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Putting a price tag on environmental damage.

Cost estimates of damage to the environment may be underestimated significantly by those charged with putting a price tag on ecological disasters. According to Daniel W. Bromley, a resource economist and former director of the University of Wisconsin-Madison Institute for Environment Studies, the consequences from mishaps such as groundwater pollution and oil and chemical spills may be off by a factor of three to five, meaning estimates of perceived damage could be millions or tens of millions of dollars too low in a given situation. "Damages can be estimated in different ways. It all depends on what questions are asked" and what criteria are applied by the courts and policymakers.

The problem is emerging as a contentious public policy issue as Federal laws on liability for environmental damage are implemented. With the establishment in 1980 of the Comprehensive Environment Response, Compensation and Liability Act and the Oil Pollution Act of 1990, the rules of the game changed, and pulluters became liable for harm inflicted on the environment. Federal agencies, primarily the Department of the Interior and the National Ocenic and Atmospheric Administration, are writing rules to give these legislative mandates operational force.

"It used to be that tanker accidents resulting in spills didn't cost oil companies anything except the lost values of the oil and the ships. It didn't cost them anything in terms of environmental damages. Now, if your tankers run aground, it's going to cost you something." The question is, how much?

Bromley points out that putting a price tag on natural resources is far more difficult than simply asking someone what they might pay for a given resource, the practice now used by the courts and regulatory agencies to determine what damages must be paid for a pollution event. "When you ask people how much they would pay for something, they tend to name a price that is a third of fifth of what they would required for compensation."

He argues that it is wrong to measure natural resource damage from the "willingness to pay" responses of those whose welfare is reduced by damages. "Another way to ask the question is, |What would you require in the way to compensation to be as well off as you were before the accident?' The numbers you get are significantly different. Some people would say: |There is no amount of money that would compensate me.'"

Complicating the dilemma is the idea that damages caused by pollution events can extend far beyond the geographic limit of an accident. For instance, bird lovers in Manhattan can "suffer" through the knowledge that waterfowl are dead of dying because of an oil spill in Alaska or the Shetland Islands. If they know that payments are being made to restore or rehabilitate the affected ecosystem, they may, in effect, be "compensated" for those damages.

The problem is to put a price tag on an agret or a sea otter or an entire ecosystem and have to extend indemnification to all of those affected. "The Reagan White house insisted that a dollar value be placed on a thing in order to validate a claim of its |value.' That forces you to ask a question - How much is an agret worth? - that might well offend some people. Even though many of us don't like playing the dollar-value game, it can be useful. Like it or not, many choices are made based on dollar values. This has certainly been the case in litigation over personal injury, and now it is being applied to environmental damages."
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Publication:USA Today (Magazine)
Date:Jun 1, 1993
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