Copyright © 2014 The Brattle Group, Inc.

Review of 2013 EPA Economic Analysis of Proposed Revised Definition of Waters of the United States

David Sunding, Ph.D.

February 20 , 2014

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Presenter Information

DAVID SUNDINGPrincipal │ San FranciscoDavid.Sunding@brattle.com +1.415.217.1000

Prof. Sunding holds the Thomas J. Graff Chair of Natural Resource Economics at the University of California, Berkeley. He is the founding director of the Berkeley Water Center and currently serves as the chair of his department. He has won numerous awards for his research, including grants from the National Science Foundation, the U.S. Environmental Protection Agency, and private foundations.

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About Brattle

  The Brattle Group provides consulting and expert testimony in economics, finance, and regulation to corporations, law firms, and governments around the world. We aim for the highest level of client service and quality in our industry.

    We are distinguished by our credibility and the clarity of our insights, which arise from the stature of our experts, affiliations with leading international academics and industry specialists, and thoughtful, timely, and transparent work. Our clients value our commitment to providing clear, independent results that withstand critical review.

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Agenda

  Incremental Jurisdictional Determinations

  Incremental Acreage Calculations

  Incremental Cost Calculations

  Incremental Benefit Calculations

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Incremental Jurisdictional Determinations

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Calculation of Incremental JDs

USACE review of 262 project files from FY 2009/10▀ 67% streams, 27% wetlands, 6% other waters

− Old JD: 98% of streams, 98.5% of wetlands, 0% of other waters

− USACE Review: 100% of streams, 100% of wetlands, 17% of other waters

▀ 2.7% incremental JDs

No. ORM Records

No. Positive Juris.

Proj. Positive Juris.

% Total ORM2 Records % Positive Juris.

Proj. Positive Juris.

Streams 95,476 93,538 95,476 67% 98.0% 100.0%Wetlands 38,280 37,709 38,280 27% 98.5% 100.0%

Other Waters 8,209 0 1,396 6% 0.0% 17.0%Total 141,965 131,247 135,152 100% 92.5% 95.2%

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Calculation of Incremental JDs

  Key Limitations▀ No discussion of impacts of new jurisdictional terminology

(“neighboring”) and revised definitions (“adjacent”, “tributary”, “riparian areas”, “floodplain”) on number of permit applications

▀ ORM2 database (USACE) categories of jurisdictional waters not compatible with EPA draft rule categories

▀ Universe of jurisdictional waters underrepresented in ORM2 database− Preliminary JDs not included− Majority of individuals not seeking permits likely for isolated

waters category− Only impacted areas currently included (omitting non-impacted

portion of site)

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Section 404 Permitting Process

Proposed Project

Seeks JD

Jurisdiction

NoJurisdiction

No ActionOmitted from EPA Analysis

• Statistically invalid procedure that likely underrepresents impacts• PJDs are improperly aggregated with JDs

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Incremental Acreage

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Calculation of Incremental Acreage

Permit TypePermits issued FY2010

Added Permits (2.7%

increase)

Average Impact Per

Added Permit (Acres)

Total Added

Impacts (Acres)

Individual 2,766 75 12.81 960

General 49,151 1,327 0.28 372

Total 51,917 1,402 1,332

Calculations A B = A*0.027 C D = B*C

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Calculation of Incremental Acreage

  Underestimation of impacted acreage▀ FY 2009/10 baseline not representative

− Period of reduced development and economic contraction (impacting both number of projects and average size of projects)

▀ USACE review does not address potential new permit seekers− Only concerns applicants already in system

▀ Section 404 impacts unreasonably extended to all CWA programs▀ Heterogeneity in project files ignored

− State-level and project size differences not addressed

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FY 2009/10 Baseline Not Representative

Source: US Census Bureau

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Incremental Costs

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Calculation of Incremental Costs

  Section 404▀ Permit Application Costs▀ Compensatory Mitigation Costs▀ Permitting Time Costs (omitted from EPA analysis)▀ Impact Avoidance and Minimization Costs (omitted from EPA

analysis)

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Section 404 Permit Application Costs

Permit TypePermits issued FY2010

Added Permits (2.7%

increase)

Average Impact Per

Added Permit (Acres)

Total Added

Impacts (Acres)

Costs from Corps’ Analysis

(2010$)

Costs from Sunding and

Zilberman Study (2010$)

Additional Annual Cost (2010$

millions)

Individual 2,766 75 12.81 960$31,400 /

permit

$57,180 / permit +

$15,441 / acre$2.4 - $19.1

General 49,151 1,327 0.28 372$13,100 /

permit

$22,079 / permit +

$12,153 / acre$17.4 - $33.8

Total 51,917 1,402 1,332 $19.8 - $52.9

F 1,2

Lower: E*B

Upper: (F 1 *B)+(F 2 *D)

Calculations A B = A*0.027 C D = B*C E

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Section 404 Permit Application Costs

  Key Limitations▀ Changes in distribution of individual/general permits not

addressed▀ Average project sizes ignore heterogeneity across projects▀ Values from Sunding & Zilberman study nearly 20 years old and

unadjusted for programmatic changes and inflation▀ Permitting time costs and impact avoidance/minimization costs

not addressed

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Section 404 Compensatory Mitigation Costs

  Key Limitations▀ Discrepancy between EPA 2011 and 2013 analyses

− Unit costs and amount of mitigation lower in 2013 analysis

Water Body Type

Units of Mitigation

Unit Costs ($2010)Annual Cost (2010$

millions)Streams 49,075 feet $177 - $265 $8.7 - $13.0

Wetlands 2,042 acres $24,989 - $49,207 $51.0 - $100.5

Total $59.7 - $113.5

Calculations A B C = A*B

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Calculation of Incremental Costs

  Other (Non-404) Sections▀ Adopt old estimates▀ Adjust for 2.7% incremental increase in jurisdictional waters▀ Adjust for changes in program size

  Key Limitations▀ Impacts to some programs omitted due to lack of data▀ Other programs assumed to be cost neutral without explanation

− Example: Section 303 (state water quality standards and implementation plans) and Section 402 (NPDES permits)

▀ Estimates of Section 404 impacts (+2.7%) not applicable to non-404 programs

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Incremental Benefits

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Calculation of Incremental Benefits

  Section 404▀ Increased clarity in CWA jurisdictional determination (omitted

from EPA analysis)▀ Ecosystem benefits from increased compensatory mitigation

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Section 404 Mitigation Benefits

  Benefit Transfer Analysis▀ Synthesized 10 contingent valuation studies providing willingness

to pay (WTP) estimates of wetland preservation▀ WTP estimates multiplied by acres and households for each

wetland region

RegionIncremental Impact

Estimate (Acres)Number of Households

Present Value of Benefits per Year- 7% Discount

(2010$ millions)

Present Value of Benefits per Year- 3% Discount

(2010$ millions)

Central Plains 30 3,201,336 $1.20 $1.50 Delta and Gulf 85 14,521,178 $14.80 $19.80

Mountain 145 7,390,812 $12.90 $17.30 Midwest 322 23,909,088 $92.30 $123.70

Northeast 240 23,839,690 $68.70 $92.10 Pacific 79 16,163,714 $15.30 $20.50

Prairie Potholes 241 2,176,626 $6.30 $8.40 Southeast 187 20,485,107 $46.10 $61.70

Other 3 234,779 $0.00 $0.00 National 1,332 111,922,330 $257.60 $345.10

Calculations A B C = A*B*0.012 D = A*B*0.016

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Section 404 Mitigation Benefits

  Key Limitations▀ Selection of WTP studies arbitrary and not representative

− 9 of 10 studies more than a decade old (oldest ~30 years old)− Several studies not published in peer-reviewed journals

▀ Unreasonable presumption of transferability of results − Localized benefits assumed to accrue to all members of wetland

region− No adjustment for changes in economic trends, recreational

patterns, stated preferences over time

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Calculation of Incremental Benefits

  Other (Non-404) Sections▀ Adopt old estimates▀ Adjust for 2.7% incremental increase in jurisdictional waters▀ Adjust for changes in program size

  Key Limitations▀ Assumption that negative impacts would occur without increase

in federal jurisdiction is unreasonable− State programs well-suited to protect local resources

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Summary of Incremental Costs/Benefits

Programlow high low high

§404 Mitigation- Streams 2 $8.7 $13.0§404 Mitigation- Wetlands $51.0 $100.5 $257.6 $345.1§404 Permit Application 3 $19.7 $52.9§404 Administration $7.4 $11.2§401 Administration 4

§402 Construction Stormwater $25.6 $31.9 $25.4 $32.3§402 Stormwater Administration§402 CAFO Implementation 5 $3.4 $5.9§402 CAFO Administration§402 Pesticide General Permit 6 $2.9 $3.2§311 ImplementationTotal $133.7 $231.0 $300.7 $397.6

1

2

3

4

5

6

$0.2

Costs ($millions) Benefits ($millions)

$0.7

$0.2

$5.5

$11.7 $14.3

§303 impacts are assumed to be cost-neutral; §402 impacts are components of costs and benefits previously identified for past actions, not new costs and benefits associated with this proposed rule

Benefits of stream mitigation are not quantified

Costs of potential delayed permit issuance and costs and benefits of avoidance/minimization are not quantified, nor are any benefits from reduced uncertaintyCosts to permittees and benefits of any additional requirements as a result of §401 certification are reflected in the mitigation estimates to the extent additional mitigation is the result, yet not calculated to the extent avoidance/minimization is the result.

Benefits apply to large CAFOs only, which account for 85% of implementation costs and 66% of administrative costs

PGP benefits and government administrative costs are not available

Notes (from EPA documents):

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Conclusion

  Underestimation of Incremental Acreage  Flawed calculation of Incremental Costs

▀ Focus on Section 404 costs, other sections ignored▀ No consideration of permitting time costs and impact

avoidance/minimization costs  Flawed calculation of Incremental Benefits

▀ Benefit transfer analysis not consistent with best practices in environmental economics

  Analysis poorly documented and contains multiple inconsistencies with previous analyses