Segment 6 Of 6 Previous Hearing Segment(5)
SPEAKERS CONTENTS INSERTS
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91–722CC
1996
SUPERFUND REAUTHORIZATION
PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.
(104–22)
HEARINGS
BEFORE THE
SUBCOMMITTEE ON
WATER RESOURCES AND ENVIRONMENT
OF THE
COMMITTEE ON
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TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTH CONGRESS
FIRST SESSION
JUNE 13, 1995 (STATE AND LOCAL PERSPECTIVES)
JUNE 20, 1995 (BUSINESS, INSURANCE, CONTRACTOR PERSPECTIVES)
JUNE 21, 1995 (ENVIRONMENTAL AND COMMUNITY GROUPS)
JUNE 22, 1995 (CBO, GAO, AND SUPERFUND ''THINK TANKS'')
JUNE 27, 1995 (FEDERAL AGENCY PERSPECTIVES)
JULY 11, 1995 (NATURAL RESOURCE DAMAGES UNDER SUPERFUND AND THE OIL POLLUTION ACT OF 1990) [Joint Hearing with Subcommittee on Coast Guard and Maritime Transportation]
Printed for the use of the
Committee on Transportation and Infrastructure
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
BUD SHUSTER, Pennsylvania, Chairman
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DON YOUNG, Alaska
WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
SHERWOOD L. BOEHLERT, New York
HERBERT H. BATEMAN, Virginia
BILL EMERSON, Missouri
HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
SUSAN MOLINARI, New York
WILLIAM H. ZELIFF, Jr., New Hampshire
THOMAS W. EWING, Illinois
WAYNE T. GILCHREST, Maryland
Y. TIM HUTCHINSON, Arkansas
BILL BAKER, California
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER I. BLUTE, Massachusetts
JOHN L. MICA, Florida
JACK QUINN, New York
TILLIE K. FOWLER, Florida
VERNON J. EHLERS, Michigan
SPENCER T. BACHUS, Alabama
JERRY WELLER, Illinois
ZACH WAMP, Tennessee
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TOM LATHAM, Iowa
STEVEN C. LaTOURETTE, Ohio
ANDREA SEASTRAND, California
RANDY TATE, Washington
SUE KELLY, New York
RAY LaHOOD, Illinois
BILL MARTINI, New Jersey
DAN FRISA, New York
TODD TIAHRT, Kansas
RICHARD H. BAKER, Louisiana
JAMES L. OBERSTAR, Minnesota
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
WILLIAM O. LIPINSKI, Illinois
ROBERT E. WISE, Jr., West Virginia
JAMES A. TRAFICANT, Jr., Ohio
PETER A. DeFAZIO, Oregon
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
PETE GEREN, Texas
GLENN POSHARD, Illinois
BUD CRAMER, Alabama
BARBARA-ROSE COLLINS, Michigan
ELEANOR HOLMES NORTON, District of Columbia
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JERROLD NADLER, New York
PAT DANNER, Missouri
ROBERT MENENDEZ, New Jersey
JAMES E. CLYBURN, South Carolina
CORRINE BROWN, Florida
JAMES A. BARCIA, Michigan
BOB FILNER, California
EDDIE BERNICE JOHNSON, Texas
BILL K. BREWSTER, Oklahoma
KAREN McCARTHY, Missouri
FRANK MASCARA, Pennsylvania
THOMAS C. SAWYER, Ohio
GENE TAYLOR, Mississippi
JUANITA MILLENDER-McDONALD, California
ELIJAH E. CUMMINGS, Maryland
Subcommittee on Water Resources and Environment
SHERWOOD L. BOEHLERT, New York, Chairman
ZACH WAMP, Tennessee, Vice-Chairman
DON YOUNG, Alaska
THOMAS E. PETRI, Wisconsin
HERBERT H. BATEMAN, Virginia
BILL EMERSON, Missouri
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WILLIAM H. ZELIFF, Jr., New Hampshire
THOMAS W. EWING, Illinois
WAYNE T. GILCHREST, Maryland
STEPHEN HORN, California
BOB FRANKS, New Jersey
JACK QUINN, New York
TOM LATHAM, Iowa
STEVEN C. LaTOURETTE, Ohio
BILL MARTINI, New Jersey
BUD SHUSTER, Pennsylvania
(Ex Officio)
ROBERT A. BORSKI, Pennsylvania
ROBERT MENENDEZ, New Jersey
ROBERT E. WISE, Jr., West Virginia
JERRY F. COSTELLO, Illinois
GLENN POSHARD, Illinois
ELEANOR HOLMES NORTON, District of Columbia
JAMES A. BARCIA, Michigan
BOB FILNER, California
BILL K. BREWSTER, Oklahoma
KAREN McCARTHY, Missouri
GENE TAYLOR, Mississippi
ELIJAH E. CUMMINGS, Maryland
JAMES L. OBERSTAR, Minnesota
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(Ex Officio)
Subcommittee on Coast Guard and Maritime Transportation
HOWARD COBLE, North Carolina, Chairman
TILLIE K. FOWLER, Florida
DON YOUNG, Alaska
SUSAN MOLINARI, New York
BILL BAKER, California
VERNON J. EHLERS, Michigan
BUD SHUSTER, Pennsylvania
(Ex Officio)
BOB CLEMENT, Tennessee
ROBERT A. BORSKI, Pennsylvania
PETE GEREN, Texas
ELIJAH E. CUMMINGS, Maryland
JAMES L. OBERSTAR, Minnesota
(Ex Officio)
(ii)
CONTENTS
Proceedings of:
June 13, 1995
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June 20, 1995
June 21, 1995
June 22, 1995
June 27, 1995
July 11, 1995
TESTIMONY
JUNE 13, 1995
Colman, James C., Assistant Commissioner, Massachusetts Bureau of Waste Site Cleanup, on behalf of the Association of State and Territorial Solid Waste Management Officials (ASTSWMO)
Gimello, Richard J., Assistant Commissioner, New Jersey Department of Environmental Protection, Site Remediation Program, on behalf of the National Governors' Association
Harding, Russell J., Deputy Director, Michigan Department of Natural Resources, on behalf of the State of Michigan
Levin, Bennett, P.E., Commissioner, Department of Licenses and Inspections, City of Philadelphia
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Strock, James M., Secretary, California Environmental Protection Agency, on behalf of the State of California
Thornton, Susan, Former Mayor and Mayor Pro Tem, Littleton, CO, on behalf of American Communities for Cleanup Equity The International City/County Management Association, the Municipal Waste Management Association, National Association of Counties, National Association of Towns and Townships, National League of Cities, National School Boards Association, and the United States Conference of Mayors
Weichsel, John, Town Manager, City of Southington, CT, and Vice Chairman, Local Governments for Superfund Reform
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Costello, Hon. Jerry F, of Illinois
Laughlin, Hon. Greg, of Texas
Martini, Hon. William J., of New Jersey
Poshard, Hon. Glenn of Illinois
Zeliff, Hon. William H., Jr., of New Hampshire
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PREPARED STATEMENTS SUBMITTED BY WITNESSES
Colman, James C
Gimello, Richard J.
Harding, Russell J.
Levin, Bennett
Strock, James M.
Thornton, Susan
Weichsel, John
SUBMISSIONS FOR THE RECORD
Colman, James C., Assistant Commissioner, Massachusetts Bureau of Waste Site Cleanup, on behalf of the Association of State and Territorial Solid Waste Management Officials (ASTSWMO):
Report, ''Superfund Reauthorization: An Overarching Clean Up Goal-Clean Up Standards-Remedy Selection Resulting in a Streamlined Superfund Program, ''How Clean is Clean Enough''
Report, ''Superfund Cleanup Program-State Authorization/Delegation''
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Report, ''Who Pays for a Superfund Cleanup Program?''
JUNE 20, 1995
Barth, Richard A., Chairman, President and CEO, Ciba-Geigy Corporation, Ardsley, NY
Kaplan, Dale, President and Owner, Kaplan Cleaners, Camp Hill, PA, on behalf of the Pennsylvania Chamber of Commerce
Klingenberg, Arnold, Manager, Solid Waste Legislative and Regulatory Issues, Mobil Corporation, Princeton, NJ, on behalf of the American Petroleum Institute
Mallen, Michael, General Counsel, Southern Foundry Supply Company, Inc., Chattanooga, TN
McIntire, Lee, Senior Vice President, Bechtel National, Inc., San Francisco, CA, and Member, Hazardous Waste Action Coalition
Morningstar, Mary P., Assistant General Counsel, Environmental Law, Lockheed Martin Corporation, Bedford, MA, on behalf of the Electronic Industries Association
Reilly, Bernie, Corporate Counsel, Wilmington, DE, on behalf of the Chemical Manufacturers Association
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Spisak, John F., President and CEO, Industrial Compliance, Inc., Lakewood, CO, on behalf of Superfund Reform 1995
PREPARED STATEMENT SUBMITTED A MEMBER OF CONGRESS
Poshard, Hon. Glenn, of Illinois
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Barth, Richard A.
Kaplan, Dale
Klingenberg, Arnold
Mallen, Michael
McIntire, Lee
Morningstar, Mary P
Reilly, Bernie
Spisak, John F
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SUBMISSIONS FOR THE RECORD
Barth, Richard A., Chairman, President and CEO, Ciba-Geigy Corporation, Ardsley, NY:
Supplemental Statement, July 26, 1995
Responses to questions from Rep. Boehlert
Klingenberg, Arnold, Manager, Solid Waste Legislative and Regulatory Issues, Mobil Corporation, Princeton, NJ, on behalf of the American Petroleum Institute, responses to questions, August 2, 1995
Reilly, Bernie, Corporate Counsel, Wilmington, DE, on behalf of the Chemical Manufacturers Association, responses to questions, August 10, 1995
Spisak, John F., President and CEO, Industrial Compliance, Inc., Lakewood, CO, on behalf of Superfund Reform 1995:
Report, ''Superfund Reform 1995, Principles for a New Superfund Program''
Chart, Cost/Return of Site-Specific NPL Financing
Chart, Annual Costs of the Superfund NPL Program: Direct, Indirect and Hidden Taxes Imposed by Superfund (Non-Federal Facilities)
Chart, Annual Costs of the Superfund Program: Federal and Non-Federal NPL Sites
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News article, ''Superfund Success Unwanted'', The Denver Post, February 26, 1995
JUNE 21, 1995
Florini, Karen, Senior Attorney, Environmental Defense Fund
Jackson, Milton, President, Stop Toxic Pollution, Chattanooga, TN
King, Linda Price, Director, Environmental Health Network, Chesapeake, VA
Miller, Carl, Former County Commissioner, Lake County, Colorado, and Superfund Coalition Against Mismanagement
Smith, Velma M., Executive Director, Friends of the Earth
Tarpoff, Craig, , Alderman, Granite City, IL, and Co-Chairman, Superfund Coalition Against Mismanagement
Trieste, Marion, President, Saratoga Springs Hazardous Waste Coalition, Inc., Saratoga Springs, NY
Williams, Patricia Randolph, Counsel and Legislative Representative, National Wildlife Federation
PREPARED STATEMENTS SUBMITTED BY WITNESSES
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Florini, Karen
Jackson, Milton
King, Linda Price
Miller, Carl
Smith, Velma M.
Tarpoff, Craig,
Trieste, Marion
Williams, Patricia Randolph
SUBMISSIONS FOR THE RECORD
Florini, Karen, Senior Attorney, Environmental Defense Fund, submitted letter from Institute of Chemical Waste Management
King, Linda Price, Director, Environmental Health Network, Chesapeake, VA, Environmental Health Network, reports and articles*
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Trieste, Marion, President, Saratoga Springs Hazardous Waste Coalition, Inc., Saratoga Springs, NY:
Chart, ARARs Used in Formulating Remedial Action Objectives
Proposed Plan, Niagara Mohawk Power Corporation Site, Saratoga Springs, NY, U.S. Environmental Protection Agency Region 2, June 1995
Newsletter, The Saratoga Springs Hazardous Waste Coalition, Spring 1995
Williams, Patricia Randolph, Counsel and Legislative Representative, National Wildlife Federation, ''The Playground that Became a Battleground'', excerpt from February-March 1993 issue of National Wildlife Magazine
JUNE 22, 1995
Acton, Jan Paul, Assistant Director, Natural Resources and Commerce Division, Congressional Budget Office, accompanied by Dr. Perry Beider
Clay, Don R., President, Don Clay Associates, Inc., and Former Assistant Administrator, U.S. Environmental Protection Agency Office of Solid Waste and Emergency Response
Dyckman, Lawrence J., Associate Director, Environmental Protection Issues, Resources, Community, and Economic Development Division, U.S. General Accounting Office, accompanied by Sharon Butler, Evaluator
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Frost, Edmund B., Esq., Senior Vice President and General Counsel, Clean Sites, Inc
Johnson, Hon. Nancy L., a Representative in Congress from Connecticut
Magee, Dr. Richard, Director, Northeast Hazardous Substance Research Center
Probst, Katherine N., Senior Fellow, Center for Risk Management, Resources for the Future
Taylor, Jerry, Director, Natural Resource Studies, Cato Institute
Zeliff, Hon. William H., Jr., of New Hampshire
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Boehlert, Hon. Sherwood L., of New York
Johnson, Hon. Nancy L., of Connecticut
Quinn, Hon. Jack, of New York
Zeliff, Hon. William H., Jr., of New Hampshire
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PREPARED STATEMENTS SUBMITTED BY WITNESSES
Acton, Jan Paul
Clay, Don R
Dyckman, Lawrence J
Frost, Edmund B
Magee, Dr. Richard
Probst, Katherine N
Taylor, Jerry, Director
SUBMISSIONS FOR THE RECORD
Clay, Don R., President, Don Clay Associates, Inc., and Former Assistant Administrator, U.S. Environmental Protection Agency Office of Solid Waste and Emergency Response, responses to questions, August 2, 1995
Probst, Katherine N., Senior Fellow, Center for Risk Management, Resources for the Future, responses to questions from Rep. Boehlert, August 2, 1995
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JUNE 27, 1995
Browner, Hon. Carol M., Administrator, U.S. Environmental Protection Agency, accompanied by Elliot Laws, Assistant Administrator, Office of Solid Waste and Emergency Response
Davison, Hon. Robert, Deputy Assistant Secretary for Fish and Wildlife and Parks, U.S. Department
Goodman, Hon. Sherri W., Deputy Under Secretary of Defense, Environmental Security, U.S. Department of Defense
Grumbly, Hon. Thomas P., Assistant Secretary for Environmental Management, U.S. Department of Energy
Johnson, Hon. Barry L., Ph.D., Assistant Surgeon General, Assistant Administrator, Agency for Toxic Substances and Disease Registry, Public Health Service, U.S. Department of Health and Human Services
Schiffer, Hon. Lois J., Assistant Attorney General, Environment and Natural Resources Division, U.S. Department of Justice
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Browner, Hon. Carol M
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Davison, Robert
Goodman, Sherri W
Grumbly, Thomas P
Johnson, Barry L., Ph.D
Schiffer, Lois J
SUBMISSIONS FOR THE RECORD
Borski, Hon. Robert A., of Pennsylvania, submitted a letter from the State of New Jersey, Office of the Attorney General, dated April 27, 1995
Browner, Carol M., Administrator, U.S. Environmental Protection Agency, charts:
Reducing the Superfund Inventory
Superfund Trust Fund: 70% Goes Toward Cleanup
The Impact of Funding on Project Starts
Johnson, Barry L., Ph.D., Assistant Surgeon General, Assistant Administrator, Agency for Toxic Substances and Disease Registry, Public Health Service, U.S. Department of Health and Human Services, responses to post hearing questions
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Schiffer, Lois J., Assistant Attorney General, Environment and Natural Resources Division, U.S. Department of Justice, charts:
Superfund Cleanup Process
Private Parties Pay for Most of Today's Cleanups
JULY 11, 1995
Chasis, Sarah, Senior Attorney, Natural Resources Defense Council
Davison, Robert P., Deputy Assistant Secretary for Fish and Wildlife and Parks, U.S. Department of the Interior
de Saillan, Charles, Assistant Attorney General for Natural Resources, State of New Mexico, on behalf of Attorney General Tom Udall, and the National Association of Attorneys General
Greenwood, George E., Senior Partner, Managers of Steamship Mutual Underwriting Association Limited, on behalf of the International Group of P&I Clubs, and Chairman, Pollution Subcommittee, accompanied by Lloyd Watkins, Secretary and Executive Officer, International Group, and Luke Readman, Partner of Thos. R. Miller & Son (Bermuda), Managers, United Kingdom P&I Club
Hall, Douglas K., Assistant Secretary for Oceans and Atmosphere, National Oceanic and Atmospheric Administration, U.S. Department of Commerce, accompanied by Craig O'Connor, Special Counsel for Natural Resources
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Hausman, Jerry A., MacDonald Professor of Economics, Massachusetts Institute of Technology
Hobbie, Richard H., III, President, Water Quality Insurance Syndicate, on behalf of the American Institute of Marine Underwriters
Kopp, Raymond J., Senior Fellow and Director, Quality of the Environment Division, Resource for the Future
McHugh, Martin J., Director, Office of Natural Resources Damages, New Jersey Department of Environmental Protection, on behalf of the Association of State and Territorial Solid Waste Management Officials (ASTSWMO)
McKnight, Kevin L., Manager, Environmental Remediation Projects, Aluminium Company of America (ALCOA), on behalf of the Coalition for Legislative NRD Reform
Schiffer, Lois J., Assistant Attorney General, Environment and Natural Resources Division, U.S. Department of Justice, accompanied by John Cruden, Acting Assistant Attorney General
Stewart, Richard B., Professor, New York University School of Law
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Ewing, Hon. Thomas W., of Illinois
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Mineta, Hon. Norman Y., of California
Traficant, Hon. James A., Jr., of Ohio
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Chasis, Sarah
Davison, Robert P
Greenwood,George E
Hall, Douglas K
Hausman, Jerry A
Hobbie, Richard H., III
Kopp, Raymond J
McHugh, Martin J
McKnight, Kevin L
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Schiffer, Lois J
Stewart, Richard B
Udall, Tom, delivered by Charles de Saillan
SUBMISSIONS FOR THE RECORD
Hall, Douglas K., Assistant Secretary for Oceans and Atmosphere, National Oceanic and Atmospheric Administration, U.S. Department of Commerce:
Response to question from Rep. Boehlert
Chart, Estimated Expenditures: Natural Resource Damage Assessment Regulations, Oil Pollution Act of 1990
Responses to questions from Rep. Traficant
Hausman, Jerry A., MacDonald Professor of Economics, Massachusetts Institute of Technology, article, ''Contingent Valuation: Is Some Number Better than No Number?'', Journal of Economic Perspectives, by Peter A. Diamond and Jerry A. Hausman, Vol. 8, Number 4. Fall 1994
Hobbie, Richard H., III, President, Water Quality Insurance Syndicate, on behalf of the American Institute of Marine Underwriters, Executive Summary, Comments on Proposed Regulations for Natural Resource Damage Assessments Under OPA, Economic Analysis, Inc
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McHugh, Martin J., Director, Office of Natural Resources Damages, New Jersey Department of Environmental Protection, on behalf of the Coalition for Legislative NRD Reform, response to question from Rep. Mineta
Schiffer, Lois J., Assistant Attorney General, Environment and Natural Resources Division, U.S. Department of Justice, charts, Compendium of Federal Natural Resource Damages Cases Under CERCLA-Pending Natural Resource Damage Assessment Matters, responses to post hearing questions from Rep. Baker
Stewart, Richard B., Professor, New York University School of Law:
Report, ''Evaluating the Present Natural Resource Damages Regime:The Lawyers' Perspective''
Memorandum, CVM and the Extent to which Applicable Law Mandates its Use in Assessing Natural Resource Damages
ADDITIONS TO THE RECORD
American Institute of Chemical Engineers, statement
American Institute of Merchant Shipping (AIMS), Ernest J. Corrado, President, statement
Associated Builders and Contractors, statement
Associated General Contractors of America, Stephen E. Sandherr, Executive Director, Congressional Relations, statement
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Bunn, Richard L., President and CEO, UGI Utilities, Inc., statement
Citizens Against Toxic Exposure, statement
Food Industry Environmental Council, statement
Huddleson, Edwin E., III, Counsel, Volpe, Bosky, and Lyons, statement on behalf of the Equipment Leasing Association of America (ELA)
International Association of Fish and Wildlife Agencies, Gary J. Taylor, Legislative Counsel:
Statement
Report, ''The Economic Benefits of Hunting in the United States in 1991'', September 1994*
Report, ''The Economic Contributions of Bird and Waterfowl Recreation in the United States During 1991'', March 1995*
Report, ''The 1991 Economic Impact of Sport Fishing in the United States''*
International Association of Independent Tanker Owners (INTERTANKO), statement
Norwegian Shipowners' Association and the Swedish Shipowners' Association, Austin P. Olney, Attorney, LeBoeuf, Lamb, Greene and MacRae, letter, July 24, 1995
State of New York, Department of Health, letter, August 14, 1995
U.S. General Accounting Division, Peter F. Guerrero, Director, Environmental Protection Issues, Resources, Community, and Economic Development Division, statement
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*May be found in subcommittee file.
NATURAL RESOURCE DAMAGES UNDER SUPERFUND AND THE OIL POLLUTION ACT OF 1990
TUESDAY, JULY 11, 1995
U.S. House of Representatives,
Subcommittee on Water Resources and Environment,
Subcommittee on Coast Guard and Marine Transportation,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittees met, pursuant to notice, at 10:05 a.m. in room 2167, Rayburn House Office Building, Hon. Sherwood L. Boehlert (Chairman of the Subcommittee on Water Resources and Environment) presiding.
Mr. BOEHLERT. The committee will come to order.
Good morning and welcome to the Transportation and Infrastructure Committee's hearing.
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This morning the Water Resources and Environment Subcommittee is joined by the Coast Guard and Maritime Transportation subcommittee for an examination of the natural resource damage provisions in Superfund and the Oil Pollution Act of 1990.
It is a pleasure to be joined by Chairman Coble and other distinguished members of the Coast Guard and Maritime Transportation Subcommittee.
Natural resource damage issues have emerged as critical aspects of both Superfund and OPA reauthorization efforts. Damage to our Nation's natural resources does happen and must be addressed by those parties responsible for its occurrence. However, serious questions have been raised about the methods by which natural resource damages are assessed and the uses of funds collected by trustees to restore, replace, or acquire equivalent natural resources.
Through the course of today's hearing, we will seek to determine how natural resources that have been damaged as a result of an oil spill or hazardous waste can be restored in the most cost-effective and equitable manner. Let me repeat that—in the most cost-effective and equitable manner.
The public deserves to have common natural resources restored to a usable level, and the business community deserves greater certainty on the scope and cost of natural resource damage liability. These are not easy issues to resolve, as evidenced by last year's Superfund reform package that came so close to reaching the President's desk. Changes to Superfund's natural resource damage provisions were not included in this package because of strong opposition voiced by State and local governments, as well as Federal trustees.
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After reviewing the testimony of today's witnesses and meeting privately with many of them, I believe that we can reform the natural resource damage provisions in Superfund and OPA in a manner that allows for needed restoration of damaged resources and provides industry with needed certainty about potential liability.
I would like to turn now to the good colleague and friend of mine, chairman of the Coast Guard and Maritime Transportation Subcommittee, for any comments he might wish.
Mr. Coble?
Mr. COBLE. Thank you, Mr. Chairman.
I am pleased that we are conducting this hearing today to consider liability for natural resource damages under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as well as the Oil Pollution Act of 1990, popularly referred to as OPA 90.
One of my main interests, Mr. Chairman, concerns the scope of natural resource damages resulting from oil spills and the unintended effects of certain approaches to the measurement of oil spill damages.
The purpose of compensation for oil spill damages to publicly-owned natural resources should be, it seems to me, as much as possible, to restore that resource to the condition it was in prior to the spill.
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The national oil spill liability and compensation scheme should not be utilized to punish or deter the behavior of oil transporters. OPA 90 substantially increased the civil and criminal penalties applicable to parties responsible for oil spills.
OPA 90 also established a national system of oil spill prevention that includes requirements for oil spill response plans, double hulls for oil tank vessels, and other operational restrictions. This framework will encourage the safe, efficient transportation of oil in United States waters.
One of the changes to OPA 90 I support concerns the elimination of so-called ''nonuse'' values. I can understand why the contingent evaluation method of assessing nonuse damages doesn't make sense. It is because nonuse damages do not, in reality, exist.
Prior to time the Exxon Valdez ran aground in March 1989—this is my opinion, Mr. Chairman. It may or may not be true, but it is my belief that few people beyond the boundaries of Alaska were familiar with Prince William Sound. After all the publicity surrounding the oil spill, however, Prince William Sound became notorious rather than valuable to Americans watching the nightly news.
It makes little sense to measure damages by use of a hypothetical survey, people who are unfamiliar with the property or other resource being valued, and who would probably never have cared about the damage if the survey had not been conducted. That concerns me.
Our goal should be to create a comprehensive oil pollution system that compensates those actually harmed by an oil spill, prevents future oil spills through the imposition of reasonable operational requirements, and punishes those who do spill oil by assessing appropriate penalties.
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I am concerned that we are losing sight of the fact that the American people demand oil to heat their homes and fuel their automobiles. I am also concerned that we have given Government officials an incentive, in some cases, to inflate natural resource damage claims as a way of funding pet projects or pet programs.
Finally, Mr. Chairman, I am not one to fight over turf, as you know, but I read with interest on the memorandum of recent date that the Water Resources and Environment Subcommittee has jurisdiction over Superfund and shares jurisdiction over OPA with the Coast Guard and Maritime Transportation Subcommittee. We won't fight about this. Pardon my imprecise grammar. I'm an easy dog to hunt with, but it seems to me that probably the Coast Guard and Maritime Transportation should exclusively exercise jurisdiction over OPA, but we can worry about that at a later time. I just wanted to get that on the record.
I thank you all for calling this hearing today, and I will look forward to hearing the testimony.
Mr. BOEHLERT. I thank you for your comments.
Now we go to the ranking minority member for the Subcommittee on Water Resources and Environment, which shares jurisdiction with Mr. Coble's subcommittee, from the City of Brotherly Love, Mr. Borski.
Mr. BORSKI. Thank you, Mr. Chairman.
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I want to thank you and Chairman Coble for holding the hearing on this important issue of natural resource damages. I want to thank the chairmen of the subcommittees for the fair way this hearing has been arranged, as have the earlier hearings that have been held on the Superfund program.
This part of the program has received little attention at our earlier hearings on Superfund, but it has a serious and major impact on many people. As with the other parts of the Superfund program, the natural resource damages program needs to be improved.
There are clearly changes that should be made that will make this program work more efficiently, while still protecting our environment. Just like the rest of the Superfund program, the natural resource damages program needs a common-sense approach. The program must be fair to all parties involved, while at the same time ensuring that our Nation's environment is protected.
It is impressive to me that the people who implement this law at the State level want improvements in the program but they do not want this important tool taken away.
The natural resource damages program, separate and apart from the rest of the Superfund program, allows Federal and State officials to collect money from the discharges of hazardous waste to repair and restore environmental damage. This payment can only take place if there is a link proven between the discharge of the hazardous waste and the environmental damage.
It makes sense to me that the people who cause the environmental damage should be the ones to pay for the restoration of those damages. If they don't pay, then the tab must be picked up by the taxpayer. I don't believe that any one of us wants the American people to have to pay for repairing environmental damage, especially when a link between the polluter and the environmental damage can be found.
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Mr. Chairman, in reviewing the natural resources damages program we must maintain as our primary concern the protection of the health and the environment of the American public. We must make the changes that are necessary to improve the program, but we must not make those changes at the expense of the environment.
Thank you, Mr. Chairman.
At this point I'd ask unanimous consent that a statement by Mr. Traficant be entered in this part of the record.
Mr. BOEHLERT. Without objection.
[Mr. Traficant's and Mr. Ewing's prepared statements follow:]
[Insert here.]
Mr. BOEHLERT. Thank you very much.
Now we'll proceed to the first of three panels.
Panel one consists of the Federal and State trustees: from the National Oceanic and Atmospheric Administration, Mr. Douglas Hall, Assistant Secretary for Oceans and Atmosphere; from the Department of the Interior, Mr. Robert P. Davison, Deputy Assistant Secretary for Fish and Wildlife and Parks; from the Department of Justice, Ms. Lois Schiffer, Assistant Attorney General, Natural Resources Division; from the Association of State and Territorial Solid Waste Management Officials, Mr. Martin McHugh, who is Director of the Office of Natural Resources, New Jersey Department of Environmental Protection; and from the National Association of Attorneys General, Mr. Charles de Saillan, Assistant Attorney General for Natural Resources for the State of New Mexico.
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I would advise all the panelists that your statement will appear in the record in its entirety. We would ask, in the interest of time, that you try to summarize it to 5 minutes or so. I will not be arbitrary on that because what you have to say is important to us, but I do want you to know that everything you say will be read very carefully by each and every one of us and considered as it should be.
We will proceed in the order in which you were introduced. Mr. Hall, you are first.
TESTIMONY OF DOUGLAS K. HALL, ASSISTANT SECRETARY FOR OCEANS AND ATMOSPHERE, NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE, ACCOMPANIED BY CRAIG O'CONNOR, SPECIAL COUNSEL FOR NATURAL RESOURCES; ROBERT P. DAVISON, DEPUTY ASSISTANT SECRETARY FOR FISH AND WILDLIFE AND PARKS, U.S. DEPARTMENT OF THE INTERIOR; LOIS J. SCHIFFER, ASSISTANT ATTORNEY GENERAL, ENVIRONMENT AND NATURAL RESOURCES DIVISION, U.S. DEPARTMENT OF JUSTICE, ACCOMPANIED BY JOHN CRUDEN, ACTING ASSISTANT ATTORNEY GENERAL; MARTIN MCHUGH, DIRECTOR, OFFICE OF NATURAL RESOURCE DAMAGES, NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION, ON BEHALF OF THE ASSOCIATION OF STATE AND TERRITORIAL SOLID WASTE MANAGEMENT OFFICIALS (ASTSWMO); AND CHARLES DE SAILLAN, ASSISTANT ATTORNEY GENERAL FOR NATURAL RESOURCES, STATE OF NEW MEXICO, ON BEHALF OF ATTORNEY GENERAL TOM UDALL, AND THE NATIONAL ASSOCIATION OF ATTORNEYS GENERAL
Mr. HALL. Thank you, Mr. Chairman, and thank you, Chairman Coble. I thank you for the opportunity to address you today.
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I am accompanied today by Craig O'Connor, who is NOAA's special counsel for natural resources.
Mr. Chairman, I would say that I agree with you that the goal of the Oil Pollution Act and Superfund is to achieve cost-effective restoration and to do it in a way that is fair and equitable to the parties involved, and I appreciate your leadership on this issue.
In today's proceeding, I would like to talk a little bit about the progress that we've made at a couple of sites in fulfilling our natural resource trustee responsibilities under the Oil Pollution Act and Superfund. We have taken those responsibilities seriously and are making great strides in reversing the tide of natural resource degradation caused by oil spills and the dumping of hazardous waste.
Our progress demonstrates that we can restore our Nation's natural resources and in so doing enhance the economic and environmental foundation of our country. Our progress likewise demonstrates the potential to vastly improve the natural resource heritage we pass on to our children.
First, I'd like Mr. O'Connor to show a photograph of the site at Arthur Kill, a saltwater channel in New York Harbor between New Jersey and Staten Island, New York, that was damaged by an oil spill in 1990. In January of that year, one-half million gallons of heating oil were spilled into the Arthur Kill as a result of a ruptured Exxon Bayway Refinery pipeline. This is the site right after the spill.
Over 100 acres of salt marsh and associated habitat were oiled, injuring or destroying fish, crabs, clams, and sea birds inhabiting the area. Using the $11 million settlement, the trustees—NOAA, the Department of the Interior, the States of New York and New Jersey, and the cities of New York and Elizabeth—have implemented an aggressive natural resource restoration program to revegetate the salt marshes in Staten Island and New Jersey that were injured by the oil spill.
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This is a picture of some of the volunteers that supplemented the efforts that were financed by the damage settlement.
Six locations along the Arthur Kill have been replanted with marsh grass seedlings, allowing for restoration of over one-half mile of shoreline.
This is a picture of the site today and the way it looks after the restoration activity.
Much of the planning was accomplished as a community effort with local volunteers.
On June 21, 1995, the Municipal Arts Society of New York recognized the project's exceptional contribution to the life of New York City with an award to the Natural Resources Group of New York City's Department of Parks and Recreation.
Second, I'd like to talk about the Blackbird Mine site. We're much earlier into this process and we are just beginning restoration at this site in Idaho. This is an aerial photograph of the site in the eastern central Idaho. The gray, barren area is the result of mining operations that left an 11-acre open pit and generated millions of tons of tailings and over 2 million cubic yards of waste rock.
The second photo is of the Blackbird Creek. It is severely contaminated with heavy metal deposits. Iron contamination causes the water's orange color and makes downstream areas unsuitable as salmon habitat and habitat for other species.
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The third picture—as you can see, the water in Bucktail Creek is severely contaminated with copper. The high concentration of copper causes this brilliant blue color and is lethal to many aquatic organisms.
In this site we have recently come to an agreement with the Department of Agriculture and NOAA and the State of Idaho serving as trustees working with the mining companies responsible for Blackbird Mine, and we will soon be implementing a restoration plan to restore chinook salmon and other fishery resources and the ecological productivity of dozens of miles of critical natural resource habitat in the Panther Creek watershed.
The restoration plan calls for the mining companies to clear the stream beds of mine waste and rubble, provide for hatchery operations for restocking chinook salmon, purchase grazing rights to protect other portions of the watershed to enhance habitat recovery, and maintain the water quality in Panther Creek and its tributaries so that salmon can return and survive.
Too often in this discussion we lose site of the cases that have been involved and what we have accomplished, and I appreciate the opportunity to talk about just two of the cases where we are doing work on the ground at this point.
The other part of my opening statement, I would like to just talk about two misconceptions. A number will be addressed in the testimony today, but there are two issues that are of particular concern.
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One is that the natural resource damages represents a sleeping giant that will bankrupt American industry. The second is the use of contingent valuation, which was alluded to by Chairman Coble.
With regards to the claim that NRD is a sleeping giant that is going to bankrupt industry, this is simply not the case. It amounts to nothing more than speculation that is unsupported by the record.
We have had less than 5 percent of the sites on the national priorities list that have required compensation for natural resource injuries in addition to remediation. The compensation for natural resource damage at all NPL remedial sites has been less than 1 percent of the cost of remediation. The majority of natural damage settlements have been less than t the sites where claims were made.
The General Accounting Office has looked very carefully at this program and recently completed a study. They predicted that the experience in the future would not be much different than the experience we have had in the past, and I agree with that.
We have identified 15 sites in which there have been massive injuries around the country. There may be more sites, but there probably will not be many more sites than that.
We think we understand what the universe is, and it is not an unlimited universe that is going to bankrupt American industry. We understand the magnitude of the problem. It is a very large problem, but it is something that is manageable within the resources that our economy has.
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The second issue that I would like to talk about is contingent valuation. It is a very controversial method, as Chairman Coble pointed out. I think most economists who have looked at this see that there is no other alternative for quantifying the value of passive use of natural resources, but it has been rarely used. It is only used in cases where there has been massive injury to natural resources.
There have only been six contingent valuation studies completed to date, and only one which the Federal Government was involved in litigation.
In general, contingent valuation methodology is expensive and time-consuming, and it will only be used in cases of catastrophic damage or loss, like the Exxon Valdez case.
As part of an extensive public rule-making process, the Federal trustees are carefully evaluating the issues concerning the use of CV in natural resource damage cases and how to better focus the process to achieve the restoration of injured resources.
There were a number of criticisms of the proposed rule that we issued last year, and I think we will address those criticisms in the revised rule issued later this month. Many of the comments wanted to focus the program more on restoration, and we are responding to those comments.
In terms of inflating the value of claims, it is important to point out that both CERCLA and OPA require that NRD recoveries must be used to restore, replace, or acquire the equivalent of the injured trust resources.
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I agree with Chairman Coble that funds should not be used for pet projects, and I believe that there are safeguards in the law to prevent that.
The natural resources of this country are held in trust for each of us. Their existence is invaluable. We rely on those resources for our livelihood, our recreation, and our quality of life. Our natural resources must be protected and restored. Those parties responsible for the degradation of our natural resources must be held accountable for those actions. They must be required to restore the natural resources they have harmed and compensate us for the loss of those resources.
Thank you for your time and attention. I'll be happy to answer any questions.
Mr. BOEHLERT. Thank you very much.
You notice the Chair has been generous with the 5-minute rule. I always am somewhat offended by the thought that we can ask you to give us everything we need to hear in 5 minutes or less about a very important subject, but there are some time constraints, so I would ask that you try to stick closely to the 5-minute rule.
Mr. Davison.
Mr. DAVISON. Good morning.
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I'd like to thank the Chairs and the subcommittees for the opportunity to discuss the role and concerns of the Department of the Interior with respect to natural resource damage assessment.
The Department is trustee for migratory birds, shares trust responsibility for anadromous fishes, and is trustee for endangered species, a number of which became endangered due to hazardous substances. Interior is also trustee for two-thirds of all Federal lands, especially through national parks, national wildlife refuges, Bureau of Land Management lands, and waters of the Bureau of Reclamation.
Let me start by describing some ways in which hazardous substances injure these resources.
First, contamination may kill directly birds such as tundra swans at the Coeur d'Alene site in Idaho that die when they eat contaminated fish, vegetation, or when they eat sediments with their food.
Second, contamination may cause developmental abnormalities such as crossed bills seen in some Great Lakes cormorants and bald eagles, which prevent normal feeding.
Third, reproductive problems may lead to severe decline or loss of entire populations or species. DDT contamination led to eggshell thinning that nearly caused the extinction of a number of bird species.
Fourth, contamination can destroy the habitat and food base for these species. In Yellowstone National Park, for example, contaminants from a mining operation outside the park have destroyed the supporting habitat and fishery of Soda Butte Creek, which flows into the park and which was once heavily fished by park visitors.
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Next I'll reemphasize some points made by Mr. Hall and discuss some myths about natural resource damage assessment and restoration program, which I think need to be dispelled.
One myth is that lack of coordination and cooperation by trustees in the remedial and damage assessment process leads to excessive costs and duplicate claims. The reality is that restoration planning and activities can be carried out efficiently as part of cleanup.
In many cases trustees can work closely with EPA early in the remedial process to ensure that the environmental requirements of Superfund are met. By doing so, potential natural resource damage concerns may be addressed during the remedy with little or no additional cost, and the record reflects that. Responsible parties can cooperate by implementing restoration activities directly, increasing transaction efficiencies.
We welcome the opportunity to have more restorations carried out by PRPs.
The second myth is that trustees require restorations to pristine conditions. The reality, Mr. Chairman, is that the Department's regulations authorize restoration to a baseline condition, which means the condition the resources would have been in if the contamination had not occurred.
In any case, as a practical matter, attempting to restore to a pristine condition may not be technically feasible or the preferred restoration alternative.
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An example is the Midco sites in Gary, Indiana, where Interior worked with the State co-trustee and the responsible parties to craft a cost-effective restoration settlement. The contaminated site, as shown in this photo of the Midco II site, is so badly contaminated that restoration of the site, itself, would be extremely expensive and probably not feasible.
Instead, rather than expending millions of dollars engaging in a very difficult on-site restoration of the contaminated site, itself, the responsible parties agreed to purchase and provide funds for enhancing about 150 acres of equivalent rare but degraded dune and swale habitat, as shown in this second photo, which is located within ten miles of the Midco facilities, and done for substantially less cost.
This example exemplifies the focus of the trustees on replacing lost resources in a cost-effective manner rather than merely obtaining damages.
Numerous volunteers are assisting in the restoration of this new Indiana State nature preserve area.
A third myth is that natural resource damages are a sleeping giant that will dwarf the costs of cleanup and bankrupt business and industry. Mr. Hall addressed this.
The reality is that about half of all NPL site settlements require no payment by the responsible parties for natural resource damages. Early coordination with EPA leads to more efficient cleanups and less costly restoration. An example is the PSC Superfund site in Palmer, Massachusetts, where the cleanup settlement was about $7 million in contrast to natural resource damages of about $157,000 for wetland habitat. That's about 2 percent of the cleanup cost.
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There are very few sites with substantial natural resource injuries that need to be addressed. These will generally be in estuaries, lakes, or rivers where heavily-used resources have been injured in areas outside of cleanup boundaries where trustees must address both source control and restoration.
Finally, let me comment just briefly on certain proposals being made for reauthorization. Many of these discussions rely too heavily, I think, on the myths rather than the facts. They would require the taxpayer and natural resource user to absorb losses caused by polluters.
Two issues are being addressed more fully by Ms. Schiffer and the Department of Justice in its testimony today: potential repeal of retroactive liability and a narrowing of a cap on natural resources. We concur in its assessment that both proposals would be unfair to the public and add to tax burdens, and we are strongly opposed to such changes. The second issue concerns contingent valuation, which Mr. Hall has addressed.
I thank you, Mr. Chairman and the rest of the subcommittee.
Mr. BOEHLERT. Thank you very much, Mr. Davis. Now we'll go to Ms. Schiffer.
Ms. SCHIFFER. Thank you, Chairman Boehlert and Chairman Coble and members of the subcommittees. It is a pleasure for me to be here today and to participate in this very balanced hearing.
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I am going to talk about natural resource damages under Superfund and under the Oil Pollution Act.
With me today is Acting Deputy Assistant Attorney General John Cruden, who works on these issues, as well.
The Justice Department works closely with the Federal natural resource trustee agencies to assert natural resource damage claims so the trustees can restore natural resources injured by hazardous substance releases and oil discharges. I might add that we also work closely with the States and tribes as trustees because we think those cooperative relationships make this process more efficient.
I am here today to testify about the scope of natural resource damages liability, especially under Superfund. Making responsible parties liable is the way that Superfund provides to make sure that injured resources are restored. The Superfund, itself, does not provide any money to use for cleanup of natural resource damages.
So-called ''retroactive natural resource liability,'' that is, liability for past waste disposal, has been a focal point of this year's Superfund reauthorization discussions. I want to stress three points about Superfund natural resource damage liability.
First, injury to public natural resources—that is, natural resources owned by all of us, the American people—from hazardous waste disposal is a persistent and serious problem.
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Second, the ''polluter pays'' principle is vital to addressing that problem.
Third, retaining so-called ''retroactive liability'' is the most effective and fair way to implement the ''polluter pays'' principle. Repeal will have serious adverse consequences.
Let me go back through these points.
First, past hazardous waste disposal has caused natural resource injury that is persistent and serious. You've seen some of the pictures of it today.
Other examples are off the Los Angeles and Long Beach Harbors. Extensive DDT and PCB contamination from barge dumping and wastewater disposal is seriously harming fish populations, as well as the bald eagle and the peregrine falcon. The State of California has closed a commercial fishery and issued health advisories regarding compensation of a number of species of sports fish. So we're not just talking about critters; we're also talking about direct effects on people.
Without restoration, at least half of the present mass of DDTs in the sediments in this area is expected to continue to present a problem through the year 2100. Future generations, like past generations, should have the chance to use and enjoy this country's rich natural resource inheritance. These problems are real and they will not go away on their own.
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Second, the most efficient and fair way to make sure the public is made whole for those resource losses at hazardous waste sites is to follow the ''polluter pays'' principle. The fairest and most effective way to implement this principle is through so-called ''retroactive liability.'' This is true for several reasons.
First, the parties that made the mess should clean it up rather than shifting the cost of their mess to the American public and, in fact, rather than leaving the mess there uncleaned under the Superfund statute.
Second, hazardous substances are persistent. They can remain environmentally harmful and can continue to injure natural resources for a long time. A significant number of natural resource damage cases involve continuing significant injury caused largely or completely by pre-1980 disposal activities, but the damage and the leaching continues on.
As just one example, the DDT and PCB contamination off the Los Angeles and Long Beach Harbor that I mentioned was caused in large part by pre-1980 waste disposal practices.
Having parties pay for the resource injury they caused is especially fair because of Superfund's ''wholly before'' exception to retroactive liability in the natural resource damage context. When both the resource damage and the hazardous substances releases that caused the damage occurred wholly before CERCLA's enactment in 1980—in other words, the environment substantially recovered before CERCLA was passed—there is no natural resource damage claim under the statute.
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Because of the ''wholly before'' exception, no one is being asked to pay for hypothetical injury or for natural resource injuries that ceased long ago, nor does this statue authorize punitive damages. Instead, liability for natural resource damages assures that the public is given the opportunity to restore, replace, or get the equivalent of natural resources caused by persistent natural resource injury.
It means that if there is ongoing harm to the public and to the environment someone has to correct it. This is no different from any other basic principle of legal responsibility.
Having the parties that created the problem pay the cost of correcting is fair for another reason. The companies that created the problem benefitted economically from the manufacturing, mining, and other activities that generated these hazardous wastes. CERCLA has been an effective way to assure that these companies actually bear the cost of hazardous waste disposal associated with their businesses.
I want to mention the Blackbird Mine site in Idaho, where we have been working together with the State of Idaho to settle a major natural resource damages claim. At that mine, gold, copper, and cobalt miners left in their wake a landscape strewn with approximately five million tons of waste rock and two million tons of mine tailings that continue to leach toxic metals.
Because of the CERCLA statute, these mining companies have had to bear the real natural resource cost their waste disposal imposed, including the elimination of salmon from what was once an important spawning ground.
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The public should have some redress for significant economic and social costs stemming from natural resource injury like this. In fact, they should be brought back to where they were before.
In particular, the public should be made whole where the responsible parties should have paid those costs all along and where they can afford to bear them now.
I want to make a third major point, to conclude quickly, and that is: eliminating retroactive liability for natural resource damages under CERCLA would have serious adverse consequences. Repealing retroactive liability for natural resource damages now, 15 years after the passage of this statute, and when the statute has worked and been in place, would be fundamentally unfair to those companies that have stepped up to the plate and have complied with the law and have paid for the natural resource damages injury that they caused.
Repeal would reward those recalcitrants who haven't paid and, by comparison, penalize responsible corporate citizens. That just isn't a good policy practice.
Repealing liability for pre-1980 disposal that has ongoing effects also means abandoning injured natural resources. The important principle that I want to stress is that the Superfund does not provide money for natural resource restoration and Federal, State, and tribal trustees have limited resources, so these are injuries that will not get repaired unless this liability scheme stays in place.
For example, responsible mining companies could walk away from the Coeur d'Alene basin in Idaho where they engaged in decades in mining silver, lead, and zinc and left in their wake 72 million tons of mine and mill tailings, which caused enormous damage to the Coeur d'Alene River and Lake Coeur d'Alene. This contamination has been and will continue to have lasting consequences for rivers, lakes, fish, and migratory waterfowl, and the people that use them, unless n resource restoration is undertaken.
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Finally, I want to mention that repealing the so-called ''retroactive liability provisions'' would have serious adverse affects on States—and the States are here today to testify about it—and on tribes, who are co-equal natural resource trustees, to protect their vital natural resources. States depend on Federal natural resource damage provisions for their restoration efforts, and they are going to testify about that today.
In conclusion, the public has suffered real losses from natural resource injury caused by hazardous waste disposal. Retroactive liability is a fair way to address this problem. It is critical to making sure that future generations will be able to use and benefit from our natural resources.
Repeal of this retroactive liability provision would mean that responsible parties could walk away from significant harm they have caused. It would leave the public with real resource losses.
Thank you, Mr. Chairman.
Mr. BOEHLERT. Thank you very much, Ms. Schiffer.
Mr. McHugh.
Mr. MCHUGH. Good morning, Mr. Chairman and members of the subcommittee. Thank you for this opportunity to testify on issues regarding natural resource damages during Superfund reauthorization.
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I am Martin J. McHugh, and I direct the Office of Natural Resource Damages for the New Jersey Department of Environmental Protection. This testimony is presented on behalf of the Association of State and Territorial Solid Waste Management Officials, ASTSWMO.
While CERCLA was enacted primarily to clean up hazardous sites, it also provides for the ability to complete the cleanup process by allowing for the restoration of our country's natural resources harmed by these sites.
The goal of the Oil Pollution Act natural resource damage program is identical to CERCLA's. It is the restoration, replacement, or acquisition of the equivalent of public resources harmed by petroleum discharges.
Whether it is an oil spill or a hazardous site impacting natural resources, States have an obligation to protect and restore resources such as waters, fisheries, and wildlife for three primary reasons.
First, it is critical, from a strict public health standpoint.
Second, we have a legal responsibility as trustees to administer natural resources held in trust for the benefit of the public, and CERCLA and OPA NRD provisions codify this obligation to be stewards.
A third reason is the significant role healthy natural resources have in every State economy. For instance, in 1991 New Jersey experienced over $630 million in retail sales to fishermen and had a total of over $1.26 billion associated with all wildlife resource activities. Many local and regional economies are dependent on healthy natural resources, and it is clear that States, industry, and citizens all benefit from restoration.
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ASTSWMO believes that the natural resource programs under CERCLA and OPA are achieving the restoration goal. In terms of Superfund, the reauthorization process presents an opportunity to improve CERCLA NRD program.
Therefore, drawing upon our experience under OPA, I will focus on four primary improvements for the CERCLA NRD program.
The first improvement has to do with the statute of limitations. The current statute of limitations has generated confusion and litigation due to the vague language and the fact that claims are tied to the various promulgation dates of the DOI NRD regulations. This can force trustees to file premature claims prior to an understanding of the true nature of an injury. It can also force trustees to forfeit restoration of public resources at many sites.
We believe that CERCLA should be amended to be consistent with OPA, which provides that damage claims are to be brought within 3 years of the completion of the damage assessment. This would cure current problems and prevent unnecessary litigation.
The second improvement entails integrating natural resource damages into the CERCLA remedial process. This can be done by making natural resource damage assessment part of the remediation investigation and feasibility study.
Addressing natural resource damage issues at a site early on in the remedial process accomplishes four objectives: it decreases transaction costs, it helps decrease ultimate NRD liability at a site, it provides the finality that responsible parties desire at the end of the remedial process, and it promotes more timely and cost effective restoration, which is a shared goal of industry and trustees.
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Under OPA, these four objectives are being met since the OPA NRD program has evolved into an integrated system of cleanup, response, and damage assessment where trustees, spill responders, and responsible parties work together right at the start of a spill.
Under CERCLA, integration of cleanup and NRD is hampered by the SARA amendment which prohibits the use of Superfund for NRD assessments. This should be amended to allow EPA to fully coordinate with the trustees and integrate NRD into the remediation process for the benefit of all stake holders.
The third improvement involves getting access to Superfund for NRD assessments. The same SARA amendment which hinders EPA coordination with trustees also limits trustee ability to conduct assessment work at CERCLA sites. Under OPA, trustees have access to the oil spill liability trust fund, which has led to numerous successful settlements and restoration projects such as the Newark Bay project.
If Superfund monies were available to trustees for assessment work at hazardous sites, as CERCLA originally provided, it would improve the NRD process for all parties.
The fourth improvement has to do with the need for additional expedited assessment techniques under CERCLA. The simplified or expedited assessment techniques developed for oil spills under OPA are valuable tools that help minimize transaction costs and promote timely settlements. Developing expedited techniques for hazardous sites would benefit responsible parties by reducing transaction costs and would benefit the public since restoration could be initiated sooner.
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Finally, while ASTSWMO supports moving forward to improve Superfund, it strongly recommends retaining liability for natural resource damages at pre-1980 CERCLA sites. Considering the many older sites that still impact our resources 15 years later, eliminating retroactive liability will prevent the restoration of some of our most important resources and leave the public to contend with the continuing harm and economic consequences.
ASTSWMO opposes the elimination of lost use and nonuse damages. It is crucial to preserve trustee ability to measure all valid losses, both direct losses and, where necessary, indirect losses to the appropriate level of restoration.
Lastly, ASTSWMO urges Congress to resist efforts to arbitrarily cap or limit damage claims per site as has been suggested.
Thank you. I am available to answer your questions.
Mr. BOEHLERT. Thank you, Mr. McHugh.
And now our final witness, Mr. Charles de Saillan.
Mr. DE SAILLAN. Thank you, Chairman Boehlert. Good morning.
I'm Charles de Saillan, assistant attorney general for natural resources in the New Mexico Office of the Attorney General. I'm testifying today for Attorney General Tom Udall, who regrets that he was not able to attend this morning.
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I appreciate the opportunity to appear before you today on behalf of the National Association of Attorneys General and provide our views on the natural resource damage provisions of CERCLA and the Oil Pollution Act. These are issues of extreme importance to the State of New Mexico and to many of the members of the National Association of Attorneys General.
Our Nation's natural resources are among its most valuable assets. Our lakes and streams, our forests and wetlands, our beaches and coastal areas, our fish and wildlife, our underground aquifers provide us with sustenance, livelihood, and recreation. Even when reduced to the purest of economic terms, the value of these resources is enormous.
To give just one specific example, a recent study calculated that in 1991 migratory bird hunting in the United States generated retail sales of $1.3 billion, wages of $921 million, and tax revenues of $178 million. The figures for New York, Mr. Chairman, are retail sales of $18 million, wages of $7.2 million, and tax revenues of $1.9 million.
When natural resources are injured or destroyed by environmental pollution, the public suffers a tangible loss, often an economic loss.
The goal of the natural resource damage program is to restore natural resources that have been injured, lost, or destroyed as a result of the release of hazardous substances or the discharge of oil into the environment so that those resources may be used once again by the public.
We have heard a number of criticisms about the natural resource damage program recently, though most of these criticisms are unfounded, based on myths, half-truths, and misinformation. At the risk of belaboring the point a bit, I'd also like to dispel some of the myths about the natural resource damage program for the benefit of the subcommittees.
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The first myth, as Mr. Hall mentioned earlier, is that natural resource damages are a sleeping giant of Superfund, and that, once roused, it will plunder American industry with virtually unlimited liability. The reality, however, is quite different.
Most of the cases—from the point of view of the States, most of the cases that State trustees have pursued have been settled, many of them without any litigation at all, and the majority for relatively modest amounts, with $1 or $2 million representing the upper range.
The big multi-million-dollar cases that get all of the attention are the exceptions, and those cases involve tremendous injuries and destruction of natural resources.
The second myth is that trustees are relying on contingent valuation methodology to produce outrageously inflated claims. Again, as Mr. Hall stated, CV has been used very rarely. We are aware of only six instances in which a CV study has been conducted or is underway in order to support a natural resource damage claim.
The third myth is that trustees are using damage awards to line their pockets and fund the bureaucracy. The reality is that section 107(f)(1) of CERCLA and section 1006(f) of the Oil Pollution Act expressly provide that damage awards must be used only to restore, replace, or acquire the equivalent of the injured natural resources.
The fourth myth is that natural resource damage claims are somehow being used punitively. In reality, natural resource damage claims are not punitive, nor are they intended to be. They are designed and intended to recompense the public for injured natural resources. In fact, some States are actually using the program as an alternative to punitive penalties. When a toxic release occurs, the program is used to restore the injured resources rather than hitting the company with a fine. The company gets to take credit, so to speak, for getting the resources restored, and it probably can even take a tax deduction for the restoration costs. The Government gets credit for getting the resources restored. And, most importantly, the public gets the benefit of those resources once again.
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The National Association of Attorneys General has adopted resolutions urging Congress to pass several amendments to improve the natural resource damage provisions of CERCLA. They are quite similar to the ones that Mr. McHugh referenced a minute ago.
First of all, the statute of limitations needs to be amended. This is an issue of critical importance to the States. The current law is highly ambiguous and is bound to engender a great deal of litigation over its meaning. In fact, it already has.
Some interpretations, such as the recent Montrose decision in California, would have the effect of virtually wiping out the natural resource damage program. We urge Congress to adopt in CERCLA provisions similar to those in the Oil Pollution Act.
Second, the statute should be amended to allow funding from the Superfund for natural resource damage assessments and restoration, as under the original 1980 law.
Third, CERCLA should expressly provide for judicial review of trustee decisions on an administrative record subject to a deferential standard. Such a revision would greatly reduce litigation and associated transaction costs and would also result in a much more open decision-making process.
Fourth, CERCLA should expressly provide for the recovery of enforcement, oversight, and indirect costs.
Finally, CERCLA should be amended to clarify the authority of trustees to conduct regional restoration plans.
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Industry representatives have proposed a number of revisions to weaken the natural resource damage provisions of CERCLA. Although we haven't seen any proposals to repeal those provisions outright, the proposals we have seen would have virtually the same effect.
We strongly oppose these proposals, as stated in a May 11, 1995 letter to Senator Robert Smith signed by 35 attorneys general, which is included in the attachments to my statement.
The first and most devastating of these proposals would be the elimination of liability for pre-1980 disposal, which would have a devastating effect on the natural resource damage program.
The second proposal would be to revise the $50 million cap on liability which currently applies per release or incident involving a release. The proposal is to have it apply per site. While such a revision would have an impact on only a few sites, it would impact the very sites where the injuries and destruction of natural resources are the most severe. It would transfer the additional cost of restoring those resources to the taxpaying public or, in a lot of cases, leave those resources unrestored. We believe that the cap on liability should be eliminated altogether.
A third industry proposal is to eliminate the use of contingent valuation for determining damages. Such a revision would deprive trustees of a useful tool that they have in getting a handle on the cost of natural resources that are not traded in the marketplace such as, for example, a bald eagle habitat.
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That concludes my testimony. I'll be happy to take any questions that you might have.
Mr. BOEHLERT. Thank you very much. We're going to have a 5-minute rule apply to all the questioners.
Let me ask a general question to start. Under the existing law, Superfund cannot be used for the restoration of lands and waters left permanently impaired by hazardous waste, so if we repeal retroactive liability as it applies to waste dumped prior to 1980, how will the natural resource damages be paid for? Ms. Schiffer?
Ms. SCHIFFER. Let me take a try at that, Congressman Boehlert.
Restoration of those natural resources would not be paid for if liability is repealed. When we are talking about retroactive liability there is still an ongoing problem that we are talking about in which some of the disposal occurred before 1980. The Superfund fund is not available to do that restoration. There just would not be that restoration.
We do try to work so that some of the cleanup of the Superfund site, itself, does go some way toward helping improve the natural resource damage situation, as well, but as for any remaining natural resource damage, there would not be funding to clean it up.
Mr. BOEHLERT. Mr. de Saillan?
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Mr. DE SAILLAN. Thank you, Mr. Chairman. I want to respond to that question from New Mexico's point of view.
I agree with what Ms. Schiffer said, but in New Mexico we have approximately 60 sites that we have identified which involve damages due to injuries to natural resource. At maybe three or four of those sites there was a significant amount of disposal that took place after 1980. So the vast majority of the sites in New Mexico could not be addressed if liability for pre-1980 disposal were eliminated.
We have no Superfund in New Mexico. We have no other means of funding the restoration of such injured resources if the liability scheme were to be changed. As a result, those resources would remain unrestored.
Mr. BOEHLERT. Mr. Hall?
Mr. HALL. Mr. Chairman, I would only add that if you look at the major cases where there have been massive damage to natural resources around the country, at Bunker Hill and Clark Fork in Montana, the Montrose Case, the other major cases, in all of those cases our ability to make recoveries would be severely limited.
So you would end up—either the taxpayers would have to pay for these cleanups or they wouldn't be done.
Mr. BOEHLERT. When you talk about ''massive damage,'' how many cases are we talking about?
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Mr. HALL. Mr. Chairman, I think we have identified about 15 that I would consider of that category. It is in the hundreds of millions of dollars in terms of potential damages. There may be other cases, but we don't think there are many more, and we think we have a pretty good idea of what the universe is at this point.
Mr. BOEHLERT. Well, if there are a small number of these massive cases where the NRD sites require something over $50 million for restoration of claims, why can't we have a limit on potential liability for the 95 or 96 or 97 percent that won't come to that massive definition?
Mr. HALL. Mr. Chairman, I don't think we want to foreclose the opportunity to seek compensation for the public if it is appropriate, and so I think we certainly are interested in a dialogue on those issues and we're open to discussion of that, but I think it is important to establish fairness to all potentially responsible parties and not treat one class in a way differently from others.
I think your suggestion is something we should talk about.
Mr. BOEHLERT. Mr. Coble?
Mr. COBLE. Thank you, Mr. Chairman.
Lady and gentlemen, it is good to have you all with us. Folks, I don't want you all to assume from my opening statement or from my questions that I am not sympathetic to victims of polluters. I am, indeed. I think that they should be made whole. But I'm also concerned, folks, about what in many instances appears to me a lack of balance being applied. That's the direction from which I come.
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Let me ask, if I may, Mr. Hall and/or Mr. Davison the first question. Do you know the amount of money that DOI and NOAA has expended on developing NRDA regulations—and by that I mean all costs, salaries, benefits, travel, etc.? Do you all have a ball yard figure for that?
Mr. HALL. Mr. Chairman, I can only talk—the total budget for the natural resources unit in our general counsel's office that works through the damage assessment program is a very small budget, only several million dollars a year. It is a very small part of NOAA's budget.
In terms of what went into establishing the regulations, I would have to defer. I would be glad to provide that information for the record.
Mr. DAVISON. Mr. Chairman, I do not know the amount that actually went into the regulations and the FTEs, but I'd be happy also to supply that for the record.
Mr. BOEHLERT. If that does not create great amounts of work, I'd like to know that, just as a matter of information. Thank you.
[The information to be provided follows:]
Since forming a team, late in 1990, to develop the natural resource damage assessment rules under OPA, NOAA has spent approximately $2,570,370, as of July 1995. This total covers FY91, FY92, FY93, FY94, and FY95, as of July 1995, and includes all salaries and benefits, travel costs, printing costs, contracts, supllies, mailings, rent and utilities, and equipment. The break down per year: FY91—$304,970; FY92—$1,115,200; FY93—$562,700; FY94—$375,100; and FY95—$212,400 (to date).
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Mr. COBLE. Ms. Schiffer, if a NRDA claim exceeds a responsible party's limit on liability or his or her ability to pay, logistically how do you all at Justice go about seeking compensation? Would you, for example, proceed against Federal and/or State spill funds?
Ms. SCHIFFER. Congressman Coble, the way that would come up for us is if we brought a case to recover natural resource damages and the person who we thought was a responsible party under the statute said that they couldn't pay, they would have inadequate funding to pay. We would treat that the same as we treat any other ability to pay. We would take a hard look at their financial resources and, if we concluded that they didn't have financial resources, then we would settle out with them at a level that was within their means.
It is something that we take. We would then look to see if there were any other sources of funding to undertake that restoration. But we are very conscious of the fact that sometimes people are not able to pay, and it is something that, throughout our entire Superfund program, including the natural resource damages component, we try to take into account as early as possible to be sure that, if people can't pay, we settle them out at something within their means.
Mr. BOEHLERT. Thank you.
Mr. de Saillan, this may sound as if it is a rhetorical question, but I'm not sure how you'll respond to it. It is your opinion that—strike that. What is your opinion as regarding States' response to a preemptive, uniform, Federal NRDA standard? Would they favor it? Would they reject it? Would they be uncertain about it?
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Mr. DE SAILLAN. I think that there would probably be mixed feelings among the States for such an approach. I know, for example, in New Mexico, as in many other States, we do not have our own State natural resource damage program. We rely on Federal law exclusively, so such a law would not impact New Mexico. However, there are a number of other States that I'm aware of that have their own program that are very successful, and they do not rely on the Federal law/statute at all.
I think that the States would probably not have a unified reaction to such a Federal law.
Mr. COBLE. Mr. McHugh, what says New Jersey about this?
Mr. MCHUGH. The question was a Federal preemptive statute, right?
Mr. COBLE. Yes.
Mr. MCHUGH. Right at the moment we don't really—I would agree with Mr. de Saillan, Congressman, because there are States that are in different positions at the moment in terms of developing programs. At the moment, 25 States are working on natural resource damage issues, but they are in various stages of program development, so you're going to get a mixed reaction on that.
At the moment, though, we are all pretty much working very closely together with our Federal trustees, NOAA and DOI. There is good coordination nationwide, in my opinion, throughout the country with the co-trustees. We are mandated to work together.
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Mr. COBLE. I have a couple of other questions, but I see the chairman has illuminated the red light so I will withdraw.
Thank you, Mr. Chairman, and thank you, ladies and gentlemen.
Mr. BOEHLERT. Ed, we'll have the opportunity for a second round.
We have with us today the ranking member of the full committee, Mr. Mineta of California.
Mr. MINETA. Let me ask unanimous consent also to submit an opening statement, Mr. Chairman.
Mr. BOEHLERT. Without objection.
[Mr. Mineta's prepared statement follows:]
[Insert here.]
Mr. MINETA. Let me ask a general question, first of all. What is your reaction to the suggestion that recovery for interim lost use and passive use should be barred because it is over and above the amount needed to restore, replace, or acquire equivalent resources? In conjunction with that, how do trustees spend recoveries for interim lost use and for passive use? Secretary Hall?
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Mr. HALL. Congressman, the statute requires that we spend all of the recoveries either to restore, replace, or acquire equivalent resources. We do not spend the funds for other purposes.
The calculation of passive use values or interim loss values is only used to make sure that the amount spent on the restoration is not inconsistent with what the value of that resource is. So I think that we are complying with the statute and we are adhering very carefully to that.
Mr. MINETA. Let me ask, Mr. de Saillan, in your view are legislative changes necessary to improve coordination between remediation and natural resource restoration? If so, what legislative changes do you recommend or what can be done more informally or administratively in order to improve coordination?
Mr. DE SAILLAN. I think that the trustees, as Mr. McHugh indicated—certainly in my experience in New Mexico is that the trustees are working together very well. In New Mexico we have a very good working relationship with the Federal trustees, Department of the Interior, and the Department of Agriculture, which has the Forest Service. Unfortunately, New Mexico is not very wealthy in coastal and marine resources, so we have not had the opportunity to work with NOAA much. However, we also have a very good working relationship with the Environmental Protection Agency, and we have been involved in the remediation process under Superfund very early on to make sure that natural resource damage issues are addressed.
Notwithstanding that, I think that there probably are some things that can be done in the law. We don't have any specific proposals but to require more coordination and provide for more coordination between the restoration process and the remediation process early on.
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Mr. MINETA. Mr. McHugh, what about you, as associated with the Association of State and Territorial Solid Waste Management Officials? Do you have any thoughts in terms of any kind of suggestions?
Mr. MCHUGH. Yes, we do, Congressman. Thank you. Right at the moment, depending on the EPA region, you have different levels of coordination of natural resource damages and cleanup. I think there is a slight problem at the moment in that EPA is having difficulty focusing on the issue because there is a SARA amendment that hinders their use of Superfund to address natural resource damages during the restoration investigation and feasibility study.
Even though they attempt and we attempt also to work with EPA through the biological technical assistance group and the NOAA CRC program—coastal resource coordinator group—it would be beneficial if we had that situation clarified so that EPA could expend more effort with the trustees early on in the RIFS process. There are a lot of things that can be done during the RI, like when you are out in the field collecting data, if you look at natural resource issues early on you can reduce the cost of an investigation for natural resource damages by collecting that data while you are in the field doing other work for the remedial investigation feasibility study.
Mr. MINETA. Can that be done administratively rather than by legislative change?
Mr. MCHUGH. I would like to defer that answer until I research it a little bit further. I'd like to answer that question in writing, Congressman.
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Mr. MINETA. That would be fine.
[The information received follows:]
[Insert here.]
Mr. MINETA. If there are any other suggestions that the Association of Attorneys General would be considering, I think that would be helpful to us, as well.
Mr. DE SAILLAN. I would like to add one point, if I could. Somewhat of a hindrance to coordination early on is the lack of funding for natural resource damage assessments. It is real tough, when EPA is moving along to do its remediation for the trustees to get involved when they don't have any funding to assess the injuries to natural resources.
One of our proposals is to provide for funding from the Superfund for natural resource damage assessments. I think that is a key component to the coordination issue.
Mr. MINETA. Mr. Chairman, if I might ask Mr. Davison very quickly—
Mr. BOEHLERT. Sure.
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Mr. MINETA. A little later on we will hear from another panel that proposed damage assessment models be developed by the Interior Department, and especially where they have produced damage assessments of $45,000 per gallon of oil released.
Would the latest version of your computer models generate damage assessments of $45,000 per gallon?
Mr. DAVISON. Congressman, I think the latest version of the computer models is out, has been distributed for public comment, and when it has been applied to over 300 historical spills typical of a given year, the maximum that it generated was more on the order of about $40-some per barrel, and for many small spills generated a value of zero. The maximum was $44 per barrel when applied to over 300 historical spills.
Mr. MINETA. Thank you very much.
Mr. BOEHLERT. Mr. Chairman, maybe Mr. Hall can shed some light on that because staff advises that was a NOAA model under OPA rather than DOI under Superfund. Are you familiar with that, Mr. Hall?
Mr. HALL. Yes, and we're working on it. We have received a number of comments to our proposed rule and to our proposed model, and we are making some revisions in that. I might want to defer to one of—either Craig O'Connor or somebody else on the NOAA staff for some of the technical details.
Mr. BOEHLERT. Can you get back to the committee with something in writing in response to that specific question?
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Mr. HALL. Yes. I'd be glad to.
[The information received follows:]
[Insert here.]
Mr. MINETA. Thank you very much, Mr. Chairman.
Mr. BOEHLERT. Thank you.
We are privileged to have as a member of the subcommittee the chairman of the full Committee on Natural Resources, our colleague Mr. Young of Alaska.
Mr. Young?
Mr. YOUNG. Thank you, Mr. Chairman.
My interest primarily is in the OPA part of this provision.
Mr. Davison and Mr. Hall, several States such as Florida and Washington use their NRDA models and formula. How are the States' approaches different than proposed by DOI and NOAA? If the different models or formula results in dissimilar damage assessment, is not the validity of genetic NRDA models and formula brought into question? Either one of you. I don't care which one answers.
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Mr. HALL. Let me see if I understand you.
Mr. YOUNG. You have States that have their own models, such as Washington and Florida.
Mr. HALL. Right.
Mr. YOUNG. If their approaches are different than proposed by DOI and NOAA, if the different models or formula result in dissimilar damage assessments, is the validity of your proposal not brought into question?
Mr. HALL. Mr. Chairman, I think that I would like to defer to one of the people on our staff who is more familiar with technical details of how these models are used.
Mr. YOUNG. With all due respect, you are testifying—both of you—today. That's the third time I've heard that you've got to defer to someone else. If we have someone who has better answer, I'd suggest you sit down and let them sit in your seat.
Mr. HALL. Mr. Chairman, I think that the one thing I would like to say about the models and the use of the models is that this is a way to simplify the process and to reduce transaction costs so the potentially responsible parties who want to settle quickly can do so. It is not—if any of the potentially responsible parties object to the model or the results from the model or feel that there is unfairness in the models, then they can request and receive a site-specific evaluation. I think it is important to understand how these models are used.
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We are in the process right now, through reproposing our rule for OPA, in looking at the models very carefully. We have received a lot of comments raising some of the concerns that you have raised, and we are going to address those concerns in the revised rules that will be published in a couple of weeks.
Mr. YOUNG. The other thing is: do you believe there is a conflict of interest in that DOI and NOAA are developing the NRDA regulations, will serve as natural resource trustees, and will provide support service and research to trustees funded through damages paid by the responsible parties? Do you see any conflict there?
Mr. HALL. Mr. Chairman, I don't. I think that this is where the expertise in the Federal Government resides—in these agencies. The employees who have worked on these programs and understand it are the appropriate people to develop the rules and regulations.
Mr. YOUNG. My biggest problem, Mr. Chairman, I may suggest that we have a specific example where the first $300 million from the Exxon Valdez spill went into the respective agencies for studies, and we never appropriated that money. There was no decision made on what study should be made. In fact, DOI had one study of taking live birds and drowning them in oil. That's documented.
I have a real strong feeling about monies that are raised by the trustees or regulations set forth and this Congress has nothing to say about how those agencies shall spend that money.
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Mr. Chairman, one thing we are going to get clear before we finish this is it will come before my committee, the OPA part. The agencies are not going to have free reign to decide how they shall spend those dollars or create dollars that this Congress may cut from their budgets to replace it through the findings by the trustees. I want you to keep that in mind.
The last thing I might suggest is: how do you justify the retroactive part of it? If Mr. de Saillan was mining in 1895 and did some terrible damage which was perfectly legal at that time, and he left that mine to the gentleman next to you from New Jersey, he inherited it and he did not operate it, and then 25 years later Mr. Davison buys the property and he does not mine it, and then Mr. Hall buys the property and he does not mine it, either, but Ms. Schiffer buys the property and happens to be a large company, and now the Justice Department and everybody else goes clear back to de Saillan's previous actions and find Ms. Schiffer guilty and responsible for the actions of Mr. de Saillan in 1895 and hold them responsible for a little bit over $200 million in cleanup costs.
I would suggest Ms. Schiffer not buy that property, but that is the reality and that has happened. Where is the justification for that? Could somebody answer that for me?
Ms. SCHIFFER. Congressman Young, perhaps I could try to answer it since I am the purchaser.
Mr. YOUNG. Mr. de Saillan has passed away, by the way. Go ahead.
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Ms. SCHIFFER. There is a whole series of questions encompassed in what you say, and since we are not in the middle of a law school exam let me just make a couple of specific points.
The first is that when you are talking about retroactive liability you are talking about the fact that, under your example, somebody disposed of waste there in 1895 but there is continuing presence of those wastes and continuing harm to natural resources that is being caused by those wastes. Otherwise, we wouldn't be having this discussion. So the public continues to be injured by those wastes.
Second, who the responsible parties are in your chain of examples that you have given really requires a person-by-person inquiry. We can't make just a general principle of it. Owners and operators are liable, are responsible parties and, I might add, not guilty parties but responsible. This isn't a punitive statute.
But the question—when somebody inherited from somebody else are they responsible?—is a different question from if I, as the purchaser, who should have been on notice about this, buy it. Am I responsible? It may well be that not everybody in that chain that you've listed is responsible.
Some of those people who may have operated that site and owned that site when the damage was being caused could well be responsible. That's what is fair, is that if people contributed to the problem they should have some responsibility for cleaning up the problem.
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Mr. YOUNG. But if they have not—if you did not contribute to the problem, what is your responsibility other than the fact that you made a stupid mistake and bought the thing?
Ms. SCHIFFER. I'm sorry. I'm having trouble hearing you.
Mr. YOUNG. What I'm saying is you never had anything to do with it. In fact, the other three people had nothing to do with it, either. How can you be responsible for the action of Mr. de Saillan? Yet, that is happening right now. You have a case I know of that is being, I believe, pursued by EPA or the Justice Department where someone had no knowledge—and I do agree that they weren't too smart for revealing this—bought the property but have not operated it, have done no damage, have never operated it. But now they are cited with a $200 million fine.
Ms. SCHIFFER. Right. I can't address the facts of any particular case because I don't know what you have in mind, but as a general matter, if I buy the property knowing what I'm buying, going in knowing there is a natural resource damage problem there, then the market should take care of that problem. I'm going to probably pay a very low price for that property because I know that I am buying it subject to the natural resource damage problem and I shouldn't be in a position where I get a very cheap property and then don't have to pay to restore the resource.
Mr. YOUNG. Mr. Chairman, we'll pursue this a little further. Like I say, I cannot understand how someone can be held responsible for your actions in 1895 when you haven't done any of the problem—none of you did.
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Mr. Chairman, we're about ready to have a vote.
Mr. BOEHLERT. All right. Thank you very much, Mr. Young. We will recess for a few minutes so we can go answer the call of the House. We will try to be back within 15 minutes.
[Recess.]
Mr. BOEHLERT. The committee will resume.
I must apologize for the schedule of the House over which those of us up here have very little control.
We will resume the hearings. We have a substitute. Mr. O'Connor is in for Mr. Hall. We understand the change there. Mr. Davison, we understand you have to leave at 1:30. We understand that, too. We are an understanding committee.
Why don't we go now to the ranking minority member, Mr. Borski of Pennsylvania?
Mr. BORSKI. Thank you, Mr. Chairman.
I guess the first question I'd like to propose to the panel, and perhaps Ms. Schiffer, is: do you or anyone else care to follow up or respond further to Mr. Young's questioning, which I thought had a very legitimate question to it. Ms. Schiffer or Mr. de Saillan?
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Mr. DE SAILLAN. Congressman Borski, I'll take that.
There are a couple of points that I'd like to make regarding the hypothetical that Congressman Young described.
The first thing is that the only folks who would be liable in this chain here are the owners and operators at the time of the disposal or the current owners/operators. So if there are no disposal activities on the site that took place, there would be no liability that would attach to former owners/operators.
Second, in his hypothetical one of the folks in the chain of title had inherited the property. There is an exemption in CERCLA from liability for folks who inherit property.
The third thing is, as to the final purchaser, which was Ms. Schiffer in the hypothetical, if she had made reasonable inquiries into the history of that piece of property and not found anything, she would be entitled to an innocent landowner defense and she would not be liable under the statute, either.
I also want to point out that the bills that were introduced last year would have expanded the innocent landowner defense to address the potential unfairness to innocent landowners. That was legislation that we supported, and we feel that is a much better way of addressing this potential unfairness than completely eliminating retroactive liability.
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Ms. SCHIFFER. Congressman Borski, just to add a few things, the Federal Government also supported those amendments as part of the coalition proposal on Superfund reform last year. There was also a corporation successor component of that hypothetical, I believe and, of course, what responsibility a successor corporation has is a function of State law principles. We just take the State law as it comes. That has nothing to do with the requirements of the Superfund statute or the NRD statute.
Finally, what it really comes down to is an owner who has a role in the ongoing polluting activity should have some responsibility for cleaning it up. That's what is fair to the public, and that's really what we are looking to here.
Mr. BORSKI. Thank you very much.
Let me ask any other witnesses, but particularly the States: is restoration to pristine conditions the goal of the NRD programs? If not, what conditions are trustees trying to attain? Could you give some examples? Mr. McHugh?
Mr. MCHUGH. Sure. Thank you, Congressman. We're not looking to restore to pristine conditions. What we're looking to do is restore back to the conditions that existed at the time of the release.
It has been said that the trustees are being unreasonable at particular sites in that they are requiring restoration to the exact degree that the resources existed at that site prior to the release, where in a lot of cases that I'm working on now—and I know that other States are working on now, as well—we are looking to do restoration through acquisition of the equivalent or replacement in the same watershed or the same aquifer to make up for the services lost. We are not requiring to pristine conditions at all sites.
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Mr. BORSKI. Anybody else?
Mr. DE SAILLAN. I would agree with what Mr. McHugh said, at least in New Mexico's experience. Ours is a very young program at this point. We don't have as much experience as New Jersey does. But at virtually all of our sites we are looking at a range of options, and restoration, as much as we can, is one of the options, but where complete restoration at a particular site is not possible, where it is not technically feasible, where it is not cost-effective, we are looking at other means such as replacement or acquisition of the equivalent of the injured resources.
Mr. BORSKI. Mr. O'Connor, let me ask you a question, if I may. What role does cost play in determining how to address natural resources damages? What would be the impact of a requirement for selection of the most cost-effective approach to restore, replace, or acquire the equivalent resource?
Mr. O'CONNOR. Mr. Congressman, at this point cost plays a very important role in our determinations as to what we are going to do to restore natural resources. In most instances, each of our cases have resulted in a settlement, and that settlement has been through the process of negotiating out a dollar responsibility for the responsible parties.
Within that context, we have got to make the greatest use of the available resources that we have generated through that litigation or through that settlement, and we are very sensitive to the cost of the restoration options that we are exploring. We look at the input from the public. We look at input from the responsible parties in that process, the effected community, to be sure that we get the greatest return on the invested dollar because we are spending those dollars on behalf of the people of the United States.
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If we were required to conduct a cost/benefit analysis or a cost effectiveness analysis—I believe that's what you referred to—we would welcome that opportunity. It is not a threat to us, sir. We do that as a matter of course.
Mr. BORSKI. Generally you'd say you do that now?
Mr. O'CONNOR. Yes, sir.
Mr. BORSKI. Mr. Chairman, do I have time for one more question?
Mr. BOEHLERT. Sure.
Mr. BORSKI. I didn't know if my time was expired or not.
Ms. Schiffer, let me ask you: one of the main criticisms of Superfund that we have been struggling with is how to protect the little guy, the small business, the small waste contributor, from disproportionate and unfair cleanup and transaction cost. Is small business also caught in the web of natural resource damage program? If so, what legislative changes do you or would you propose to protect them?
Ms. SCHIFFER. Congressman Borski, we're very concerned about protecting the little guy, too. We haven't heard particular complaints in the natural resource damage context, but I will tell you that in that context we do the same as we would do in the Superfund cleanup side of the house; that is, we try to get any small parties out of the system early, and that includes out of the natural resource damage piece of the system early, and to that end we have any number of settlements where we go to the natural resource damage trustees and say, ''Do you think there is a problem here? Can we settle out this small entity?'' and give them a complete release from any natural resource damages.
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We take steps under the present statute to get them out of the system as early as possible. Some of the proposals for reform would make it even easier to get the little guys out of the system early, like the de micromis people, and, as you know, in the context of Superfund reform we favor that, and any carryover in natural resource damages would be welcome.
Mr. BORSKI. Good. Thank you very kindly.
Mr. BOEHLERT. Let me just jump in. You say when you have a problem with a small business entity you go to the trustees and you say, ''We want to resolve this in a different way.'' How do you do that? Which trustees?
Ms. SCHIFFER. Who the trustees are depends on what the resource is. The statute provides, on the Federal side, that it is generally either Department of the Interior for certain resources, NOAA for other resources, and sometimes the Department of Agriculture. There are a few other Federal agencies. The State is trustee for certain resources. These tend to be some of the river resources. And then tribes are sometimes the trustee for resources.
So we look at the resources, see if there is damage, go to the affected trustee and say, ''Have you done an assessment here? Based on what you know, are you willing to give this party a release out from any possible natural resource damage liability that there may be?'' In settling out Superfund cases, we definitely do give releases to small parties from natural resource damage potential, as well as from Superfund response costs potential.
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Mr. BOEHLERT. Thank you very much.
Mr. Traficant.
Mr. TRAFICANT. Mr. Chairman, I ask unanimous consent my opening statement be incorporated in the record.
Mr. BOEHLERT. Without objection.
[Mr. Traficant's prepared statement appears on page——.]
Mr. TRAFICANT. Mr. Chairman, I ask unanimous consent that my questions—four of them in total—be given to this panel and that they respond in writing, those that are applicable to each of those.
Mr. BOEHLERT. Fine. Without objection. There will be others that may have questions to submit to you in writing, and we would appreciate a timely response.
Anything else, Mr. Traficant?
Mr. TRAFICANT. No.
Mr. BOEHLERT. Thank you. Mr. Baker?
Mr. BAKER. No questions, Mr. Chairman.
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Mr. BOEHLERT. Mr. Poshard?
Mr. POSHARD. Mr. Chairman, thank you. Mr. Chairman, I would also like to ask unanimous consent to submit an opening statement for the record and to submit a list of written questions to the panel.
Mr. BOEHLERT. Without objection.
Mr. POSHARD. But I would like to ask one very quick question, if I may. I guess I would direct this to Mr. Davison. Having come in late, I'm not sure who is here representing the NOAA. Mr. O'Connor? Perhaps both of you would respond to this, if you would. It may have been asked already. I don't know.
We are downsizing in the Federal Government. We're trying to find ways to cut spending and so on. Does it make any sense to you that both of your Departments, two different agencies and two different Cabinet positions, continue to have the authority delegated to you for developing regulations to assess natural resource damages? Shouldn't it be in one agency or the other? Why does it have to be in both?
Mr. DAVISON. Congressman, I don't know that it has to be in both. I think we work, but I think our obligation is to work as one entity, the Federal Government, and we work very closely together in promulgating and developing the regulations under the two respective statutes.
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I think that it is done in an efficient and an effective manner. It certainly isn't the only way it can be done.
Mr. POSHARD. This is the only way it can be done?
Mr. DAVISON. No, it certainly is not the only way it could be done, but I think it is done in an efficient and coordinated manner.
Mr. POSHARD. Okay. But we run into problems all the time with respect to issues like wetlands and others, of which both of you are very familiar, having multi-department jurisdiction. I'm just wondering if this is one of those areas where we may be experiencing sort of the same sort of thing, at least from the view of business and industry and so on.
It seems problematic to me to have regulations developed among a number of agencies when it may be done very efficiently and more cost-effectively in this downsizing era by only one.
Mr. O'Connor, would you share?
Mr. O'CONNOR. Just to add a contextual note, Mr. Congressman, when NOAA was assigned the responsibility for doing the Oil Pollution Act regulations we hired the people from the Department of Interior who had worked on their regulations to come over and help us. There was basically a transference of experience and background.
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At this point the two agencies will have regulations that are intertwined. They have been worked up hand in hand. They are in no way inconsistent with each other, and at some point they probably should be merged into a single regulatory package with one or the other agency responsible for maintaining and updating those regulations.
Frankly, the NOAA staff that works on it—I think I've got a total of three people, but we really are very, very lean in this area because we cross exchange effort between the two Departments to get the job done.
Mr. POSHARD. Is it true or not true that the damage assessment regulations, though, that are developed by the Department are optional for Federal trustees?
Mr. O'CONNOR. According to both CERCLA and the Oil Pollution Act, compliance with the regulations is optional. It is not a decision of the regulatory agencies; it was a decision of Congress. If a trustee were to comply with those regulations in conducting a damage assessment, then they are accorded what is referred to as a ''rebuttal presumption'' of correctness for that assessment. There is no requirement that the assessment be conducted in accordance with those regulations by statutory mandate.
Mr. POSHARD. Is it any of your opinions that Federal trustees, in particular, ought to be required to follow regulations developed by Federal agencies? Why do we leave this optional?
Mr. DAVISON. I think, at least in one set of circumstances, where it may be advantageous to have this structure is that in cooperative efforts, or as part of settlements with other trustees—State trustees and others—it is useful to have some flexibility in perhaps not completing the full damage assessment as part of a cooperative effort or as part of a settlement agreement. That's the major—otherwise, we follow our regulation.
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Mr. POSHARD. So in your estimations it is satisfactory the way it is being optional?
Mr. DAVISON. Yes.
Mr. POSHARD. Thank you, Mr. Chairman.
Mr. BOEHLERT. Mr. Baker?
Mr. BAKER. I have two brief questions.
Mr. Davison, if you will, do you have any estimate of the potential liability for natural resource cleanup faced by Federal facilities? It has been estimated that DOE's alone is $300 billion. Any idea what the iceberg looks like?
Mr. DAVISON. No, I don't, although I think, with respect to—I think our judgment is that the majority of sites are very small, as we have found in the past, and that the future is going to look much like the past; that there will be some relatively few large sites, but we think we largely know the universe there.
I believe—I'm not terribly familiar with that estimate, but I believe what that estimate was related to is actually quite smaller than that and was related to the total cost of cleanup and not natural resource damage restoration.
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Certainly our experience has been that natural resource damage restoration is a very small percentage in relationship to total cleanup costs.
Mr. BAKER. So you are splitting out now the environmental cleanup cost of a laboratory or a military base versus a natural resource damage?
Mr. DAVISON. Splitting the cost of actual cleaning.
Mr. BAKER. The next panel then will receive our attention.
Ms. SCHIFFER. Congressman Baker, if I may add, the $300 billion number is just wrong. The Department of Energy's 1995 baseline environmental management report estimates that approximately $65 billion may be spent over the next 75 years on all cleanup activities. That is not just NRD activities. And when you're talking about the Department of Energy you are talking about a very long time frame. So the number is wrong, and an even lower number stands for a completely different composition.
Mr. BAKER. While I have you, the GAO has announced that we've settled 98 natural resource damage cases for an estimated total of $106 million. What are the total natural resource damages claimed by the Federal agencies at the sites represented? And what are the total natural resource damages that remain unsolved?
In other words, included in those 98 natural resource damage cases that are settled, five of them were bankruptcies and there were all kinds of contingencies. What's left on the table?
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Ms. SCHIFFER. I'd like to provide that for you because I want to be sure that I have the right universe of cases. It would be most helpful if I can do that in writing.
For some of those areas there hasn't yet been a completed assessment, so we aren't dealing with final numbers, but I would be pleased to provide you with the best information that's available.
[The information received follows:]
[Insert here.]
Mr. BAKER. The reason I'm asking is that, especially in Superfund more than the natural resource damages, the public in my district—all they see is law suits, everybody trying to avoid responsibility. Nobody is cleaning up. So then we announce we've got this grand plan, we only have 300 billion to clean up.
Ms. SCHIFFER. One of the things that we're finding—and this is for both Superfund and the natural resource damage component of Superfund—is that a lot of cases settle, which does lead to cleanups and leads to more quick cleanups. Frankly, under the present liability scheme, it leads to over 70 percent of the cleanups being done by private parties, which people believe is a more efficient way to do it.
Mr. BAKER. Wouldn't it be more efficient to stop trying to pin the tail on the donkey and get someone to clean it up?
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Ms. SCHIFFER. We are very much in favor of getting somebody to clean it up, and we think that the present liability system under Superfund is the most calculated to get people to settle cases and get ahead with the cleanups.
In fact, the last time I testified here we provided the committee with a chart, which I would be pleased to provide you, that shows that, indeed, EPA is moving along with a lot more cleanups than had been done in the past. I don't have the numbers in my head, but I would get you that chart.
Mr. BAKER. It is not cheaper then for a corporation to continue to fight for 200 years than to actually clean it up?
Ms. SCHIFFER. It is a lot cheaper for a corporation to clean it up rather than fight for 200 years. We would certainly agree with that.
Mr. BAKER. We hope the new bill and the revisions in the bill will make it so.
Ms. SCHIFFER. What I would also add is that we think that having coordination so that the natural resource damage restoration is done alongside with the rest of the cleanup so that they are coordinated is also a most efficient and effective way to do it.
Mr. BAKER. Thank you. And thank you, Mr. Chairman.
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Mr. BOEHLERT. Thank you.
Mr. Davison, regulations issued by the Department in 1986 did not allow the recovery of nonuse damages where lost use damages could be determined. Should we codify that policy?
Mr. DAVISON. No. I don't believe so, Mr. Chairman.
Mr. BOEHLERT. Why not?
Mr. DAVISON. Because I think that lost passive use values—that there is value there, that there is existence value, and that there is a bequest value of value to future generations of what we leave them. I think that we need to make sure that we reliably estimate those. We think we have recent studies that show that contingency valuation can reliably estimate that lost passive use.
But I think many people, if not most people, would agree that the one value that we know is wrong for passive use value is zero and that it is something more than zero.
Mr. BOEHLERT. Ms. Schiffer, you seem anxious to comment.
Ms. SCHIFFER. Yes. Congressman Boehlert, one of the things I have found in this is that a lot of fancy terms get thrown around and that it sometimes helps to think about it by analogy.
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To me, the easiest way to think about it is apart from the natural resource damage side. If you have a car wreck you take your car to the repair place and one thing that happens is there is a cost of repairing the car. In the two weeks that it takes them to do it, you'd probably want to rent another car or have some other car available. You are injured by the amount it costs you to pay for that extra two weeks of the car. That's the lost use value.
Similarly, if there is a spill of chemicals into a river or spill of oil into a river and the fish are all killed, it takes a while to restore the fish to that river, and in the meantime the commercial fishermen and the sports fishermen and the people who otherwise enjoyed those fish are injured.
When we are talking about lost use values, we're talking about giving them some other place to fish or other place to make a living while that's being repaired.
So I think it is just helpful to understand what we are talking about in that way.
In terms of passive use values, another high-flung term, again I think it is helpful to think about it in terms of, when you are sitting here now, if you cast your mind back to your District in New York it gives you a certain amount of good feeling—I assume you would say—to know that your District in New York is there. When we are talking about ''passive use values,'' it is when we sit here, we, as Americans, get a certain amount of value out of knowing that our national treasures like Yellowstone Park are there.
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We won't tell you it is the easiest thing in the world to measure that, but it is that kind of value that we're talking about and that kind of compensation for the loss of that that we're talking about.
There is a loss, and there isn't a doubt that when those resources are injured that the American public is hurt. That's what we're trying to get at when we're talking about passive use values, and that's what is in this statute.
Mr. BAKER. Would you yield?
Mr. BOEHLERT. Mr. Baker?
Mr. BAKER. I thought you told me that you were going to make it cheaper for them to clean up the mess than to fight it in court. Now you build a box big enough so that no one would ever admit doing wrong. Passive use? The loss that it may not be there in someone's mind?
Ms. SCHIFFER. Congressman Baker, the statute presently provides for that. In fact—
Mr. BAKER. But the question was: should we get rid of that? Should we get back to the initial cleanup?
Ms. SCHIFFER. One of the ways you can minimize the passive use value is to do a restoration and do the restoration quickly. In fact, passive use values have been evaluated in very, very few of these cases. The reason is that everybody really would rather turn their attention to getting the restoration done and getting the restoration done quickly. That is appropriate.
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But certainly keeping the rental car in the meantime component of this injury seems to us to be a real injury that is important to keep, and passive use values has value to the American public, as well.
Mr. BAKER. If you are not charging it—it is on the menu, you're just not charging it. Now you say it has real value for you to have it there. Which is it?
Ms. SCHIFFER. It depends—
Mr. BAKER. Are we charging passive use to the people who are doing the cleanup? The people who are doing the cleanup are insurance carriers, in most parts, who are paid by premiums. You and I pay. It is not paid by one company who has an accident, it is paid by all of us. When you build this box so big, they finally find it is cheaper to go to court and stay forever, and that is what has been happening.
You are now telling us, ''Don't clean up the law. Keep it the way it is because this has immense value.'' Not if no one pays it. Then you turn around and say, ''No one is paying it.''
Ms. SCHIFFER. You have to look site-by-site is the answer. The passive use values are calculated only in a few of the very biggest cases. By and large, most of the sites are done for much smaller value. What is really focused on there is the immediate restoration.
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Mr. BOEHLERT. Mr. Borski?
Mr. BORSKI. Mr. Chairman, let me just ask a question. I don't know whether I will help myself or confuse myself more on this.
Ms. Schiffer, if we receive some monetary value for passive use or interim loss, how do we use those dollars?
Ms. SCHIFFER. All the money that is received under these statutes has to be used for restoration replacement or, acquisition of the equivalent. Under the Superfund Act, all of the money goes to those purposes except for the amount that is reimbursement to do the evaluation in the first place.
Under the Oil Pollution Act, if there is any residual money it goes into a special oil pollution fund but, in fact, my understanding is that all of it actually has gone to restore, replace, or purchase the equivalent.
Mr. BORSKI. So if we stay with Superfund for a second, would it be used to speed cleanup?
Ms. SCHIFFER. Speed the cleanup?
Mr. BORSKI. Yes. To clean the site up quicker, to accelerate it?
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Ms. SCHIFFER. Certainly the use of the money is to restore, replace, or aquire the equivalent.
Mr. BORSKI. For that site?
Ms. SCHIFFER. For that site.
Mr. BORSKI. Nothing else?
Ms. SCHIFFER. That's correct. And, of course, to purchase the equivalent you might have to have an equivalent a little bit down the way. One of the photographs that was shown to you this morning was of a site where the equivalent was gotten because it was determined that restoring up the site wasn't so helpful. It was a grassy area.
Mr. BORSKI. To follow up Mr. Baker's question, have there been recoveries?
Ms. SCHIFFER. Have there been natural resource damage recoveries? Yes, there have been natural resource damage recoveries, and—
Mr. BORSKI. For passive use, I mean. For passive use. Have there been recoveries for passive use?
Ms. SCHIFFER. There was a settlement of the Exxon case in Alaska, and though it wasn't parsed out, certainly I think one could think a component of the settlement was for passive use of what was basically a pristine area, a beautiful area of Prince William Sound, really a jewel that couldn't be replaced that was polluted by oil.
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Mr. BORSKI. And could you tell me how that money was spent?
Ms. SCHIFFER. Probably I would do better to defer to the trustees that were involved in it.
Mr. BORSKI. Sure. Mr. O'Connor?
Mr. O'CONNOR. What we have done, out of the $900 million civil settlement for natural resource damages, the first $133 million was used to reimburse the State and Federal Governments for the costs associated with the damage assessment work. A second component of that was used for additional cleanup. It was an offset that was provided. Exxon went out and did additional work, remedial-type work, and that settlement was reduced accordingly.
The balance of the money was used or is being used in implementation of a restoration plan that was developed by the trustees—State and Federal trustees—through public involvement over a number of—I think it took us about 2 years after the settlement to finally determine what the extent was of the injuries and to come up with alternatives for restoration.
At this point we are implementing that restoration plan, a large component of which is habitat acquisition—habitat that is critical to the resources that were injured in that area. I believe this may be the $300 million Congressman Young was referring to. We are spending at least that much money in habitat acquisition, purchasing large parcels principally of in-holdings and parcels that are held by Native groups up there that are critical to the resources that were injured.
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We are going further with actual direct restoration activities where we can possibly do that. We're doing what we can to assist the Native groups in protecting and preserving their cultural artifacts that had been destroyed as a result of the spill, and so on.
Mr. BORSKI. Thank you very much. Thank you, Mr. Chairman.
Mr. BOEHLERT. Thank you. That's the last question. I'd thank all of you for your patience.
I'm sorry. The distinguished chairman Mr. Coble has returned.
Mr. COBLE. I'll be very brief. I apologize for my belated arrival. I had to go to a luncheon involving the business of the Congress, but I'm sorry I'm late getting back.
Let me say this to you in conclusion. I'd again thank you all for being here.
Ms. Schiffer, in your hypothetical whereby Mr. Baker was innocently damaged through no fault of his own in his automobile, he has the loss of use of it, he has to get it repaired. I have no problem at all, Mr. Chairman, with his being made whole. He was innocent. He was damaged.
What bothers me is—and I'll use a word that we use in the rural south—''beeriecrats,'' sometimes known as bureaucrats, but down home we call them ''beeriecrats''—faceless ''beeriecrats'' who might want to extend that relief not to the distinguished gentleman from California, but perhaps to some third party who may have heard about the accident.
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That's a very extreme example, I'll admit, but I think that is an example of which we need to be aware. That bothers me. That's what I wanted to say.
That's not a question, but a statement. You all chew on that as you go back to your respective offices, and I'll do the same here.
Thank you, Mr. Chairman.
Mr. BOEHLERT. Thank you. Thank you all very much. We appreciate it.
Our second panel for the day consists of: Ms. Sarah Chasis of the National Resources Defense Council, senior attorney; Doctor Ray Kopp, Director of Resources for the Future; Mr. Richard Hobbie, President of the American Institute of Marine Underwriters; and Mr. Kevin McKnight, Coalition for Legislative NRD Reform.
Ms. Chasis I understand has a pressing need to depart here at 2:00, so we are going to extend the courtesy of allowing her to testify first, and then we will follow in the order that the members were announced.
TESTIMONY OF SARAH CHASIS, SENIOR ATTORNEY, NATURAL RESOURCES DEFENSE COUNCIL, NEW YORK, NY; DR. RAYMOND J. KOPP, SENIOR FELLOW AND DIRECTOR, QUALITY OF THE ENVIRONMENT DIVISION, RESOURCE FOR THE FUTURE; RICHARD H. HOBBIE III, PRESIDENT, WATER QUALITY INSURANCE SYNDICATE, ON BEHALF OF THE AMERICAN INSTITUTE OF MARINE UNDERWRITERS; AND KEVIN L. MCKNIGHT, MANAGER, ENVIRONMENTAL REMEDIATION PROJECTS, ALUMINUM COMPANY OF AMERICA (ALCOA), ON BEHALF OF THE COALITION FOR LEGISLATIVE NRD REFORM
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Ms. CHASIS. Thank you very much, Mr. Chairman. I appreciate this opportunity to testify.
My name is Sarah Chasis. I'm a senior attorney with NRDC.
Attached to our written testimony is a letter from 21 environmental groups and a briefing paper which goes into our positions on a number of the issues, particularly that have been raised by the industry, and expresses our concerns about the effect that adoption of these proposals would have. We'd like that incorporated into the record.
The natural resource damage provisions of both OPA and CERCLA, in our view, represent very important environmental programs. We think, on the whole, the trustees, both State and Federal, have done a good job in implementing those provisions to date.
The provisions have provided the basis for recoveries in a number of very important cases that have received a lot of public attention, where there has been a lot of public concern: the Exxon Valdez in Alaska, the Exxon Bayway Case in New York Harbor, the APEX Houston oil spill off the coast of California; the New Bedford Harbor toxic contamination, and the Commencement and Elliott Bays settlements under Superfund in Washington State. There are many, many more.
We would be very concerned, and we think the public would be very concerned if these provisions of law were very narrowly subscribed so that if there were a major spill the public could not recover for the damages that had occurred and were not able to recover the costs of restoring the resources.
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We urge extreme caution in moving forward to radically change or modify these provisions. They are not punitive in nature. They are designed to compensate the public—all of us—for losses that occur and to ensure that the money is available for restoration.
They are a necessary supplement to the remediation process. The remediation process is focused on averting the continuing harm to public health and the environment from the site, but it doesn't cover past injuries that have occurred as a result of the contamination. So the natural resource damage provisions are a necessary supplement.
To date, there has not been a record that the trustees have abused their authority under these provisions, nor that the provisions threaten to be a sleeping giant in terms of liability on the part of industry.
As the gentleman referred to the GAO report, the recoveries by the Federal trustees under the CERCLA NRD provisions have been $106 million. I think it is 1 percent of the recoveries for cleanup under CERCLA. And they looked at a number of the State programs and recoveries there, and the States that were evaluated were on the order of $23 million.
Under OPA the amount is approximately $1 billion. Most of that, of course, is for the Exxon Valdez oil spill where the recovery by the State and Federal trustees was $900 million.
Of course, the future liability for oil spills we don't know. It depends on the frequency and size of future spills. Of course, we are hopeful that the existence of these provisions, as well as the provisions that Mr. Coble referred to on prevention that are contained in OPA, will help avert massive liability there.
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Mr. Chairman, we are very concerned about three proposals, in particular, that the industry have made in connection with revising these provisions. One is the elimination of interim use and nonuse damages. The second is eliminating liability for ongoing harm from disposal practices that occurred before 1980. Third is the expansion of the current $50 million cap.
I would like to refer to the elimination of interim losses. In our view, this would be extremely problematic, and especially in cases where the resources cannot be restored or cannot be restored in a short time and there is a significant interim damage. Clearly if restoration can occur quickly that's another matter, but that's not always the case.
For example, where a commercial fishery had to be closed because of dangerous concentrations of PCBs or DDT, as was the case off the coast of California and Massachusetts, the proposed change would not allow recovery of the resulting damages. Similarly, as in Montana where ground or surface water previously used as drinking water was significantly contaminated, trustees would not be able to recover for the lost use values of the water during the long period it would take to restore the water to drinking level quality.
There has been a lot of concern raised about contingent valuation. Our concern is that if you take that tool away—a tool that has been validated by a blue ribbon panel, including two Nobel laureates—this is a tool that has received ratification by a very, very well-respected group—that you have no way of putting a dollar value on a lost population of bald eagles or sea otters or of pristine wilderness. How do you account for damages to these types of resources if you take away contingent valuation? That's our concern. Essentially, there would be no accounting for damages to these resources, no incentive to protect these resources from future harm. We are very concerned about that proposal.
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We share the trustees' and the Justice Department's concern about restrictions on liability for past disposal and for expanding the cap.
I'd like to just quickly conclude and urge you, as you move forward in your consideration, to bear in mind the words of an eminent prior President, Theodore Roosevelt. ''To waste, to destroy our natural resources, to skin and exhaust the land instead of using it so as to increase its usefulness will result in undermining in the days of our children the very prosperity which we ought, by right, to hand down to them amplified and developed.''
Thank you, Mr. Chairman.
Mr. BOEHLERT. Thank you very much.
Doctor Kopp.
Dr. KOPP. Thank you, Mr. Chairman.
I'm the director of the Quality of the Environment Division at Resources for the Future, and independent, nonpartisan research and educational organization concerning itself with natural resources and the environment. I will take this opportunity to stress that the views I will present today are mine and mine alone, and that Resources for the Future takes no institutional position on legislative, regulatory, judicial, or other public policy matters.
I am an economist and have been a member of the Resources for the Future staff since 1977. For the past 7 years, I have conducted research pertaining to the natural resource damage provisions of CERCLA and OPA. This research has taken the form of books and published articles. In addition, I have worked for both plaintiffs and defendants in natural resource damage cases brought under CERCLA. In two of those cases, the Exxon Valdez and the United States v. Montrose Chemical, I have been the principal investigator on the contingent valuation studies designed to estimate nonuse values.
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In my written remarks I address four questions: why do we use economics to value losses when assessing damage to natural resources? What is economic value and how does one measure it? What is a nonuse value or has been termed ''passive use values''? And can contingent valuation be used to reliably measure those nonuse values?
In my oral remarks I will focus on the last two questions concerning nonuse values and contingent valuation; however, I would like the complete text of my written remarks to be included in the record.
To understand the concept of nonuse values it is important to bear in mind the premise underlying the measurement of economic value. That premise is that economic value can be measured when an individual faces a trade-off and chooses to give something up to obtain something else. The only difference between a nonuse value and any other economic value such as the value I placed on lunch, having just eaten, is the thing the individual gets in return for what is given up is intangible in the case of a nonuse value.
For example, a typical description of nonuse value would be the economic value one places on assuring that future generations will be able to enjoy unspoiled natural resources. The motivation to protect and preserve environmental resources for the benefit of future generations gives rise to economic value when people are willing to give up something to obtain this intangible insurance that future generations will benefit from these resources.
Because many people making this tradeoff never actually use particular environmental resources they wish to preserve, economists have termed the value they place on preservation and protection a ''nonuse value.''
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It is equally important to understand that nonuse motivations like preservation and protection are not limited to environmental resources. Quite to the contrary. It is an exceedingly common motivation.
For example, Americans that love our various lifestyles such as the family farm, the cowboy, and western ranch family, or the lumberjacks in the northwest can give rise to nonuse values if these individuals are willing to give up something to protect and preserve these lifestyles, even if they, themselves, do not choose to live their lives in this manner.
Contingent valuation, or simply CV, is an economic technique that allows economists to pose trade-offs to people and measure values. Because CV permits the economist to pose trade-offs, CV can measure many different types of economic value.
At this time, CV is the only technique available to economists to measure nonuse values.
CV gathers the information to measure values by interviewing people. The fact that CV uses surveys does not differentiate it from other economic approaches to valuation. In fact, the vast majority of empirical information economists use in their study of households and private business is based on survey data.
What differentiates CV is the survey is used to pose a trade-off to the respondent being interviewed. In the CV surveys my colleagues and I have conducted, the items to be valued are sometimes described as detailed programs to prevent future oil spills, as was the case in the Exxon Valdez or programs to restore marine resources injured by chemical contamination, as we did in the Montrose study.
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In both of these studies, respondents were told that payments for these programs would be in the form of a one-time tax surcharge on their household's income.
It is often claimed the CV surveys are hypothetical and therefore individuals know they will never have to pay for the programs being offered. It is then asserted that people will agree in an interview to pay $20 to $30 for any good cause when, in fact, they would pay nothing if they thought the program or the payment was real.
In surveys I have mentioned, we do not suggest to the respondent there is anything hypothetical about the choice we are asking them to make. For example, households interviewed in the Montrose CV study were sent letters in advance of the interview telling them the survey was sponsored by the State of California to gain their opinions on issues facing the State today.
During the actual interview, respondents were told the State routinely conducts such surveys to find out how people think about costly public programs. They were told the State does not want to pursue these programs unless the people are willing to pay for them.
After describing the program, the respondent was told the amount by which his or her taxes would rise if the program was put in place.
Finally, the respondent is asked: if an election were held today, would you vote for or would you vote against the program?
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Our objective is to make the trade-off real, understandable, credible, and plausible. It is our believe that providing this realism, individuals take their decision seriously, accept financial responsibility for their votes, and provide reliable information on which to base measures of economic value.
This belief is supported by the results of our Exxon Valdez and Montrose studies, and then further confirmed by replication 2 years later of the Exxon Valdez survey.
Will any CV study produce reliable estimates of economic value? The answer is generally no. Like all measurement techniques in the sciences, the results depend on how the methods are used. In the natural sciences, measurement protocols designed to ensure reliability are common. Quality assurance and replication require adherence to these protocols.
In the social sciences, protocols have been less rigorous; however, this is not true for CV. Rigorous protocols are established for contingent valuation.
In 1992, Thomas Campbell, NOAA General Counsel in the Bush Administration, appointed a panel of experts to examine the reliability of CV for measuring nonuse value in natural resource damage cases. The panel was co-chaired by two Nobel laureates, and the panel produced a report that specified in detail numerous CV design and execution protocols.
If these studies follow these protocols, the panel concluded, ''The CV studies can produce estimates reliable enough to be the starting point of a judicial process of damage assessment, including lost passive use values.''
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Several CV practitioners believe the panel's guidelines and protocols for CV studies are overly prescriptive. These individuals argue that reliability can be obtained under less prescriptive protocols.
While their judgment may be correct, what is relevant to the current situation is whether there exists any set of circumstances under which CV can produce reliable estimates of value.
The opinion of the NOAA CV panel is clearly yes, and my experience with the Exxon Valdez and Montrose studies confirms the panel's judgment. Whether reliability can be obtained under less restrictive protocols remains to be seen.
I'd be pleased to answer any questions the committee may have.
Mr. BOEHLERT. Thank you very much.
Mr. Hobbie.
Mr. HOBBIE. Thank you, Mr. Chairman. Good afternoon.
My name is Richard Hobbie. I'm the President of the Water Quality Insurance Syndicate in New York. The Water Quality Insurance Syndicate has been insuring and acting as a guarantor on behalf of owners and operators of vessels since 1971 and the implementation of the Water Quality Improvement Act.
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As of July 5th, the Water Quality Insurance Syndicate issues guarantees on 28 percent of all vessels which have obtained their CERCLA/OPA COFRs. We take pride not only in our record of insuring this type of business, but also the services we render to our vessel owners and operators. Our 24 years of experience allow us to actively assist our assureds in the event of a loss such as the Morris J. Berman oil spill in Puerto Rico where we put 40 trained professionals into the field to assist the assured in remediation and cleanup.
The average cost of oil spills has rapidly escalated under OPA by a factor of 600 to 700 percent. We are seeing that remedial action costs under CERCLA are also on the rise.
This has been dealt with by increases in the assureds' premiums which, in some cases, put a significant strain on the operators' abilities to continue in operation. If this trend continues, there are many small and mid-sized companies in the United States which will not be able to continue in business predominantly based on the cost of insurance and compliance with regulations.
Natural resource damage assessments which are excessive and arbitrary may create a situation where they become uninsurable, which would force WQIS to cancel its OPA guarantees and CERCLA guarantees or, at the very least, would cause premiums which could approach a punitive level.
Some of the main problems with the NRDA schemes are that the computer models and formulas are flawed and bear no relation to actual events or real world conditions. There are no controls over the cost of making assessments. There is no standard for restoration.
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The trustees have a standard of rebuttable presumption and they do not have to prove that there are actually any damages. They may use formulas or computer models which have a rebuttable presumption standard where no damages have actually occurred.
The structure of the act and the structure of State law allows for double recoveries. Recoveries can be made under the Federal act, and recoveries can also be made under the State act. Recoveries can be made under the Federal act for subsistence, for loss of net earning capacity, and for the actual resource. So the one fish can be paid for three times.
We believe that money collected for damages must be used for restoration. There must be limitations on the amounts of damages. Trustees' powers must have some checks and balances. Assessments must be based on provable damages. Damage must occur. Nonuse values and CV should be eliminated.
I'd like to point out that passive use values are being included by NOAA in its formulas and computer models under their proposed regulations, so the formulas and the computer model contain passive use values.
Small spills which do not produce demonstrable damage should be exempt from all of this, and double recoveries must be eliminated.
There have been some examples. We did hear about a stream in Idaho. We'll simply say that the net result of spending $400,000 per fish in the particular steam that was referred to earlier is going to allow a grand total of 200 salmon to spawn further upstream in that one stream, and again 200 at a cost of $400,000 each, where the trustees rejected the option of restocking another stream in an equivalent area.
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WQIS has recently been involved in an actual event. Our assured's barge turned on its side with a 50 percent solution of caustic soda in a river in a commercial area in the northeast. There was no fish kill, nor could any damage to the environment be detected, mainly because the material is water soluble and raised the pH for about 100 yards around the area of the barge.
No formal NRDA was conducted; however, the assured has been presented a demand for payment by NOAA of $250,000, and we have been advised that we will be told the basis for that assessment if we agree to discuss settlement.
We had another spill in the State of Washington which was quite small. The NRDA for the State was $57,000. When NOAA's proposed type A model was run the assessment was $3,000. When we ran NOAA's computer formulas, the assessment was $7,000—57,000, 3,000, and 7,000. That inconsistency is why it is hard for us to believe anybody really knows what they are doing.
In conclusion, we would greatly regret the consequences should the American insurance market be put into a position of not being able to continue its long-term record of supporting and insuring the vessel pollution liabilities under all Federal statutes. We believe that a system of reasonable natural resource damage assessment can be crafted and we are grateful for this opportunity to make some comments. Thank you.
Mr. BOEHLERT. Thank you, Mr. Hobbie.
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Mr. McKnight.
Mr. MCKNIGHT. Mr. Chairman, I manage environmental remediation projects, including natural resource restoration for Aluminum Company of America. ALCOA is a member of the Coalition for NRD Reform.
Mr. Chairman, the NRD program must be reformed before it bankrupts industry and the Government. Fifteen years ago no one would have believed that the average Superfund cleanup would cost more than $30 million. And no one would have imagined that the Department of Energy, alone, would have potential cleanup liabilities exceeding $300 billion, and that's not including NRD liabilities. That number, by the way, comes from a GAO report about six weeks ago.
Today, as more of the approximately 35,000 sites EPA has identified as actual or potential Superfund sites move toward resource restoration, the post-cleanup phase of Superfund, we are on the threshold of a problem that may make the cleanup side of Superfund pale by comparison.
NRD claims like those filed in Coeur d'Alene, $1.2 to $1.8 billion; Clark Fork River, $635 million; Los Angeles Harbor, $1.2 to $1.8 billion; and Burk's $550 million would bankrupt most companies. Not only does this have a potentially devastating impact on American businessmen and women, but I suspect your colleagues on the Budget Committee would be startled to learn of the potential NRD impact of the Federal Government.
At some private sector sites, NRD claims are three times the cleanup cost. If this ratio is applied to the Department of Energy, the NRD claims there would approach $1 trillion for just that one Government agency.
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By the way, I listened to the first panel talk about the myth of the sleeping giant. I sat on a panel before the Commerce Committee about four weeks ago with Mr. Hall where Mr. Hall claimed that the DOE liability for NRD was $30 billion. That sounds like a big number to me.
Also, thousands of DOD and DOI sites are not included in that potential claim.
Congress intended the NRD program to restore injured public resources, not to make the public whole, not to undo all the impacts of past industrial activity. Instead, the NRD program has become punitive, not restorative, and this has been caused by a number of things.
First, trustees demand unrealistic and unnecessarily costly restoration measures to seek to recreate the exact landscape that existed before development.
For example, in the Los Angeles Harbor case the trustees filed a $1.2 to $1.8 billion NRD claim against a municipal sewage authority and others, and that claim includes almost $1 billion to place a six-foot soil cap over 6.5 square miles of ocean floor about 300 feet below the surface of the ocean. And that's in a situation where the three species who they are intending to help—their populations are either constant or increasing since the time of the release.
Second, trustees assert surplus recoveries for so-called ''lost use'' and ''nonuse'' damages. Such recoveries, by their very definition, are surplus for any amounts needed for restoration, replacement, or acquisition of equivalent resources.
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By the way, the statute does not provide for nonuse or lost use values. That is totally a regulatory construct.
Mr. Mineta, in the first panel, asked what the trustees would do with these excess recoveries. Mr. Hall stated that there were no excess recoveries, that the money would be spent to restore, replace, or acquire the equivalent of the resource. But if you are already collecting the full amount necessary to restore the resource and then you're collecting nonuse and lost use values on top of that, then there are going to be extra recoveries and there isn't going to be anything to spend them on.
The Government regulations continue to promote damage assessment techniques like contingent valuation methodology which have been condemned by experts in the field. One state-of-the-art contingent valuation study concluded that the use value associated with 168 endangered whooping cranes was $625 billion over 30 years. That's $3.72 billion per whooping crane.
Third, Government agencies are using NRD monies not for restoration but for unrelated projects and administrative overhead. The General Accounting Office, which did a study in the Exxon Valdez case early on with respect to the expenditure of funds collected in that case, found that of the $40.3 million that were allocated for NRD, only $14.1 million was actually spent for restoration. GAO found that the rest was overhead, assessment costs, and unrelated projects.
Lastly, trustees exploit ambiguities in the statute to retroactively declare that 100-year-old actions are to be judged by today's standards. It's like asking people today to comply with laws which will not be enacted until 50 years in the future.
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Congress must fix the NRD program by returning it to its original intended purpose; namely, restoring, replacing, and acquiring the equivalent of injured natural resources.
We propose the following:
First, Congress make clear that NRD liability is not retroactive so that people who complied with the laws of yesterday are not punished by standards created today.
Second, the NRD program be designed to restore damaged, lost environmental functions, not replace the landscape that existed before industrialization.
Third, the program be restorative, not punitive, and that lost use and nonuse damages, including contingent valuation methodology, be totally prescribed.
Fourth, that damages be based on the most reasonable and cost-effective method of restoring, replacing, or acquiring the equivalent of injured resource functions.
Finally, that Congress restore the intended $50 million per site cap on NRD damages.
Mr. Chairman, if we do not make major reforms to the NRD program, NRD threatens to bankrupt American industry and to create tremendous financial liabilities for Government agencies such as the Departments of Energy, Defense, and Interior.
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Thank you.
Mr. BOEHLERT. Thank you very much.
Unfortunately, we have a call of the House and a vote is on, because I'm going to miss the opportunity to have Ms. Chasis respond to Mr. Hobbie and Mr. McKnight.
Are you going to have anyone represent you, or do you just have to depart?
Ms. CHASIS. Unfortunately, I have to depart, but I would be very happy to respond to questions in writing, Mr. Chairman.
Mr. BOEHLERT. Fine. Well, you've had the advantage of their testimony. I would like to just have at it and have us sit back here and have two sides engage in a point/counterpoint because your positions are diametrically opposed.
In any event, we understand that you have to depart, so you are excused. We will take leave to go over and vote and get back as soon as we possibly can.
Thank you very much.
[Recess.]
Mr. BOEHLERT. Let's start. Our Members will be wandering back as they complete their vote.
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Mr. McKnight, let me ask you a question. I noticed that one of your recommendations, recommendation five, is that Congress restore the intended $50 million per site cap on NRD damages. I would agree that probably in 97 to 98 percent of the cases that can be done, but what do you do in a situation where the damage is $500 million and you've got a $50 million cap? Who picks up the tab?
Mr. MCKNIGHT. First of all, Congressman, I'm not willing to concede that there are cases where natural resource damages—that is, the residual injury that is left after remediation to abate the harm associated with the particular release—that the damages are in excess of $50 million. I think $50 million is a very large sum of money.
Mr. BOEHLERT. Then why would you need a cap, then, if there isn't going to be one? What are you worried about?
Mr. MCKNIGHT. As the statute and the regulations currently exist, there is potential for claims that run well in excess of the $50 million.
Mr. BOEHLERT. That's where I agree. Then my point is this: if there is that potential there—I think it is highly unlikely. There may be a percentage or two. But if there is a case like that and the damage is $100 million and you've got a $50 million cap, who picks up the rest of the cost?
Mr. MCKNIGHT. It is not clear to me, Congressman, that anyone should. What we're talking about, first of all, is a program under CERCLA where remediation comes in and abates the harm—that is, the current risks that are posed to public health and the environment—and the public policy imperatives under CERCLA clearly favor those risks to public health and the environment first, and those are the current risks.
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Once you have done remediation under CERCLA, now we're talking about residual loss to the resource. With respect to residual loss to the resource, we all know that natural recovery will restore the resource over time. This is more of a timing issue than anything else.
We are talking about, in terms of expending funds to do resource restoration, putting money up to hasten the process of restoration.
In the 1986 DOI regulations, they talked about two different programs. One was a program for restoration, the other was, in effect, lost uses. It was an either/or kind of a situation. You either got restoration of the resource or you got lost use. The premise was that resources would restore themselves over time.
I think when Congress originally enacted the natural resource damage provisions and provided for both the prohibition against retroactive liability for NRD and the cap, that they were relying, to a large extent, on natural restoration.
Mr. BOEHLERT. Mr. Coble?
Mr. COBLE. Thank you, Mr. Chairman.
I think this has been a productive hearing today, Mr. Chairman. I'm pleased with the progress. I hope you are.
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Thank you all for being with us, gentlemen. I regret that our other panelist had to leave.
Since our Coast Guard and Maritime Transportation Subcommittee does not have jurisdiction over Superfund matters, Mr. Chairman, I will not put questions to these panelists, but I will reserve my questions for the next panel.
But I would, Mr. Chairman, if I may, like to make a statement. You all perhaps heard me refer to the ''Bureecrats'' that my friends down home—and I don't mean that in any way to be defaming to the bureaucracy. But out-of-touch bureaucrats bother me.
In fact, if I had the power to do so, I would nominate as my out-of-touch bureaucrat of the year Judge Ito. Here is a jurist—a bureaucrat, if you will—who appears to be completely oblivious to the value of taxpayers' money, because he has permitted a trial to prolong into virtual eternity at a cost of hundreds and hundreds of thousands of dollars, with no end apparently in site; a trial that should have been concluded weeks ago without having impaired or violated any of the rights of the parties.
He would be my nomination. But what bothers me, Mr. Chairman, is I have the fear that there are dozens and dozens of bureaucrats who share Judge Ito's apparent indifference to the value of tax dollars and/or corporate dollars, and I fear these same people will be the decision-makers as we revisit OPA and Superfund.
I reiterate for emphasis: I am not averse to seeing to it that injured parties or injured, innocent parties are made whole. I have no problem at all about that. But I do have problems when the deep pocket syndrome comes into play. ''We'll go against this corporation. They have deep pockets. We'll go in heavy to fund this pet project, that pet project.''
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That was the other questions, Mr. Chairman, I wanted to put to the first panel today when I suggested about applying monies to pet projects. I don't know for a fact that it goes on, but many believe it does. And if it does, that involves an obvious conflict of interest, it seems to me.
I'll bet you're glad I have no questions, Mr. Chairman, after my comment, but, again, folks, it is good to have you with us.
Thank you, Mr. Chairman.
Mr. BOEHLERT. I was just wondering if you had any questions you'd like to submit in writing to Judge Ito?
[Laughter.]
Mr. COBLE. If I may, Mr. Chairman, Judge Ito may have the sheriff at the door hauling me to L.A. tomorrow. I may regret that I made that statement.
Mr. BOEHLERT. Well, thank you very much, Mr. Chairman.
Mr. Borski?
Mr. BORSKI. Thank you, Mr. Chairman.
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Mr. McKnight, I have a question for you, sir. Do you favor reimbursement for PRPs that have already spent money for natural resource damages caused by pre-1980 disposal? If so, what is your estimate of the amount of money at issue and where should that money come from?
Mr. MCKNIGHT. I don't think it makes any sense to reimburse PRPs who have already spent money. We are talking about reforming CERCLA generally. Certainly ALCOA and a lot of other major industries have spent enormous amounts of money doing cleanup. If reform would provide for different regulatory or different legal implications, I certainly wouldn't favor going back and starting over again.
Mr. BORSKI. Wouldn't it be unfair to those who have come forward and paid natural resource damages to repeal liability? How does the fairness work out? As you said, ALCOA has certainly paid.
Mr. MCKNIGHT. Actually, Mr. Borski, very, very little natural resource restoration has occurred to date. The restoration program—the natural resource damages program—necessarily follows the cleanup program. We all know how laboriously slow the cleanup program has been. Because the natural resource damages program follows the cleanup program, very, very little has been done. We're talking about a very embryonic program here.
I think the actual unfairness that might incur associated with that kind of a situation is very small.
Mr. MCKNIGHT. Also, you proposed a recovery should only be available if the resources were either subject to a public use or a planned public use for which there is a previously authorized and documented legal commitment. How would recovery of loss of bald eagles fit into this proposal?
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Mr. MCKNIGHT. Well, bald eagles are an endangered species. I'm certainly not an expert on the Endangered Species Act, but my understanding is that the Endangered Species Act is very strict, that it provides for very expansive and broad protections for our Nation's endangered species, and certainly ALCOA supports that.
I don't happen to believe that anything that we are suggesting would retract or contract that particular statutory scheme.
Mr. BORSKI. I don't want to get confused myself on this. I don't want to use an endangered species. Let's talk about something else.
Mr. MCKNIGHT. A more common species?
Mr. BORSKI. Yes. Something that is more relevant to Superfund, itself.
Mr. MCKNIGHT. Okay. What we are proposing is that the focus of the program really be on restoring measurable, ecologically significant functions of a resource. So if you are looking at a common species, what you really need to focus on is the population effect of that species. If an injury caused by industry, a natural resource injury would affect a species on a population level, then we certainly would be in favor of taking action to restore that resource. But the problem is that a lot of injuries that occur are very short-term injuries, are injuries that Mother Nature, if you will, recovers from fairly quickly.
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In a spill situation there are lots of spill situations where there is perhaps some dramatic fish kill or even bird kill in a very limited period of time, but over the course of 6 months or 9 months the particular population that may have been affected may rebound and may be back to the level that it was in prior to the particular spill.
In that sort of a situation, we would not envision there being any need to go in and take any restoration measures.
Mr. BORSKI. What if Mother Nature didn't do its job so quickly?
Mr. MCKNIGHT. Can you give me a—let's assume that the restoration takes longer. Let me give you a real-life example. L.A. Harbor is a great example.
In L.A. Harbor we've got DDT and PCBs in sediments about 300 feet below the surface of the ocean in about a 6.5 square mile area off the coast of Los Angeles.
The scientists that have been employed by the Government to study that situation have determined that it will take approximately 49 years for that resource to restore itself without any activity at the site. So we're talking about a 49-year period of time during which that resource will be impaired. After that period of time that resource will be fully recovered, according to the Government scientists.
What we're talking about in natural resource damages is how much money would you spend to hasten that recovery so that it would be shorter than the 49-year period. The trustees are claiming $1.8 billion on the outside as natural resource damages. The question is: do we want to spend $1.8 billion to bring that resource back within a shorter period of time than the 49 years, and are there other ways to restore the services that are lost by that resource?
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For instance, the only resource injury that I am aware of in L.A. Harbor is the commercial fishery. Now, with respect to commercial fishermen, they certainly have a toxic tort claim or a commercial loss claim that they can stake in State court. We're certainly not suggesting anything in our proposals that would prohibit them from taking that course of action.
At the same time, the public has perhaps lost something there, and that's where the 1986 DOI regulations would have said that you look to either the lost use or the restoration cost. And if, in fact, compensation for lost use would be much more cost-effective than restoration, then let Mother Nature restore that site in 49 years and let's pay the lost use.
Mr. BORSKI. Thank you, Mr. Chairman. Thank you, sir.
Mr. BOEHLERT. Thank you.
Mr. Baker, do you have some words of wisdom, or may we dismiss the panel?
Mr. BAKER. If I can just carry on in that vein, what would you do? And how much would it cost if we just paid the lost use and allowed the 49 years to lapse?
Mr. MCKNIGHT. Well, Mr. Baker, I guess it seems to me a pretty easy choice. I think $1.8 billion is an awful lot of money. In terms of the public policy imperatives with regard to public health and the environment, I think this Nation can spend that money in a lot better ways than trying to do something that, in effect—there is a lot of debate right now, but the scientists even believe that trying to go in and put a six-foot cap on an area 300 feet below the surface of the ocean is doomed to fail, and that, in fact, in trying to implement the remedy you may, in fact, cause more harm than good.
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You may, in fact, stir up DDT that is embedded in the sediment, put it in the water column, make it bio-available to the fish and other critters that exist in that area today.
And so, in fact, the remedy that is being proposed may, in fact, be worse than the situation that currently exists, so I would certainly favor natural recovery in that situation, especially in light of the fairly limited period of time that we're going to have to wait to see natural recovery occur.
Mr. BAKER. So your answer is: unless there is actual scientific remediation available, sometimes it is better to do nothing.
Exxon Valdez, I think time is healing most of the problem, although they did a pretty good job cleaning it up in the first place.
I have one last question, Mr. Chairman, to the panel on both sides—and Doctor Kopp is here representing the other side.
If Exxon Valdez were, indeed, caused by an earthquake, would the damages, in your opinion, have been the same?
Dr. KOPP. The dollar value or the injuries? The injuries were the same? The same number of birds killed, or whatever?
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Mr. BAKER. Yes. If the injuries were the same.
Dr. KOPP. Would individuals value it the same?
Mr. BAKER. Yes.
Dr. KOPP. I don't know.
Mr. BAKER. Would the damages assessed under the process be the same?
Dr. KOPP. I would expect not.
Mr. BAKER. Mr. McKnight? Mr. Hobbie?
Mr. HOBBIE. Personal opinion, I would say that if it was done by an earthquake people would feel damages were less.
Mr. MCKNIGHT. Mr. Baker, my answer is perhaps not the one you want, but my problem with nonuse values and lost use values is they have nothing to do with restoration of resource. They, in fact, are a big part of the problem as to why we've got a statute today that doesn't work. It doesn't restore resources because trustees are toting up damages and they are not focusing on restoration of resources.
Mr. BAKER. You don't think the Indian artifacts and an Alaskan buying land in Alaska is restoration?
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Mr. MCKNIGHT. I'm not intimately aware of all of the details of the Exxon case. I believe that perhaps there are certain aspects of recovery that are clearly acceptable.
In that case, I think the largest portion of damages that were claimed were, in fact, nonuse values. Even thought they weren't articulated as such by the Justice Department and NOAA, I think they were, in fact, nonuse values.
The CV study that was done in that situation yielded nonuse losses in the range of $3 billion or more. My understanding is that that was basically the reason why Exxon decided to settle the case. They were faced with huge natural resource damage claims, including nonuse values.
Mr. BAKER. My concern, which I mentioned to the first panel, was that it is generally cheaper to fight than switch. We have built these boxes like passive use that make the damages so high. My point by the question was obvious: that if it had been done by Mother Nature these punitive assessments would not have been made, but it was Exxon and Exxon's insurance companies, i.e., a bunch of rich people, so ''sock it so them.'' So it is cheaper for an insurance company then to go to court for 100 years than to clean it up.
We've got to make sure this law has real scientific value so that we do what you're suggesting in your answer—when we can mitigate, we mitigate. We do everything possible because we don't want spills. We don't want to encourage spills.
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But we become so punitive we actually scare away people from cleaning up. We have that with abandoned mines in California. The water companies that own the watersheds now are being assessed huge amounts of money for mines long since abandoned. So they are doing nothing. So their leaching continues. We have scared them away from remediation.
We want to make this law real, and I think that's what the election of 1994 was all about—get Government down to size and make the remediation real. We're going to do that.
Thank you very much, Mr. Chairman.
Mr. BOEHLERT. Thank you very much, Mr. Baker. I'm glad to learn of your newly-acquired interest in good science as we deal with some of these issues.
Mr. BAKER. You and I serve also on the Science Committee together.
Mr. BOEHLERT. We do.
Mr. BAKER. Did you think I was sleeping in that committee, Mr. Chairman?
[Laughter.]
Mr. BOEHLERT. No, no. I was so happy you were paying attention. But I was wondering if you were napping during Clean Water.
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[Laughter.]
Mr. BAKER. Yes. East Bay mud in my area is very clean water, despite its name.
Mr. BOEHLERT. Thank you very much. I appreciate it.
Now it is my pleasure to turn the chair over to the chairman of the Coast Guard and Maritime Transportation Subcommittee, Mr. Coble of North Carolina, who has a number of ''beeriecrats'' in his constituency.
Mr. COBLE [assuming Chair]. I thank the gentleman from New York for having chaired the hearing thus far, and I welcome the third panel with us today.
I am pleased to introduce the third panel: Professor Richard Stewart of the New York University School of Law; Mr. George Greenwood, Chairman of the International P&I Club Pollution Subcommittee; Doctor Jerry Hausman, professor of economics at the Massachusetts Institute of Technology; and Mr. Richard Hobbie, the President of the American Institute of Marine Underwriters.
Gentlemen, I thank you all for being here. I think we are going to have a vote probably at about 35 to 40 minutes, so if you all could adhere to the 5-minute rule as close as you can—when you see the red light illuminate you won't be keel-hauled if you don't respond immediately, but try to stay within the 5 minutes if you can.
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Why don't we start from my right, moving to the left, with Doctor Hausman.
TESTIMONY OF JERRY A. HAUSMAN, MACDONALD PROFESSOR OF ECONOMICS, MASSACHUSETTS INSTITUTE OF TECHNOLOGY; GEORGE E. GREENWOOD, SENIOR PARTNER, MANAGERS OS STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION LIMITED, ON BEHALF OF THE INTERNATIONAL GROUP OF P&I CLUBS, AND CHAIRMAN, POLLUTION SUBCOMMITTEE, ACCOMPANIED BY LLOYD WATKINS, SECRETARY AND EXECUTIVE OFFICER OF THE INTERNATIONAL GROUP AND LUKE READMAN, PARTNER OF THOS. R. MILLER AND SON, (BERMUDA), MANAGERS OF THE UNITED KINGDOM P&I CLUB; RICHARD H. HOBBIE III, PRESIDENT, WATER QUALITY INSURANCE SYNDICATE, ON BEHALF OF AMERICAN INSTITUTE OF MARINE UNDERWRITERS; RICHARD B. STEWART, PROFESSOR, NEW YORK UNIVERSITY SCHOOL OF LAW
Mr. HAUSMAN. Thank you very much, Mr. Coble.
The NRD provisions of CERCLA and OPA, in my view, are deeply flawed and in urgent need of reform. They are creating enormous economic waste. They are not leading to faster cleanup of affected sites. In fact, I agree with Mr. Baker that they are basically just creating a big fight among lawyers, scientists, and—yes—economists which are debating the impossible task of valuing something for which no market transactions exist.
In terms of restoration, I am fully in favor of requiring responsible parties to pay for the cost of restoring the natural resources or acquiring substitute resources for replacement purposes. However, as an economist, we believe in economic efficiency and not wasting money; therefore, economic efficiency says that the least cost choice should be made in choosing between the restoration and replacement options.
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I have been involved in this type of litigation and, rather than trying to minimize cost, I unfortunately find the trustees often are trying to maximize costs to engage in legal brinksmanship to try to bring people to settle. This is the wrong way to go about things in terms certainly of economic efficiency.
Next I'd like to turn to estimation of lost use value. In terms of lost use value, I believe that if you are going to do this it should be based on actual market transactions or individual behavior and not on hypothetical survey questions which lead to biased results.
But, most importantly, I believe that you have to take into account that people have the ability to substitute the use of one resource for another. Therefore, if you are going to look at lost use value this is a very important component.
Lastly, I believe that only damages which have occurred since 1980 should be used.
I was brought up in West Virginia, and I was very interested in the question before from Mr. Coble. My wife's family actually operated the first steel mill west of the Alleghenies—actually iron mill—in 1797. I'm horrified to think that somebody might come after them because they were providing jobs back at the turn of the 19th century about what they might have done in terms of iron ore tailings.
I hear time and time again when I've testified here about corporations getting away with things. I think people have forgotten that these corporations were providing jobs to people for all these years. They were in total abeyance of the law. They never broke the law. For somebody to come along almost 200 years later and say, ''We now look at things differently, and those iron ore tailings that you put there in 1797 you are legally responsible for'' boggles my mind. It also leads to horrible economic incentives.
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I currently live near Boston. There are some very old towns where industry used to exist in Boston. Take the town of Brockton, which was the old shoe center of Massachusetts. No responsible businessman is going to start a factory in Brockton today because he or she may be responsible for damages from 100 years ago when they were tanning shoes. So what does a business do, instead? They go and buy some rural land, eating up farmland 30 miles outside Brockton, and build their plant there.
Our farm land gets eaten up but, even worse, from my point of view, poor people who live in Brockton and often don't have cars are not going to be able to get jobs. They are not going to be able to travel to these sites.
For an Administration which claims that they are interested in good jobs for our citizens, I think this is a very important consideration which was totally missing from the presentation from the individual from the Department of Justice earlier today.
Last, I would like to turn to CV or nonuse value. Doctor Kopp was here just before in talking about how he was involved in the Montrose study. I have looked at that survey. According to Doctor Kopp's own study, 90 percent of the population were totally unfamiliar with the damage off the coast of Long Beach. Only 10 percent were even familiar with it. Nevertheless, the Government was claiming around $600 million, including the 90 percent of the population who have never heard of it.
Now, if something that you don't know about is going to be fixed and you don't even know it was broken and you don't even know it was fixed, to an economist it is absolutely crazy that you can ask for $500 million in damages.
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So to my thinking, CV is a totally hypothetical thing. We don't see it going on in the market. It is nothing more than an opinion survey asking hypothetical questions to which people will give hypothetical answers, and most people will say, ''Sure, what's $20? It is only hypothetical to me.''
I think the best thing to do would be, in the reauthorization of the bill, to do away with CV unless unique sites, such as the Grand Canyon, are damaged. But for 99.9 percent of all damages, especially when they are going to be restored, I do not believe that CV should be used.
Thank you very much.
Mr. COBLE. Thank you, Doctor Hausman.
Mr. Greenwood.
Mr. GREENWOOD. Thank you, Mr. Chairman, and thank you for allowing me to appear before you this afternoon.
My name is George Greenwood. I'm the senior partner of the Managers of Steamship Mutual Underwriting Association, Limited. I'm here today in my capacity as chairman of the International Group of P & I Club's Pollution Subcommittee. I'm accompanied by Lloyd Watkins, who is the secretary and executive officer of the International Group, and Luke Readman, partner of Thos. R. Miller and Son, Bermuda, who are the managers of the United Kingdom P & I Club. They are sitting just behind me on my right. Together we represent all the P & I Clubs in the International Group.
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I have submitted a written statement which outlines the concerns that the clubs have in relation to NOAA's notice of proposed rulemaking. These concerns arise both against the background of the cover that the Clubs currently provide for ship owners for oil pollution liability worldwide up to a limit of $500 million for each incident, and also from the wide experience that we have of handling oil pollution incidents both in the United States and elsewhere.
As we have already stated, we hope to be able to continue to provide that cover and claims handling experience to ships trading to the United States, both oil tankers and dry cargo ships; however, the cover that the Clubs provide is a finite resources dependent both on the Clubs' own funds and those of the international reinsurance market.
We feel that the very large and speculative claims for lost use and nonuse values which will be produced by the proposed regulations open up a prospect that these finite resources will be subject to increasing strain which might ultimately lead to a contraction or even a collapse of the system.
Such theoretical and abstract claims will consume a disproportionate amount of the available funds, whether or not the responsible party is able to limit its liability under OPA 90. This will jeopardize the ability of claimants who have suffered actual and quantifiable injury to obtain full and fair compensation under OPA 90.
Because under OPA 90 claims which cannot be compensated from private funds are paid for by the oil spill liability trust fund, the burden of the speculative lost use and nonuse claims created by the proposed regulations will ultimately be borne by the U.S. taxpayer.
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In addition, the fact that such claims under the proposed regulations will be based on abstract hypothesis will inevitably lead to costly litigation with attendant delay in the payment of economic loss claims and in the restoration of the environment, which will be contrary to the avowed attention of OPA 90, of NOAA, and against the public interest.
The fact that resources for the payment of oil pollution claims are limited and the desirability of efficient and rapid settlement of reasonable claims with minimum litigation have been two major factors in the development of the international conventions for compensation for oil pollution damage to which I have referred in my written statement.
So far as damage to the environment is concerned, the international system allows for compensation only for the cost of reasonable measures for reinstatement of the environment undertaken or to be undertaken. Claims based on abstract quantification of environmental damage are not allowable.
Recovery of claims is based on their reasonableness both in terms of cost and the likelihood of success set against the damage actually caused by the particular incident.
Our clear experience is that when claims are brought forward based on reasonable evidence of actual financial loss and not based on abstract hypothesis, the potential for litigation is greatly reduced and reasonable claims, both public and private, are met quickly and efficiently.
The use of theoretical models, whether based on formula, CVM, or other methods for assessing lost use and nonuse values, is likely to have the reverse effect, delaying the payment of claims and the initiation of reasonable steps to actually restore the damage pending the outcome of litigation.
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We feel that the scope of natural resource damages under OPA 90 should be confined to the reasonable cost of restoring damaged natural resources plus the reasonable cost of assessing damage to those resources.
Adopting such an approach will help to ensure timely restoration of damaged resources and also that persons suffering financial loss as a result of the spill will have their claims paid out of the finite resources available to pay compensation undiluted by abstract and theoretical natural resource damage claims.
Thank you.
Mr. COBLE. Thank you, Mr. Greenwood.
Mr. Hobbie.
Mr. HOBBIE. Thank you, Mr. Chairman.
I just would like to raise two points augmenting what I said earlier in my testimony which was applicable to both CERCLA and OPA.
First, OPA is applicable to all vessels. A vessel is defined as any form of water-borne conveyance, and accordingly, OPA would be applicable to an inflatable Zodiac boat, a canoe, a private citizen's pleasure craft. OPA is applicable.
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A man fishing with his child in a canoe loses his paddle, with an oil tank barge and tug downstream. The skipper of the tug decides not to kill that man and his child and grounds his barge. It could be alleged that the other vessel, the canoe, was solely at fault for causing the spill and, as a third party, would be liable for up to $500,000.
This will also be applicable for natural resource damage assessment. In marinas all over the United States bilge pumps fail, vessels leak, oil and gasoline drip into the bilges. We ran over 200 case studies in our comments to NOAA, and we found one situation on a 10-gallon spill where the formula produces a theoretical of $1.28 million of natural resource damage.
If that were from a private pleasure craft, is the average citizen going to be reasonably surprised to have a $500,000 loss claimed.
If you say this should not apply to the average citizen, then why would it be fair for a commercial interest?
But I point out that this is the law. Put it in your own personal terms, get in your own personal boat, go out there and get involved in an OPA claim, and understand you are liable under the law. Put it in that perspective when you say how reasonable is all of OPA.
The second thing I just want to focus on is uninsurability. What does that really mean? I'm a businessman. I'm an underwriter. Almost anything that is legal can be insured. The question is: can I get premium to cover cost plus reasonable profit? In other words, can I charge sufficient premium to cover cost, profit, and my losses?
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Uninsurability arises when I, as an underwriter, have to charge more money than the assured is prepared to pay or is able to pay. For many small vessel operators in the United States, a man who owns and operates his own tow boat may only make—and I shouldn't say ''only''—may make $25,000 or $30,000 a year personal profit.
When the Water Quality Insurance Syndicate increases his premiums $10,000 on that towboat, he now is not going to make $25,000 or $32,000 net; he is going to make $15,000 or $22,000 net. It comes out of his pocket.
These are the implications of insurability: does that tow boat operator or other small operator—and, notwithstanding what people think, most marine operations in the United States are small operations—does he have the financial capability to pay the increased premiums?
What I fear and what I believe personally to be the great threat here is that even where the formulas and the computer model are used, and those types of methodologies are used in NRDA, they will produce modest sums—$10,000, $15,000, or $20,000 of damages. However, when applied to the average small operator, they may put people out of business.
The uninsurability will come when I turn around and say, ''I've got to charge you X premium,'' and the vessel owner/operator says, ''We can't afford it.''
Many WQIS accounts are now paying $250,000, $500,000, and in some cases $1 million when pre-OPA they were paying $50,000 or $60,000 for the whole fleet. It could be that prices will at least double with the proposed NRDA scheme.
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Thank you.
Mr. COBLE. Thank you, Mr. Hobbie.
Mr. Stewart.
Mr. STEWART. Thank you, Mr. Chairman.
I have really three basic points to make. One, that OPA and CERCLA are in need of legislative clarification. They don't specify what the items of damage are. They don't talk about interim use or nonuse values or contingent valuation methodology. They speak very generally in terms of damages for injury to natural resources.
Trustees have used the leeway given by this generality to construct some very far-reaching and overly-ambitious theories of liability.
I think the Congress expected that Interior under CERCLA and NOAA under OPA would, through damage assessment regulations, clarify and refine what the standards are, but thus far we have no regulations from NOAA that have been adopted. The Interior regulations that are still incomplete and they fail to give any meaningful direction or regulation of the damage assessment and claiming process.
For example, we heard from the first panel people agreeing with the Members here that, of course, restoration should be cost-effective. Yet, in both the NOAA and DOI regulations those agencies have refused to impose a requirement of cost-effectiveness in restoration.
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I think it is time for the Congress to take charge of this and lay down what the limits of liability ought to be.
My second point is that trustees have exploited the leeway given by the generality of the statutes to pursue recoveries based on maximizing trustee revenues rather than actually restoring in a meaningful way.
While in theory recoveries have to be spent solely for restoration and for reimbursement of assessment costs, in practice the GAO has found in the Exxon case trustees, bureaucracies, or bureaucrats spend these recoveries to support their ongoing operations, research, policy analysis, and other activities that have, in many cases, only a very tenuous relation to restoration at a given site.
In order to pump up recoveries, they have, in some cases, sought restoration based on extravagantly costly means of restoration when other alternatives would be as good but much cheaper. They have pushed for these interim use and lost nonuse values through contingent valuation methodology and other economic methodologies, arguing, as you heard from the first panel, that this is necessary to make the public whole.
The public is made whole by restoring the resource. That's the basic point. We don't need additional recoveries. If somebody, to take the car wreck example that was given by Ms. Schiffer, if a commercial fisherman is injured by an oil spill, the commercial fisherman can bring a tort suit and recover.
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Of course, in the Exxon case and other cases there have been recoveries by commercial fishermen and others who suffered economic loss. What the trustees are saying is, ''Well, because the public has sort of been injured in a way, let us get some additional recoveries over and above what is needed for restoration and we'll find a way to spend it.'' Yes, the bureaucrats will always find a way to spend it.
I think, as Mr. Greenwood was suggesting, that the problem is that the responsible parties that I know are willing to settle and move forward with constructive, cost-effective restoration. When they get hit with claims for additional hundreds of millions of dollars over and above what is needed to restore, they get their backs up and they are going to fight.
We've got litigation on both sides. We've got battles of experts. And we've got years of delay and enormous transaction costs instead of prompt, sensible restoration.
It is this over-reaching that is driven by the incentive structure of the trustees that they get to keep and expend these monies outside of the normal budget process—no budget control, no budget accountability. I think that is the serious root of the problem.
What I think the Congress ought to do is to say, ''All right. Recovery is for cost-effective restoration but nothing more.''
My third point—and very briefly—are the compensation formula that NOAA have developed. You might say in theory this cuts through the transaction cost. We have a very simplified assessment. The problem is that the model that they have developed is deeply flawed both factually and analytically, leading to assessments, as you heard earlier, of up to $45,000 for a gallon of oil spilled. From what I heard from the first panel, they are going to go back and reconstruct those formula.
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My judgment is that we don't have enough experience thus far. We don't have the data to have these simplified formula that are simply going to result in arbitrary and in theoretical damage assessment.
So, in conclusion, the message is Congress ought to step in to refocus the program on cost-effective restoration and get rid of these other over-reachings.
Thank you.
Mr. COBLE. I thank you, gentlemen, for your testimony.
Doctor Hausman, have you all been here for the entire day?
Mr. HAUSMAN. Yes, I have, sir.
Mr. COBLE. Well, you may recall Mr. Davison's testimony. Mr. Davison appeared on the first panel. His testimony on behalf of the Fish and Wildlife Service—he referred to the major difference between an oil and a hazardous substance spill was that, according to him, that oil recovers naturally relatively quickly in the short line of time of several days to no more than several years.
Given this comparatively short restoration period, how appropriate, in your opinion, is the use of contingent valuation in the oil spill context?
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Mr. HAUSMAN. I think it is absolutely wrong and inappropriate to use contingent valuation in that situation. I think it is understandable when you consider where contingent valuation comes from.
It is claimed that contingent valuation is trying to get at the bequest value for future generations, but let's just use an example. If an oil spill takes 5 years to recover, if we think of all the future generations that are going to be living for hundreds of years after us, what happens for 5 years in any type of present discounted value is going to have almost no effect. Therefore, the bequest value has to be very near zero.
The second is the existence value that somehow in your mind you're sitting there in between commercials in ''The Simpsons'' and you are saying, ''Aha, there has been that spill and I feel a little bit worse.'' But, again, if that is going to be cleaned up relatively quickly either by the responsible party or by Mother Nature, it shouldn't really affect the existence value at all.
In my view, for relatively short-lived spills, contingent valuation is absolutely incorrect and it leads to absurd values.
Again, Dr. Kopp was here testifying that he had worked on the Exxon Valdez spill. I'm not a scientist, but I believe there is wide agreement that the Exxon Valdez spill—the combination of the cleanup effort and Mother Nature has largely and significantly cleaned up Prince William Sound.
Dr. Kopp's use of contingent valuation led to an estimate of $3 to $5 billion. Here we are 4 or 5 years after the spill. It is pretty much cleaned up. How could the bequest value and how could the existence value conceivably be $5 billion?
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Therefore, that just is empirical evidence which backs up my view that contingent valuation should not be used as a matter of economic theory, and when it is used it leads to absolutely ridiculous economic results.
Mr. COBLE. That is the answer I would have anticipated, and I would be hard pressed, Doctor, to disagree in great detail with that answer.
Mr. Greenwood, to your knowledge has any study been completed on the impact nonuse or passive damages are generic models and formulas—what impact that will have on the insurance market's ability to pay claims? And should such impacts be known before we move forward at a rapid rate, accelerated pace?
Mr. GREENWOOD. Mr. Chairman, no study has been conducted as such by ourselves, but we do have practical experience, for example, of the effect of the Exxon Valdez where the natural resource damage claim is well in excess of the limit of our cover and where the effect of that one claim was to increase, for example, the cost of our reinsurance by four times over a period of 2 years. The expectation of similar claims has maintained the cost of our reinsurance at that new very high level so that we already have experience of the effect of that type of claim on our cover. That is why we are so apprehensive about the effects that future claims of this kind will have on the continuation of the cover.
Mr. COBLE. Thank you, sir.
I'll put questions to you all in the order of your appearance.
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Mr. Hobbie, you were here. Have you been here all day, Mr. Hobbie?
Mr. HOBBIE. Yes, Mr. Chairman.
Mr. COBLE. You may recall my comment to the members of the first panel regarding the possibility of applying monies to what I referred to as ''pet projects.'' I'm not suggesting that anyone is playing loosely with the facts, but the panelist to whom I put that question, as best I recall, certainly implied that is not done. He reminded me that there is statutory and/or regulatory language that prohibits that. I understand that, but I also understand that sometimes when prohibitive language appears on the books does not always assure us that compliance is forthcoming.
Having said all that—and in your statement you alluded to that, as well—applying these funds for purposes that go beyond the issue at hand.
Do you know of examples where that has occurred or situations where that has occurred?
Mr. HOBBIE. Not specifically; however, in our experience to date—and even more so recently—we have paid a significant number of claim amounts for assessment costs where there have, in fact, been absolutely zero natural resource damages.
It does appear that in certain cases assessments are occurring where visual observation immediately indicates no actual known damage.
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Those amounts, again in tug and barge cases are minor. They could be $10,000, $8,000, or $20,000. But we do find fairly often that, rather than a very cursory observation, we see assessment costs.
We have seen several places where there have been proposals for long-term scientific studies, but upon negotiation, we insist that they prove first that there is damage. They say, ''Oh, it's long-term monitoring cost to monitor whether or not there is damage into the future.'' We have seen that being proposed. We have argued and fought against it. So far, we have been successful. But this is of great concern to us. One may say we need to see what the future holds.
We had a case where some brown pelicans—endangered in Louisiana—got rings of oil around them. Orginally it was proposed that we check the next three breedings to test the thicknesses of the shells of all the brown pelicans. All because they had gotten a ring of oil around them, even though Tri-State Bird Care had completely taken care of them.
So what gives us our concern is that those kinds of studies could be much more expensive and could go very long-term.
Mr. STEWART. Mr. Chairman, I'd point out under the damage assessment regulations they give trustees the authority to set their own indirect overhead cost rate, so a trustee could say, ''A 30 or 40 percent add-on for my overhead,'' whatever that is. That's an example of the potential, I think, for the sort of problem.
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Mr. HOBBIE. And also in the tank barge that I had referred to with the caustic soda spill, even thought it was under CERCLA, in the Government's request for payment they said we also ''anticipate future scientific studies for $25,000.'' Based on the pH going up in the river for 12 hours, I can't conceive of how you can spend $25,000 for future studies, but that was part of the alleged claim.
Again, that's where we get our fear as an industry. We fear that, because if we are seeing that now, once these regulations are promulgated what are we truly going to face?
Mr. COBLE. Yes, sir. I didn't realize that the distinguished gentleman from New York had come back. Let me put one more question to Mr. Stewart and then I will be happy to recognize him.
Mr. Stewart, given your experience with the Exxon Valdez problem, how do you—strike that. Given your experience with that problem, talk to us a bit about the proposed NOAA regulations on oil spill as far as fairness and equity to all parties. What would be your appraisal of that?
Mr. STEWART. Well, I think I have referred already to the compensation formula. Really it is a tax on oil spills that cannot be justified based on the cost of restoration. I think that's a problem.
I think the interim lost use and nonuse values is really a distraction, that they go beyond what is needed for cleanup. The Exxon was a rather special case in many ways. I think Exxon was very seriously at fault at what they did there, and the amount of the settlement, which included a settlement of criminal as well as civil claims, has to be looked at in that light.
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In the ordinary course we're talking about no-fault liability so that totally without any fault on anybody's part they are exposed to liability. I think that liability ought to be limited to the cost of restoring the environment and not something on top of that.
Mr. COBLE. Hypothetical questions can always be very evasive, but let me put one to you. Without the use of contingent valuation, Mr. Stewart, without the use of contingent valuation methods do you believe that there will be any subsequent billion-dollar oil spill recoveries?
Mr. STEWART. I'm not sure I can answer that hypothetically.
Mr. COBLE. I admit I don't fault you for having the answer.
Mr. STEWART. Again, I think the behavior of Exxon in that situation was—they had in Prince William Sound the environmental equivalent of a nuclear bomb. The lapse in care was shocking. I think in the end that was the basis for the settlement that we got, and I would hope we would not, in light of that experience and subsequent legislation by the Congress in OPA, that we wouldn't see that again.
I think really contingent valuation is a total wild card in this situation and we ought to base the law and recoveries on rational principles.
Mr. COBLE. Thank you, sir.
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The gentleman from New York?
Mr. BOEHLERT [resuming Chair]. Thank you, Mr. Chairman.
Mr. Hobbie, is insurance currently available to cover damage measured by NRDA other than damages used to restore, rehabilitate, replace, or acquire equivalent resources?
Mr. HOBBIE. Our coverage currently includes all of the liabilities under section 1002 of OPA, which means it does include NRDA as such.
Mr. BOEHLERT. All right.
Mr. HOBBIE. To answer your question more completely—as I testified earlier—should the cost escalate for NRDA to the point where an insurance company has to charge their assured more money than the assured can afford to pay, the insurance will not be available; i.e., if costs escalate significantly. The 40,000 vessels we insure are predominantly smaller commercial craft, coast-wise and inland. Those people don't make a lot of money; a lot of them are not big businesses.
Mr. BOEHLERT. Right. I understand.
Mr. HOBBIE. So if they can't afford the premiums, then the insurance will not be available.
Mr. BOEHLERT. You are suggesting that there would be a—a lot would go out of business if this thing—
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Mr. HOBBIE. Correct, sir.
Mr. BOEHLERT. Do you have any examples of any that have already gone out of business? We have had this around for a while?
Mr. HOBBIE. The escalation of costs so far in OPA have been within a context that the maritime industry has been able to sustain. I would suggest that there used to be a larger number of small tow- and push-boat companies all throughout the south intracoastal waterways. Many of those are no longer with us. The larger operators have purchased many of them.
Mr. BOEHLERT. And we don't have as many corner grocery stories as we used to, either. Things have changed. It's dynamic.
Mr. HOBBIE. But it would be very difficult to point to specifics right now. It is more the—
Mr. BOEHLERT. Then the answer is no, you don't have any examples.
Mr. HOBBIE. I do not right now, sir.
Mr. BOEHLERT. But you are fearing the worst?
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Mr. HOBBIE. Correct.
Mr. BOEHLERT. Hoping for the best, fearing the worst.
Mr. HOBBIE. And, of course, the regulation is not in effect for NRDA.
Mr. BOEHLERT. All right. Let me see what else I've got here in this grand scheme of things.
Mr. HOBBIE. If I may, have had a number of companies who have ceased transporting black oil—that would be Ingram Barge Lines, Bouchard Transportation of New York, and Canal Barge Lines in New Orleans—because of the insurance costs and the liabilities, so I think there would be a direct example where OPA has caused people to change the business pattern.
Mr. BOEHLERT. But no examples of anybody being forced out of business? I'm being intentional in my pursuit of this because so often we hear these horror stories up here and we are all alarmed and we can't proceed with anything because the bottom is going to fall out, and then when we ask to see where the bottom has fallen out no one can quite show us where that bottom has fallen out, so I'm just trying to get as specific as I can. I think you can appreciate that.
Let me ask the panel this: some people have suggested we suspend the use of contingent valuation for measuring nonuse values until they are shown to be more reliable. How would you comment on that, Doctor Hausman?
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Mr. HAUSMAN. To start with, I'd like to correct a misconception of the previous panel. Both the lawyer from the National Research Defense Council—or whatever it is called—was sitting here, and Mr. Kobb both said that the so-called ''NOAA Blue Ribbon Panel'' had validated CV. That is not true at all. The only thing they said was that CV had had a lot of problems in the past, and they put forth some prescriptions which they said, if followed, they thought could be a starting point for litigation. They never said—and I have read that many times and gave testimony before the panel, but it was okay.
In my view, there are two answers to your question, Mr. Chairman. The first is I think, for a whole range of possibilities, we can rule out CV for the reasons that I gave to Mr. Coble—I think you might have been out of the room—that if it is temporary damage CV should not be used because the bequest value and the existence value in a 5-year period just aren't large enough to be measurable accurately.
In the case of the Grand Canyon being injured or Yellowstone or something like that for a long period of time, then arguably CV could be used; however, I don't think it should be used until it can be proved to be reliable.
In fact, the current ongoing court fight in Montana, where they have put forward a CV study—and I should say that I'm working for ARCO in that litigation—that study, itself, doesn't even meet the minimum standards put forth in the NOAA regulations that any CV study should meet.
I find it remarkable that the State of Montana is asking for approximately $500 million based on a CV study that doesn't even meet minimum reliability standards.
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So, in my view, before CV could be used, if it could ever be used, it should meet reliability standards, but they should be much stricter than what are in the proposed NOAA standards and the proposed DOI standards.
Mr. BOEHLERT. Thank you very much.
Do any of the other panelists care to comment on that?
Mr. HOBBIE. I would just simply say we don't believe nonuse values to be valid to begin with, so whatever method you want to use to measure them is sort of immaterial.
Mr. BOEHLERT. I'd like to thank all of your for your participation and for y our patience in staying around to this later hour.
Chairman Coble and I had every intention of starting this hearing on time—which we did do. That's one thing we were able to control—and finishing in good order, but the House had a different agenda for the day and so we have had to put up with interruptions, and I thank all of you for doing that, and I apologize for the schedule of the House, over which we have no control.
I thank you for your expert testimony.
Mr. COBLE. I thank you all, as well, and I thank the members of the audience for your patience today. As the gentleman from New York said, our time was prolonged by three or four unanticipated votes on the House floor.
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The members of the subcommittee may have additional questions, gentlemen, for you all. We will ask you to respond to these in writing if, in fact, they are put to you. The hearing record will be held open for 1 month for these responses.
If there is no further business, we again thank members of the subcommittee and our witnesses, and this subcommittee stands adjourned.
Thank you, gentlemen.
[Whereupon, at 3:26 p.m., the subcommittees were adjourned, to reconvene at the call of their respective Chairs.]
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