Protecting Drinking Water The Safe Drinking Water Act Chapter 17 © 2007 Thomson Learning/South-WesternThomas 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)secondary maximum contaminant levels (SMCLs) Not enforceable by the federal government Not uniform

6 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-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

Benefit-based MCL (at A B ) $ A TSC TSB 0 AeAe ABAB Maximum TSB overregulation

10 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

13 Local Pricing Practices Survey 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.

14 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

15 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