Vol. 52-1 Waste
Natural Resource Damages: Grasping at the Value of Nature
How much money is a river worth? Some would find such a question laughable. In conceptualizing the issue, at first, seemingly countless factors flow forth like a tidal wave. One must account for the organisms and people dependent on the river, its impact on surrounding ecosystems, recreational value, even sentimentality and hopes to pass on the resource to the next generation; and how does one even go about quantifying those values in the first place. Arriving at a real answer seems hopeless. If this impractical question were truly hypothetical, perhaps laughing would be the correct reaction; however, the legal concept and statutory claim of Natural Resource Damages (NRDs) forces such conceptual impracticality into the practical world of litigation, where the stakes involve real injured resources and shrinking pocketbooks.
This article analyzes the framework of the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, NRDs and four of the leading methodologies used to assess them, to examine the philosophies and preferences underlying the valuation of natural resources in this context. The first part of the article explains, in basic terms, the framework of CERCLA’s NRDs and the tripartite conception of natural resource value. The second part analyzes four of the leading methodologies used under CERCLA to assess NRDs and how they attempt to account for each type of value of an injured natural resource. The third part makes observations about the current system of assessing NRDs and what the system reveals about the law’s conception of nature.
The CERCLA NRD Framework and the Three Values of Natural Resources
Under CERCLA, otherwise known as Superfund, parties responsible for a release or threatened release of contaminants resulting in damage to natural resources within the public trust are responsible for compensating the public for the restoration of injured resources and the provision of services following cleanup. Following remediation of hazardous substances at a given site, NRDs go into effect if there is “injury to, destruction of, or loss of natural resources” within the public trust. Natural resources are defined as “land, fish, wildlife, biota, air, water, ground water, drinking water supplies, and other such resources belonging to, managed by, held in trust by, appertaining to, or otherwise controlled by” a state, local, or foreign government, the United States, or an Indian tribe.” These entities are known as trustees, and they are charged with assessing injury to natural resources and restoring injured natural resources or services lost due to a release or threat of release. Under CERCLA, the trustees may recover NRDs from potentially responsible parties (PRPs) through of suit or negotiation. Before recovery, the trustees must perform a natural resource damage assessment (NRDA) in order to quantify the injury and damages, i.e., the cost of to restore the injured resources or the services they provided.
The standard conception of natural resource value includes three general types: use value, existence value, and intrinsic value. Use value refers to the value that humans derive from the natural resource by using it for practical ends such as hunting and fishing, or the ecological services provided by the resources such as service in the food web. Existence value is the value that resources have to humans aside from use, such as the desire to pass on the resources to future generations. It encompasses the general idea that there are reasons why humans would want natural resources to exist even if they knew they would never directly interact with them. Intrinsic value is the value that the resources have completely apart from humanity. This is the idea that nature has a value in itself, just by virtue of being alive or otherwise part of the natural world.
Each type covers its own portion of the natural resource’s value and has its own strengths and weaknesses in application. Use value is perhaps the most straightforward, as judging how much a resource is used is at least quantifiable in theory. Still, it can be difficult to assign specific values to such use. On the other hand, existence value is, even conceptually, very difficult both to quantify and value accurately. Most agree that nature they will never see is still valuable. Perhaps they would like to keep the option to travelling there open, even if they never do, or to bequeath the natural resources they will never experience to a future generation. However, any monetary value placed on these desires will be speculative.
Lastly, intrinsic value is difficult in concept and near-impossible in application. There is not even widespread acceptance of the concept, much less inclusion within a valuation methodology. Intrinsic value is different from the other two in that it is the only one that is non-anthropocentric. It may seem attractive to recognize moral rights in nature to those who care for the environment, but the application of such rights in resource valuation is far from practical. It is not unheard of for the law to consider intrinsic value; such a principle is accounted for in the Endangered Species Act, for example. However, it is much easier to assign value to an obscure endangered animal than it is to assign a specific monetary value to it. In fact, monetary value seems essentially antithetical to the idea of intrinsic value, as it can only quantify how valuable something is to the person spending it. Thus, while each type of value is represented in varying ways in assessing natural resource damages, intrinsic value only gets incidental representation, if at all, for this reason.
The Department of the Interior has promulgated regulations for conducing NRD assessments. If a trustee complies with the Department of the Interior (DOI) Regulations, it is entitled to a rebuttable presumption in its favor in any administrative or judicial proceeding. Though following the regulations is not mandatory, the benefit of the presumption makes the regulations a worthwhile starting point for examining the typical NRDA methodology. The DOI Regulations focus on use value, but there is an opportunity to include non-use values, which encompass existence values but not intrinsic value. The regulations provide for a default methodology and an allowance for alternative methods in the event that a standard method is not appropriate.
Four Principal CERCLA Methodologies
The default restoration methodology in the DOI Regulations involves replacing the natural resources themselves to reach an equivalent level of natural resource services. The philosophy behind the default restoration methodology is elegantly practical: avoid the problem of valuing natural resources in dollars by assessing restoration costs. For example, instead of valuing injured wetlands, restoration methodology looks at the cost to restore or replace the same wetlands. Under the DOI Regulations, damages for restoration includes the cost necessary to restore the natural resources to the point where they can provide the level of services they provided before the injury or the acquisition new resources that provide the same services. Thus, a monetary value is reached by simply assessing the cost of restoring what was originally there. This method is generally known as “service-to-service scaling.” To be sure, restoring or replacing natural resource services is neither simple nor exact in practice. Restoring natural resources involves inherent and intricate considerations concerning homeostasis and environmental interconnectivity. Furthermore, the baseline that NRDs seek to restore is a naturally dynamic level, which makes the objective a moving target. In theory, however, it is as exact as possible, as it accounts, in definite terms, for a return of precisely what was lost, whether or not such a promise is possible.
Thus, if the method was exacted perfectly, it would, theoretically, account for the use and existence values, while also incidentally serving intrinsic value to some extent. With the resource’s services restored to their same level before the release of some harmful waste, the use may continue as would normally occur. Similarly, the resource will exist as it did before, so existence value is accounted for. Intrinsic value, however, encounters two issues. Firstly, in cases where replacement is utilized, those who view all life and natural resources as non-fungible might not be satisfied. They might view the practice of replacing natural resources as on par with a parent replacing their child’s dead goldfish with another from the pet store. Even if a supposed equivalent is acquired, it will never truly be the same again. Also, some might be wary of heavy human intervention into complex and interconnected ecosystems, taking the view that once humans have impacted an ecosystem, such damage cannot simply be undone by more human intervention. Therefore, service-to-service scaling, even in theory alone, is not the perfect encapsulation of every value of natural resources; however, it certainly comes the closest of the leading valuation methods.
Service-to-service restoration, though, will not always be the correct solution in every case due to excessive complexity or cost. Thus, the authorized official acting on behalf of the trustee is required to develop a reasonable number of possible valuation alternatives that meet the same need of restoring or replacing the natural resource’s services or acquiring equivalent natural resources. Trustees are free to develop their alternative methods as long as they meet certain factors set out by the DOI. After service-to-service scaling, the three most prominent methodologies are (1) market valuation, (2) behavioral use valuation, and (3) contingent valuation. Such methods are not mutually exclusive, as long as values are not double counted, so trustees are free to carefully combine different methodologies to account for different values. These approaches, however, are primarily monetary, and as such, they begin to extend into abstraction. In departing from the theoretical precision of service-to-service scaling, these methods struggle much more in accurately accounting for each value of the natural resources.
Market valuation is based on an assessment of what the resources would be worth on the free market. In some instances, the court may consult a price list; for example, when valuing certain species of fish, prices can be acquired from commercial hatcheries. Alternatively, courts may account for lost property value. This method is attractive for the practicality of its implementation, as ascertaining market values is simple to execute. It is not always a workable framework, nor is it guaranteed to be inclusive of all the resource’s value, but it provides definite numbers, which are easy to apply.
Under market valuation, use value would generally be accounted for as long as the payout is put to use in restoring the resource’s services and making them available for use. It is meant to be a metric by which to gauge use in terms of consumption, and it undoubtedly accomplishes this narrow task efficiently, whether or not it does so accurately. Existence value is generally not reflected. It could theoretically be accounted for insofar as the market reflects willingness to pay for the resource’s value to consumers apart from direct use. Common sense dictates, though, that prices from fish hatcheries or land valuation are surely based on use value, with very little, if any, existence value being accounted for. People are willing to pay for land or fish because they have value insofar as they can come to be owned by them. Thus, a desire to obtain would be more appropriately associated with use value.
Furthermore, intrinsic value, even if it were provided for under the DOI Regulations, could not be included within market value in any meaningful way. A methodology hinging on supply and demand generally would not incorporate intrinsic values, as consumer willingness to spend is often considered to have its foundation in its value to the consumer. Oliver Putnam, who published Sundry Topics of Political Economy in 1834 wrote, “things may possess utility, but unless they are objects of exchange, they have no value.” If value to the consumer is the only metric, then non-anthropocentric intrinsic value cannot be included. It seems generally unlikely, for example, that consumers would willingly pay more for fish from a hatchery with the thought in their mind that they are somehow better honoring those fishes’ intrinsic value by paying a higher price. Returning to the goldfish analogy, to the proponent of the intrinsic value of natural resources, using market value would be akin to handing the grieving child a $10 bill, the going rate for goldfish at the pet store. Though practical where possible, market valuation can seem rather cold in the way it systematically focuses only on a very basic conception use value.
Behavioral use valuation is similarly focused on use but is based on actual use by people. It is held up as one of the best ways to judge demand for use value. A common form of behavioral use valuation is the estimated costs of what visitors would have spent to use the resource, which is known as “travel cost valuation.” The strength of this method is that it can rely on verifiable behavior in the standard use of the natural resource, but as a result, it only takes into account the resource’s use value. Furthermore, even the use value can be inaccurate, as costs such as travel time are not accounted for. Neither existence value nor intrinsic value can be included for similar reasons to those in market value. By definition, the only metric of the valuation in behavioral use is how much humans use the resource. Thus, for those seeking a repair of non-use value, behavioral use valuation within the goldfish analogy would be akin to the parent asking how much the child truly interacted with his now deceased goldfish and giving him cash proportionally to the time spent with it.
Perhaps the most controversial example of a restoration alternative is contingent valuation. Contingent valuation works by simply asking people how much a natural resource should cost. Thus, one could conduct a survey and ask a version of the original question posed in this article: “How much would you pay to preserve this river?” Surveys consist of first, a description of the source and method of payment to be used for buying improvements, then questions to gauge the participant’s willingness to pay, and lastly, questions about their demographic characteristics. This method is practically very simple to execute, for you are guaranteed a numerical answer without the need complicated calculations, but the theory behind it is riddled with potential for inaccuracy. The evidentiary rigor of asking simple hypotheticals seems on par with a middle schooler’s game of “would-you-rather.” Answers are guaranteed to be heavily subjective, and even then, studies indicate that such attitudes do not accurately predict behavior. Thus, it could not match the theoretical consistency of service-to-service scaling.
Yet, for all these critical issues, contingent valuation does have a unique advantage over the other methodologies: it is apparently the only method available to directly quantify non-use values, to the extent that such values can be accounted for within the ambit of CERCLA NRD compensation. The other methods almost certainly do not account for non-use value, and if they do, it is only included incidentally. Contingent valuation, however, allows survey respondents to indicate a value based on their own choice of metric. Thus, if respondents do value a resource beyond what they would pay to use it themselves, they may indicate for themselves how much that value means to them in monetary terms. Furthermore, contingent valuation perhaps comes the closest to being able to include intrinsic value in theory, even if it still does not truly accomplish the task. One who recognizes the intrinsic value of nature could set their personal prices higher than use and existence value to account for it. However, the fact that the DOI regulations do not include intrinsic value within contingent valuation methodology not only hinders such an idea, but also points to an area that may be beyond the reach of the underlying statute. Nonetheless, despite its inconsistent nature, contingent valuation is the best and perhaps only well understood method to explicitly include non-use values within the valuation.
Observations and Implications from the CERCLA Methodologies
Three observations emerge from this survey of valuation methodologies. First, each methodology has a varying level of theoretical soundness in assessing damages, from service-to-service scaling at the high end to contingent valuation on the low end. Second, every methodology’s practical accuracy in accounting for resource value is subject to significant questions. The multitude of factors underpinning such a valuation makes it nearly impossible to value natural resources perfectly, not to mention anything of the extent to which such methodologies are sufficient to satisfy a trustee’s evidentiary burden in court. Service-to-service is difficult to implement perfectly; market and behavioral use do not even accurately predict use value; and contingent valuation is, arguably, completely speculative. Third, intrinsic valuation remains unaccounted for across all methodologies, likely by design.
What do these observations reveal, then, for this relatively narrow but important area of the law? This analysis shows that the DOI regulations contain a significant range of options for valuing natural resources, and these options demonstrate a range of philosophies and preferences concerning natural resource valuation. First, service-to-service scaling is, in theory, a workable default, for it seeks to avoid the problem of abstract monetary valuation. However, the regulations, by including alternatives, acknowledge that this method will not function best in all cases despite its theoretical soundness. Thus, it seems that the regulations are willing to sacrifice theoretical consistency for ease of implementation in some cases. Such ease can, at some point, overcome the practical difficulties with a methodology.
Also, in terms of alternative methodologies, the regulations do not distinguish between those methods with high or low theoretical consistency as long as they meet the factors listed in the regulations. Perhaps past the most theoretically sound methodology, trustees are allowed their pick to best fit their situation and preferences, though of course to get to restoration, resolution must either be achieved via settlement (i.e., the responsible parties have to agree) or by trial (trustees must bear burden of proof). The mere inclusion of contingent valuation, however, suggests that despite the debate surrounding the method, the DOI deemed that there was a need to account for non-use values through the availability of a discrete methodology. Thus, if trustees so desire, they may opt to try to account for non-use values, with the caveat above that achieving actual restoration with such values explicitly accounted for will turn on either settlement (agreement) or a favorable judgment (meeting evidentiary burden).
A last important observation is that intrinsic value is entirely omitted from the DOI Regulations. This fact is rather unsurprising since the non-anthropocentric nature of the value makes it nearly impossible to account for from a human perspective. Intrinsic value also seems to go beyond the typical purview of civil claims for damages. However, this omission does mean that if such value of natural resources does exist, it can never be accounted for under the current system. Though the DOI Regulations purport to cover all of a resource’s value, if intrinsic value does exist or is not valued, it risks being lost any time natural resources are injured.
The NRDA process inherently involves questions about the concept of value itself. The law has risen to meet this challenge with a set of crude but, ultimately, functional methodologies. Indeed, this is not a new challenge for law, which is regularly challenged with ascribing value to such nebulous concepts as pain and suffering and the loss of human life. The willingness to rely on the public either sitting in the jury box in tort claims or responding to contingent valuation surveys for NRDAs could reveal either humility or bewilderment on the part of the legal system. Yet, the very existence of NRDs and acceptance of more abstract methodologies shows willingness to try to value nature fully. Even if the numbers will not always square with a metaphysical value of each resource, the law seems to aim for taking as many steps toward restoration of the resources in public trust as possible. Perhaps the state of the law, policy, and practice of NRD is not yet enough to fully value nature, not only for its services to humanity, but in and of itself; hopefully, though, as humanity’s understanding of the natural environment ever grows, so too will the number of those steps taken towards conceptualizing and recognizing the full value of the natural world.
Christian Green is a 2L from Brownsville, Texas. He attended the University of Notre Dame and joined TELJ during his first year of law school. Christian has long been interested in the field of environmental law and will be interning with the Texas Commission on Environmental Quality during the summer of 2022.
Amanda Halter is managing partner of the Houston office of the international law firm of Pillsbury Winthrop Shaw Pittman, a member of the firm’s Environmental & Natural Resources practice section and co-leader of the firm’s Crisis Management team. Amanda helps companies resolve environmental liabilities and negotiate compliance conditions, as well as manage financial and reputational losses associated with a crisis. Her experience includes a diverse array of environmental regulatory, litigation and crisis matters, including contamination investigations and remedial actions, natural resource damages assessments and claims, environment, health and safety compliance counseling, mass toxic tort actions, permitting and planning for large-scale industrial projects, and project impacts mitigation and restoration strategies. Amanda is a native of Houston, a gr
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