Summary
- Analyzes how assessing natural resource losses with accuracy and precision is inherently difficult and site-specific.
- Discusses “Type A” and “Type B” framework analyses.
Just My Type: Modernizing Analytical Approaches for “Minor” Natural Resource Damages
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Trustees and potentially responsible parties (PRPs) alike may prefer expedient and efficient settlements for natural resource damages, but they rarely avail themselves of the streamlined, “Type A” framework contemplated for smaller incidents. Under this framework, the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) offered a “rebuttable presumption” of legitimacy for selected modeling approaches. To date, the lone accepted methodology is an integrated model that comprises physical, biological, and economic submodels that require few release-specific inputs and little on-site primary evidence collection. Due both to regulatory and analytical limitations, this framework has not been widely used, leading the Department of the Interior (DOI) to request comments on ways to widen its applicability for calculating interim lost use values.
Two overarching constraints limit the use of Type A analyses. First, this approach is limited to releases where damages are expected to be below $100,000. Second, the approved models are limited in scope. They have only been developed for the Great Lakes and coastal regions and incorporate few site-specific features. Furthermore, the models are opaque and have remained largely unchanged for decades. Expanding the use of Type A analyses would require altering the damages threshold and updating the accepted methods.
For interim losses, the relevant quantity is the value to the public lost during the period following the incident until the return to baseline. Such losses have been measured in dollars or in resource years—simplified methods based on secondary data exist for both metrics. In either case, it is important to recognize that the value at issue is conceptually distinct from the costs of potential restoration projects.
CERCLA requires that the assessed damages not exceed the value lost and that those damages be used in a cost-effective way to fund natural resource projects. Under dollar-based compensation, PRPs pay damages equal to the value lost, which can be used by the trustee to fund the projects it deems most valuable. Under project-based compensation, the costs of restoration need to be compared to the value lost and the benefits of the selected project need to exceed restoration costs. Because project-based compensation requires estimating both value lost and value gained, it is not necessarily simpler than dollar-based compensation (which requires estimating only the lost value).
Two methods serve as primary contenders for use in Type A analyses: equivalency analysis for resource-denominated damages and benefit transfer for dollar-denominated damages. Both require assumptions surrounding the duration and extent of the deviation from baseline, as well as how past and future losses are discounted relative to current values. Beyond these common assumptions, each approach has its advantages and disadvantages.
Habitat- or resource equivalency analysis (collectively, EA) calculates a measure of resources lost and a measure of resources gained in compensatory restoration. This seems appealing; the primary inputs are the extent of harm measured in resource units (such as acres), which is typically collected following an incident, and the size of the compensatory project, which is also known. The units of these measures are not necessarily equivalent, however, and relating them requires a scaling factor.
In the simplest and arguably most reliable implementation of EA, a similar resource is restored or protected nearby the damaged resource. In more complex cases, the compensatory resource could be different from the damaged resource either biophysically (uplands, rather than wetlands, for example) or in terms of the value that it offers for public benefit. The presence of substitutes and scale of the project impact its value and can render a seemingly “like-for-like” project to be more or less valuable than the damaged resource. For example, conserving a mile of shoreline that extends an existing national seashore may be more or less valuable than conserving a mile of shoreline in an area with no preexisting public use opportunities. Scaling can be especially difficult if the proposed project involves creating new amenities for public use, such as boat launches or nature centers. Accounting for these differences using resource-to-resource scaling can be more difficult than conducting resource-to-dollar scaling.
For decades, economists have used a variety of methods to calculate the dollar value of resources and amenities. Past studies and results can be applied, either directly or following adjustment, to new circumstances; this approach is called benefit transfer. The inputs to this approach can be more difficult to measure than those for EA, however; dollar-denominated losses often stem from lost recreational opportunities, such as lost trips, which are not routinely assessed following smaller incidents.
Even with these inputs, expert judgment is required to select the appropriate studies to apply to the incident site and determine whether any adjustments are necessary. For example, a database of recreational use values reports over 1,000 estimates of the value of an angling-day ranging from less than $1 to nearly $700. Accounting for the region and type of recreation impacted can substantially reduce this range in a relatively objective way. Further selection criteria and adjustments, such as weighing some studies more than others according to their recency, reliability, or sample size, are debated in the literature. For these reasons, the EPA and other federal agencies recommend caution in relying on a benefit transfer approach.
Both methodologies struggle with intrinsic or aesthetic “non-use” losses. For example, consider an incident that led to the loss of 1,000 seabirds. Direct estimation of intrinsic values, via contingent valuation, for example, is notoriously difficult. While EA-based compensation can recommend restoration projects based on habitat, this provides an input that speculatively increases seabird populations, rather than the birds themselves.
This discussion reveals that both EA and benefit transfer present difficult questions of assessment that require expert judgment. In the case of EA, it is a comparison of the value to the public of a unit of the damaged resource to a unit of the compensatory resource; for benefit transfer, it is the relevance and reliability of various past studies of similar resources. In either case, expert judgment can be honed by studying prior incidents. Limiting the assessments that collect primary data by expanding the use of Type A analyses potentially reduces the availability of results for use in future analyses. To enhance the accuracy of decision-making under Type A assessments, trustees and PRPs conducting Type B assessments should be encouraged to publish the results of their work and make primary data publicly available.
Assessing natural resource losses with accuracy and precision is inherently difficult and site-specific. Trustees and PRPs may be willing to accept imprecision to save time and costs in litigating these damages, especially for smaller incidents. The DOI can encourage more streamlined proceedings by extending the rebuttable presumption to the use of secondary data assessed using more modern methods. To ensure the quality of such analyses, the DOI can apply the general principles of feasibility and reliability outlined in the Type B framework, understanding the limitations inherent in analyses that rely on secondary data methods.
For this article, Dr. Charles Gibbons would like to thank Ashley Laney for excellent research assistance and Mark Berkman for his comments.
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