BC Ratio Analysis

8/11/2019 BC Ratio Analysis

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Overview

General background on Benefit-CostAnalysis (BCA)

Economic principles Political and scientific realities

The Safe Drinking Water Act

(SDWA) and BCA Setting standards prior to 1996

The 1996 SDWA Amendments


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Overview (cont.)

Issues in estimating benefits

Awwa Research Foundation project

Provides conceptual foundation

Practical numeric illustrations

Exposure => Risk => $ Values

Focus on variability and uncertainty


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What Is BCA Anyway,

and How Can It Help? Tool for systematically comparing

pros and cons

Identifyall relevant benefits and costs

Quantify(or describe qualitatively) allbenefits and costs

Monetize(or apply another metric) todirectly compare benefits to costs


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What Is BCA Anyway? (cont.)

Objective is to promote commonsense

Do benefits exceed costs? Net social benefits are positive: B - C > 0

Society is no worse off (break even)

Are net social benefits maximized? Choose the wisest investments

MB = MC (incremental BCA)


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Why All the Fuss over BCA? (cont.)

For proponents: BCA viewed as a saviorof rationality

Systematic way to impose sanity into theregulatory process

BCA misperceived by some as

providing a definitive decision rule Clear-cut and irrefutable outcomes


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Where Does the Truth Reside

about BCA? BCA is a very usefultoolto inform

and guide decisions

BUT it is not a ruleby which decisionscan or should always be made

Objective BCAs support verystringent standards in some cases,and less stringent standards in others


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How Were Standards Set Prior to

the 1996 Amendments? Establish risk-free health goals: MCLGs

MCLGs typically = zero Set enforceable MCLs as close to MCLG

as technically feasible (taking costs

into consideration) No ability to take benefits into account

in how stringently MCLs wereestablished


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Consequences of the Old Approach

MCL- invested costs did not alwaysmaximize public health protection

benefits High variability in costs incurred per

unit of health benefit, depending on:

Contaminants regulated

Level at which MCLs are set

System size categories


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Variability in Cost

per Cancer Avoided

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

25-100 101-500 501-3,300 3,301-10,000 >10,000

CostPerCaseAvoided(m

illions)

DichloromethanePentachlorophenol1,2-DichloropropaneEDB

System Size (persons served)


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What Do the 96 Amendments

Require? EPA conduct and publish a BCA for

every proposed and final rule

Focus on how health risk reductionbenefits compare to costs

EPA Administrator signs a

determination that benefits justifythe costs


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What Do the 96 Amendments

Allow? If benefits do not justify the

costs . . .

The Administrator may use BCAresults to set an MCL at a level otherthan what is technically feasible


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Benefits: Conceptual

Underpinnings Benefits arise from series of causal links

Occurrence =>Exposure =>Toxicity =>Quantify => Monetize ($ Values)

Conceptual and empirical challenges ariseat each step

Components need to be integrated intomeaningful whole Uncertainties are propagated,

compounded


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Conceptual Underpinnings (cont.)

AwwaRF project recently completed

Conceptual and empirical approaches

Focus on variabilities and uncertainties

Practical numeric illustrations for MTBE


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Causal Links in Benefits

Benefits Assessment Activities

1. Estimated Occurrence

3. Estimated

Fate and Transport

Regulatory Actions

(MCLs)

Treatment or Alternative

Source Selected

Stressors (chemical/microbial

concentrations in finished water)

Distribution System

(air, land, water)

Causal Links Leading to Benefits

2. Compliance Response;

Estimated Removal/

Inactivation


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Causal Links in Benefits (cont.)

Benefits Assessment ActivitiesCausal Links Leading to Benefits

Receptors(exposures to people)

Impacts

(health, risk reductions)

Values

(monetization of benefits)

4. Estimated Exposure;

Averting Behavior

5. Estimated

Dose-Response

6. EstimatedWillingness to Pay (benefits),

or Costs of Illness

Distribution System


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Exposure Assessment

Tap water consumption

2 liters/day replaced with . . .

Distribution with mean ~1.1L/day

Duration of exposure

70+ year lifetime becomes . . .

Distribution of residential duration(median of 5.2 years), coupled withoccurrence data


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Lifetime Exposures

(arsenic at 10g/L)

0

50,000

100,000

150,000

200,000

250,000

300,000

Percentile

g/Lifetime

266,450

64,320

(24%)

50th

(26%)

(34%)

78,456

144,405

75th 95th 99th


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Concentration-Response

and Risk Characterization Impact of biologically-based models

Threshold-like dose-response functions

Other nonlinear exposure-response models Use of probabilistic methods

Using distributors rather than

precautionary assumptions (e.g., MonteCarlo techniques)

Provides central tendency (most likely)estimates


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Quantification Issues

What is meaningful measure of benefits? Lives saved (premature fatalities avoided)

Life years saved (extension of life expectancy)

Nonfatal risk reductions (# illnesses avoided)

Moral key: benefits are risk reductions Low-level risks, spread over large population

Nota specific, identified person or set ofvictims


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Valuing Premature Fatalities

Avoided Value of a Statistical Life (VSL) Published studies of observed $ for risk

tradeoffs

Based on accidental immediate death(occupation, traffic safety, etc.)

Latency and discounting are key issues

Not placing $ values on lives Observed $-for-risk tradeoffs

Low-level risks over large population


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Adjusted Value of Statistical Life(VSL) Estimates

(million 1999 dollars)

4. Life years saved and VSLY $1.2 $1.5

3. Age-adjusted VSL (age,income, latency, discounting) $1.3 $1.9

2. SAB-endorsed (income growth,latency, discounting)

$2.7 $2.7

Bladdercancer

Lungcancer

1. EPA (unadjusted VSL) $6.1 $6.1


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Other Application Issues

Interpreting BCA findings for standards Total vs. incremental BCA

System size (scale economies)

Addressing unquantified benefits Using best estimates of risk

reductions and monetized values

In lieu of precautionary assumptions Using probability distributions (or ranges)

rather than point estimates


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Uranium: Cost per Person Exposedabove Oral RfD for Kidney Toxicity

(000s of 1998 dollars per lifetime, log scale)

$7.6

$1,860.0 $2,150.0

$4.2 $5.2$5.2

$290.0$198.0

Total Population

Population > Oral RfD

Baseline80 g/L

80 g/L40 g/L

40 g/L30 g/L

30 g/L20 g/L

1

10

100

1,000

10,000

Log scale$000s


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Conclusions

BCA provisions are an important stepforward for standard setting

Enable a departure from technology-driven basis of standard setting

Offer upside potential for designing

better standards to maximize publichealth protection


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Conclusions (cont.)

AwwaRF project addresses key issues: How benefits should be estimated

How BCA should be applied andinterpreted for MCL-setting

BCA is a useful toolto guide decisions

It is not a ruleby which decisions shouldalways be made

AwwaRF project also shows how BCAis useful for setting research priorities

BC Ratio Analysis

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