Tuesday, March 6, 2012

Review of the EPA's Economic Analysis of Final Water Quality Standards for Lakes and Flowing Waters in Florida (2012)

he Environmental Protection Agency's estimate of the costs associated with implementing numeric nutrient criteria in Florida's waterways was significantly lower than many stakeholders expected. This discrepancy was due, in part, to the fact that the Environmental Protection Agency's analysis considered only the incremental cost of reducing nutrients in waters it considered "newly impaired" as a result of the new criteria—not the total cost of improving water quality in Florida. The incremental approach is appropriate for this type of assessment, but the Environmental Protection Agency's cost analysis would have been more accurate if it better described the differences between the new numeric criteria rule and the narrative rule it would replace, and how the differences affect the costs of implementing nutrient reductions over time, instead of at a fixed time point. Such an analysis would have more accurately described which pollutant sources, for example municipal wastewater treatment plants or agricultural operations, would bear the costs over time under the different rules and would have better illuminated the uncertainties in making such cost estimates.
Key Findings
  • The Environmental Protection Agency's (EPA) cost estimate was lower than those calculated by other stakeholder groups due to several factors. First, EPA considers only the incremental cost of improving the quality of waters that are newly identified as impaired based on the numeric nutrient criteria rule, and does not consider waters that Florida has already determined to be impaired based on existing methodologies. Second, EPA and other stakeholders made different assumptions about the extent to which certain pollutant sources should be included in their cost analyses. Third, there are differing assumptions made about the level of technology that will be needed to meet the numeric nutrient criteria.
  • EPA was correct to estimate incremental costs of the change from the narrative to numeric approach, but some members of the media, the public, and decision makers misinterpreted EPA's incremental cost estimate as the total cost needed to improve Florida water quality. The total costs to meet Florida's water quality goals are highly uncertain but will substantially exceed the incremental costs of any rule change and will take decades to achieve.
  • In all sectors, Florida's current level of implementation of best management practices to reduce nutrient pollution was assumed by EPA to continue under the numeric nutrient criteria rule and to be satisfactory. However, the committee found that the use of current best management practices is unlikely to be sufficient to meet beneficial designated uses in Florida waters.
  • Under the numeric nutrient criteria rule, monitoring data on nitrogen and phosphorus concentrations are used to identify newly impaired water bodies. However, for about 77 to 86 percent of the lakes and flowing waters in Florida, there are not enough monitoring data to make an assessment. EPA assumed that all unassessed waters would be in compliance with the numeric nutrient criteria rule, which led EPA to underestimate the number of newly impaired waters.
  • For each sector of pollutant sources, EPA estimated the incremental cost of complying with the numeric nutrient criteria rule. The report concluded that EPA underestimated the incremental cost for the stormwater, agricultural, septic system, and government sectors. There is significant uncertainty in the EPA cost estimate for the municipal and industrial wastewater sectors, making it difficult to know whether the EPA under- or over-estimated the incremental cost in these sectors.
  • EPA's cost analysis would have been more accurate if it better described the differences between the new criteria rule and the narrative rule it would replace, and how the differences affect the costs of implementing nutrient reductions over time, instead of at a fixed time point. Timing was not considered in the EPA report, but in reality, the speed with which actual water quality benefits are observed is constrained by the time required to conduct necessary studies and implement load controls, and by available budgets and staff.
  • Comparing the rules over time also can provide an opportunity to present a realistic picture of how water quality improvement actions might unfold under alternative rules, by illustrating the time lags between listing and achievement of water quality standards. Most importantly, reporting on timing would provide useful information for predicting annual budgetary requirements.
  • If done correctly, EPA's analysis would have revealed that point sources of water pollution are going to face increased costs sooner under the numeric nutrient criteria than under the narrative process. How costs to nonpoint sources and water quality benefits would materialize under the different rules is uncertain.
  • Many assumptions are made in predicting administrative and load control costs over time, leading to uncertainty in cost analyses. This uncertainty—which can stem from such issues as a lack of knowledge about the cost of a relatively new technology, or about how implementation of the numeric nutrient criteria will be translated to effluent limits for point sources—was inadequately represented in the EPA analysis.
  • Conducting an alternative cost analysis, with increased attention to careful assessment of rule differences, stakeholder engagement, and uncertainty analysis, might not have been possible with the budget and time EPA spent on it cost analysis. Any critique of the existing EPA cost analysis should recognize that some deficiencies may be traced to time and budget limitations.
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