THE APPLICATION OF ECONOMIC INSTRUMENTS FOR WASTE MANAGEMENT
by
William E. Muno
United States Environmental Protection Agency
Chicago, Illinois
The purpose of this paper is to describe three major portions of the waste
management program in the United States and to explain how economic factors
^are consider in each of them. The waste management program in the United
States can be subdivided into three distinct functional areas: prevention,
^protection, and remediation. The prevention program is designed to reduce or
.eliminate the generation of waste materials through process modifications and
Vaw material substitutions. The protection program is designed to regulate
the generation, transportation, treatment, storage, and disposal of waste
materials to protect public health and the environment. The remediation
program is designed to restore older sites where waste materials have been
previously mismanaged or abandoned. Each of these three functional areas will
be described separately below.
PREVENTION
In the United States of America, the first pollution control activities were
directed at "end of pipe" restrictions on wastes. In recent years, Pollution
Prevention (P2) has become one of the major concerns and focuses in the
environmental field. President Clinton and United States Environmental
Protection Agency (U.S. EPA) Administrator Carol Browner have emphasized its
importance and are committed to a preventative strategy to eliminate or reduce
the generation of environmentally harmful pollutants which may be released to
the air, land, or water. As early as 1976 when the Resource Conservation and
Recovery Act (RCRA) was passed by the U.S. Congress, a hierarchy for waste
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management listed source reduction as the preferred management option. Since
that time the concept of waste minimization has been strengthened in the RCRA
program.
The Pollution Prevention Act of 1990 established a national goal with a
hierarchy of: 1. prevention or reduction at the source; 2. environmentally
sound recycling; 3. environmentally safe treatment; and 4. only as a last
resort, disposal or release in an environmentally safe manner. This law
further requires U.S. EPA to report biennially to Congress on various aspects
of the source reduction program. U.S. EPA issued a National P2 strategy in
1991. This provided guidance and policy on how P2 is to be integrated into
all environmental protection efforts. Whether the reference is to P2, waste
minimization, or source reduction, the focus is directed at the source of the
pollutants.
Governmental Financing
The Federal, state, and local government hazardous waste programs are funded
in a variety of ways. Appropriation of public monies are made by Congress to
the U.S. EPA, which are then distributed to various media programs such as
air, water, and hazardous waste.. A portion of these funds are then further
distributed to the states and other organizations via contracts or grants. P2
language is being incorporated in most of these contracts and grants. While
P2 is not usually an absolute requirement of each grant of contract, it is
strongly encouraged and is given as much support as possible by the Federal
government. Financing of P2 programs at the state level is usually derived
from fees or taxes on hazardous substances and ftwaste end" taxes levied at the
point of treatment or disposal. These provide an economic incentive for
industries to reduce waste, and provide revenue for state programs. A 1989
National Governors' Association survey of all states found that approximately
$100 million was being collected in fees and taxes that year to help fund
environmental programs.
For example, in the State of Minnesota to help fund its P2 program, large
quantity generators (more than 1,000 kg per month) are charged $500 a year if
they have not met certain reporting requirements. Also, facilities that have
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toxic chemical releases are assessed a fee of 2 cents per pound of released
chemical. In the State of California, when 500 tons or more of certain
chemicals are emitted to the air, a $5 per ton emission fee is assessed.
State Role
There must be full partnership between the Federal, state, and local
governments. u.S. EPA believes that in order to implement an effective
national P2 program, the state organizations must playa major role. The
state organizations have a closer and more direct contact with industry,
business, and the public. States can be more aware of their needs and their
concerns. State-based environmental programs have supported P2 in a variety
of ways such as developing legislation; establishing regulatory and financial
incentives; creating P2 departments; establishing training programs, clearing
houses, waste exchanges and workshops; providing technical assistance for
research and development; and providing financial assistance to businesses and
local governments for P2 implementation.
States have also established P2 activities in departments outside their
environmental agencies. For example, Agriculture Departments can encourage
the use of alternatives to chemical fertilizers and pesticides.
Transportation Departments can directly impact a major source of air pollution
from the motor vehicle sector.
The State of Connecticut Department of Transport~tion has developed a program
to organize ride sharing programs. They have set up more than 12,000 carpools
and 180 vanpools reducing gasoline consumption and air pollution emissions.
Funding is provided by the state and participating corporations. The State of
New Jersey Department of Transportation has developed legislation where
certain companies must provide employee benefits that discourage the use of
individual automobiles. These benefits, such as public transportation
subsidies or priority parking spots for carpool vehicles, can be deducted from
the companies' taxes as a business expense.
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Costs and Benefits
There are a number of factors that motivate businesses of all sizes to
consider investing in waste reduction programs. These include increased
profits, increased employee job satisfaction and morale, and community
concerns. The relative importance of these factors varies based upon the type
and size of the company. However, economic factors tend to be the most
important and get the most consideration. The economic costs and benefits can
be looked at from the perspective of the consumer, society, government, and
industry.
The consumer can benefit from reduced production costs which may be reflected
in reduced product prices, improved product performance, or reduced health
hazards. Society can benefit from reduced costs of care for those in need of
medical treatment resulting from an unhealthy environment, the creation of new
employment opportunities, and better use of land which would otherwise be used
for landfills, incinerators, or other waste management activities.
Governments at the Federal, state, and local level benefit by saving the costs
needed to develop, administer, and implement environmental control programs.
Some of the numerous economic benefits to industry for the reduction of waste
include more efficient use of raw materials; decreased recycling, treatment,
and disposal costs; reduced costs of complying with administrative
regulations, and more productive use of capital.
Waste reduction programs also must be considered from the perspective of
increased costs for the consumer, society, government, and industry.
Consumers may incur costs in the form of higher prices, reduced product
performance, or a more limited range of product choices. Society may bear the
costs of increased unemployment in some sectors. Government may have
increased costs due to expenses involved in developing and implementing
programs for education, technology transfer, research, technical assistance,
and data collection. The costs to industry may include the initial investment
for research and design of new equipment, substitution of a more costly raw
material, operation and maintenance expenses, hiring new employees or
retraining existing employees, and a possible decrease in sales.
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In many cases attaching dollar values to some of the costs and benefits is
difficult, if not impossible; however, they need to be considered in the
assessment of the waste reduction program options. For example, costs which
may be difficult to determine include most of the indirect costs, the cost of
lost raw materials at the time of disposal, and intangibles such as insurance,
potential liability, and future disposal costs.
Measurements
The importance of developing systems and processes to measure accurately the
results of P2 activities cannot be over emphasized. Decisions must be made
early in the process as to what kind of data is needed, how to collect this
data, and how to conduct the measurements. It is necessary to be able to
track the progress toward waste reduction goals in order to be able to
determine the need and profitability of a P2 project. This includes the
ability to measure the actual amount of a specific waste eliminated,
transferred to another media, or released to the environment. All of these
issues present a major challenge for those involved in P2 activities. There
are several current programs that are used to measure the economic and waste
reduction accomplishments of P2 activities. These are described below.
Biennial Reporting System (BRS)
The Hazardous and Solid Waste Amendments of 1984 required that hazardous waste
handlers report RCRA waste minimization information through biennial reports.
The reports describe the types and total quantities of hazardous waste
generated or managed in the preceding odd-numbered year. The States review
and input the required data into the BRS, and it is then used to address
program needs and assess status. The most recent National Biennial RCRA
Hazardous Waste Report is based on 1989 data, and it states that 29% of the
handlers that reported did engage in one or more new waste minimization
activities during that year. Many of these were generators of the largest
volumes of waste. 90% of all of the waste minimization activities reported
involved source reduction, 16% involved recycling, and 6% involved both source
reduction and recycling. lack of economic feasibility was the most commonly
reported factor preventing the handlers from initiating new waste minimization
activities.
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Taxies Release Inventory (TRI)
The Toxics Release Inventory program was initiated in 1986, and it mandates
reporting the released volume of more than 300 chemicals. The data is made
readily available to the public. This data is used by other governmental
agencies, communities, and the public to develop regulations, identify issues,
set priorities, and monitor industry performance. Over the years the data has
become more accessible and understandable, thus, empowering the public to
convince industry to reduce its chemical releases.
The TRI data has shown year-to-year overall decreases in the volume of
releases and transfers of chemicals. Since late 1988 U.S. EPA has taken about
680 enforcement actions against industry for failure to submit the required
TRI reports. Penalties of more than $34 million have been imposed.
In 1988 the State ~f Louisiana, which is a major chemical manufacturing state,
had the highest level of chemica~ releases as reported by TRI. The state
contacted the top 12 companies with the largest releases to each of the three
media: air, land, and water (32 companies in all as some had large releases to
more than one medium). The companies were requested to voluntarily submit
their P2 plans. As this was well publicized, most companies complied
eventually leading to a 38% decrease in releases by these companies.
33/50 Program
This program began in 1991 when U.S. EPA established a voluntary program to
achieve major reductions in the release of 17 toxic pollutants reported on the
TRI. The chemicals chosen were those that pose serious potential health
risks, are produced in large volumes, are released into the environment from a
large number of sources, and are readily amenable to reduction through P2.
The national goals were set at 33% reduction by 1992 and 50% reduction by
1995. The program is voluntary, and it has been widely publicized and
accepted by a variety of industries. The program is not limited to those 17
chemicals. In fact, in some geographical areas, other chemicals are of
greater concern, and their reduction has been encouraged. Total releases and.
transfers of the 17 chemicals has decreased, and studies have showed that
companies participating in this voluntary program are reporting greater
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reductions than non-participating companies.
Economic Instruments
Economic analysis plays a very important role in the implementation of P2.
Although P2 is at the top of the waste management hierarchy and companies
receive fovorable public reaction when the implement P2 projects, the positive
economic benefit is usually the primary factor upon which a company makes its
decision to proceed with any given P2 project. To that end, various levels of
government in the United States have developed economic analytical methods,
incentives, and disincentives to encourage companies to pursue a greater
number of P2 projects. A number of these are described below.
Total eost Assessment (TeA)
U.S. EPA sponsored work by the Tellus Institute to develop and test this
investment analysis tool. P2 needs economic justification by all involved,
including corporate decision makers, accountants, bankers, lenders, educators,
environmentalists, and the public. A project must be justified by showing how
it will increase revenue and how the added revenue will not only recover
costs, but substantially increase the earnings of the company. Many companies
are failing to recognize the long-term, less tangible savings (such as future
liabilities), and direct and indirect costs in the financial analysis of P2
projects. Businesses tend to group environmental costs together in a single
overhead account, if they track them at all, or to add them to other line
items. Thus, one cannot identify those parts of the operations that cause the
greatest environmental expenditures or the products that are most responsible
for the waste production. A much larger number of production areas will
benefit by P2 measures than with most other kinds of capital investments, and
this fact is not addressed by traditional analysis methods. This forms the
underlying rationale for TCA.
TCA is a flexible tool that can be adapted to a .company's specific needs and
circumstances. It can be used step by step by gradually bringing in to the
process different information. Two P2 projects in the pulp and paper industry
were examined using the TCA process. When TCA analysis and a typical company
analysis were compared, there were marked differences. The TCA approach
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demonstrated that the P2 project was a better investment than the conventional
financial analysis indicated.
Tradable Permits
One economic instrument that has been developed and that has recently been put
into use is the "tradable permit" or "emission credit." At the start of the
process the government sets an amount of total allowable emissions of a
specific pollutant. This amount is then divided among those companies that
emit this pollutant. As a result a company receives permission to emit a
maximum amount, commonly referred to as an emission credit. The company has
the option to reduce its emissions below the maximum amount and then profit by
selling the remainder of its allocation to other existing companies, new
companies, or public groups who may want to hold the allocation to see the
overall emission levels decrease. Companies must decide between purchasing
more credits if its emissions exceed its initial allocation or installing
pollution control equipment. This approach does have some limitations on its
use. There are some pollutants for which it would be too difficult to
establish the total allocation, the trading rules would be too complex,
certain environmental groups would object, or not enough traders would
participate.
In March 1993 the first exchange of emission credits in the United States took
place at the Chicago Board of Trade between electric utilities and investors.
This was an exchange of sulfur dioxide emission credits, a pollutant which is
the cause of acid rain. less than 1% of the bidders were public interest
groups; more than 95% of the bidders represented utilities. The remainder
were private investors. The value of the emission credits traded was $21.4
million.
Deposits/Refunds
This system is primarily aimed at recycling as is imposes the cost on the
product when it is purchased and gives it back to the customer when the
product is returned.. Bottle Bills are mandatory deposit systems for beverage
bottles and cans and are in effect in at least 9 states. In the State of
Michigan bottles that can be refilled have a smaller deposit than those that
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are only returned. This promotes source reduction.
Disposal Fees
This system has been used in connection with municipal solid waste collection
programs. It differs from the usual method of solid waste collection funded
through general municipal tax revenues. Charges are assessed based upon
weight or volume. Quite often recyclable materials are picked up free. It is
thought that if there was no fee for recyclable materials and a charge for
solid waste, this would promote source reduction by causing people to become
more aware of the volume of solid waste that they produce.
Taxes/Fees
The advance disposal tax/fee incorporates the cost of waste disposal into the
price of the product. It can be imposed at any point of the product chain,
from the manufacturer to the consumer. Nineteen states have placed these
costs on at least one product. Automotive tires and batteries are examples
where these taxes and fees are in use.
Tax Credits
Credits from local governments are given to businesses and institutions that
buy waste-reducing equipment, like reusable tableware, and that reduce waste.
at the source. Examples include packaging reduction, reusable packaging,
and reuse/refill containers.
When examining the economic aspects of P2, it can be viewed as a "win-win"
proposition for governments, businesses, policymakers, academicians, and the
public. Creativity, co-operation, and hard work are needed to develop the
analytical techniques and the technology to replace the toxic substances
currently in use and to reduce the hazardous wastes produced by industry.
These common problems are not restricted to any geographical border.
likewise, solutions to these problems will result from a jOint commitment to
share and exchange the ideas that will lead to an increased use of waste
reduction and pollution prevention.
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PROTECTION
In the United States hazardous waste is regulated by the Resource Conservation
and Recovery Act (RCRA) of 1976. Regulations under this law became effective
in November 1980. The purpose of this law is to provide "cradle to grave"
management of hazardous waste by establishing regulations for the generation,
transportation, treatment, storage, and disposal of hazardous waste. The
movement of hazardous waste is monitored from the point of generation to its
final disposal by the use of a manifest. Every person who receives the waste
along its route to final disposal must sign the manifest to acknowledge both
the receipt and delivery of the shipment and then notify the original
generator that the waste has been managed as the generator had directed.
Today many countries are trying to find better ways to protect the
environment. One way that is gaining more favor is known as a market
mechanism. This includes fees on pollution generation, pollution trading
systems, and deposit-rebate systems. These market mechanisms can be effective
alternatives to strict regulatory systems. Although the "polluter pays
principle" is now becoming widely accepted in the United States, RCRA being an
older law still relies quite heavily on the earlier approach to environmental
regulation which has become known as command and control. With a command and
control approach, comprehensive regulations are promulgated which are then
vigorously enforced. However, RCRA does use economic analysis in some parts
of its implementation. Two specific areas,regulatory impact analysis and
penalty assessment, are described below.
Requlatorv ImDact Analvsis
A regulatory impact analysis is conducted to evaluate the need for proposed
regulatory changes and the benefits and costs of those changes. The
regulatory impact analysis contains the full complement of economic
information needed to develop a regulation. Economic analysis is required for
the majority of United States Environmental Protection Agency (U.S. EPA) rule-
making activities. Environmental control can be a costly enterprise.
Moreover, it is likely to become more costly in the future as governments
address more complex problems, such as the control of wastes that can be toxic
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at very low concentrations.
Although many people believe that such expenditures are fully justified, given
the magnitude of the costs, it is natural to ask a number of questions:
Are we getting the most environmental protection for the resources we
are expending?
Are we accomplishing our environmental objectives in the most efficient
manner?
As we exert tighter and tighter controls on particular sources of
pollution with more and more expense, are additional pollution
reductions still worth the cost?
Is the distribution of costs and benefits of environmental programs
across companies, workers, the general public considered fair?
The U.S. EPA hazardous waste statutes prelude making a decision solely on the
basis of a cost-benefit calculation which involves a comparison of the costs
of a regulation with the benefits to be derived converted to monetary terms.
The net benefit of a regulation is the difference between the benefits and the
costs. According to economic theory, a regulation would not be worth doing
(from the perspective of economic efficiency) unless the net benefit is
positive, that is, the benefits exceed the costs. In choosing among
alternative regulatory approaches, the one that results in the greatest net
benefit would be preferred. However, public policy as incorporated into
environmental legislation quite often establishes the protection of public
health and the environment as a desired outcome despite any negative economic
consequences on the regulated community.
Because attaching a monetary value to environmental benefits can be quite
difficult and often controversial, a comprehensive cost-benefit analysis
usually can not be performed. Data gaps usually must be filled by assumptions
or extrapolations. The assumptions that are most critical to the decision
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process can be evaluated by running the economic analysis under different
assumptions (a process known as a sensitivity analysis). In some cases these
critical assumptions can be supported by additional data gathering. In other
cases it is not feasible to collect the additional data, but the decision
maker needs to be aware of the critical nature of the assumption and the
uncertainty surrounding the particular choice made.
Since the RCRA regulations went into effect in November 1980, the market price
for hazardous waste treatment and disposal has increased as a direct result of
these regulations. These increased costs are ultimately passed on to the
consumer in the form of higher priced goods and services. However, public
opinion polls continue to show very strong support for the proper management
of hazardous waste in the United States. In fact some economists believe that
without the proper management of hazardous waste, the public pressure placed
on certain industries would have been so great that they may not have been
able to remain in business. Based on August 1992 prices, the estimated costs
that a hazardous waste generator in the United States would have to pay for
the proper management of its wastes are as follows:
Treatment Costs
On-site incineration
Off-site incineration
Solvent extraction
$400jton
$1600jton
$500jton
Transportation Costs
200 mile trip
500 mile trip
$53jton
$118jton
Disposal Costs
On-site land disposal
Off-site land disposal
$75jton
S200jton
Penalty Assessment .
If a facility is determined to be out of compliance based upon a compliance
inspection or record review, there are three types of enforcement actions that
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may be taken pursuant to RCRA to bring a facility back into compliance.
Administrative Action - a non-judicial enforcement measure taken by the
government.
Civil Action - a formal law suit, filed in court against a person who
has failed to comply with any statutory or regulatory requirement or an
administrative order, or has contributed to a release of hazardous
wastes.
Criminal Action - the most severe type of an enforcement action which
includes the highest monetary penalties and the possibility of
imprisonment; knowing violations and negligent actions often result in
criminal enforcement.
The enforcement and penalty provisions of RCRA are found in Section 3008 of
the statute. If U.S. EPA determines that any person has violated any
requirement of the hazardous waste regulations, U.S. EPA has the authority to
issue an administrative order or file a civil judicial action to require
compliance and assess civil penalties of up to $25,000 per day per violation.
In assessing such penalties, U.S. EPA must consider the seriousness of the
violation and any good faith efforts to comply with the applicable
requirements. This section also includes specific criminal penalties. In
order to provide clear guidance for all enforcement personnel regarding the
calculation of RCRA civil penalties, U.S. EPA issued its first RCRA Civil
Penalty Policy in 1984; it was subsequently revised in 1990.
The purpose of the RCRA Civil Penalty Policy is to ensure that penalties are
assessed in a fair and consistent manner, that penalties are appropriate for
the gravity of the violation committed, that any economic benefit for
noncompliance with the RCRA regulations is eliminated, that penalties are
sufficient to deter persons from committing future RCRA violations, and that
compliance is expeditiously achieved. The penalty calculation system
established through this policy consists of (1) determining a gravity-based
penalty for a particular violation using a penalty assessment matrix,
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(2) adding a multi-day component to account for the duration of the violation,
(3) adjusting the sum of the gravity-based and multi-day components, up or
down, for case specific circumstances, and (4) adding the appropriate economic
benefit gained through non-compliance.
u.s. EPA developed a computer model to calculate the economic benefit that a
violator may derive from delaying or avoiding compliance with environmental
regulations. The model calculates the after tax net present value of both the
capital costs and operation and maintenance costs avoided due to the failure
to comply with the regulations by the required date. The model can be used to
estimate the economic benefit of noncompliance for any type of organization:
corporations, partnerships, sole proprietorships, not-for-profit
organizations, and municipalities. The model was developed to assist in
fulfilling one of the main goals of the policy. That goal is to recover, at a
minimum, the economic benefit from noncompliance. In practice, penalty
assessments contain an additional amount to ensure that the regulated
community has a strong economic incentive to comply with environmental
regulations in a timely manner.
Originally all RCRA civil penalties required the payment of funds to the
United States Treasury; these funds did not directly benefit u.s. EPA or the
environment in general. In 1991 U.S. EPA, in consultation with the United
States Department of Justice, developed a policy which allows the violator to
apply some or all of the civil penalty to a project that has direct
environmental benefits. These projects are known as Supplemental
Environmental Projects (SEPs). U.S. EPA believes that SEPs, if carefully
crafted and executed, provide useful environmental benefits beyond what can be
secured solely through the assessment of a penalty. They offer several
options for alternative payments; while at the same time, they preserve
effective deterrence and accountability for compliance and environmental
results. In addition, they can be a useful vehicle in promoting pollution
prevention both as a means to return to compliance and to develop new
applications and technologies. All SEPs must improve the injured environment
or reduce the total risk burden to the public health or the environment by the
identified violation. The five categories of permissible SEPs are
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(1) pollution prevention, (2) pollution reduction, (3) environmental
restoration, (4) environmental auditing projects, and (5) public awareness
projects which are located directly within the area where the violation took
place. Prior U.S. EPA approval of a SEP is required before it can be used to
offset a civil penalty.
The overall purpose of the hazardous waste protection program is to establish
a workable set of regulations that will ensure the proper management of
hazardous waste by business and industry at a reasonable cost to society.
This program protects the health and environment of all citizens in the United
States and reduces future costs that society would have to bear to address the
impacts of hazardous waste that is mismanaged. Although not initially a major
part of the RCRA regulatory program, economic considerations are playing a
greater role as this program matures.
REMEDIATION
The Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA) - commonly known in the United States as "Superfund" - was passed
into law by the United States Congress in December 1980 in response to the
concerns of citizens and lawmakers about such obvious hazardous waste sites as
the "Love Canal" and the "Valley of the Drums". Superfund established a
program to identify sites where hazardous substances have been, or might be,
released into the environment and to ensure that they are cleaned up by
responsible parties or the government. The program is appropriately called
"Superfund" because the initial statute created a 5-year, $1.6 billion fund to
finance the cleanup of these sites through the United States. In addition,
the first reauthorization of this original statute by the Congress in 1986,
known as the Superfund Amendments and Reauthorization Act (SARA), extended the
program for another 5-year period and significantly increased the size of the
fund to $8.5 billion.
The program distinguishes between sites that require immediate action to
protect human health and the environment and sites that present a longer range
problem. The special demands of each situation are considered before deciding
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on the most appropriate response. Emergency Removal Actions are short term
actions that stabilize or clean up hazardous sites that present an immediate
threat to human health or the environment. A removal can be initiated and
carried out at any time at any site. In contrast with such short term removal
actions, the program is also responsible for longer term Remedial Actions.
Remedial Actions consist of a series of processes which are administered and
conducted by staff of the United States Environmental Protection Agency
(U.S. EPA). These processes include a Preliminary Assessment (PA) which is an
initial analysis of existing information to determine if a site requires
additional investigation or action, and a Site Inspection (51) which is an on-
site investigation to determine whether there has been a release of hazardous
substances and what is the nature of the associated risks. A relative ranking
of the site occurs at this point to determine if the situation warrants the
site being placed on the National Priorities list (NPl), a catalogue of sites
throughout the United States which are eligible for cleanups paid for out of
the Superfund. A Removal Action can take place at a site whether or not it
is on the NPl. The NPl was established so that Superfund resources would be
expended first on the most serious of those sites which needed long-term
remedial cleanup. The ranking as such is a mathematical system that combines
the potential of a release to cause a hazardous situation, the severity of
such potential impacts, and the number of people who may be affected.
The remaining Remedial Action processes include a Remedial Investigation and
Feasibility Study (RIfFS) which examines the type and extent of contamination
and identifies possible remedies; a Record of Decision (ROD) which documents
U~S. EPA's selection of an appropriate cleanup remedy; the Remedial Design
(RD) which details the plans and specifications for conducting the cleanup;
and a Remedial Action (RA) which is the construction or implementation phase
and puts in place the actual site cleanup measures. Some of these remedial
cleanups can take several years to complete and may require maintenance far
into the future.
The actual monetary fund itself was financed in the 1980 statute primarily by
excise taxes on petroleum and several listed chemicals. With the
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reauthorization of the statute these original revenue sources were retained,
and this law also expanded the sources of revenue to support the fund. Those
added sources included an environmental tax on corporations, $1.25 billion
from general appropriations, costs recovered from the parties responsible for
hazardous waste sites, punitive damages and penalties, and earned interest.
Now 13 years after its enactment, Superfund is up for its second
reauthorization, and since then the Congress has authorized over $15 billion
to finance the program. While there are some problems, the achievements
cannot be overlooked. Since 1980, approximately 1300 sites have been placed
on the NPl, with more being added regularly. According to a recent 1993
update, while only 51 of these sites have been deleted from the NPl, another
130 have completed all necessary construction. Remedies have been selected at
800 sites, construction is underway at 470 sites, and some type of work has
begun at 1219 sites. Also, U.S. EPA has completed over 2800 removal actions
at over 2000 sites.
The fact that some cleanups can take years to complete and may require
maintenance far into the future has resulted in some adjustments in the
administration of the program within the past year and a half. These issues
regarding the perceived slowness of the program have been voiced by both the
public and the Congress. In response to these concerns, the U.S. EPA has
initiated the Superfund Accelerated Cleanup Model (SACM). It can be seen as
the next generation of the Superfund program which emphasizes the need for.
early actions at sites, and the integration of what have tended to become
separate assessment processes in the two components of the program - the
remedial and the removal. It is meant to. radically speed up risk reduction
and streamline the overall Superfund program within existing statutory and
regulatory constraints. SACM envisions a more efficient program that focuses
on rapid risk reduction to human health and the environment. Some of the
. anticipated benefits are the majority of risk from sites will be more rapidly
reduced, more money will be spent on cleanups rather than on site studies,
standard remedies for similar sites and innovative technologies will be
emphasized, success will be measured by risk reduction not RA completions, and
long-term soil and groundwater restoration will be made a separate and
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distinct activity.
Any program which has been authorized to expend these large sums of money or
has caused even greater amounts to be expended by others through enforcement
is going to have economic impacts and raise cost issues. While there are
several and varied cost and economic issues which have been the subject of
public debate, a few of the most important issues are presented below.
Unfair Liability Provisions
Since liability translates into "cost," many responsible parties have been
especially critical of Superfund's broad, and what is often characterized as
unfair, liability structure. The statute's "retroactive, strict, joint, and
several" system can implicate parties associated with a site, regardless of
whether or not they are directly responsible for the contamination. Also, in
theory, any liable party can be forced to pay for the total cost of cleanup
even if they contributed only minimally to the contamination. And, since it
is retroactive, parties can be legally responsible, even if they complied with
the law as it existed at the time of their involvement with the site. Certain
options are available to the administrators of the program to lessen the
impact of "strict, joint, and several." De minimis settlements can be reached
with parties that contributed minimally to the problem, and using mixed
funding agreements, U.S. EPA can pay for the portion of the costs attributable
to insolvent or unidentified parties.
Siqnificant Transaction Costs.
It is widely felt that too much money is being spent on attorneys and
consultants. The President of the United States has himself expressed this
view, in a specific reference to the Superfund program, at his Economic Summit
in Little Rock, Arkansas in December 1992. Also, in a late August 1993
edition of the National Law Journal in a special section on environmental law,
the results of a survey just completed by the Journal were published. More
than two-thirds of the over 200 corporate attorneys contacted noted that
environmental law occupies one-fifth of the time of attorneys for major
businesses in the United States. Also, two-thirds have hired outside
attorneys in the past year to assist them with environmental compliance
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matters. As to Superfund in particular, the existence of this issue stems in
part from the liability system. The allocation of cleanup costs is
contentious, particularly because the relationship between responsibility and
liability is frequently unclear or absent. As a result, attorney fees build
up either in or out of court as parties to disputes negotiate cost sharing.
Also, it has been argued by some that U.S. EPA has exacerbated a difficult
situation by not managing its contractors more closely and by allowing some
duplication in site studies.
Remedv Selection
Some critics of Superfund argue that tremendous resources are spent to cleanup
sites that do not pose significant threats to human health. They note that
the often unrealistic assumptions set forth in the risk assessment process can
lead to overly stringent cleanup standards and remedies. U.S. EPA frequently
requires liable parties to clean up. sites to residential standards, even if
the site will be used as an industrial facility. Also, at times costly and
relatively ineffective remedies are implemented simply because better
technologies are not yet available. Two related, and as yet unanswered,
questions are at the root of these dissatisfactions with the cost related'
aspects of the remedy selection process: "What are the ultimate goals of
Superfund - protection of human health, environmental restoration, or
beneficial use?" and "How clean is clean?" Until there are definitive answers
to these questions~ different expectations and the debate ove~ costs are not
likely to subside.
Indirect Economic ImDacts
local governments, bankers, and developers among others have stressed that
Superfund negatively affects property values and can impede property
transactions. The property values in entire communities can be devalued by
the presence of a Superfund site in the area. Even after a site is declared
"clean" and deleted from the NPl, the impact can remain. In fact, such
impacts can be present even if no NPL site is present. In an effort to limit
their exposure to potential Superfund liability, bankers, developers, and
other companies have adopted some very cautious investment approaches.
Investors are now more likely to develop pristine land rather than buy and
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develop property that may already be contaminated. As a result, abandoned
industrial sites often remain unused.
Incentives for Pollution Prevention and Voluntary CleanuDs
Although this type of indirect economic effect can be very difficult to
measure, the possible threat of Superfund liability has without question
compelled industry and others to take more care in disposing of their wastes.
With this added risk of Superfund liability, businesses try to minimize the
use of toxic substances in their processes and are more concerned with
recovering these toxics when substitutes can not be found. Owners of
contaminated sites may also cleanup their properties voluntarily in order to
avoid the sometimes more costly Superfund cleanup process. Because of regular
environmental audits and potential liability, tainted property now has a cost
associated with it.
Market Efficiencies Gained ThrouQh the ProQram
Those who do not like the Superfund liability system may not like to admit it,
but while some innocent parties may at times bear a part of the burden,
parties that did contribute to the contamination shoulder a more substantial
proportion of the cleanup costs than they otherwise would. It is difficult to
argue that the "retroactive, strict, joint, and several" system is a fair
concept in the general sense of the word. However, it can be argued that it
is probably more fair than a concept that spreads the costs across all
taxpayers, or even across certain industries. In addition to this advantage,
the current approach incorporates some incentives for actually minimizing
costs. The fact that private parties are often paying for the work encourages
cost savings as well as managerial and technological innovation.
Overall ProQram Costs
As to macro cost projections, the U.S. EPA report; Environmental Investments:
The Cost of a Clean Environment found that overall annual Superfund spending
will rise to over $8 billion by the year 2000, more than four times the 1990
. figure. The report, which was an attempt to provide an estimate of the direct
costs of public and private pollution control activities, also noted that this
Superfund figure is part of almost $50 billion that is expected to be spent
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annually by the end of the decade on pollution control. Also, among the
findings of the cost projections is that the share of land pollution control
costs, including Superfund and RCRA, will rise from 26% of the total spent on
all pollution control in 1987 to almost 34% of the total in 1997.
There is little doubt that the public debate regarding the Superfund
remediation programs in the United States will continue. Different interest
groups will continue to have widely varying preferences, ranging from
permanent remediation of sites to the far less costly containment of
contaminants. It can be argued that there is no right answer. With the
opportunities provided by the upcoming reauthorization, perhaps all interested
and affected parties can derive some workable solutions. If reauthorization
can somehow instill cooperation and a more reasonable approach to remedy
selection, the program can evolve into one which is trusted by the American
public and which is considered fair and equitable by the American business
community.
ovethis
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