Economics of Land Cleanup and Waste Management
Economics of Land Cleanup and Waste Management
To protect human health and the environment, EPA assesses and cleans up land contaminated by hazardous substances or suspected of such contamination. Several laws, including the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the Resource Conservation and Recovery Act (RCRA) and The Brownfields Law, provide EPA with the statutory authority to address contaminated sites. EPA also directs resources to facilitating the reuse of previously contaminated properties. In addition to addressing contaminated sites, EPA administers a national hazardous waste management program with authority from RCRA. States administer municipal solid waste (MSW) programs with minimum national criteria for safe management established by EPA regulations (also authorized by RCRA).
Land Cleanup and Reuse
Society benefits from land cleanup due to improvements in human health, ecosystem services, aesthetic and recreation values, and land productivity itself. Remediated land can be reused and move closer to its highest and best use, thereby improving efficiency and enhancing social welfare. Benefit-cost analysis (BCA) provides a framework for weighing these social benefits against the cost of cleanup. Distinct from BCA is Economic Impact Analysis (EIA), which examines the nature and magnitude of gains and losses from environmental policy. EIA might estimate, for example, effects on jobs (see below), taxes, income, and other economic variables of interest.
The economics of land cleanup and reuse presents a number of unique challenges. Across and within EPA cleanup programs, there is significant variability in contaminants, media, and site attributes. This makes it difficult to generalize beyond specific circumstances. The timeline of significant events regarding contamination and cleanup is often lengthy. For example, the onset of contamination may have occurred well in the past, causing uncertainty regarding the precise date to begin measuring economic effects. The extent and nature of spatial effects are inconsistent. Finally, there are often difficult information problems. Stigma can be a concern particularly for high profile contamination events. Other information problems can be caused, for example, by asymmetric access to information by property owners relative to potential purchasers.
While the benefits of environmental regulation in other arenas, such as air quality, have been estimated by combining information from risk assessments with values of statistical life or injury, this is not how the benefits of land cleanup have typically been estimated. Instead, the economics literature, including contributions by NCEE, has relied on property value and stated preference (survey-based) approaches. The EPA Handbook on the Benefits, Costs, and Impacts of Land Cleanup and Reuse provides an overview and explanation of the relevant literature.
Significant contributions to the land cleanup benefits valuation literature have relied on the property value approach. This work has produced benefit estimates of the Superfund remedial program (e.g., Gamper-Rabindran and Timmins 2013; Greenstone and Gallagher 2008; Mastromonaco 2014); the brownfields program (Haninger et al. 2014); and underground storage tank cleanup (Guignet et al. 2016; Guignet 2013; Zabel and Guignet 2012). Most studies find that property values decline in response to contamination events and/or rebound after cleanup. These changed values reflect effects as perceived by property market participants, which may include human health, ecosystem, aesthetic and other impacts. The estimates of the “capitalization” of cleanup into nearby home values may diverge from willingness to pay for site cleanup depending in part on whether enough time has passed to shift the composition of the affected population (Kuminoff and Pope 2014).
Stated preference studies have also examined likely impacts of Superfund and underground storage tank cleanups on property values (Chattopadhyay et al. 2005, Guignet 2012, Patunru et al. 2007). This research used survey experiments to gauge participants’ willingness to pay for non-market goods.
Although the literature linking land contamination and cleanup to human health benefits directly is sparse, one notable study examined the effect of Superfund cleanup on infant health (Currie et al. 2011).
In practice, the benefits of many EPA regulations that reduce the likelihood of contamination events are evaluated according to cost savings from avoided cleanup. For example, the approach in the 2014 Regulatory Impact Analysis for EPA’s final Coal Combustion Residuals rule estimated the benefits of avoiding future disposal impoundment failures as the sum of avoided costs of cleanup and ecosystem restoration, and legal fees (US EPA 2014b). This approach does not coincide with willingness to pay for cleanup since cleanup may be mandatory and/or funded by government.
Accounting for Employment and Wage Impacts of Cleanup and Reuse
The wages associated with cleaning up a site and initiating a new use for the site are part of the social costs of the cleanup project. Wages represent the value of labor resources that were likely diverted away from other productive employment. A typical assumption behind BCA is that the labor market is in equilibrium and thus at full employment. This suggests that wages are a cost and not a benefit since the workers hired are assumed to have been already fully employed elsewhere.
However, the jobs associated with cleanup and reuse may appropriately be considered an economic impact. When considering the employment impacts of land cleanup, analysts would do well to consider the length of time over which employment may change; the geographic scale of interest; and the possibility for both increases and decreases in employment. Conclusions reached by analysts of local impacts may differ from national level analyses. At the national level, it is not solely the employment impacts directly related to the site‘s remediation and reuse that need to be considered, but also the larger net effect on the national labor market. In general, employment impacts are very challenging to estimate (US EPA 2014a, Chapter 9; US EPA 2011, pp 15-17). Indeed, a 2012 EPA workshop, “Advancing the Theory and Methods for Understanding Employment Effects of Environmental Regulation” highlighted and explored the challenges. For local, regional, and national analyses, the magnitude and nature of employment changes across time, industries, and space are often all of interest.
Managing Hazardous and Solid Waste
EPA regulates the management of hazardous and solid waste as legislated by RCRA. In the past, EPA has promoted local economic incentives to reduce and recycle municipal solid waste (MSW). MSW is a term used to describe household and commercial (typically not industrial) garbage. Economists have studied local user fees charged per container of solid waste and measured the impacts of such fees on waste and recycling quantities (Usui and Takeuchi 2013). Research has assessed the impacts of other policies intended to reduce waste quantities and has identified least cost choices, and has incorporated the upstream greenhouse gas costs of consumer products. Policies examined include the presence of curbside or drop-off recycling; subsidies for recycling; bottle deposits; and advance disposal fees (Acuff and Kaffine 2012; Jenkins et al. 2003; Viscusi et al. 2013). EPA’s regulatory impact analysis of the 2015 rule governing Coal Combustion Residuals, which changed the cost of disposing of CCR, examined impacts on recycling quantities and the associated social costs and benefits, including the avoided health effects of air pollution (US EPA 2014b).
Incentives or compensation to communities hosting waste facilities are called host community fees and may provide measures of the extent of external costs caused by proximity to waste management facilities. Host fees provide a rare opportunity to study the outcome of negotiations between commercial entities and local communities, an example of Coasian-style bargaining in which the polluter pays the affected population (Jenkins et al. 2004). A more popular approach to gain insight about the extent of external costs are property value studies that examine transactions near solid and hazardous waste management facilities (Braden et al. 2011).
With an eye toward the potential negative externalities associated with hazardous waste management, the environmental justice (EJ) literature has examined the correlation between race, income, and the presence of hazardous waste disposal facilities. An update to one of the original EJ studies refined the statistics on surrounding populations to better reflect the circumference around waste management units (Bullard et al. 2007). The new approach confirmed and strengthened the evidence of racial and income disparities. A growing body of research has investigated not just hazardous waste facilities but also landfills and other locally undesirable land uses, and found that poor and minority households systematically live in more polluted neighborhoods (Banzhaf 2012).
E.O. 12898 requires federal agencies to identify and address disproportionately high and adverse impacts of federal actions on minority populations and low income populations. EPA analyses of proposed and final regulations have examined socioeconomic characteristics of communities located in close proximity to affected waste management units. EPA analyzed the 2011 Definition of Solid Waste rule for disproportionate impacts by comparing race and income in communities near hazardous materials recycling facilities where damages had occurred, to state and national averages. The analysis found evidence of potential unequal effects. EPA’s Technical Guidance for Assessing Environmental Justice in Regulatory Analysis provides guidance regarding analytic approaches to estimating the distributional impacts of regulation.
Another environmental justice topic addressed by economists concerns the possible “gentrification” of neighborhoods in response to cleanup of contaminated sites; or on the converse, the decline of neighborhoods hosting sites with longstanding known or suspected contamination. These concepts are discussed in Banzhaf and McCormick (2012).
U.S. Environmental Protection Agency. 2014a. Economic Analysis for the Final Section 316(b) Existing Facilities Rule. May. EPA 821-R-14-001.
U.S. Environmental Protection Agency. 2014b. Regulatory Impact Analysis: EPA’s 2015 RCRA Final Rule Regulating Coal Combustion Residual (CCR) Landfills and Surface Impoundments At Coal-Fired Electric Utility Power Plants. December.
U.S. Environmental Protection Agency. 2011. Handbook on the Benefits, Costs, and Impacts of Land Cleanup and Reuse. October. EPA-240-R-11-001.
U.S. Environmental Protection Agency. 2016. Technical Guidance for Assessing Environmental Justice in Regulatory Analysis. June.
Acuff, K. and D.T. Kaffine. 2013. “Greenhouse Gas Emissions, Waste and Recycling Policy.” Journal of Environmental Economics and Management 65(1): 74-86.
Banzhaf, S. 2012. “An Introduction.” The Political Economy of Environmental Justice. Stanford University Press. Stanford, CA. 1-12.
Banzhaf, S. and E. McCormick. 2012. “Moving Beyond Cleanup: Identifying the Crucibles of Environmental Gentrification.” In The Political Economy of Environmental Justice. Stanford University Press. Stanford, CA. 23-51.
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Bullard, R.D., P. Mohai, R. Saha, and B. Wright. 2007. Toxic Wastes and Race at Twenty: 1987-2007. United Church of Christ.
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Gamper-Rabindran, S. and C. Timmins. 2013. “Does cleanup of hazardous waste sites raise housing values? Evidence of spatially localized benefits.” Journal of Environmental Economics and Management 65(3): 345–360.
Greenstone, M. and J. Gallagher. 2008. “Does Hazardous Waste Matter? Evidence from the Housing Market and the Superfund Program.” The Quarterly Journal of Economics, 123(3): 951-1003.
Guignet, D. 2012. “The impacts of pollution and exposure pathways on home values: A stated preference analysis.” Ecological Economics 82: 53-63.
Guignet, D. 2013. “What Do Property Values Really Tell Us? A Hedonic Study of Underground Storage Tanks.” Land Economics 89(2):211-226.
Guignet, D., R.R. Jenkins, M. Ranson, and P.J. Walsh. 2016. “Do Housing Values Respond to Underground Storage Tank Releases? Evidence from High-Profile Cases across the United States.” EPA NCEE Working Paper No. 2016-01.
Haninger, K., L. Ma and C. Timmins. 2014. “The Value of Brownfield Remediation.” NBER Working Paper No. 20296, Revised September 2015.
Jenkins, R., S. Martinez, K. Palmer, and M. Podolsky. 2003. “The Determinants of Household Recycling: A Material-Specific Analysis of Recycling Program Features and Unit Pricing.” Journal of Environmental Economics and Management 45(2): 294-318.
Jenkins, R., K. Maguire, and C. Morgan. 2004. "Host Community Compensation and Municipal Solid Waste Landfills." Land Economics, 80(4): 513-528.
Kuminoff, Nicolai V., and Jaren C. Pope. 2014. “Do ‘Capitalization Effects’ for Public Goods Reveal the Public’s Willingness to Pay?” International Economic Review, 55(4): 1227-1250.
Mastromonaco, R. 2014. “Hazardous Waste Hits Hollywood: Superfund and Housing Prices in Los Angeles.” Environmental and Resource Economics 59: 207-230.
Patunru, A., J. Braden, and S. Chattopadhyay. 2007. “Who Cares about Environmental Stigmas and Does It Matter? A Latent Segmentation Analysis of Stated Preferences for Real Estate.” American Journal of Agricultural Economics 89(3): 712-726.
Usui, T. and K. Takeuchi. 2013. “Evaluating Unit-Based Pricing of Residential Solid Waste: A Panel Data Analysis.” Environmental and Resources Economics 58(2): 245-271.
Viscusi, W.K., Joel Huber, Jason Bell, and Caroline Cecot. 2013. “Discontinuous Behavioral Responses to Recycling Laws and Plastic Water Bottle Deposits.” American Law and Economics Review 15(1): 110-155.
Zabel, J. and D. Guignet. 2012. “A hedonic analysis of the impact of LUST sites on house prices.” Resource and Energy Economics 34(4): 549–564.