Economically Efficient Strategies

                for

   Preserving Groundwater Quality


                 by

         Michael Kavanaugh

         Robert M. Wolcott
          Prepared for the

U.S. Environmental Protection Agency
          Washington, D.C.
                 by

  Public Interest Economics Center
  1525 New Hampshire Avenue, N.W.
    Washington, D.C.  20036-1291
              May 1982

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                              Table of Contents

                                                                    Page
  Preface .	v

  I.  INTRODUCTION  ....... 	   1

      A.  Purpose and Conclusion  	   1

      B.  Approach	  .   6

      C.  Plan	7

 II.  THE STORY	8

      A.  The Setting	  .   8

      B.  When?	9

      C.  Who/How?	13

III.  RESTORATION OPTIONS 	  18

      A.  Introduction	18

      B.  Agricultural Damages   	  19

          1.  Facts and Assumptions	20

          2.  The Calculation	22

      C.  Health Effects	.  .  24

      D.  Treatment	29

      E.  Alternative Sources .  . .	33

          1.  New Well	34

          2.  Pipeline Conveyance 	  35

          3.  Tank Truck and Bottles Water	38

      F.  Conclusions and Comparisons  ........  	  38

 IV.  CONTAINMENT OPTIONS 	  42

      A.  Pumping/Recovery Wells	42

      B.  Slurry Walls	43

      C.  Comparison	46
                                       ii

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                         Table of Contents (cont.)
                                                                     Page
 V.  SELECTING AMONG RESPONSE OPTIONS  	  ....  49

     A.  Introduction  	....49

     B.  The Decision	51

     C.  Case I:    Slow-Growing, Small Plume	52

     D.  Case II:   Slow-Growing, Large Plume	55

     E.  Case III:  Fast-Growing, Small Plume	56

     F.  Case IV:   Fast-Growing, Large Plume	60

VI.  CONCLUSIONS	;	63

Bibliography 	  67


                               List of Tables


 Table 1:  Major Economic Dimensions of Principal Crops
           of WRC-1503	21

 Table 2:  Summary of Preliminary Costs for Controlling
           TEC in Drinking Water	31

 Table 3:  Costs of Alternative Water Supplies:  New Well	36

 Table 4:  Pipeline Conveyance	37

 Table 5:  Comparison of Annual Cost of Restoration Options   ....  39

 Table 6:  Containment Costs for Counterpumping,
           Fast-Growing Plume  	  44

 Table 7:  Containment Costs for Counterpumping,
           Slow-Growing Plume  . .	  45

 Table 8:  Containment Costs for Slurry Walls 75 Feet Deep  	  47

 Table 9:  Estimates of the Cost of Response Options for a
           Slow-Growing, Small Plume 	  54

 Table 10:  Estimates of the Cost of Response Options for a
            Slow-Growing, Large Plume	  57
                                    ill

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                        Table of Contents (cont.)

                                                                    Page
Table 11:  Estimates of the Cost of Response Options for a
           Fast-Growing, Small Plume  	  59
                                                /
Table 12:  Estimates of the Cost of Response Options for a
           Fast-Growing, Large Plume  	  .61

Table 13:  Influences of the Costs of Responding to
           Groundwater Contamination  ... 	  64
                                    iv

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                                 Preface






     Groundwater resources in the U.S. are Immense in quantity, exceeding



the total capacity of all the nation's lakes and streams and are crucial



to the performance of key economic sectors.  Over one-half of the U.S.




population (110,000,000 persons) are dependent on groundwater for various



uses.  Approximately 11 billion gallons per day or 38% of the freshwater



supply is from groundwater.  In terms of total supply more than 95% of



freshwater in the U.S. is groundwater.




     Groundwater has provided to date a unique, high quality resource.



Shielded from surface exposure and encased within stable rock formations,



groundwater provides high quality, continuously accessible water for



multiple uses.  Communities and economies have formed as a result of



these waters and the safety and livelihood of millions rely upon the



maintenance of their quality.



     Despite the importance, quality and quantity of groundwater resour-



ces, and the absence, in many cases, of any affordable substitute supply,



society has at times failed to foresee the threats which have emerged to



groundwater.  Excessive pumping in selected areas and infiltration of




toxics from both point and non-point sources have generated increased



signs of contamination and overdraft.  The runoff of pesticides and herb-




icides from farm and urban pest control operations has long been recognized



as a threat to aquifer quality.  Industrial waste discharge has also been



suspected of contributing to degradation through its adverse effects on



the quality of groundwater recharge supplies.  (Examples include the runoff




of DDT and BCBs from military arsenals and the release of dioxin and other



highly toxic compounds from operating chemical/industrial facilities.)

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past, but which exhibits the potential for extreme and essentially perma-


nent contamination is the large number of toxic and hazardous waste


disposal facilities throughout the country, hundreds of which have been


in place for decades.


     Under the 1976 Resource Conservation and Recovery Act, the U.S.


Environmental Protection Agency is authorized to protect human health


and the environment from the dangers associated with the treatment,


storage and disposal of hazardous wastes.


     In order to issue regulations under RCRA, it is required that EPA


portray the relationship between the benefits to be expected and the


costs to be incurred as a result of the regulation.  The following report


presents the conceptual and empirical considerations which underlay an


analysis of the most economically efficient control response to a case


of toxic degradation of groundwater.  In addition to these background


considerations, a series of hypothetical case studies are presented to


portray the most efficient responses to specified physical conditions


including land use, geology, use values, and size and rates of degradation.


     This study is not intended as a prototype benefit analysis.  It is,


instead, aimed at identifying issues which bear upon the development of


a specific methodology for a fully integrated regulatory impact assessment.


The case studies are intended to demonstrate the role and significance of
                                 I

selected physical and economic dimensions and to show, within wide


bounds of uncertainty, what one must believe about the scale of benefits


to adopt alternative response options.
                                    vi

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     This report Is submitted by the Public Interest Economics Center




(PIE-C) in partial fulfillment of EPA Work Assignment No. 96.




     In the performance of this study, the authors have enjoyed the




cooperation and advice of Robert Raucher of the Economic Analysis Divi-




sion in EPA.  Also contributing to the study was Edward C. Burrows and




the firm of Geraghty and Miller, Inc..




     PIE-C is a not-for-profit, public interest organization.  Its purpose




is to involve economists systematically in various aspects of public




policy decisions to advance the public Interest.  Its main activities




fall into four categories:  providing a communications link between




professional economists and both policymakers and public interest




groups; performing, interpreting and disseminating economic research;




providing economic educational services; participation in judicial,




legislative and administrative processes on matters of economic policy or




the economic aspects of other policy.




     Like other studies PIE-C has performed on environmental economics,




the issue of groundwater contamination is a matter of public interest




and is an appropriate undertaking as part of PIE-C's research program.




     This manuscript has been edited and typed by Janet A. Carver, Berna-




dette T. Clark, Marilyn E. Matthews, Linda L. Minich and Vernon W. Palmer,




II.
                                   vii

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I.  INTRODUCTION

    A.  Purpose and Conclusion


        The purpose of this report is to identify and explore issues which


relate to the level and types of costs which are incurred as a result of

toxic contamination of groundwater as well as of control responses to


this degradation.  The nethodology for evaluating control options, which


is set forth below, is Intended to draw into focus the benefits which may

be realized by the pursuit of measures that prevent contamination.  How-


ever, this report is not put forth as a formal benefit analysis.


     The findings of our work in general are the following:

          o   The most efficient response to an incidence of groundwater

              contamination is highly sensitive to the length of the time


              horizon selected, i.e., the number of years during which the


              effects are assumed to be experienced for purposes of the


              analysis.


                   Abstracting from human health risks and holding other

              factors constant, the shorter the time horizon, the more


              likely It Is that the most efficient response will be to


              take no action to arrest the spread of the toxic plume.1

          o   The future value of groundwater Is a key determinant of the most

              efficient contamination response.


                   Three factors influence these estimates of future values.

              In the first instance, the real future value of aquifers is

              affected by the fact that they are not self-cleansing and not


              all receive recharge (fresh supplies from precipitation runoff).
     emerging theories of catastrophe, uncertainty and irreversib-"'.ity
indicate important modifications must be made to benefit analysis.

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         Hence,  groundwater ought be considered as a nonrenewable stock

         resource.2

              The second factor is the rate of discount chosen to reflect
         society's rate of time preference for groundwater quality.

         There are also nonmarket, option values,  i.e.,  premiums paid

         over and above market values for increasing the probability that

         the resource will be available at a given price in some future

         period.3  In addition, there are "quasi-option  values," which

         denote the premium paid to preserve a course of action if addi-

         tional information regarding alternative  uses of the resources

         becomes  available.^  Finally, there is a  value  of reducing

         anxiety  associated with easing the threat of catastrophe.

         The particular option chosen from among a menu  of feasible choices

         depends  upon local circumstances such as  porosity, rates of plume

         growth,  the perimeter of a plume, the land use  of the abutting property,

         the distance to an alternative water supply and the volume of water

         that must be treated to acceptable standards.

              With outcomes dependent upon time horizons, assessments of

         future values and conditons, and the possibility of a threat to

         human life and health, groundwater contamination incidents and
     classic article in the pricing of an exhaustible resource is
Hotelling (1931).
     concept was introduced by Weisbrod (1964) and has been the subject
of a continuing controversy.  See, for example, Bohm (1975) or Feenberg
and Mills (1980).

^Where option value is regarded as a risk premium and may be positive
or negative, quasi-option value is positive regardless of risk preferences
and depends upon the present value of future information.  See Krutilla
and Fisher (1975) and Arrow and Fisher (1974).

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         their precursors (sitings of hazardous waste dumps, for example)

         become public problems.  The Important role played by local con-

         ditions make public participation necessary at the local level

         in siting decisions and in deciding what to do about contamination

         Incidents.  The influence of time horizons and the fact that con-

         tamination may affect nonmarket values may require changes in

         liability laws, statutes of limitations, zoning and new or

         expanded forums for public participation.  The assessment of

         future values requires an ethical posture toward future generations,

     Determining the least-cost response to groundwater contamination is

a complex problem.  There are multiple reasons for this complexity.  First.,

local conditions almost always play a significant role in determining the

cost of response options.  This requires that highly specific information

be collected and analyzed.  Second, the costs of the response options are

uncertain, as are the effects of groundwater contamination.  Accordingly,

it is inappropriate in such instances to rely on single-point benefit

estimates for planning decisions.5

     Third, groundwater contamination appears to be irreversible except

over long periods of time.  Irreversibility is a modification of the

classical microeconomic assumption concerning resource mobility.0  Reduced
^Mercer and Morgan (1976) propose the Weibull distribution to generate
probability distributions for the relevant input variables, although
they acknowledge there is no theoretical basis for describing the input
variables as Weibull distributions.  The distribution is selected as a
matter of convenience.

°The first rigorous treatment of irreversibility was provided by Arrow
(1968), although Krutilla (1967) mentions the concept in the course of
explicating a model of production and natural environments.  Fisher,
Krutilla and Cicchetti (1972) drew upon the analytical apparatus developed
by Arrow (1968) and developed a model for the allocation of natural
.environments between preservation and development.

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resource mobility brings to the fore the Importance of forecasting the




future value of groundwater.  This is because a decision to pollute is a




decision that cannot be reversed.  Suppose that with today's fair market




prices, the value of an aquifer as a waste receptacle is greater than




the value of an aquifer as an irrigation source.  Also suppose that




relative prices change In five years so that the value of an aquifer as




an Irrigation source surpasses the value as a dump.  Although a change




in end-use would be signaled, the characteristics of groundwater pollu-




tion prevent this switch from occurring.




     Irreversibility also connotes that future generations will be affec-




ted by today's actions.  This raises questions of intergenerational




equity^ that is, the "fairness" of discounting the values of existing




resources to future generations.  Irreversibilities, then, dictate caution




and conservatism in natural resource decisions insofar as the well-being




of future generations is of importance.




     Fourth, there are thousands of hazardous waste dumps.  Viewed in




isolation, one incident may seem of little consequence.  Yet, a large num-




ber of small incidents may result in a serious national problem as a




large number of key aquifers could be sufficiently degraded to preclude




high value use of those acquifers.  Hence, imposing costly cleanup require-




ments and/or reductions in water supply might result.




     Fifth, there may be a long delay between the time the aquifer is




first polluted and the first manifestations of the consequences of pollu-




tion.  Furthermore, there is likely to be a low probability that any one




aquifer is contaminated, but the consequences of contaminated aquifers are




high.  This combination of low probability, long delay and high consequence



reduces the analytical value of the traditional economic tools.

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     Traditional mlcroeconomic theory deals with small, gradual changes in

market values.  Groundwater contamination has the'potential to cause

large, sudden changes in the value of a resource.  This is the province

of catastrophe theory.7  The potential contribution of catastrophe

theory to benefits analysis and the caution it signals for determining

the least-cost responses to groundwater contamination are twofold:

(1) Expected losses (derived by multiplying the probability of an event

by the value of the event) are likely to be underestimates of the actual

damage (Zeckhauser, Shearer and Memishian, 1975).  When dealing with

situations of catastrophe, Individuals are likely to be highly risk-adverse

and are unlikely to be able to fathom the damage.  (2) The possibility

of a catastrophe may lead to anxiety; the avoidance of anxiety may be a

form of option value.

     Sixtji^,some values that are reduced by groundwater contamination do

not pass through markets.  Human health, for example, is not bought and

sold in traditional markets, though it may be impaired by groundwater

contamination.  There need to be processes for developing value judgements

that can substitute for market values.

     In sum, because of the uncertainty regarding cause and effect,

because of the potential for catastrophe, because of the long-term irrevers-

ibility of contamination, and because of the value judgements that must be

derived from nonmarket sources, the efficient response must blend engine-

ering with economics with political processes.
?The original text in the field is by Thorn (1975); more recent explications
include an introductory work by Woodcock and Davis (1978), an intermediate
level text by Poston and Stewart (1978) , and a collection of relatively
advanced essays edited by Zeeman (1977).  Recent applications in economics
include:  Balasko 1978a; Balasko 1978b; Harris 1979; Varian 1979: Vandijk
and Nijkamp 1980; Adelman and Hihn 1981; Brown 1981; and McCain 1981.

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     B.  Approach

         Our approach to determining the least-cost response to ground-

water contamination is as follows:  First, the general context in which

groundwater contamination is viewed is described.  Second, a general

"menu" of responses is developed.  The menu may be broken down into two

parts:  (1) those responses that do nothing to arrest the spread of a plume

and (2) those that are capable of arresting the spread.  Of those that do

not affect the spread, some responses are capable of restoring water

quality while others are simply the consequences of inaction.  Third, the

menu is applied to a hypothetical contamination Incident.  Fourth, the

costs of the various response options are compared.

     A hypothetical, rather than a "real" incident was chosen because it

Is too early in our understanding of the problem to concentrate on a

single set of circumstances.  Observing what has been done provides an

excellent basis for understanding why one particular response was chosen.

On the other hand, it may provide no basis for understanding as to why other

candidate options were not chosen.  It is our intent to provide an under-

standing of the choices faced by parties affected by groundwater contami-

nation and the decision process they must go through.  Isolating a par-

ticular historical incident may result in the study of a response option

that was not the least-cost option, but merely one that was convenient
                                   t
from a political or engineering standpoint.

     Since the data are only approximate, one should not expect to be able

to Implement a response option at costs which are quoted in the text.  The

Imprecision of the data, however, In no way alters the conclusions that

are drawn.  This is because the conclusions are not based on absolute

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prices but on relative prices.  Furthermore, the conclusions are based


on engineering and economic facts.  Namely, high one-time costs must be


paid to respond with option A, but option A has low annual maintenance


costs.  Option B, on the other hand, has low one-time costs but relatively


high annual costs.  It is this interplay between capital and operating


costs, together with an order of magnitude accuracy in the prices of the


response options, that gives rise to the conclusions:  that the length of


the time horizon is the key in determining the least cost-response, that


local conditions strongly influence the feasibility of certain options,


and that the possible effect of contamination on nonmarket values and


the "time bomb" nature of groundwater contamination may require


modifications in regulation and law.


     C.  Plan
           «

         In the next section the assumptions and circumstances concerning


the hypothetical contamination incident are set out.  Section III begins


the development of the menu of response options.  Section IV continues this


development.  Section V applies the menu to the incident.  Section VI


presents our conclusions.

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II.  THE STORY

     The purpose of this section is to set out the assumptions and circum-

stances concerning a hypothetical contamination incident (the story).  The

story is told to illustrate and rank the response options.  The story is

made as general as possible so that the lessons learned in Illustrating

and ranking the response options might have a greater degree of generality.

The section has three parts.  Part A describes the setting—a predominantly

agricultural region in the arid southwest.  Fart B places the story's

time line in contemporary times.  Part C provides details on the plume

of contamination (its size and its movements) and the response options.

     A.  The Settng

         The story takes place in a predominately agricultural region in

the arid southwest.  Fresh water is in short supply from groundwater and

surface sources, now and in the future.  Such an area might be Water

Resource Council Region #1503 which encompasses most of southeast Arizona.8

     At the outset water may not be redistributed among competing uses or

areas.  This may be attributed to legal, institutional and/or technolo-

gical constraints such as the season of the year and/or the additional

lack of water rights, and would be referred to as the short-run response.

A long-run response might be characterized as one that takes place over

a period during which water may be transferred among areas and/or one

crop may be substituted for another.

     Whether or not it is economically preferable to switch crops or

transfer water depends, of course, on the net proceeds from each action.
SA sort, by Geraghty & Miller, Inc., of Water Resource Regions, according to
current and future estimates of water availability, revealed this fact.

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Assume arguendo that as a result of waste contamination water is unuseable




for irrigation of sugar beets.  In the long run, water nay be transferred




from other areas or from other uses, if the net proceeds from transferring




or switching are greater than the net proceeds available from the continu-




ation of present usage.  The costs of growing another crop or accessing




another supply of water are important elements in determining the net




proceeds of an action.  Clearly, the type of substitute crop that may be




grown or the distance to another source of water is, in part, determined




by location.  Consequently, the feasibility of switching and transferring




is, in part, determined by where the story is set.  The setting of this




story is such that transferring is difficult and only a few high-yielding,




high-valued crops are grown.  These characteristics tend to produce damage




estimates that are high relative to other agricultural regions where




transfers are relatively easy and/or low-yielding, low-value crops




are common.




     Finally, since the story is set away from populated areas, hazards




to human health are at a minimum.   Nevertheless, potential, long-term




threats to human health may warrant responses which are not based solely




on assessments of readily monetized costs.  A cost or risk-reduction




analysis based on observed risk data, by substance, may be of some value




to policymakers.




     B.  When?




         The relationship of the timing of the degradation to key economic




activities has a bearing on the relative cost of the response options.




This is because the relat're cost of the response options depends upon




the relative prices of the resources used to arrest the spread of plumes

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                                    10
of contamination and/or replace the poisoned water and/or value the



goods sacrificed by not arresting the plume.



     In theory, relative price changes are primarily attributable to changes



in preferences and/or technology.  As is customary in economic analysis,



preferences and technologies are allowed to vary only in selective prede-



termined ways.  Few, if any models of economic behavior, have preferences



and technological change determined endogenously.  Hence, absent a



forecast of how taste and technology change, the relative prices that



are quoted in the Initial year are the relative prices that are quoted



for all subsequent years.      v



     Consideration of irreversibility and exhaustibillty point up the



importance of this assumption of constant relative prices.  Irreversibil-



ity requires that an assessment of the future value of water be made
                                       •>


explicit.  This is because a decision to pollute groundwater is a decision



that cannot be reversed.  To the exent that the future relative price of



water increases, the response option that involves suffering the conse-



quences (using and losing) becomes progressively more costly.



     Exhaustibillty indicates that the relative price of water may increase



over time.  Hotelling (1931) has shown that for an exhaustible resource



which cannot be replenished, the long-run rate of price appreciation will



approach the social rate of discount.  In some parts of the country



groundwater is an exhaustible resource.  After it is used, it "runs off"



to another part of the country and is "lost."  In such circumstances the



relative price of water may be expected to increase over time.  In other



parts of the country, water is available from a number of sources and



aquifers are recharged.  In these circumstances groundwater does not have

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                                    11
the characteristics of an exhaustible resource.  No statement can be made




about Its future relative price.




     In practice, relative prices may change because of Inflation and




the monetary and fiscal policies employed to counter Inflation.  Over




long periods of time, however, inflation affects only absolute prices, not




relative prices.  Accordingly, an investigation of relative costs over a




long period of time should come to the same conclusions whether 5%, 10%




or OZ Inflation is assumed.  We assume herein that there is no inflation.




     The length of time over which the story unfolds may affect the




relative cost of the response options.  This happens if one option has a




high one-time cost and another option has a low one-time cost but annual




costs that must be paid into perpetuity.  Discount rates allow for inter-




temporal comparisons.  Long time horizons coupled with irreversibilities




and exhaustibility necessarily involve intergenerational transfers.




These transfers require that an ethical posture towards future generations




be taken.  Is it fair, for example, to discount the values of unborn




generations using a discount rate that is reflective only of the current




generation?  Is it fair to deny the use of a resource to a future generation




without paying compensation?




     Schulze, Brookshire and Sandier (1981) directly come to grips with




such questions.  They examine the long-term storage of nuclear waste (a




potential contaminant of groundwater) from a utilitarian and libertarian




point of view.  The results of the modeling exercise are as follows:




When Initial incomes and utility functions are identical, the utilitarian




ethic (maximize the utility of all) requires discounting if compensation




can be paid.  If incomes and utility functions are not identical then a

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                                    12
zero discount rate is appropriate.  The libertarian ethic (harm no one)

rejects contamination (requires maximlm control of degradation) if compen-

sation cannot be paid, but accepts discounting if compensation between

generations is possible.

     Schulze and Kneese (1981) examine the philosophical underpinnings

of benefit-cost analysis within the context of irreverslbility and

compensation.  They too find that outcomes differ as ethical systems

differ.  This is particularly the case for uncompensated risk.  Even if

benefits outweigh costs, libertarians reject, under all circumstances, out-

comes Involving uncompensated risk.  Elitists reject outcomes Involving

uncompensated risk, unless the risk Is borne by a non-elite.  Egalitarians

and risk-adverse utilitarians reject uncompensated risks, unless the

risk falls on an elite.  Risk neutral utilitarians accept uncompensated

risks as long as benefits outweigh costs.

     These studies point up two important considerations.  The first is

the question of whether the risks are public or private [i.e., are indivi-

duals accepting the risk on their own behalf (private), or is the choice

being made by some third party (public)?].  The second Is the fact that

the level of compensation must be assessed.  Individuals may value risk

differently under conditions of compensated and uncompensated risks.
             i_
     A few observations regarding payments between generations might be

helpful.  First, the accumulation of a fund to pay compensation would

require higher fees for waste storage.  These fees would be reflected in

the market price for the goods whose production generates hazardous

waste.  This increase in price -nay tend to reduce the demand for hazardous

waste disposal capacity.  Second, there would have to be some mechanism

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                                    13






for determining which members of future generations receive the compensation.




How many generations should be provided for?  How should damage payments




be calculated?  These questions redound to the question of setting the




appropriate fee for dumping waste In the current time period.  The fees




in turn send signals to today's consumers about their level of demand




for products whose production generates hazardous waste.  Failure to




provide for compensation to future generations could result in an over-




production of current goods that constitute or generate excessive levels of




hazardous waste.




     In summary, our story is told in a world of unchanging relative




prices, with no inflation, with inter-temporal comparislons being affected




by the use of discount rates.  Changes in relative prices may be accomodated




to the extent that the change is specified.  It is unnecessary to be




concerned about the effects of inflation, since it can be argued'on logical




grounds that inflation should have no effect.  Inter-temporal comparisons




are an integral part of the story and require an ethical posture toward




future generations as well as institutions to administer transfers.




     C.  Who/How?




         The central character in our story is a plume of toxic




contamination.  Its size and rate of growth as well as its composition




are important for ranking the response options.  Plumes are the result




of a failure of landfill liner or surface impoundment resulting in the




seepage of waste into the water table.  It is generally acknowledged




that then is no such thing as a fall-safe liner; consequently all dumps




leak, sooner or later.  It is also acknowledged that decontamination is




not possible short of excavation of the site.  The length of time between




liner failure and pollution of the water table depends in part upon how

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far the water table lies beneath the faulty liner.  These facts are not




developed here; Instead the story begins as the hazardous waste begins to




pollute the aquifer.  Many interesting questions are excluded with the




adoption of this assumption.  The benefits of monitoring groundwater are




influenced by the speed at which the waste may leak into the water




table.  Hence, the vulnerability of an aquifer to contamination may be a




key locational parameter in siting a surface impoundment or landfill.




     The chemistry of the plume is a "soup" of organics and inorganics.




The plume contains deadly concentrations of contaminants.  Deadly concen-




trations of some pollutants range from .1 to 1 milligram per liter.




Given physical conversions from liters to acre/feet and assuming a porosity




of 20% to 30%, between .27 Ibs and 2.7 Ibs of contaminant must enter the




aquifer each year to poison (render economically useless) one acre/foot




of water.  This is a very small amount of contaminants, representing less




than a barrel of waste per year.  Since the amount is small, It does not




require an unbridled imagination to envision a plume growing for 50 years




or more without substantial containment.




     A plume's growth is influenced by many factors.  Some guidance Is




provided by hydrological engineers who state that limited evidence reveals




a plume may move as little as 5 ft. per year or as much as 4,500 ft. per




year, depending on the composition of the plume and the physical character-




istics of the aquifer.  The plumes in this story are assumed to grow 360




ft. per year in one instance, and 3,600 ft. per year in another.




     Physics, hydrology and geology give the plume its shape.  It is




convenient to think of the plume as flowing in one direction through an




underground box canyon.  In such a world the plume would appear to be an

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                                    15
expanding rectangle.  In fact a plume resembles a cone, f rust rum or lune

more than a rectangle. 9  The shape of a plume may be Important for com-

paring those response options whose cost depends upon the dimensions of Its

perimeter with those options whose cost depends upon the size of the tip

of the leading edge .  The story Is sympathetic and Illustrates the response **\

options for two different sized plumes.  The first Is 65' x 100' x 500';    (

the second Is 65' x 2000' x 1000'.                                          \
                                                                            J
     Flume growth along with porosity determines the amount of water

rendered useless.  For a response option which excludes any corrective

action (suffering the effect of contaminated water), the degradation of

water begins as the plume moves beyond the perimeter of the hazardous

waste site.  (Hazardous waste sites typically have a buffer between the

dump and the end of the property belonging to the owner of the dump.)

The value of the water that is destroyed under the property of the dump
                                                                         •I ^
operator was captured by the previous owner when the property changed    v;
      or was considered when the change in uses was made, provided that

the rights to water are bought and sold with the land.  If this is not

the case — and in some states groundwater is "common property" — then the

market price for land is not reflective of the present use values of the

water.  States that treat groundwater as common property may require
                                         •lf
modifications to traditional approaches to estimate the benefits of

siting decisions.  One option, not developed herein, is the purchase of

water rights under adjacent lands.  This action is not uncommon in the
       circles and figures that resemble circles enclose more space for
a given perimeter than figures that resemble rectangles, a bias is created
against the perimeter and leading edge options.

-------
                                    16
west.  Energy companies, for exampler are known to have purchased large




acreages simply for the water beneath it.10




     Using the contaminated water and suffering the consequences (referred




to as using and losing) is not the only possible response.  The contaminated




water may be treated to acceptable standards (assumed to be drinking




water standards) and then used.  Another alternative is to develop another




source of water.  Using and losing, treatment, and alternative sources




share a common characteristic—namely, the spread of the plume is permittee




to continue.  Each year more water is poisoned and each year the amount
          »



of water that must be replaced, treated or used in its degraded status




increases.  Given the characteristics of irreverslbility, uncertainty




and the possibility of catastrophe, options that result in more and more




water being contaminated cannot be considered the least-cost option




unless their resource cost is so low that it more than offsets any premiums




society would be willing to pay to keep its options open regarding future




uses of groundwater.




     An entirely different response is to arrest the spread of the plume.




Two responses that may arrest the spread of the plume are slurry walls and




counterpumping.  Slurry walls, which involve building an underground dam



around the plume, are currently in use for construction projects.  The




applicability of slurry walls to groundwater contamination is limited by the




depth of the water table.  Current technology prohibits the use of slurry




walls beyond a depth of 100 feet.  The toxic plume of this story, however




occurs in a water table that has a confining layer at a depth of 75 feet.
         firms in the Great Plains area have paid in excess of $400 per acre-

foot of water in recent sales.

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                                    17
     Another response that may limit the spread of the plume is counter-




pumping (pumping/recovery wells).  The principle of this option is to exert




a force that counters the natural flow of the aquifer and thereby holds




the plume in place.  This is accomplished by pumping contaminated water




to the surface at rates that counter the natural flow of the aquifer.




One result is that a new disposal problem is created.  Something must be




done with water that is pumped to the surface.  Accordingly, counter-




pumping involves some surface treatment of water to some applicable stan-




dard.  It may then be reinjected or discharged to a stream.




     The plot of the story involves selecting the most efficient option




among a given set of responses to prevent a plume or contamination from




damaging more water, and/or to correct the damaged water to an acceptable




standard, and/or to use water from another source, and/or to use the dam-




aged water and lose utility.  Since the consequences of contaminated




water may extend for many years, "efficient" means more than just the




initial outlay of resources.  "Economically efficient" must include some




notion of the premiums that must be paid to induce individuals to make




irreversible decisions about resources whose future value is uncertain.




It also must include some notion of the premiums that must be set aside




to compensate future generations for the reduction in water quality.

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                                    18
 II.  RESTORATION OPTIQ
      A.  Introduction




          One set of responses to a plume of contamination is to do nothing




to arrest its spread.  In this event someone or some entity (perhaps the




public) ultimately may suffer the consequences of polluted water (reduced




output, health risks, damage payments or the costs of actions to restore




the water to its former state).  Restoration actions may involve the




provision of another source of water or treatment of the polluted water




to acceptable standards.  In terms of economic theory, as long as com-




pensation is paid it does not matter who pays for the restoration or who




suffers the loss if no action is taken.  The result is the same, resources




are consumed because the liner on a hazardous waste dump failed and an




aquifer was partially contaminated.  (There is a question as to the amount




of compensation.)  In practice who pays may well determine the type of




response option selected and, in the long run, determine the value of




the resources that are consumed in responding to the plume.  The following




sections discuss the restoration options.




     The first option involves doing nothing and compensating agricultural




users (current and future).  (We discuss the potential health effect of




drinking the contaminated water but we do not carry this option forward




because of the problems of Incommensurability between health and life on the




one hand and restoration on the other.)  This is followed by a discussion




of treatment costs.  The next discussion is about replacing the contaminated




water with an alternative source of water.  Discussion is limited to




groundwater sources since developing new surface water sources generally is




of too large a scale for a realistic response to groundwater contamination.

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                                    19
The feasibility of providing alternative sources of water is related to

the physical characteristics of the region where the contamination incident

occurs and the amount of water which has been degraded.  In arid regions

it may not be possible to replace the poisoned water with another source.
          •
On the other hand in humid regions it may be the case that provision of

an alternative source is the least-cost option even after adjusting for

the premiums associated with irreversibillty, uncertainty and catastrophe.

     The overall conclusion is that the costs of paying damages, pro-

viding an alternative source or treating water to acceptable standards

are all directly related to the volume of water contaminated.  Also, the

costs of these options relative to one another is unlikely to change

through time (given stasis in preference and technology) for any given

volume of contaminated water.

     B.  Agricultural Damages

         In this section a method of estimating worst-case damages associ-

ated with the use of contaminated water for Irrigation in agriculture is

developed.  Water Resource Council Region 1503 in Southern Arizona is

used for illustrative purposes.  The cost of using contaminated water

varies with the type of crop produced, irrigation practices, the rate of

plume growth and porosity.

     The logic underlying a calculation of the loss in value associated

with using contaminated water is as follows:  (1) Contamination degrades

water quality, (2) Reduced water quality reduces agricultural output

and threatens the value of the output that does survive, and (3) The

reduction in agricultural output may be monetized by using market prices.

Consequently, the damage caused by groundwater contamination may be

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                                    20
approximated by the product of the market price of the destroyed output




and the amount of output destroyed, presently and prospectively.




          1.  Facts and Assumptions




              For a worst-case calculation, it is assumed that water




quality degrades enough to effectively reduce to zero the agricultural




output that could have been produced with uncontaminated water.  This




may happen in two ways:  (1) the contamination effectively "kills" the




plant and reduces yields by 100%; (2) the contaminant become embodied in




the plant making it unfit for consumption.  The results of biological




inquiries into the relationship between toxic concentrations and yield




reductions indicates yield reductions of 702, 80% and 90% and report




that the contaminants are found in the plants that survive.  (Bingham,




Page and Bradford, 1964; Lieberg, Vanslow and Chapman, 1942; Ligon and




Pierre, 1932; Prince, et al., 1949; Crafts and Rosenfels 1939; Page Bingham




and Nelson, 1972.)




     Table 1 presents data on value per acre for Water Resource Council




area 1503 (Southern Arizona).  (Value is the product of yield and price.)




Yields per acre for a particular crop vary by time and region.  Weather,




disease and management practices are important influences on yields.




Market prices vary from year to year reflecting changes in supply and




demand conditions and, in some instances, changes in agricultural policies.




To the extent that market prices are the result of government policy,




the market price would overstate the value per acre.  In some instances




the U.S. Department of Agriculture reports the prices received by




fanners net of government payments.  This is the case, for example,




with the sug,-  beet price reported in Table 1.  The Table shows that the

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                                          21
                                       Table 1

               Major Economic Dimensions of Principal Crops of WRC-1503
                                Corn and
                                 Sorghum                  Sorghum   Sugar
	Barley    Silage    Cotton   Hay    Grain    Beets   Wheat

Irrigated Acres
    (000)                 76        91      103     205     112      10      125

Quantity Produced«     6,860     2,179      241   1,582  11,637     254    7,657

Yield3                    90        24        2.30    7.70  104      25.40    61
Unit Price ($)b         1.02     10.46    92.00   27.00    1.21   20.29     1.33


Value/Acre ($)b        92.00    250.00   212.00  208.00  126.00  515.00    81.00


aUnits are
  Barley, sorghum grain, wheat in bushels per year;
  corn and Sorghum Silage, hay and sugar beets in tons per year;
  cotton in bales

^1975 prices/values per year.
Source:  Center for Agricultural and Rural Development, Iowa State University
  also available from Agricultural Statistics, USDA, 1977.

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                                    22
crop producing the highest value per acre is sugar beets; the lowest crops

are wheat and barley.  Hence, destroying an acre of sugar beets, inflicts

about $515 per acre per year in damage.10

     An estimate of the number of crop acres that could have been produced

annually with the water that was destroyed Is needed.  This depends first

on the amount of water applied to an acre per year.  In Arizona 4 to 5

acre/feet per acre per year are used for irrigation.H  The second

determinant is the total amount of water destroyed by contamination in a

year.  This is determined by porosity.  In addition, the rate and direction

of plume growth are important.12

          2.  The Calculation

              The product of the amount of destroyed output and its

market price is an approximation of the damage caused by contamination.

The amount of destroyed output depends on crop yields, the amount of

water destroyed and irrigation practices.  The amount of water destroyed

depends upon the rate of growth of the plume and soil characteristics.

     For purposes of illustration the initial size of the plume is 500' x

1000' x 50' or 25 million cubic feet of material.  An expansion of the
      this worst-case calculation, we assume the opportunity cost of all
other inputs is zero.  Relaxing this assumption will decrease damage
estimates.

11An acre/foot of water would cover an acre of land to a depth of one
foot and is approximately 325 thousand gallons.

12porosity is a measure of the space available for water in the material.
Since the plume size is dimensioned in cubic feet, the porosity figure
produces a measure of cubic feet of waste contained in the plume.  Use of
physical equivalents allows for easy conversion to acre/feet of water.
There are about 7.5 gallons of water in a cubic foot and 325,000 gallons
in an acre/foot.  In practice, determining the size of plumes and their
rate and direction of growth is done by monitoring.  Monitoring is a cost
common to all options and is not an influence on the ranking of options.

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                                    23
plume to 500* x 1100* x 50* will encompass 27.5 million cubic feet of




material or 2.5 million cubic feet of additional material per year.




With a porosity of 30Z, an additional 750 thousand cubic feet (17.3




acre/feet) of water are destroyed each year the growth of the plume is




not arrested.  Given that current irrigation practice Is to apply 4 to




5 acre/feet per acre per year, about A acres of additional output are




destroyed each year the plume is not arrested.13  These losses will




accumulate through time.




     The value of this loss depends upon the crop sacrificed.  The lowest




valued crop was wheat at $82 an acre, while the highest was sugar beets at




$515 an acre.  A loss of 4 acres ranges from $328 to $2,000 the first year;




$628 to $4,000 the second year; $984 to'$6,000 the third year and so on.




It may be seen that the critical variables in determining agricultural




loss are:  the per acre value of the crop, the amount of water that is




poisoned, the amount of water that is applied to each acre and the amount




of water that is poisoned depends upon plume growth and porosity.  It




must be emphasized that agricultural losses accumulate through time.  This




will be seen to be a distinguishing feature of this response.  As noted,




this calculation results in an estimate of the worst-case of agricultural




loss, give existing practice.  This Is because the highest valued crop




was assumed to be damaged, the other inputs into farming were assumed to




have zero opportunity cost, and the farmer was assumed to take no other




action such as crop switching to reduce the amount of agricultural loss.




Changing any of these assumptions will tend to reduce the amount of agri-




cultural damage.  It must be pointed out, however, that irrigation
 131974 Census of Agriculture, Arizona, Table 3.

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                                    24
practices were assumed to be constant.  If changes in Irrigation tech-

nologies occur that permit less than 4 acre/feet of water to grow an

average yield of sugar beets, then the value of water may increase and

agricultural damages would tend to rise.

     C.   Health Effects

          The same series of analytic steps which yields estimates of
                                               i^
agricultural losses can be used to infer health related damages resulting

from degraded municipal water supplies, at least in theory.  In practice,

however, the problems of applying the methodology are formidable.  The

logic and problems may be stated as follows.  Contamination degrades

water quality and reduced water quality impairs health and threatens

life.  Health effects are not readily expressed in dollar values, thus,

requiring the inference of such values from the literature on nonmarket

effects.l^  it is worthy of note that many are uncomfortable with this

idea of valuing risk to human life or health and reject any monetized

results generated by any analytical procedure.

     There are several reasons for being wary of the results of procedures

to value life in monetary terms.  First, life is a fundamental value of

society that is apart from the commercial values of society.
14 Safety, or avoidance of the risk of death, is valued (sometimes) in
labor markets.  Informed individuals demand a priori compensation for
risks undertaken.  This should not be confused with valuation of the
certain death of particular individuals.  The latter, of course, is not
valued in labor markets.  Studies have shown that different groups of
individuals require between $340 (Thaler and Rose, 1976) and $1000 (Smith,
1974) more in annual income to accept job-related risks of d?ath of about
one in 1,000.  This may be interpreted as the collective valuation by a
group of 1,000 people of the death of one of their number over a year's
time at $340,000 to $1,000,000.  For a full discussion of the principle
of valuing lives, see Ferguson and LeVeen (1981).  Zeckhauser (1974) and
Graham and Vaupel (1981) suggest that in those studies where a value to
life has been .  ssigned, seldom does the assigned value lead to a change
in the policy implications of the study.

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                                    25
One way in which analysts have directed scientific inquiry to respect




the fundamental value of life has been to distinguish between life and a




small increase in the risk of death.  The inquiry proceeds by attempting




to determine how much a_ priori compensation must be paid for accepting




a small risk.  Even the valuation of small risks to life is not without




controversy, and there Is acknowledged confusion In the professional




literature as to the correct method to apply (Graham and Vaupel, 1981).




Early attempts to value life on the basis of lost productivity have been




shown to be Incorrect and irrelevant (Schulze and Kneese, 1981).




     Second, if one accepts the premise that small risks to life are




commercial values, monetization is difficult, if not impossible.  This is




because human life, considered as a commercial good or service, possesses a




large number of special characteristics that frustrate valuation in other




than natural units.  Human life when lost is irreversible.  As noted,




this characteristic forces the analyst to place a premium on forecasting




the future value of avoiding small risks.  Life is not standardized.  A




standardized risk to a non-standardized object results in a unique outcome.




Accordingly, there has to be an analytic process that accounts for these




unique aspects.




     The loss of life is a loss of high consequence.  As noted above,




special methods may be needed to assess the consequences of catastrophe




because the size of the loss may be especially difficult to estimate and




because there may be great anxiety over even a small probability of




catastrophe.  Finally, no markets exist in which life may be traded and




the "markets" in which small risk may .be traded may be highly imperfect.




Analysts have attempted to use wage differentials to measure trade-offs

-------
between risk to life and monetary compensation (Rosen, 1976).  The quality

of estimates of this type depends upon workers voluntarily accepting this

bargain, their understanding the risk, and having ready alternative sources

of employment.  Choices that are uninformed, by virtue of a lack of alter-

natives, are not fair market values.

     Third, even if one accepts the notion that small risks to human health

can be represented by a commercial value and that the special problems that

surround the valuation problems may be surmounted, important distinctions

between compensated and uncompensated risks must be made.  Schulze and

Kneese (1981) have .argued that assessing uncompensated risks requires

that an ethical posture be assumed.  As argued, the libertarian ethic

rejects policies that result in uncompensated risks.

     A fourth consideration involves the distinction between private and

public risks.  Private risks are those where threats to life are accepted

voluntarily by those who would be affected by an adverse outcome.  It is

up to the individual to weigh future values, to value unique, high-valued

objects (one's own life) and to voluntarily accept compensation [or forego
                                      f
compensation, if one is an elite in an egalitarian society run by utili-

tarians for accepting a small increase in the risks to one's life (Schulze

and Kneese, 1981)] .

     Public risks are those where threats to life are accepted by those

who may not be the ones affected by an adverse outcome.  Someone else

does the choosing, so to speak.  It is public risk that is the most vexing

question to face.  This is because public decisionmakers must first

communicate to the public that small risks to life have commercial values.

Public decisionmakers must also communicate to the public that they are

-------
                                    27
capable of inferring the values associated with accepting small increases




in the risks to life.  This may be done by establishing new processes




for determining the values of a community or expanding upon already




established political processes.  Third, the public decisionmaker must




stand ready to accept the Judgments of a community that they, the community,




will not accept uncompensated risks.




     The significance of these reasons for being uncomfortable with




"standard" or "average" or "intellectually respectable" measures of the




value for life or the value of accepting small risks to life is that the




analysis of health risks must end, in most cases, with the expression of




risk in natural units.




    Truncating the analysis and expressing the results in natural units




has the effect of expressing the results in units which are incommensurable




with other monetized effects.  In consequence, the damages caused by




groundwater contamination to human health and life either cannot be




expressed in commensurable units or are rejected out of hand.  Further,




the minor premise—a reduction in water quality impairs health and




threatens life—is difficult to document with high degrees of certainty




from scientific evidence.  Experimentation on humans is unacceptable.




The life scientist must extrapolate experimental data from lower life




forms to humans; the epidemiologist must wait for accidents to happen




and statistically analyze the consequence.  Many biological differences




exist between other species and humans.  Accidents are uncontrolled events.




As a consequence, the human dose-response relation is never completely




verified by biological inquiry.  The epidemiologist requires large

-------
                                    28
numbers to make predictions and large scale contamination incidents either

have not happened (fortunately) or remain undetected (unfortunately).

     It may be argued that groundwater contamination that threatens

health and life requires that whatever is "capable of being done" must be

performed.15  this is not an economic argument.  An economic argument

would require that the costs of a response option be approximately equal

at the margin, to the benefits of exercising the option.  This principle

of weighing costs against benefits is made problematic by the above noted

problem of commensurability, i.e., the risks to human health and life

are not market goods.  What is "capable of being done" in a non-economic

context may mean that if there are places where hazardous materials may be

stored that will not endanger human health and life, then those may be the

places to put the materials.

     A third way to proceed is to perform a cost of risk-reduction

analysis.  If the risks of exposure to contaminated water can be deter-

mined and if the costs of avoiding or reducing the risk can be estimated,

then it is possible to estimate the cost of reducing risk to human health.

Studies of this type have reported that the costs of saving a life have

ranged from zero dollars to $169 million (Graham and Vaupel, 1981).  Of

course, it is beyond economics to argue whether the costs are worth the

benefit.  Given different preferences toward risk, differences in

preferences toward accepting compensated versus uncompensated risk, it

is not even possible to say that a society with limited resources should
^Supreme Court of the United States, American Textile Manufacturers Insti-
tute, Inc., et al., v. Donovan, Secretary of Labor, et al., June 17, 1981.

-------
seek to save as many lives as possible with a limited budget  (Schulze


and Kneese, 1981).                                                   ,


     Performing a cost of risk-reduction analysis for contaminated


groundwater is problematic.  The presence of organlcs and inorganics in


drinking water may present many and varied risks to human health.   Perhaps


the most studied risk is the risk from cancer.  A recent review of  health
                                    *
risks from carcinogens found that mortality risks from organics in  drink-


ing water range from a high of 48 In 10,000 to a low of 3 in  10 million


(Crump and Guess, 1980).  Treating the water to remove the harmful


substances may reduce the risks to human health.  The costs of so doing


are the subject of the next section which focuses on the problem of


industrial waste.


     D.  Treatment


         One approach to restoring water quality is to physically or chem-


ically treat the water.  The optimal level of treatment depends on  the
t

intended use of the water in the future.  Water used for Industrial


cooling may require little or no treatment.  Drinking water would require


extensive treatment.


     Water may be treated at the surface or a well may be "rehabilitated"


by pumping out the contaminant or by neutralizing it within the aquifer.


Well rehabilitation techniques under experimentation are expensive  and


of doubtful effectiveness at this time.  Rehabilitation is made difficult


because contaminants can adhere to rock and soil within an aquifer.


Because of these questions regarding the technical and economic feasibil-


ity of well rehabilitation, well rehabilitation costs are not included.


     Surface treatment of groundwater may take place at a centralized


plant from which water is distributed to users or it may take place at

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                                    30
the point of use.  Although "faucet treatment" is currently in use, these




devices require frequent replacement of treatment agents and other main-




tenance.  In addition, they are of doubtful effectiveness and reliability.




Several treatment techniques for pesticide removal and for turbidity




control may be effective to varying extents at removing some toxic




chemicals, but they are not considered sufficiently effective, or reliable




for removal of the full range of compounds which are common constituents




of hazardous waste.  Our attention is limited to treatment techniques




for removal of inorganic compounds and volatile organic compounds (VOCs).




     High concentrations of organlcs have been reported in groundwater




and can be transported great distances because they have little affinity




for soils (Love and Eilers, 1981, p. 2).  An EPA survey found that VOCs




were detected in approximately 45% of public water systems using ground-




water serving over 10,000 people and in approximately 12% serving less




than 10,000 (Federal Register, 1982).




     Costs for two aeration processes—packed tower and diffused air—




and GAC are reported in Table 2; such costs in the table are for 99%




removal (500 mg/1 to 5 mg/1).  Although the costs in Table 2 are for




removal of trichloroethylene (TCE), costs for removing TCE from drinking




water generally represent average costs or removal of VOCs from a water




supply for a given removal efficiency (Malcolm Pirnie, 1981).  Assuming




linear dose-response relationships, 99% removal of harmful substances




has the effect of reducing a risk of 48 to 10,000 to 48 in 1,000,000.




It may be observed that as system size increases by a factor of 10,




costs increase by a factor of 4 indicating some economies of scale.




Nevertheless, treatment costs for a medium-sized system can easily amount




to over $100,000 annually.

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                                        31
                                     Table 2

                           Summary of Preliminary Costs
                      For Controlling TCE* in Drinking Water
                                  (1981 Dollars)
                                      (000)

                                500-5 ug/1 Removal
Aeration-Packed Tower

1.  Capital Cost

2.  Annual Cost

3.  Operating Cost


Total Annual Cost (2+3)

Aeration-Diffused Air

1.  Capital Cost

2.  Annual Capital Cost

3.  Operating Csot

Total Annual Cost (2+3)

Absorption-GAC

1.  Capital Cost

2.  Annual Capital Cost

3.  Operating Cost

Total Annual Cost (2+3)
                                                     System  Size
                                           (millions of gallons per  year)
2.3-11.5
28-42
3-5
6-8
9-13
67
8
15
23
82
10
15
25
23-115
115-153
14-18
20-26
34-44
277
33
69
102
344
41
66
107
230-l,15i
416-649
50-78
89-118
139-196
1,362
163
400
563
741
89
243
332
Notes:  Opportunity cost of capital is 122.
        Cost data presented for planning purposes only.
        Actual cost data may vary depending on local  conditions.

       *Tricholorethylene

Source:  Malcolm Pirnie, Inc. (1981).

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                                    32
     Aeration and Granulated Activated Carbon (GAC) are not strict alter-




natives, but may be used in combination to increase effectiveness (Love




and Eilers, 1981, p. 75).  The cost of treating contaminated groundwater




may, therefore, In some instances, approximate the sum of the GAC cost




and the cost of one of the aeration techniques reported in Table 2.




     Additional treatment costs resulting from an increase in contaminant




concentration depends on whether a facility already exists.  Estimation




of the "incremental" cost of treating an increase in contamination




requires knowledge of several "operational parameters" which affect




treatment cost, such as pH, coagulant, coagulant dose, and valence of




the contaminant.  A change in any one of these operational variables to




achieve optimum removal of the contaminant may result in an Increase in




operating cost of no more than a cent or two per 1,000 gallons of water




treated (U.S. EPA, 1978, p. 34).




     One fact of economic life is that large systems cost more than




small systems.  The construction of a large treatment facility requires




capital outlays of $500,000 to about $1.5 million.  Medium sized systems




require outlays of $100,000 to $400,000.  Given that a decision limited to




the treatment of the contaminated water is a decision to permit the growth




of the plume, more and more water each year is poisoned.  In arid areas




where there is no surplus water, poisoned water must be treated and used.




A small system may soon become inadequate.




     Sizing a treatment plant in arid areas depends upon the rate of plume




growth and porosity.  The sample plume reported in the section on agricul-




tural damage would require a medium sized treatment plant after about 3




years.  A larger plume would require a larger sized system.  It may be

-------
                                     33
 concluded that  medium to  large  sized  treatment facilities are the proper




'size to  use  when making comparisons among response options.




      Finally, the costs that  have  been reported are for treatment systems




 capable  of cleaning water to  drinking water standards.   This level of




 quality  may  not be needed In  all instances.  Using water for agriculture,




 for example, may not require  that  .the water be potable.  Accordingly,




 the cost estimates for treatment may  be high for comparisons Involving




 agricultural damage.  The level of treatment, however,  is not the only




 variable that influences  cost.  As has been noted the volume of water




 that must be treated exerts a significant influence on cost  levels.




      E.   Alternate Sources




          This section provides  a cost estimate for replacing a contam-




 inated well  with water derived  from another source.  The sources con-




 sidered  are: a new well  with pipeline conveyance, tank truck delivery,




 and bottled  water.  Esoteric  options, which include various  means of




 increasing the  availability of  water  in a region, such as desalinization




 and weather  modification, as  well  as  options that supply water in quanti-




 ties that are out of proportion to the amount of water lost  are not




 considered.




      There are  several preliminary considerations.  In the first instance




 the feasibility of tapping into an alternative source depends upon water




 availability.   The setting of the  story is in Southern Arizona.  This




 area of  the  United States is  arid. The Water Resource Council reports




 that there is  a shortage  of groundwater and surface water sources and that




 this deficit is likely to continue.




      In  terms  of comparing response options, an .alternative  source may not




 be feasible  throughout all regions, especially this region.   A further

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complication involves water law.  In some states, water is a common




property resource, while in others water is private property.  This




means that a potential user of an alternative source may in some states




have to bargain with a public agency for its use, while in other states




the transaction may occur between (among) private parties.  Some states,




however, do not permit water to be sold (Arizona has this type of law).




Owners of land have the rights to water under their land and may pump as




much as they can afford.  They may not, however, sell groundwater to




anyone else.  Laws of this type reduce the feasibility of tapping an




alternative groundwater source.  In this circumstance—where sale of




water is proscribed—tapping an alternative source would require that




the land above the water table be purchased.  This would increase the




private cost of using an alternative source.




     A final consideration concerns the distance between the new source




and the point to which the water must be delivered.  Tapping into an




aquifer at a point some distance from the plume requires that the new




water be conveyed at some cost to the point at which it is needed.




Tapping the contaminated aquifer too close to the plume may cause the




plume to change the direction and rate of its growth.  The result might




be that pollution would be drawn to the new source.




          1.  New Well




              The costs of obtaining water from an alternative well, to




replace that from a contaminated one, depend on four major factors:  (1) the




costs of drilling and casing, (2) the operating and maintenance costs (not




treated here), (3) the difference in the cost of transporting water from




the new as opposed to the original well, and (4) the cost of obtaining

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                                    35
legal access to Che substitute water.  The costs of drilling and casing




for a new well are reported in Table 3.  For each of the six well diameter




categories, mean costs per foot are reported.  The means are calculated




over a nationwide (non-scientific) sample of geologic conditions.  There




is considerable variance around the mean.  For example, the mean cost,




over 19 firms responding, of drilling a 10" well is $12.55 per foot.




The lowest drilling cost reported was $2.60 per foot and the highest




cost was $29.00 per foot.  The cost of casing a 10" well ranges from a




low cost per foot of $6.00, through a mean of $9.65, to a high cost of




$15.00.




     Data on pumping cost and other operating and maintenance cost




are not available.  However, since pumping cost is generally correlated




only with "lift," or the distance water must be pumped from the water




table to the surface, it is not likely to greatly affect the cost of




using alternative new wells.




          2.  Pipeline Conveyance




              Depending on hydrological conditions (which determine both




the physical availability of water and the safe distance, in the same




aquifer, from a contaminated well) a replacement well may require trans-




porting clean water a substantial distance.  Further, replacing a private




well with municipal water may require extending the public conveyance




system.  If the affected aquifer affects a municipal supply, piping from




outside sources may prove to be impractical.




     Table 3 contains a breakdown of the costs associated with pipeline




conveyance of water.  A water user might have a pipeline constructed




from a public or private well.  In the case in which the source is public,

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                                                      36
                                                    Table 3

                                 Costs of Alternative Water Supplies; New Well

                                                (1981 dollars)
Investment Cost Per Foot1
                                                  Investment Cost for                      Pumping Volume^
                                                       75' Well         Annuallzed Cost2    (OOP) gal/day
Diameter
2 "-4"
6"
8"
10"
12"
Drilling
$ 5.53
8.24
11.6
12.55
24.36
Casing
$ 3.18
5.55
8.07
9.65
14.43
Total
$ 8.71
13.79
19.71
22.20
38.79

$ 653
1,034
1,478
1,665
2,909
>
$ 78
124
177
200
349

.345
5-144
108-245
216-576
504-936
Source/Explanation

^Drilling and casing cost per foot are from the Water Well Journal, January 1981, pp. 79-97.  Costs for
each diameter well are sample means; over 49 firms reported drilling costs and 279 firms reported casing
costs.  Although the survey included firms which use either cable tool or rotary drilling rigs exclusively,
the costs reported here are for firms which use both cable tool and rotary rigs.  The Water Well Journal
survey was not scientifically designed.  Questionnaires were sent to members of the National Water Well
Association and subscribers to the Water Well Journal.

^Opportunity cost of Capital = 12%.

3Pumping volumes were provided by Geraghty and Miller, groundwater hydrologists.  2" and 4" wells are assumed
to be for residential use.  Average residential use is taken from Economic Systems Corporation, Urban Water
Resources Research, 1968.

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                                        37
                                     Table 4
                               Pipeline Conveyance8
                                              Capacity
                                    (thousands of gallons per day)
                                20
200
1,000
2.000  )
Investment Cost

Line Cost ($/oile)           $29,384     $49,727
Pump Station Cost ($/mile)       316       6,555
Total Investment ($/mile)     29,700      56,282

Total Annual Investment^
  ($/mile)                     3,564       6,754

Operating Cost

$ per mile                     3,200       4,000

Total Annual Cost

$ per mile                     6,764      10,754
          $103,410
            17,065
           120,475
            14,457
            10,000
            24,457
          $158,222
            14,647
           172,869
            20,744
             8,000
            28,744
Source:   Koenig, Louis, Disposal of Saline Water Conversion Brines—An Orientation
Study, Office of Saline Waters, U.S. Dept. of the Inteiror, Washington,D.C., 1957.

aAll costs except pump energy are inflated in 1981 dollars on the basis of  the
Engineering News-Record construction cost index.
^Investment cost is annualized by using a 127. opportunity cost of capital.

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                                    38
It is uncertain the price charged to the user will reflect the marginal




cost to the municipal authority of providing the water.  It probably




will not, however, because customers (or classes of customers) are typi-




cally charged a uniform rate, regardless of marginal costs of service.




Since the Interest is on the incremental resource costs to society of




avoiding groundwater contamination, the pipeline conveyance costs are




based on actual construction cost, rather than on an assessment of charges




by municipal water supplies for extension of service.         ''




          3.  Tank Truck Delivery and Bottled Water




              Estimates of the cost of water delivery by tank truck and




the cost of bottled water are as follows.  The charge for water delivered




by truck is 12 cents per gallon plus 83 cents per mile for transport of




5,500 gallons (or 15 cents per 1,000 gallons).  The incremental transporta-




tion cost may be lower if there is an established delivery system in the




affected area.  The cost of bottled water is 95 cents per gallon plus




whatever costs the consumer may incur in transporting the water.  Since




the cost of bottled water is eight times the cost of tank truck delivery,




no further discussion of this alternative is warranted here.




     E.  Conclusions and Comparisons




         The costs of responding to a groundwater contamination incident




by suffering the consequences or restoring water quality depend primarily




on the amount of water damaged.  In order to compare the different methods




it is necessary to make assumptions about well depths (75 feet), pipeline




conveyance distances (10 miles) and trip lengths for tank truck delivery




(10 miles).  Table 5 compares the cost of the various response options.




     First, it must be remembered that the consequences of using and



losing and tank truck delivery grow through time.  For using and losing,

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                                        39
                                     Table 5
                 Comparison of Annual Cost of Restoration Options
                                  (1981 Dollars)

                         (Assume 325,000 gallons damaged)
    Option                                          $/yr.

1.  Use and Lose—Agriculture8                         125

2.  New Wellb plus 10 miles of pipeline0            67,665

3.  Tank Truck Delivery4                            39,000

4.  Treatment6                              34,000-107,000

5.  Use and Lose—potable water             No cost estimation
aDamage payment based on 4 acre/feet of water applied to each acre of sugar
beets.  Since one acre/foot (325,000) gallons was poisoned .this is equivalent
to destroying 1/4 of an acre of sugar beets worth $500 an acre.
     New Well is 75 ft. deep, with 12" diameter.  It requires an investment of
$2,909 or an annual cost of $350.  A 75 ft. well with a 6" diameter would cost
$125 per year, but would be too small after 5 years.

cTable 4:  The small pipeline would be adequate for 60 years.

d .12 x 325,000 -l- .15(10X325) - 39,488.

eTable 3:  The medium sized treatment plant would be adequate; the range derives
from the effluent treatment methods, if the cost of these options increases
through time.

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                                    40
the first year's expense is shown as $125, the second year's expense

would be $250 and the third year's expense would be $375.  The costs of

tank truck delivery also grow through time.  Since these costs are over

a hundred times greater than using and losing, consideration of tank

truck delivery as an efficient response option is curtailed.  Even with

annual increases in the cost of using and losing, it will take a very

long time (250 to 500 years) for the annual using and losing costs to

equal the cost of treatment or a new well with 10 miles of pipeline.

This comparison points up two important observations:  (1) the length of

the time horizon is Important in determining the cost response, and

(2) since the cost of an alternative source is dominated by pipeline

costs, the distance over which water must be piped is central to deter-

mining the least-cost option.  If local conditions are such that only

one mile of pipeline is required, the alternative source becomes the

least-cost option in 50 to 60 years instead of about 500 years.

     It should be pointed out that as the value of the crop damages

decreases, the annual use and lose costs decrease.  The comparison is

based on a loss of sugar beets which are relatively high-valued crops.

     On the other hand, the costs of using and losing depend upon the

amount of water poisoned each year.  The loss of one acre/foot that
                                    IB
underlies this comparison is small.  Larger amounts of water poisoned

would increase the use and lose loss proportionately.  Since pipelining

and treatment exhibit economies of scale, a doubling of water loss would

not double the cost of alternative sources or treatment.  Accordingly, as

rates of plume growth increase, one would expect that the provision of

alternative sources or treatment would become the efficient option over a

shortened time horizon.

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     Second, local conditions,, such as terrain, distance to a safe water




source and type of crop grown, appear to be the most significant variables




affecting the ranking of the options in the agricultural case.  The




economic time horizon also is important.  If the planning horizon is less




than 250 years, using and losing would appear as the least-cost option.




Accordingly, policies (such as financial responsibility laws or the




posting of bonds) that lengthen the time horizon would lead to different




ranking of response options than policies that shortened the economic




planning horizon.




     Finally, the options discussed in this section do not prevent the




plume from spreading; they only offset its effects.  In the next section




we consider response options that arrest the spread of the plume.

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                                    42
IV.  CONTAINMENT OPTIONS




     A.  Pumping/Recovery Wells




         Pumping/recovery well systems, sometimes referred to as counter-




pumping, may be used to arrest the spread of a plume of contamination.




This is accomplished by drilling wells into the plume so that when the




wells are pumped, the force of the pumping counters the natural movement




of the plume.  There are two configurations of recovery wells.  The




first is to drill the wells along the leading edge of the plume.  This




geometry is effective if the plume is expanding in one direction.  The




second consists of drilling wells at the boundry of the plume and along




major axis in the plume's interior.  This configuration is effective if




the plume is expanding in more than one direction.  In theory, and in




practice, a balance is struck between the forces of the aquifer and the




forces exerted by the pumping wells.




     One consequence of the counterpumping option is that contaminated




water is pumped to the surface and a new disposal problem is created.




Consequently, the costs of treating the water to an acceptable standard




(a level that would permit either the use of the pumped water or its




disposal into surface water) is included in the costs of this system.




The major variables affecting the cost of counterpumping are groundwater




flow properties, plume size and plume depth.




     Six hundred and eight (608) cost estimates for a counterpumping




system were prepared by Geraghty and Miller (1982).  There were 19 dif-




ferent categories of groundwater characteristics and pumping configu-




rations.  Within each of these categories, eight different plume sizes




and four types of treatment were considered.  For our purposes we isolated

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on 16 estimates.  A small plume (100 x 200 x 65) and a large plume




(2000 xlOOO x 65), a fast growing plume and a slow growing plume, two




types of treatment of the counter-pumped water, and two well configuatlons.




The costs associated with these categories are presented In Tables 6 and 7.




     It may be seen that given a plume size, a treatment option and a




strategy, slow growing plumes cost less to control than fast growing




plumes.  This is because more water must be pumped to control a fast




growing plume necessitating more wells and a larger volume of water to




be treated.




     It may also be seen that given a specific plume size, treatment




option and rate of growth, a strategy 2 configuration (i.e., interior




pumping) costs more than strategy 1 (leading edge pumping.) This is




because more wells are required to implement a strategy 2 configuration.




Finally, filtration costs more than carbon treatment for a given sized




plume, rate of growth and strategy.




     B.  Slurry Walls




         Slurry walls are a means of arresting the spread of a plume.




Constructing a slurry wall involves boring around the perimeter of a




plume and injecting impermeable substances into the bore holes.




     The wall extends down to the confining stratum and an underground




tub is created.  (For this example, the confining stratum is assumed to




be 75 feet below the surface.)  In order to keep this tub from over-




flowing, there must be some type of surface treatment.  In areas where




rainfall is infrequent, grading, contouring and vegetation of the surface




above the underground tub may suffice.  In other areas where rainfall is




plentiful a surface seal must be installed.  These alternatives are



referred to as countouring and sealing.

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                                        44
                                     Table 6

                       Containment Costs for Counterpumping
                                     ($000's)

                                Fast-Growing Plume
                                  (3,600 ft/yr.)
Size

Treatment

Cost Element

Strategy #1
(leading edge)

Strategy #2
(interior axis
 pumping)
           Small
  (depth x width x length)

       65' x 100' x 500'

    Carbon       Filtration

 K    O&M   A    K    O&M  A

132   41a   57  228   69b  96
                                                                 Large
                                                        (depth x width x length)
       65' x 2,000' x 10,000'

     Carbon           Filtration
 K     O&M      A     K    O&M    A

807    127C    224  1,227  127d  274
356   98e  141  626  109f 184   2,044  1,4238  1,668  4,004  503h  983
Source;  Geraghty and Miller, Inc. (1982).

aTable F-9, Column 2, Row 2
bTable F-9, Column 2, Row 4
cTable F-9, Column 8, Row 2
dTable F-9, Column 8, Row 4
eTable F-19, Column 2, Row 2
fTable F-19, Column 2, Row 4
gTable F-19, Column 8, Row 2
hTable F-19, Column 8, Row 4
A - Total annual costs

Notes:  Capital costs annualized at an opportunity cost of capital of 12 percent,

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                                     Table 7

                       Containment Costs for Counterpumping
                                     ($000's)

                                Slow-Growing Plume
Size

Treatment

Cost Element

Strategy //I


Strategy #2
           Small
  (depth x width x length)

       65' x 100' x 500'

    Carbon        Filtration
 K    O&M  A     K    O&M   A

106   20s  33   170   55b   75
              Large
     (depth x width x length)

       65' x 2,000' x 10,000'

    Carbon           Filtration
 K    O&M    A

519    60C  122
 K   O&M    A

619   77d  151
158   48e  67   248   74f  104    1,146  1726  310   1,666 149h  349
Source:  Geraghty and Miller, Inc. (1982).

aiable F-6, Column 2, Row 2
bTable F-6, Column 2, Row 4
cTable F-6, Column 8, Row 2
dlable F-6, Column 8, Row 4
eTable F-18, Column 2, Row 2
fTable F-18, Column 2, Row 4
gTable F-18, Column 8, Row 2
hTable F-18  Column 8, Row 4
A - Total annual cost

Notes:  Capital cost annualized by an opportunity cost of capital of 12 percent.

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                                    46
     The cost of a slurry wall depends upon the size of the plume, In

particular its perimeter.  Wall costs are insensitive to other aquifer

characteristics such as hydraulic gradient, porosity and transmlssivlty.*6

Accordingly only two categories of costs are reported:  those for large

and for small plumes both with contouring and seals.  These costs estimates

are reported in Table 8.

     Data on wall longevity or design life of a wall are not available.

Clearly, if all liners on surface impoundments leak sooner or later, then

all slurry walls must also leak eventually.  If they did not, hazardous

waste liners could be made of the same material as slurry walls.  The

Implication is that slurry walls do not arrest the spread of the plume

forever.  Given rough equivalence between the costs of counterpumping and

slurry walls, the more effective option would appear to be counterpumping.

     C.  Comparison

         Several observations may be made at this point.  For a large

plume, the capital expenditures associated with slurry walls are 3 to 40

times greater than the capital costs of counterpumping, while the oper-

ating costs of counterpumping are 2 to 14 times greater than the operating

costs of slurry walls.  In these circumstances, the least-cost option

may depend upon the opportunity costs of capital.

     Consider, as an example, a slurry wall confining a large plume with

a seal over the surface and counterpumping a large, fast-growing plume,

with a strategy //2 well configuration and carbon treatment.  The costs

for a slurry wall (in $1000) are $21,565 for capital, $10 for operating

and maintenance.  The costs for counterpumping are $2,044 for capital
      a more complete discussion of slurry walls, see Geraghty and Miller
(1982), pp. 84-104.

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                                        47
                                     Table 8

                 Containment Costs for Slurry Walls 75 Feet Deep
                                     ($000's)
                         Small
                 depth x width x length)
               Large
      (depth x width x length)
Plume Size
Surface
Treatment
65'

Seal
x 100' x 500'

Contour
65' x

Seal
2,000' x 10,000'

Contour
Cost Element   K   O&M   A    K    O&M   A

Strategy //I   528  10a  73   502   10b  70
   K    O&M    A       K    O&M    A

21,565  10C  2,598  11,395  31d  1,398
Source:   Geraghty and Miller (1982), Appendix A.

aTable H-6, Column 2, Row 3
bTable H-5, Column 2, Row 3
cTable H-6, Column 8, Row 3
dTable H-5  Column 8, Row 3

A - Total annual cost.

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                                    48
and $1,423 for maintenance.  At a 42 cost of capital, the annual cost of




a wall is $872, and for counterpumping it is $1,505.  At a 15% cost of




capital, the annual cost of a wall Is $3,234 and for counterpumping,




$1,730.  Plainly, at the low opportunity cost of capital, the slurry wall




is the least-cost option; at high opportunity costs of capital, counter-




pumping is the least-cost option.




     The least-cost option, when a choice is made between walls and counter-




pumping, may depend upon the ability to use a strategy #1 (leading edge




pumping) well configuration versus a strategy #2 (interior pumping) well




configuration.  Consider, as an illustration, a slurry wall confining a




large plume with a seal over the surface and counterpumping a large,




fast growing plume with first a strategy #1 configuration and then with




a strategy it2 configuration.  Assume opportunity cost of capital to be




4%.  The annual cost of a slurry wall is $872: the cost of counterpumping




with a strategy #2 is $1,505: but the cost of counterpumping with a




strategy #1 is $143.  It may be seen that local conditions are important




determinants in ranking these options.  Is the plume growth unidirectional




so that it can be controlled with a strategy #1 configuration instead of




strategy #2; is rainfall sufficient to warrant a seal instead of contouring




and vegetation?  Finally there is an economic dimension, is the cost of




capital high or low?




     As stated at the outset these options prevent the plume from damaging




additional water.  In effect, these options keep the plume from spreading




to another landowners' property.  How these containment options compare




with the restoration options is the subject of the next section.

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                                    49
V.  SELECTING AMONG RESPONSE OPTIONS




    A.  Introduction




        The purpose of this chapter is to draw together the preceding




chapters and to use the illustrative estimates developed there to show




the relative cost of options under alternative scenarios.  Our approach




is to present four illustrative calculations of hypothetical pollution




incidents.  For each calculation the key facts the decisionmaker would




have to ascertain in order to determine the preferred response are




identified and specific assumptions about the values are made to permit




making the illustrative computations.




     The previous sections contained discussions of five (5) response




options to a plume of groundwater contamination.  The options are:




              o  counterpumping




              o  slurry walls




              o  suffer agricultural and health losses




              o  alternative groundwater sources




              o  treatment of contaminated water (to acceptable




                 standards.




Bottled water and tank truck delivery, are not discussed at length.  As




noted earlier, both are considered to be more costly than the response




options that are discussed.




     As noted above, estimating the cost of human health effects is partic-




ularly troublesome.  This is because the literature on health effects




expressed in natural units produces wide ranges (from 10~^ to 10"^)




for the risks imposed by exposure to contaminants at a given concentration,




Second, it is extremely, difficult to infer a dollar value of human

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                                    50
life.  It is possible, however, to estimate the cost of reducing the risks




to human health based on observed risk data.  Such an analysis should not




be construed as a conclusion regarding the net social benefit of reducing




uncompensated risk.




     Below, four hypothetical incidents are developed in terms of agri-




cultural damage.  To place the incidents in a context wherein the threat




is not to plants but to human life, one may simply disregard the response




option of use and lose and implement the low-cost option of the remaining




four responses.  The cost of the least-cost option, after using and




losing has been eliminated, is the price of reducing the risk to human




health (whatever that may be) caused by exposure to contaminated ground-




water.




     The incidents have common elements and distinguishing features.




The distinguishing features are:




              o  slow growing small plume,




              o  fast growing small plume,




              o  slow growing large plume,




              o  fast growing large plume.




The common elements are:




              o  the location is Southern Arizona,




              o  the growth of the plume is unidirectional,




              o  the contaminants are a "soup" of organics




                 and inorganics.




     Locating the incident in Southern Arizona influences the costs of




the responses.  Arizona is arid, receiving less than half of the national




average of 30 inches of precipitation per year.  (The average precipitation

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                                    51
in Arizona is 14 inches.)  One consequence of the low levels of precipi-




tation is that for the case of slurry walls, contouring and vegetation




may be considered an effective surface treatment to prevent the "tub"




from overflowing.  A second consequence involves the crops that nay be




profitably grown.  Earlier the principal crops for the area were listed,




along with their own irrigation requirements.  Locating the incident in




another area will change the crops affected, the market value of the




crops affected and the extent of reliance on irrigation as a water source.




The less reliant an area is upon irrigation, the less the value of ground-




water, other things constant.




     The consequences of assuming that the growth of the plume is unidi-




rectional are two.  First, it faciltates projections of plume growth and




the amount of water that is contaminated each year.  Second, the assumption




enables the strategy //I or leading edge configuration to be used.




     Treatment costs and health effects are affected by the assumption




that the contaminants mix and form a highly toxic soup.  For the case




of treatment, high cost methods are used.




     B.  The Decision




         The liner on a landfill or surface impoundment has failed and




hazardous waste is seeping into the water table.  The failure has gone




undetected for a sufficiently long period of time that a plume of highly




toxic soup has formed and is spreading.  Even if the liner failure has




been discovered and corrected, it is assumed that there are sufficient




concentrations of toxics in the aquifer so that natural dispersion will




not reduce the toxicity for scores of years.  Assuming that all land




abutting the operator's property has been assigned, further growth of



the plume will poison another proprietor's water.

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                                    52
     Instead of arresting the spread of the plume, an alternative source




of water could be tapped and used to replace the contaminated water.




This requires that there be "surplus" water available.  A third possi-




bility is to do nothing and compensate the owners of the abutting property;




a fourth possibility is to treat the water to acceptable standards.




These possibilities are compared below.




     C.  Case I:  Slow-Growing, Small Plume




         This plume is expanding at a rate of 360 feet per year.  It is




65 feet thick, 100 feet wide and presently measures 500 feet from end




to end.  The porosity of the soil is 20%.  This Implies that a plume




that is expanding at a rate of 360 feet year per year will contaminate




about 3.5 million gallons per year.




     A recovery well system or a slurry wall may be viewed as a response




option which is protecting 3.5 million gallons per year.  The estimated




annual cost of a recovery well system that could arrest this plume is




found to cost $75,000 (Table 7, column 2, row 1).  Strategy //I is employed




because the plume is growing in one direction; high treatment costs are




required because there is a multiplicity of the contaminants.  The cost




of a slurry wall that could contain this plume is $70,000 (Table 7,




column 2).  Contouring is an effective surface treatment because the




location of the incident is in an arid region.




     Three and one half million gallons (the amount of water which is




expected to be contaminated) is equivalent to about 11 acre/feet of




water, or enough to Irrigate about 3 acres in Southern Arizona.  If the




crop is sugar beets the value of the output lost is $1,500 per year.  The




cost of supplying water from another groundwater source located 10 miles

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                                    53
away is about $68,000.  The cost of these and other alternatives are




reported in Table 9.




     The results of this comparison Indicate that arresting the spread of




the plume by constructing a slurry wall or counterpumping are about 50




times greater than the damages to the sugar beet fanner.  If the cost of




all available response options Increased at the same rate through time,




it would never be efficient to arrest the spread of the plume or to




employ other than the use and lose option.  All response option costs




do not Increase at the same rate, however.  The annual cost of counter-




pumping remain constant over time.  Costs incurred by the abutting sugar




beet farmer would increase at a rate of $1,500 per year each year as more




crops are lost.  In other words, annual damage payments would grow and




would eventually equal the cost of counterpumping.  In the example, this




point occurs in about 48 years.




     In what future period total agricultural damages would equal the total




costs of counterpumping would depend upon the discount rate.  If the rate




of discount were zero, it would take 96__years of plume growth to inflict




enough agricultural damage to make counterpumping (or a slurry wall) the




least-cost option.  The higher the discount rate, the longer the time




horizon.         -




     Tapping an alternative source of water by drilling another well 10




miles away and transporting the water to the site is estimated to cost




about $68,000 per year.  In 90 years the costs associated with doing




nothing would approximately equal the cost of providing an alternative




source, if discount rates were zero.  Assuming a medium-sized treatment




facility, treatment costs range from about half the cost of the slurry

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                                        54
                                     Table 9

                 Estimates of the Cost of Response Options for a
                            Slow-Growing, Small Plume
Response Option                          Annual Cost
                                           ($000)

o Recovery Well/Treatment*             .     75

o Slurry Wallb                              70

o Use/Lose Agriculture0                      1.5 (first year)d

o Alternative Source6                       67.8

o Treatmentf                            34-107
Opportunity cost of capital is 12%, Table 13.

bTable 8.

cSugar beets provide revenues of $500/A.

^Annual cost grow overtime for this option.

eTable 3, Table 4, 10 miles of pipeline.

fTable 2.

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                                    55
wall or counterpumping options to more than one and one half the cost




of these options.




     It may be concluded that, given the above cost estimates, location,




and plume characteristics, the least-cost option is to arrest the spread




of the plume provided the planning horizon is 90 or more years and the




discount rate is zero.  This is a problem.  Ninety years is a long time




and $70,000 (the approximate cost to arrest the plume) annually is a




sizeable sum of money.  The actual discount rate is above zero.  Whether a




sufficient legal and regulatory infrastructure is in place and whether




It is strong enough to enforce a long time horizon remains an open




question.




     In these calculations, we abstract from transaction costs.  These




may be considerable if there is litigation.  One way to reduce transac-




tion costs is to require large buffer zones around the landfill or




surface impoundment.  This would have the effect of postponing the




growth of the plume into the abutting property.  When the plume does




threaten the abutting property it may be larger and pose more of a




threat.  The increased threat may bring forth a stronger sense of the




value of arresting the plume's growth or replacing the poisoned water.




     D.  Case II;  Slow-Growing, Large Plume




         This plume is 65 feet thick, 2,000 feet wide and extends for




10,000 feet.  It is highly toxic necessitating high cost treatment.




It is in an arid region.  The porosity is 202.  Each year its growth




is not arrested, the plume grows 360 feet.  This plume is poisoning




70 millions gallons or 216 acre/feet of water each year.  This water




could be used 'to irrigate 47 acres of sugar beets each year.  A crop

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                                    56
of sugar beets of this size is worth about $24,000.  Table 10 reports




the cost of the options that could be used to respond to this incident.




     The cost comparisons for this case indicate that, relative to agri-




cultural damage, tapping an alternative source Is about three times as




expensive.  Agricultural damage will continue to Increase, and eventually




exceed, the cost of an alternative source.  If the assumed discount rate




is zero, the total cost from paying damages will equal the total costs




of an alternative source in about six years.  An alternative groundwater




source may not be available in Arizona.  If this is the case, recovery




wells or treatment emerge as the least-cost options in about 12 years if




discount rates are zero.




     It may be seen that relative to the slow-growing, small (narrow)




plume in Case I, the plume in this incident—because it is wider—threatens




to do more damage to agricultural enterprises.  This Increased threat




may be seen in the shortened time horizon (12 years compared to 90 years




with a zero discount rate) over which the cost of doing something is




less costly than doing nothing.




     It may be concluded that slow-growing plumes may require strong




legal and regulatory systems, if substantial agricultural costs are to




be avoided.




   .  E.  Case III:  Fast-Growing, Small Plume




         This plume is expanding at the rate of 3,600 feet per year.




It is 65 feet thick, 100 feet wide and 500 feet long.  With 20%




porosity about 35.1 million gallons of water (108 acre feet) are

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                                        57
                                     Table 10

                 Estimates of the Cost of Response Options for a
                            Slow-Growing, Large Plume
Response Option


Recovery Wall8

Slurry Wallb

Agricultural Damage0

Alternative Source6

Treatment*
Annual Cost
  ($000)

    151

  1,400

     23.5 (first year)<*

     68

140-560
aTable 7, Row 1, Column 4.
bTable 9, Column 4.
C47 crop acre at $500.
^Annual cost grow over time for this response.
eTables 3 and 4.
fTable 2, Column 4.

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                                    58
contaminated each year.  Table 11 presents the cost of responding




to this plume.




     In order to illustrate a point, a modification in the basic story




is made—namely, that between 1 mile and 10 miles of pipeline are neces-




sary to move clean water from an alternative source.  Previously, it




had been assumed that 10 miles were necessary.  This change assumed




distance generates pipeline costs which range from $6,800 (a sum less than




the first year of agricultural damage) to $68,000 (over five times the




first year's agricultural damage).




     A second modification is made.  It is assumed that alternative




sources are unavailable.  This change makes agricultural damage the




least-cost alternative with slurry walls next in rank, but about five




times more expensive.




     For the case where alternative sources are available from a nearby




source, the cost comparisons are straightforward.  From the outset the




least-cost option is the provision of an alternative source of water.




As the distance between the alternative source and the site to which the




clean water is to be delivered increases, the cost comparisons become




more complex.




     A decision to incur the full amount of agricultural damage emerges




as the least-cost response option if time horizons are short.  If time




horizons are long (greater than 15 years), a distant alternative source




or slurry walls becomes the least-cost option.




     Assuming that an alternative source Is not available, and this




is not unlikely in arid regions of the southwest where the incident is




assumed to occur, the strength of the legal and regulatory institutions

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                                        59
                                     Table 11

                 Estimates of the Cost of Response Options for a
                            Fast-Growing, Small Plume
Response Option


Recovery Wall*

Slurry Wallb

Agricultural Damage0

Alternative Source6

Treatment^
Initial /»Cost
   ($000)

     96

     70

     12 (first year)d

      6.8-68

140-563
aTable 6, Row 1, Column 2.
bTable 8, Column 2.
C24 crop acre at $500.
^Cost grow over time for this option.
eTables 3 and 4.
fTable 2, Column 4.

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                                    60
comes to the fore.  Once again, the economic horizon over which the cost




effectiveness of prevention must be compared is 15 years and the annual




cost of prevention is sizeable ($70,000) when compared to the initial




cost of agricultural damage ($12,000).  In other words, failure to account




for the irreversible damage that may be caused in the future by continued




spread of the plume may easily lead to the choice of an inefficient




option.




     F.  Case IV:  Fast-Growing, Large Plume




         This plume is 65 feet thick, 2,000 feet wide, 10,000 feet long




and is growing at the rate of 3,600 feet a year.  Given 20% porosity,




702 million gallons (2,160 acre/feet) of water are contaminated annually.




Table 12 reports the cost of responding to this plume.




     Construction of.a recovery well system emerges as the efficient
                           *



option.  This is because the volume of water potentially contaminated was




very large, generating $250,000 in damages in the first year with each




ensuing year recording an additional $250,000.  The large size of the




plume makes construction of a slurry wall prohibitive.  Similiarly, the




large size of the plume casts doubt on the effectiveness of replacement




options.  The region chosen for the study is arid and the availability




of an alternative source capable of supplying first 700 million gallons




per year, then 1,400 million gallons per year with an annual growth of




700 million gallons is remote.




     The least-cost prevention option is a recovery system that holds




the plume in place.  The difference in treatment costs between those




for a recovery system and those for treatment and subsequent use of the




water arise from two sources.  First, the volume of water that must be

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                                        61
                                     Table 12

                         Cost Estimates for Responding to
                           a Fast-Growing, Large Plume
Response Option


Recovery Wall*

Slurry Wallb

Agricultural Damage0

Alternative Source6

Treatment^
Annual Cost
   ($000)

     274

   1,398

     270 (first year)d

     N/A

 140-563
aTable 6, Row 1, Column 4
bTable 8
C540 crop acre at $500/A
^Cost grow over time for this option
€Tables 3 and 4
fTable 2

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                                    62
treated under the recovery well system is less than under the treatment




and subsequent use option.  This is particularly the case after the




first year.  Second, the water must be cleaned more thoroughly under the




subsequent use response option than under the recovery well option.




     In this incident, the time horizon over which prevention of the plume




is contained is relatively short since the costs of agricultural damages




and recovery wells are on a par in the first year.  Given the initial




comments about all liners failing sooner or later, hazardous waste operators




would—if they are informed and liable for damages—avoid siting hazardous




waste facilities near aquifers where plumes could grow large and fast.




Put differently, an operator who located a dump over an aquifer where




plumes would grow large and fast would, eventually, face the prospect of




paying over $250,000 annually to control the plume's spread or cause




millions of dollars of agricultural damages.  Further, the financial




resources of an operator might not be sufficient to cover losses of this




magnitude and the problem could become "public."

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                                    63
VI.  Conclusions




     This look at a hypothetical contamination incident leads to two




sets of conclusions.




     The first set concerns the factors that affect the costs of respond-




ing to a groundwater contamination Incident.  (See Table 13.)  The first




are general economic conditions.  The opportunity costs of capital and




relative prices (such as agricultural products and construction materials)




are the key factors.  The opportunity costs of capital are important




because of the high one-time costs that must be paid to implement some




response options.  Low opportunity costs of capital imply low annual




costs for slurry walls and counterpumping.  The price of agricultural




products relative to construction materials is important because agri-




cultural products are sacrificed by not arresting the plume, or construc-




tion costs are paid to arrest the plume.  Second and third, local hydro-




logical and local economic conditions appear to dominate the feasibility




of implementing any particular response as well as determining the relative




costs of the feasible options.  Porosity is important for calculations




involving the amount of water poisoned, and plume growth enters the




calculations for counterpumping, agricultural losses and the amount of




water that must be treated or provided from alternative sources.  The




use of the abutting land and the availability of alternative sources




(the relative scarcity of water) influence the costs of the responses.




Clearly, if the abutting land use is for a municipal water system or a




residential area, the possibility of adverse health effects arises.




     Finally, the quantity and quality of the contaminant is important.




For obvious reasons, small quantities of a given soup of contaminants are

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                                64
                             Table 13




Influences on the Costs of Responding to Groundwater Contamination











                   General Economic




                        o  Costs of capital




                        o  Relative prices (e.g., agricultural




                           products to construction materials)




                   Local Hydrological




                        o  Porosity




                        o  Plume growth




                   Local Economic




                        o  Abutting land use




                        o  Availability of alternative sources




                        o  Irrigation practice




                        o  Value of water




                   Contamination




                        o  What chemical




                        o  In what quantities

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                                    65
likely to cause less damage than large quantities.  Similarly, a given




quantity of highly toxic contaminants is likely to cause more damage than




the same amount of a less toxic soup of contaminants.




     The second set of conclusions concerns the institutional environ-




ment.-  Plumes grow slowly; the damage accumulates over time.  It may take




a long time for options with high capital costs to become the least-cost




option.  Further, the amount of damage caused by not arresting the plume




is, in part, determined by the value of water.  The future value of water




is unknown but is determined by changes in supply and demand.  Thus, an




unknown amount of damage will be caused at some time in the future




(perhaps to generations as yet unborn).  This raises a number of questions




involving intergenerational equity and the role of discounting future




values in making public decisions.  It challenges the legal and regulatory




frameworks which institutions use to administer justice over long periods




of time and among generations.  The choices that may come before these




bodies may well involve decisions regarding events which have low proba-




bilities of occurring, but if they occur, will entail high consequences.




For example, should a regulatory body require a hazardous waste operator




to post a performance bond or acquire operating authority that cannot be




returned for 50 years?  Failure to require such a bond would leave the




operator free to walk away form any contamination Incident by declaring




corporate bankruptcy.  The ownership and laws regulating^ the use of




groundwater vary from state to state.  These legal differences influence




the availability of alternative sources of water, as well as whether an




operator of a dump may be considered liable for damages.




     The combination of local influences over the costs of response and



the need for long-term values to dominate the decisionmaking practice

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                                    66
     The combination of .local influences over the costs of response and




the need for long term values to dominate the decision-making practice



requires a mixture of local and non-local participation in deciding



questions of groundwater contamination.  Whether existing laws and




policies are adequate to cope with these problems is an open question.

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                                    67
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