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Arsenic in Drinking Water: Economic Case Study

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Published: Tue, 03 Oct 2017

ARSENIC IN DRINKING WATER: CASE STUDY 5 1. How should an arsenic standard for drinking water be set from an economics perspective? Be specific and analytically rigorous.

Ideally, the arsenic standard for drinking water should be compliant with the maximum level of contamination goal of 0 ppb, however this is only a reflection of the environmentalist’s standpoint. From an economics point of view, the arsenic standard for drinking water should be determined by cost-benefit analysis. That is, the cost of reducing the maximum level of contamination to a “feasible” figure as close to the MCLG as possible, where the cost of reduction is justified by the benefits. In order to achieve this, a variety of factors must be taken into account: [1] Latency: Most cancers have a lag between exposure to the carcinogen and development of cancer. This value can be anywhere from months to years. Therefore any benefits accrued that will be used in cost-benefit analysis must first be discounted in order to account for the latency of actual cancer development.[2] Accurate quantifiers: While we have established that costs must be justified by the benefits, it is incredibly difficult to place dollar values on the direct and indirect effect of saved lives as some of the net benefit is the result of non-quantifiable benefits such as public health and environmental protection. Unfortunately, this makes our estimates of net benefit unreliable. For this problem sensitivity analyses could be conducted and an estimate of non-quantifiable benefits could be introduced.

Exemption and Variance: There must be a provision that allows for affordable compliance within small systems where the cost of upgrading technology is much higher due to economies of scale. That or variance technology. There must also be the possibility of exemption in order to allow regions that are unable to meet the standards in the allocated time to reach them in an extended period without repercussions.[3]

2. What criteria did the US Congress instruct the EPA to use when setting an arsenic standard? Evaluate the criteria from an economics perspective.

In order to set the arsenic standards, under SDWA, it was compulsory for the EPA to set a maximum contaminant level goal. At the MCLG, there are zero adverse health effects – either known or anticipated – to humans. In the case of arsenic and other carcinogens, the EPA chose to set the MCLG at zero. Part of the reason this was done too, is because the EPA assumes a linear dose response curve, and after exhaustive research by the NRC, there wasn’t enough evidence to debunk the assumption. After the MCLG is set, the EPA must then set the maximum contaminant level. The MCL but be as close to the MCLG as “feasibl[y]”[4] possible, with costs being taken into consideration.

Once government funding was cut, the burden of paying for upgrading the water treatment facilities fell to the plants themselves. This was a particularly heavy burden for small systems where the costs were far higher. As a result of this 2 amendments were made to the SDWA – the first being that the EPA was mandated to use cost-benefit analysis in order to derive the arsenic standard: that is, the benefits of arsenic reduction must be justified by the cost. The second change allowed the EPA administrator to use their own discretion when allowing smaller systems to use different technologies. The important aspect of this is the costs = benefits analysis. This seems an entirely reasonable approach, as costs = benefits is an example of efficient allocation and the benefits justify the cost. However this would be in a perfect world where we were given definite quantifiers. The trouble with this plan, is that while quantifying costs may be relatively straightforward, quantifying benefits is nowhere near as easy. For benefits each life saved must be assigned a value, and if we take into account the lag time before the onset of cancer, we must discount this value. We must assume a linear dose response curve in order to hopefully account for the no quantifiable benefits. We must value the risk of death as equal with death. We must take into account the possibility that perhaps tightening the arsenic standard could result in costs elsewhere, such as people diverting their money from health care or physical activities, to paying to upgrade the water treatment facilities. [5] It also has to be said that arsenic in drinking water is a health issue. Assigning dollar values works well for financial decisions, but one based on prolonging human life cannot be reduced to mere currency. Another issue with cost-benefit analysis is that it assumes everybody is equal, which is utopian, but not in keeping with the real world narrative – it does not take into account who suffers.

3. Provide a critical economic assessment of the EPA’s approach to setting an arsenic standard. What problems, if any, will arise with the application of the EPA’s approach?

There are a few problems that arise from the EPA’s approach, the first being that it is incredibly difficult to accurately quantify the costs and most especially, the benefits, of reducing arsenic. Costs are a little easier to quantify: The EPA found the primary costs would be the installation and operation of water treatment facilities. It would be reasonable to assume that as the allowable limit of arsenic decreases, the cost would increase as the water systems technology would need to be upgraded in order to support the “tighter standards.”[6] Benefits on the other hand, are far harder to quantify. The EPA came up with a figure of about $170 million in benefits – the quantifier of fewer incidences of bladder and lung cancers. However, the problem with the figure of $170 million is that the EPA does not take into account the lag between exposure to the carcinogen and the actual development of cancer. Most cancers have this lag period which can be anywhere from months to decades, therefore the actual value that is awarded to one saved life must be discounted which would result in a reduction in accrued benefits, making a 10 ppb standard not economically viable as the benefits will not immediately justify the cost.[7] Other carcinogens also follow a sub linear dose response curve, so even though we have to rely on epidemiological evidence from places such as Taiwan with far greater exposure to arsenic[8], there is always the chance that absolutely no harmful effects will manifest in humans at a standard greater than 0 ppm.

Another problem that arises from the way the EPA set the standard, is that economies of scale will emerge. With reduced government funding, the increase in water costs would be far greater for the smaller water treatment facilities who serve only small portions of the population, and their patrons than it would be for the larger. For systems that serve less than 100 households, the annual cost would be $326.82. For systems that serve over 1 million households, it would be $0.86, which is an incredibly unreasonable disparity, especially if, through lack of funding, the smaller systems must be supported by their own resources. [9]

Zenia Memon 10050106 Submitted to: Prof. Garvie Word count for answers: 1190

Works Cited

Federal Register, vol. 66, no. 14, January 22, 2001, p.7011 Marilyn Averill. (2003) “Case 1680.00 Arsenic in Drinking Water” Mary Tieman. (2008) “Arsenic in Drinking Water: Regulatory Developments and Issues.” Jason Burnett and Robert Hahn. (2001) “A Costly Benefit: Economic Analysis does not support

EPA’s new arsenic rule.” Material Used During Research Reading Cass R. Sunstein. (2001) “The Arithmetic of Arsenic”, Working Paper 01-10. Washington DC Lisa Heinzerling and Frank Ackerman. (2002) Pricing the Priceless: Cost-Benefit Analysis of

Environmental Protection. Georgetown University.

U.S. Environmental Protection Agency. (2001)“Arsenic in Drinking Water Rule Economic Analysis, Regulatory Impact Analysis”, EPA 815-R-00-026. Washington, D.C


[1] Marilyn Averill. (2003) “Case 1680.00 Arsenic in Drinking Water”

[2] Jason Burnett and Robert Hahn. (2001) “A Costly Benefit: Economic Analysis does not support

EPA’s new arsenic rule.”

[3] ibid

[4] Marilyn Averill. (2003) “Case 1680.00 Arsenic in Drinking Water”

[5] Marilyn Averill. (2003) “Case 1680.00 Arsenic in Drinking Water”

[6] Jason Burnett and Robert Hahn. (2001) “A Costly Benefit: Economic Analysis does not support

EPA’s new arsenic rule.”

[7] ibid

[8] Mary Tieman. (2008) “Arsenic in Drinking Water: Regulatory Developments and Issues.”

[9] Federal Register, vol. 66, no. 14, January 22, 2001, p.7011


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