Joe Serres, J.D., M.B.A.

Your Professor: Joe Serres

•        The analytical framework to account for benefits and costs.  

•         Impact analysis to account for benefits and costs 

•         Cost-effectiveness analysis to account for benefits and costs 

•         Benefit measurement and how it applies to environmental economics 

•         Cost in a benefit-cost study 

•         The fundamental concept of opportunity costs 

•         The difference between short-run and long- run costs 

•         Cost issues from a national economic perspective

Unit 4 Environmental Analysis: Unit 4 Environmental Analysis:

Framework of AnalysisFramework of Analysis

Glen Canyon Dam, Colorado River

Impact AnalysisImpact AnalysisImpact is a very general word, meaning the effects of any actual or proposed policy. Since there are many types of effects, there are many different types of impact analysis.

An environmental impact analysis (EIA) is essentially an identification and study of all significant environmental repercussions stemming from a course of action. These are more commonly referred to as Environmental Impact Statements (EIS) or Environmental Assessments (EA) in practice.

These requirements were legislated by the National Environmental Policy Act of 1970 (NEPA). This law requires that agencies of the federal government conduct environmental impact assessments of proposed legislation and “other major federal actions significantly affecting the quality of the human environment”- in the form of a federal Environmental Impact Statement (EIS).

What is NEPA?What is NEPA?NEPA was signed into law on January 1, 1970, and may be characterized as a planning statute. It does three things directly:

1.Establishes the CEQ, the federal watchdog of environmental policy

2. Requires federal agencies to take environmental consequences into account when they make certain decisions, which before NEPA, they could not do because consideration of such effects was rarely listed in agencies’ enabling acts as a factor to be taken into account in agency decision making

3. Requires that an EIS be prepared for every major legislative proposal or other federal agency action having a significant impact on the quality of the human environment

Colorado River, Grand Canyon NP

Council on Council on Environmental QualityEnvironmental Quality

The CEQ is made up of three persons, one of whom is designated the chair. The role of the council is primarily advisory, mainly advising the president about environmental matters. The CEQ gathers and analyzes data, informs the president about the progress the nation is making toward cleaning up the environment, and recommends legislation that needs to be passed and issues that needs attention.

The CEQ also helps federal agencies to meet their EIS requirements under NEPA by reviewing drafts of these statements. The CEQ establishes regulations pertaining to NEPA procedures. For example, in 1986, the CEQ amended 40 CFR 1502.22 to require the EPA to disclose when data are incomplete or inadequate to discuss potential adverse impacts fully.

Lee’s Ferry, Marble Canyon, Colorado River

Several major issues pervade an analysis of the EIS requirement, ranging from who must file the EIS, and when, to disputes over what must be included in the statement, to whether the process is effective.

Threshold Considerations

Every time a federal agency undertakes an activity, it must decide whether to file an EIS.

NEPA specifies three conditions that must be met for an EIS to be required. First, the activity must be federal. A federal activity is fairly broadly defined. If, for example, a private sector construction firm wants to construct a building that requires a government license.

Second, the federal activity must be major. There are no dollar guidelines as to what constitutes a major activity. The courts generally say that the activity requires a substantial commitment of resources, with resources being broadly defined to include both financial and human resources. A substantial commitment of either type of resource is sufficient.

ENVIRONMENTAL IMPACT STATEMENT

The third criterion is that the proposed activity must have a significant impact on the human environment. The phrase significant impact on the human environment is so ambiguous that it initially generated substantial litigation. Then, in 1979, the CEQ tried to resolve some of the controversy by adopting a series of guidelines for the implementation of NEPA’s proceduralprovisions. In these guidelines, the CEQ tried to define better what was meant by “significant impact.” The CEQ stated that determining the significance of an impact necessitated examining both the context and the intensity of the action.

Paria Canyon, Northern Arizona

EIS- IntensityEIS- Intensity

Examining the intensity of an activity was said to involve the following ten factors:

1. Both beneficial and detrimental effects

2. The degree to which the public health and safety will be affected

3. Unique characteristics of the geographic area that may be affected by the activity

4. The degree to which the effects of the activity are likely to cause controversy

5. The degree to which the effects on the human environment are highly uncertain or unique

6. The degree to which the activity is likely to set a precedent for future actions

7. Whether insignificant effects from this activity, when combined with insignificant effects from other activities, will constitute significant effects

8. The degree to which the act may affect places of scientific, historic, or cultural significance9. The degree to which an act may adversely affect an endangered species10. Whether the act threatens any law designed to protect the environment

Sunset, Canyonlands National Park

Procedure under the EIS RequirementProcedure under the EIS RequirementInitially, the agency required to file the EIS would assemble a team of specialists to prepare a draft report. Next, a draft version will be circulated within the agency, to be reviewed by several parties.Following the agency’s completion of that draft, the document goes to the CEQ for review and comments. Then, in accordance with the APA’s rules for informal rule making, the draft is published in the Federal Register for public comment. Many other agencies, including the EPA, will submit comments at this time, as will citizens’ groups and business interests.After the public comments have been received, a similar process will be followed for the final draft. If a draft has been severely criticized, the agency is faced with the difficult decision of whether to try to repair it or draft an entirely new document. 

 

After publication of the final draft, the sufficiency of the draft may be challenged in court. The failure to file an EIS when required may also bechallenged.

View from Peek-a-Boo Trail, Salt Creek, Canyonlands National Park

Whether an agency voluntarily prepares an EIS or is required to by the courts, the following elements must be contained in the document:1. A statement of environmental impacts (positive and negative) of the proposed action2. Any unavoidable adverse environmental impacts should the proposal be implemented3. Alternatives to the proposal (including taking no action)4. The relationship between short-term uses of the environment and enhancement of long-term productivity5. Any irreversible commitments of resources

Contents of the EISContents of the EIS

Speckled Lizard, Canyonlands National Park

ALTERNATIVES TO ALTERNATIVES TO THE EISTHE EISEnvironmental Environmental AssessmentAssessmentAn EA is a concise public document that

analyzes the environmental impacts of a proposed federal action to determine the level of significance of the impacts. When an EA is completed and it is determined that there are no significant impacts, no EIS needs to be filed. If a group subsequently challenges the failure of the agency to prepare an EIS, the agency will often use the EA to demonstrate why it believed no EIS was necessary.

Mitigated FONSI

Sometimes, an agency will discover a potentially significant environmental impact in the course of doing an EA. If the agency then proposes measures that will mitigate the adverse effects of the proposed actions, it may then conclude the NEPA process by preparing a FONSI. Increasingly, these so-called mitigated FONSIs are being used.

Elk, Grand Canyon NP

Cost Effectiveness AnalysisCost Effectiveness AnalysisCost-effectiveness analysis, in other words, takes the objective as given, then costs out various alternative ways of attaining that objective.

See TABLE 6.1 Cost-Effectiveness of Different Projects to Reduce NOx Emissions in Southern California Flash Flood, Northern Arizona

Damage AssessmentDamage AssessmentIn 1980, the Comprehensive Environmental Response, Compensation and Liability Act was enacted. This law allows federal, state, and local governments to act as trustees for publicly owned natural resources and to sue people who are responsible for the release of harmful materials that damage these resources. This has led to a type of study called damage assessment, the objective of which is to estimate the value of the damages to an injured resource so that these amounts can be recovered from those held liable by the courts.

Damages should be equal to the lesserof (1) the lost value of the resource or (2) the value of restoring the resourceto its former state.

Problems in evaluating the restoration costs of a damaged natural resource:• The determination of what the original or baseline resource quality actually was.• The choice among alternative ways of restoring a resource in a cost effectiveway.• The determination of what is meant by a natural or environmental resourceof equivalent value to a resource that was lost.

Benefit-Cost AnalysisBenefit-Cost AnalysisFour steps in a benefit–cost analysis:

1. Specify clearly the project or program.

2. Describe quantitatively the inputs and outputs of the program.

3. Estimate the social costs and benefits of these inputs and outputs.

4. Compare these benefits and costs.

Discounting is a process that expresses the value to people today of benefits and costs that will materialize at some future time.

Vertical equity refers to how a policy impinges on people who are indifferent circumstances, in particular on people who have different incomelevels.

Risk AnalysisRisk AnalysisRisk analysis involves essentially three steps:

• Risk assessment: The study of where risk comes from and how people normally respond to it.

• Risk valuation: The study of what values, in terms of concepts such as willingness to pay, people place on risk reduction.

• Risk management: The study of how different policies affect levels of environmental risk to which people are exposed.

One of the Four FacesSalt Creek CanyonCanyonlands National Park

Emission Damage Emission Damage FunctionFunctionTo measure an emissions damage function, it’s necessary to go through the following steps:

1. Measure emissions.

2. Determine the resulting levels of ambient quality through the use of diffusion models.

3. Estimate the resulting human exposure that these ambient levels would produce.

4. Estimate the physical impacts of these exposure levels.

5. Determine the values associated with these physical impacts.

Please see TABLE 7.1 Estimated Cost of Adult Asthma in the United States

In this method individuals are asked to make willingness-to-pay responses when placed in contingent situations.

Contingent valuation methods have been utilized in two different types ofsituations: (1) to estimate valuations for specific features of the environment, forexample, the value of view-related amenities, the recreational quality ofbeaches, preservation of wildlife species, congestion in wilderness areas, hunting and fishing experiences, toxic waste disposal, preservation of wild rivers, and others; and (2) to estimate the valuations people place on outcomes that are related to environmental quality.

Contingent ValuationContingent Valuation

With/Without PrincipleWith/Without Principle

In doing a benefit–cost analysis of how firms will respond to new laws, we want to use the with/without principle and not the before/after principle.

We want to estimate the differences in costs that polluters would have with the new law, compared to what their costs would have been in the absence of the law.

Agricultural subsidies in manydeveloped countries have provided the incentive to develop intensive, chemical based production methods, which have resulted both in increased agricultural output and in the nonpoint-source water and air pollution to which these methods lead.

Opportunity Cost:The opportunity cost of using resources in a certain way is the highest value these resources would have produced had they not been used in the manner under consideration.

We must differentiate private costs from social opportunity costs.

Enforcement Costs:Resources must be devoted tomonitoring the behavior of firms, agencies, and individuals subject to the regulations and to sanctioning violators.

Cost of Cost of Environmental LawsEnvironmental Laws

Please see TABLE 8.2 Costs per Year of a Typical Plywood Veneer Plant to Install Maximum Available Control Technology (MACT) for Hazardous Air Pollutants (HAPs)

A good example of this is the cost of CO2 emission reduction to reduce the effects of global warming. In the United States, much of the stated opposition to undertaking vigorous reductions in CO2 stems from a concern that the future costs of doing so will be too high.

All American Man pictograph Canyonlands National Park

Review of Unit Review of Unit Key TermsKey TermsHorizontal Equity- A theory that persons or corporations who earn the same or a similar amount of money should be taxed in the same or a similar way.

Option Value- The amount a person would be willing to pay to preserve the option of being able to experience a particular environmental amenity in the future.

Opportunity Cost -The cost of an alternative that must be forgone in order to pursue a certain action.

Present Value -The current value of one or more future cash payments, discounted at some appropriate interest rate.

Flowering Cactus, Paria Canyon

Discussion BoardDiscussion BoardWhen setting public policy on environmental risks, should we base it on the levels of risk to which people think they are exposed or on the risk levels as scientists have determined them to be in fact?

Analyze the effects of economic policies on the environment. 

Ravens on 50 ft. high flash flood log~ Paria Canyon