Protecting Drinking Water The Safe Drinking Water Act Chapter 17 © 2007 Thomson Learning/South-WesternThomas and Callan, Environmental Economics.

Protecting Drinking WaterThe Safe Drinking Water Act

Chapter 17

© 2007 Thomson Learning/South-Western Thomas and Callan, Environmental Economics

2

Overview of Policy

Safe Drinking Water Act (SDWA) of 1974 Authorized EPA to set standards (shifted

responsibility from the Public Health Service) All contaminants were addressed, not just

bacteria SDWA Amendments of 1986

Accelerated standard-setting; imposed “lead ban;” improved protection of groundwater

SDWA Amendments of 1996 Adds risk assessment and benefit-cost analysis to

standard-setting; establishes a Drinking Water State Revolving Fund (DWSRF); promotes prevention

3

Pollutants Controlled Under SDWA

83 contaminants listed in 1986 SDWA New contaminants are added from a list of

priority contaminants Changes in 1996 Amendments

Benefit-cost analysis and risk assessment govern which contaminants to control and standard setting

Establishes National Contaminant Occurrence Database (NCOD) to identify contaminants

4

National Primary Drinking Water Regulations (NPDWR)

Aimed at protecting human health Uniformly applied to all public water systems Each NPDWR has three parts

Maximum contaminant level goal (MCLG) level at which no known or expected adverse health

effects occur with margin of safety; not enforceable Maximum contaminant level (MCL)

highest level permitted; as close to MCLG as feasible; enforceable

Best available technology (BAT) treatment technology that makes MCL achievable

5

National Secondary Drinking Water Regulations

Guidelines to protect public welfare Called

secondary maximum contaminant levels (SMCLs)

Not enforceable by the federal government Not uniform

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Bottled Water

Not directly regulated under SDWA Controlled by the FDA, not EPA

FDA must adopt EPA’s standards for drinking water FDA has own standards for aesthetics and health

Economic Analysis

8

Standard-SettingFederal Role

MCLGs are benefit-based Before 1996 SDWA, MCLs also were benefit-based,

since MCLs link to MCLGs 1996 SWDA amendments requires EPA to

conduct an Economic Analysis (EA) for any proposed NPDWR Must determine whether benefits of a new MCL

justify costs Important because ignoring costs means MCLs

could be set to maximize benefits, causing overregulation

Benefit-based MCL (at AB)

$

A

TSC

TSB

0Ae

AB

Maximum TSB

overregulation

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Economic Analysis (EA) for the New Arsenic Standard (Annualized values in $2003)

Incremental Benefits Estimated value of avoided illness and premature death $154.2–$218.4 million per year

Incremental Costs Treatment, monitoring, administrative expense $227.1 million per year

Net Benefits $72.9 million to –$8.7 million per year Since numerous potential benefits were not monetized in

the EA, EPA argued that the true incremental benefits would justify the incremental costs, and announced the new standard in 2001

Source: U.S. EPA, Office of Water, Office of Ground Water and Drinking Water (December 2000).

Pricing Water

12

Does Price Matter?

Some evidence to suggest that consumption of water (Qd) is sensitive to price (P)

Comparing domestic with international data US water consumption is relatively high US water prices are relatively low

Suggests that pricing water can influence conservation

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Local Pricing PracticesSurvey Data

Flat fee pricing: (29.3%) price independent of use; marginal P = 0 efficient only if MC = 0

Flat rate pricing: (50.6%) price increases with higher use at constant rate efficient only if MC were constant at same rate

Variable rate pricing (30.6%) declining block and increasing block

Source: U.S. EPA, Office of Water (December 2002), p. 29.

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Declining Block

Price falls as Q rises Intent is to encourage consumption so that scale

economies can be achieved Inefficient because it uses average cost pricing

vs. marginal cost pricing

Price

$

Q of water use

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Increasing Block

Price rises as Q rises Provides incentive for conservation Efficient since it considers rising MC along with

MB of consumption

Price$

Q of water use