain
1-chemical in water
supply
1-through water supply
(fluoride also enters
body through food)
Microscopic parasites-leptospira. Shed
in the urine of infected animals, they con-
taminate soil and water and enter victim
through scratches, wounds or mucus
membranes of the nose, eyes or mouth
Salmonellae bacteria which breed in
food or water
Mercury (primarily in the form of methyl
mercury).
Cadmium
Nitrites and nitrates
Fluoride-large doses over time (the
total fluoride intake must be considered,
including water intake)
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Selected References
(Health Impacts of Water Quality)
Clayson, D. B., Chemical Carcinogenesis. Boston: Little,
Brown, and Co. , 1962.
Faust, E. C., Beaver, Paul C. , and Rodney C. Jung,
Animal Agents and Vectors of Human Disease, Phil-
adelphia: Lea and Fbiger, 1962.
Fluorides and Human Health, World Health Organization,
Monograph Series No. 59, Geneva, 1970.
Friberg, L. , Piscator, M. and G. Nordberg, Cadmium in the
Environment, Cleveland: CRC Press, 1971.
Fromm, Paul, Toxic Action of Water Soluble Pollutants on
Freshwater Fish, for the Water Quality Office, Environ-
mental Protection Agency, December, 1970.
Glemser, B. , Man Against Cancer, New York: Funk and
Wagnalls, 1969.
Report of the Committee on Water Quality Criteria, Federal
Water Pollution Control Administration, April, 1968.
Poly chlorinated Biphenyls and the Environment (Interdepart-
mental Task Force on PCBs) COM-72-10419, National
Technical Information Service, U. S. Department of
Commerce, May, 1972.
Principles and Practices of Cholera Control, World Health
Organization, Geneva, 1970.
Proshansky, H. M. , Ittelson, W. H. , and Leanne G. Rivlin
(eds.): Environmental Psychology; Man and His
Physical Setting, New York: Holt, Rinehart and
Winston, 1970.
Stern, A. C. (ed.), Air Pollution, New York: Academic Press, /
1968.
Tracking Diseases From Nature to Man, U. S. Dept. of Health,
Education, and Welfare, National Communicable Disease
Center, Public Health Service Publication 1675, Atlanta,
1968.
119
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APPENDIX C
SUMMARY OF TYPES OF ECONOMIC IMPACTS EXPECTED WITH
INTERNALIZED WASTE TREATMENT COSTS
The Council on Environmental Quality, Environmental Pro-
tection Agency and the Department of Commerce have jointly spon-
sored and prepared reports of expected economic impacts of pollu-
tion controls on various selected industries. A summary report of
eleven industries was published, i.e. , : The Economic Impact of
Pollution Control, A Summary of Recent Studies, Prepared for the
Council on Environmental Quality, Department of Commerce and
Environmental Protection Agency, March, 1972.
The Council provided a general outline of factors to be in-
vestigated as a minimum. The consequences, including economic
dislocations, which might result from pollution control activities
being planned and/or in process needed to be assessed. Disruption
impacts of the means used to control pollution were of major concern.
The main means of control being pursued was via application
of pollution abatement standards at industrial plant sources. The
following list of impacts (Exhibit C-l) outlines the various types
of effects which are typically involved assuming waste treatment
costs are to be internalized at the plant level. Most of these were
specifically noted prior to the studies by the Council. The classi-
fication categories were implicit.
A general concern by economists relates to alternative
policy, program and other pollution control management acti-
vities which might provide a more efficient means for achieving
comparable control (at the receptor level). Various policy and
program alternatives for control should also be evaluated in terms
of the effects cited.
120
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APPENDIX C
Exhibit C-l. Summary of Types of Economic Impacts Expected with
Internalized Waste Treatment Costs
Representative Firm Effects
Differential Costs of Production (W&W/O Treatment)
Small Size Plants
Medium Size Plants
Large Size Plants
Plant Closures
Profitability
'Lesser-Cost Alternatives'
• Municipal Systems
Lagoons (Simple, Activated Sludge, etc.)
Ponds /Irrigation
Other, e. g. Regional Treatment
Industry Effects
Structure
Regional Impacts
Prices
Profits
Employment
Associated Industry Effects
Basic Raw Material Suppliers
Other Input Suppliers
Wholesale and Retail Customers
Waste Treatment Facilities Suppliers
National and International Effects
Consumer Prices
National Employment
National Income
Aggregate Demand/Supply Balance
International Trade
Balance of Payments
Long-term Impacts
Source:Unger, Samuel G. and Donald J. Wissman (Development Planning and
Research Associates, Inc.) Economic Implications of Waste Treatment
Costs and Control Standards on Agricultural Processors: A Case Study
of the Fruit and Vegetable Processing Industry, AAEA Ann. Meeting,
Gainesville, Fla. , Aug. 1972.
12 I *U.S. GOVERNMENT PRINTING OFFICE: 1973-546-312/122 1-3
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SELECTED WATER
RESOURCES ABSTRACTS
INPUT TRANSACTION FORM
1> feepozt 'Ko,
w
STATE-OF-ART REVIEW:
WATER POLLUTION CONTROL BENEFITS AND COSTS Vol. I
5. Report D**«
6, _ . . ., '
8. Perforating Organization
o. linger. M. Jarvin Emerson and David L. Jordening
Development Planning and Research Associates, Inc.
200 Research Drive
Manhattan, KS 66502
12, $}">asariai, OigBtti
21-AQJ-05
68-01-0744
Type , I Kept;..... and
P vricd Coveted
Environmental Protection Agency report number,
EPA-600/5-73-008a, October 1973.
This report presents a survey and assessment of the state-of-art of economic
analyses dealing with water pollution control benefits and costs. The investi-
gation includes the extension of traditional benefit cost analysis into the area
of pollution control. Implications for planning and research plus some directions
of needed study are also developed. A conceptual basis for benefit cost analysis
involving water quality management is suggested. An economic concept of a social
welfare function is presented as the most widely accepted public criterion which
embodies environmental quality concerns. Problems of efficiency, equity, exter-
nalities and social discount rates are outlined. Also, the adequacy of such infor-
mation is assessed. Benefit measurements of water quality factors are meager and
underdevelo ed. A variety of parial-equilibrium approaches to benefit measurement
are outlined and some problems, including the planning horizon (time profile), are
described. To assess benefit cost impacts of water pollution control, location-
preserved analyses are necessary. An aggregation framework which also proposed.
General systems analysis approaches are implicitly required to measure benefits
and costs of pollution control. Recent developments in the literature have begun
to directly assess impacts of environmental quality management. In thif setting,
benefit cost analysis effectively becomes a supplementary analysis of alternative
octG of cimulatod general—"q'.ii1 ^'brLur. types—of economic Co1 utirmg j
Water Quality, Benefits, Costs, Benefit-Cost Analysis, Bibliographies, Literature,
Economics
"-ft, SK irity Ct;
Bernadette F. Freeman
-A
n. ft-;.*
Send To :
WATER RESOURCES SCIENTIFIC INFORMATION CENTER
US DEPARTMENT OF THE INTERIOR
WASHINGTON. D C 2O24O
Environmental Protection Agency
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