Reduction Benefits

1: Benefit-Cost Analysis and MCLs

2: AwwaRF Project: Estimating
Benefits
Overview
General background on Benefit-Cost
Analysis (BCA)
Economic principles
Political and scientific realities
The Safe Drinking Water Act
(SDWA) and BCA
Setting standards prior to 1996
The 1996 SDWA Amendments
Overview (cont.)
Issues in estimating benefits
Awwa Research Foundation project
Provides conceptual foundation
Practical numeric illustrations
Exposure => Risk => $ Values
Focus on variability and uncertainty
What Is BCA Anyway,
and How Can It Help?
Tool for systematically comparing
pros and cons
Identify all relevant benefits and costs
Quantify (or describe qualitatively) all
benefits and costs
Monetize (or apply another metric) to
directly compare benefits to costs
What Is BCA Anyway? (cont.)
Objective is to promote common
sense
Do benefits exceed costs?
Net social benefits are positive: B - C > 0
Society is no worse off (break even)
Are net social benefits maximized?
Choose the wisest investments
MB = MC (incremental BCA)
Why All the Fuss over BCA?
To some opponents: BCA viewed as a
tool forged in the Devils Workshop
A device intended to shred the fabric of the
nations health and safety regulations
Potential to interject antiregulatory bias
Count all costs; ignore important benefits
96 SDWA Amendments as bad precedent
allowing the BCA camels nose into the
tent
Why All the Fuss over BCA? (cont.)
For proponents: BCA viewed as a savior
of rationality
Systematic way to impose sanity into the
regulatory process
BCA misperceived by some as
providing a definitive decision rule
Clear-cut and irrefutable outcomes
Where Does the Truth Reside
about BCA?
BCA is a very useful tool to inform
and guide decisions
BUT it is not a rule by which decisions
can or should always be made
Objective BCAs support very
stringent standards in some cases,
and less stringent standards in others
How Were Standards Set Prior to
the 1996 Amendments?
Establish risk-free health goals: MCLGs
MCLGs typically = zero
Set enforceable MCLs as close to MCLG
as technically feasible (taking costs
into consideration)
No ability to take benefits into account
in how stringently MCLs were
established
Consequences of the Old Approach
MCL- invested costs did not always
maximize public health protection
benefits
High variability in costs incurred per
unit of health benefit, depending on:
Contaminants regulated
Level at which MCLs are set
System size categories
Variability in Cost
per Cancer Avoided
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
25-100 101-500 501-3,300 3,301-10,000 >10,000
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Dichloromethane
Pentachlorophenol
1,2-Dichloropropane
EDB
System Size (persons served)
What Do the 96 Amendments
Require?
EPA conduct and publish a BCA for
every proposed and final rule
Focus on how health risk reduction
benefits compare to costs
EPA Administrator signs a
determination that benefits justify
the costs
What Do the 96 Amendments
Allow?
If benefits do not justify the
costs . . .
The Administrator may use BCA
results to set an MCL at a level other
than what is technically feasible
Benefits: Conceptual
Underpinnings
Benefits arise from series of causal links
Occurrence =>Exposure =>Toxicity =>
Quantify => Monetize ($ Values)
Conceptual and empirical challenges arise
at each step
Components need to be integrated into
meaningful whole
Uncertainties are propagated,
compounded
Conceptual Underpinnings (cont.)
AwwaRF project recently completed
Conceptual and empirical approaches
Focus on variabilities and uncertainties
Practical numeric illustrations for MTBE

Causal Links in Benefits
Benefits Assessment Activities
1. Estimated Occurrence
3. Estimated
Fate and Transport
Regulatory Actions
(MCLs)
Treatment or Alternative
Source Selected
Stressors (chemical/microbial
concentrations in finished water)
Distribution System
(air, land, water)
Causal Links Leading to Benefits
2. Compliance Response;
Estimated Removal/
Inactivation
Causal Links in Benefits (cont.)
Benefits Assessment Activities Causal Links Leading to Benefits
Receptors
(exposures to people)
Impacts
(health, risk reductions)
Values
(monetization of benefits)
4. Estimated Exposure;
Averting Behavior
5. Estimated
Dose-Response
6. Estimated
Willingness to Pay (benefits),
or Costs of Illness
Distribution System
Exposure Assessment
Tap water consumption
2 liters/day replaced with . . .
Distribution with mean ~1.1L/day
Duration of exposure
70+ year lifetime becomes . . .
Distribution of residential duration
(median of 5.2 years), coupled with
occurrence data
Lifetime Exposures
(arsenic at 10g/L)
0
50,000
100,000
150,000
200,000
250,000
300,000
Percentile

g
/
L
i
f
e
t
i
m
e
266,450
64,320
(24%)
50th
(26%)
(34%)
78,456
144,405
75th 95th 99th
Concentration-Response
and Risk Characterization
Impact of biologically-based models
Threshold-like dose-response functions
Other nonlinear exposure-response models
Use of probabilistic methods
Using distributors rather than
precautionary assumptions (e.g., Monte
Carlo techniques)
Provides central tendency (most likely)
estimates
Quantification Issues
What is meaningful measure of benefits?
Lives saved (premature fatalities avoided)
Life years saved (extension of life expectancy)
Nonfatal risk reductions (# illnesses avoided)
Moral key: benefits are risk reductions
Low-level risks, spread over large population
Not a specific, identified person or set of
victims
Valuing Premature Fatalities
Avoided
Value of a Statistical Life (VSL)
Published studies of observed $ for risk
tradeoffs
Based on accidental immediate death
(occupation, traffic safety, etc.)
Latency and discounting are key issues
Not placing $ values on lives
Observed $-for-risk tradeoffs
Low-level risks over large population
Adjusted Value of Statistical Life
(VSL) Estimates
(million 1999 dollars)
4. Life years saved and VSLY $1.2 $1.5
3. Age-adjusted VSL (age,
income, latency, discounting)
$1.3 $1.9
2. SAB-endorsed (income growth,
latency, discounting)
$2.7 $2.7
Bladder
cancer
Lung
cancer
1. EPA (unadjusted VSL) $6.1 $6.1
Other Application Issues
Interpreting BCA findings for standards
Total vs. incremental BCA
System size (scale economies)
Addressing unquantified benefits
Using best estimates of risk
reductions and monetized values
In lieu of precautionary assumptions
Using probability distributions (or ranges)
rather than point estimates
Uranium: Cost per Person Exposed
above Oral RfD for Kidney Toxicity
(000s of 1998 dollars per lifetime, log scale)
$7.6
$1,860.0
$2,150.0
$4.2 $5.2 $5.2
$290.0
$198.0
Total Population
Population > Oral RfD
Baseline
80 g/L
80 g/L
40 g/L
40 g/L
30 g/L
30 g/L
20 g/L
1
10
100
1,000
10,000
Log scale
$000s
Conclusions
BCA provisions are an important step
forward for standard setting
Enable a departure from technology-
driven basis of standard setting
Offer upside potential for designing
better standards to maximize public
health protection
Conclusions (cont.)
AwwaRF project addresses key issues:
How benefits should be estimated
How BCA should be applied and
interpreted for MCL-setting
BCA is a useful tool to guide decisions
It is not a rule by which decisions should
always be made
AwwaRF project also shows how BCA
is useful for setting research priorities