Chapter 16

Protecting Drinking Water

The Safe Drinking Water Act

2007 Thomson Learning/South-Western

Callan and Thomas, Environmental Economics and Management, 4e.

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 Accelerated standard-setting; imposed lead ban; improved protection of groundwater Adds risk assessment and benefit-cost analysis to standard-setting; establishes a Drinking Water State Revolving Fund (DWSRF); promotes prevention
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SDWA Amendments of 1986

SDWA Amendments of 1996

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

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 highest level permitted; as close to MCLG as feasible; enforceable treatment technology that makes MCL achievable
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Maximum contaminant level (MCL)

Best available technology (BAT)

National Secondary Drinking Water Regulations

Guidelines to protect public welfare Called secondary maximum contaminant levels (SMCLs)
Not enforceable by the federal government Not uniform

Bottled Water
Not directly regulated under SDWA Controlled by the FDA, not EPA FDA must adopt EPAs standards for drinking water FDA has own standards for aesthetics and health

Economic Analysis

Standard-Setting
Federal 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
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Benefit-based MCL (at AB)

$
TSC

Maximum TSB

TSB

overregulation

Ae

AB

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). 10

Pricing Water

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 Practices

Survey Data
Flat fee pricing: (29.3%)

price independent of use; marginal P = 0 efficient only if MC = 0 price increases with higher use at constant rate efficient only if MC were constant at same rate declining block and increasing block
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Flat rate pricing: (50.6%)

Variable rate pricing (30.6%)

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

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
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