Document ID: EPA-HQ-OW-2002-0030-0024
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2002-06-24T04:00Z

Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
CHAPTER
EIGHT
BENEFITS
ASSESSMENT
RESULTS
The
purpose
of
the
proposed
regulation
is
to
benefit
the
nation
by
improving
water
quality
and
the
environment.
These
benefits
can
be
measured
in
economic
terms
and
balanced
against
the
costs
of
implementing
the
proposed
rule.
The
preceding
chapter
described
the
methodology
EPA
developed
to
measure
the
benefits
of
the
ESC
regulation.
This
chapter
summarizes
the
results
of
that
analysis.
The
first
section
draws
on
the
Environmental
Assessment
to
show
the
changes
in
sediment
loads
and
other
factors
that
indicate
the
environmental
effects
of
the
regulation.
The
second
section
describes
the
results
of
applying
these
environmental
changes
to
the
benefit
estimation
model
described
in
Chapter
Seven.

8.1
ENVIRONMENTAL
ASSESSMENT
RESULTS
The
Environmental
Assessment
used
a
model
watershed
approach
to
estimate
several
indicators
of
water
quality
in
the
baseline
condition
and
under
the
alternative
options.
The
primary
environmental
indicator
selected
was
sediment
entering
waterways
which
was
divided
into
turbidity
producing
solids
and
settleable
solids,
i.
e.
particle
size
20
microns
or
less
and
greater
than
20
microns.
Sediment
is
a
good
indicator
of
the
regulation
 
s
effectiveness
as
metals
and
organic
compounds
enter
the
environment
attached
to
sediment
particles.
Table
8­
1
shows
the
estimated
difference
between
sediment
tonnage
released
under
the
baseline
and
that
released
with
each
regulatory
option.

8.2
BENEFITS
ASSESSMENT
RESULTS
As
discussed
in
Chapter
Seven,
the
sediment
loadings
drive
benefit
analyses
for
several
categories
of
benefits.
Table
8­
2
shows
the
low
and
high
values
for
the
range
of
annual
benefit
estimates.

The
point
estimate
represents
EPA
 
s
best
judgment
of
the
most
probable
benefit
value
after
weighing
the
accuracy
and
distribution
of
the
information
used
to
develop
the
benefit
range.
Most
of
the
benefits
arise
from
the
avoided
costs
of
lost
water
storage
capacity.

8­
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
Table
8­
1.
Total
Suspended
Sediment
(
TSS)
­
Differences
from
Baseline
Source:
U.
S.
EPA,
2002.
Decrease
from
Baseline
in:
Option
1
­
Inspection
and
Certification
Option
2
­
Codify
CGP,
Inspection
and
Certification
Turbidity
Producing
Load
(
Tons/
Year)
Settleable
Solids
Load
(
Tons/
Year)
Turbidity
Producing
Load
(
Tons/
Year)
Settleable
Solids
Load
(
Tons/
Year)

High
Estimate
1,582,541
7,912,707
2,225,328
11,126,639
Low
Estimate
527,514
2,637,569
2,225,328
11,126,639
Table
8­
2.
Benefits
Estimates
Benefit
Category
Type
of
Estimate
Option
1
Inspection
and
Certification
Option
2
Codify
CGP
+
Inspectn
&
Certn
Water
Treatment
Point
0.1
0.2
Low
0.0
0.1
High
0.3
0.4
Water
Storage
Point
7.1
15.0
Low
3.5
15.0
High
10.6
15.0
Navigational
Dredging
Point
2.6
5.4
Low
1.3
5.4
High
3.8
5.4
Total
Point
9.7
20.6
Low
4.8
20.5
High
14.4
20.8
Source:
EPA
estimates
based
on
the
methodologies
presented
in
Chapter
Seven.

8­
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
8.3
REFERENCES
U.
S.
EPA.
2002.
Development
Document
for
the
Effluent
Guidelines
for
the
Construction
and
Development
Point
Source
Category.

8­
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
CHAPTER
NINE
COSTS
AND
BENEFITS
OF
THE
PROPOSED
RULE
9.1
INTRODUCTION
This
chapter
addresses
the
net
social
costs
of
the
proposed
rule.
It
brings
together
the
results
described
in
Chapters
5
and
8
to
directly
compare
the
estimated
costs
and
benefits
of
the
proposed
regulation
in
accordance
with
Executive
Order
12866
and
other
administrative
regulations.
The
economic
analysis
describes
a
typical
year
 
s
impacts
subsequent
to
implementation
of
the
proposed
rule.
When
flows
of
costs
and
benefits
vary
through
time,
it
is
common
practice
to
calculate
the
net
present
value
of
each
series
of
flows
and
then
compare
the
annual
payments
that
would
be
necessary
to
amortize
that
value.
For
example,
when
new
regulation
requires
investment
in
capital
equipment
there
may
be
a
large
cost
to
retrofit
plants
and
smaller
maintenance
costs
in
later
years
while
benefits
do
not
begin
to
accrue
for
several
years.
To
compare
the
two,
their
net
present
values
are
placed
on
an
annual
basis,
i.
e.

annualized.
When
flows
are
constant,
and
the
same
discount
rate
is
used
to
calculate
the
net
present
value
as
well
as
the
amortization,
the
annualized
value
is
the
same
as
the
annual
value.
The
impacts
in
this
report
represent
typical
annual
values
for
costs
and
benefits
and
so
are
constant
throughout
the
evaluation
period.
Thus,
all
years
are
considered
the
same
and
annualization
is
unnecessary.
Section
9.2
describes
the
direct
social
costs
of
the
proposed
rule,
while
Section
9.3
describes
the
proposed
rule
 
s
indirect
effects.
Section
9.4
compares
these
costs
with
the
benefits
estimated
in
Chapter
8.

9.2
SOCIAL
COSTS
OF
THE
PROPOSED
RULE
9.2.1
Direct
Social
Costs
Direct
social
costs
are
the
real
resource
opportunity
costs
to
the
private
sector,
and
to
the
government,
of
implementing
the
regulation.
The
largest
component
of
social
cost
is
the
cost
to
firms
to
comply
with
the
CGP
provisions.
Installation
of
improved
ESC
management
is
a
direct
cost
to
9­
1
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
construction
firms.
In
addition,
firms
would
also
bear
increased
design,
certification,
and
inspection
costs.

Operation
and
maintenance
(
O&
M)
of
improved
ESCs
also
adds
to
costs.
Governments
at
the
Federal,

State,
and
Municipal
level
would
have
roles
in
implementing
this
regulation.
These
public
resources
spent
by
government
entities
might
have
been
used
for
other
purposes
and
so
represent
a
direct
social
cost.

Each
of
these
direct
cost
categories
was
quantified
in
Chapter
5
and
is
briefly
discussed
below.

9.2.1.1
Compliance
Costs
Implementation
of
the
proposed
rule
requires
the
firm
to
devote
real
resources,
which
might
have
been
used
for
other
purposes,
to
compliance.
EPA
estimated
design,
installation,
certification,
and
inspection
costs
per
acre
for
the
baseline
and
each
regulatory
option
in
Chapter
5.
These
figures
are
adjusted
to
constant
1997
dollars
using
the
Engineering
News­
Record
Construction
Cost
Index
(
ENR
CCI)
to
represent
the
real
private
opportunity
cost.
These
costs
were
shown
in
Table
5­
4.

The
ESCs
in
the
proposed
rule
do
not
depart
significantly
from
current
practices.
The
basic
operations
of
construction
would
change
little
from
existing
practices.
Potential
changes
in
the
inputs
or
production
processes
are
minimal.
No
radically
new
technology
is
proposed
that
would
require
a
substantial
learning
period
to
operate
or
essentially
change
the
production
process.
Nor
would
the
proposed
regulation
generate
new
waste
products
which
might
raise
issues
for
disposal,
sale,
or
reuse.

9.2.1.2
Government
Regulatory
Costs
Codification
of
the
CGP
would
require
only
a
few
hours
of
activity
at
the
Federal,
State,
and
local
levels
of
government.
Administration
would,
in
most
instances,
be
conducted
at
the
State
or
local
levels,

though
some
oversight
would
remain
with
EPA.
These
activities
impose
opportunity
costs
as
they
draw
resources
from
other
government
functions.
EPA
estimates
that
each
state
would
require
approximately
200
labor
hours
to
codify
the
CGP.
To
a
large
extent
the
proposed
regulation
utilizes
administrative
and
enforcement
institutions
established
by
prior
zoning,
building
code,
and
storm
water
regulation.
EPA
9­
2
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
estimates
that
this
one­
time
activity
would
cost
$
260,000
per
year
for
five
years
as
states
revise
their
permitting
language
and
programs.

In
addition,
government
entities
conduct
many
projects
that
would
be
subject
to
the
proposed
regulations.
Approximately
24.7
percent
of
the
value
of
construction
put
in
place
would
be
incurred
by
government
entities.
The
breakdown
is
10.1
percent
Federal,
8.5
percent
State,
and
6.1
percent
local.

Much
of
this
expenditure
is
for
maintenance
of
existing
structures
and
so
does
not
entail
new
ground
disturbance.

9.2.2
Social
Welfare
Losses
Social
welfare
losses
occur
when
compliance
costs
result
in
higher
prices
for
the
goods
in
question.
Individuals
gain
utility
from
products
when
the
market
price
is
lower
than
the
value
they
derive
from
the
product.
This
difference
between
value
and
price
is
termed
 
consumer
surplus.
 
Producers
also
gain
a
surplus,
or
profit,
when
they
can
sell
a
product
for
more
than
the
cost
of
production.
The
proposed
regulations
are
likely
to
affect
new
construction
prices
and
so
shift
the
market
supply
function.

Market
models
for
each
sector
estimate
the
transfer
of
surplus
from
consumers
to
producers
as
buyers
pay
more
to
builders
for
the
added
storm
water
facilities.
In
addition,
the
higher
price
would
discourage
some
buyers
so
the
number
of
homes
or
buildings
that
will
be
sold
would
fall
slightly.
Such
reductions
in
sales
result
in
losses
of
both
consumer
and
producer
surplus
without
any
offsetting
gain,
and
so
are
termed
 
deadweight
loss.
 
The
market
models
estimate
these
surplus
changes
based
on
linear
supply
and
demand
curves
with
elasticities
taken
from
the
literature.

Consumer
and
producer
surplus
losses
were
reported
in
Table
5­
19
as
the
gross
loss
attributable
to
the
proposed
rule
and
include
the
deadweight
loss.
Although
lost
as
profits,
much
of
the
producer
surplus
figure
is
spent
in
the
industry
to
comply
with
the
new
regulations.
Similarly,
most
of
the
consumer
surplus
loss
is
spent
in
the
construction
industry
absorbing
the
 
passed
on
 
costs
of
compliance
with
the
regulations.
The
loss
in
consumers
 
utility
becomes
spending
for
improved
storm
water
management.
.

Only
the
deadweight
loss,
estimated
at
$
10,000
for
Option
1
and
$
185,000
for
Option
2,
is
completely
lost
to
society.

9­
3
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
9.2.3
Transitional
Effects
Traditional
environmental
regulations
may
have
resulted
in
some
plant
closings
and
unemployment.
The
local
impact
of
such
effects
is
generally
not
considered
a
social
impact
issue
since,
in
general,
the
effects
are
transitory.
The
employees
shift
to
other
jobs
and
the
capital
invested
in
the
plant
shifts
to
other
uses.
There
is
a
small
social
loss
in
job
search
costs
and
unemployment
time.
However,

when
workers
are
specialized
or
unable
to
adapt
to
new
labor
market
conditions,
they
may
be
permanently
unemployed
which
would
result
in
a
loss
of
social
welfare.

Construction
is
a
highly
flexible
industry.
It
is
normal
practice
for
employees
and
firms
to
move
from
job
to
job
applying
their
individual
skills
to
the
task
at
hand.
Job
search
costs
and
shifting
investments
are
standard
elements
of
the
industry.
EPA
does
not
foresee
any
major
disruptions
in
the
industry
as
a
result
of
the
proposed
rule.

9.3
INDIRECT
EFFECTS
Beyond
shifting
the
market
supply
for
the
regulated
commodity,
the
regulation
could
affect
the
structure
of
the
industry,
change
labor
or
capital
productivity
or
discourage
innovation.
These
effects
would
have
wider
impacts
on
society
as
they
ripple
through
related
markets
and
industries.
EPA
determined
that
the
proposed
rule
has
relatively
little
possibility
of
causing
indirect
social
welfare
effects.

No
substantial
changes
in
market
structure
are
anticipated
from
this
proposed
rule.
While
some
forms
of
regulation
may
result
in
advantages
to
large
firms
or
encourage
vertical
integration,
this
regulation
builds
on
existing
practices
of
design
and
certification
already
common
in
the
industry.

The
proposed
regulation
is
expected
to
have
little
effect
on
labor
or
capital
productivity.
It
may
require
firms
to
employ
more
workers
without
increasing
output,
e.
g.
,
to
maintain
silt
fencing,
but
this
opportunity
cost
is
captured
in
the
installation,
operating,
and
maintenance
cost.
No
substantial
changes
in
productivity
are
anticipated.
Nor
is
the
proposed
regulation
expected
to
have
substantial
affects
on
research,
innovation,
or
investment
toward
future
technological
development
of
the
industry.
EPA
9­
4
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
expects
that
other
costs
to
society
not
specifically
addressed
by
the
analyses
presented
in
this
report
would
be
modest.

9.4
COMPARISON
OF
ESTIMATED
COSTS
AND
BENEFITS
Chapter
8
described
the
results
of
the
environmental
assessment
and
benefit
monetization.
All
of
the
benefits
estimated
represent
incremental
social
benefits
from
the
baseline
case.
Table
9­
1
compares
the
sum
of
social
costs
discussed
above
with
the
benefits
estimated
in
Table
8­
5.
Anticipated
social
costs
are
greater
than
the
monetized
benefits.

The
social
benefit
estimate
includes
only
those
benefits
that
could
be
monetized.
Section
7.2.6
discusses
several
other
classes
of
benefits
that
could
not
be
quantified
yet
provide
real
social
benefits.

These
included
increased
utility
from
water­
based
recreation
and
biodiversity
preservation.

Table
9­
1.
Social
Costs
and
Benefits
(
1997
$
Million
per
year)

Option
Installation,
Design
and
Permitting
Operation
and
Maintenance
Government
Costs
Deadweight
Loss
Total
Social
Costs
Total
Benefits
1
$
118.1
$
0.0
$
0.0
$
0.1
$
118.2
$
9.7
2
$
421.2
$
48.0
$
0.3
$
0.2
$
469.6
$
20.6
3
$
0.0
$
0.0
$
0.0
$
0.0
$
0.0
$
0.0
Source:
EPA
estimates
based
on
the
methodologies
presented
in
Chapter
Four
and
Chapter
Seven.

9­
5