Natural Resource Damage Assessments : Methods and Cases

WMRC Reports Waste Management and Research Center A Division of the Illinois Department of Natural Resources

Na tur al R esour ce Natur tural Resour esource Damage Assessment: Methods and Cases

Amy W. Ando 1 Madhu Khanna 2 Amy Wildermuth 1 Suzanne Vig 1

1 2

University of Illinois University of Utah

RR-108 July 2004 http://www.wmrc.uiuc.edu

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This report is part of WMRC’s Research Report Series. Mention of trade names or commercial products does not constitute endorsement or recommendation for use.

RR-108

Natural Resource Damage Assessment: Methods and Cases 1

Amy W. Ando Madhu Khanna 3 Amy Wildermuth 4 Suzanne Vig 2

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Department of Agricultural and Consumer Economics, University of Illinois at UrbanaChampaign. To whom correspondence should be addressed.

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Department of Agricultural and Consumer Economics, University of Illinois at UrbanaChampaign.

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S.J. Quinney College of Law, University of Utah.

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Department of Urban and Regional Planning, University of Illinois at UrbanaChampaign.

July 2004 Submitted to the Illinois Waste Management and Research Center (A Division of the Illinois Department of Natural Resources) One Hazelwood Dr. Champaign, IL 61820 The report is available on-line at: http://www.wmrc.uiuc.edu/main_sections/info_services/library_docs/RR/RR-108.pdf

Printed by the Authority of the State of Illinois Rod R. Blagojevich, Governor

Table of Contents

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Table of Contents

iii.

Acknowledgements

iv.

Overview

p. 1

Tables and Figures: Chapter 1

pp. 2 – 16

Chapter 1: Survey of Natural Resource Damage Assessment Tools Used by State Trustees Authors: Amy W. Ando and Madhu Khanna

pp. 17 – 23

Appendix to Chapter 1

p. 24

Tables and Figures: Chapter 2

pp. 25 – 53

Chapter 2: Simplified Methods for Natural Resource Damage Assessment Authors: Amy W. Ando and Madhu Khanna

p. 54

Tables and Figures: Chapter 3

pp. 55 – 80

Chapter 3: Ground water Damage Assessment - Methods and Values Authors: Madhu Khanna and Suzanne Vig

pp. 81 – 103 Chapter 4: Natural Resource Damages Legal Overview and Sample Cases Authors: Amy Wildermuth and Amy W. Ando

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Acknowledgments Funding was provided by the Waste Management and Research Center of the Illinois Department of Natural Resources (Contract No. HWR01170). This material is also based in part upon work supported by the Cooperative State Research, Education, and Extension Service, U.S. Department of Agriculture, under Project No. ILLU 05-0305. We are grateful to John Braden and to staff members at the Illinois Department of Natural Resources for helpful comments and advice. We thank our team of excellent research assistants for their assistance: Wallapak Polasub on Chapters 1, 2, and 3, and Nada Djordevic, Matthew Kuenning, Phillip Russell, and Jason Yonan on Chapter 4. Many thanks go as well to the staff members of all the agencies that responded to our requests for information about their programs. Their cooperation and hard work was vital to the success of this project. All errors remain the responsibility of the authors.

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Overview State agencies have had legal standing to sue for damages to the natural resources in their respective states for decades. Some state agencies have been active in pursuing settlements with responsible parties for damages resulting from releases of oil or hazardous materials into the environment. Other agencies are just beginning to explore how a program to deal with natural resource damages (NRD) cases might look. In order to secure NRD settlements, trustees must engage in the process of NRD Assessment (NRDA). Much has been written to describe and improve upon the state of the art in NRDA. However, most state programs lack the funding or staff capacity to effectively use such sophisticated and expensive assessment methods. Furthermore, most of the cases that a state agency might have to grapple with are, in fact, very small, and may be poorly documented. In suc h cases, it may be infeasible or nonsensical to conduct a case-specific NRDA. This multi-part project reviews how state agencies with NRD programs have chosen to conduct NRDAs for their projects (Chapter 1), evaluates simplified assessment methods developed at the state level that might be adapted for use in other states (Chapter 2), and examines how trustees and academics have wrestled with the particularly thorny issue of evaluating NRDs when the damaged resource is groundwater (Chapter 3.) The project report also includes a document which may be of use in states where the trustees are just beginning to pursue NRD cases; it gives a summary of the federal statutes that give trustees the authority to pursue NRD cases, and provides summaries of illustrative cases (Chapter 4).

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Chapter 1: Tables and Figures Table 1.1: State Office Responses ............................................................................................ 4-5 Table 1.2: Number of Agencies Reporting Statutory Authority under State Law........................6 Table 1.3: Year in Which Offices Began NRD Activity ..............................................................6 Table 1.4: Staffing of NRD Programs (in FTE) ...........................................................................6 Table 1.5: Number of Cases Settled by Agency Prior to 1995 .....................................................7 Table 1.6: Number of Cases by Agency from 1995 to 2001 ........................................................8 Table 1.7: Statutory Authority Invoked ........................................................................................8 Table 1.8: Number of Trustees Involved in a Case ......................................................................8 Table 1.9: Number of Potentia lly Responsible Parties (PRPs) .....................................................9 Table 1.10: Distribution of Cases among Statutes and Year of Onset of Injury ..........................9 Table 1.11: Type of Event Responsib le for Natural Resource Injury...........................................9 Table 1.12: Type of Contaminant .................................................................................................9 Table 1.13: Injured Resources

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Table 1.14: Cost to Trustee of Performing NRDA .....................................................................11 Table 1.15: Damage Estimates from NRDA ..............................................................................11 Table 1.16: NRDA Methods Used by Different Agents .............................................................11 Table 1.17: NRDA Methods Used for Varied Types of Injured Resources ...............................11 Table 1.18: Amount of Settlement .............................................................................................12 Figure 1.1: Mean Settlement by NRDA Method .......................................................................13 Figure 1.2: Mean Settlement by Statute Invoked........................................................................13 Figure 1.3: Mean Settlement by Resources Injured ....................................................................14 Figure 1.4: Relationship between NRD Estimates and Final Settlements..................................14

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Chapter 1 Survey of Natural Resource Damage Assessment Tools Used by State Trustees I. Introduction A set of federal environmental statutes, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and the Oil Pollution Act (OPA), contains important natural-resource liability provisions. These provisions give designated state agencies the right and responsibility to act on behalf of the public to recover damages for injuries to natural resources. Those damages may include restoration costs and interim loss (the economic value of the resource that is lost during the time that passes between injury to a resource and full recovery of that resource (Jones, 1997).) These liability provisions give states a powerful tool that may encourage private firms and individuals to take appropriate measures to reduce resource contamination (Baumol and Oates, 1988.) Many states have begun to make use of these statutes in their efforts to preserve the quality of public resources (ELI, 1998.) The public may reap great benefits when a state exercises its statutory authority to bring natural resource damage claims against responsible parties. However, there are costs to the state associated with this activity. In particular, it can be expensive for the state to develop its own estimate of the value of the injury caused by contamination. State-of-the-art valuatio n methods (Kopp and Smith, 1993) are complex, time-consuming and expensive to implement. In practice, most contaminant releases are small, and often the state has limited data regarding the affected resource or its injury. In such cases it may be impractical to perform a sophisticated analysis to estimate the damages which are due the state. The statutes allow for states to recover assessment costs as part of any settlement it might make, but only if those costs are “reasonable,” and certainly not if the costs exceed the value of the damages assessed. For this reason, some state agencies have begun to use methods for valuing changes in the quality of natural resources without conducting extensive new research and based on information already available. Hence, there exists a spectrum of methods available for use in conducting natural resource damage assessments. States may opt to use simplified methods that are inexpensive and can be carried out by personnel with little specialized training. The estimate that emerges is, however, likely to be somewhat inaccurate and more vulnerable to challenge by a potentially responsible party (PRP) if the case can not be settled out of court. At the other end of the spectrum, trustees or their paid consultants may conduct a sophisticated case-specific valuation study of the injured resources in question. There have been two surveys of state- level natural resource damage (NRD) assessment and recovery activity (ELI, 1998; ASTSWMO, 1997.) However, neither of them gathered information that identifies which methods trustees have chosen to employ for natural resource damage assessments (NRDAs). Such information can help economists to target their methodological research towards methods that are in relatively high demand by practitioners. In addition, knowledge of patterns in NRDA methodology might provide helpful guidance to the

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staff of agencies that are just beginning to exercise their authority to pursue NRDs as natural resource trustees for their states. This chapter reports on the results of an effort made by the authors of this report to gather such information about state- level NRD programs. II. Method for gathering information Two questionnaires were designed to gather factual information about state NRD programs. The first was a one-page form which asked for information about the basic parameters of the agency’s program (e.g. staffing and funding levels) and any assessment methods the state trustees might have developed for their own use in conducting NRDAs. The second form was a case-information form, constructed to gather information about cases that agencies had assessed and/or settled in the years following major revisions to the federal regulations pertaining to NRD assessment and recovery. Each agency was asked to fill out one such form for each NRD case it had been handling since 1995. Copies of the questionnaires and the instruction sheet sent to the agencies are found in the Appendix. In order to choose where to mail these requests for information, a list was developed of up-to-date contact names and addresses at all state trustee agencies in the country. This effort began with lists from earlier studies (e.g. ASTWMO (1996) has a list of contacts) and from staff at the Illinois Department of Natural Resources (IDNR). People on the preliminary list were contacted either to confirm that they were appropriate contacts or to suggest other names that would be more suitable. During this process, some states were identified as having no program relevant to the survey, and were dropped from the mailing list. When the list was complete, a packet was sent to each of the 64 agencies on the list. Each packet contained a cover letter, the instructions, one general survey form, and either 10 or 20 NRD case- information forms (depending on how large we expected their programs to be). The initial mailing was made in August 2001. One round of follow-up telephone calls and emails was made a month after the initial mailing; other reminders were made throughout the following months. As shown in Table 1.1, 20 of the 64 offices contacted responded with information a bout their NRD programs and 14 responded to inform us that they had no NRD program; several of the agencies with no current program did state that they are preparing to start engaging in NRD activity. The remaining offices did not submit completed questionnaires (though only two agencies sent official refusal to provide information). Many of the agencies that did not respond to our request for information are quite likely not to have had NRD programs at the time of our survey. However, offices in California and Texas, which have thriving NRD programs, were not able to respond to our request for information. To the extent that we can not include information about these programs in our report, any picture we draw of state- level NRD activity is necessarily incomplete. It is also true that many of the responses were incomplete; we report here as much information as was provided to us.

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Table 1.1 State Office Responses

Responded with information about an active program: 20

Responded with no program on which to report: 14

No responseb : 30

Agency name Florida Department of Environmental Protection Illinois Department of Natural Resources Indiana Department of Natural Resources Louisiana Department of Environmental Quality Massachusetts Executive Office of Environmental Affairs Maryland Department of Natural Resources Michigan Attorney General Office Michigan Department of Environmental Quality Minnesota Pollution Control Agency Montana Department of Justice New Jersey Department of Environmental Protection New York State Department of Environmental Conservationa Ohio Environmental Protection Agency Oregon Department of Environmental Quality Rhode Island Department of Environmental Management South Carolina Department of Health and Environmental Control South Dakota Department of Environment and Natural Resources Virginia Department of Environmental Quality Washington State Department of Ecology – OPA Office West Virginia Division of Natural Resources Arizona State Land Department Georgia Environmental Protection Division Iowa Department of Natural Resources Kansas Department of Health and Environment Kentucky Department for Natural Resources Montana Department of Fish, Wildlife & Parks North Dakota Department of Health, Environmental Health Section Nebraska Department of Environmental Quality Nebraska Game and Parks Commission New Hampshire Department of Environmental Services New Hampshire Department of Fish and Game Virginia Department of Conservation and Recreation Vermont Department of Environmental Conservation Wyoming Game and Fish Department Alaska Department of Environmental Conservation Alabama Department of Environmental Management Arkansas Department of Environmental Quality Arizona Office of the Attorney General Arizona Department of Environmental Quality California Department of Fish and Game Colorado Department of Public Health and Environment Connecticut Department of Environmental Protection District of Columbia Department of Health Delaware Department of Natural Resources & Environmental Control Hawaii Office of Hazard Evaluation and Emergency Response Idaho Department of Environmental Quality Indiana Department of Environmental Management Kentucky Department for Environmental Protection Maine Department of Environmental Protection Missouri Division of Environmental Quality Mississippi Department of Environmental Quality Montana DNRC New Mexico Natural Resource Trustee

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Acronym FLDEP ILDNR INDNR LADEQ MAEOEA MDDNR MIAGO MIDEQ MNPCA MTDOJ NJDEP NYSDEC OHEPA ORDEQ RIDEM SCDHEC SDDENR VDEQ WAECY- OPA WVDNR AZSLD GAEPD IADNR KDHE KYDNR MTFWP NDDH NEDEQ NEGPC NHDES NHDFG VDCR VTDEC WYGFD AKDEC ALDEM ARDEQ AZAGO AZDEQ CADFG CODPHE CTDEP DCDH DENDREC HIHEER IDDEQ INDEM KYDEP MEDEP MODEQ MSDEQ MTDNRC NMNRT

Nevada Division of Environmental Protection Oklahoma Department of Environmental Quality Pennsylvania Department of Environmental Protection South Carolina Department of Natural Resources South Carolina Office of the Governor Texas General Land Office Texas Natural Resource Conservation Commission Texas Parks and Wildlife Department Utah Department of Environmental Quality Washington State Department of Ecology Wisconsin Department of Natural Resources

NVDEP OKDEQ PADEP SCDNR SCOG TXGLO TXNRCC TXPWD UTDEQ WAECYCERCLA WIDNR

All: 64 a

The agency from New York provided a completed one-page questionnaire but declined to provide any completed case-information forms. b

In some cases, the agency would not respond to our initial attempts to make contact and obtain a mailing address, and thus a mailing was never sent. Other agencies did respond to our mailing with informal communication but were unable to provide completed questionnaires.

III. State NRD programs All states are authorized to pursue compensation for NRDs under federal statutes. However, some states have additional state legislation under the auspices of which NRD recovery is conducted. Of the 22 agencies that provided information about state- level NRD legislation, 15 indicated that their state does have independent state authority to address NRD issues, while six reported that their state did not have such a state law (see Table 1.2). Four of the 20 agencies with NRD programs reported that their programs were not active at the time we requested information. Table 1.3 shows that most of the agencies reporting active programs had begun NRD activity in the 1990s. The state trustee agencies generally have few staff members spending time on NRD assessment and recovery. As Table 1.4 shows, several agencies have no personnel who regularly dedicate time to NRD activities; the largest 1 program has only 13. Most of the agency personnel devoted to NRD programs are natural or physical scientists. In contrast, very few programs have an economist working on NRD issues. The next section of this chapter reviews the information states provided regarding individual NRD cases that were active after 1995. This report focuses on those cases because the federal regulations governing NRDA changed significantly in the mid-1990s (see Chapter 4). However, Table 1.5 shows that some of the agencies had obtained settlements for NRDs in a significant number of cases prior to that point in time.

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Maryland reported having a very large staff (totaling 70 people), but this seems likely to be the size of the entire agency and not the staff devoted to NRD activity.

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Table 1.2 Number of Agencies Reporting Statutory Authority under State Law State law authorizing NRD recovery? Yes No All states reporting

Agency

Number

FLDEP, ILDNR, LADEQ, MAEOEA, MIDEQ, MNPCA, MTDOJ, NJDEP, OHEPA, ORDEQ, RIDEM, SCDHEC, SDDENR, VDEQ, WAECY-OPA NDDH, NEDEQ, NHDES, NYSDEC, SCDHEC, VTDEM/VTDEC, WVDNR

15 7 22

Table 1.3 Year in Which Offices Began NRD Activity Year 1980-1989 1990-1994 1995-1999 2000+ All agencies reporting

Agency names FLDEP, MA EOEA LADEQ, MIDEQ, MNPCA, MTDOJ, NJDEP, NYSDEC, ORDEQ, SCDHEC, WAECY-OPA ILDNR, RIDEM, SDDENR, WVDNR KDHE, MDDNR

Table 1.4 Staffing of NRD Programs (in FTE)a Economist(s) Scientist(s) FLDEP 1 3 ILDNR 2 4 INDNR 0 1 KDHE 0 0.2 LADEQ 0 1.25 MAEOEA 0 0 MIDEQ 0 0.5 MNPCA 0 0.1 MTDOJ 0 3 NJDEP 0 1 NYSDEC 1 3 OHEPA 0 0 ORDEQ 0 0 RIDEM 0 0.25 SCDHEC 0 0.1 SDDENR 0 0.1 VDEQ 0 0 WAECY-OPA 0 7 WVDNR 0 2 Average .21 1.39 a

Attorney(s) 2 1 1 0.1 0.1 0 0 0.1 2 0 1.25 0 0 0.25 0.1 0 0 0.1 0 .42

Other(s) 7 2 0 0 0 0 0 0.5 1 2 0 0 0 0.25 0 0 0 0 0 .37

Total 13 9 2 0.3 1.35 0 0.5 0.7 6 3 5.25 10 Any number reported

Number of cases 59 14 4 77

Table 1.10 Distribution of Cases Among Statutes and Year of Onset of Injury

Year in which the event or activity responsible for injury began

a