&EPA
United States
Environmental Protection
Agency
RESEARCH STRATEGY
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EPA/600/R-04/I95
DECEMBER 2005
United States
Environmental Protection
Agency
RESEARCH STRATEGY
OFFICE OF RESEARCH AND DEVELOPMENT, NATIONAL CENTER FOR ENVIRONMENTAL RESEARCH
OFFICE OF POLICY, ECONOMICS AND INNOVATION, NATIONAL CENTER FOR ENVIRONMENTAL ECONOMICS
WASHINGTON, DC 20460
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FOREWORD
The 2005 Environmental Economics Research Strategy (EERS) presents a conceptual frame-
work for future economics and decision science research of the U.S. Environmental
Protection Agency (EPA). This research strategy identifies the economics and decision science
research areas important to EPA programs and EPA's planned research agenda in these areas.
This program implements components of the Office of Research and Development's (ORD's)
Strategic Plan and is consistent with priorities outlined in EPA's 2003 Strategic Plan.
This research strategy outlines EPA's research effort to provide the necessary behavioral
science foundation for making decisions and designing environmental policies at the least
cost to American businesses and consumers. To be effective, the Agency must understand
how people and firms make decisions about and affect the environment and, in turn, how
the environment affects Americans' quality of life. High-quality environmental economics
research is the best way to improve this understanding.
EPA developed the EERS to guide future environmental economics research at the Agency.
EPA program staff and managers identified desired research results, and external peer
reviewers assisted EPA in developing a novel and feasible research agenda to meet these
needs. Different program offices in EPA need different types of economics research to
accomplish their individual missions. Regulatory offices need better tools to evaluate the
costs and benefits of preventing or reducing pollution damage to health and ecosystems.
Innovation and information offices need to understand how and when collaborative
approaches can succeed and how and why information disclosure works to change firm or
market behavior. Enforcement personnel need better tools to identify facilities for inspec-
tions and enforcement actions while identifying those who would benefit from technical
assistance to improve environmental performance. All programs should understand how to
design implementation strategies that will take advantage of market forces to reduce costs
for businesses and the public and protect the environment.
The EERS' major strategic research directions include research in: (1) human health valua-
tion; (2) ecological valuation; (3) environmental behavior and decision-making; (4) market
mechanisms and incentives; and (5) benefits of environmental information disclosure.
These strategic objectives frequently require an interdisciplinary approach to develop sound
research. EPA will address the most important research gaps in these areas and will develop
interdisciplinary teams and partnerships with other agencies when needed.
George Gray Brian Mannix
Assistant Administrator Associate Administrator
for Research and Development for Policy, Economics, and Innovation
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY HI
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ACKNOWl FDGMFNTS
The authors of EPA's Environmental Economics Research Strategy wish to thank the many
EPA staff members who contributed their time and expertise to the interviews and meetings
that generated the research priorities discussed in this Strategy.
EPA also wants to acknowledge the important contributions to the development of this
document of external reviewers from the EPA Science Advisory Board's Environmental
Economics Advisory Committee and selected reviewers. The Science Advisory Board mem-
bers' diligence and insight have increased the value of this Strategy considerably by provid-
ing a critical review and suggesting important new avenues
of research.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY AUTHORS
National Center for Environmental Economics
Alan Carlin
Chris Dockins
Brian Heninger
Julie Hewitt
Lanelle Wiggins
Ann Wolverton
National Center for Environmental Research
Matthew Clark
William Wheeler
CONTRIBUTING AUTHORS
Allen Basala, Office of Air and Radiation
Gary Cole, Office of Pollution Prevention and Toxics
Matt Heberling, Office of Research and Development/National Center for
Environmental Assessment
Bruce Madariaga, Office of Environmental Information
Mahesh Podar, Office of Water
Hale Thurston, Office of Research and Development/National Risk Management
Research Laboratory
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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PEER REVIEW HISTORY
Peer review is an important component of research strategy development. The peer review
history for this Research Strategy follows:
OFFICE OF RESEARCH AND DEVELOPMENT SCIENCE COUNCIL:
May 2003, Subhas Sikdar, Lee Mulkey, Lead Reviewers
EXTERNAL PEER REVIEW:
EPA Science Advisory Board, Environmental Economics Advisory Committee,
November 17, 2003
EXTERNAL PEER REVIEW PANEL MEMBERS:
Science Advisory Board Executive Committee
Dr. Trudy Cameron, University of Oregon, Eugene, OR
Dr. Myrick Freeman, Bowdoin College, Brunswick, ME
Dr. Dom Grasso, Smith College, Northampton, MA
Dr. Rebecca Parkin, George Washington University, Washington, DC
Environmental Economics Advisory Committee
Dr. Maureen Cropper, Chair, University of Maryland, College Park, MD,
and the World Bank, Washington, DC
Dr. Dallas Burtraw, Resources for the Future, Washington, DC
Dr. Lawrence Goulder, Stanford University, Palo Alto, CA
Dr. James Hammitt, Harvard School of Public Health, Boston, MA
Dr. Gloria Helfand, University of Michigan, Ann Arbor, MI
Dr. Catherine Kling, Iowa State University, Ames, IA
Dr. Arik Levinson, Georgetown University, Washington, DC
Dr. Richard Norgaard, University of California, Berkeley, CA
Dr. Kathleen Segerson, University of Connecticut, Storrs, CT
Dr. Hilary Sigman, Rutgers University, New Brunswick, NJ
Dr. Robert Stavins, Harvard University, Cambridge, MA
Dr. Gary Yohe, Wesleyan College, Middletown, CT
PEER REVIEW COORDINATOR:
Mr. Thomas Miller, Designated Federal Officer, EPA Science Advisory Board Staff,
Washington, DC
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY VII
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TABLE OF CON" FNTS
Page
Foreword Ill
Acknowledgments V
Peer Review History VII
Glossary of Terms and Acronyms XI
Abstract XIII
Executive Summary ES-1
Chapter 1. Overview and Purpose 1-1
Background 1-1
Report Organization 1-1
EPA's Use of Economics Research 1-2
Purposes of This Document 1-4
Relationship to Other Strategies, Plans, and Documents 1-5
Environmental Economics Strategy Development Process 1-5
Chapter 2. Identifying Research Needs 2-1
Methods 2-
Results 2-
Chapter 3> Identifying the Research Gaps 3-
Approach 3-
Criteria for Identifying Priority Research 3-
Existing Literature in Priority Topics 3-2
Summary 3-8
Chapter 4. Research Strategy Implementation 4-1
Overview of Implementation Process 4-1
Research Tools—Comparative Advantages 4-1
Roles and Activities of EPA Programs, Centers, Laboratories, and Regions . . . .4-3
Communication of Research Results 4-8
Conclusions 4-9
References . . ,R-1
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY IX
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GLOSSARY OF FRMS AND ACRONYMS
EPA The United States Environmental Protection Agency (the Agency)
EERS Environmental Economics Research Strategy
EPA Offices
Suboffices listed under Office
• Projects or Programs listed under suboffice with responsibility
OAR Office of Air and Radiation
OAP Office of Atmospheric Programs
OAOPS Office of Air Quality Planning and Standards
OIA Office of Indoor Air
OCFO Office of the Chief Financial Officer
OPAA Office of Planning, Analysis and Accountability
OCHP Office of Children's Health Protection
OECA Office of Enforcement and Compliance Assurance
OEI Office of Environmental Information
OPEI Office of Policy, Economics, and Innovation
NCEE National Center for Environmental Economics
• EBASP: Ecological Benefits Assessment Strategic Plan
NCEI National Center for Environmental Innovation
ORP Office of Regulatory Programs
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY XI
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OPPTS Office of Pollution Prevention and Toxic Substances
OPP Office of Pesticide Programs
OPPT Office of Pollution Prevention and Toxics
ORD Office of Research and Development
NCEA National Center for Environmental Assessment
NCER National Center for Environmental Research
• STAR: Science To Achieve Results
NERL National Exposure Research Laboratory
NHEERL National Health and Environmental Effects Research Laboratory
NRMRL National Risk Management Research Laboratory
OSP Office of Science Policy
OSWER Office of Solid Waste and Emergency Response
OERR Office of Emergency Response and Remediation
OSW Office of Solid Waste
OW Office of Water
OGWDW Office of Ground Water and Drinking Water
OST Office of Science and Technology
OWM Office of Wastewater Management
OWOW Office of Wetlands, Oceans and Watersheds
SAB EPA's Science Advisory Board
EEAC Environmental Economics Advisory Committee (of the SAB)
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ARSTRAC
Economics research is an essential component for developing environmental policy. EPA
developed the Environmental Economics Research Strategy (EERS) to guide future environ-
mental economics research directions at the Agency. EERS authors interviewed EPA staff and
managers to identify research priorities. These priorities were compared with existing
research to establish strategic objectives whereby allocation of EPA resources could help the
Agency and its clients to achieve their missions. The strategy and research objectives were
peer reviewed by the EPA Science Advisory Board. The strategic research objectives include:
(1) human health valuation; (2) ecological valuation; (3) environmental behavior and deci-
sion-making; (4) market mechanisms and incentives; and (5) benefits of environmental infor-
mation disclosure. These strategic objectives frequently require an interdisciplinary approach
to develop sound research. EPA will devote internal and extramural resources to filling the
most important research gaps in these areas and will develop interdisciplinary teams when
needed.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY XIII
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EXECUTIVE SUMMARY
BACKGROUND
The Environmental Protection Agency (EPA) needs accurate environmental economics research on which to
base and evaluate policies. This Environmental Economics Research Strategy (EERS) has been developed to
guide future environmental economics research at EPA. The focus of the EERS is to develop a comprehensive
list of research priorities that are of interest and importance to environmental management over the long
term.
The EERS was developed by a team from the National Center for Environmental Economics (NCEE) and
the National Center for Environmental Research (NCER), working with EPA program offices, the Office of
Research and Development (ORD) laboratories and centers, and EPA regions. NCEE provides research support
and economic guidance to EPA programs, and NCER manages an economics and decision sciences research
grants program. The findings of the EERS will guide research activities in both of these organizations and in
ORD laboratories and centers, which provide multidisciplinary research support to programs and regions.
The EERS identifies priorities and research gaps, evaluates research tools, sets strategic research objectives,
and suggests responsibilities and sequences for conducting or sponsoring research. EPA programs, other fed-
eral agencies, academics, states, local governments, and others can consult the EERS to understand what EPA
(in particular, NCEE and NCER) has planned and the results the Agency expects. These parties can use the
EERS to plan their own research or analyses to make the best use of EPA's efforts. The EERS will guide
research for several years or until circumstances change, at which time it will be revised.
The EERS is based on research priority needs identified through in-person interviews with program econo-
mists, managers, and other users of economic research results. The offices that were interviewed identified
short- and long-term research needs and anticipated potential changes in program structure and emphasis.
The priority research areas then were compared with existing research to determine what remained to be
done. This comparison generated a short list of strategic research objectives. The research objectives were
matched to available tools and resources to identify comparative advantages throughout EPA and to develop
timelines for achieving the objectives. Finally, a draft of the research strategy was peer-reviewed by external
academic economists through the auspices of EPA's Science Advisory Board (SAB).
RESEARCH PRIORITIES
The research team interviewed 75 people from 21 separate offices. These groups each established a list of
research priorities and gave strength-of-preference weights to each. The research team combined the results,
giving equal weights to each major program office. Table ESI shows the final results.
Table ESI shows the top 10 short- and long-term priorities, listed in long-term priority order. As the table
shows, the relative priority rankings change based on whether the research areas are ranked by short-term
weights, long-term weights, or the number of offices requesting each research topic.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY ES-1
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U.S. ENVIRONMENTAL PROTECTION AGENCY
The priority research areas were identified based on both the breadth (number of offices requesting research
in a topical area) and depth (strength of preference score) of expressed need, as well as the opportunity to
develop a coherent long-term program of research. The highest priority research topics are morbidity valua-
tion; environmental behavior and decision-making; ecological valuation; the benefits of environmental infor-
mation disclosure; mortality valuation; market mechanisms and incentives, including both trading and meth-
ods other than trading; green accounting, finance, and international trade; discounting and intergenerational
equity; and integrating risk and uncertainty with valuation. The first five topics were the highest ranked
research needs in the short term and long term, and the two market mechanism topics were the most highly
ranked priorities based on the number of offices requesting the research.
TABLE ESI. GENERAL RESEARCH PRIORITIES
Research Topics
Valuation of Reduced Morbidity Benefits
Environmental Behavior and
Decision-Making
Valuation of Ecological Benefits
Benefits of Environmental Information
Disclosure
Valuation of Mortality Benefits
Market Mechanisms and Incentives,
Other Than Trading
Green Accounting/International Trade/
Finance
Market Mechanisms and Incentives, Trading
Discounting/Intergenerational Equity
Risk and Uncertainty; Integration With
Valuation
Rank
Based on
Long
Term
1
2
3
4
5
5
7
8
9
9
Rank
Based on
Short
Term
3
2
5
4
1
7
9
6
8
10
Rank Based
on Number
of Offices
Requesting
2
2
2
10
7
1
6
2
7
7
Number of
Offices
Requesting
Research
6
5
5
2
3
7
4
6
3
3
IDENTIFYING RESEARCH GAPS
After identifying priority research areas from EPA economists, the research strategy team focused on the
highest priority research areas, reviewed existing literature in each area, and identified major gaps in which
new high-quality research is both feasible and relevant to EPA's mission. The team evaluated research prior-
ities based on five criteria. Research must;
• Be useful to EPA, states, or other clients;
• Fill a gap in the existing knowledge base;
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• Be scientifically feasible and potentially of high quality;
• Be likely to provide useful answers within 5 to 10 years, and
• Be related to EPA's mission in a policy-relevant context.
A workshop held in late 2002 brought research clients together from many offices to further define research
questions within the general areas in Table ESI. The workshop succeeded in further defining research ques-
tions in market mechanisms and incentives, ecological and human health valuation, and environmental
decision-making.
STRATEGIC OBJECTIVES
Based on the above criteria and the results of the survey, workshop, and investigation of the existing
research, implementation of the Research Strategy will focus on five strategic research objectives on which
EPA has determined that concentrating research resources will make a difference:
1. Health Benefits Valuation
2. Ecological Benefits Valuation
3. Environmental Behavior and Decision-Making
4. Market Mechanisms and Incentives
5. Benefits of Environmental Information Disclosure.
EPA will focus research efforts toward these objectives after conducting comprehensive literature reviews in
areas lacking them.
EXTERNAL PEER REVIEW
Acting through the auspices of EPA's SAB, an external panel of academic economists and decision scientists
reviewed and commented on a draft of this Research Strategy. They concluded that the strategic objectives
above were appropriate and that EPA had accurately characterized gaps in the literature. The review panel
made several important suggestions for improving the strategy, including recommendations that EPA:
increase its emphasis on morbidity valuation, develop interdisciplinary approaches for both health and eco-
logical valuation, expand its research focus on compliance behavior to all environmental behavior, expand its
research focus on market mechanisms and incentives to a broader range of financial incentives, evaluate the
effects of regulations and other interventions on innovation, investigate risk-risk tradeoffs associated with
interventions, and extend the outreach component of the strategy to more outlets and formats.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY ES-3
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IMPLEMENTATION
To ensure that the return from research in these areas is maximized, resources will be dedicated to the
further refinement of research questions as more information is developed. In addition, resources will be
devoted to the development of the appropriate interdisciplinary research teams, provision of necessary
infrastructure for information access and communication, periodic assessment of the state of existing
research, and provision of analytic guidance as needed.
EPA uses a variety of vehicles for funding research outside the Agency. These funding vehicles include coop-
erative agreements, grants, and contracts. Each funding vehicle varies in its ability to generate research
results in the short versus long run, in the degree of EPA's participation in and influence on research out-
comes, in the expected quality and generalizability of research results, and in its ability to supply basic
versus applied research. EPA will match these characteristics to the type and timing of needed research for
each strategic research objective.
ORD's NCER plans and manages the Science To Achieve Results (STAR) grant program, EPA's primary research
grant program. The Economics and Decision Sciences component of the STAR program will sponsor solicita-
tions for each strategic research objective to obtain needed research results from academic economists and
decision scientists.
EPA's in-house research centers, including ORD and NCEE of the Office of Policy, Economics, and Innovation,
can be used as substitutes for, or complements to, externally funded research. NCEE has a number of envi-
ronmental economists well suited to conduct research and analysis on crosscutting issues for program offices
and regions. NCEE provides research-related guidance, workshops, and seminars.
Effective achievement of the strategic research objectives frequently requires interdisciplinary research
approaches. ORD conducts research on integrated risk assessment research questions and regularly collabo-
rates with NCEE. ORD and NCEE will strengthen this collaboration by searching for opportunities for inter-
disciplinary approaches to address the strategic objectives. A detailed discussion of projects conducted at
NCEE and ORD is available in Chapter 4.
Finally, EPA will communicate and disseminate research results through existing venues, such as EPA work-
shops, seminars, and document databases, and will develop new venues where feasible and appropriate.
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CHAPTER 1
OVERVIEW AND PURPObE
BACKGROUND
There is increasing awareness throughout the federal government of the value of economic analysis for pub-
lic policy decisions. Both Congress and a series of presidents have enacted legislation and executive orders
that require federal agencies to conduct economic analyses to support policy or regulatory decisions.1 It is
generally agreed that paying attention to economic principles and information can yield more efficient
resource use.
Environmental issues and policies are among the many that benefit from high-quality economic analysis.
EPA simultaneously faces increased pressure to remove or avoid economically burdensome environmental
regulations and to do a better job of protecting ecosystems and human health, particularly among sensitive
populations. The Office of Management and Budget has increased the stakes for EPA and other federal agen-
cies by requiring more and higher quality economic analyses and improved underlying data. Across EPA, prac-
titioners need applied and theoretically sound economic information, especially to analyze new environmen-
tal problems and regulatory tools. EPA also must ensure that its economic estimates are based on the best
possible and practical scientific methods. This document, EPA's Environmental Economics Research Strategy
(EERS), describes how EPA will develop research that provides the information and tools needed to continue
to conduct economic analyses at EPA.
The primary role of environmental economics research for EPA and others with environmental management
responsibilities is to develop the data and analytical methods needed to analyze environmental issues. These
data and methods are crucial to understanding regulated entities' behavior, predicting responses to govern-
ment policy interventions, evaluating the efficiency and equity effects of environmental rules and policies,
and predicting future environmental problems driven by economic forces. The environmental economics
research described in this Strategy will become a cornerstone of the economic analyses that EPA needs to
develop environmental policy.
REPORT ORGANIZATION
This report consists of four chapters. This chapter explains the background for developing the EERS, includ-
ing how EPA uses economics research, how this Strategy might be used, and some related efforts and plans.
Chapter 2 reports the main findings from the needs assessment survey and workshop. Chapter 3 describes
how EPA evaluated the remaining gaps in the research literature in priority economic research areas and
developed strategic research goals to implement. Chapter 4 describes the research tools or approaches avail-
able to implement the strategy and how EPA plans to use these tools to generate and communicate needed
research results. Appendix 1 provides more detail on the survey process. Appendix 2 discusses requests for
economic analysis and research that are not discussed in Chapter 2. Appendix 3 discusses the relationship of
this document to other research strategies and plans and similar documents. Appendix 4 describes the suite
1 Executive Orders and Guidance include: EO 12866; OMB Circular A-4; EO 12898 (Environmental Justice); EO 13045 (Children's Health);
EO 13132 (Federalism); EO 13175 (Indian Tribal governments); EO 13211 (Energy).
Laws include; The Regulatory Flexibility Act of 1980 (as amended by the Small Business Regulatory Enforcement Fairness Act in 1996); the
Unfunded Mandates Reform Act of 1995; and the Paperwork Reduction Act of 1995.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 1-1
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of research tools available to EPA. Appendix 5 shows detailed results of the interviews that form the needs
assessment. Appendix 6 contains the results of the SAB's peer review of a draft of this Strategy, and
Appendix 7 contains EPA's responses to the SAB's comments.
ERA'S USE OF ECONOMICS RESEARCH
EPA's most frequent use of economics research is as a basis for benefit-cost, cost-effectiveness, and economic
impact analyses for environmental regulations and other policies. Economic principles also are playing an
increasingly important role in the design of implementation strategies, such as marketable pollution permit
trading as an alternative to traditional regulation. Analysts have begun to use economics research to explain
and predict individual or corporate environmental behavior in response to voluntary programs, incentives,
regulations, or sanctions. Finally, EPA is using economic information to predict future environmental condi-
tions (i.e., investigating the extent to which environmental problems are caused by economic activities or
variables).
Benefit-Cost Analysis
Developing environmental regulations is a significant part of EPA's mission and is required by a number of
federal laws. Many rules at EPA are subject to some degree of benefit-cost analysis. Generally, more detailed
and sophisticated analyses are performed for rules with larger economic impacts. Benefit-cost analysis also
supports the evaluation of existing and ongoing Agency initiatives or goals, through retrospective or prospec-
tive analyses of aggregate benefits and costs.
Over the past 25 years, there has been a steady increase in EPA's use of benefit-cost analysis in rulemaking,
and a commensurate improvement in the analytical techniques and data sources available to the Agency.
EPA has developed guidance for practitioners of benefit-cost and related analysis in Guidelines for Preparing
Economic Analyses (U.S. EPA, 2000a, or the Guidelines) and is in the process of updating this guidance. The
Guidelines provide a thorough overview of the current standards, practices, and available data for conducting
economic analyses of environmental policies. They also acknowledge the deficiencies in the tools and data
available to analysts that are needed to accurately assess benefits and costs.
With sufficient time and resources, economics research can provide the theoretical and technical basis for
conducting the environmental economic analyses that EPA and others need. Although current economic
analyses contribute valuable information to environmental policymakers, scientific limitations often prevent
them from fully characterizing the benefits and costs of environmental quality changes. For example, it is
common in benefit-cost and economic impact analyses to base social cost estimates on calculated engineer-
ing costs of pollution-control technologies. However, these costs exclude other costs faced by firms such as
legal and reputation costs, costs to government such as monitoring and enforcement, and costs to consumers
who might face higher prices or changes in the quality of the goods available on the market. Sound research
will improve understanding of firm decision-making processes and help the government to design policies
that achieve environmental quality goals as efficiently and effectively as possible. However, these costs are
not the only environmentally related inputs, or factors of production, that might affect businesses. The
actual decision processes of firms or individuals might include considerations of fines for noncompliance,
legal costs, reputation, or relationships with the communities surrounding them. Sound research will
improve understanding of these decision-making processes and help to achieve environmental quality goals
in as cost-effective a manner as possible.
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In most applied benefit-cost analyses, environmental benefits are even less well understood, or accepted,
than costs, in large part because of the absence of markets for environmental goods and services. To the
extent currently feasible, the Guidelines present an overview of the methods available and suggest best prac-
tices for estimating environmental benefits. However, EPA analysts recognize that additional environmental
economics research is needed to develop techniques and data to fully evaluate the benefits of environmental
improvement. These benefits include valuation of reductions in morbidity or mortality risk and improve-
ments in ecological conditions. Primarily, we need to understand better how people understand and value
changes in health risks and ecological services.
Efficient Environmental Policy
Economics research contributes to the development of economically efficient environmental policy.2 An
increasingly important economics research area is the development of market mechanisms or incentives
(MM&Is) for environmental management. These complements or supplements to traditional regulations use
competitive forces to attain environmental objectives. Federal agencies are required to identify and assess
MM&Is as alternatives to direct regulation under Executive Order 12866. EPA's experience, particularly with
the cap and trade program established under Title IV of the 1990 Clean Air Act (CAA) Amendments, is that
sound theoretical, empirical, and experimental economics research can contribute to the design of more effi-
cient and effective environmental policy. Research has shown that, compared with regulatory approaches,
the Title IV cap and trade program has saved the electric utility industry billions of dollars while achieving a
higher rate of SO2 reductions (Ellerman and Montero, 2002). The use of MM&Is also is increasing at the state
and federal levels (Hahn, 2000). More research on economic incentives will contribute to making emerging
markets in pollution more feasible or more efficient as EPA and states apply these tools in new situations.
Understanding Environmental Behavior
Another area of economics research is identifying how firms react to a range of potential government inter-
ventions in different markets and under differing economic conditions. EPA, states, and others can use this
research to tailor technical assistance, enforcement, and compliance activities to optimize the use of public
resources (i.e., to achieve environmental quality most cost-effectively). Specific research can demonstrate
the circumstances under which voluntary, incentive, technical assistance, and enforcement programs are
effective at achieving society's environmental objectives.
A specific area of economics research under this topic is understanding how firms and industries initiate
voluntary pollution prevention actions, either for financial reasons or in cooperation with the government.
EPA, states, and others can use this research to identify situations and scenarios in which government policy
would be most effective, namely those in which there is a possibility of financial as well as economic bene-
fits. This research also could identify the types of incentives that could be used by the government to
encourage such business behavior. It also could delineate performance measures to assess the financial,
social, and environmental benefits of such business behavior. In addition, similar questions need to be
addressed for consumers.
2 Economically efficient environmental policy maximizes net benefits to society or achieves a given policy goal at the least cost.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 1-3
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PURPOSES OF THIS DOCUMENT
The principal purposes of this Research Strategy are to identify EPA's highest priority environmental econom-
ics research needs, set corresponding research objectives for the short and long terms, describe resources and
tools available for achieving these research objectives, and suggest a timeframe and tools for meeting the
objectives. Although prescriptive, the Research Strategy is intended to be flexible. The EERS provides an over-
all framework, so that, as circumstances and priorities change, EPA can respond without having to complete-
ly reconstruct this planning effort.
The audiences for this Strategy include EPA personnel, other federal agencies, state and local environmental
agencies, nongovernmental organizations, academic researchers, elected officials, and anyone interested in
environmental economics research. These audiences will use this Strategy according to their needs. At mini-
mum, the EERS will make EPA's economics research intentions transparent. Other interested parties then can
use this Strategy to complement or take advantage of EPA's research. The EERS is not intended to constrain
independent research or analysis efforts by EPA program offices or regions. Rather, it will help guide (and
outline) the activities of the two offices primarily responsible for crafting this Research Strategy, ORD and
OPEI's NCEE.
ORD and OPEI have a unique and multifaceted cross-office working relationship. The two offices share
responsibility for developing and implementing this EERS. OPEI/NCEE has the lead responsibility for devel-
oping guidance and providing advice and technical support to programs and regions on issues of economic
analysis. Part of this responsibility is met through internally conducted research in support of programs,
supplemented by contractual arrangements with vendors and cooperative research agreements with, and
grants to, qualified external economic researchers.
ORD conducts internal research in support of program activities, principally in an integrated framework with
engineers, economists, and health scientists. ORD scientists from several laboratories and centers also coop-
erate with NCEE researchers on a number of interdisciplinary projects that integrate economics with health
and ecological research.
ORD's NCER administers the STAR grant program, of which economics and decision science research is a sig-
nificant and crosscutting component. NCEE has participated extensively in the economics research elements
of the STAR grant program since its inception in 1995. NCEE staff members assist with writing research solici-
tations, co-hosting conferences, reviewing proposals, and assisting NCER with annual and strategic planning.
Staff economists from the programs and regions also contribute to these tasks.
NCEE and ORD will plan future activities to achieve the research objectives identified here. NCER will sched-
ule grant solicitations, or Requests For Applications (RFAs), to support external research on priority topics for
the next few years, to the extent funding and grant limitations allow. Each year, NCER plans three or four
RFAs in areas related to benefit-cost analysis, MM&I program design and evaluation, regulated entities' envi-
ronmental behavior and decision-making, and the use of economic information to predict future environ-
mental problems. NCER will use the Research Strategy results to focus these RFAs on the research topics of
interest in which the need for additional research is most critical.
OPEI's NCEE will use the EERS to help prioritize its internal and extramural research. NCEE also will produce
new and or improved economic guidance on research areas identified in the EERS as Agency priorities change.
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The Research Strategy's objectives include both problem-driven (applied) and core research. These research
types are described in more detail in ORD's Strategic Plan (U.S. EPA, 2001a). Problem-driven environmental
economics research addresses specific, identified problems such as valuation of water quality. Core environ-
mental economics research provides theoretical bases and methodological improvements that can be used to
improve the understanding of human behavior with respect to environmental issues and problems, as well
as tools that can be applied generally to solve environmental problems. Core research also can be accompa-
nied by environmental economics data that can be used by other researchers and analysts.
ORD will use the Strategy to plan specific internal economics research projects for the next few years and to
target research areas for extramural funding. The strategic research objectives developed will be translated
into long-term goals in ORD's multiyear plan for economics and decision sciences. This link demonstrates
ORD's commitment to providing the economics research that EPA needs. The path for attaining the long-term
goal will be mapped out using Annual Performance Goals (APGs), which are evaluated using Annual Per-
formance Measures (APMs). The Government Performance and Results Act requires agencies to establish
strategic goals, APGs, and APMs; these goals and measures also are routinely used in ORD's annual budget
process.
The EERS will discuss briefly, but not plan for, economic analyses of EPA program-specific issues. Here, the
EERS makes a distinction between economic analysis and economics research. Economic analysis applies the
tools and data developed by economics research to evaluate a particular issue or environmental problem for
a specific policy purpose. Economics research, whether applied or basic, creates generalizable theory,
hypotheses, methods, and data that can be applied to other circumstances. For the EERS to consider a
research topic, the requested research must pose some question of interest to one or more programs over
the long term. The EERS will focus on research that can serve the needs of several programs or regions,
rather than analyses tailored to a short-term program-specific need. These analytical efforts are handled best
by the programs and regions directly involved in specific environmental issues, although assistance from
ORD or NCEE sometimes may be appropriate.
RELATIONSHIP TO OTHER STRATEGIES, PLANS, AND DOCUMENTS
The EERS follows related efforts, particularly an economic research needs assessment survey conducted in
1997. It also is related to and will inform the efforts and strategies of a number of organizations within EPA,
notably the EPA Strategic Plan, the work of NCEE and ORD's laboratories and centers, the ORD Strategic Plan,
and a number of other research strategies and program efforts. The relationship of the EERS to other strate-
gies, plans, and documents is detailed in Appendix 3.
ENVIRONMENTAL ECONOMICS STRATEGY DEVELOPMENT PROCESS
Internal EPA Review
The NCEE/ORD research strategy team jointly determined that a new and formal research strategy would be
timely. The team assembled a workgroup from offices, research laboratories, and regions throughout EPA to
draft this Strategy. Workgroup members are economists and users of economic information who represent
3 When program offices requested analytical assistance during the development of the EERS, specific requests were noted and are described in
Appendix 2; they might provide direction for program assistance in the future.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 1-5
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U.S. ENVIRONMENTAL PROTECTION AGENCY
the concerns and needs of their offices with respect to economic issues. Much of the writing in this report is
based on contributions and suggestions of these workgroup members, especially the emphasis on emerging
issues and evaluation of strategic and administrative initiatives. This group is responsible for reviewing the
document, disseminating it for review to economists and managers within their offices, and conducting an
internal peer review. ORD's Science Council and NCEE administrators also reviewed the EERS.
Peer Review
In 2004, a draft of the EERS was peer-reviewed by the EEAC, a subcommittee of EPA's SAB, in conformance
with the guidance in EPA's Peer Review Handbook (U.S. EPA, 2000c). The SAB is a federally chartered advisory
committee comprised of experts in various environmental science topics. The EEAC comprises esteemed
environmental economists with a wide variety of interests and experience with issues affecting EPA econom-
ic analysis. The EEAC also was the SAB's formal peer-review panel for the Guidelines for Preparing Economic
Analyses.
1-6 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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CHAPTER 2
DEN1 IFYING REbEARCH NEEDb
METHODS
The first section of this chapter presents a brief overview of the process used to identify research needs and
to prioritize those needs. The following two sections describe the overall results in some detail. Detail on the
survey process itself is presented in Appendix 1.
The development of this research plan follows ORD's general approach to setting research priorities,
described in the ORD Strategic Plan (U.S. EPA 2001a). To select research topics, the team took the following
steps:
1. Sought input from its customers as to the type of research that is of greatest importance to their
programs;
2. Sought input from NCEE and ORD staff regarding the state of the science and the best opportunities for
reducing uncertainty in EPA's understanding of important environmental economic issues (i.e., focus on
the gaps in the existing research base);
3. Examined research activities in terms of scientific feasibility, resource constraints, tools and capabilities,
compatibility with existing expertise, and EPA's ability to make a significant contribution relative to
other research institutions doing work in the area; and
4. Consulted with external experts (peer review) to ensure that the research will be of high quality and will
address important and novel issues.
The initial steps in the development of this strategy focused on soliciting client input from economists and
users of economic information. The next two steps were used to further refine the research needs and plan
implementation (see Chapters 3 and 4). The final step, peer review, will be conducted after internal EPA
review is complete.
RESULTS
Clients were asked for their research needs in both the short (results in 3-5 years) and long term (results in
more than 5 years). The remainder of this chapter presents overall results using short- and long-term prefer-
ences. The next section provides additional detail on priority areas. If more than one interview took place in
a given office, the team aggregated results to the level of Assistant or Associate Administrator. Rankings were
normalized within each of these organizations so that they add up to one for each office. Results are weight-
ed equally across offices.
The following tables present the preferences for results of the research strategy interviews by general cate-
gories. Because interview subjects provided priority rankings for both short- and long-term needs, results are
presented for each time period in Tables 2.1 and 2.2. Table 2.3 presents the number of offices that requested
a research need in each category. In certain cases, expressed needs were determined to be for economic
analysis and not research. An example is cost estimates for specific rules, which neither NCEE nor NCER
could provide. These categories are discussed in Appendix 2 rather than this chapter for ease of presentation.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 2-1
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U.S. ENVIRONMENTAL PROTECTION AGENCY
TABLt >.1 GENERAL RESEARCH PRIORI! ES - SHORT ERM
KeseaTcn CaTegory
vdiudiiuii ui iviuiidiiiy DeileTllb
environmental cenavior ana uecision-iviaKing
valuation of reduced Morbidity Benefits
Benefits of Environmental information Disclosure
valuation of Ecological Benefits
MM&Is, Trading
iviiviotia, v_/Liiei man rranTrrg
Di^uMtiMg/lMt^MeidtiuMd Equity
ijreen Accounting/international iraue/rinance
K1SK dLLU UllCeildllliy : leCIUliqUtiLi, illLegldLlUIl VV1LI1 VdlUdLlULL
EnvironmenLal Justice (EJ)
TABLE 2 2 GENERAL RESEARCH PRIORITIES - LONG TERM
Research Category
valuation or Keaucea Moroiaity Benerits
Environmental Behavior and Decision-Making
Valuation of Ecological Benefits
Benefits of Environmental Information Disclosure
Valuation of Mortality Benefits
MM&ls, uther Than Trading
Lrreen Accounting/international iraae/finance
IvIIwsds, Trading
Discounting/ mtergenerationai Equity
RISK ana uncertainty: lecnniques, integration vvitn valuation
eross-Kegulation interaction
KanR
i
2
*
^
5
6
7
o
11
KanR
1
2
3
4
5
0
7
8
y
10
11
1 Based on averaging across EPA offices.
2-2 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
TABLE 2.3 NUMBER OF OFFICES REQUESTING RESEARCH PRIORITIES TOPICS
nesearch category IN umber of offices
IvUvI&Is, Other Than Trading 7
IvIIvI&is, iradmg 6
Valuation ot Reduced Morbidity Benefits
Environmental Benavior and Decision-MaKing
Valuation ot Ecological Benefits
ijreen Accounting/international trade/finance
Risk and Uncertainly: Tecnniques, Integration With Valuation
Discounting/ Intergenerational Equity
Valuation 01 Mortality Benefits
uross-Kegulation interaction
iseneiits 01 environmental Iniormation Disclosure
Valuation of Reduced Morbidity Benefits
Four media offices (OAR, OW, OSW, and OPPTS), ORD, and OCHP requested improved valuation of reducing
morbidity risk from environmental causes. Although the strategy team further subcategorized morbidity (into
asthma, skin lesions, etc.), most of the requests were very general. Offices requested either a long list of end-
points or generic noncancer health endpoints. Because the economic literature does not provide values for a
large number of health endpoints, research could make significant contributions in this area. Although EPA
will need further clarification to set priorities for research to develop morbidity values, the implementation
of this EERS will address this issue directly (see Chapters 3 and 4). Program economists mentioned some
specific health endpoints, including earaches, headaches, coldlike illness, gastrointestinal upset, reproductive
and developmental effects, asthma, developmental disorders (e.g., attention deficit hyperactivity disorder,
autism, mental retardation), and cancer-related morbidity effects. OAR and OW requested health endpoints
caused by toxics exposure, whereas OSWER and OPPTS both mentioned lead-related illnesses as priority
research topics. Several offices mentioned a need for values for special subpopulations, especially children,
and two offices suggested research to evaluate quality-adjusted life-years (OALYs) or some other framework
as a potential tool for estimating and transferring benefit values.
Environmental Behavior and Decision-Making
The general category of Environmental Behavior and Decision-Making can be subdivided into three more
detailed research topics:
• Why and how do facilities perform well environmentally, or comply or not comply with environmental
rules or policies?
• What policies or approaches will effectively induce compliance or improved environmental performance?
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 2-3
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U.S. ENVIRONMENTAL PROTECTION AGENCY
• How effective are voluntary programs?
The first two questions are closely related. EPA needs to understand individual or corporate environmental
behavior both with and without government intervention to adopt a cost-effective combination of approach-
es (for both the regulators and the regulated) that will improve environmental quality. Five offices requested
research in this area: OAR, OW, OSW, OECA, and OPPTS. Of these, OECA put the highest weight on this
research topic. These offices are trying to understand how corporations and other regulated entities view
compliance and how they will react to regulations, enforcement actions, and other interventions. They also
want to understand what organizational characteristics foster improved environmental performance and
compliance, and how these characteristics influence behavior.
Although OECA's interest is general, the four program offices that place a priority on this research area have
more specific interests:
• OAR wants to understand facility location decisions.
• OW wants research into how drinking water purveyors decide what technologies to select to comply.
• OPPTS is interested in how farmers and applicators select pesticides and application programs (i.e.,
which pesticide to use and how much).
• OSW wants to understand how firms make onsite versus offsite hazardous waste disposal decisions,
and how leaking underground storage tank and potentially responsible party (under Superfund) owner-
operators make decisions about mothballing or revitalizing sites.
Interest in research on the effectiveness of and participation in voluntary programs also is broad. OW, OSW,
OECA, and OPPTS want to know what induces participation in voluntary programs and what changes in
environmental outcomes result from participation. They also would like to understand the conditions under
which a voluntary program might be superior to a regulatory program.
Valuation of Ecological Benefits
Expressed needs for ecological benefits research tend to be both general and pervasive across programs. ORD
and the four media offices (OAR, OW, OSW, and OPPTS) requested research to improve the valuation of eco-
logical benefits. Moreover, the Assistant Administrator for Water made this topic his office's highest research
priority.2 A great degree of uncertainty is associated with this topic, both because a large number of ecosys-
tem or ecological services (or benefits) are not valued and because economists do not fully understand how
people consider and make choices regarding (value) ecological services.
Two offices, as part of their responses, identified a need for frameworks to understand and value ecological
endpoints. There were some slightly more detailed requests for research, including estimation of the values of:
• Water quality changes (two offices requested estimates for changes caused by agricultural pollution and
one requested a basis for national estimates);
2 This will be accounted for during implementation of the strategy, but the survey results were not altered in response to the OW Assistant
Administrator's preferences.
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U.S. ENVIRONMENTAL PROTECTION AGENCY
• The sensitivity of water values based on stream size and uses;
• Ecological impacts from air pollutants;
• Introduced versus native species;
• Avoided groundwater contamination;
• Ecosystems' impacts from hazardous wastes;
• Avian species; and
• Ecological endpoints from reducing toxic pollutants.
Valuation of Other Endpoints, Including Benefits of Environmental Information Disclosure
A number of program offices identified valuing environmental changes other than direct ecological or human
health endpoints as a high priority. We have categorized such research priorities under Benefits Valuation,
Other Endpoints. These endpoints include all environmental changes that are not direct ecological or human
health endpoints.
Several offices placed a high short- and long-term priority on research on the value of environmental infor-
mation disclosure. For example, OEI placed most of the weight of its preference on this single category, and
OPPTS and OW-OGWDW requested value-of-information research. There is currently no generally accepted
method to estimate or monetize the benefits of information disclosure, for example, from the Toxics Release
Inventory (TRI) or consumer confidence reports. Anecdotal and other evidence suggests that companies or
facilities may change behavior after information announcements are made, and that the change in behavior
affects exposure as well as the behavior of the potentially exposed population. This valuation research cate-
gory is closely related to one on the effectiveness of information programs. Other important research ques-
tions include;
• Are potential cost savings identified when disclosure is made?
• How is the value of information linked to the amount or toxicity of the pollutant? (e.g., a corollary about
food is that the value of information about fat content is not strictly correlated with the amount of fat); and
• How can the benefits of information disclosure be transferred among situations?
Valuation of Mortality Benefits
The issue of mortality valuation has historically been of great interest to EPA economists. This interview
exercise indicates that the topic is still important, in part due to OMB's interest in using OALYs or other
alternatives to EPA's customary measure of the value of mortality risk reduction, the value of a statistical
life (VSL). OW, OPPTS, and OCHP placed priority on this research topic. The survey results showed a strong
interest in how mortality valuation varies by age. Many of the studies used to generate EPA's central estimate
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 2-5
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U.S. ENVIRONMENTAL PROTECTION AGENCY
of VSL are based on wage-risk studies and apply to working adults (U.S. EPA, 2000a), so there is a need for
complementary values for children and the elderly. A related need is how individual values for their remain-
ing years (or a similar concept such as OALYs) vary by the age of the affected individual.
MMSIs, Other Than Trading
OEI, OAR, OW, OSW, OECA, OPPTS, and OPEI requested additional research in this category. Several offices
suggested research on the effectiveness of environmental information programs in achieving improved envi-
ronmental outcomes and when these programs might be more cost-effective than regulatory programs. These
are largely voluntary programs and are distinguished from mandatory information disclosure programs such
as the TRI. The voluntary information programs include eco-labeling, recognition, publicity programs, and
content information, among others. Note: SAB reviewers suggested more extensive MM&Is research into vari-
ous incentive-based instruments, such as pollution taxes, abatement subsidies, scrappage schemes for old
cars, and deposit-refund systems. Although these programs might not be used much by the federal govern-
ment, states and international bodies use a number of them.
MMSIs, Trading
Six offices—OAR, OW, OSW, OPPTS, ORD, and OPEI—requested research on emission permit trading, pri-
marily for "Trading in Practice" and "Trading in New Contexts." Some trading programs set up by EPA and
other governments have been remarkably successful, saving billions of dollars in regulatory costs (U.S. EPA,
2001b; Ellerman and Montero, 2002). Other types of trading programs have not been as successful to date.
Trading-related research should ultimately result in the implementation of efficient trading programs in
areas in which trading programs have not yet been established.
OW, as well as OAR and OPEI, requested empirical research on "Trading in Practice." OW is particularly inter-
ested in exploring experience to date with total maximum daily load (TMDL) water quality discharge trades.
The TMDL program sets maximum pollutant loads for water bodies and would seem an ideal candidate for a
trading program. However, existing attempts at TMDL trades have been difficult to establish and have not
always been successful. TMDLs provide situations that are less clearly defined than the successful air pollu-
tion trades, both in terms of monitoring and with respect to pollutants. A TMDL trading program could
involve multiple pollutants, a mixture of point and nonpoint sources, institutional constraints, monitoring
difficulties, and spatial differentiation. These complications impose transaction costs and additional con-
straints on trades. Research could improve the prospects for successful trading programs in these situations
by providing a better understanding of the existing constraints, as well as information requirements for
efficient markets.
"Trading in New Contexts" identifies research needs for the design of trading programs for sectors or pollutants
where they do not currently exist. The four media offices (OAR, OW, OSW, and OPPTS) requested research to
explore trades in drinking water, pesticides, and hazardous waste, areas in which little trading effort exists.
In accordance with EPA policy, external experts in the field of environmental economics reviewed a draft of
the Environmental Economics Research Strategy. The peer review panel identified several areas in which
they thought that additions to the environmental economics literature could improve environmental policy
and decision-making. The reviewers' suggestions have been incorporated into Chapter 3. Chapter 3 will
address how to compare the priority research needs with the existing body of research to identify those gaps
in which EPA research can be most beneficial.
2-6 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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CHAPTER 3
DEN1 IFYING THE REbEARCH GAPb
APPROACH
To make the transition from a needs assessment to an implementable research strategy, the research team
identified existing research in the priority research areas and gaps between what is needed and what already
exists. It is not possible to address all of the research needs, so the team focused on the highest priority re-
search identified by the programs and regions and supplemented these with suggestions from peer reviewers.
The highest priority research falls into five major areas:
1. Valuation of human health benefits;
2. Valuation of ecological benefits;
"$. Environmental behavior and decision-making, particularly compliance behavior;
4. MM&Is, particularly pollution trading; and
5. Benefits of environmental information disclosure.
Some research, and in some cases, a substantial amount of research, has been conducted in each of these
areas. However, the perception among informed Agency economists who rely on this information is that
existing research is insufficient to provide a thorough basis for environmental policy decisions. The EERS
team supplemented these anecdotal assessments with assessments of recent literature reviews in several of
the topical areas. The SAB EEAC peer reviewers determined that the major research areas identified by EPA
are the most important priority areas for focusing additional research, and suggested filling in gaps within
these five areas (see Appendix 6). Throughout this chapter, EPA has incorporated research areas suggested by
the SAB EEAC. Further consultation with experts and additional evaluations of the remaining subject areas
will help determine where EPA-sponsored research could have a notable payoff.
CRITERIA FOR IDENTIFYING PRIORITY RESEARCH
To assess priority research areas, the EERS team considered the criteria for selecting research topics (para-
phrased from ORD's Strategic Plan, U.S. EPA 2001a, and augmented). Research must;
• Be useful to EPA, states, or other clients;
• Fill a gap in the existing knowledge base;
• Be scientifically feasible and potentially of high quality;
• Be likely to provide useful answers within 5 to 10 years, and
• Be related to EPA's mission in a policy-relevant context.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 3-1
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EXISTING LITERATURE IN PRIORITY TOPICS
Each of the five research areas will be discussed relative to these criteria, which will be used to determine
implementation approaches in the next chapter. In several cases, the existing research base seems somewhat
spare. That is, the uncertainty or lack of knowledge in the topical area is pervasive.
Human Health Benefits
EPA has reasonably current assessments of the state of the science regarding valuation of morbidity
(nonfatal) and mortality risk reductions. These assessments come from recent cross-Agency reviews of the
literature, largely in support of guidance development for applied benefit-cost analysis.
Morbidity Benefits
To assess the current science on morbidity valuation, EPA's Science Policy Council, comprised of scientific
administrators from across the Agency, sponsored a study in 2000 that provided guidance on how to estimate
the value of reducing noncancer (nonfatal) risk. This study resulted in the development of the Handbook for
Non-Cancer Health Effects Valuation (U.S. EPA, 2000b). This document contains an extensive literature re-
view on existing valuation methods and morbidity endpoints for which values have been derived, including
a large annotated bibliography. A key finding in this handbook is that willingness-to-pay (WTP) estimates of
specific nonfatal endpoints are limited, especially for chronic or long-term health effects. Further, some
potentially useful research results are difficult to use in applied analysis because they fail to control carefully
for severity, duration, and frequency. The value of a specific nonfatal health effect may vary significantly
with changes in severity and duration.
Another source assessing a subset of the literature is the Children's Health Valuation Handbook (U.S. EPA,
2003a), a peer-reviewed reference to complement EPA's Guidelines. This handbook includes a bibliography of
the empirical literature on valuing reduced health risks in children and comes to the general conclusion that
there is very little information available to EPA analysts on this subject. However, this is changing as
researchers respond to recent EPA STAR grant solicitations in this area.
The research strategy team considered the endpoints and methods covered in both handbooks and deter-
mined that further research should focus on measures of the WTP to avoid illness, using empirically and
theoretically sound methods rather than more limited measures such as cost of illness (COI). WTP measures
are theoretically superior to suggested alternative measures that do not reflect how people actually would
make choices about health-related expenditures. In the case of children's health risks, research also should
consider the role of household composition on value. The EEAC recommended adding appropriate COI
measures to WTP measures to arrive at a measure of the total value of avoiding illness.
As noted in Chapter 2, EPA program economists identified this area to be generally important but pinpointed
few specific morbidity endpoints for conducting benefits research. As a result, the implementation process
will identify specific health endpoints through further discussion with programs and regions, review past
analyses that were unable to value particular endpoints, and consider EPA's regulatory and policy agendas
and the likely health endpoints that these agendas will affect.
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U.S. ENVIRONMENTAL PROTECTION AGENCY
An initial conclusion of the EERS is that the large number of specific health endpoints that could be valued
dwarfs the limited resources available to conduct valuation research. In response, a long-term strategy might
be to develop methods that generate cost-effective and theoretically plausible values for multiple health end-
points, such as valuation of symptoms, or health status indices, and improved methods for benefit transfer.
A goal of this Strategy is to develop a comprehensive study to elicit WTP estimates for a large number of
environmentally influenced health endpoints. In preparation for this effort, ORD is undertaking a project to
identify the health endpoints most adversely affected by environmental causes.
Mortality Benefits
The issue of mortality benefits has received a great deal of attention from EPA, in no small part because envi-
ronmental management measures often generate large reductions in mortality risks, estimated to be on the
order of several billion dollars annually (U.S. EPA, 1997; U.S. EPA, 1999a). EPA recently completed a current
literature review of the benefits of reducing premature mortality as part of the Guidelines development
process. The Guidelines themselves contain a brief summary of the state of the science in empirically
characterizing the effect of population and risk on valuation, and the SAB EEAC peer-reviewed the
Guidelines.
In a related but separate exercise, the EEAC reviewed an EPA white paper assessing the literature on the
subject of valuing reduced premature mortality from cancer (Chestnut et al., 1997; U.S. EPA, 2000c; U.S. EPA,
2002b).
In short, these literature reviews and the EEAC's comments regarding them suggest that more research
is needed on how the value of mortality risks varies with the age and health status of the individual, the
co-morbidity associated with the mortality risk (e.g., illness from cancer), and risk characteristics such as the
degree to which the risk is voluntarily taken.
EPA also has sponsored a significant amount of research in valuing mortality reductions, much of which was
summarized in a recent EPA workshop. Proceedings of this workshop can be found on the STAR grant Web
site. Some recent EPA-sponsored research addresses EPA's priority mortality valuation issues, such as age-
and debility-related valuation issues (DeShazo and Cameron, 2003; Krupnick et al., 2004).
EPA continues to explore and develop research in this area and is in the process of evaluating revisions to
existing guidance on the topic of valuing reductions in premature mortality. Moreover, EPA and Resources
for the Future, along with other federal agencies sponsored a major conference on health evaluation in
Washington, DC, in February 2003 (Resources for the Future, 2003). The purpose of the conference was to
bring together researchers and practitioners of various disciplines related to health and risk valuation. These
include medical researchers engaged in health-related quality-of-life measures such as OALYs and disability-
adjusted life-years, and economists who primarily employ and develop WTP measures. To date, these two
broad disciplines have not interacted to a great extent to develop health valuation estimates. EPA and the
other organizers expect this conference to lead to greater communication and cooperation across disciplines,
which should be especially informative for identifying mutual research gaps.
1 The National Institutes of Health, Occupational Safety and Health Administration, Food and Drug Administration, Department of
Transportation, Department of Health and Human Services, and U.S. Department of Agriculture.
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EPA will use the results of this conference, the assessments developed with the Guidelines and current
efforts to revise guidance, and the results of current research to further define the mortality research areas
that should be pursued. At minimum, EPA expects to support further investigations into key areas of uncer-
tainty already identified, such as the role of age, physical condition, and risk characteristics on WTP, for pre-
venting premature mortality.
Ecological Benefits
As with human health benefits, EPA developed an appraisal of ecological benefits estimation. The Science
Policy Council sponsored a study, A Framework for the Economic Assessment of Ecological Benefits (U.S. EPA,
2002a), which summarized approaches for ecological benefits estimation. This document provides a thorough
overview of the methods and issues involved in estimating the benefits of ecological improvement.
Ecological benefits estimation is often problematic because ecosystems provide a wide range of essential
services, but people frequently do not understand the services provided. Some of these services can be
priced in markets, and others are strictly nonmarket goods that require alternative valuation approaches. To
value nonmarketed ecological services, people must be familiar with them, which can require complex valua-
tion approaches that combine education and value elicitation to obtain reliable WTP measures. Not all of
these approaches are universally accepted. Some noneconomists have proposed alternative valuation meas-
ures based on energy balances or replacement costs (Odum, 1996; Costanza et al., 1997). To date, these
approaches have met with little acceptance among economists because they violate the most basic and well-
developed tenets of economic theory (Bockstael et al., 2000). EPA programs appear to want conventional WTP
measures for ecological services that would survive the rigor of the rule-making review process.
As with morbidity valuation, programs were generally vague about the specific ecological endpoints they
want valued. EPA has conducted or sponsored a large number of ecological valuation studies through grants,
cooperative agreements, and internal research, at a cost of several million dollars. Moreover, the Environ-
mental Valuation Resource Inventory, a benefits-transfer database developed by EPA and Environment
Canada and maintained by Environment Canada, contains approximately 500 water-related valuation studies,
many of which estimate ecological values (Environment Canada, 2004). It is critical to further focus research
in this topic to address the highest priorities that states and federal environmental agencies will need to
value.
NCEE, ORD, and EPA's program offices have drafted a new Ecological Benefits Assessment Strategic Plan as a
collaborative effort between EPA ecologists and economists to determine long-term critical research needs in
this area (U.S. EPA, 2004a). Furthermore, ORD/NCEA is conducting several pilot projects with economic and
ecological researchers to develop frameworks for future assessments. An initial conclusion of these efforts
is that, given the large number of specific ecological endpoints that could be valued in comparison with the
limited resources that are likely to be available, a cost-effective strategy might be to investigate methods that
generate theoretically sound values for multiple endpoints, such as the valuation of ecological indicators
or indices and improved methods for benefit transfer. The SAB recommended more collaborative ecologist-
economist research efforts. The SAB also recently formed a panel on Valuing the Protection of Ecological
Systems and Services to "provide advice to strengthen EPA's approaches for assessing the costs and benefits
of environmental programs that protect ecological systems and services, to identify research needs to
improve how ecological resources are valued, and to support decision-making to protect ecological
resources."
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Environmental Behavior and Decision-Making
Interest in environmental behavior research has increased in recent years among both practitioners and
academics. However, even EPA staff's preference for environmental behavior and decision-making research is
quite diverse. Each program desires research about the compliance-related decision-making processes of its
relevant regulated communities. These processes could be quite varied because the regulated communities
in question include different combinations of individuals, firms, government agencies, and municipal cor-
porations, and the regulations differ greatly in form and intent.
One seemingly common factor among these regulated communities is the influence of costs on decision-
making and the need for cost minimization in the manufacturing, farming, and service sectors. However,
research has shown that perceptions of environmentally related costs differ among firms, organizations,
and individuals. For example, although some firms or individuals may base operating and capital invest-
ment decisions solely on accounting costs, others more strongly weigh the transaction costs of dealing with
regulatory agencies, potential liability costs, costs of adverse publicity, potential cost savings of pollution
prevention, costs associated with dealing with local communities, and even loss of sales (market share).
Consideration of all of these types of costs, as well as the ability of firms to adapt through process changes
and innovations, suggests that the engineering cost approach used by many EPA programs might not fully
reflect the costs these entities consider regarding all environmentally related factors of production.
EPA and others need research that is focused on how individuals, businesses, and facilities decide to meet
environmental obligations, how they determine their degree of compliance with environmental regulations
or initiatives, and how they consider the range of potential costs. Although traditional notions of costs have
been researched extensively, relatively little research has been done on the actual role of complex environ-
mental cost concepts in firm and individual decision-making.
For instance, what is the most effective way to set environmental fines to encourage increased compliance?
EPA's current practice requires firms found not complying with environmental regulations to pay fines equal
to the profits they earned as a consequence of their violations. Research is needed to assess the optimality of
this method and to compare its effectiveness with other methods such as a resource-based optimal compen-
sation in lieu of fines or nonmonetary penalties such as restoration or enhancement activities.
Likewise, EPA needs research that considers an interactive model of compliance and enforcement, under
which regulators and regulated parties work together to identify pollution sources and the means to address
them. Public-private partnerships are often undertaken at the federal and state level to improve environmen-
tal compliance. Such partnerships can encompass monitoring, technology sharing, regulatory relief, and
other options to achieve improved environmental performance for a firm, locale, or sector. Research on com-
pliance and enforcement has traditionally treated the policy process as linear. Researchers assume that the
regulators first design and impose a policy (e.g., water quality levels, emissions limits), then an enforcement
strategy (e.g., an audit frequency and penalties for noncompliance), and then the polluting firm decides
whether or not to comply. Such assumptions are often not realistic or valid and may reduce the accuracy of
behavioral predictions. This research area should attempt to identify the factors and design characteristics
that would make public-private partnerships cost-effective.
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Finally, EPA needs environmental behavior research from multiple disciplines—economics, business adminis-
tration, political science, sociology, and decision theory—that rely on distinctly different research approaches.
Theory, methods, and empirical data in environmental behavior research are all somewhat incomplete. There
is a great need to refine the behavioral theory to identify the factors that motivate different classes of envi-
ronmental actors, whether their objectives are cost minimization, improved reputation, increased market
share, and decreased transaction costs with neighbors and regulators. A variety of research approaches—case
studies, theoretical models, experimental methods, interviews, surveys, retrospective financial and environ-
mental performance data analysis, and geospatial analysis—can all make unique contributions to this broad
area of study. EPA and the research community need to integrate these research approaches effectively to
improve understanding of environmental decision-making.
EPA is in a unique position to make contributions to this research area because there are few other commen-
surate sources of research interest and funding. However, the beneficiaries of such research include many
state and local governments, as well as other federal agencies and foreign governments. A question of in-
creasing importance to EPA that is closely related to compliance decisions is how and why facilities or firms
decide to participate in voluntary programs or standards, whether initiated by government or industry. Such
programs typically have costs and benefits for the firm that are not captured in traditional financial analyses.
Market Mechanisms and Incentives
Commensurate with the interest from program offices, regions, and elected officials, EPA is conducting inter-
nal research and supporting extramural research in the MM&I area. For EPA staff, the most important focal
areas are empirical research on the practical results of trading programs and research into the feasibility of
new trading programs where none currently exist. For more ex-post empirical research to be feasible, trading
programs have to be established and operated for several years. Where no trading markets exist, ex-ante
research must focus on theoretical and experimental design, as well as modeling using empirical values. The
EEAC peer-review panel suggested that it is important to evaluate other incentive-based instruments, such as
pollution taxes, abatement subsidies, scrappage schemes for old cars, and deposit-refund systems. Adding
these focal areas makes sense because they are environmental policy tools used by state and local govern-
ments, although currently they are not used extensively at the federal level.
The SAB EEAC also suggested further investigation into the issue of the effects of preexisting tax distortions
on the costs and benefits of policy instruments. EPA programs mentioned but did not elevate this category of
research to a priority status.
The STAR program has supported 25 academic research projects in this topical area, including a number of
experimental market studies, theoretical models that have identified the efficiency effects of alternative trad-
able permit allocation schemes, and the definitive empirical analysis of the CAA cap and trade program. Both
NCEE and ORD/NRMRL have conducted incentive-related research and are planning more. NCEE published
an assessment of the savings potential of incentive-based approaches in lieu of traditional regulations, iden-
tifying more than $40 billion per year if all possible programs were implemented (U.S. EPA, 2001b).
ORD/NRMRL is designing and analyzing market approaches for environmental systems management, includ-
ing a program of tradable credits for controlling urban stormwater runoff, with a focus on stream quality and
combined sewer overflows. Stormwater is a significant source of water quality problems across the country,
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and market approaches have not been widely applied to stormwater, although EPA is pursuing the idea as a
viable option (Thurston et al., 2003; U.S. EPA, 2004b).
EPA hosted a symposium on research results and the state of the science in MM&I research in May 2003 (U.S.
EPA, 2003b). EPA will use the results of this workshop to further refine NCEE and ORD's MM&I research
plans for 2005-2008. In general terms, EPA recognizes that, to realize the cost savings of MM&I programs,
well-designed programs have to be developed and implemented for new pollutants, media, and geographical
areas. EPA will continue to conduct research to extend current validated results and use lessons learned from
existing programs and experimental and theoretical assessments to design and predict the outcomes of new
MM&I programs.
As with other research areas, it is important to distinguish true MM&I research from analytical applications.
Research results should provide new theoretical developments or approaches that can be generalized to other
circumstances or geographical areas. The lack of existing theory and the complexity of MM&I applications to
different media and situations offer a wide range of potential extensions. For example, using tradable water
quality permits to resolve rural nonpoint water problems is complicated by existing agricultural subsidies,
lack of monitoring, and cultural resistance to enforcement—all of which present the potential for new theo-
retical and empirical extensions. Similarly, some basic theoretical questions with significant policy implica-
tions, such as how marketable permits interact with existing taxes, still do not have satisfactory answers and
are not easy to test empirically. The uncertainty among theorists must progress to empirical testing so that
some questions can be answered and extended in fruitful directions (i.e., toward facilitating efficient trading
program design or emissions tax levels). Other questions that affect market design, such as balancing de-
mand and supply in a newly created market and developing self-correcting and flexible markets, also need
further study. Furthermore, policymakers can benefit from additional research on the relative efficiency and
feasibility of fees (prices) and cap and trade permits (quantities) in different circumstances. The applications
are so diverse, the range of potential extensions so extensive, that the MM&I area is likely to be a source of
useful behavioral research for some time.
Benefits of Environmental Information Disclosure
As noted in Chapter 1, EPA operates under several statutes that require the disclosure of environmental
information to regulators, consumers, or communities. Most notable are the Community Right-to-Know Act
requirements that facilities disclose releases of toxic substances through the TRI, and the Safe Drinking
Water Act requirement that water purveyors disclose chemicals contained in domestic water through annual
consumer confidence reports.
Although several studies have examined the effect of TRI disclosure on stock prices and firm behavior or
have studied firms' participation in voluntary programs that include information disclosure or voluntary
emissions reductions, none have directly estimated the economic benefit or impact from using disclosure
rules, compared with alternatives such as direct regulations (Hamilton, 1995; Khanna et al., 1998). The
range of benefits and the number of methods for estimating them could both be considerable. Ultimately,
the principal benefits to the public would be reductions in damages to ecosystems or human health that can
be estimated. However, the reputed value of an information disclosure approach is that it can achieve these
reductions at a lower cost or more equitably than other approaches, such as regulation or market incentives.
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How to calculate these benefits is unclear. However, there are a number of pertinent questions, including:
• Are markets working more efficiently as a result of information disclosure, as economic theory would
suggest?
• Are there health and ecosystem benefits that would be unrealized if not for the information disclosure
requirements?
• Are there lower costs associated with firms acting on their own to avoid having to disclose seemingly
adverse environmental results?
• Are there benefits to the firm to discovering pollution-prevention cost savings?
• Are there implementation and enforcement savings for state and federal government agencies as a result
of information disclosure?
• Are communities better informed and therefore more active in protecting their local environment
through torts or negotiations with facilities? If so, what damages are reduced or savings realized?
These and other questions have been addressed inadequately to date. There is a clear need for more empiri-
cal information, as well as development of improved theory about how environmental information affects
choices. Furthermore, it is likely that EPA can make a significant contribution to this literature, as it has with
the valuation for children's health risk reduction, simply because there is so little existing research.
SUMMARY
EPA understands that filling the research gaps in these five priority environmental economics research topics
is a daunting task. Nonetheless, implementation of this Research Strategy will make valuable advances to the
state of knowledge, given existing and expected resources. Already, EPA-conducted or -sponsored research has
had a significant impact on valuation methods and market-oriented approaches for environmental policy.
Addressing the remaining research gaps over the coming years will extend this successful track record.
3-8 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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CHAPTEP 4.
RESEARCH STRATEGY IMPLEMENTATION
OVERVIEW OF IMPLEMENTATION PROCESS
The EERS is a framework for producing research that clients within and outside EPA can use to achieve cost-
effective environmental protection. ORD and NCEE and their clients—programs, regions, states, local and
tribal governments, academic researchers, nonprofits, and for-profit enterprises—need a number of different
types of research-derived information. Some information, such as accurate data and assessments of the state
of existing research, are prerequisites to original, useful, and high-quality research results. This chapter dis-
cusses the different types of research that EPA and its clients need, the tools available for developing this
research, and the comparative advantages of various EPA organizations for providing them. It then articulates
a flexible implementation approach that suggests a division of responsibilities but allows for adaptation to
changing circumstances.
Note: Neither this chapter nor the EERS in general is intended to proscribe research that programs, labora-
tories, or regions believe they need. Rather, this chapter will describe what the organizations principally
responsible for implementing this strategy, NCEE and ORD, plan to do to provide research identified as a
priority across EPA.
The types of information needed to implement this strategy include:
1. Research results in the five areas described:
a. Value of reducing environmental risks to health endpoints;
b. Value of reducing environmental risks to ecological services;
c. Environmental behavior and decision-making, particularly expanded considerations of costs and
compliance behavior;
d. MM&Is; and
e. Benefits of environmental information disclosure;
2. Infrastructure for information access and communication, including databases of environmental values,
firm and facility characteristics, and past research data;
3. Periodic assessments of the state of existing research; and
4. Specific analytical guidance as needed.
RESEARCH TOOLS—COMPARATIVE ADVANTAGES
EPA's research support tools differ in their suitability for providing information. The available tools include:
intramural EPA research, cooperative agreements between EPA researchers and research institutions, grants
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 4-1
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to research institutions, and contracts to economic consultants. The EERS team compared these tools on the
basis of:
• Their ability to generate results in the short versus long term;
• EPA's ability to influence research products and outcomes;
• The typical quality of research results, with the "best" research defined as those findings published in
the most respected peer-reviewed academic journals;
• The specific nature of the research (i.e., basic or applied);
• The general applicability of results (i.e., whether specific to one medium or program or generalizable to
other programs, industries, or locales); and
• The degree to which original research is needed, as opposed to program-specific applications of research
results.
Table 4.1 shows how the research tools generally compare on the basis of these characteristics. Appendix 4
discusses these tools and criteria in more detail.
TABLE 4.1 CHARACTERISTICS OF RESEARCH TOOLS
Research
Tools
Contracts
Intramural
Research
Cooperative
Agreements
Grants
Time To
Produce Results
Short, if contract
vehicle in place
Short, if staff
present; longer,
if hiring required
Up to several
years; bidding
and coordination
issues
Several years
from initiation
of award process
to results
Influence on
Research Progress
Maximum
influence,
directed by EPA
Highly flexible;
EPA manages
research; research
for direct EPA use
Less flexible;
some research
influence; trade-
offs and compro-
mises; not for
direct EPA use
Little influence
once award is
made; not for EPA
direct use
Quality or Level
of Peer Review
Generally not
peer reviewed;
unpublished
literature; not
original research
Low to high,
depending on
project and
purpose
Generally high
quality
High quality;
original research
Basic
vs. Applied
Applied
Either; greater
tendency
toward applied
Mostly applied
Basic or
applied
research
Generalizability
of Results
Specific to rule
or industry
Mixed; some
program specific,
some broader
applications
Mixed; some
program specific,
some broader
applications
Generally, broad-
ly applicable
methods or
theory
4-2
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ROLES AND ACTIVITIES OF EPA PROGRAMS, CENTERS, LABORATORIES, AND REGIONS
The research capabilities of EPA actors involved with implementing the Research Strategy differ according to
their respective missions and their relative access to the research tools described on pages 4-1 and 4-2. In
general, EPA media programs perform analysis of media- or industry-specific issues; regions and states imple-
ment policies and regulations; and ORD and NCEE provide support to programs, regions, and states and com-
municate research results. It is efficient for ORD and NCEE to conduct in-house or extramural research that
can be applied across programs or to maintain expertise that can be used on a continuing basis by different
programs (e.g., designing valuation surveys, integrated scientific research projects, or peer-review capabilities).
EPA Programs and Regions
With some exceptions, EPA programs conduct analyses that use and apply existing research findings to spe-
cific issues. Most programs have economic staff on board to conduct economic analyses and are supplement-
ed by contractual support from economic consultants. In some instances, programs have had sufficient need
for results that could be applied across rules or policies to justify maintaining true research capabilities.
More often than not, however, the programs have turned to NCEE (for economics) or ORD (for other scientif-
ic disciplines or multidisciplinary research) for basic or applied research support. Regions generally have
used contracts for specific projects and have relied on the research offices or programs to provide research or
analytical support. As noted in Chapter 2, regions frequently have different research and analytical needs
than do the programs and are more involved in implementation issues.
National Center for Environmental Economics
NCEE has the Agency's largest concentration of environmental economists on staff, making it uniquely quali-
fied to conduct in-house analysis and research in support of programs or high-priority cross-program projects.
NCEE also uses contracts, cooperative agreements, and grants in various ways to support program or cross-
program research objectives. Generally, NCEE funds research and uses a significant part of its staff capacity
for short-term projects, although it also conducts longer term (3-5 year) research projects that are of direct
importance to EPA.
Over the years, NCEE has received feedback on the Agency's economic research needs from its client offices
via their requests for assistance with various economic topics. NCEE has produced research and published
guidance on a wide variety of economic issues in response to these requests. The Center also has sponsored
workshops and seminars that have served to disseminate economic research as well as identify holes in the
existing body of economic research in specific subject areas pertinent to the Agency's mission.
The EERS will enable NCEE to direct staff research time toward economic issues that are likely to be in high
demand in the coming years. NCEE will address key methodological issues, data needs, and other gaps speci-
fied by the participants in this survey. By better understanding gaps in the environmental economic research,
NCEE will be able to provide guidance and assistance with economic analyses and promote consistency in
the economic analyses being carried out throughout the Agency. In addition, NCEE will be better able to
encourage outside researchers to focus on issues of interest to the Agency through its allocation of funding
for extramural research, seminars and workshops directed at priority topic areas, support of visiting scholars,
collaboration with outside researchers, and communication of critical economic data.
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NCEE is involved in a number of long-term projects related to specific research questions that program
offices mentioned as a priority in interviews for the EERS. A number of shorter term projects also are under
way that fall within these research subject areas, but they are not discussed here.
NCEE has a number of projects under way related to valuation of reductions in morbidity. The Drinking
Water Arsenic Valuation Survey collects data on the WTP for reduced exposure to arsenic in drinking water
and examines how these values are affected by the provision of information on arsenic risks, as well as the
implied valuation measure for children's health. NCEE also is involved in designing surveys for the State of
Minnesota to address how households value risk reductions to children, and in conducting a study to exam-
ine the WTP to reduce asthma episodes for adults and children.
In the subject area of environmental behavior and decision-making, particularly compliance-related behavior,
NCEE is involved in designing the Pollution Abatement and Cost Expenditures (PACE) survey and in conduct-
ing a Chesapeake Bay watershed analysis to estimate the economic impacts of direct and indirect compliance.
NCEE also has maintained access to and expertise in the Regional Economic Modeling Inc. (REMI) model and
the Impact Analysis for Planning (IMPLAN) model for use in regulatory and impact analysis on a regional
and/or industry level. In addition, research is ongoing related to the location and emission decisions of TRI
plants. Future work related to the location decisions of electric utilities also is planned. Finally, NCEE is
developing a highly disaggregated model of emission factors, referred to as the Trade and Environmental
Assessment Model (TEAM), that can be used to translate changes in output resulting from trade liberalization
or other exogenous regulatory decisions into environmental impacts.
NCEE, working with ORD and the media programs, is taking the lead on developing an Ecological Benefits
Assessment Strategic Plan to establish a dialogue between economists and ecologists in the Agency to identi-
fy information gaps and establish a more detailed research agenda for the measurement of ecological bene-
fits (see Appendix 3).
NCEE has several long-term projects associated with benefits valuation related to mortality. A risk-risk survey
for valuing cancer risk reductions addresses issues related to age, latency, timing, and morbidity. Another
NCEE study examines prices paid for bicycle helmets to estimate the WTP for mortality risk reduction across
different age groups. NCEE also is funding research on the use of the preference calibration approach for
mortality risk valuation and is participating in a survey project to elicit values for mortality risk reductions to
older individuals across countries.
Currently, NCEE has one long-term project related to MM&Is other than trading. Researchers are conducting
studies to develop a methodology useful for evaluating the effectiveness of voluntary programs as a regula-
tory tool. NCEE has a more active research agenda in the area of trading. Research projects, both ongoing and
planned, include an examination of the EJ implications of SO2 emissions trading; an evaluation of plant pro-
ductivity and costs under trading; a project related to operationalizing groundwater trading; and research
related to the Region 10 trading pilot project.
In the area of trade and green accounting, NCEE is developing TEAM. Two models, the U.S. Agricultural and
Resource Model (USARM) and the Agricultural Simulation Model (AGSIM), also are being modified to exam-
ine regulatory impacts in agriculture, including those related to trade. NCEE will make these models and the
expertise needed to use them available to the programs for analytical projects as resources permit.
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Table 4.2 briefly describes NCEE's long-term projects by subject area.
TABLE 4.2 RESEARCH PRIORITY-RELATED NCEE PROJECTS
Research Priority Category
Valuation of Morbidity Benefits
Environmental Behavior and
Decision-Making
Valuation of Ecological Benefits
Benefits of Information Disclosure
Valuation of Mortality Benefits
MMSIs, Other Than Trading
Green Accounting/Trade/Finance
MMSIs, Trading
Related Long-Term NCEE Project
Drinking Water Arsenic Valuation Survey
How households value risk reductions to children
Estimation of WTP to reduce asthma episodes for adults
and children
PACE Survey
Chesapeake Bay Watershed Analysis
Access and expertise in both the REMI and IMPLAN models
Location decisions of TRI plants
Development of TEAM
Location decisions of electric utilities
Ecological Benefits Assessment Strategic Plan
Short-term projects only at this time
Risk-risk survey for valuing cancer reductions
WTP for mortality risk reduction: the case of bicycle safety
helmets
Preference calibration approach for mortality risk reduction
Survey project eliciting values for mortality risk reductions
to older individuals across countries
Methodology for evaluation of effectiveness of voluntary
programs
Retention of access and expertise in the Global Trade
Analysis Project/Computable General Equilibrium (CGE)
modeling
Investment in USARM and AGSIM models of agriculture
sector
Development of TEAM
EJ in SO2 emissions trading: evidence from the electric
utilities industry
An evaluation of plant productivity and costs under trading
(future project)
Survey of water-based trading programs
Region 10 trading pilot project (future project)
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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Office of Research and Development
ORD-sponsored research attempts to provide methods or models that are broadly applicable and will facili-
tate or improve economic analysis. ORD conducts internal integrated economic research, collaborates with
NCEE on integrated economic and risk assessment research, and administers STAR, the Agency's extramural
research grant program. Many of ORD's research projects are focused on single media or issues. Priorities for
research are based on relative risk to human health and ecosystems (U.S. EPA, 2001a). However, the econom-
ic tools developed as a result of this strategy typically will not be limited to single risks but will be used by
economists across EPA, in other federal agencies, and in state and local governments to address a broad
spectrum of issues.
ORD's research planning process addresses overarching research questions through a series of interrelated
solicitations or multidisciplinary research projects. Among the long-term goals that ORD will pursue are the
priorities discussed above. ORD will support this research through STAR grants and other multidisciplinary
laboratory and center research projects.
STAR Grants (National Center for Environmental Research)
NCER will use this Strategy to set long-term goals for research planning purposes. These long-term goals will
be used to target STAR RFAs and to evaluate specific applications for funding. The STAR grant program has
four newly revised long-term economic research goals based on the priorities suggested by the program
offices at EPA in the EERS. Implementation of this Strategy will concentrate on the three standing solicita-
tions—Valuation for Environmental Policy, Corporate Environmental Behavior and the Effectiveness of
Government Interventions, and Market Mechanisms and Incentives. However, NCER also funds economic
research under other occasional solicitations and in integrated RFAs and will use these vehicles when appro-
priate to address issues of importance that do not fall under the umbrella of the standing solicitations. NCEE
and program economists will continue to provide invaluable input to NCER by writing RFAs and evaluating
proposals to ensure that funded research continues to meet EPA's needs.
Valuation for Environmental Policy (VEP)
NCER's current VEP RFA is an outgrowth of two previous RFAs: Decision-Making and Valuation for Environ-
mental Policy and Valuation of Environmental Impacts to Children's Health. The 2003 VEP RFA had two
parts: Human Health Valuation and Ecological Valuation, whereas the 2004 VEP RFA focused exclusively on
ecological benefits valuation, and the 2005 VEP RFA is expected to focus on valuing the benefits of morbidity
reduction. The relative focus of specific RFAs will vary from year to year.
An initial goal of the VEP RFA will be to fund investigations into the use of benefit transfer for human health
and ecological valuation. A preliminary step might be to undertake studies that are designed to understand
the frameworks underlying valuation. The focus on benefit transfer is necessary given the large number of
human health and ecological endpoints for which programs requested valuation research. The STAR program
does not have the resources to provide grants for all of these endpoints, but the development of transfer
methods might be a cost-effective approach to this problem. After funding research into methodological
development, NCER expects to fund original studies that can be used to provide values for transfer.
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Environmental Behavior and Decision-Making (EBSD)
Programs exhibited a surprising amount of interest in a better understanding of how regulated entities made
process, disposal, and location decisions that affect environmental quality. A 2003-2004 EB&D solicitation
was focused on specific applications of this issue. A related focus solicited investigations into what firms and
facilities actually consider (capital and operation and maintenance, transactions, reputation, market share)
when estimating environmental management costs.
MMSI for Environmental Management
The MM&I solicitation will focus initially on two priorities, trading in practice and trading in new markets,
but might expand to address fees, taxes, deposit-refunds, and other incentive systems. One objective will be
to learn from experience in previous emissions trading markets and apply these lessons in either new or
redesigned markets. The purpose of focusing on past trades will be to answer the two following questions:
Have emissions trading markets led to environmental quality that is equal or superior to traditional regula-
tions? What savings have been achieved, compared with regulations? The second objective will be to use
theory-based models and experimental economics to better predict the success of new markets and to deter-
mine the considerations that should be incorporated into program design to make new markets both more
efficient and more effective in accomplishing environmental objectives. Similarly, both empirical and theo-
retical models will be solicited to evaluate the effectiveness of other incentive programs.
Benefits of Environmental Information Disclosure
EPA has decided, on the basis of comments from EEAC peer reviewers and resource considerations, to fold
this area of research into the environmental behavior and decision-making area. The relevant grant RFA was
previously named Corporate Environmental Behavior and the Effectiveness of Government Interventions, or
CEB. NCER is proposing a version of the renamed Environmental Behavior and Decision-Making (EB&D) RFA
to address the benefits of information disclosure in 2005. NCER intends to use the EB&D RFA to solicit inves-
tigations of different interventions in different years; that is, compliance behavior will be addressed in year
one, information disclosure in year two, voluntary approaches in year three, and so on.
ORD Laboratories and Centers
Several ORD laboratories and centers (other than NCER) have the capacity to develop integrated economics
and risk assessment research projects. In addition, these offices are developing joint projects with NCEE.
Laboratories and centers will continue their existing interdisciplinary projects and programs that focus on
high-priority economics research areas. For example, an NCEA research project is integrating ecological
endpoints and economic valuation, and NRMRL is conducting original research on new trading markets
(stormwater runoff for nonpoint water pollution control). The EERS will indicate where future integrated
research is needed as these projects are completed.
ORD staff assessed future economic research capabilities needed by the organization. The primary conclu-
sion of this assessment was that ORD needs to increase its ability to integrate social science research and
analysis into its existing strengths in human health and ecological research. To the extent ORD can develop
the economic research capabilities outlined in the white paper, it will be able to address the needs outlined
in this Strategy. In keeping with the white paper, ORD will emphasize integrating economics either in labora-
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tories and centers or in cooperation with NCEE, using its expertise in engineering, physical, and biological
sciences to address the EERS priorities.
Integration of Social, Biological, and Physical Sciences
Of particular importance for valuation activities, the EPA Administrator recently charged ORD's management
to work with NCEE economists to integrate economic with biological and physical science analysis and
research, an official recognition of what many in ORD and NCEE (and elsewhere) have known for some time.
There is a clear need to better integrate economics and other social sciences with health and ecological
assessments. The traditional approach of having physical, biological, and engineering scientists define the
research questions and agendas without input from downstream scientists such as economists underutilizes
scientific findings at best and, at worst, wastes resources because the research design does not take into
account how the findings will be used in a decision context or influence people's behavior. Equally impor-
tant, economic research conducted without the direct input of the relevant scientific and engineering disci-
plines runs similar risks if scientific and engineering uncertainties are not explicitly incorporated into the
economic modeling and analysis.
There has been extensive discussion on the topic of integration, and ORD/NCEA and OPEI/NCEE have devel-
oped a working team to investigate some case studies involving health risk assessment and benefits analysis
through the Risk Assessment-Benefits Analysis project. This development represents a promising start.
However, the focus of this group has been risk and benefits analysis for regulatory purposes. The research
coordination needed to build the underlying science has not been developed. For example, commonly useful
data have not been collected, and the required cooperation among different research specialties is not yet
evident at the beginning of the hypothesis development and data-gathering phases of research. As a stepping
stone, EPA's portfolio of health, ecology, emissions, and economic databases—whether based on geographic
information systems or otherwise—should be catalogued and made available for researchers to cross-
reference and share.
ORD has some comparative advantages over other parts of EPA for integrating social science and health
and ecological research. First, it has a large number of ecologists, health scientists, and engineers available,
although it has few social scientists. One solution would be for ORD to establish a policy of using multi-
disciplinary teams of scientists, engineers, and economists whenever possible to identify research questions,
design research strategies, and conduct the indicated research. A combined effort to identify both scientifi-
cally valid and economically cost-effective solutions to environmental problems is crucial to prevent environ-
mental protection from being more expensive than necessary.
A scientist exchange program between ORD and NCEE could help EPA social, biological, and physical scien-
tists to collaborate on research projects and could facilitate improvements in data collection and methods.
A similar requirement that grant recipients develop multidisciplinary approaches to relevant projects would
further advance this goal.
COMMUNICATION OF RESEARCH RESULTS
NCEE and ORD will continue to expand their existing communication efforts to improve communication of
economic research results within and outside EPA. The primary outlets available to EPA are conferences and
workshops, seminars, summary reports, and research publications. NCEE and NCER jointly organized and
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conducted a series of economic research workshops beginning in 1998. So far, seven workshops have pre-
sented results of STAR grants and related research. These workshops have been attended by EPA and other
federal and state agency staff, academics, and others with interest in the subjects discussed. The SAB EEAC
peer review panel suggested that EPA could achieve wider distribution of the results of the research strategy
and receive useful feedback from members of the research community by holding workshops in conjunction
with the annual meetings of the American Economics Association and the American Agricultural Economics
Association and by more aggressively notifying economics departments of upcoming grant RFAs.
Both NCEE and ORD independently hold seminars on economic and other scientific research topics on a
regular basis. NCEE uses its position as host to the EPA Economics Forum to invite economists from the
programs, laboratories, and regions to attend or listen in by conference call. NCER is currently improving its
ability to conference with remote locations via video-conferencing.
NCER has begun to produce research capsules that summarize related STAR research results in a specific area
of interest (e.g., stated preference value elicitation methods). NCER will continue to produce these research
capsules in topical areas in which related projects have generated a useful compilation of results.
NCER and NCEE also propose to hold an annual economics research workshop for EPA staff to summarize
the current research conducted or supported by EPA and to plan research for the coming year (e.g., focusing
RFAs on high-priority issues).
NCEE maintains a database of economic reports and regulatory economic and benefit-cost analyses and is in
the process of improving the accessibility and usefulness of these reports.
ORD and NCEE, working with other offices, are investigating the establishment of research databases that
contain EPA facility-specific data for researchers. In addition, EPA is attempting to improve access to the
Environmental Valuation Resource Inventory, a database maintained by Environment Canada to facilitate the
transfer of health and economic values from original studies to policy situations.
CONCLUSIONS
EPA, through NCEE and ORD, has evaluated its needs for economic research by interviewing practitioners,
reviewing the existing research, and consulting external experts. The EERS sets forth a plan to conduct
the research of the highest priority and payoff for the Agency and its customers. The EERS also allocates
responsibilities for accomplishing this plan. Some of the activities to be carried out are immediate and clear,
whereas others are less certain and therefore require more information and flexibility. When this plan is
implemented, EPA and economics researchers should be able to provide the Agency and its clients with
suggestions for improving the cost-effectiveness of environmental protection.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY 4-9
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REFERENCES
Bockstael NE, Freeman AM 3rd, Kopp RJ, Portney PR, Smith VK. On measuring economic values for nature.
Environmental Science and Technology 2000;34:1384-1389.
Chesnut LG, Mills D, Alberini A. Monetary valuation of human mortality risks in cost-benefit analyses of
environmental programs: background paper and bibliography. 1997. (http://yosemite.epa.gov/ee/epa/
eerm.nsf/vwRepNumLookup/EE-0437A?OpenDocument).
Costanza R, D'Arge R, de Groot R, Farber S, Grasso M, Hannon B, Limburg K, Naeem S, O'Neill R, Paruaelo J,
Raskin R, Sutton P, ven den Belt M. The value of the world's ecosystem services and natural capital. Nature
1997;387:6230.
DeShazo JR, Cameron T. Not all deaths are created equal: understanding individual preference for morbidity-
mortality events. Proceedings of USEPA STAR/NCEE Workshop: Valuing Health Risk Reductions to Children.
2003;IV:1-60. (http://es.epa.gov/ncer/publications/workshop/pdf/EE-0475-06.pdf).
Ellerman AD, Montero J-P. The temporal efficiency of SO2 emissions trading. MIT CEEPR Working Paper.
2002. (http://web.mit.edu/ceepr/www/2002-003.pdf).
Environment Canada. Environmental valuation reference inventory, 2004. (http://www.evri.ca/english/
default.htm).
Hahn RW. The impact of economics on environmental policy. Journal of Environmental Economics and
Management 2002;39;375-399.
Hamilton JT. Pollution as news: media and stock market reactions to the Toxics Release Inventory data.
Journal of Environmental Economics and Management 1995;28:98-113.
Khanna M, Ouimio WRH, Bojilova D. Toxic release information: a policy tool for environmental protection.
Journal of Environmental Economics and Management 1998;36:243-266.
Krupnick AJ, Cropper M, Alberini A, Simon N. Final report: the valuation of mortality risk reductions:
application of two new survey instruments. 2004. (http://cfpub.epa.gov/ncer_abstracts/index.cfm/
fuseaction/display.abstractDetail/abstract/24/report/F).
Odum HT. Environmental Accounting, Energy and Decision-making. New York: John Wiley, 1996.
Resources for the Future. Valuing health outcomes: an assessment of approaches, 2003. (http://www.rff.org/
rff/Events/Valuing-Health/Valuing-Health-Outcomes-An-Assessment-of-Approaches.cfm).
Thurston HW, Goddard HC, Szlag D, Lemberg B. Controlling stormwater runoff with tradable allowances for
impervious surfaces. Journal of Water Resources Planning and Management 2003; 129(5) ;409-418.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY R-1
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U.S. EPA. The Benefits and Costs of the Clean Air Act, 1970-1990. Prepared for the U.S. Congress. Office of Air
and Radiation, October 1997.
U.S. EPA. The Benefits and Costs of the Clean Air Act, 1990-2010. EPA Report to Congress. EPA-410-R-99-001,
1999a.
U.S. EPA. Guidelines for Preparing Economic Analyses. EPA 240-R-00-003, 2000a.
U.S. EPA. Handbook for Non-Cancer Health Effects Valuation. 2000b. (http://www.epa.gov/osa/spc/htm/
Homeqs.htm)
U.S. EPA. EPA Science Policy Council. Peer Review Handbook. 2nd edition. EPA 100-B-OO-OOl, 2000c.
(http://epa.gov/osa/spc/htm/prhandbk.pdf).
U.S. EPA. Office of Research and Development Strategic Plan. EPA 600-R-01-003, 2001a. (http://www.epa.gov/
osp/stplan.htm).
U.S. EPA. The United States Experience with Economic Incentives for Protecting the Environment. EPA-240-R-
01-001, 2001b. (http://yosemite.epa.gov/ee/epa/eed.nsf/Webpages/USExperienceWithEconomicIncentives.html).
U.S. EPA. A Framework for the Economic Assessment of Ecological Benefits. 2002a.
U.S. EPA. Economic Valuation of Mortality Risk Reduction: Assessing the State of the Art for Policy
Applications. 2002b. (http://yosemite.epa.gov/ee/epa/eerm.nsf/vwRepNumLookup/EE-04647OpenDocument).
U.S. EPA. Children's Health Valuation Handbook. EPA100-R-03-003, 2003a. (http://yosemite.epa.gov/ee/epa/
eed.nsf/webpages/HandbookChildrensHealth Valuation.html).
U.S. EPA. Proceedings: EPA Market Mechanisms & Incentives Research Workshop. May 2003b. (http://es.epa.
gov/ncer/publications/workshop/05_01_03proceedings.html).
U.S. EPA. Draft Ecological Benefits Assessment Strategic Plan. 2004a. Unpublished.
U.S. EPA. Office of Research and Development, National Risk Management Research Laboratory, Shepherd
Creek Project, 2004b. (http://www.epa.gov/ord/NRMRL/std/seb/research/tradeablecredits.htm).
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United States
Environmental Protection
Agency
Office of Research and Development (8101R)
Office of Policy, Economics, and Innovation (1804A)
Washington, DC 20460
EPA/600/R-04/195
December 2005
www.epa.gov
Recycled/Recyclable
Printed with vegetable-based ink on paper that contains a minimum of 50% post-consumer fiber content
processed chlorine free.
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&EPA
United States
Environmental Protection
Agency
RESEARCH STRATEGY
APPENDICES
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EPA/600/R-04/I95
DECEMBER 2005
&EPA
United States
Environmental Protection
Agency
RESEARCH STRATEGY
APPENDICES
OFFICE OF RESEARCH AND DEVELOPMENT, NATIONAL CENTER FOR ENVIRONMENTAL RESEARCH
OFFICE OF POLICY, ECONOMICS AND INNOVATION, NATIONAL CENTER FOR ENVIRONMENTAL ECONOMICS
WASHINGTON, DC 20460
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TABLE OF CON" FNTS
Page
Appendix 1. Survey Process Al-1
Appendix 2. Requests for Analytical Support A2-1
Appendix 3> Relationship to Other Plans, Strategies, and Documents A3-1
Appendix 4. Relative Advantages of Research Tools A4-1
Appendix 5> Detailed Interview Results A5-1
Appendix 6. Science Advisory Board Peer Review Comments A6-1
Appendix 7> EPA Responses to Internal and External Reviews A7-1
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY HI
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APPENDIX 1
bURVEY PROCEbb
NEEDS ASSESSMENT
Research team members interviewed economists, users of economics, managers, and other scientists with an
interest in economics in as many parts of the Agency as possible. These staff members represent some of the
primary customers of research provided by ORD and NCEE. Before interviews, NCEE and NCER sent letters
to all of the Office Directors and Deputy Regional Administrators to identify potential users of economics
research results. The research strategy team also used internal EPA lists, such as membership in EPA's
Economics Forum, and past programmatic reviewers for NCER economics and decision science grants.
For Offices (Assistant Administrator level) with economists in several suboffices (Office Director level or
lower), meetings were generally held with groups of economists and others at the Office Director level. The
team held face-to-face meetings when possible. When in-person meetings were not possible, team members
conducted interviews through conference calls and e-mail. Virtually all meetings had at least two strategy
team members present—one from NCEE and one from NCER. Trained facilitators led meetings when there
were large numbers of interview subjects.
The research strategy team held 21 interview meetings with 75 participants, including respondents partici-
pating via telephone or e-mail. The program offices that participated in interviews included:
• The Office of Air and Radiation (OAR),
• The Office of the Chief Financial Officer (OCFO),
• The Office of Children's Health Protection (OCHP),
• The Office of Enforcement and Compliance Assurance (OECA),
• The Office of Environmental Information (OEI),
• The Office of International Activities (OIA),
• The Office of Policy, Economics, and Innovation (OPEI),
• The Office of Prevention, Pesticides, and Toxic Substances (OPPTS),
• The Office of Research and Development (ORD),
• The Office of Solid Waste and Emergency Response (OSWER), and
• The Office of Water (OW).1
1 Because they acted as leads for the development of this strategy, no NCEE or NCER staff members participated in the interviews reported in
Chapter 2, although other representatives from OPEI and ORD did participate. Some NCEE staff members participated in a pretest interview.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A1-1
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U.S. ENVIRONMENTAL PROTECTION AGENCY
Each interview session began with an open-ended period of brainstorming in which participants described
all relevant economic research needs for their offices. Participants then ranked these research needs, and
results were used to create the scores in Tables 2.1 to 2.3.
Larger groups voted for individual research priorities using a multivote approach, but groups of one or two
simply assigned weights (percentages) to the different research needs. The research strategy team provided
separate voting opportunities for both short-term (defined as having results in 3 to 5 years) and long-term
(defined as having results in more than 5 years) research needs. The strategy team then prepared lists of
research needs with the associated weights, along with other information about the meeting.
The EERS team coded each research idea from EPA staff interviews into topical categories at two different
levels of detail. The first level has the broadest categorization, but the second level is more detailed. Table
A.I shows the more general categorization scheme, and Appendix 2 contains the more detailed categories.
TABLE A 1.1 GENERAL RESEARCH NEEDS (ALPHABETICAL)
Benefits Valuation, Ecological
Benefits Valuation, Morbidity
Benefits Valuation, Mortality
Benefits Valuation, Other Endpoints
Environmental Behavior and Decision-Making
Cost/Impact Analyses
Cross-Regulation Interaction
Discounting/Intergenerational Equity
Environmental Justice (EJ)
Government Performance and Results Act (GPRA) Analysis/Strategic Planning
Green Accounting/International Trade/Finance
Market Mechanisms and Incentives (MM&Is), Other Than Trading
MM&Is, Trading
Risk and Uncertainty, Risk Assessment Techniques, Integration With Valuation, Other
2 Each participant received three short-term votes and three long-term votes and could distribute these to the priorities developed in the brain-
storming session in any fashion (i.e., all on one research priority or across two or three priorities for both short and long term).
A1-2 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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APP
^^ ^
S FOR ANALYTICAL SUPPORT
As noted in Chapter 2, although for the most part participants in the needs assessment were able to focus on
research priorities, some respondents requested analyses or other products that are addressed better through
guidance or a group such as the Economics Forum (a forum of economists from around the Agency). Three
categories of priorities were eliminated from the presentation in Chapter 2 for this reason, including GPRA
Analysis/Strategic Planning, Cost Analyses, and Impact Analyses. These categories were determined to be
more analytical than research in nature because the specific requests from the programs and regions were
for short-term or rule-specific analytical results. The tables presenting research priorities from Chapter 2 are
reproduced here with those categories added. The tables are then followed by category descriptions for these
three additional categories.
TABLE A2.1 GENERAL RESEARCH PRIORITIES—SHORT TERM
Valuation of Mortality Benefits 1.19
Environmental Behavior and Decision-Making (especially compliance) 1.06
GPRA Analysis/Strategic Planning 1.00
Valuation of Reduced Morbidity Benefits O.Q6
Benefits of Information Disclosure 0.89
Cost Analyses 0.83
Impact Analyses 0.71
Valuation of Ecological Benefits 0.64
MM&Is, Trading 0.60
MM&Is, Other Than Trading 0.58
Discounting/Intergenerational Equity 0.38
Green Accounting/International Trade/Finance 0.32
Risk and Uncertainty, Risk Assessment Techniques, Integration With Valuation, Other 0.11
EJ 0.06
Cross-Regulation Interaction 0.03
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A2-1
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U.S. ENVIRONMENTAL PROTECTION AGENCY
TABLE A2.2 GENERAL RESEARCH PRIORITIES—LONG TERM
Valuation of Reduced Morbidity Benefits 1.27
Environmental Behavior and Decision-Making (especially compliance) 1.25
Valuation of Ecological Benefits 1.15
GPRA Analysis/Strategic Planning 1.00
Cost Analyses 0.89
Valuation of Information Disclosure 0.80
Valuation of Mortality Benefits 0.60
MM&Is, Other Than Trading 0.60
Green Accounting/International Trade/Finance 0.51
MM&Is, Trading 0.48
Discounting/Intergenerational Equity 0.22
Risk and Uncertainty, Risk Assessment Techniques, Integration With Valuation, Other 0.22
Impact Analyses 0.21
Cross-Regulation Interaction 0.13
EJ 0.09
TABLE A2.3 NUMBER OF OFFICES REQUESTING RESEARCH PRIORITIES TOPICS
MM&Is, Other Than Trading
MM&Is, Trading
Valuation of Reduced Morbidity Benefits
Environmental (Compliance) Decision-Making
Valuation of Ecological Benefits
Impact Analyses
Green Accounting/International Trade/Finance
EJ
Cost Analyses
Risk and Uncertainty, Risk Assessment Techniques, Integration With Valuation, Other
Discounting/Intergenerational Equity
Valuation of Mortality Benefits
Cross-Regulation Interaction
Valuation of Information Disclosure
GPRA Analysis/Strategic Planning
A2-2 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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GPRA/STRATEGIC PLANNING
As with environmental information, one office, OCFO, placed all of its research emphasis on one study
objective, identifying the benefits and costs of achieving the objectives outlined in the Agency's new strategic
plan. As noted above, a cross-agency workgroup is trying to address this issue in response to a request from
the Office of Management and Budget (OMB). The results of this workgroup will be used to help identify
research areas later in the implementation of this strategy. The area does not seem to provide particularly
fertile ground for high-quality original research that would be generalizable to other situations. That is, it
would benefit more from application of other research (e.g., valuation, cost, compliance behavior) rather than
from original economics research. Implementation of the EERS will enhance the Agency's ability to estimate
the costs and benefits of all of EPA's strategic objectives, which reflects EPA's regulatory agenda to a signifi-
cant degree.
COST ANALYSES
The primary request in this category was for cost estimates that could be used for specific rule-makings.
Another request was for further guidance on translating private costs into social costs. This topic is consid-
ered in the Guidelines, and discussions on this topic are appropriate for the Economics Forum. As discussed
in the footnote to the Impact Analyses category, these are not appropriate for this document. One research
topic is how learning over time affects cost estimates, that is, testing the hypothesis that compliance costs
decrease over time as facilities adapt to new regulations.
IMPACT ANALYSES
The category of impact analyses reflects an aggregation of two subcategories:
• Facility or firm-level impacts and
• Market, aggregate, or computable general equilibrium (CGE) impacts.
Respondents placed the major emphasis in this category on methods to calculate impacts (facility or firm-
level and market, aggregate, or CGE) and the "Other" category, which they used primarily to request assis-
tance for rule-specific cost estimates.1
Some requests could be either research or analysis. OAR, OW, OECA, OPPTS, and OPEI requested general
research on the economic impacts of regulations on firms and markets, although specific ideas are quite var-
ied across the offices. OW and OPEI requested guidance (see footnote) on the proper tools to analyze the
impact of regulations on small businesses and nontraditional industries such as agriculture. These two
offices also requested retrospective analyses of the impacts of rules or government investments. Other
offices requested a variety of analyses or improved models, including:
• Retrospective comparisons of economic growth in attainment versus nonattainment areas;
1 Requests for rule-specific costs or impacts are categorized more appropriately as analysis than research and will not be addressed in this docu-
ment unless they have widespread generalizability Similarly, although guidance is an important contribution to improving economic analysis,
it is not research but an application of research results.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A2-3
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U.S. ENVIRONMENTAL PROTECTION AGENCY
• Incorporation of regulation-induced product quality changes into market analyses;
• Development of CGE models that can be used in regulatory decision-making;
• Measurement of the relationship between environmental and financial performance;
• Refinement/improvement of agricultural sector models to accommodate regulatory impacts;
• Updates of reports on the cumulative impact of regulation on business; and
• Development of models that can be used to analyze the environmental effects of trade.
There is no apparent unifying theme to the analytical needs in this area, suggesting that more investigation
into the highest priority impact area is needed to determine which approach can make the greatest contribu-
tion—guidance, literature reviews, or more specific applications. Several respondents requested guidance
that could be updated through existing groups (the Economics Forum and a Small Business Regulatory
Enforcement Fairness Act [SBREFA] review group) through NCEE. Note: NCEE has acted on both of these
suggestions and currently (2004) is updating the Guidance for Economic Analyses and coordinating an
SBREFA review group.
A2-4 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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APPFNDI
ATlONbH TO OTHER PLANb,
STRATEGIES, AND DOCUMENTS
PRIOR ENVIRONMENTAL ECONOMICS RESEARCH PLANNING
This effort follows directly from a 5-year-old needs assessment conducted by a predecessor group to NCEE
(McClelland et al., 1999). In that effort, EPA staff and external experts on EPA's SAB EEAC described and
ranked the research areas that they considered to be most important. This prior research planning effort
has been used for the past several years to focus STAR grant solicitations on valuation and MM&Is, and as a
source of ideas for in-house research conducted by NCEE economists. Given the passage of time, EPA believes
the time is right to update and formalize the research planning process through this EERS.
AGENCY STRATEGIC PLAN
In 2003, EPA revised the Agency's Strategic Plan (U.S. EPA, 2003). The structure of the plan evolved from its
previous version with 10 strategic goals to its current version with 5 strategic goals. With the plan revision,
OMB is requiring EPA to include the "social costs" of achieving EPA's strategic objectives. An Agency-wide
group of economists and others are working to define and measure these "social" benefits and costs. EPA
economists anticipate that it will take several years to develop methods and data that will allow the Agency
to completely and accurately characterize the benefits and costs of achieving its strategic goals. The research
developed in response to the EERS will provide some basis for estimating these benefits and costs and make
the EPA strategic plan more responsive to OMB requests.
ORD STRATEGIC PLAN
The 2001 ORD Strategic Plan sets out five strategic organizational goals. This Research Strategy should fur-
ther achievement of all of these goals.
1. Support the Agency's Mission
By proceeding from a basis of problem-driven research priorities derived by clients from across EPA and
outside the Agency, the EERS clearly supports the Agency across all programs and regions when there is a
well-recognized, critical need for additional economic information to accomplish its mission.
2. Be a High-Performing Organization
The EERS attempts to systematically incorporate all of ORD's economics research activities and integrate
them with NCEE's, other EPA and external economics research, and research from other scientific disci-
plines. This effort will maximize the exposure and effectiveness of ORD and EPA economics research.
3. Be a Leader in the Environmental Research Community
Research sponsored by the STAR grant program and conducted or sponsored by NCEE and ORD labora-
tories is recognized as some of the most important environmental economics research developed any-
where. The EERS will further this reputation by supporting cutting-edge and practical research that will
affect the course of future environmental policy.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A3-1
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U.S. ENVIRONMENTAL PROTECTION AGENCY
4. Integrate Environmental Science and Technology To Solve Environmental Problems
A sizable share of the research conducted by NCEE, ORD laboratories, or externally through STAR grants
comprises multidisciplinary teams of economists and other scientists, such as psychologists, ecologists,
epidemiologists, engineers, and health scientists. Sponsored environmental economics research uses a
vast array of technological, financial, physical science, and biological science information to analyze envi-
ronmental policies. Several ORD laboratories and centers are working closely with NCEE and the pro-
grams to integrate economic analysis with human health and ecological risk assessment. This EERS will
improve and formalize support for this trend.
5. Anticipate Future Environmental Issues
This Research Strategy will help develop a capacity to predict how economic forces and trends will affect
future environmental conditions.
RELATIONSHIP OF EERS TO THE NATIONAL CENTER FOR ENVIRONMENTAL ECONOMICS
NCEE conducts and supervises research and development on economic analytic methods; leads production
of cross-Agency economic reports; provides guidance for performing economic analysis; and promotes consis-
tency in the preparation and presentation of economic information in the Agency. NCEE prepares economic
analyses under its own direction and functions as an internal resource for other Agency offices seeking
information on benefit-cost research and techniques, economic impact models and measures, and economic
incentive mechanisms. NCEE also performs a regulatory review function for the Agency by reviewing the
economic analysis underlying significant regulatory actions.
The EERS will enhance NCEE's ability to perform its primary functions in several ways.
Putting Theory Into Practice: NCEE is responsible for assisting EPA's offices in applying sound economic
science in the preparation of economic analyses. The EERS will inform NCEE regarding the economics
research needs of its client offices.
Improving EPA's Economic Tools: NCEE develops data and methods for benefit-cost assessments through
research aimed at filling priority needs common to many programs in the Agency. By better understanding
the gaps in the existing economics research, and which research needs are most important given Agency
priorities, NCEE's work in economic methods development can be better targeted at these identified needs.
Gateway for Academic Research: NCEE communicates EPA's research priorities to economics professionals
across the Nation. NCEE helps academicians identify topics pertinent to the Agency's needs and funds
research in those areas through grants and cooperative agreements with universities. Through these efforts,
as well as seminars, workshops, and a Web site with online resources, NCEE serves as a gateway for academ-
ic research. The research needs identified in the EERS allow NCEE to better engage the research community
when seeking outside assistance with its research activities.
Linking Science and Policy: NCEE works to identify better ways to link the natural and social sciences to
help improve risk assessments and benefit-cost analyses. NCEE works to provide risk assessment informa-
tion that can be fed easily into economic analyses. The goal is to improve EPA's ability to evaluate its
A3-2 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
progress in addressing risks to public health and the environment. Therefore, by understanding the Agency's
economics research needs, NCEE is positioned to assess the underlying science, policy, and data needs
required to make the priority economics research as effective as possible in fulfilling the goals and mission
of the Agency.
Exploring Emerging and Crosscutting Issues: The Center explores the changing nature of environmental
problems that face EPA and the Nation. This work includes identifying a wide range of emerging issues,
trends, and challenges; assessing their potential impacts on the environment; and positioning the Agency to
respond. The EERS will help NCEE prepare to meet these emerging challenges by focusing attention on the
economics research that is most needed by the Agency to better evaluate future environmental issues and
trends. Furthermore, because NCEE is not connected with any one media or program, the EERS enhances
NCEE's unique capability to address crosscutting issues.
OTHER ORD STRATEGIES AND PLANS
Because it focuses on behavior, environmental economics spans all of EPA's environmental protection activi-
ties. The ORD Strategic Plan (U.S. EPA, 2001) notes that one of the trends likely to have the greatest impact
on ORD research is the need to integrate "environmental research so that the findings of economics, sociolo-
gy, psychology, and other social sciences can be incorporated into decision-making." Implementation of other
ORD strategic plans will ultimately depend on a better understanding of "individuals' behavior as con-
sumers, commuters, and property owners." Some particularly relevant strategies to the EERS include the
ecological research strategy, pollution prevention research strategy, human health risk assessment research
strategy, asthma research strategy, and global change research strategy.
NCEA—Global Change
EPA's Global Change Research Program in NCEA is an assessment-oriented program with primary emphasis
on understanding the potential consequences of climate variability and change on human health, ecosys-
tems, and socioeconomic systems in the United States (U.S. EPA, 2004). This includes assessing adaptation
options to improve society's ability to effectively respond to the risks and opportunities presented by global
change as they emerge. The program's health assessments go beyond basic epidemiologic research to develop
integrated health assessment frameworks that consider the effects of multiple stresses, their interactions,
and human adaptations including economic responses. The Global Change Research Program also is investi-
gating the effects of global change on (1) aquatic ecosystems (including lakes, rivers, streams, wetlands,
estuaries, and coastal ecosystems); (2) invasive nonindigenous species; and (3) ecosystem services. These
efforts are closely related to ecosystem valuation research.
NCEA—Cincinnati
To improve the utility of ecological risk assessment in the decision-making process, economists and ecolo-
gists in NCEA's Cincinnati laboratory are evaluating the application of models, landscape characterization
methods, and economic analyses to formulate alternative approaches for protecting and restoring water qual-
ity and critical habitats and to forecast the ecological, economic, and human health outcomes of alternative
solutions. The team of ecologists and economists also is exploring the relationship between indicators of eco-
system conditions and a selected set of high-priority environmental management problems in the Missouri,
upper Mississippi, or Ohio River basins. The products of this effort will be a set of problem-specific reports
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A3-3
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U.S. ENVIRONMENTAL PROTECTION AGENCY
that will include conceptual models of sources, stressors, and both ecological and economic endpoints relat-
ed to each problem.
NRMRL—Cincinnati
Economists in NRMRL are working with engineers and ecologists to design and analyze market approaches
for environmental systems management, including a program of tradable credits for impervious surface for
controlling urban stormwater runoff, with a focus on stream quality and combined sewer overflows, a seri-
ous problem in many regions. This team also is working on construction of a basic theory of sustainable
systems using principles from ecology, physics, law, and economics to uncover the underlying principles of
sustainable systems and provide guidance on the viability of different environmental systems management
strategies.
ORD—Capacity Needs White Paper
ORD recently developed an assessment of the social science capabilities that the organization will need in
the future. All of the potential strategic directions involved integrating economics and other social sciences
with engineering, physical, and biological sciences. Among several suggestions for integrating social, life, and
"hard" sciences was that ORD should develop an integrated capacity where co-location of multiple disci-
plines would be essential to improved research. NCEE has followed a similar strategy.
OTHER PLANS AND ACTIVITIES
Ecological Benefits Assessment Strategic Plan
Simultaneous with the development of the EERS, NCEE is working with the rest of the Agency, particularly
ORD laboratories and centers and OW, to develop a strategic plan for estimating ecological benefits. This
effort is patterned after a successful 2-year collaboration between NCEE and NCEA to improve estimation of
health benefits.
Development of the Ecological Benefits Assessment Strategic Plan involves both ecologists and economists
from across EPA and will try to find common metrics for understanding ecological and economic processes
upon which to base sound estimates of values. Interviews for the Strategic Plan will involve both economists
and ecologists and will focus solely on ecological valuations. As a result, they will provide different and more
detailed results than the EERS surveys. The Ecological Benefits Assessment Strategic Plan will identify
research needs in ecology and related fields that are necessary to enhance the valuation of ecological bene-
fits. As noted below, EPA's programs perceive the inability to conduct ecological valuation as a key weakness
in EPA's estimates of the benefits and costs of environmental protection, and they have consistently raised
this issue as a priority research area. NCEE and ORD will therefore use the results from the Ecological
Benefits Assessment Strategic Plan to further focus research in the ecological benefits area.
National Research Council (NRC) Report on Air Pollution Benefits
The NRC recently issued a report (NRC, 2002) on the estimation of the benefits of air pollution regulations.
This report contained several recommendations, including some that require further research to implement,
A3-4 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
such as incorporating uncertainty in benefits estimation. ORD and NCEE are collaborating with OAR to
provide whatever research support is necessary to respond to the NRC report.
Program Office Research Plans
Several program offices are developing and implementing research/analysis plans of their own, focusing on
important program-specific issues. Both OA and OW have initiated research plans.
REFERENCES
McClelland E, et al. Survey of EPA environmental economics research needs, 1999. Unpublished.
National Research Council. Estimating the Public Health Benefits of Proposed Air Pollution Regulations.
Washington, DC: National Academies Press, 2002.
U.S. EPA. Office of Research and Development Strategic Plan. EPA 600-R-01-003, 2001.
(http://www.epa.gov/osp/stplan.htm).
U.S. EPA. Proceedings: EPA Market Mechanisms and Incentives Research Workshop. May 2003.
(http://es.epa.gov/ncer/publications/workshop/05_0 l_03proceedings.html).
U.S. EPA. Office of Research and Development, National Center for Environmental Assessment, Global
Change Research Program, 2004. (http://www.epa.gov/globalresearch).
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A3-5
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APP
IVE ADVANTAGES OF RESEARCH
TOOLS
CONTRACTS
Contracts are intended for the acquisition of services for EPA's direct use, rather than assistance to support
more general purposes related to the Agency's mission. EPA programs use economic contracts for a range of
specific tasks, often to estimate the costs and benefits of specific regulatory options. Contracts are generally
more suitable for analysis than research. An economic analysis work assignment under a contract can be exe-
cuted quickly if a relevant contract is already in place, which makes contracts particularly suitable for analy-
ses that are needed immediately. Contractual analyses tend to be program or project specific, involve mostly
secondary data sources, and rarely provide the original contributions needed to be published in peer-
reviewed journals.
EPA INTERNAL RESEARCH
In-house research is arguably the fastest way to produce research results if qualified staff is in place and
no other barriers exist. However, if the Agency is missing the needed research capabilities, the time and
resources required to initiate research can be considerable. EPA's personnel system requires considerable
effort to hire new staff. To make new hires an efficient research approach, EPA would have to require the
new personnel's skill set continually over the long term.1 In addition, economic studies frequently use some
form of survey or questioning of individuals or industry to gather information. Internal research that gathers
information directly from individuals or firms is subject to the requirements of the Paperwork Reduction Act
(PRA), one of which is that OMB must review and approve any survey instrument. The time and resources
necessary to undertake the Paperwork Reduction Act review process may be significant.
Conversely, intramural research is particularly well suited to providing research results that are needed
specifically by EPA programs. Also, conducting research internally gives EPA the greatest amount of influence
regarding methods, hypotheses to test, and the level of effort devoted to the research. Moreover, in-house
research gives EPA the flexibility to adjust the level of rigor and peer review based on an assessment of
clients' needs. Some research conducted by EPA is original, and other research is meta-analysis of research
results. Some economic analysis is appropriate for program-level consideration of options, whereas other
research is published in the best peer-reviewed journals. EPA research also can range from theoretical to
applied research, although there is a greater tendency toward applied research for which EPA programs have
a direct need.
COOPERATIVE RESEARCH AGREEMENTS
Cooperative agreements are joint research efforts between EPA scientists and researchers at other institu-
tions. Cooperative agreements and grants are both "assistance" agreements, which can be used only to sup-
port research of general interest that is related to EPA's mission. They may not be used to generate research
results that primarily benefit EPA in its day-to-day activities. As something of a hybrid between grants and
internal research, they share the advantages and disadvantages of both. EPA staff participates in and has
more control over the direction and timing of research efforts, but all facets of research results, resources,
1 Visiting academics and research fellows might provide temporary or project-specific research skills.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A4-1
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U.S. ENVIRONMENTAL PROTECTION AGENCY
and timing must be negotiated with co-investigators from outside the Agency. Cooperative agreements that
use surveys or experiments are generally subject to PRA requirements and OMB review. Cooperative agree-
ments often generate high-quality publications that researchers submit to peer-reviewed journals. Results can
be either program-specific or generalizable to a range of programs or circumstances.
GRANTS
Like cooperative agreements, grants are assistance agreements and are focused to an even greater degree
on research questions of broad academic or public interest. The grant-making process (from solicitation
development, through peer review and award, to final results) can take up to 5 years. Grants give external
researchers the greatest amount of discretion and, conversely, give EPA the least amount of influence over
research results. In the STAR program, research proposals are received in response to criteria set forth in
published solicitations. The proposals are peer reviewed, and only the highest quality proposals are eligible
for funding. As well focused as a solicitation might be, investigators have considerable flexibility in respond-
ing to it. EPA's influence over research topics, approaches, or timetables is limited largely to deciding
whether to fund a proposal. Grants produce high-quality, peer-reviewed results for which academics are
typically rewarded, while also forwarding the state of the science. They tend to be quite generalizable and
benefit EPA programs only incidentally, although several programs might use adaptations of their results.
A4-2 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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APPENDIX 5
DETAILED INTERVIEW RESULTS
This appendix shows the short-term (ST) and long-term (LT) stated research needs of program offices, pro-
gram suboffices, and individuals. It comprises largely unedited raw data taken from focus group meetings
with EPA staff. These data provide the fundamental building blocks for the research objectives in the Strategy
but include many additional topics that EPA's available research resources will not be able to address. How-
ever, the data provide many ideas for academic and other researchers interested in policy-relevant topics.
OAR/OAOPS Meeting 4-29-02
ORD: Matt Clark
NCEE: Chris Dockins
OAOPS: Aaiysha Khursheed, Larry Sorrels, Bryan Hubbell, Virgis Brown, Tyler Fox, Ron Evans, Lillian Bradley,
Lawrence Pope, Linda Chappell, Eric Crump, Lisa Conner, Nancy Mayer
Topic
How the technology learning curve affects future year compliance costs
Incorporating economic and behavioral responses (averting behavior) into epidemiologic
studies
How and when firm value (e.g., stock prices) is affected by changes in environmental
information
Linking water-quality changes to economic endpoints (aquatic vegetation, nutrients,
fish populations, economic endpoints)
Ecological, economic, and health effects related to systems of agricultural production
Economic and health-effect studies on sensitive subpopulations (EJ)
Spatial economic growth models for emissions projections, critical pollutants,
and toxics: distribution of economic growth
Quantification of emissions to provide the basis for trading, better and more monitoring,
or equivalents; gross emissions within and across compounds and source categories
(point and nonpoint)
Value of noncancer health endpoints of air toxics
Linking environmental indicators with economic endpoints so that they can be used
in analyses
Approach for determining appropriate air pollution control emissions fee and alternative
payment/fee
Indepth analysis comparing economic growth in attainment and nonattainment areas;
retrospective/prospective to identify key growth factors
Modeling emissions trading for non-utility sectors; single/multiple pollutants,
cross-industry, cross-pollutant, local/regional
Alternative (to quality-adjusted life-years [OALYs]) cost-effectiveness measures that capture
acute and chronic health and ecological effects
Votes
ST
3
3
2
1
2
3
2
4
2
3
LT
6
3
1
3
2
3
2
1
1
continued
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
A5-1
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U.S. ENVIRONMENTAL PROTECTION AGENCY
Topic
Use Tiebout model to examine migration between attainment and nonattainment areas
based on health and other environmental effects (who and why?)
Incorporate regulation-induced new product development and product quality changes
into market (equilibrium) analyses
Estimating existence values for cultures (tribes)
New air- or water-quality models: need reduced-form surface models for off-the-shelf runs
(practical, updatable, policy-relevant versions)
Emissions tracking or banking systems that streamline transaction costs
(environmental impact of trades)
Residential visibility valuation
Uncertainty characterization: integrate uncertainty analysis from dose-response to
valuation to cost impacts
Objective way to determine location of EJ communities with respect to sources
Votes
ST
4
1
1
1
2
1
35
LT
1
5
2
1
1
1
1
34
OAR/OPAR Meeting 6-10-02
ORD: Will Wheeler
NCEE: Brian Heninger
OAR: Jim DeMocker
Topic
Value of ecosystem services that are potentially relevant for air; develop paradigm for
ecosystem valuation and define ecosystem service flows to satisfy both ecologists and
economists
Morbidity risks: wider endpoint coverage, more subpopulations (e.g., childhood asthma),
use of OALYs (or other methods) to transfer values
Other welfare benefits, more endpoints, more population coverage (household visibility,
different agriculture crops, other species of timber)
Mortality
Benefits transfer methods to get better coverage of endpoints
Indirect (productivity) benefits
Actual discount rates; rate or return on investment
CGE models
Learning curve for reducing compliance costs, especially important for regulatory phase-ins
ST
33.3
33.3
33.3
100
LT
33.3
33.3
33.3
100
Votes (%)
A5-2
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
OPAA/OCFO Meeting
ORD: Matt Clark
NCEE: Ann Wolverton
5-16-02
Topic
Research that improves the inclusion of social costs in EPA's strategic planning
Characterize benefits aligned with Government expenditure information from OCFO
so that relative values of expenditures can be determined; estimates of both public and
private costs
Prospective benefit-cost analysis for each strategic objective
Desire rigorous peer-reviewed journal articles estimating the social costs of achieving
EPA's strategic goals (e.g., costs and benefits of climate change)
ST
100
100
LT
100
100
Votes (%)
OCHP Meeting 5-8-02
ORD: Will Wheeler
NCEE: Lanelle Wiggins
OCHP: Ed Chu
Topic
Age-specific values for mortality valuation (children and elderly)
Are OALYs theoretically appropriate for environmental policy use?
Age-specific values for chronic health effects, such as asthma, developmental disorders
(attention deficit hyperactivity disorder, autism, mental retardation), and health effects
associated with cancer both during the disease and during remission (effects from
cancer treatment)
Economic indicators of the environment (what does pollution cost the economy?)
Total
ST
50
10
40
100
LT
50
50
100
Votes (%)
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
A5-3
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U.S. ENVIRONMENTAL PROTECTION AGENCY
OECA/OPPAC Meeting 5-9-02
ORD: Will Wheeler
NCEE: Ann Wolverton
OECA-OPPAC: Jon Silberman
Topic
How and why do compliance and enforcement interventions, assistance, incentives and
monitoring (e.g., inspections, information collection requests), and civil and criminal
enforcement actions affect corporate behavior, decision-making, compliance, and
performance?
What are the impacts and cost-effectiveness of environmental management systems (EMSs)
in achieving compliance and improving corporate efficiency (e.g., average or marginal costs
of reducing units of pollution, energy savings, improved competitiveness, compliance over
the short and long term)
What organizational characteristics (e.g., centralized or decentralized, EMSs, performance
appraisal, reward, and compensation policies) foster improved environmental performance
and compliance?
What is the relationship between environmental and financial performance? How/why do
compliance and environmental performance correlate with or affect financial performance
(cost increases and reductions; value creation [tangible and intangible worth])? How does
public disclosure of compliance and performance information affect future environmental
and financial performance (e.g., stock values, bond ratings, insurance rates, profitability)?
What compliance and enforcement interventions most effectively ensure accountability
for the generation of credits and allowances in market-based effluent discharge and air
emissions trading programs?
How does participation in voluntary incentive or recognition programs affect
beyond-compliance behavior, corporate efficiency, and earnings/profitability?
Vote:
ST
45
15
15
8
9
8
100
J (%)
LT
45
15
15
8
9
8
100
This topic includes subissues: (1) Increasingly, EPA and the states are employing integrated compliance strategies that rely on multiple compli-
ance and enforcement interventions (a tool that may be applied sequentially, simultaneously, or both). How can we maximize and measure
the synergjstic impacts of such strategies? (2) What motivates companies in their decision-making processes, and how do compliance and
enforcement interventions compare with other incentives companies may have to change their behavior? (3) What are the effects/results of
sector-based compliance and enforcement interventions?
A5-4
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
OECA/ORE Meeting 5-28-02
ORD: Will Wheeler
NCEE: Brian Heninger
ORE: Jonathan Libber
Topic
Understanding deterrence: What is the private discount rate for corporations? What kind of
financing do they use (equity, weighted average cost of capital, other instruments)? How do
firms make decisions with respect to discount rates?
How do responsible environmental officials view compliance, and how do they react to
regulations? If enforcement is not real, will they comply?
Do the same factors that motivate compliance in the United States apply elsewhere?
ST
60
40
100
LT
85
15
100
Votes (%)
OEI Meeting 6-11-02
ORD: Will Wheeler
NCEE: Brian Heninger
OEI: Christine Augustyniak, Cody Rice
Topic
Value of information to corporations, labor, consumers. Currently, there is no way to
monetize the benefits of information provision (e.g., Toxics Release Inventory [TRI]) to
compare against costs.
How information is used in decision-making: Do companies change behavior? People
choose where to live, work (include all subcategories)?
What are the internal cost-savings identified when a TRI report is prepared? Value of
information to companies?
What are the ecological and health benefits from reduced pollution?
Is emphasis on information programs (e.g., Design for the Environment) a good way to go?
Are they effective?
Prioritize expansion of TRI (industries, chemicals, threshold quantities): What is the highest
value? What order? What is the marginal value of the next aspect of the program?
How is value of information linked to Ibs. of pollutant? (e.g., regarding fat content, value of
information is not correlated strictly with amount of fat). Lead is an example.
How to use benefits transfer to get value from another situation
ST
80
20
100
LT
80
20
100
Votes (%)
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
A5-5
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U.S. ENVIRONMENTAL PROTECTION AGENCY
OIA Meeting 4-28-02
ORD: Will Wheeler
NCEE: Brian Heninger
OIA: Paul Cough
Topic
Tools for measuring environmental effects of trade agreements, including changes in terms
of trade, location of production, or means of production (if changes have environmental
consequences); linking economic models with pollution intensity and effects
How different rules (e.g., banning methyl tertiary butyl ether) affect foreign investment,
product movements/flows
Finance: How do we pay to provide safe drinking water to developing countries?
How should environmental improvement be paid for (domestic vs. international finance,
public vs. private, end-of-pipe vs. other methods)?
Environmentally preferable green products: How do you adjust incentives to promote their
use/production in accordance with trade laws (e.g., shade-grown coffee, voluntary or
mandatory labeling)?
Corporate environmental stewardship: Will people appreciate trade more if companies are
good citizens (e.g., private international agreements on pollution prevention [P2])?
How trade affects environmental regulation
ST
30
2.5
2.5
22.5
22.5
20
100
LT
30
2.5
2.5
22.5
22.5
20
100
Votes (%)
OPEI/OEPI Meeting 6-3-02
ORD: Will Wheeler
NCEE: Brian Heninger
OEPI: Katherine Dawes, Pamela Kogan
Topic
How trading actually works in practice (water, nonpoint source pollution): flexible
permitting, performance-based, across-media trades
Water infrastructure, aging of publicly owned treatment works (POTW); could cost a lot,
so how to invest?
Do innovative programs (e.g., flexible permitting) lead to disparities even if there is
superior performance? EJ aspects (e.g., hotspots), how do you avoid this?
Incentives for beyond-compliance performance (is compliance assistance a good incentive?);
e.g., the Environmental Results Program in Massachusetts. Demonstrating cost-effectiveness
and environmental soundness for other states
Retrospective analyses of innovative programs: POTW, bioreactors, P2 permitting pilots,
more successful "excellence and Leadership" (XL) projects
ST
50
10
20
LT
40
40
Votes (%)
continued ^•
A5-6
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
Topic
Expanding markets for metals
[RCRA])
recycling/recovery (Resource Conservation and Recovery Act
P2 for small businesses
Votes (%)
ST
20
100
LT
20
100
OPEI-Small Business Division Meeting 7-22-02
ORD: none
NCEE: Julie Hewitt, Ann Wolverton
Small Business Division: Tracy Mattson, Larry Tessier, Jim Malcolm, Tom Nakley, Daniel Eddinger,
William Crosswhite, Elsa Bishop
Topic
Literature search for relevant small business economic research; would help program offices
to do better SBREFA analysis
Cost to implement EMSs to large vs. small businesses: What works? What does not work?
What motivates small businesses to implement? (Sometimes large firms require suppliers to
have an EMS to stay on the bidding list.)
Measurement of true costs for small businesses (get a better idea of the economic impact;
small businesses are a different animal from large businesses and are motivated by different
factors). Is the type of economic analysis we are doing appropriate in this context (e.g., use
of profit margin instead of revenues)?
Incorporation of unique characteristics of small businesses into economic analysis
Update cumulative impact report completed in 1Q88
Data collection; building a database that accurately reflects revenues, costs, and profits of
small businesses; geographical breakdown; labor differences, capital investment, etc.
What motivates small business behavior?
Evaluation of past rules to identify gaps/where we could have done better in our analysis
(over- or underestimation of universe affected, costs, etc.), and what we are missing
ST
25
25
25
25
100
LT
30
30
40
100
Votes (%)
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
A5-7
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U.S. ENVIRONMENTAL PROTECTION AGENCY
OPPTS/IO Meeting 5-6-02
ORD: Matt Clark
NCEE: Brian Heninger
OPPTS: Sandy Evalenko
Topic
Value of information to the public; requiring companies to provide use and exposure
information has costs, but what are the benefits?
Human health valuation for nonmonetized endpoints: How do you consider nonmonetized
benefits? Values for endocrine disrupters, values for special populations (e.g., farm workers)?
Lead a specific need.
Ecological valuation for nonmonetized endpoints: endocrine disrupters and lead
Expand literature on latency issue
Children's health valuation for specific endpoints
Market mechanisms/voluntary programs (e.g., technical assistance)
ST
30
30
15
25
10
110
LT
25
35
30
10
100
Votes (%)
OPPTS/OPP Meeting 4-23-02
ORD: Becki Clark, Matt Clark, Will Wheeler
NCEE: Julie Hewitt
OPP: David Widawsky, John Faulkner, Jihad Alsadek, Carole Battle, Tim Kiely, Steve Smearmann,
Alan Halvorson, Istanbul Yusuf, Arthur Grube, Philip Villanueva, T.J. Wyatt, F. Hernandez
Topic
Valuing aquatic impacts from pesticide use
Extending Zilberman-type work on tradeable permits for pesticides
Quantifying benefits
Measuring the impact of the Food Quality Protection Act on growers and consumers;
refining and improving agriculture sector models (Agricultural Simulation Model, U.S.
Agricultural and Resource Model) to accommodate pesticide regulatory models
How do pesticide users decide which pesticide/product to use (including price, rate of return)
and how much?
Pesticide usage on nonagricultural sites (residential, school)
Value of avian species
Evolution of chemical industry; change to sustainable agriculture, biotechnology
Valuation of human health impacts by pesticide class
Effects of biotechnology on chemical use
Integrating risk assessments with valuation
ST
2
9
4
1
5
1
1
LT
9
3
3
1
1
3
Votes
continued
A5-8
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
Topic
Risk perception and valuation; how consumer risk perceptions (e.g., organics) affect
behavior; how fear of remote risks (e.g., biotechnology) affects valuation; effects of green
labels on consumer and farmer behavior
Combine usage information into a user-friendly software
Discounting; what rate to use (time stability)
Burden on the health care system as a consequence of pesticide use
How regulatory decisions have affected the agricultural industry
EPA's role in communicating risks and benefits
Comparative evaluation of pesticide regulations; efficiency gains
Risk analyses (acre treatments vs. percentage of crop treated)
Improve major vendor's pesticide data for usage data (targeting)
Regulatory impacts under market distortions
How timing of regulatory decisions affects outcome
Appropriate use of cost-benefit analysis
Institutional restrictions on pesticide use/usage (keeping a subsidy for a specific crop,
lending requirements)
Economics of reducing expected risk vs. regulated risk (safety factors)
Impacts of global warming on pesticide use
Managing global climate change on pesticide use
Votes
ST
6
1
4
1
1
36
LT
1
1
2
1
2
4
3
34
OPPTS/OPPT Meeting 5-08-02
ORD: Will Wheeler, Matt Clark
NCEE: Ann Wolverton
OPPTi Bob Lee, Gary Cole (summarizing rest of office)
Incentives for voluntary programs (both business and consumer-related); What induces a
firm's/consumer's decision to participate? How do these systems work? What change in
behavior results from the provision of new information to consumers (e.g., labeling)?
When is a voluntary program a good strategy in relation to a regulatory program?
Benefits from informational rules; Do real improvements occur as a result of information
provision? Do we solve market failures with these kinds of rules?
Discounting/intergenerational equity
Value of statistical life-years/OALYs
ST
50
30
20
100
LT
50
30
20
100
Votes (%)
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
A5-9
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U.S. ENVIRONMENTAL PROTECTION AGENCY
ORD Meeting 6-6-02
ORD: Matt Clark, Will Wheeler
ORD: Anne Grambsch, Randy Bruins, Lynn Papa, Matt Heberling, Betsy Smith, Haynes Goddard,
Hale Thurston, Beth Lemberg
Topic
How can nonmarket values be used to prioritize ecological restoration projects or inform
other choices (as in ecological risk assessment)?
Develop scenarios of technical and regional economic change and how these will affect
environmental quality
Retrospective study of environmental restoration costs vs. prevention
Incorporating nonmonetized values of ecosystems or other ways to value ecosystems
New or novel approaches to link quantified morbidity effects of air pollution with
economic values
Economic value of ecosystem services: How does this change by level of aggregation?
Spatial-temporal scales?
Important health metrics when valuing health risks and types of information that risk
assessors can provide to economists
What behavioral modifications can individuals take to adapt to climate change and how
can they be activated?
Investment strategies to manage nonpoint water quality problems and habitat restoration
(including stormwater)
Can market-based mechanisms guide these investments? What type of market structure/
institutional arrangements would achieve efficiency within explicit ecological constraints?
ST
15
16.67
8.33
16.67
10
6.67
16.67
10
100
LT
6.66
20
13.33
16.67
10
6.67
16.67
10
100
Votes (%)
OSWER/OERR Meeting 4-30-02
ORD: Will Wheeler
NCEE: Julie Hewitt
OERR: John Harris (Dave Slutsky, contractors)
Identifying, quantifying, monetizing existence and use (including passive use recreation)
values of open-space lands
Understanding both landowner and nonlandowner potentially responsible parties' (PRPs)
behavior. Why do PRPs mothball sites? Why do PRPs cooperate and why don't they?
What leads to site reuse? Compliance disincentives for cooperative behavior?
What is the optimal solution when there are multiple sites in a geographic area?
ST
50
30
20
LT
30
Votes (%)
continued
A5-10
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
Appropriate discount rate for intergenerational flows
Monetizing ecosystem service values
How to value messes not made or voluntary cleanup (i.e., the bigger picture benefits of
Superfund program). What is the appropriate methodology for capturing these as indirect
benefits?
What portion of the health benefits of cleanup is capitalized into property values? Can we
be certain there is no double-counting?
How to compare and value alternative re-uses of contaminated sites
Why isn't there more of a market for environmental insurance? Are there adequate
mechanisms to bottle risk for transfer?
Why are states in a race to the bottom? Are they competing for business?
How to measure cultural values
EJ questions in economics terms
Is there a catalytic impact to resolving a National Priorities List site? What does it trigger?
Is there a value to permanent solutions over temporary (30 years) solutions? To clean it up
and haul it away, or to contain it?
Cleanup level is often tied to next use. Are there intergenerational impacts to this?
Are there financial tools to remedy this?
Cross-program interactions (State Implementation Plan in air)
Groundwater: Clean up the aquifer or pump and treat? Law says the former, but is
the latter more rational?
Multicriteria analysis
Value of EPA information being organized and presented differently to the market
Stigma: Is it attached to Agency action or to existence of contamination in the first place?
How to meaningfully communicate a cost-benefit analysis to noneconomists
Total
Votes (%)
ST
100
LT
40
20
10
100
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
A5-1 1
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U.S. ENVIRONMENTAL PROTECTION AGENCY
OSWER/OSW Meeting 4-24-02
ORD: Becki Clark, Matt Clark, Will Wheeler
NCEE: Lanelle Wiggins
OSW: Lyn Luben, Mark Eads, Glenn Farber, Gary Ballard, Jan Young
Topic
Cost issues related to a technology learning curve: How much and how does technology
become cheaper to operate (and to buy) every year?
Price elasticity of demand for hazardous waste as a fuel
Benefits, primarily from reduced lead exposure in children and adults; look at threshold
effects
How can economics stimulate and measure progress in solid waste recycling, solid waste
energy recovery, and retail product stewardship? Economic incentive approaches to waste
reduction in the realm of corporate decision-making?
How can economics play a role in industrial ecology approaches to solid waste management?
What role/direction can economics provide to OSW's RCRA 2020 vision?
Valuation of avoided contamination of groundwater (specifically address non-use values)
Valuation of avoided acute events (explosions, toxic gas clouds, fires, major spills)
Effects of RCRA regulations on private-sector recycling decisions
Success of extended product responsibility
Tools and database to cross-walk cost/sales to economic impacts (firm closures, profit
reductions)
Guidance or tools for translating engineering/out-of-pocket costs to social costs
How do sociological values affect corporate or individual economic decisions?
Intergenerational equity issues: What premium does society place on future generations?
Valuation of ecological services: ecosystems, groundwater, biodiversity
Tradable permit program for hazardous waste
Nonconstant or differential (between benefits and costs) discount rates
Additional benefits from P2 (versus remedial activities)
When is it cost-effective to segregate waste by retrofitting a facility rather than shipping
commingled waste offsite?
Liability thresholds for onsite waste management
Understand social cost of using virgin materials vs. reuse
Sustainability analysis (renewables vs. nonrenewables)
Looking at ways to fortify existing hazardous waste markets; improve profitability, improve
participation/coverage; achieve with incentives, regulatory, and nonregulatory programs
Equity and EJ
Votes
ST
3
1
1
1
1
1
3
3
1
15
LT
1
1
1
1
1
1
1
2
1
1
1
2
1
15
A5-12
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
OSWER/OUST Meeting 08-5-02
ORD: Will Wheeler
NCEE: Chris Dockins
OUST; Maricruz Magowan
Topic
Average cost of an Office of Underground Storage Tanks cleanup (preferred by state or
by region)
What is the average cost of training one inspector? Ideal number of inspectors?
Ideal frequency of inspection?
Benefits of revitalization of sites/underground storage tank fields
Database: age of tanks
Economic evaluation of leaks: frequency and causes
Evaluation of the Leaking Underground Storage Tank Trust Fund financial assurance formula
Benefits of increased expenditures on cleanup
What economic factors drive owner and operator decisions? What opportunities would be
more profitable and/or increase compliance?
Database: location of tanks
ST
40
20
10
5
5
20
100
LT
15
10
15
10
15
35
100
Votes (%)
OVil/IO Meeting 4-25-02
ORD: Matt Clark, Will Wheeler
NCEE: Chris Dockins
OW: John Powers, Mahesh Podar, Ron McHugh
Topic
A framework for ecological service valuation to comprehensively estimate benefits
Water quality/quantity interactions; cause climate change on quantity (feeds into
ecological valuation)
Monetization of OALYs/disability-adjusted life-years (DALYs)
Monitoring technologies that make trading feasible and improve assessments
Institutional constraints (transaction costs) affecting transition from technology-based
regulations to an incentive-based regulatory system (e.g., from effluent limit guidelines
[ELGs]) to tradable limits — total maximum daily loads [TMDLs]); this transition is difficult
because institutions support existing structures.
CGE models that can be used in regulatory decision-making
Systematic framework for valuing mortality/morbidity
Integrated regional assessments of watersheds (e.g., hypoxia in Gulf)
ST
3
2
2
2
LT
2
2
Votes
continued
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
A5-13
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U.S. ENVIRONMENTAL PROTECTION AGENCY
Topic
Trading in the context of TMDLs, multipollutant and multi-TMDL (scale); also between rivers
Creating markets for multiple service flows between stakeholders
Systematic strategy for environmental priority-setting
Total Votes
Votes
ST
9
LT
3
2
9
OW/OGWDW Meeting 2-28-02
ORD: Matt Clark, Will Wheeler
NCEE: Brian Heninger
OW: John Bennett, Tricia Hall, Becky Allen, Ephraim King
Cost-effectiveness analysis, especially regarding life-years or OALYs as a subset (how to
respond to a request for these analyses). How much dose-response information (by age)
do you need for a life-years extended analysis?
Reproductive and developmental valuation (e.g., miscarriages and stillbirths)
Focus on treatments costs; need social costs of regulations
OGWDW uses a decision tree to predict technology adoption and cost estimation;
discovered tree was inaccurate (facilities adopt management practices or get new sources
in lieu of treatment; treat for taste and odor; install technologies at the same time).
How to improve understanding of decision processes; retrospective studies are one avenue.
Integration of the Safe Drinking Water Act and Clean Water Act/interaction of treatment cost
savings
Valuation of leisure time
Value of gastrointestinal (GI) distress incidents (U.S. Department of Agriculture uses
cost-of-illness [COI] approach.)
Data needs for OALYs
Application of qualitative endpoints when national incidence is not known
Characterization of uncertainty in benefits estimates
Valuation of health endpoints for children and the elderly
Variation in mortality value (willingness to pay [WTP] for cancer death vs. accident;
age; voluntariness; dread, etc.)
Alternative risk-reduction measures (e.g., seat belts vs. drinking water contamination);
If risk reductions come from different budgets, how do you compare them?
Costs to parents of a child's illness
MM&Is in a drinking water context
Life-years cost-effectiveness analysis
Votes
ST
2
1
1
3
2
1
1
1
1
2
15
LT
1
2
2
4
1
1
2
2
15
A5-14
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
OW/OST Meeting 5-7-02
ORD: Becki Clark, Matt Clark, Will Wheeler
NCEE: Lanelle Wiggins
OW: Chris Miller, Bill Anderson, Nick Bouwes, James Covington, Renee Johnson, Kristen Strellec
Topic
Defining new water quality uses (guidance on widespread economic impacts for states,
regions)
Valuation of noncancer morbidity effects from toxic pollutants
WTP values that reflect latency period so they can be applied at time of exposure
EJ: How do our rules affect communities? Benefits of improved EJ
How do you incorporate growth factors into impact analysis? Incentives for smart growth
Tradable permits; TMDLs vs. water-quality standards vs. ELGs: How do you design them to
work? Focus on market mechanism issue (add development credits)
Intergenerational impacts; how discounting affects future generations; Should it be done?
A retrospective study; how ELGs affected industries/small businesses that have been
regulated
Cancer mortality risks (better link between risk and human health/mortality) with
dose-response function
WTP to avoid risk of various health endpoints from major pollutants
Guidance on assessing financial impacts to individual firms/facilities (e.g., consistency/
what to use depending on kind of data/industry)
Measuring impacts on nonpoint/agricultural sources, other nontraditional industries;
little guidance available on impacts to noncorporate structures
Ecological valuation; impacts from removal of nutrients/total suspended solids
Valuation of avoided pathogen exposure to humans, wildlife, agriculture
OALYs
Environmental ethics (e.g., EJ, OALYs, impacts on nonhumans, intergenerational)
Benefits from reduction in ammonia and hydrogen sulfide air emissions
Environmental accounting/impacts linked to environmental accounts
Effectiveness of voluntary programs (e.g., an EMS)
Votes
ST
1
2
3
1
1
1
2
2
2
2
1
18
LT
1
1
2
2
2
1
2
2
1
1
1
2
18
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
A5-15
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U.S. ENVIRONMENTAL PROTECTION AGENCY
OW/OWM Meeting 4-29-02
ORD: Will Wheeler, Matt Clark
NCEE: Julie Hewitt
OWM: Laura Palmer, Ginny Kibler
Topic
Documenting market failures based on a lack of information about the environment or
about how their actions affect the environment
Agricultural impacts:
• Value of impacts from agricultural pollution on groundwater and surface water
• Health and ecological effects of agricultural pollution on groundwater and
surface water quality
• Impact of aquatic animal production (aquaculture) on surface water quality:
When is benefit transfer okay?
Issues in water quality valuation:
• Do people value water that is not new to them?
• Valuation of small vs. large streams; small streams that feed into large streams
• Are water-quality values sensitive to recreational or other uses?
Value of produced species relative to natural species (invasive threat, substitution benefit)
Management practices:
• How to measure cost-savings from improved management of collection system
(i.e., sewer)
• Tradeoff of operation and maintenance vs. future capital
• What are the costs and benefits of improved management practices?
WTP or COI values of avoiding specific illnesses (earaches, headaches, coldlike, non-GI, GI)
with different durations
OALYs
Replacement for Mitchell-Carson study approach for large national rules
How to account for baseline closures
How to handle 1-year (or limited) data in a cyclical industry
Total Votes
Votes
ST
1
1
1
2
5
LT
2
1
1
1
1
6
A5-16
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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APPENDIX 6
bCIENCh ADVIbORY BOARD
PEER REVIEW COMMENTS
United States EPA Science Advisory EPA-SAB-Q4-OQ7
Environmental Board Staff Office (1400FJ July 2004
Protection Agency Washington DC mtw.epa.gov/sati
Review of the Environmental
Economics Research Strategy
of the U.S. Environmental
Protection Agency
A Report by the
EPA Science Advisory Board
Environmental Economics Advisory
Committee
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A6-1
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U.S. ENVIRONMENTAL PROTECTION AGENCY
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF THE ADMINISTRATOR
SCIENCE ADVISORY BOARD
July 9, 2004
EPA-SAB-04-007
The Honorable Michael O. Leavitt
Administrator
U.S. Environmental Protection Agency
1200 Pennsylvania Avenue, NW
Washington. DC 20460
Subject: Review of the Environmental Economics Research Strategy of
the U.S. Environmental Protection Agency; A Report by the
EPA Science Advisory Board
Dear Administrator Leavitt:
This letter transmits the advice of the U.S. EPA Science Advisory Board (SAB)
Environmental Economics Advisory Committee (Committee) on the U.S. EPA's
Environmental Economics Research Strategy. The Agency asked the SAB to consider a
number of issues, including whether the Research Strategy adequately characterized the major
research gaps in key areas and addressed the issues of greatest scientific uncertainty; whether
the research was feasible and likely (o generate high quality results in a timely manner; what
valuation methodology research should be investigated, whether the agency had missed any
issues of overriding importance, and how best to communicate the research needs to the wider
research community.
The Committee focused on five key areas of research; valuation of human health and
ecological benefits of environmental improvement, environmental behavior/decision-making,
market methods/incentives, and benefits of environmental information disclosure.
In general, the Committee concluded that the Research Strategy adequately
characterizes the major research gaps in the literature for the benefits of human health and
ecological risk reduction and that the research could generate high quality, useful information
in a reasonable time frame. The Committee noted that valuation of human health risk
reduction benefits should consider the reliability of existing estimates of the value of
A6-2 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
statistical life and that research should also be conducted on the issue of marginal versus non-
marginal risk valuation, [n addition, the Committee emphasized that to be most valuable,
there must be a high level of interaction between economists and ecologists in the area of
ecological benefits research.
The Committee noted that in spite of the focus of the academic literature on
nonmarket valuation methodologies, some areas of valuation still would not receive
appropriate funding without EPA attention and interest. The Committee listed a number of
examples of methods research that would be of importance for the agency.
The Committee provided information on several environmental compliance and
decision making issues and noted that this is one of the most important research topics for the
agency. They strongly urged that research should focus on overall environmental behavior,
not just compliance. The Committee stated that the ultimate goal in this area is to understand
why firms differ in the amount of pollution they create (or "in pollution intensity.") A
number of additional research topics were identified by the Committee.
In the area of market mechanisms and incentives, the Committee believed that the
Agency has identified some extremely important areas for future research and that the
research could lead to high quality results. However, the Committee judged the proposed
research to be too limited in its focus and they identified some additional areas for Agency
consideration.
The Committee agreed with the Agency on the importance of environmental
information disclosure and agreed that there is no generally accepted method for estimating
the benefits of these programs. A first step in estimating the benefits of such programs is to
accurately estimate their impacts on emissions and ambient pollution. Additional research in
this area is certainly required. The Committee also suggested that the agency contrast the
cost-effectiveness of environmental information disclosure with the cost-effectiveness of
traditional approaches to pollution regulation. The Committee noted that studies of the
effectiveness of information disclosure under the Emergency Preparedness and Community
Right-to-Know Act of 1986 could provide valuable information regarding the viability of
such policies to reduce the environmental component of terrorism risk.
Finally, the Committee recommended that EPA could achieve wider distribution of the
results of the research strategy and receive useful feedback from members of the research
community by holding workshops in conjunction with the annual meetings of the American
Economics Association and the American Agricultural Economics Association.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A6-3
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U.S. ENVIRONMENTAL PROTECTION AGENCY
We appreciate the opportunity to review, and to provide you with advice on, the
EPA's draft Environmental Economics Rexearch Strategy. We look forward to your response
to this report.
Sincerely,
/Signed/ /Signed/
Dr. William H. Glaze, Chair Dr. Maureen Cropper, Chair
EPA Science Advisory Board Environmental Economics Advisory Committee
EPA Science Advisory Board
A6-4 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
NOTICE
This report has been written as part of the activities of the EPA Science Advisory
Board, a public advisory committee providing extramural scientific information and advice to
the Administrator and other officials of the Environmental Protection Agency. The Board is
structured to provide balanced, expert assessment of scientific matters related to problems
facing the Agency. This report has not been reviewed for approval by the Agency and, hence,
the contents of this report do not necessarily represent the views and policies of the
Environmental Protection Agency, nor of other agencies in the Executive Branch of the
Federal government, nor does mention of trade names or commercial products constitute a
recommendation for use. Reports of the EPA Science Advisory Board are posted on the EPA
website at: http://www.epa.gov/sab.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A6-5
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U.S. ENVIRONMENTAL PROTECTION AGENCY
U.S. Environmental Protection Agency
Science Advisory Board
Environmental Economics Advisory Committee
Advisory Panel on the Environmental Economics Research Strategy
CHAIR
Dr. Maureen L. Cropper, University of Maryland, College Park, MD and The World Bank,
Washington, DC
MEMBERS
Dr. Dallas Burtraw, Resources for the Future, Washington, DC
Dr. Lawrence Goulder, Stanford University, Stanford, CA
Dr. James Ilainmiti. Harvard University, Boston, MA
Dr. Gloria Helfand, University of Michigan, Ann Arbor, MI
Dr. Catherine Kling, Iowa State University, Ames, IA
Dr. Arik Levinson. Georgetown University, Washington, DC
Dr. Richard Norgaard, University of California, Berkeley, CA
Dr. Kathleen Segerson, University of Connecticut, Storrs, CT
Dr. Hilary Sigman, Rutgers University, New Brunswick, NJ
Dr. Robert Stavins, Harvard University, Cambridge, MA
Dr. Gary Yohe, Wesleyan University, Middletown, CT
SCIENCE ADVISORY BOARD STAFF
Mr. Thomas Miller, U.S. EPA Science Advisory Board Staff Office, Washington, DC
n
A6-6 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
TABLE OF CONTENTS
1. INTRODUCTION 1
1.1 Background 1
1.2 Charge to the Science Advisory Board 1
1.3 Format of this Report 2
2. ANSWERS TO CHARGE QUESTIONS 1 AND 2 3
2.1 Valuation of Human Health Benefits of Environmental Improvements 3
2.1.1 Characterization of Research Gaps and Priorities 3
2.1.2 Research Feasibility 4
2.1.3 Usefulness of the Research 6
2.2 Valuation of Ecological Benefits of Environmental Improvements 6
2.2.1 Characterization of Research Gaps and Priorities 6
2.2.2 Research Feasibility 8
2.2.3 Usefulness of the Research 9
2.3 Valuation Methodologies 9
2.4 Environmental Compliance Behavior and Decision-Making 10
2.4.1 Characterization of Research Gaps and Priorities and Usefulness of Research 10
2.4.2 Research Feasibility 12
2.5 Market Methods andlncentives 14
2.5.1 Characterization of Research Gaps and Priorities and Usefulness of the Research 14
2.5.2 Research Feasibility 18
2.6 Benefits of Environmental information Disclosure 18
2.6.1 Characterization of Research Gaps and Priorities and Research Feasibility 18
2.6.2 Usefulness of the Research .20
3. ANSWER TO CHARGE QUESTION 3 21
3.1 Missing Issues 21
4. ANSWER TO CHARGE QUESTION 4 22
4.1 Communication of the Research Strategy 22
References... ...23
in
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A6-7
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U.S. ENVIRONMENTAL PROTECTION AGENCY
Review of the Environmental Economics Research Strategy of the U.S.
Environmental Protection Agency: A Report by the
EPA Science Advisory Board
1. INTRODUCTION
1.1 Background
This report transmits the advice of the U.S. EPA Science Advisory Board (SAB) on the
EPA's Environmental Economics Research Strategy. This report was prepared by the
Environmental Economics Advisory Committee subsequent to its review which began during
November, 2003. The review was announced in the Federal Register (see 68FR61206).
1.2 Charge to the Science Advisory Board
The Environmental Economics Advisory Committee (EEAC) was requested to review
EPA's Environmental Economics Research Strategy. Specifically, the EEAC was asked to
address the following charge questions:
1. For each of the major subject areas described in the EERS, EPA has attempted to articulate
the research questions most relevant to EPA that can be effectively addressed given the
available tools and resources. In this context, please address the following for the key
research questions identified in the EERS in each of the subject areas.
a) Is the characterization of each of the major research gaps in the literature for the key
subject areas of relevance to EPA's economic sciences, as identified in the EERS,
adequate'.' Will these priorities and implementation approaches effectively address the
areas of greatest scientific uncertainty?
b) Given the implementation strategy laid out in the EERS:
--To what extent is this research scientifically feasible at a high level of quality?
--How successful is this research likely to be in answering policy-relevant questions
for EPA within the next 8-10 years?
c) What improvements in the design and implementation of the EERS would make
each research project more useful to EPA and other environmental management
agencies?
2. What methodological research needs in valuation should EPA investigate as a complement
to the needs derived from the strategy interviews? In the valuation areas, EPA's expressed
needs are primarily practical: better values for ecological and human health impacts of
environmental policies. However, most grant proposals (and most journal articles)
investigate practical questions as well as methodological or other questions (e.g. incentive
A6-8 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
compatibility or elicitation methods in stated preference or more refined models of
behavior in revealed preference). EPA does not expect that researchers will propose to
estimate only the practical values that EPA needs, but will also propose to investigate
methodological issues. Since the research strategy interviews did not elicit methodological
needs, and EPA believes that improving methodology while generating practical values
provides useful synergy, further input on prioritizing methodological issues from the
EEAC would be useful.
3. Can the SAB identify by consensus any environmental economics issues of overriding
importance to EPA that the EERS has missed, and that EPA should address provided that
more resources would be available for Environmental Economics Research? Could the
SAB explain why this (these) issue(s) should be of high concern to EPA's research
programs.
4. What is the best way for EPA to communicate the results of the research strategy and plans
for achieving its long-term research goals to the wider research community, and other
potential users?
In addressing these questions the committee focused on the live key areas in which EPA
identified additional research needs:
a) Valuation of the human health benefits of environmental improvements
b) Valuation of the ecological benefits of environmental improvements
c) Environmental behavior and decisionmaking
d) Market methods and incentives
e) Benefits of environmental information disclosure
1.3 Format of this Report
The Science Advisory Board's answers to Charge Questions 1 and 2 are presented by
research area. The discussion begins by summarizing EPA's research priorities in each area,
and then answers Charge Questions 1 and 2. Charge questions 3 and 4 are answered at the
end of document.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A6-9
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U.S. ENVIRONMENTAL PROTECTION AGENCY
2. ANSWERS TO CHARGE QUESTIONS 1 AND 2
2.1 Valuation of Human Health Benefits of Environmental Improvements
2.1.1 Characterization of Research Gaps and Priorities
Is the characterization of each of the major research gaps in the literature adequate? Will
these priorities anil implementation approaches effectively address lite areas of greatest
scientific uncertainty?
Most of the literature on human health valuation has focused on mortality valuation—
measuring what individuals will pay for small reductions in their risk of dying in a specified
time period. As the EERS notes, much less effort has been invested in measuring what people
will pay to avoid episodes of acute illness or to reduce their risk of contracting a chronic
illness (morbidity valuation).' As a result, many health endpoints are not monetized in
Regulatory Impact Analyses; or their value is measured by productivity gains and avoided
medical costs, which are a lower bound to the appropriate measure of value. In the area of
morbidity valuation, the EERS (p. 10) calls for valuation of non-cancer endpoints; earaches,
headaches, colds, gastrointestinal upsets, reproductive and developmental effects (e.g.,
Attention-Deficit Disorder, autism), and cancer-related morbidity effects. On p. 15 of the
research strategy, more emphasis is put on chronic health effects. The EERS notes that it is
important to allow valuation to depend on severity, duration and frequency of symptoms.
Emphasis is also put on valuing children's health.
According to the EERS. the main needs in mortality valuation (p. 16) focus on the
impact of age on the Value of a Statistical Life (VSL) and on the impact of the health status of
the individual and co-morbidity (illness preceding death) on the VSL.
The committee agrees with the Agency's assessment on the lack of estimates of the
value of morbidity risk reduction benefits. Willingness to pay (WTP) estimates are indeed
unavailable for many cancers, as well as for risks of heart attacks and strokes. WTP estimates
for the other health endpoints noted in the first paragraph are also lacking. In many cases, the
productivity losses and medical costs associated with illness are not born by the individual. If
this is the case, estimates of productivity losses (the so-called indirect costs of illness) and
medical costs (the direct costs of illness) must be added to WTP estimates. Estimating these
illness costs is itself a research task whose importance should not be underestimated.
Regarding the Agency's priorities in the area of mortality valuation, the impact of age-
on the VSL is an important, policy-relevant topic. Any environmental regulation that saves
lives in proportion to the age distribution of deaths in the U.S. will primarily extend the lives
of older people. (Fifty percent of the deaths in the U.S. occur after age 75.) Regarding the
impact of health status and co-morbidity on the VSL, the important issue here is whether
environmental pollution causes chronic illness or simply increases mortality risk for people
1 WTP estimates exist for reduced risk of chronic bronchitis and for some cancers, as well as for asthma attacks,
restricted activity days and symptom days.
A6-10 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
who have pre-existing chronic conditions. When environmental contaminants cause a
disease, it is theoretically desirable to value the risk of contracting the illness (such as cancer)
which will entail both morbidity and a reduction in life expectancy. If pollutants differentially
affect mortality risk for those with a pre-existing condition (e.g., cardiovascular disease), then
efforts should be put on measuring the impacts of the health state on the value of increasing
life expectancy.
There are three topics in the area of mortality risk valuation that the committee
believes deserve attention even though they are not mentioned in the EERS. The first
concerns the reliability of existing estimates of the VSL, which rely on labor market and on
stated preference studies. The Agency has recently commissioned re-analyses of data from
compensating wage studies (Black, Galdo and Liu 2003) and of data from contingent
valuation studies of mortality risks. Examination of these results may suggest that emphasis
should be placed on developing newer, more reliable estimates of the VSL.
The second research topic concerns the issue of marginal versus non-marginal risk
valuation. Emphasis in the literature is on valuing small changes in risk of death, on the order
of I in 10.000 per year or smaller. The agency, however, uses these estimates to value
regulations that, together, account for much larger risk reductions. To illustrate. The Renefits
and Costs of the Clean Air Act 1970-1990 (USEPA 1997) predicted that air quality
regulations issued between 1970 and 1990 reduced mortality by 200,000 lives in 1990.
When a VSL of S4.8 million (1990 USD) was applied to these statistical lives, the WTP in
1990 for mortality risk reductions occurring in that year was estimated to be approximately
$16,000 (1990 USD) for a family of four.2 This was because the VSL was applied to a non-
marginal reduction in risk of death (on average, a 1/1,000 reduction). Similarly large benefit
estimates may arise when one adds together WTP for the risk reductions associated with the
1990 Clean Air Act Amendments, the Tier II Emissions standards, the Heavy Duty Engine
Diesel Rule, the Off-Road Diesel Rule and Clear Skies. In short, while a single regulation
may confer marginal risk reduction benefits, the set of environmental regulations evaluated
over a 10-year period may confer non-marginal benefits, and should be evaluated accordingly.
The third research topic concerns the impact of income on the VSL. Historically EPA
has adjusted future values of the VSL to allow for income growth. Such adjustments require
estimates of the income elasticity of WTP for mortality risk reductions. We believe that this
is a topic that requires additional research.
2.1.2 Research Feasibility
Given the implementation strategy lend out in the EERS; —To what extent is this
research scientifically feasible' at a liigh level of quality? —How successful is this
research likely to be in answering policy-relevant questions for EPA within the next 8-
10 years?
2 The total value of the statistical lives saved, SI trillion, when divided by the population of the U.S. in 1990.
implies a WTP of approximately S4.000 per person.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A6-1 1
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U.S. ENVIRONMENTAL PROTECTION AGENCY
There are several criteria to consider in formulating a research strategy for morbidity
valuation:
a) The approach taken should be able to evaluate a large number of health endpoints.
b) It should, ideally, value the risk of avoiding chronic illness rather than avoiding the
illness with certainty.
c) The definition of health endpoints should take into account the severity, duration and
frequency of symptoms.
d) The health endpoints valued should correspond to those linked to environmental
pollutants in the epidemiological literature.
An important question, related to mortality valuation, is whether chronic morbidity
and mortality should be valued as part of the same package. For example, should people
value the risk of developing congestive heart failure as the risk of experiencing a series of
hospital episodes, recurring discomfort and shortened life span? Or, should the impact of air
pollution on the morbidity associated with congestive heart failure be valued separately from
the impact of air pollution on the mortality associated with congestive heart failure? The
answer to this question depends crucially on the point articulated in item 'd' above. If the
epidemiological literature suggests that air pollution increases risk of death due to congestive
heart failure (and other forms of heart disease), but does not link air pollution to increased
incidence of the disease, then valuation should mirror this approach. For diseases where
environmental contaminants may actually increase the risk of contracting the disease {e.g., for
some cancers) then, assuming that people can comprehend both the risk of the disease and its
sequelae, the goal should be to value the morbidity and mortality risks as a single package.
Regarding the number of health diseases to be valued, a possible approach to dealing
with the point articulated in item 'a' above is to have people value functional limitations
(characterized by severity, duration and frequency) which, in turn, are related to illnesses.
This is likely to work best for chronic illnesses and less well for acute illnesses. Obtaining
reliable values for the risk of an illness will remain a challenge. One potential area of
research is to examine whether it is possible to use information contained in measures of
health preference, such as quality adjusted life years (QALYs), that are used in other public-
health domains to provide a method for transferring benefit estimates from one health
endpoint to another.
Regarding estimates of the value of mortality risk reductions, it would seem that stated
preference methods are the main candidates for studying the impact of age and health status
on WTP. although it may be possible to use revealed preference methods for the impacts of
age in the context of auto safety. (Labor market data probably cannot be used to estimate
WTP for ages greater than about 65 because of the relatively small fraction of the elderly who
are employed (Viscusi and Aldy 2003)). The use of both stated and revealed preference
methods to value reductions in risk of death is advisable. Regarding the issue of valuing non-
marginal risk changes, this is certainly feasible using stated preference approaches. Recent
advances in dealing with the identification problem in hedonic markets suggests that this
should also be feasible in a revealed preference context (Heckman, Matzkin and Nesheim
2003).
A6-12 ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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U.S. ENVIRONMENTAL PROTECTION AGENCY
The committee believes that progress in the area of health valuation can be made, with
appropriate funding, within the next 8-10 years. We believe that for these efforts to be
successful, and to yield high-quality research, it is essential that the economists conducting
the research work together with epidemiologists to ensure the that health effects valued match
up with those examined in the epidemiological literature, and with physicians to ensure that
any health status indices that are used to facilitate evaluating a large range of health endpoints
are appropriate to the task
2.1.3 Usefulness of the Research
What improvements in the design and implementation of the EERS would make each research
project more useful to EPA and other environmental management agencies?
The committee believes that it is important to measure the impact of household
characteristics on WTP for both morbidity and mortality benefits. This is important if the
Agency is to examine the distributional impacts of environmental policies. It is also the case
that certain air pollution epidemiology studies distinguish health effects by socioeconomic
status (e.g.. Pope et al. 2002). Making these distinctions in terms of valuation would make it
possible to further refine the distributional impacts of air pollution control strategies.
2.2 Valuation of Ecological Benefits of Environmental Improvements
2.2.1 Characterization of Research Gaps and Priorities
Is the characterization of each oj the major research gaps in the literature adequate?
Will these priorities and implementation approaches effectively address the areas of
greatest scientific uncertainty?
The EERS identifies a number of endpoints for which valuation of ecological services will
be useful. These endpoints include water quality changes, ecological impacts of air pollution,
introduced versus native species, avian species, etc. While this way of thinking about the
benefits of ecosystem improvement is consistent with how economists view the valuation of
many goods, this single endpoint focus is not generally consistent with how ecologists view
ecosystem functioning. For research in ecological benefits to be most valuable, there must be
a high level of interaction between economists and ecologists. To begin, there must be a
broad understanding of the way in which ecologists view ecosystem functioning. For
example:
a) The research plan refers to "outcomes" as if ecosystems are mechanical," i.e.,
when the level of an insult increases the ecosystem has predictable new
equilibrium outcomes. This characterization of ecosystem dynamics may be
appropriate in some cases, but this is not the way ecologists think about
ecosystem responses generally. Rather, they tend to think of ecosystems as
constantly changing, with different levels of insult affecting the course of
change. Even if there is an equilibrium, the equilibrium may not be reached for
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decades or a century, so outcomes have to be thought of in a more dynamic
way. On the other hand, ecologists do think of the services provided by well
functioning ecosystems as something that can be characterized and assessed.
This may be the point at which ecologists and economists can best find
common ground.
b) Ecologists are more concerned with thresholds and irreversibilities in
ecosystems than in the pros and cons of changing from one equilibrium to
another. One of the effects of a change may be that the ecosystem is less
resilient to the next insult, so alternative scenarios of future insults need to be
explored, not one-time changes.
c) This brings us back to earlier efforts to tackle cumulative effects. Ecologists do
not think of stresses as being separable. Hence they are more "conservative"
than economists who are comfortable with the assumption that stresses are
separable and hence can be considered "on the margin." For ecologists. the
order of stresses also can be important. The earlier efforts of economists to
understand cumulative impacts should probably be reviewed as a starting point
for moving forward in this respect.
While it would be nice if ecologists could simply provide predictions of ecosystem
behavior to meet economists1 specifications of what they need, the fact of the matter is that
ecologists are the experts on ecosystems. Implying that the economists need something that is
contrary to the expertise of ecologists may not be a good starting point for what has to be a
joint project. The research strategy should address how economists and ecologists in the
Agency can learn more about what each other knows and how they can develop shared
understandings, language, and models. Rather than valuing changes in a single service from
an ecosystem, e.g., increased avian species or increased fish catch, it may be appropriate to
work with ecologists to value the entire bundle of service changes associated with a change in
an ecosystem from one state (perhaps one with a low level of function generally) to another
(one that supports on average more species diversity, more resilience to external shocks, etc.).
Research on the benefits of ecological systems and services will necessarily need to be
ecosystem specific. While "outcomes" for human health effects are many and are probably
sensitive to the age at which ihe problem occurs, they are going to be pretty much true
whether a person lives in Phoenix or Philadelphia. For ecosystems, while there are
classifications of ecosystem types that will prove helpful, there are going to be a considerable
number of types. The condition of the ecosystem for which an additional stress is being
considered also will be important. Of course, the conditions of people experiencing an
environmental stress are also important, but the stress is generally experienced by a large
population of people whose conditions can be understood in statistical terms. Decisions on
ecosystems will much more likely be taken one system at a time.
The EERS recognizes the large reliance the agency places on benefits transfer and the
likely need to continue this reliance. They suggest that a "cost-effective strategy may be to
investigate methods that generate theoretically sound values for multiple endpoints." The
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committee generally agrees with the logic of this idea, but the Agency should consider that
the highly contextual nature of ecosystem services may make transfers even more challenging
than when single endpoints can be focused upon. Benefits transfer in the case of ecosystems is
exceptionally challenging.
One important issue noted in the document is the fact that ecosystem services and
functioning are not well understood by the general public, thus complicating the process of
valuation. In addition to eliciting the value of ecosystem changes, the valuation process
usually requires some education of the public. This has important implications for the
resulting values and for the resulting use of benefits transfer.
The relationship between physical measures of ecosystem functioning (pollution
concentrations in water or air, number of species present in a land area, etc), features of an
ecosystem that people perceive and the perception of the ecosystem by people is poorly
understood. Since this linkage is critical for valuation, this is an area of research that might
yield high returns to EPA and other agencies.
The inherent uncertainties in ecosystem functioning make the need to characterize
uncertainty in the valuation process particularly important when ecosystem values are sought.
This is an area where additional work could be focused. Likewise, additional work on the
implications of the "precautionary principle" and cost-benefit analysis when irreversibility
and uncertainty is present may prove beneficial. Another feature that merits focus is the
implication of threshold effects and valuation of large rather than marginal changes.
Valuation for dynamic systems and the consequences of valuing changes in ecosystem
services under very long time scales are also issues that EPA may wish to consider. Again,
these features may be unique to ecosystem valuation as distinct from health endpoints or other
nonmarket goods.
Among nonmarket values for ecosystem services, nonuse values are the poorest
understood, yet they have the potential to be very large in magnitude. This implies that
research that focuses on nonuse values may have the highest returns.
Some committee members felt that materials damage and losses of visibility from
pollution should also be included among environmental benefits to be studied.
2.2.2 Research Feasibility
Given the implementation strategy laid out in the EERS: —To what extent is flits
research scientifically feasible at a high level of quality? —How successful is this
research likely to be in answering policy-relevant questions for EPA within the next 8-
10 years?
The committee sees considerable return on research in the area of ecosystem
valuation. With adequate funding, the Agency is likely to see information that is very
relevant for policy questions being produced.
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2.2.3 Usefulness of the Research
What improvements in the design and implementation oj the EERS would make each
research project more useful to EPA and other environmental management agencies?
Many of the ecological benefits measures needed by EPA would also be of value to
other government and public agencies. Specifically, the U.S. Army Corps of Engineers.
USDA, Forest Service, and many Nongovernmental Organizations and state agencies would
find ecological benefits work to be highly valuable. EPA should find ways to share research
results as well as consider jointly funding and identifying needed research on ecological
benefits.
One of the needs identified in the report is for valuation of reductions in pesticides in
water, but in many parts of the country, nutrients are as much or significantly more of an
issue. Nitrogen is a clear problem for hypoxia, while phosphorous and other nutrients are
important for local water quality problems in much of the Midwest.
A centralized team of economists in Washington D.C. may not be the ideal
configuration of economists for undertaking research that is going to be inherently more
contextual than other types of environmental economic research. More economists are
probably going to be needed in the regional offices to carry out ecosystem valuation
effectively. This activity could also be enhanced by the use of non-EPA economists (outside
of Washington) with expertise in ecosystems analysis.
2.3 Valuation Methodologies
What methodological research needs in valuation should EPA investigate as a
complement to the needs derived from the strategy interviews'.'
As noted in the Research Strategy much of the academic literature in nonmarket
valuation focuses on methodological development. While this implies that a substantial
amount of methodological work may be produced without impetus from EPA or other
agencies, there are some areas of valuation where the needed methodological refinements may
not be as forthcoming as others. In particular, some areas may not be viewed to be as
methodologically interesting as others, but may still be critical to improving the accuracy of
nonmarket valuation in the context of ecosystem services. The committee identified the
following topics as being of particular value to EPA programs:
a) Improved methodologies and tools for benefits transfer as well as increased
understanding of the range of uncertainty associated with the transfer of values from
one study site to another. Given the enormous reliance that EPA and other agencies
make on the transfer of benefits to perform benefit-cost analysis, considerable gains
from additional understanding of this process may be possible.
b) Increased understanding of the appropriate extent of the market when taking welfare
estimates from individual values and aggregating them to the full population (this is
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particularly important for nonuse values). There is both the issue of having the
appropriate sampling frame from which to compute per household benefits (e.g., a
random population survey versus a sample of people visiting a shopping mall) and the
issue of how much of the general population to apply these values to (e.g., households
in close proximity to the impacted resource, all households in a certain political
jurisdiction, all households in the world'.').
c) Further study of the WTP-WTA divergence literature. In many cases a strong
argument may exist for the use of a WTA valuation rather than WTP based on explicit
or implicit property rights.
d) Increased understanding of the appropriate valuation of the opportunity cost of time in
revealed preference studies. This concern relates primarily to recreation demand
studies, where different assumptions about the value of time can yield differences in
the estimates of welfare changes by a factor of two or more.
e) Improved bid design methods for stated preference surveys. Discrete choice stated
preference surveys require the researcher to define the bid distribution for respondents.
Potential bias and inefficiency from suboptimal bid design are not well understood.
f) While a growing literature in the valuation field combines stated and revealed
preference information to jointly estimate the parameters of welfare measures, there
may be substantial gains to EPA and other agencies from furthering work in this area.
The combination of stated and revealed preference data enjoys the prospect of
grounding welfare estimates in observable behavior while allowing for a much broader
category of benefits to be studied with the inclusion of stated preference information.
2.4 Environmental Compliance Behavior and Decision-Making
2.4.1 Characterization of Research Gaps and Priorities and Usefulness of
Research
Is /lie characterization of each oj the major research gaps in the literature adequate?
Will these priorities and implementation approaches effectively address the areas of
greatest scientific uncertainty'.'
What improvements in the design ami implementation of the EERS would make each
research project more useful to EPA and other environmental management agencies?
This topic is one of the most important research priorities faced by the EPA. Judging
from the survey of EPA program offices, this topic is tied with "Valuation of Reduced
Morbidity Benefits" for the highest priority. Several research questions are highlighted,
including: a) Why and how do facilities comply; b) What policies or approaches increase
compliance; and c) How successful have voluntary programs been? The Committee offers the
following comments on the research goals:
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a) Previous EPA funded results. It would be helpful to assess how successful the
previous Science To Achieve Results (STAR) competitions on Corporate
Environmental ism have been.
b) Breadth of research area. This research priority area is termed Environmental
(Compliance) Behavior and Decision-making. It is unclear whether the focus is
limited to compliance-related behavior or whether this priority area is intended to
include broader issues relating to environmental behavior. Some of the specific
questions raised in this context (e.g., location, technology adoption, and pesticide use)
do not involve compliance directly. They are questions about how firms make
decisions that have environmental implications. The Committee believes that this is
the correct perspective on this issue. Ultimately, EPA's goal should be to understand
why some firms pollute more (per unit of input or output) than others. This may
depend on the nature or environmental regulations and their enforcement, but will also
depend on the costs of reducing emissions.
If the focus is on compliance alone, then it is not clear why the questions relating to
voluntary programs are included, since by definition voluntary programs do not entail
"compliance" with existing rules or regulations. The study of voluntary programs
would fit more closely with the research about information disclosure. Alternatively,
if this priority area is intended to be broader, then the research on information
disclosure could be folded into this priority area.
c) Feedback from regulated industries. Traditionally, research on compliance and
enforcement has treated the policy process as linear. The regulator first designs and
imposes a policy, then an enforcement strategy (e.g., an audit frequency and penalties
for non-compliance), and then the polluting firm decides whether or not to comply.
Some research on enforcement and compliance might benefit from considering a more
interactive model, under which regulators and regulated parties work together to
identify pollution sources and means to address them. Monitoring and information
generation are key parts of such a strategy. One example is EPA's Clean Charles
2005 Initiative (Again, this suggests that the research priority area on information
disclosure is closely linked to this priority area.)
d) Public sector compliance. Most of the compliance and enforcement literature
studies private-sector polluters. Other sources, such as municipalities, have received
relatively little attention. Yet in some contexts these constitute the primary pollution
sources (e.g., water pollution). Thus, the scope of the research priority should be
sufficiently broad to include not only decisions by private polluters but also by public
sources.
e) Unobserved determinants of behavior. The existing literature has understandably
focused on easily observable determinants of environmental decisions: firm size,
industry group, etc. However, less easily observable motivational factors may be
more important in explaining the environmental behavior of a particular firm.
Information about these factors comes primarily from case studies, which are often
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viewed as anecdotal. Therefore, it seems appropriate for EPA to fund research that
seeks to provide statistical evidence regarding firm decision-making, as well as more
in-depth case studies of the behavior of individual firms.
f) Market incentives. A key question that needs to be addressed (statistically and
through case studies) is whether market incentives for environmental protection (e.g.,
from consumers, communities, suppliers, or investors) are sufficiently strong. Again
this relates closely to the effect of information disclosure, since information disclosure
is likely to increase these pressures. Instead of thinking about voluntary approaches
and information provision as substitutes for more traditional regulations, they may be
thought of as complements.
g) Cost-e ffecti veness. Most studies focus on accounting costs of compliance, and
ignore things like the transactions costs of dealing with regulators, liability costs, and
adverse publicity. It would be worth considering these broader definitions of costs.
h) Market structure. Regulations may have different effects on industries with
different market structures.
i) Appropriate fines. The EPA's current practice requires firms caught violating
environmental regulations to pay fines equal to the profits they earned as a
consequence of their violations. It is an open research question whether this is in any
way optimal. Research could also be conducted on the use of resource-based
compensation in lieu of fines. Sometimes violators can avoid fines by undertaking
restoration or enhancement activities of great value than the fine. The desirability and
effectiveness of non-monetary penalties need to be better understood.
j) Ex-ante versus ex-post estimates of compliance costs. Ex-ante estimates are
typically higher. This may be due to strategic industry overstatement of costs, or
because technological improvements are not foreseen. Research on the difference
between ex-post and ex-ante estimates would be useful to researchers assessing future
proposed regulations.
k) Data. Several researchers noted that state variation in approaches, fines,
monitoring, etc.. can be used to study these issues, but that state data are difficult for
individual researchers to collect. A useful role for EPA may be to encourage states to
collect data in a standardized way and to assist in compiling the data.
2.4.2 Research Feasibility
Given the implementation strategy laid out in the EERS: --To what extent is this
research scientifically feasible at a high level of quality? --How successful is this
research likely to he in answering policv-rele vant quest ions for EPA within the next 8-
10 years?
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In general. Committee members felt that EPA researchers have identified an important
area for research, and one that could lead directly to improvements in EPA efficacy.
reductions in regulatory costs, and improvements in environmental quality. Key tasks for the
EPA include: defining the scope of the research objective, assessing prior EPA funded
research, and assisting with the unification and publication of monitoring and enforcement
data.
In addition, the Committee noted that any research in this area will have to deal with
the following problems:
a) Enforcement actions are widely understood to be targeted at likely violators, and
hence endogenous. Researchers cannot estimate the effect of inspections and
enforcement on the probability of violating environmental laws without
simultaneously estimating the effect of violations on enforcement. This task is
difficult without knowing the procedures EPA or the states use to decide which
facilities to inspect. For a seminal paper on this topic, see Magat and Viscusi
(1990).
b) A second empirical problem, noted by Harrington (1988), is that given the low
probability of any particular firm being inspected, or punished given an observed
violation, the overall level of compliance is surprisingly high. Some other
phenomenon aside from regulatory enforcement must explain compliance: public
relations, citizen suits, NGO actions, etc.
c) A third empirical problem involves the availability of data. Much of the empirical
literature focuses on the pulp and paper industries, due to the availability of water
pollution enforcement data via the Permit Compliance System (PCS).
d) Finally, this section of the research strategy asks to what extent voluntary pollution
reduction programs such as the "33-50" program have succeeded. Answering this
question requires facing another simultaneity problem: firms that have unobserved
tendencies to reduce pollution are more likely to volunteer to do so. To accurately
assess the efficacy of these voluntary programs, a researcher will need some
exogenous variation in the programs, or some instrument for program
participation. The Agency needs to be particularly attentive to opportunities to
exploit exogenous variation in eligibility for particular programs so that valuable
chances to assess the consequences of "natural experiments" are not missed.
Labor economists have sensitized the discipline to the desirability of natural
experiments for program evaluation. In particular, the Agency needs to be
watchful whenever there arc boundaries in some dimension (time, firm size, space)
across which the assignment of firms to regulatory regimes is randomized by
arguably external factors.
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2.5 Market Methods and Incentives
2.5.1 Characterization of Research Gaps and Priorities and Usefulness of the
Research
/.v the characterization oj each of the major research gaps in the literature adequate'.'
Will these priorities and implementation approaches effectively address the areas of
greatest scientific uncertainty?
What improvements in the design and implementation of the EERS would make each
research project more useful to EPA and other environmental management agencies?
The Research Strategy combines the research priority "Market Mechanisms and
Incentives [MMI]. Trading" with the priority "Market Mechanisms and Incentives, Other than
Trading" in its final list of research gaps (p. 19). The proposed research emphasis from the
Office of Research and Development will be on "trading in practice and trading in new
markets" (p. 29). These specific areas are mirrored in the identified research gaps on p. 19.
Especially regarding "trading in practice," the key questions that are identified are the
environmental effects of trading and estimating the resulting cost savings. For new
applications, the key questions are predicting the success of new markets and designing the
markets to achieve both environmental and cost-reduction goals.
Some specific possible research areas that are mentioned include using market
approaches for urban storm water management: programs for new pollutants and media: the
complexities of tradable water quality permits in a world of multiple market distortions, lack
of monitoring, and "cultural resistance to enforcement" (p. 20); the interactions of marketable
permits with existing taxes; and market design questions.
The Committee believes the Research Strategy identifies some extremely important
areas for future research but is too limited in its focus. The following are also areas worthy of
inclusion in the MMI research program.
a) Market mechanisms other than trading are notably absent from the discussion of
research gaps. Exceptions include the brief mention of "environmental information
programs" (p. 12) and "Methodology for evaluation of effectiveness of voluntary
programs" (p. 26), which are already the subject of research priorities identified
elsewhere in the EERS. The exclusion of other MMI instruments, or more
generally incentive-based instruments, such as pollution taxes, abatement
subsidies, scrappagc schemes for old cars, and deposit-refund systems, unduly
limits the policy approaches that merit study. For example, current environmental
policy relies heavily on legal liability for environmental contamination, which is
an incentive-based policy. The empirical effects of these policies are not well
understood but are a promising area for future research because data exist from
recent experience.
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Although the language in the Strategy does not rule out study of mechanisms other
than permits, the absence of their mention does not encourage it either. Research
has shown that different market-based instruments vary in. for instance, their
effects on technological change, their total costs to pollution sources, their effects
on entry and exit in an industry, the potential for "double dividend" effects, and
the political or social acceptability of the instruments. Exploration of the relative
merits of other instruments would be a valuable area of study.
b) The spatial and temporal effects of MM1 also need further attention. Formany, if
not most, pollutants, the kind of cap-and-trade program exemplified by the acid
rain program differs from the design of a trading program identified in economic
theory because the spatial and temporal distribution of pollution determines
pollution damages. For efficiency, the marginal damages at any given locale or
time need to be considered. Even in the absence of information on marginal
damages, a cost-effectiveness measure should take spatial and temporal effects
into account, due to requirements in environmental laws to achieve site-based
environmental targets (such as the National Ambient Air Quality Standards under
the Clean Air Act). There has been little ex post assessment of the spatial effects
of uniform trading ratios in cap and trade systems such as the 1990 Clean Air Act
Amendments, the Ozone Transport Region's NOX budget program, and the NOX
SIP call trading program.
The spatial and temporal effects of MMI are important components for design of
future programs as the nation addresses mercury and ozone as atmospheric
problems and the use of TMDLs in water quality. Simple trading designs, such as
a cap-and-trade system for marketable effluent permits, may not achieve
environmental targets in all places. On the other hand, incorporating transfer
coefficients, limiting trading regions, or otherwise accounting for spatial and
temporal effects limits trading opportunities and thus reduces potential cost
savings. Research should evaluate the tradeoff between achieving environmental
goals and achieving cost reductions, and the administrative and scientific
difficulties involved in more theoretically correct trading systems.
c) The implications of monitoring and enforcement for the design of MMI policies
should be an important part of the MMI priority. Monitoring can take at least two
forms: one form measures actual environmental outcomes (e.g.. ambient air or
water quality), and another form ensures that the emissions or other factors for
which a market is developed are measured at the source. Adequate monitoring of
ambient measures can help tremendously in ensuring the success of MMI
programs in achieving environmental goals in all locales. Research into ambient
monitoring and the interaction with MMI requires involvement of environmental
scientists, for example, to help identify the efficient placement and number of
monitoring sites for achieving ambient goals. Monitoring of source behavior is
necessary for the success of the markets: for example, if it is easy for sources to
emit more than the number of permits they own, then the permit market as well as
environmental quality will suffer.
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d) An important and controversial aspect of MMI programs has been the emergence
of trading without a cap on aggregate emissions. Such programs have been labeled
"open market trading programs" because they allow for new participants who may
identify low-cost opportunities for emission reductions to enter the program. These
programs have been widely criticized because of the absence of a strict emission
cap. and the difficulty in observing and monitoring emission reductions. However,
this generic approach has a broad application in the Clean Development
Mechanism and Joint Implementation aspects of international efforts to reduce
greenhouse gases, and it continues to be suggested at the state level in the US for
control of conventional pollutants. Open market trading should be studied to
identify its weaknesses (so that programs can be designed to avoid them), its track
record, and its role as a transition to cap-and-trade programs.
e) Another important area of study is the use of market approaches on indirect
measures of the environment. For instance, it is typically almost impossible to
measure nonpoint source pollution from a source, because the runoff cannot be
observed. Instead, pollution policies arc sometimes proposed for related goods,
such as fertilizer use or Best Management Practices. Other examples include
taxing gasoline instead of auto emissions and pay-at-the-pump auto insurance.
When market instruments are applied to indirect measures, the environmental
effects are much less understood: indeed, it is possible that adverse environmental
outcomes might arise from unexpected substitutions or other unexpected effects.
f) The interaction of MMI with existing taxes and other policies (such as agricultural
programs) is an important area that deserves study. The General Theory of the
Second Best suggests that improving one market in a world of multiple distortions
may not improve welfare; hence, it is worth understanding whether the use of
MMI might lead to adverse effects in unexpected ways and how the design of
policies can be improved in this light. We would accord priority to three particular
manifestations of the second best and the importance of pre-existing policies that
have been found to be very significant in previous research.
One has to do with policies or subsidies for such areas as agriculture or energy,
outside EPA's jurisdiction, whose potentially significant environmental effects
sometimes conflict with the goals of environmental policy. Other programs may
have beneficial effects, and EPA may be able to learn from experience of
programs in these other areas. For instance, the use of environmental targets in the
USDA's Conservation Reserve Program deserves study as an important
application of subsidies promoting, or consistent with, environmental objectives of
the EPA. This program and its Environmental Benefits Index might be modified
to target water quality and achievement of TMDLs. Generally, there could be
significant environmental and financial gains from greater cooperation and
coordination of research and policy across agencies.
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A second area is pre-existing tax or regulatory policy. EPA has previously funded
work on the "tax interaction effect" and found this to be significant. Significant
opportunity exists to improve this research by making it more accessible for policy
makers and by introducing greater specificity and heterogeneity in the analytical
and simulation models that have been employed to date. In general, further
research that addresses the value (in a public finance context) and potential uses of
revenues from environmental policies would be a very important contribution to
policy design in general. For example, mandatory emission fees in severe
nonattainment areas can be used to generate revenues to subsidize investment in
emission control by firms or in infrastructure improvement that will reduce
emissions.
Finally, state-level policies may interact in unforeseen ways with federal
programs. For instance, states have adopted renewable portfolio standards (RPS)
as a way to influence technology choice and environmental performance in
electricity generation. State-level policies, such as RPS or state emission
restrictions, when implemented under the umbrella of an aggregate emissions cap
at the federal level, could be ineffective for achieving national emission
reductions, as state-mandated gains are traded away.
g) Another important area for future study that is excluded from the EERS is the
implication of MMI designs for the perception of equity or fairness, and ultimately
political feasibility of environmental policies. Economic research is often oriented
toward measures of efficiency, but it also offers the tools to identify the
distributional effects of policy. Of special interest and potential contribution is the
identification of the distributional effects associated with different types of policy
design for a given environmental goal. This research could measure the effects of
policies on market value of firms and the distribution of damage from existing
environmental burdens (and, implicitly, the distribution of benefits from
improvements). Furthermore, ORD should consider an investigation into so-called
"risk-risk" trade-offs affecting the various types of costs and burdens imposed on
households as a result of environmental controls. Potential cost savings of $40
billion from greater use of incentive-based regulation, as has been suggested, may
be one of the most effective programs for improving public health and the
environment, according to the risk literature, and this is a topic that deserves
formal study.
h) The implications of technological innovation in the design of environmental policy
were identified by the Committee as a cross-cutting theme in environmental
economics research. This topic also deserves special attention in the study of
MMI. Important questions remain about the design of MMI policies to promote
efficient innovation and technological diffusion. Although there has been
important recent work in this area, evolving methodologies make this area fruitful
for additional empirical and theoretical study.
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i) Developing methods to estimate the cost savings associated with MMI would be
valuable for evaluating the benefits of these programs. Estimating these savings is
actually very difficult to do. The process requires modeling of costs under both
the market approach and a "traditional" policy with the same environmental goal.
While a number of prospective studies of the benefits of market mechanisms
compared to traditional approaches exist, there have been few retrospective studies
of the benefits of MMI.
2.5.2 Research Feasibility
Given the implementation strategy laid mil in llse EERS: —To wha! extent is this
research scientifically feasible at a high level of quality? —How successful is this
research likely to be in answering policy-relevant questions for EPA within the next 8-
10 years?
Environmental economic researchers have examined many of these issues at some
level, although further work needs to be conducted. It is very likely that high quality and
highly policy-relevant work can be conducted in the next 8-10 years.
2.6 Benefits of Environmental Information Disclosure
2.6.1 Characterization of Research (Japs and Priorities and Research Feasibility
Is the characterization of each of the major research gaps in the literature adequate?
Will these priorities and implementation approaches effectively address the areas of
greatest scientific uncertainty?
Given the implementation strategy- laid out in the EERS; —To wha! extent is this
research scientifically feasible at a high level of quality? --How successful is this
research likely to be in answering policy-relevant questions for EPA within the next 8-
10 years?
Several statutes under which EPA operates—including the Emergency Planning and
Community Right-to-Know Act of 1986 and the Safe Drinking Water Act amendments of
1996—require that information about environmental performance be disclosed to affected
communities and/or the general public. EPA states that there is no generally accepted method
to estimate the benefits of such information disclosure, although selected anecdotal evidence
suggests that information disclosure programs may affect the behavior of entities that are
required to provide the information.
EPA is correct that there is no generally accepted method, but it is not clear that one
should search for a "general method." The fact remains, however, that research to date has
not estimated the benefits (or the costs) of environmental information disclosure programs.
For the most part, the major analytical challenge is not associated with monetizing impacts,
but with identifying behavioral responses to information disclosure requirements.
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Clearly, there is increasing interest in the United States (and other countries) in the
potential role that can be played by information disclosure programs, as substitutes or
complements for conventional command-and-control or market-based environmental policy
instruments. Much of this interest can be attributed to the success that has been claimed for
the Toxics Release Inventory (TRI) program, which requires large manufacturing facilities to
report publicly their annual releases of certain chemicals. Since the inception of the TRI
program in 1986, reported releases of over 300 regulated chemicals have fallen by more than
45%.
What is needed is analysis of the efficacy of such information disclosure programs by
examining the ways in which these programs can-in theory-affect environmental quality and
by investigating empirically the ways in which the programs have actually affected pollutant
releases. In terms of theory, there are several pathways through which information disclosure
might lead to pollution reduction, including: green consumerism, green investing, community
pressure, impacts on labor, the threat of future regulation, and organizational limitations of the
firm. Better theoretical modeling of firms' production and pollution decisions would
incorporate these pathways. Such theoretical frameworks could then be used as the bases for
empirical (econometric) analyses of the effects of TRI on facility decision-making. Such
research could produce greater understanding of how facilities respond to information
disclosure programs such as the Toxics Release Inventory. This is a necessary first step to
estimating the benefits of such information disclosure programs.
As EPA notes, there are a variety of other important research questions, including
cost-effectiveness comparisons of information disclosure programs with command-and-
control and/or market-based environmental policy instruments. In general, EPA's Office of
Research and Development has begun funding such research efforts under its category of
"Corporate Environmental Behavior: Examining the Effectiveness of Government
Interventions and Voluntary Initiatives," part of the Science to Achieve Results (STAR)
program.
It is important to distinguish between information disclosure as a complement and as a
substitute for other forms of regulation. EPA suggests in places that information disclosure
might be a substitute for regulation (as in the third bullet point on page 20). While disclosure
requirements might induce pollution reductions, theory suggests that only in a limiting case
would these reductions match those under efficiency-maximizing regulation. In the context of
the TRI, firms would need to assume that, at the margin, the public-relations cost of pollutant
emissions (that is, the negative impact on product demand) were equal to marginal
environmental damages. This would only be the case if customers fully internalized the costs
of pollution in their purchasing decisions. It seems more likely that information-disclosure
requirements will lead only to partial reductions in pollution, relative to the efficient level of
reduction.
This suggests that information-disclosure requirements may indeed be a substitute for
regulation that is less stringent than the efficient amount, but that they are unlikely on their
own to yield large enough reductions to correspond to the efficient level of pollution-
abatement. This also suggests the need for research that examines how information-
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disclosure rules and other regulatory approaches will operate jointly. Even when the two
instruments — information disclosure and other regulation — are used together, there are
potential cost-savings from the information-disclosure component, for example by facilitating
monitoring and enforcement activities.
These considerations imply several additional research questions. First, how large is
the reduction in pollution induced by information-disclosure requirements, relative to the
efficiency-maximizing reduction? Correspondingly, what fraction of the damage from
pollution is internalized in the purchasing decisions of consumers, once they are aware of
respective pollution'.' What are the cost-savings from combining information-disclosure
requirements with direct regulation, compared with costs under direct regulation alone?
2.6.2 Usefulness of the Research
What improvements in the design and implementation of the EERS would make each
research project more useful to EPA and other environmental management agencies?
The topic of information disclosure relates closely to another potential area of
economic research for EPA that is likely to become more important over time, with increasing
concerns about the effectiveness of terrorism risk policies on plant safety and security. In
particular, EPA might support econometric analysis of the effectiveness of current and
proposed terrorism risk regulations on plant safety and security, drawing upon publicly
available data, as well as the Risk Management Plan database housed at EPA's Chemical
Emergency Preparedness and Prevention Office, and data collected by local emergency
preparedness agencies under the Emergency Planning and C'ommunity-Right-to-Know Act.
As noted above, several regulations, beginning in the late 1980s, were designed to
reduce the risk of large-scale chemical accidents. The Emergency Planning and Community-
Right-to-Know Act of 1986 established disclosure requirements for plants using and storing
hazardous chemicals on-site. Section I I2(r) of the Clean Air Act Amendments of 1990
requires detailed risk management planning and reporting for all large chemical plants. The
International Standard Organization (ISO) developed a set of management practices designed
to improve environmental performance, but also likely to reduce risk from chemical use. And
in the aftermath of September 11, 2001, the American Chemistry Council, a trade
organization representing the largest chemical manufacturing firms, established management
practices for enhancing the security of chemical plants.
While most of these programs and policies were not specifically designed to reduce
risk from terrorism, studies of the effectiveness of these approaches will provide valuable
information regarding the viability of alternative types of policies to reduce the environmental
component of terrorism risk. Until now, little empirical research has been conducted to
evaluate the relative effectiveness of these regulations on plant and community safety.
20
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3. ANSWER TO CHARGE QUESTION 3
3.1 Missing Issues
Can the SAB identify by consensus any environmental economics issues oj overriding
importance to EPA that the EERS has missed, ami that EPA should address provided
that more resources he made available for Environmental Economics Research?
Within each of the five subject areas discussed in section 2. of this report the
Committee has identified topics not originally mentioned in the Research Strategy. For
example, under market methods and incentives we have suggested that the agency broaden its
purview to consider renewable portfolio standards and incentives other than permit trading.
In the case of valuation of environmental benefits we have stressed the importance of valuing
non-marginal as well as marginal changes in risk of death and threats to ecosystems. The
EEAC. however, believes that that the five subject areas on which the Agency has focused in
the EERS arc the most important areas of environmental economics research in terms of their
importance to the Agency and in terms of gaps in the literature.
There is, however, an additional area of research, namely, the distributional
consequences of regulation, to which the Agency might give more attention. We know that it
is difficult to attribute the full general equilibrium costs and benefits of any given policy to
specific groups of individuals; however, as long as people have only one vote each, and
cannot exercise a number of votes in proportion to their perceived individual net benefits from
environmental regulations, an awareness of distributional consequences will be important to
the political feasibility of environmental regulations. Even a very attractive potential Pareto
improvement will not fly if the distributional consequences do not meet with society's
approval. The political economy of regulation will be an enduring dimension of successful
environmental management. We urge the agency to give more weight to the distributional
consequences of regulation in its strategy for benefit valuation. And, to the extent possible, in
the measurement of the costs of environmental regulation.
21
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4. ANSWER TO CHARGE QUESTION 4
4.1 Communication of the Research Strategy
What is the best way for EPA to communicate the results of the research strategy and
plans for achieving its long-term research goals to the wider research community, and
other potential users?
One way in which EPA could foster dialog with members of the research community
is to hold workshops in conjunction with the American Economics Association and American
Agricultural Economics Association annual meetings. These sessions would both give the
Agency an opportunity to communicate its long-range research goals and to hear from
researchers how these goals might best be met. This would inform the Agency's formulation
of Requests for Proposals.
Currently, EPA's requests for proposals are announced 90-120 days in advance, and
may be found on EPA's website under "Funding Opportunities—Environmental Research
Grant Announcements." [http://es.epa.gov/ncer/rfa/] The EEAC suggests that these notices
also be sent to the Chairs of Departments of Economics and Agricultural Economics, and that
announcements be placed in the newsletters of the Association of Environmental and
Resource Economists and American Agricultural Economics Association.
22
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References
Black, Dan A., Jose Galdo and Liqun Liu (2003). How Robust Are Hedonic Wage Estimates
of the Price of Risk? Final Report to the USEPA [R 82943001].
Harrington, Winston (1988). "Enforcement Leverage When Penalties Are Restricted,"
Journal ofPiihlic Economics, 37, 29-53.
Heckman, James, Rosa Matzkin, and Lars Nesheim (2003). Simulation and Estimation of
Hedonic Models. CEPR Discussion Paper.
Magat, Wesley and W. Kip Viscusi (1990). "Effectiveness of the EPA's Regulatory
Enforcement: The Case of Inudstrial Effluent Standards," Journal of Law and Economics
33:2,331-60.
Pope, C. Arden III et al. (2002). "Lung Cancer, Cardiopulmonary Mortality, and Long-Term
Exposure to Fine Paniculate Air Pollution," Journal of the American Medical Association
287:1132-1141.
USEPA (1997). The Benefits and Costs of the Clean Air Act, 1970-1990.
Viscusi, W. Kip and Joseph Aldy (2003). "The Value of a Statistical Life: A Critical Review
of Market Estimates Throughout the World." Journal of Risk and Uncertainty 27:1, 5-76.
23
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APPFN
lEbPONbEb TO INTERNAL AND
EXTERNAL REVIEWS
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON D.C, 20460
October 4,2004
THE ADMINISTRATOR
EPA-SAB-04-007
Dr. William Glaze
Chair
Science Advisory Board
U.S. Environmental Protection Agency
1200 Pennsylvania Avenue, N,W.
Washington, D.C. 20460
Dear Dr. Glaze:
I thank you, the Science Advisory Board, and Environmental Economics Advisory
Committee for your review of the Environmental Economics Research Strategy. As we work to
ensure that EPA's policies are founded on a solid underpinning of science, peer reviews like this
are an important part of our efforts.
Research developed in response to the EERS will be particularly important as we search
for better ways to protect the environment. It will lead us to new and more effective
environmental management approaches and will help ensure that the policies we adopt are both
efficient and fair.
Please be assured that the SAB's comments and suggestions will be used to guide EPA's
economics research activities in the future. Because EPA characteristically puts its research into
practice, your contributions will truly make a difference.
Again, my thanks to you and everyone at the SAB.
Sincerely,
/Signed/
Michael O. Leavitt
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY
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INTRODUCTION
Before being submitted to the SAB for external peer review, the EERS was reviewed by ORD's Science
Council. Science Council members had comments on the report organization, such as moving much of the
text to appendices to improve readability. These suggestions were largely incorporated. Other Science
Council suggestions included increasing the description of linkages between this Strategy and other pro-
grams, which was accomplished in Appendix 3, and extending a discussion of OALYs and DALYs, which is
accomplished below, in response to SAB comments.
In the rest of this appendix, EPA provides detailed responses to the SAB EEAC comments, found in narrative
form in Appendix 6: Review of the Environmental Economics Research Strategy of the U.S. Environmental
Protection Agency. By itself, EPA may not be able to address all of the SAB's suggestions immediately because
of resource constraints. However, the SAB's comments comprise a wealth of potential research topics and
should generate a significant amount of additional research by environmental economists in government and
academia.
2.1 VALUATION OF HUMAN HEALTH BENEFITS OF ENVIRONMENTAL IMPROVEMENTS
2.1.1 Characterization of Research Gaps and Priorities
Charge Question: Is the characterization of each of the major research gaps in the literature adequate?
Will these priorities and implementation approaches effectively address the areas of greatest scientific
uncertainty?
Most of the literature on human health valuation has focused on mortality valuation-measuring what indi-
viduals will pay for small reductions in their risk of dying in a specified time period. As the EERS notes,
much less effort has been invested in measuring what people will pay to avoid episodes of acute illness or to
reduce their risk of contracting a chronic illness (morbidity valuation).1 As a result, many health endpoints
are not monetized in Regulatory Impact Analyses; or their value is measured by productivity gains and avoid-
ed medical costs, which are a lower bound to the appropriate measure of value. In the area of morbidity valu-
ation, the EERS (p. 10) calls for valuation of noncancer endpoints; earaches, headaches, colds, gastrointestinal
upsets, reproductive and developmental effects (e.g., Attention Deficit Disorder, autism), and cancer-related
morbidity effects. On p. 15 of the Research Strategy, more emphasis is put on chronic health effects. The
EERS notes that it is important to allow valuation to depend on severity, duration, and frequency of symp-
toms. Emphasis also is put on valuing children's health.
According to the EERS, the main needs in mortality valuation (p. 16) focus on the impact of age on the Value
of a Statistical Life (VSL) and on the impact of the health status of the individual and co-morbidity (illness
preceding death) on the VSL.
COMMENT HEALTHVAL 1
The Committee agrees with the Agency's assessment on the lack of estimates of the value of morbidity risk
reduction benefits. Willingness to pay (WTP) estimates are indeed unavailable for many cancers, as well as
WTP estimates exist for reduced risk of chronic bronchitis and for some cancers, as well as for asthma attacks, restricted activity days, and
symptom days.
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for risks of heart attacks and strokes. WTP estimates for the other health endpoints noted in the first para-
graph also are lacking.
Response: Noted. This is a factual comment. No response is required.
COMMENT HEALTHVAL 2
In many cases, the productivity losses and medical costs associated with illness are not born by the individ-
ual. If this is the case, estimates of productivity losses (the so-called indirect costs of illness) and medical
costs (the direct costs of illness) must be added to WTP estimates. Estimating these illness costs is itself a
research task whose importance should not be underestimated.
Response: EPA agrees with this comment, and the final EERS has been revised (see Chapter 3) to identify
these factors as characteristics of desired research.
COMMENT HEALTHVAL 3
Regarding the Agency's priorities in the area of mortality valuation, the impact of age on the VSL is an impor-
tant, policy-relevant topic. Any environmental regulation that saves lives in proportion to the age distribu-
tion of deaths in the U.S. will primarily extend the lives of older people. (Fifty percent of the deaths in the
United States occur after age 75.)
Response: Noted. This is a factual comment. No response is required.
COMMENT HEALTHVAL 4
Regarding the impact of health status and co-morbidity on the VSL, the important issue here is whether envi-
ronmental pollution causes chronic illness or simply increases mortality risk for people who have preexisting
chronic conditions. When environmental contaminants cause a disease, it is theoretically desirable to value
the risk of contracting the illness (such as cancer), which will entail both morbidity and a reduction in life
expectancy. If pollutants differentially affect mortality risk for those with a preexisting condition (e.g., cardio-
vascular disease), then efforts should be put on measuring the impacts of the health state on the value of
increasing life expectancy.
Response: EPA agrees that the decision to value the mortality and co-morbidity (or incidence and risk of
death) of a given health endpoint either together or separately should consider all theoretically relevant
factors, including preexisting conditions. The valuation approach should try to capture individuals' WTP for
actual changes in health states. (This has been noted in Chapter 3 of the final EERS.) See also Comment
HEALTHVAL 9 on the next page.
COMMENT HEALTHVAL 5
There are three topics in the area of mortality risk valuation that the Committee believes deserve attention,
even though they are not mentioned in the EERS. The first concerns the reliability of existing estimates of
the VSL, which rely on labor market and on stated preference studies. The Agency has recently commis-
sioned re-analyses of data from compensating wage studies (Black, Galdo, and Liu, 2003) and of data from
contingent valuation studies of mortality risks. Examination of these results may suggest that emphasis
should be placed on developing newer, more reliable estimates of the VSL.
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Response: As the SAB reviewers note, EPA has requested an SAB EEAC review of the Black et al. study and
the broader literature on mortality valuation. The main goal of this review is to inform EPA's guidance on
valuing fatal risk, but the charge to the EEAC also specifically asks about the need for new mortality valua-
tion research. EPA will incorporate suggestions about mortality risk into the EERS implementation plan after
this second review. Nothing in the current EERS would preclude this research direction; in fact, it was a high-
priority short-term research area.
COMMENT HEALTHVAL 6
The second research topic concerns the issue of marginal versus nonmarginal risk valuation. Emphasis in
the literature is on valuing small changes in risk of death, on the order of 1 in 10,000 per year or smaller.
The Agency, however, uses these estimates to value regulations that, together, account for much larger risk
reductions. To illustrate, The Benefits and Costs of the Clean Air Act 1970-1990 (U.S. EPA 1997) predicted that
air quality regulations issued between 1970 and 1990 reduced mortality by 200,000 lives in 1990. When a VSL
of $4.8 million (1990 USD) was applied to these statistical lives, the WTP in 1990 for mortality risk reduc-
tions occurring in that year was estimated to be approximately $16,000 (1990 USD) for a family of four.
This was because the VSL was applied to a nonmarginal reduction in risk of death (on average, a 1/1,000
reduction).
Response: EPA agrees that its research portfolio should include studies that either evaluate nonmarginal
changes in risk or investigate how to properly "add up" values for marginal changes that, when totaled,
become nonmarginal changes. We will consider these issues in future internal research and in the scope of
future extramural solicitations.
COMMENT HEALTHVAL 7
Similarly large benefit estimates may arise when one adds together WTP for the risk reductions associated
with the 1990 Clean Air Act Amendments, the Tier II Emissions standards, the Heavy Duty Engine Diesel
Rule, the Off-Road Diesel Rule and Clear Skies. In short, although a single regulation may confer marginal
risk reduction benefits, the set of environmental regulations evaluated over a 10-year period may confer
nonmarginal benefits, and should be evaluated accordingly.
Response: Please see the response to Comment HEALTHVAL 6.
COMMENT HEALTHVAL 8
The third research topic concerns the impact of income on the VSL. Historically EPA has adjusted future
values of the VSL to allow for income growth. Such adjustments require estimates of the income elasticity
of WTP for mortality risk reductions. We believe that this is a topic that requires additional research.
Response: Noted. EPA will consider this topic in future solicitations and internal research.
2.1.2 Research Feasibility
Charge Question: Given the implementation strategy laid out in the EERS: To what extent is this research
scientifically feasible at a high level of quality? How successful is this research likely to be in answering
policy-relevant questions for EPA within the next 8-10 years?
2 The total value of the statistical lives saved, $1 trillion, when divided by the population of the United States in 1990, implies a WTP of
approximately $4,000 per person.
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COMMENT HEALTHVAL 9
There are several criteria to consider in formulating a research strategy for morbidity valuation:
a. The approach taken should be able to evaluate a large number of health endpoints;
b. It should, ideally, value the risk of avoiding chronic illness rather than avoiding the illness with
certainty;
c. The definition of health endpoints should take into account the severity, duration and frequency of
symptoms; and
d. The health endpoints valued should correspond to those linked to environmental pollutants in the
epidemiological literature.
Response: EPA agrees that these are proper criteria in formulating a research strategy for morbidity valuation
and will use these criteria in developing future solicitations and research projects in this subject area.
COMMENT HEALTHVAL 10
An important question, related to mortality valuation, is whether chronic morbidity and mortality should
be valued as part of the same package. For example, should people value the risk of developing congestive
heart failure as the risk of experiencing a series of hospital episodes, recurring discomfort and shortened life
span? Or, should the impact of air pollution on the morbidity associated with congestive heart failure be
valued separately from the impact of air pollution on the mortality associated with congestive heart failure?
The answer to this question depends crucially on the point articulated in item (d) above. If the epidemio-
logical literature suggests that air pollution increases risk of death due to congestive heart failure (and other
forms of heart disease), but does not link air pollution to increased incidence of the disease, then valuation
should mirror this approach. For diseases where environmental contaminants may actually increase the
risk of contracting the disease (e.g., for some cancers) then, assuming that people can comprehend both
the risk of the disease and its sequelae, the goal should be to value the morbidity and mortality risks as a
single package.
Response: Please see the response to HEALTHVAL 4. EPA agrees that morbidity and mortality valuation
research should follow from research results in the health science research literature. To improve this
linkage, EPA also is initiating an effort to incorporate behavioral variables in epidemiologic studies.
COMMENT HEALTHVAL 11
Regarding the number of health diseases to be valued, a possible approach to dealing with the point articu-
lated in item (a) above is to have people value functional limitations (characterized by severity, duration, and
frequency), which, in turn, are related to illnesses. This is likely to work best for chronic illnesses and less
well for acute illnesses. Obtaining reliable values for the risk of an illness will remain a challenge.
Response: EPA generally agrees with this suggestion. As noted in the draft EERS, "a long-term strategy might
be to develop methods that generate cost-effective and theoretically plausible values for multiple health end-
points, such as valuation of symptoms or health status indices, and improved methods for benefit transfer."
However, any such indices or transfers must be based on theoretically and methodologically sound and
empirically valid studies that have been rigorously peer-reviewed by economists.
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COMMENT HEALTHVAL 12
One potential area of research is to examine whether it is possible to use information contained in measures
of health preference, such as OALYs, that are used in other public-health domains to provide a method for
transferring benefit estimates from one health endpoint to another.
Response: Please see the response to Comment HEALTHVAL 11.
COMMENT HEALTHVAL 13
Regarding estimates of the value of mortality risk reductions, it would seem that stated preference methods
are the main candidates for studying the impact of age and health status on WTP, although it may be possible
to use revealed preference methods for the impacts of age in the context of auto safety. (Labor market data
probably cannot be used to estimate WTP for ages greater than about 65 because of the relatively small frac-
tion of the elderly who are employed [Viscusi and Aldy, 2003]). The use of both stated and revealed prefer-
ence methods to value reductions in risk of death is advisable.
Response: EPA agrees that, based on existing mortality studies, stated preference methods are preferred to
revealed preference methods for valuing mortality risk outside of the workforce, but that both methods
could provide useful information, particularly if new revealed preference approaches are developed that
would address the shortcomings of labor market studies for some age groups.
COMMENT HEALTHVAL 14
Regarding the issue of valuing nonmarginal risk changes, this is certainly feasible using stated preference
approaches. Recent advances in dealing with the identification problem in hedonic markets suggest that this
should also be feasible in a revealed preference context (Heckman, Matzkin, and Nesheim, 2003).
Response: EPA will consider this as a possible focus in future health valuation research.
COMMENT HEALTHVAL 15
The Committee believes that progress in the area of health valuation can be made, with appropriate funding,
within the next 8-10 years. We believe that for these efforts to be successful, and to yield high-quality
research, it is essential that the economists conducting the research work together with epidemiologists to
ensure that the health effects valued match up with those examined in the epidemiological literature, and
with physicians to ensure that any health status indices that are used to facilitate evaluating a large range of
health endpoints are appropriate to the task.
Response: EPA agrees that economists and health scientists should work together on these issues. EPA also
agrees that its valuation research will be more effective by focusing on valuing health endpoints that can be
identified and measured. However, EPA notes that health risk assessments cannot rely solely on epidemio-
logists or on physicians' opinions but should also rely on toxicology, biomarkers, and exposure studies.
Economists need to work with all of these disciplines to get a full and accurate picture of environmental
health effects.
2.1.3 Usefulness of the Research
What improvements in the design and implementation of the EERS would make each research project more
useful to EPA and other environmental management agencies?
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COMMENT HEALTHVAL 16
The Committee believes that it is important to measure the impact of household characteristics on WTP
for both morbidity and mortality benefits. This is important if the Agency is to examine the distributional
impacts of environmental policies. It is also the case that certain air pollution epidemiology studies dis-
tinguish health effects by socioeconomic status (e.g., Pope et al., 2002). Making these distinctions in terms
of valuation would make it possible to further refine the distributional impacts of air pollution control
strategies.
Response: EPA agrees that household (and other demographic) characteristics can be important in measuring
WTP for morbidity and mortality effects, provided that the ethical considerations underlying this approach
are made explicit in each analysis (see SAB Comments MM&I 14 and 15). This approach, or extension, will be
considered in developing further health valuation and other environmental economic research.
2.2 VALUATION OF ECOLOGICAL BENEFITS OF ENVIRONMENTAL IMPROVEMENTS
2.2.1 Characterization of Research Gaps and Priorities
Charge Question: Is the characterization of each of the major research gaps in the literature adequate?
Will these priorities and implementation approaches effectively address the areas of greatest scientific
uncertainty?
COMMENT ECOVAL 1
The EERS identifies a number of endpoints for which valuation of ecological services will be useful. These
endpoints include water quality changes, ecological impacts of air pollution, introduced versus native
species, avian species, etc. Although this way of thinking about the benefits of ecosystem improvement is
consistent with how economists view the valuation of many goods, this single endpoint focus is not gener-
ally consistent with how ecologists view ecosystem functioning. For research in ecological benefits to be
most valuable, there must be a high level of interaction between economists and ecologists.
COMMENT ECOVAL 2
To begin, there must be a broad understanding of the way in which ecologists view ecosystem functioning.
For example: The research plan refers to "outcomes" as if ecosystems are mechanical" (i.e., when the level
of an insult increases the ecosystem has predictable new equilibrium outcomes). This characterization of
ecosystem dynamics may be appropriate in some cases, but this is not the way ecologists think about eco-
system responses generally. Rather, they tend to think of ecosystems as constantly changing, with different
levels of insult affecting the course of change. Even if there is an equilibrium, the equilibrium may not be
reached for decades or a century, so outcomes have to be thought of in a more dynamic way.
COMMENT ECOVAL 3
On the other hand, ecologists do think of the services provided by well-functioning ecosystems as something
that can be characterized and assessed. This may be the point at which ecologists and economists can best
find meeting points.
Response to Comments ECOVAL 1-3: In line with the SAB's suggestion, EPA typically attempts to measure
policy-induced changes in structure and function of an ecological system based on ecological studies, and
then to estimate changes in the (valuable) service flows that are produced by that ecological system. EPA has
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a large number of ecologists in its research and program (regulatory) offices, with whom EPA economists
often work closely. EPA also has initiated a number of solicitations for extramural research that requires ecol-
ogists and economists to work together, and is developing an Ecological Benefits Assessment Strategic Plan
based on sustained interaction between economists and ecologists.
COMMENT ECOVAL 4
Ecologists are more concerned with thresholds and irreversibilities in ecosystems than in the pros and cons
of changing from one equilibrium to another. One of the effects of a change may be that the ecosystem is less
resilient to the next insult, so alternative scenarios of future insults need to be explored, not one-time changes.
COMMENT ECOVAL 5
This brings us back to earlier efforts to tackle cumulative effects. Ecologists do not think of stresses as being
separable. Hence, they are more "conservative" than economists who are comfortable with the assumption
that stresses are separable and hence can be considered "on the margin." For ecologists, the order of stresses
also can be important. The earlier efforts of economists to understand cumulative impacts should probably
be reviewed as a starting point for moving forward in this respect.
Response to Comments ECOVAL 4-5: EPA acknowledges the importance of the divergence in how ecologists
and economists view an ecosystem. ECOVAL Comments 4 and 5 are both similar to the issue of visibility valua-
tion, in which one regulatory action alone might not produce a perceptible change in visibility, but two or more
regulatory actions together will produce a measurable change that can be perceived and valued. This is analogous
to an ecosystem in which one individual ecological stressor might not change the "outputs" from that ecosys-
tem but will change its resilience so that additional future stresses might have a much more profound effect
on ecosystem services. A change in an ecosystem's resilience is an attribute that currently is not captured very
well. Resiliency is a suitable focus for future research, provided it can be linked to people's observable choices.
COMMENT ECOVAL 6
Although it would be nice if ecologists could simply provide predictions of ecosystem behavior to meet econ-
omists' specifications of what they need, the fact of the matter is that ecologists are the experts on ecosys-
tems. Implying that the economists need something that is contrary to the expertise of ecologists may not
be a good starting point for what has to be a joint project. The Research Strategy should address how econo-
mists and ecologists in the Agency can learn more about what each other knows and how they can develop
shared understandings, language, and models.
Response: See the response to Comments ECOVAL 1-3. It is not the intent of the EERS to imply that EPA
believes "economists need something that is contrary to the expertise of ecologists." Generally, EPA would
concur that may not be a good starting point for joint projects between ecologists and economists. On the
contrary, as the text explains, discussions between economists, ecologists, and other scientists have been
ongoing within EPA for some time. Both EPA and EPA-supported external economists and ecologists have ex-
pended considerable effort trying to learn more about what each other knows and believes and how they can
develop shared understandings, language, and models that can actually be used in the policy evaluation arena.
COMMENT ECOVAL 7
Rather than valuing changes in a single service from an ecosystem (e.g., increased avian species or increased
fish catch), it may be appropriate to work with ecologists to value the entire bundle of service changes associ-
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ated with a change in an ecosystem from one state (perhaps one with a low level of function generally) to
another (one that supports on average more species diversity, more resilience to external shocks, etc.)
Response: EPA agrees that this would be a notable goal and would be interested in new research to achieve
this objective. See also EPA's response to Comments ECOVAL 1-3.
COMMENT ECOVAL 8
Research on the benefits of ecological systems and services will necessarily need to be ecosystem specific.
Although "outcomes" for human health effects are many and are probably sensitive to the age at which the
problem occurs, they are going to be pretty much true whether a person lives in Phoenix or Philadelphia. For
ecosystems, although there are classifications of ecosystem types that will prove helpful, there are going to be
a considerable number of types. The condition of the ecosystem for which an additional stress is being con-
sidered also will be important. Of course, the conditions of people experiencing an environmental stress also
are important, but the stress is generally experienced by a large population of people whose conditions can be
understood in statistical terms. Decisions on ecosystems will much more likely be taken one system at a time.
Response: The first part of this comment is true if the point of departure for valuation is a classification of
ecosystem "types." However, if ecosystems (e.g., water bodies) are classified according to their uses or their
abilities to provide "services," as some ecologists suggest, then the comparability across ecosystem types or
indices is more tractable. As with health effects, the value of a boating day would vary pretty much along the
same characteristics whether a person lives in Phoenix or Philadelphia, that is, the availability of substitutes,
scenic amenities, or the quality of the water as a source for complementary recreation (fishing, swimming,
water skiing). It is clear that any transfers of values across ecosystems or ecosystem indices would have to be
done on the basis of characteristics common to both ecosystems. The condition of the ecosystem will be
important, as the comment notes.
COMMENT ECOVAL 9
The EERS recognizes the large reliance the agency places on benefits transfer and the likely need to continue
this reliance. They suggest that a "cost-effective strategy may be to investigate methods that generate theoret-
ically sound values for multiple endpoints." The Committee generally agrees with the logic of this idea, but
the Agency should consider that the highly contextual nature of ecosystem services may make transfers even
more challenging than when the focus is on single endpoints. Benefits transfer in the case of ecosystems is
exceptionally challenging.
Response: EPA agrees with this statement but believes the challenge of transferring (multiple endpoint)
index values should be worth the effort, due to the interactive nature of multiple ecosystem services
(e.g., wetland effects on water purification, flood risk reduction). Ultimately, transfers may be possible
only for individual services, based on these services' characteristics, but that is largely unknown at present.
COMMENT ECOVAL 10
One important issue noted in the document is the fact that ecosystem services and functioning are not well
understood by the general public, thus complicating the process of valuation. In addition to eliciting the
value of ecosystem changes, the valuation process usually requires some education of the public. This has
important implications for the resulting values and for the resulting use of benefits transfer. The relation-
ship between physical measures of ecosystem functioning (pollution concentrations in water or air, number
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of species present in a land area, etc), features of an ecosystem that people perceive and the perception of
the ecosystem by people is poorly understood. Because this linkage is critical for valuation, this is an area of
research that might yield high returns to EPA and other agencies.
Response: Noted. The EERS indicates that this ecosystem "education/preference elicitation" research area is
important. EPA has sponsored several studies (see Hoehn et al., 2003) that specifically address people's percep-
tions of ecosystem services, and will attempt to integrate this consideration into future studies and solicitations.
COMMENT ECOVAL 11
The inherent uncertainties in ecosystem functioning makes the need to characterize uncertainty in the valua-
tion process particularly important when ecosystem values are sought. This is an area where additional work
could be focused.
Response: EPA agrees with this statement; the treatment of uncertainty in estimating both benefits and
costs is a priority for economic analyses across the Agency.
COMMENT ECOVAL 12
Likewise, additional work on the implications of the "precautionary principle" and cost-benefit analysis
when irreversibility and uncertainty is present may prove beneficial.
Response: The comment brings an interesting area of ecological valuation research to EPA's attention that
has not been addressed in a systematic way. We will consider how best to incorporate this concept into
future research.
COMMENT ECOVAL 13
Another feature that merits focus is the implication of threshold effects and valuation of large rather than
marginal changes. Valuation for dynamic systems and the consequences of valuing changes in ecosystem
services under very long time scales also are issues that EPA may wish to consider. Again, these features may
be unique to ecosystem valuation as distinct from health endpoints or other nonmarket goods.
Response: Noted. EPA will consider these comments in developing future research projects.
COMMENT ECOVAL 14
Among nonmarket values for ecosystem services, nonuse values are the poorest understood, yet they have
the potential to be very large in magnitude. This implies that research that focuses on nonuse values may
have the highest returns.
Response: Noted. EPA will consider these comments in developing future research projects.
COMMENT ECOVAL 15
Some committee members felt that materials damage and losses of visibility from pollution should also be
included among environmental benefits to be studied.
Response: Noted. EPA will consider these comments in developing future research projects.
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2.2.2 Research Feasibility
Given the implementation strategy laid out in the EERS: To what extent is this research scientifically feasi-
ble at a high level of quality? How successful is this research likely to be in answering policy-relevant ques-
tions for EPA within the next 8-10 years?
COMMENT ECOVAL 16
The Committee sees considerable return on research in the area of ecosystem valuation. With ade-
quate funding, the Agency is likely to see information that is very relevant for policy questions being
produced.
Response: Noted.
2.2.3 Usefulness of the Research
What improvements in the design and implementation of the EERS would make each research project more
useful to EPA and other environmental management agencies?
COMMENT ECOVAL 17
Many of the ecological benefits measures needed by EPA also would be of value to other government and
public agencies. Specifically, the U.S. Army Corps of Engineers, Unites States Department of Agriculture
(USDA), Forest Service, and many Non-Governmental Organizations (NGOs) and state agencies would find
ecological benefits work to be highly valuable. EPA should find ways to share research results as well as con-
sider jointly funding and identifying needed research on ecological benefits.
Response: Noted. EPA has initiated efforts to share research with these agencies in areas of mutual interest.
COMMENT ECOVAL 18
One of the needs identified in the report is for valuation of reductions in pesticides in water, but in many
parts of the country, nutrients are as much or significantly more of an issue. Nitrogen is a clear problem for
hypoxia, while phosphorous and other nutrients are important for local water quality problems in much of
the Midwest.
Response: Several EPA offices suggested that valuing the effects of nutrient level changes on ecological con-
ditions should be a research focus (see Appendix 5). EPA will consider these comments in developing future
research solicitations.
COMMENT ECOVAL 19
A centralized team of economists in Washington, DC, may not be the ideal configuration of economists for
undertaking research that is going to be inherently more contextual than other types of environmental eco-
nomic research. More economists are probably going to be needed in the regional offices to carry out ecosys-
tem valuation effectively. This activity also could be enhanced by the use of non-EPA economists (outside of
Washington) with expertise in ecosystems analysis.
Response: Although it is true that ecosystem research and valuation are likely to have context-specific com-
ponents, EPA has nationwide policy development and regulatory responsibilities. EPA analyses are typically
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conducted at the regional or national level (e.g., for a national rale affecting concentrated animal feeding
operations). More economists in the regions might complement a centralized group of economists in EPA. In
general, however, economic valuation methodology would not vary by locale, although the data informing
the valuation process certainly would. EPA believes there are both economies of scale and synergistic bene-
fits in co-locating a group of economic researchers and analysts who have close ties to academic research; sci-
entists from other disciplines (e.g., ecologists, epidemiologists); and the regulatory process. The benefits of
co-location also seem to hold true in most academic economics departments. Through the STAR grant program,
EPA is supporting research by external economists and ecologists who have successfully competed for grants.
Hiring more economists in the Regions also is outside of the scope of the activities covered by the EERS.
2.3 VALUATION METHODOLOGIES
What methodological research needs in valuation should EPA investigate as a complement to the needs
derived from the strategy interviews?
As noted in the Research Strategy, much of the academic literature in nonmarket valuation focuses on
methodological development. Although this implies that a substantial amount of methodological work may
be produced without impetus from EPA or other agencies, there are some areas of valuation where the need-
ed methodological refinements may not be as forthcoming as others.
COMMENT VALMETHOD 1
In particular, some areas may not be viewed to be as methodologically interesting as others, but may still be
critical to improving the accuracy of nonmarket valuation in the context of ecosystem services.
COMMENT VALMETHOD 2
The Committee identified the following topics as being of particular value to EPA programs (See comments
VALMETHOD 2-7):
1. Improved methodologies and tools for benefits transfer as well as increased understanding of the range
of uncertainty associated with the transfer of values from one study site to another. Given the enormous
reliance that EPA and other agencies make on the transfer of benefits to perform benefit-cost analysis,
considerable gains from additional understanding of this process may be possible.
COMMENT VALMETHOD 1
2. Increased understanding of the appropriate extent of the market when taking welfare estimates from
individual values and aggregating them to the full population (this is particularly important for nonuse
values). There is both the issue of having the appropriate sampling frame from which to compute per
household benefits (e.g., a random population survey versus a sample of people visiting a shopping mall)
and the issue of how much of the general population to apply these values to (e.g., households in close
proximity to the impacted resource, all households in a certain political jurisdiction, all households in
the world?).
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COMMENT VALMETHOD 4
3. Further study of the WTP-WTA divergence literature. In many cases, a strong argument may exist for the
use of a WTA valuation rather than a WTP based on explicit or implicit property rights.
COMMENT VALMETHOD 5
4. Increased understanding of the appropriate valuation of the opportunity cost of time in revealed prefer-
ence studies. This concern relates primarily to recreation demand studies, where different assumptions
about the value of time can yield differences in the estimates of welfare changes by a factor of two or
more.
COMMENT VALMETHOD 6
5. Improved bid design methods for stated preference surveys. Discrete choice stated preference surveys
require the researcher to define the bid distribution for respondents. Potential bias and inefficiency from
suboptimal bid design are not well understood.
COMMENT VALMETHOD 7
6. Although a growing literature in the valuation field combines stated and revealed preference information
to jointly estimate the parameters of welfare measures, there may be substantial gains to EPA and other
agencies from furthering work in this area. The combination of stated and revealed preference data
enjoys the prospect of grounding welfare estimates in observable behavior while allowing for a much
broader category of benefits to be studied with the inclusion of stated preference information.
Response to Comments VALMETHOD 1-7: EPA has noted its strong interest in developing valid methods for
benefits transfer. In addition, EPA has sponsored some research in the areas of: (1) the opportunity cost of
time, (2) bid design methodology for stated preference, (3) combined revealed and stated preference, and
(4) scope issues in health valuation research. To date, EPA has done relatively little to investigate the discrep-
ancy between WTP and WTA, except as it is integral with time preference studies (see Gregory et al., 2004).
EPA is giving serious consideration to the SAB's recommendations and has already begun to incorporate
some elements of these suggestions into grant solicitations, as appropriate. EPA will continue this practice
for future solicitations.
2.4 ENVIRONMENTAL BEHAVIOR AND DECISION-MAKING
(Formerly called "Corporate Environmental Behavior and the Effectiveness of Government Interventions
[referred to as CEB]")
2,4.1 Characterization of Research Gaps and Priorities and Usefulness of Research
Is the characterization of each of the major research gaps in the literature adequate? Will these priorities and
implementation approaches effectively address the areas of greatest scientific uncertainty?
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What improvements in the design and implementation of the EERS would make each research project more
useful to EPA and other environmental management agencies?
COMMENT CEB 1
This topic is one of the most important research priorities faced by EPA. Judging from the survey of EPA
program offices, this topic is tied with "Valuation of Reduced Morbidity Benefits" for the highest priority.
Several research questions are highlighted, including: (a) Why and how do facilities comply? (b) What poli-
cies or approaches increase compliance? and (c) How successful have voluntary programs been? The
Committee offers the following comments on the research goals:
Response: EPA agrees with this comment; CEB research is a high priority for EPA.
COMMENT CEB 2
Previous EPA-funded results. It would be helpful to assess how successful the previous Science To Achieve
Results (STAR) competitions on Corporate Environmentalism have been.
Response: The STAR grant program undertakes periodic assessments of the success of its supported grant
programs. The CEB grant program is young, entering its fifth year in 2004, and broad, covering a range of
behavioral topics from compliance effectiveness to voluntary programs to information disclosure. As a result,
few compelling results have been demonstrated in any one topical area. However, anecdotal evidence sug-
gests that the STAR CEB program has produced not only numerous publications but also results that corpora-
tions, industry associations, and environmental management agencies can use and have used. A research
workshop on CEB in April 2004, was well attended and well received by EPA and state agency staff. As the
SAB EEAC recommends, a CEB comprehensive program evaluation will be tentatively scheduled for 2005 as
part of the Economics and Decision Sciences Research Multiyear Plan.
COMMENT CEB 3
Breadth of research area. This research priority area is termed Environmental (Compliance) Behavior and
Decision-Making. It is unclear whether the focus is limited to compliance-related behavior or whether this
priority area is intended to include broader issues relating to environmental behavior. Some of the specific
questions raised in this context (e.g., location, technology adoption, and pesticide use) do not involve com-
pliance directly. They are questions about how firms make decisions that have environmental implications.
The Committee believes that this is the correct perspective on this issue. Ultimately, EPA's goal should be to
understand why some firms pollute more (per unit of input or output) than others. This may depend on the
nature or environmental regulations and their enforcement, but also will depend on the costs of reducing
emissions.
Response: As described in the EERS, the focus of the CEB research area is broader than compliance behavior,
including mandated and voluntary environmental behavior, environmental performance, the motivations for
each of these, and the effectiveness of government interventions on each. In addition, the definition of "corpo-
rate," as EPA has used it for the past 4 years, encompasses individuals, municipalities, and other organizations
or institutions, public or private, whose actions have environmental impacts. Within this umbrella research
area, EPA will attempt to address the effectiveness of all realistic alternatives for influencing polluter behav-
ior: enforcement, information, government-industry partnerships, voluntary programs, as well as motives for
adopting new "greener" technologies. EPA intends to rotate grant solicitations among these topics over the
next few years to build a "weight of evidence" for understanding the efficacy of each of these alternatives.
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Nonetheless, compliance behavior specifically arose as EPA's highest priority for research in this area. As a
result, EPA is initially allocating resources to this more focused research area to answer some fundamental
questions, such as "Why do regulated entities behave as they do?" Variants of this question were ranked
highly in interviews with every program office.
In its comments below, the SAB also recommends research on costs. A closely related question—What are the
working definitions or conceptions of "compliance costs" for regulated entities?—arose frequently (either
explicitly or implicitly) in the survey of EPA program offices. This question includes consideration of transac-
tion costs with government agencies or neighboring communities, potential for gaining a comparative advan-
tage and market share, and liability concerns, all of which figure into many business decisions but are not
commonly counted as compliance costs in public or private analyses. The 2003 CEB RFA, developed after the
EERS was drafted, solicited research to investigate these questions.
COMMENT CEB 4
If the focus is on compliance alone, then it is not clear why the questions relating to voluntary programs are
included, because by definition voluntary programs do not entail "compliance" with existing rules or regula-
tions. The study of voluntary programs would fit more closely with the research about information disclo-
sure. Alternatively, if this priority area is intended to be broader, then the research on information disclosure
could be folded into this priority area.
Response: The focus of the CEB area of research is not on compliance alone. Please see the response to
Comment CEB 3. The environmental information disclosure research area will be folded into the CEB
research umbrella.
COMMENT CEB 5
Feedback from regulated industries. Traditionally, research on compliance and enforcement has treated the
policy process as linear. The regulator first designs and imposes a policy, then an enforcement strategy (e.g.,
an audit frequency and penalties for non-compliance), and then the polluting firm decides whether or not to
comply. Some research on enforcement and compliance might benefit from considering a more interactive
model, under which regulators and regulated parties work together to identify pollution sources and means
to address them. Monitoring and information generation are key parts of such a strategy. One example is
EPA's Clean Charles 2005 Initiative. (Again, this suggests that the research priority area on information
disclosure is closely linked to this priority area.)
Response: The Reference to a Model: "Under which regulators and regulated parties work together to
identify pollution sources and means to address them" implies a public-private partnership. Such partner-
ships have been attempted as part of both state and federal efforts and therefore also are a focus of the CEB
research area. Chapters 3 and 4 of the EERS have been expanded to address public-private partnerships more
explicitly. Such partnerships can encompass monitoring, technology sharing, regulatory relief, and other
options to achieve improved environmental performance for a firm, locale, or sector. This research will
attempt to identify the factors and design characteristics that would make such partnerships cost effective.
COMMENT CEB 6
Public sector compliance. Most of the compliance and enforcement literature studies private-sector polluters.
Other sources, such as municipalities, have received relatively little attention. Yet, in some contexts these
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constitute the primary pollution sources (e.g., water pollution). Thus, the scope of the research priority
should be sufficiently broad to include not only decisions by private polluters but also by public sources.
Response: EPA agrees and has supported research addressing the behavior of municipal sources of water pollu-
tion, hazardous waste generation, and brownfields redevelopment. Please see the response to Comment CEB 3.
COMMENT CEB 7
Unobserved determinants of behavior. The existing literature has understandably focused on easily observ-
able determinants of environmental decisions: firm size, industry group, etc. However, less easily observable
motivational factors may be more important in explaining the environmental behavior of a particular firm.
Information about these factors comes primarily from case studies, which are often viewed as anecdotal.
Therefore, it seems appropriate for EPA to fund research that seeks to provide statistical evidence regarding
firm decision-making, as well as more indepth case studies of the behavior of individual firms.
Response: EPA agrees with this comment. EPA has funded and conducted both case studies and statistical
analyses of cross-sectional, time-series, and panel (a mix of both) data. Each has its strengths and weakness-
es. In combination with each other, and with theoretically based simulation models and experimental
approaches, these approaches can provide more varied and robust depictions of actual environmental behav-
ior under different circumstances than any one approach can individually. One element of the CEB compo-
nent of the research strategy will be to try to piece these approaches together coherently and identify where
each, in combination with the others, can most efficiently advance the process of scientific discovery. A
description of this element has been added in Chapter 3 of the EERS.
COMMENT CEB 8
Market incentives. A key question that needs to be addressed (statistically and through case studies) is whether
market incentives for environmental protection (e.g., from consumers, communities, suppliers, or investors)
are sufficiently strong. Again this relates closely to the effect of information disclosure, as information dis-
closure is likely to increase these pressures. Instead of thinking about voluntary approaches and information
provision as substitutes for more traditional regulations, they may be thought of as complements.
Response: Noted. The substance of this comment has been added to the EERS and will be one of the focal
areas of the planned RFA on the benefits of environmental information disclosure.
COMMENT CEB 9
Cost-effectiveness. Most studies focus on accounting costs of compliance, and ignore things like the transac-
tions costs of dealing with regulators, liability costs, and adverse publicity. It would be worth considering
these broader definitions of costs.
Response: EPA agrees with this comment and has posed this question in the 2003 CEB RFA. Please see the
response to Comment CEB 3.
COMMENT CEB 10
Market structure. Regulations may have different effects on industries with different market structures.
Response: Noted. This has been the focus of several funded CEB research projects and will continue to be an
area of interest for CEB research. More broadly, EPA would like to identify the range of factors that influence
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environmental behavior, including market or industry structure, firm size, ownership, community pressure,
and organization.
COMMENT CEB 11
Appropriate fines. The EPA's current practice requires firms caught violating environmental regulations to
pay fines equal to the profits they earned as a consequence of their violations. It is an open research ques-
tion whether this is in any way optimal. Research also could be conducted on the use of resource-based
optimal compensation in lieu of fines. Sometimes violators can avoid fines by undertaking restoration or
enhancement activities of great value than the fine. The desirability and effectiveness of non-monetary
penalties need to be better understood.
Response: Noted. This comment arose in the development of the EERS but was not a strong enough priority
to merit the early application of resources. In response to the SAB's interest, EPA will explore areas where it
can fit with other CEB topics so that it can be addressed sooner rather than later.
COMMENT CEB 12
Ex-ante versus ex-post estimates of compliance costs. Ex-ante estimates are typically higher. This may be
due to strategic industry overstatement of costs, or because technological improvements are not foreseen.
Research on the difference between ex-post and ex-ante estimates would be useful to researchers assessing
future proposed regulations.
Response: EPA agrees with this comment and has invited researchers to explore this question in past RFAs.
In the future, EPA will continue to solicit such research, although the Agency recognizes that there might be
some practical difficulties. These include the difficulty of obtaining accurate cost and expenditure data vol-
untarily from private firms or facilities, the common inability of plant managers to discern investments that
improve productivity from those that reduce pollution, and the aforementioned issue of what "costs" really
means to decision-makers.
COMMENT CEB 13
Data: Several researchers noted that state variation in approaches, fines, monitoring, etc., can be used to
study these issues, but that state data are difficult for individual researchers to collect. A useful role for EPA
may be to encourage states to collect data in a standardized way and to assist in compiling the data.
Response: Several offices in EPA, including OECA and OEI, are devoting considerable resources to standardiz-
ing the collection of facility-specific data from states. In addition, EPA is exploring approaches to "clean" and
document the data it has already collected to improve the ability of researchers and analysts to match infor-
mation from different data sources, and to understand why and how the data were collected.
2.4.2 Research Feasibility
Given the implementation strategy laid out in the EERS: To what extent is this research scientifically feasi-
ble at a high level of quality? How successful is this research likely to be in answering policy-relevant ques-
tions for EPA within the next 8-10 years?
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COMMENT CEB 14
In general, committee members felt that EPA researchers have identified an important area for research, and
one that could lead directly to improvements in EPA efficacy, reductions in regulatory costs, and improve-
ments in environmental quality. Key tasks for the EPA include: defining the scope of the research objective,
assessing prior EPA funded research, and assisting with the unification and publication of monitoring and
enforcement data.
Response: EPA agrees with this comment and has addressed all of these comments above.
In addition, the Committee noted that any research in this area will have to deal with the following problems.
COMMENT CEB 15
Enforcement actions are widely understood to be targeted at likely violators, and hence endogenous.
Researchers cannot estimate the effect of inspections and enforcement on the probability of violating envi-
ronmental laws without simultaneously estimating the effect of violations on enforcement. This task is diffi-
cult without knowing the procedures EPA or the states use to decide which facilities to inspect. For a seminal
paper on this topic, see Magat and Viscusi (J. Law and Econ, 1990).
Response: Noted. A number of sponsored and other research projects have attempted to resolve the endo-
geneity problem using approaches such as instrumental variables. EPA is aware of this issue and will contin-
ue to use rigorous peer review to ensure that sponsored research projects explicitly address sources of bias
before funding.
COMMENT CEB 16
A second empirical problem, noted by Harrington (JPubE, 1988), is that given the low probability of any par-
ticular firm being inspected, or punished given an observed violation, the overall level of compliance is sur-
prisingly high. Some other phenomenon aside from regulatory enforcement must explain compliance: public
relations, citizen suits, NGO actions, etc.
Response: These are issues that the CEB research area is attempting to address. Researchers are trying to
differentiate among firms based on the characteristics mentioned. This topic will be included more explicitly
in a future CEB solicitation.
COMMENT CEB 17
A third empirical problem involves the availability of data. Much of the empirical literature focuses on the
pulp and paper industries, due to the availability of water pollution enforcement data via the Permit
Compliance System (PCS).
Response: Some of the more recent research projects have looked into detailed data in several other sectors,
including iron and steel, oil and gas, chemical manufacturing, and metal processing. These and other
research projects also have considered plant-specific air emissions and hazardous waste generation data. EPA
collects, and provides researchers access to, facility-specific data on enforcement, inspections, air emissions,
hazardous waste disposal, toxic releases, nearby population, and several other factors.
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COMMENT CEB 18
Finally, this section of the Research Strategy asks to what extent voluntary pollution reduction programs
such as the "33-50" program have succeeded. Answering this question requires facing another simultaneity
problem: firms that have unobserved tendencies to reduce pollution are more likely to volunteer to do so. To
accurately assess the efficacy of these voluntary programs, a researcher will need some exogenous variation
in the programs, or some instrument for program participation. The Agency needs to be particularly attentive
to opportunities to exploit exogenous variation in eligibility for particular programs so that valuable chances
to assess the consequences of "natural experiments" are not missed. Labor economists have sensitized the
discipline to the desirability of natural experiments for program evaluation. In particular, the Agency needs
to be watchful whenever there are boundaries in some dimension (time, firm size, space) across which the
assignment of firms to regulatory regimes is randomized by arguably external factors.
Response: First, the assertion that "firms that have unobserved tendencies to reduce pollution are more like-
ly to volunteer to do so" has been at least partially rejected in some recent CEB-sponsored research. King and
Lenox (2001) provide some evidence that both high and low performers join voluntary programs but for dif-
ferent reasons (e.g., comparative advantage or free-riding, respectively). The research has progressed some-
what in recent years beyond this question to focus more on the characteristics and requirements of the vol-
untary programs and how well matched their inherent incentives are to industry and firm characteristics. As
mentioned above, the instrumental variables approach has been followed in a number of studies. Second,
the comment on EPA trying to exploit the occasions of natural experiments is well taken, and EPA will try to
take advantage of such situations.
2.5 MARKET METHODS AND INCENTIVES
2.5.1 Characterization of Research Gaps and Priorities and Usefulness of the Research
Charge Questions!
• Is the characterization of each of the major research gaps in the literature adequate?
• Will these priorities and implementation approaches effectively address the areas of greatest
scientific uncertainty?
• What improvements in the design and implementation of the EERS would make each research
project more useful to EPA and other environmental management agencies?
The Research Strategy combines the research priority "Market Mechanisms and Incentives [MM&I], Trading"
with the priority "Market Mechanisms and Incentives, Other than Trading" in its final list of research gaps
(p. 19). The proposed research emphasis from the Office of Research and Development will be on "trading in
practice and trading in new markets" (p. 29). These specific areas are mirrored in the identified research gaps
on p. 19. Especially regarding "trading in practice," the key questions that are identified are the environmen-
tal effects of trading and estimating the resulting cost savings. For new applications, the key questions are
predicting the success of new markets and designing the markets to achieve both environmental and cost-
reduction goals.
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Some specific possible research areas that are mentioned include using market approaches for urban storm
water management; programs for new pollutants and media; the complexities of tradable water quality per-
mits in a world of multiple market distortions, lack of monitoring, and "cultural resistance to enforcement"
(p. 20); the interactions of marketable permits with existing taxes; and market design questions.
COMMENT MM&I 1
The Committee believes the Research Strategy identifies some extremely important areas for future research,
but is too limited in its focus. The following are areas worthy of inclusion in the MM&I research program.
COMMENT MM&I 2
Market mechanisms other than trading are notably absent from the discussion of research gaps. Exceptions
include the brief mention of "environmental information programs" (p. 12) and "Methodology for evaluation
of effectiveness of voluntary programs" (p. 26), which are already the subject of research priorities identified
elsewhere in the EERS. The exclusion of other MM&I instruments, or more generally incentive-based instru-
ments, such as pollution taxes, abatement subsidies, scrappage schemes for old cars, and deposit-refund sys-
tems, unduly limits the policy approaches that merit study. For example, current environmental policy relies
heavily on legal liability for environmental contamination, which is an incentive-based policy. The empirical
effects of these policies are not well understood but are a promising area for future research because data
exist from recent experience.
COMMENT MM&I 3
Although the language in the Strategy does not rule out study of mechanisms other than permits, the
absence of their mention does not encourage it either. Research has shown that different market-based
instruments vary in, for instance, their effects on technological change, their total costs to pollution sources,
their effects on entry and exit in an industry, the potential for "double dividend" effects, and the political or
social acceptability of the instruments. Exploration of the relative merits of other instruments would be a
valuable area of study.
Response to Comments MM&I 1-3
In developing the EERS, the Research Strategy team divided the market mechanisms and incentives research
area into MM&I, Pollution Trading (existing and new markets) and MM&I, Other Than Trading, to get as spe-
cific a breakdown in priorities as possible. Given the SAB's comments, we have decided to treat all research
topics related to MM&I as one group.
EPA agrees that the other areas noted by the SAB, such as pollution taxes, abatement subsidies, scrappage
schemes for old cars, deposit-refund systems, and legal liability for environmental contamination, are impor-
tant research topics, particularly for states and local governments. Several of these topics arose as areas of
research interest in discussion with EPA staff and managers (see Appendix 4). However, they had a more spe-
cific focus than what is suggested by the SAB and did not sort out as high-priority areas for MM&I research
across all of the Agency's programs.
Given the SAB's interest in these areas and accompanying rationale, EPA will increase its research emphasis
in these areas, incorporating these research areas in future MM&I RFAs and internal research agendas over
the next several years to the extent that resources allow. For example, EPA anticipates a CEB solicitation in
the next several years that will address the effects of different instruments—economic, mandatory, and vol-
untary—on technological innovation and change.
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COMMENT MM&I 4
The spatial and temporal effects of MM&I also need further attention. For many, if not most, pollutants, the
kind of cap-and-trade program exemplified by the acid rain program differs from the design of a trading pro-
gram identified in economic theory because the spatial and temporal distribution of pollution determines
pollution damages. For efficiency, the marginal damages at any given locale or time need to be considered.
Even in the absence of information on marginal damages, a cost-effectiveness measure should take spatial
and temporal effects into account, due to requirements in environmental laws to achieve site-based environ-
mental targets (such as the National Ambient Air Quality Standards under the Clean Air Act). There has been
little ex post assessment of the spatial effects of uniform trading ratios in cap and trade systems such as the
1990 Clean Air Act Amendments, the Ozone Transport Region's NOX budget program, and the NOX SIP call
trading program.
COMMENT MM&I 5
The spatial and temporal effects of MM&I are important components for design of future programs as the
nation addresses mercury and ozone as atmospheric problems and the use of TMDLs in water quality. Simple
trading designs, such as a cap-and-trade system for marketable effluent permits, may not achieve environmental
targets in all places. On the other hand, incorporating transfer coefficients, limiting trading regions, or other-
wise accounting for spatial and temporal effects limits trading opportunities and thus reduces potential cost
savings. Research should evaluate the tradeoff between achieving environmental goals and achieving cost reduc-
tions, and the administrative and scientific difficulties involved in more theoretically correct trading systems.
Response to Comments MM&I 4-5t EPA agrees with the SAB's assessment. Currently, both EPA-sponsored
and internal EPA researchers are investigating some of the local distributional effects of trading policies, both
spatial and demographic. We will try to expand this effort to more fully address both temporal and spatial
effects both as elements of future MM&I solicitations and internal research projects, as resources permit. EPA
is planning a solicitation addressing water quality (e.g., TMDL) trading and appropriate trading design, given
the complexities of monitoring, market scope, intertemporal issues, and differentiated pollutants.
COMMENT MM&I 6
The implications of monitoring and enforcement for the design of MM&I policies should be an important
part of the MM&I priority. Monitoring can take at least two forms: one form measures actual environmental
outcomes (e.g., ambient air or water quality), and another form ensures that the emissions or other factors
for which a market is developed are measured at the source. Adequate monitoring of ambient measures can
help tremendously in ensuring the success of MM&I programs in achieving environmental goals in all
locales. Research into ambient monitoring and the interaction with MM&I requires involvement of environ-
mental scientists, for example, to help identify the efficient placement and number of monitoring sites for
achieving ambient goals. Monitoring of source behavior is necessary for the success of the markets: for exam-
ple, if it is easy for sources to emit more than the number of permits they own, then the permit market as
well as environmental quality will suffer.
Response: EPA agrees with this statement. As noted in the EERS, monitoring technologies and regimens can
have significant effects on emissions or discharges and can determine the relative advantage of market-based
over other policy instruments. In response to the SAB's comments, we have expanded the discussion of mon-
itoring in the EERS, and EPA intends to focus an MM&I RFA on this topic in the near future. Furthermore,
recent events have shown that transactions in the emissions trading market also require active monitoring to
prevent cheating, which ultimately will have environmental or financial costs, or both.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A7-21
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COMMENT MM&I 7
An important and controversial aspect of MM&I programs has been the emergence of trading without a cap
on aggregate emissions. Such programs have been labeled "open market trading programs" because they
allow for new participants who may identify low-cost opportunities for emission reductions to enter the
program. These programs have been widely criticized because of the absence of a strict emission cap, and
the difficulty in observing and monitoring emission reductions. However, this generic approach has a broad
application in the Clean Development Mechanism and Joint Implementation aspects of international ef-
forts to reduce greenhouse gases, and it continues to be suggested at the state level in the United States for
control of conventional pollutants. Open market trading should be studied to identify its weaknesses (so
that programs can be designed to avoid them), its track record, and its role as a transition to cap-and-trade
programs.
COMMENT MM&I 8
Another important area of study is the use of market approaches on indirect measures of the environment.
For instance, it is typically almost impossible to measure nonpoint source pollution from a source, because
the runoff cannot be observed. Instead, pollution policies are sometimes proposed for related goods, such as
fertilizer use or Best Management Practices. Other examples include taxing gasoline instead of auto emis-
sions and pay-at-the-pump auto insurance. When market instruments are applied to indirect measures, the
environmental effects are much less understood; indeed, it is possible that adverse environmental outcomes
might arise from unexpected substitutions or other unexpected effects.
Response to Comments MM&I 7-8: Please see the response to Comment MM&I 6. EPA is planning a future
RFA to address the interactions of monitoring and incentives in the design of market-based programs. Based
on the SAB's recommendations, it also will consider a broader definition of proxy measures and indicators
and their incentive effects, given different market designs, or more broadly, implementation approaches. In
addition, EPA will encourage research that evaluates aspects of open market or no-cap trading programs to
reduce emissions in future solicitations.
COMMENT MM&I 9
The interaction of MM&I with existing taxes and other policies (such as agricultural programs) is an impor-
tant area that deserves study. The General Theory of the Second Best suggests that improving one market in
a world of multiple distortions may not improve welfare; hence, it is worth understanding whether the use
of MM&I might lead to adverse effects in unexpected ways and how the design of policies can be improved
in this light.
COMMENT MM&I 10
We would accord priority to three particular manifestations of the second best and the importance of pre-
existing policies that have been found to be very significant in previous research. One has to do with policies
or subsidies for such areas as agriculture or energy, outside EPA's jurisdiction, whose potentially significant
environmental effects sometimes conflict with the goals of environmental policy. Other programs may have
beneficial effects, and EPA may be able to learn from experience of programs in these other areas. For
instance, the use of environmental targets in the USDA's Conservation Reserve Program deserves study as an
important application of subsidies promoting, or consistent with, environmental objectives of the EPA. This
program and its Environmental Benefits Index might be modified to target water quality and achievement of
TMDLs. Generally, there could be significant environmental and financial gains from greater cooperation and
coordination of research and policy across agencies.
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COMMENT MM&I 11
A second area is preexisting tax or regulatory policy. EPA has previously funded work on the "tax interaction
effect" and found this to be significant. Significant opportunity exists to improve this research by making it
more accessible for policy makers and by introducing greater specificity and heterogeneity in the analytical
and simulation models that have been employed to date. In general, further research that addresses the
value (in a public finance context) and potential uses of revenues from environmental policies would be a
very important contribution to policy design in general. For example, mandatory emission fees in severe
nonattainment areas can be used to generate revenues to subsidize investment in emission control by firms
or in infrastructure improvement that will reduce emissions.
COMMENT MM&I 12
Finally, state-level policies may interact in unforeseen ways with federal programs. For instance, states have
adopted renewable portfolio standards (RPS) as a way to influence technology choice and environmental
performance in electricity generation. State-level policies, such as RPS or state emission restrictions, when
implemented under the umbrella of an aggregate emissions cap at the federal level, could be ineffective for
achieving national emission reductions, as state-mandated gains are traded away.
Response to Comments MM&I 9-12: As the SAB notes, EPA has already sponsored several projects investi-
gating double-dividend and tax interaction effects and anticipates focusing more research in this area in the
near future. The EERS now includes a discussion of second-best tax, subsidy, and regulatory interactions to
include research in this area. It is important to note that the tax interaction effect literature is controversial
and largely theoretical and has not been tested sufficiently in empirical settings (simulation models simply
assume the tax interaction effects asserted in this literature). It will be important to test whether the tax
interactions asserted by the literature actually occur and the situations in which this effect may or may not
be true or significant. EPA will attempt to address these questions in the future.
COMMENT MM&I 13
Another important area for future study that is excluded from the EERS is the implication of MM&I de-
signs for the perception of equity or fairness, and ultimately political feasibility of environmental policies.
Economic research is often oriented toward measures of efficiency, but it also offers the tools to identify
the distributional effects of policy. Of special interest and potential contribution is the identification
of the distributional effects associated with different types of policy design for a given environmental
goal. This research could measure the effects of policies on market value of firms and the distribution
of damage from existing environmental burdens (and, implicitly, the distribution of benefits from
improvements).
Response to Comment MM&I 13: Please see the response to Comments MM&I 4 and 5. Distributional
considerations arose with some regularity in discussions with EPA staff and management. It is generally
agreed that this is an important area for research, and future MM&I solicitations will give more emphasis to
distributional issues. Some EPA offices whose focus is on localized environmental issues, such as the solid
waste and hazardous waste programs, listed distributional issues as important topics but not as their top
priorities.
COMMENT MM&I 14
Furthermore, ORD should consider an investigation into so-called "risk-risk" trade-offs affecting the various
types of costs and burdens imposed on households as a result of environmental controls. Potential cost sav-
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A7-23
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U.S. ENVIRONMENTAL PROTECTION AGENCY
ings of $40 billion from greater use of incentive-based regulation, as has been suggested, may be one of the
most effective programs for improving public health and the environment, according to the risk literature,
and this is a topic that deserves formal study.
Response: This point is well taken and will be considered in implementation planning for MM&I and other
research.
COMMENT MM&I 15
The implications of technological innovation in the design of environmental policy were identified by the
Committee as a crosscutting theme in environmental economics research. This topic also deserves special
attention in the study of MM&I. Important questions remain about the design of MM&I policies to promote
efficient innovation and technological diffusion. Although there has been important recent work in this area,
evolving methodologies make this area fruitful for additional empirical and theoretical study.
Response: Please see the response to Comments MM&I 1-3. This effect of alternative policy instruments on
innovation will be addressed in future solicitations.
COMMENT MM&I 16
Developing methods to estimate the cost savings associated with MM&I would be valuable for evaluating the
benefits of these programs. Estimating these savings is actually very difficult to do. The process requires
modeling of costs under both the market approach and a "traditional" policy with the same environmental
goal. Although a number of prospective studies of the benefits of market mechanisms compared to tradition-
al approaches exist, there have been few retrospective studies of the benefits of MM&I.
Response: EPA agrees that this is a desirable and useful area of inquiry and will continue some studies in
this area (see EPA 2001). In its MM&I solicitations, EPA has customarily asked for estimates of potential cost
savings as part of a larger research scope. To date, only a few research projects have addressed this issue,
Ellerman and Montero (2003) being a notable exception. Although data might be hard to obtain, this might
be an appropriate area for internal EPA research.
2.5.2 Research Feasibility
Given the implementation strategy laid out in the EERS, to what extent is this research scientifically feasible
at a high level of quality? How successful is this research likely to be in answering policy-relevant questions
for EPA within the next 8-10 years?
Environmental economic researchers have examined many of these issues at some level, although further
work needs to be conducted. It is very likely that high-quality and highly policy-relevant work can be con-
ducted in the next 8-10 years.
2.6 BENEFITS OF ENVIRONMENTAL INFORMATION DISCLOSURE (BEID)
2.6.1 Characterization of Research Gaps and Priorities and Research Feasibility
Is the characterization of each of the major research gaps in the literature adequate? Will these priorities and
implementation approaches effectively address the areas of greatest scientific uncertainty?
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Given the implementation strategy laid out in the EERS: To what extent is this research scientifically
feasible at a high level of quality? How successful is this research likely to be in answering policy-relevant
questions for EPA within the next 8-10 years?
Several statutes under which EPA operates, including the Emergency Planning and Community Right-to-
Know Act of 1Q86 and the Safe Drinking Water Act amendments of 1996, require that information about
environmental performance be disclosed to affected communities and/or the general public. EPA states that
there is no generally accepted method to estimate the benefits of such information disclosure, although
selected anecdotal evidence suggests that information disclosure programs affect the behavior of entities
that are required to provide the information.
COMMENT BEID 1
EPA is correct that there is no generally accepted method, but it is not clear that one should search for a
"general method." The fact remains, however, that research to date has not estimated the benefits (or the
costs) of environmental information disclosure programs. For the most part, the major analytical challenge is
not associated with monetizing impacts, but with identifying behavioral responses to information disclosure
requirements.
Clearly, there is increasing interest in the United States (and other countries) in the potential role that can be
played by information disclosure programs, as substitutes or complements for conventional command-and-
control or market-based environmental policy instruments. Much of this interest can be attributed to the suc-
cess that has been claimed for the Toxics Release Inventory (TRI) program, which requires large manufactur-
ing facilities to report publicly their annual releases of certain chemicals. Since the inception of the TRI pro-
gram in 1986, reported releases of more than 300 regulated chemicals have fallen by more than 45 percent.
Response: Noted.
COMMENT BEID 2
What is needed is analysis of the efficacy of such information disclosure programs by examining the ways in
which these programs can, in theory, affect environmental quality and by investigating empirically the ways
in which the programs have actually affected pollutant releases.
Response: Noted.
COMMENT BEID 3
In terms of theory, there are several pathways through which information disclosure might lead to pollution
reduction, including: green consumerism, green investing, community pressure, impacts on labor, the threat
of future regulation, and organizational limitations of the firm. Better theoretical modeling of firms' produc-
tion and pollution decisions would incorporate these pathways. Such theoretical frameworks could then be
used as the basis for empirical (econometric) analyses of the effects of TRI on facility decision-making. Such
research could produce greater understanding of how facilities respond to information disclosure programs
such as the TRI. This is a necessary first step to estimating the benefits of such information disclosure
programs.
Response: This observation will be incorporated into a future RFA addressing BEID.
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A7-25
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U.S. ENVIRONMENTAL PROTECTION AGENCY
COMMENT BEID 4
As EPA notes, there are a variety of other important research questions, including cost-effectiveness compar-
isons of information disclosure programs with command-and-control and/or market-based environmental
policy instruments. In general, EPA's Office of Research and Development has begun funding such research
efforts under its category of "Corporate Environmental Behavior: Examining the Effectiveness of Govern-
ment Interventions and Voluntary Initiatives," part of the STAR program.
Response: EPA believes this comment is accurate but that a more concerted effort might be needed to sort
the effects of information disclosure on stakeholders and regulators.
COMMENT BEID 5
It is important to distinguish between information disclosure as a complement and as a substitute for other
forms of regulation. EPA suggests in places that information disclosure might be a substitute for regulation
(as in the third bullet point on page 20). Although disclosure requirements might induce pollution reduc-
tions, theory suggests that only in a limiting case would these reductions match those under efficiency-maxi-
mizing regulation. In the context of the TRI, firms would need to assume that, at the margin, the public-rela-
tions cost of pollutant emissions (that is, the negative impact on product demand) were equal to marginal
environmental damages. This would only be the case if customers fully internalized the costs of pollution in
their purchasing decisions. It seems more likely that information-disclosure requirements will lead only to
partial reductions in pollution, relative to the efficient level of reduction.
Response: Noted. EPA will try to incorporate this observation into a future RFA addressing BEID.
COMMENT BEID 6
This suggests that information-disclosure requirements may indeed be a substitute for regulation that is less
stringent than the efficient amount, but that they are unlikely on their own to yield large enough reductions
to correspond to the efficient level of pollution-abatement. This also suggests the need for research that
examines how information-disclosure rules and other regulatory approaches will operate jointly. Even when
the two instruments—information disclosure and other regulation—are used together, there are potential
cost savings from the information-disclosure component, for example, by facilitating monitoring and enforce-
ment activities.
These considerations imply several additional research questions (See comments BEID 7 - BEID 9).
COMMENT BEID 7
First, how large is the reduction in pollution induced by information-disclosure requirements, relative to the
efficiency-maximizing reduction? (Perhaps, we should note that the desired reductions from EPA policies are
not typically the "efficiency" maximizing" level, but more likely that set by law or other determinate. The
"efficient" level of reduction is not the best benchmark for comparison.
COMMENT BEID 8
Correspondingly, what fraction of the damage from pollution is internalized in the purchasing decisions of
consumers, once they are aware of respective pollution? Interesting, but it is an academic question and not
so policy relevant, given the comment above.
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COMMENT BEID 9
What are the cost savings from combining information-disclosure requirements with direct regulation, com-
pared with costs under direct regulation alone?
Response to Comments BEID 6-9: These are relevant and important questions for EPA to research. EPA will
try to incorporate these observations into a future RFA addressing BEID.
Miscellaneous Comments
COMMENT MISC 1
The topic of information disclosure relates closely to another potential area of economic research for EPA
that is likely to become more important over time, with increasing concerns about the effectiveness of terror-
ism risk policies on plant safety and security. In particular, EPA might support econometric analysis of the
effectiveness of current and proposed terrorism risk regulations on plant safety and security, drawing on
publicly available data, as well as the Risk Management Plan database housed at EPA's Chemical Emergency
Preparedness and Prevention Office, and data collected by local emergency preparedness agencies under the
Emergency Planning and Community-Right-to-Know Act.
As noted above, several regulations, beginning in the late 1980s, were designed to reduce the risk of large-
scale chemical accidents. The Emergency Planning and Community-Right-to-Know Act of 1986 established
disclosure requirements for plants using and storing hazardous chemicals onsite. Section 112(r) of the Clean
Air Act Amendments of 1990 requires detailed risk management planning and reporting for all large chemi-
cal plants. The International Standard Organization (ISO) developed a set of management practices designed
to improve environmental performance, but also likely to reduce risk from chemical use. And in the after-
math of September 11, 2001, the American Chemistry Council, a trade organization representing the largest
chemical manufacturing firms, established management practices for enhancing the security of chemical
plants.
Although most of these programs and policies were not specifically designed to reduce risk from terrorism,
studies of the effectiveness of these approaches will provide valuable information regarding the viability of
alternative types of policies to reduce the environmental component of terrorism risk. Until now, little
empirical research has been conducted to evaluate the relative effectiveness of these regulations on plant
and community safety.
Response: EPA agrees that these are interesting questions; however, EPA first needs to ascertain whether
others (e.g., Department of Homeland Security [DHS]) have completed or commissioned studies on these
topics. Because these issues did not arise as EPA priorities in interviews, and DHS economics research is in
its initial stages, this has not yet been done. We also should investigate the balancing of the public's right to
know and terrorism risks posed by disclosing environmental information.
3. ANSWER TO CHARGE QUESTION 3
3.1 Missing Issues
Can the SAB identify by consensus any environmental economics issues of overriding importance to EPA
that the EERS has missed, and that EPA should address provided that more resources be made available for
environmental economics research?
ENVIRONMENTAL ECONOMICS RESEARCH STRATEGY A7-27
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U.S. ENVIRONMENTAL PROTECTION AGENCY
Within each of the five subject areas discussed in section 2 of this report, the Committee has identified top-
ics not originally mentioned in the Research Strategy. For example, under market methods and incentives we
have suggested that the Agency broaden its purview to consider renewable portfolio standards and incentives
other than permit trading. In the case of valuation of environmental benefits, we have stressed the impor-
tance of valuing nonmarginal as well as marginal changes in risk of death and threats to ecosystems.
Response: EPA has considered and responded to these suggestions as appropriate above.
COMMENT MISC 2
The EEAC, however, believes that that the five subject areas on which the Agency has focused in the EERS
are the most important areas of environmental economics research in terms of their importance to the
Agency and in terms of gaps in the literature.
Response: Noted.
COMMENT MISC 3
There is, however, an additional area of research, namely, the distributional consequences of regulation, to
which the Agency might give more attention. We know that it is difficult to attribute the full general equilib-
rium costs and benefits of any given policy to specific groups of individuals; however, as long as people have
only one vote each, and cannot exercise a number of votes in proportion to their perceived individual net
benefits from environmental regulations, an awareness of distributional consequences will be important to
the political feasibility of environmental regulations. Even a very attractive potential Pareto improvement
will not fly if the distributional consequences do not meet with society's approval. The political economy of
regulation will be an enduring dimension of successful environmental management. We urge the Agency to
give more weight to the distributional consequences of regulation in its strategy for benefit valuation and, to
the extent possible, in the measurement of the costs of environmental regulation.
Response: In response to this suggestion, EPA intends to incorporate requests for research on the distribu-
tional consequences of different interventions into each solicitation in each area of research—valuation,
CEB, and MM&Is. Through this approach, EPA will solicit research on the equity aspects of stated and re-
vealed preference methods of value elicitation, the equity aspects of different measures of cost-effectiveness
(e.g., WTP vs. OALYs), the suitability of each in a free-market economy, and the distribution of costs and
cost savings associated with different interventions. As the SAB notes, this is a potentially fruitful area of
research to inform policymaking.
4. ANSWER TO CHARGE QUESTION 4
4.1 Communication of the Research Strategy
What is the best way for EPA to communicate the results of the research strategy and plans for achieving its
long-term research goals to the wider research community and other potential users?
COMMENT MISC 3
One way in which EPA could foster dialogue with members of the research community is to hold workshops
in conjunction with the American Economics Association and American Agricultural Economics Association
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annual meetings. These sessions would give the Agency an opportunity both to communicate its long-range
research goals and to hear from researchers how these goals might best be met. This would inform the
Agency's formulation of Requests for Proposals.
Response: In response to this suggestion, EPA will submit a proposal for a session addressing EPA's research
needs for the 2005 American Agricultural Economics Association annual meeting.
COMMENT MISC 4
Currently, EPA's requests for proposals are announced 90-120 days in advance, and may be found on EPA's
Web Site under "Funding Opportunities-Environmental Research Grant Announcements [http://es.epa.gov/
ncer/rfa/]. The EEAC suggests that these notices also be sent to the Chairs of Departments of Economics and
Agricultural Economics, and that announcements be placed in the newsletters of the Association of
Environmental and Resource Economists and American Agricultural Economics Association.
Response: Noted. EPA will take this suggestion into consideration as feasible, given the timing of solicita-
tions and the publication schedule for association newsletters (those mentioned as well as others). Following
development of the Multi-Year (implementation) Plan, it might be more feasible to provide advance notice in
these newsletters.
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