What Are the Economic Health Costs of Non-Action in

Controlling Toxic Water Pollution?

by K. William Easter, Professor

Department of Applied Economics

University of Minnesota

Korea University – May 14, 2008

2

A. Problem

1. Many new toxic chemicals being produced in U.S.

2. Limit public information available in U.S. on possible health effects of new “toxic chemicals”

3. Little attention given to estimating costs of toxic chemical contamination in water bodies

4. Economic health cost estimates will be dependent on:

Composition of water demand – human vs. environmental

Information given the public

Action of private and public agents

3

B. Objectives

1. Review methods for estimating costs

2. Discuss how information and behavior affects choice of method or methods

3. Use six different “scenarios” with different chemicals and countries to illustrate choices

Developed vs. developing countries Three pollutants: arsenic, mercury and

atrazine

4. Consider effect of new arsenic standard in Minnesota

5. Suggest strategies for reducing costs of contamination

4

C. Methods for estimating costs

1. Avoidance cost – need information and options

2. Recreational choice – for nondomestic uses

3. Cost-of-illness if health is impaired – works best for illnesses that can be completely cured

4. Contingent valuation for domestic uses – information about pollution level and effects are critical

includes pain and suffering

5. Very few earlier studies (tables 1, 2 and 3)

5

Table 1. Economic Cost of Toxic Pollution of Drinking Water Supplies Per Household

Study Area

Estimate Ranges

Avoidance Cost (per month)

Contingent Valuation

(per season or year)

Perkasie, Pennsylvania, U.S. (1992)

$17

West Virginia, U.S. (1993) $91

Seoul, South Korea (1997) $3

Minnesota, U.S. (2006) $7 – 19

6

Table 2. Economic Cost of Toxic Pollution of Water Used for Recreation

Study Area

Estimate Ranges

Recreational choice (per user per season)

Cost of illness (per case)

California, U.S. (coastal area) (2005)

$37 & 77

New York, U.S. (lakes) (1997) $63

Wisconsin, U.S. (Great Lakes) (2000)

$89-108

7

Table 3. Economic Cost of Microbial or Mineral Contamination of Drinking Water

Study Area

Estimate Ranges

Avoidance Cost (per month)

Contingent Valuation

(per month)Cost of Illness

(per case)

Georgia, U.S. (2000) $4 - -

West Virginia, U.S. (1993) $27 & 30 - -

Milesburg, Pennsylvania, U.S. (1993)

$13-33 - -

Grande Vitoria, Brazil (2000) - $3-39 -

Kathmandu, Nepal (2005) $3 $17 -

Pennsylvania, U.S. (1989) $34-108 - $858-1,255

8

D. Two country settings

1. Developed country – i.e., U.S. and Japan

2. Developing country – i.e., Bangladesh and India

E. Three toxic contaminants

1. Arsenic – naturally occurring in groundwater

2. Mercury – emissions and discharges from coal-fired plants, mining, and some chemical firms

3. Atrazine – heavily used herbicide in U.S. agriculture but banned in some EU countries

9

F. Arsenic

1. Naturally occurs in soil and water around the world including Minnesota

2. Inorganic arsenic poses health risks in drinking water – skin, bladder and lung cancer

3. U.S. arsenic standard change from 50 μg/L to 10 μg/L in 2001

4. U.S. communities had until 2006 to meet new standard

5. High levels in groundwater in parts of India, China and Bangladesh

10

G. Mercury

1. Big sources – coal-fired plants, gold mining, and selected industries

2. Consumption of methylmercury from fish can cause cancer, heart attacks and brain damage, etc.

3. U.S. allowed greater emission levels for coal-fired plants. Health cost to Minnesota residents will be $190 million

4. New Delhi, India's groundwater has high levels of mercury

5. Minamata disease (mercury poisoning) from Minamata, Japan (industrial discharge)

11

H. Atrazine

1. Widely used herbicide on U.S. corn and soybean (Figure 2-1)

2. Banned in many countries in EU.

3. Persists in soil and gets in groundwater

4. Disagreement and debate over whether it is a carcinogen

13

I. Summary of pollutants’ effects

1. Arsenic (inorganic) – acute/immediate and chronic health risks and death at high doses

2. Mercury (methylmercury) – can cause cancer, heart attacks, permanent brain damage, etc., especially bad for children

3. Atrazine – was classified as possible human carcinogen but is now listed as not a likely carcinogen by USEPA

14

J. Developing country cost estimation

1. Information and options limited

Can user afford options?

Can’t use avoidance costs

2. Recreation low priority

K. Developed country cost estimation

1. Many have information and options

Do public agencies report contamination? The greater the contamination the longer U.S.

communities delay reporting (Konishi)

2. Recreation important

Is this true for Korea?

3. Best method will vary (table 4)

15

Table 4. Best Method for Estimating Welfare Costs of Non-Action

Pollutant Developing country Developed country

Arsenic Cost of illness CV or Avoidance cost

Mercury Cost of illness All three methods

Atrazine CV to estimate costsAvoidance cost &

recreational choice

16

L. Future costs and concerns

1. Arsenic serious future costs for Asia

a. Bangladesh 60% of population may be affected

b. Need low cost filters or other cheap alternatives

2. Mercury serious future costs for world

a. Increasing emissions of coal-fired plants:

1,500 tons annually with 870 tons from Asia

b. High fish consumption – Asia and Pacific

c. Are Japanese deaths from mercury just the

beginning for Asia?

3. Atrazine’s full impact still uncertain

4. Can small U.S. communities meet new arsenic

standard cost effectively?

5. Developing countries have biggest risk (table 5)

17

Table 5. Potential Future Cost of Not Controlling or Mitigating Toxic Pollution

Pollutant Developing Country Developed Country

Arsenic Large Small to moderate

Mercury Very large Large

Atrazine Uncertain but growing Insignificant to moderate

18

M. Treatment of arsenic in small Minnesota communities

1. A little more than 30 small Minnesota communities didn’t meet new standard in 2001 (figure 1)

2. Cost per capita for small communities is high – economies of size (table 6)

3. Questions we asked

● Are the benefits of meeting the new standard greater than the costs?

● Do costs and benefits differ by community size? ● What alternatives do small communities have for meeting new standard?

19

Table 6. Average Annual Cost of Water Treatment

City size Cost per capita

Over 10,000 $0.86 – 32

3,301 to 10,000 $38

501 to 3,300 $58 – 71

< 500 $162 - 327

20

N. Surveyed Minnesota communities to estimate benefits

1. Sample 1,040 persons from 30 communities

2. Communities varied in size: under 500, 500 – 1,000, and over 1,000

3. Asked willingness to pay to meet new standard

4. Response rate 51% after three mailings (table 7)

21

Figure 1. United States and Minnesota

22

Table 7. Distribution of Survey Responses*

Grouped by Arsenic Level

Size of CommunityTotalAbove 1,000 501-1,000 Less than 500

High-high** 46 62 38 146

Low-high*** 47 46 51 144

Low-low 45 33 25 103

Total 138 141 114 393

*Sample was 100 to 120 for each of the 9 categories.

**Arsenic level above standard currently and historically on average.

***Only above standard historically on average.

23

O. Arsenic information sheet

24

P. Factors significantly affecting WTP estimates*

1. Perception of water safety in terms of

arsenic contamination

2. Level of arsenic – those with levels above

the standard are willing to pay more.

3. Age (over 60) and education in some

models

______________

*10% or higher.

25

Q. Factors with little or no significant effect on WTP estimates

1. Household income -- positive*

2. Children under 7 years of age in the household -- positive*

3. Use of bottled water or home treatment devices (averting behavior) – negative*

4. Community size

__________________* These variables may be insignificant because they are correlated

with perception.

26

Table 8. Estimated Median Annual WTP by Community Size and Level of Arsenic Contamination

Community Size

Level of Arsenic Contamination

Above 1,000 501-1,000Less than

500

High-high $14-19 $14-17 $16-17

Low-high $12-14 $12-13 $12-15

Low-low $7-10 $7-9 $8-9

27

Table 9. EPAs Benefit/Cost Ratios by System Size

City Size B/C Ratios

Over 10,000 1.00 to 1.39

3,300 – 10,000 .80 to 1.11

500 – 3,300 .59 to .81

25 – 500 .30 to .42

28

Table 10. Estimated Cost Per Household for Private Home Treatment**

Type of CostAdsorptive

MediaReverse Osmosis

Anion Exchange

Installation costs $600 – 800 $950 – 1,300 $1,800

Annual O&M costs $75 – 300 $100 $150

Annualized cost of treatment $/year*

$135 – 380 $195 – 230 $330

*Assumes 10 year life.

**Annual public cost of treatment for towns under 500 is $162 - 327.

29

Table 11. Per Capita Annual Costs and Benefits of Meeting New Standard

Annual Costs for Private Treatment $135 – 380

Annual Costs for Public Treatment

Community Size: 1. Over 10,000 people $.86 – 32

2. 500 – 10,000 people $38 – 71

3. < 500 people $162 – 327

Annual Benefits $14 - 19

30

R. Estimate of willingness to pay (WTP)

1. WTP estimates don’t vary by community’s size.

2. WTP estimates for small communities are below costs.

3. However, about one quarter of sample may have WTP above $135

4. Some in sample have already paid more than $135.

5. Still benefit-cost ratio for small comunities is under one.

31

S. Conclusions for Minnesota study

1. For some small rural communities in the U.S. the new standard may not be an improvement.

2. Communities should have more options to meet standard.

3. However, about one quarter of sample may have WTP about $135

4. Population must be fully informed about the arsenic risks if household treatment is used.

5. Current U.S. EPA variance to meeting the standard is seldom asked for or granted.

6. Variance requires towns to operate and maintain household devices.

32

T. Overall strategies for controlling toxic pollutants

1. Improve monitoring and detection efforts worldwide

2. Provide consumers better information regarding water quality and options

3. Develop low cost filters, etc., for arsenic

4. Strengthen and enforce mercury pollution emission standards worldwide

5. Develop improved substitutes for Atrazine

6. Require water suppliers to report any toxic pollution immediately

33

URL to access presentation:

http://www.apec.umn.edu/faculty/weaster/

34