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# Cost-Benefit Analysis of the Clean-Up of Hazardous Waste Sites

Written By

Carla Guerriero and John Cairns

Submitted: October 15th, 2010 Published: August 23rd, 2011

DOI: 10.5772/16872

From the Edited Volume

## Integrated Waste Management

Edited by Sunil Kumar

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## 1. Introduction

Hazardous waste, defined as any material that poses a substantial threat to human health, can potentially contaminate all the environmental media: atmosphere, groundwater, surface waters and soil, and through these media can be harmful or even fatal for human health. The prolonged exposure to toxic pollutants such as benzene derivatives, dioxins and trichlorophenol has been associated with acute health effects such as narcosis, skin irritation, or respiratory diseases such as asthma and allergies. Hazardous waste exposure has also been associated with chronic health effects such as leukaemia, liver tumour, lymphomas and, in the case of methylene chloride, premature mortality.

Since the case of Love Canal, New York State, in 1980 an increasing number of cases of hazardous waste mismanagement have been reported. Studies suggest that children are the most vulnerable victims of toxic pollutants. Exposure to compounds increases the likelihood of miscarriage and birth defects. In the Love Canal, for instance, birth defects were found to be twice as likely to occur among those living near the dump site (Goldman et al.1985). In Canada, a large study conducted by Goldenberg et al. (1999), suggested that individuals living close to landfill sites have an increased risk of liver, kidney, pancreas cancers and non-Hodgkin's lymphomas.

Another study conducted by Pukkala (2001) in Finland found that the prevalence of asthma was significantly higher in individuals living near landfill sites.

Lack of resources requires policy makers to prioritise competing alternatives. Despite the potential gains for both environmental and human health, it remains uncertain whether the benefits of interventions to clean-up hazardous sites would outweigh the costs. The analytical tool of cost-benefit analysis provides a powerful and transparent method to evaluate and select risk management strategies. Nevertheless, cost-benefit analysis has rarely been used to assess hazardous waste site cleanup interventions. There are several reasons for this: the effects of hazardous waste exposure are often ignored; there are difficulties indentifying the causal link between waste exposure and health effects; and estimating the value of the potential impacts resulting from cleanup interventions. Costs of cleanup interventions are also subject to great uncertainty because it is difficult to quantify them a priori, especially where more than one media has been affected by hazardous pollutants. The aim of this chapter is to provide an overview of the major steps necessary to conduct a cost-benefit analysis of cleanup interventions.

## 2. Economic evaluations of benefit and cost of hazardous site cleanup

Cost-benefit analysis evaluates the social gain associated with a given intervention by comparing the benefits (any increase in welfare) and the costs (any decrease in human well being). The aim of cost-benefit analysis is to maximize the net social benefits:

Max B(Q)-C(Q)

Cost benefit (CB) analysis is used in environmental regulation to determine acceptable levels of risk. Acceptable risk denotes a level that maximizes the difference between total social cost and total social benefits, or in other words, where the marginal social benefits associated with the risk reduction are equal to the marginal social costs of pollution abatement.

In the case of the cleanup of hazardous waste sites, cost benefit analysis is used both to distinguish between interventions offering higher net benefit (difference between cost and benefits) and to identify priority sites for intervention, as in the case of the US Superfund.

CB analysis involves six steps: quantifying the health outcomes associated with waste exposure before and after regulation (hazardous waste site cleanup); assigning monetary values to the number of cases potentially averted by regulation; quantifying the cost of regulation; accounting for the timing of costs and benefits; and comparing the resulting estimates. The final step of CB analysis is to perform sensitivity analysis to evaluate the effect of parameter uncertainty on the study results.

### 2.1. Health benefits analysis

Several types of benefits result from hazardous waste cleanup. These are: direct benefits, for example reduction in the number of health effects (e.g. asthma cases, lung cancer, malformations); aesthetic benefits, such as decreases in odour; and indirect benefits, such as productivity increase of real estate properties. This chapter focuses on describing how the direct benefits to human health can be quantified using a damage function approach.

As shown in Figure 1 the damage function approach framework uses three types of data: environmental data to identify the potential hazards/pollutants present in the hazardous waste sites; epidemiological data to identify and quantify the health effects associated with the regulatory intervention and economic data to assign a monetary value to negative health outcomes associated to waste exposure.

The first step involves the estimation of the health effects due to pollutant exposure. The second step evaluates the number of health outcomes that can be averted by site cleanup. And the third step multiplies the estimated number of avoidable health outcomes as a result of the regulatory strategy (number of deaths averted per year) by the economic value per health unit (e.g. value of a statistical life).

#### 2.1.1. Quantifying cleanup health benefits

In the majority of cost benefit analyses conducted to evaluate the effects of an environmental regulatory strategy (e.g. air pollution control intervention) the baseline number of health outcomes attributable to pollution exposure is determined using a dose-response function. This function is “an estimate of risk per unit of exposure to pollutant” (EPA, 2010a). The dose-response functions can have different shapes. They can be linear (any change in the pollutant concentration will produce a corresponding change in the health outcome), non-linear (e.g.it can be a sigmoidal curve that starts with an increasing slope but after reaching a maximum value it levels off) and/or can present a threshold dose. For example a study

conducted by Grosse et al. (2002) on the relationship between blood lead level and intelligence quotient (IQ) estimates that there is a linear relationship between the blood lead level and the decrease in IQ points (2.57 IQ points for each 10 mg/dL).

Where the effects on health of hazardous waste disposal result from exposure to a single pollutant (e.g. asbestos), the population attributable proportion (PAP), the number of cases that would have not occurred in the absence of pollutant, is estimated using the following formula:

P A P = ( p - ( R R - 1 ) ) / ( 1 + p * ( R R - 1 ) ) E1

Where RR is the relative risk of developing the health outcome given pollutant concentration, and p the proportion of the population exposed (e.g. children only).

In the majority of cases, identifying the individual pollutants responsible for the health effects observed in the exposed population is problematic. In the case of landfills or illegal waste disposals, impacts are likely to result from different compounds discharged in the same site. Thus, the PAP is estimated using primary epidemiological data with the following formula:

P A P = O b s e r v e d n u m b e r - O b s e r v e d n u m b e r / S H R E2

Where SHR is Standardised mortality/hospitalisation ratios (SMR, SHR) that are estimated by dividing the observed cases (e.g. individuals with lung cancer) by the expected cases.

#### 2.1.2. Monetizing health benefits

There are two main methods for placing a monetary value on changes in health: the human capital; and the willingness to pay approach. (Table 1) The human capital approach assumes that the value to society of an individual’s life can be measured in terms of future production potential. The willingness to pay (WTP) approach measures how much individuals are willing to pay to decrease the likelihood of a negative outcome.

 Basic approach Main subsets Evaluation methods Human capital Cost of illness Willingness To Pay Revealed Preferences Hedonic wage methodAverted expenditures Stated Preferences Contingent EvaluationStated Choice

### Table 1.

Source: Enhealth 2003

Methods for valuing health

Based on the human capital approach, the Cost of Illness (COI) method is a measure of the monetary losses due to a negative health outcome (e.g. case of liver cancer). The COI has several advantages. It is straightforward and objective as it both considers all the direct monetary costs of a given health outcome and it does not depend on personal preferences. However, COI tends to underestimate the true value of a health outcome because it does not include the intangible aspects of being ill such as stress, pain and suffering. Additionally, given that the COI values can be estimated only a posteriori it is impossible to elicit with this method the values that individuals assign to future environmental risk reductions.

As a result, the most popular approach adopted in cost-benefit analyses is the WTP approach. The WTP method can be divided in two main categories: revealed and stated preferences. The revealed preference method derives values from observed actions of individuals while the stated preference method elicits valuations by asking individuals how much they are willing to pay to reduce the risk of a given health outcome.

### 2.5. Risk and uncertainty

As mentioned in the previous paragraphs, cost and benefits are difficult to ascertain. In this context, it is important to define risk and uncertainty given that these are often used as interchangeable elements in the literature. Risk denotes the possibility of attaching a probability to costs or benefits that are not known with certainty. Uncertainty denotes a case in which the probability distribution is not available, but crude end points like the min and max are known.

If the decision maker is risk neutral, the expected values of benefits and cost are evaluated. In this case, the net present value equation is as follows (Pearce et al. 2006):

N P V = ( I p i × B i ) - ( I p j × C j ) E9

Where Pi is the probability that the benefit Bi occurs and pj is the probability that the cost j occurs.

A recent study evaluating the potential benefit of reducing the pollution exposure in the two industrial areas of Gela and Priolo (Sicily) adopted, for the first time, cost benefit acceptability curves to assess uncertainty in benefit/cost estimates. To build cost benefit acceptability curves Guerriero et al. (2009) assign to each parameter a probability distribution (e.g. gamma for cost, normal for excess cases). Then, from each distribution they generate 10,000 Monte Carlo simulation samples. Cost benefit acceptability curves are built plotting the proportion of simulations producing a positive net benefit given a range of remediation cost.

## 4. Conclusion

Hazardous waste sites are a major environmental problem. There is a large body of literature showing an association between hazardous waste (mis)management and negative health outcomes. Substances resulting from industrial production (e.g. arsenic, cadmium and mercury) once released into landfills without proper treatment can be fatal for the populations exposed. In the US, the public has ranked toxic wastes sites as the number one national environmental priority. A recent study of a contaminated site in the Italian region of Campania, found that 87% of survey respondents believed that they are going to suffer from cancer because of waste exposure (Cori & Pellegrino 2011). Responding to public concerns, national reclamation projects have been created in several countries, e.g. Superfund program in the US, and programma nazionale di bonifica in Italy. The objective of these programs is collecting public and private resources to prioritize the clean-up of hazardous waste sites. Cost benefit analysis is a transparent decision informing procedure to prioritize the cleanup of those sites that for a given remediation budget would allow to produce the highest benefit in terms of negative health outcomes averted.

Despite the potential benefits resulting from the application of cost benefit analysis in waste management there are few empirical studies using this tool. The study conducted by Hamilton and Viscusi (1999) evaluating the cost effectiveness of EPA Superfund decisions showed that the majority of clean-up decisions are ineffective and highlights the importance of conducting site level analysis. Further studies conducted in US found that other factors such as media coverage were prevailing in determining the stringency of clean-up standards and the selection of clean-up sites/size. As long as the true benefits and costs of cleanup interventions are ignored resources will be allocated inefficiently. Despite measurement problems and the equity issues, cost-benefit analysis should be conducted routinely to address National Superfund’s decisions. (Zimmerman and Rae, 1993).

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Written By

Carla Guerriero and John Cairns

Submitted: October 15th, 2010 Published: August 23rd, 2011