Beyond Superfund

Expansion of the Superfund for toxic-waste cleanup now appears to have been deferred at least until 1985, and that is a good thing, During the recent congressional haggling over reauthorization, the program, initially viewed as an emergency 51.6 billion response to hazardous dumps, seemed destined to grow in the traditional “Christmas tree” federal fashion.

Superfund Is part of a second generation of environmental programs: Its task is not to reduce current pollution, but In manage possible Future risks of past disposal practices. This is a substantial chore. The US has, by current estimates, about 22,000 candidate sites, each containing widely varying quantities of diverse materials and each posing some potential risk to the environment.

As the Environmental Protection Agency lists potential sites for cleanup, citizens in the surrounding communities are alerted to the presence of such dumps, often for the first time. The citizens are likely to react with some degree of panic to this news—especially when the press treats the event as akin to the discovery of a live mine field in their midst and recalls the Love Canal incident. Most citizens, after all, have been led to believe that cancer is caused primarily by exposure to trace elements of industrial chemicals and therefore want the dump to ”go away.”

in the absence of Superfund, communities would deal directly with such risks. Similar ones involving contaminated water supplies, uncovered drainage ditches and abandoned buildings have long been a concern of private parties and local governments, Absent Superfund, however, the parties would ensure that the reductions in risk justified the costs entailed.

A ‘Free Good’

Under Superfund. 96% of the costs of cleanup are paid by the EPA, while the state covers the remainder. The local communities get all of the benefits and pay none of the costs. As a result, Superfund Is a ”free good.” Not surprisingly, therefore, Superfund has proven to be an extremely popular program. A community has every incentive to demand that its dump sites be placed on the cleanup list. If funding permits, we may find ourselves ‘gold plating” all 22,000 potential sites. That, according to Genera/ Accounting Office estimates, might cost about 521 billion.

Superfund Is also subject to criticism on the financing side. For efficiency and equity reasons, environmentalists have long argued that the costs of pollution control should be borne by those responsible—the “Polluter Pays Principle.” Superfund is Financed in large part from specific taxes on petroleum and selected chemicals along with some general appropriations, and to a lesser degree by damages recovered from responsible parties.

The tax on current output clearly violates the Polluter Pays Principle. Current production does not create the problems associated with past Improper waste-disposal practices; nor can current producers reduce these prospective risks when they have no role in the management of the hazardous sites. Moreover, under the current system, even if a company did reduce these risks, its tax burden would remain unchanged. Superfund resembles the Price-Anderson Act or the recently proposed acid-rain legislation In that it acts as a no-fault plan. The Superfund taxes raise money, but create no incentives for anyone to reduce the risks associated with dumps—existing or future.

Even the damage-recovery part of the assessment is perverse: A company may be held solely responsible, even if it was but one of many parties contributing to the problem. The EPA is tempted to seek out a wealthy party—a “deep pocket”—rather than to apportion blame over all parties that might have contributed to the problem. It’s easier to determine wealth than guilt.

Estimates are that more than 79% of the total taxes collected under Superfund are paid by 12 companies. The petroleum industry has tong been the tax source of first resort and its pariah status Is as obvi ous here as elsewhere. The efficiency implications of forcing the full costs of hazardous-waste cleanup on the petrochemical industry—given the extremely competitive world markets for these products—may well be serious,

Many would agree with some of these criticisms and still argue for more of the same. As the past cannot be altered, the only recourse in hazardous-waste management is to raise funds in some politically attractive way to neutralize these older hazardous sites. But this evaluation is incorrect. The risks posed by most hazardous  sites are not invariant (they can be reduced by appropriate remedial action nor certain (some sites will prove far more dangerous than others). if we can harness the incentive and discovery forces of the market, we are far more likely to achieve the needed improvements in risk assessment and control technology.

What must we do if the market Is to play a more active role? First, we should ensure that the properties at risk are owned. To the extent that aquifers, surface waters or environmental resources are treated as commons, no one will protect these values. Second, when a responsible party can be identified, the range of remedial measures should be broadened to allow economic as well as engineering solutions. For example, the party might be allowed to compensate Individuals and property holders for damages rather than cleaning up the site, There is no reason to spend scarce resources to restore or protect a small aquifer, If less-costly alternatives are available and if no other dangers are present.

Compensation, however, is most feasible when the damage has occurred or rea sonably can be measured. In many cases, the situation has not reached that stage, The damages and their magnitude are merely possibilities—we are dealing not with present certainty, but rather future risk. Risks are managed in the market by insurance, and insurance might well provide the best approach to the hazardous-waste problem. The EPA might continue to survey and identify sites, but then require the parties held responsible either to clean up the site or purchase insurance to safeguard those individuals and property holders in the exposure region. The Insurance companies would have every incentive to assess the relative risk associated with the various sites and to reflect these assessments In differential premiums. Society would be safeguarded, hut only sites meriting the expense would be cleaned.

Such an insurance option would be unacceptable to some, as it seems to leave the exposed population at risk. What equity exists In compensating widows or orphans? That interpretation, however, generally overstates the health risks posed by hazardous-waste sites—the evidence suggests they are rather small risks—and fails to understand the risk-management role of insurance. To see this, consider the role played by steam-boiler insurance. The early steam boilers were notoriously unsafe; In one spectacular accident on the Mississippi River, more than 66 people were killed. The current insurance system evolved to address that problem. Today, almost all steam boilers are insured under terms that require periodic inspections by technical experts. Based on these inspections, the holler owner Is required to undertake certain safety investments. The in. &trance industry does not passively wait to “pay off the widows.”

This insurance alternative might play a similar discovery and learning role with respect to the risks associated with hazardous wastes. In many ways, our knowledge of the risks and appropriate controls in this area is even worse than that concerning boilers In the 1850s. insurers would hire experts and periodically conduct site visits, and. If necessary, call for remedial action by the insured. The insurer might insist that land be purchased to provide a buffer zone, that interceptor wells be sunk to limit the rate of migration, that the hazardous materials be treated in situ, or that the company work with the affected community to find alternative drinking water supplies.

The Orphan Sites

Over time, insurance specialists In this industry would become expert in detecting low Ievel risks and devising remedial strategies. Reliance on the EPA to perform this function places far too much faith on the efficacy of bureaucracy. Its incentives are different: Government agencies insure their funding by spending; private insur once companies succeed by seeing to it they don’t have to.

All well and good, but what about the orphan sites—those for which no responsible party can be found? Today, tile cleanup costs for such sites are paid by the petrochemical Industry. As these companies have to pick up the tab, why not allow them—if they so wish—to “adopt” a site and assume responsibility for any future damages that might occur in exchange for a reduction in their tax liability? This option would greatly expand the Clean Sites program already under way.

Our objective here ought to be the Creation of Incentives to safeguard the health of the citizenry and to protect the environment and property, white improving the knowledge base that allows us to better accomplish these goals. Superfund achieves none of these results. it is best thought of as a classic public works program enacted as a political response to the safety concerns of the American public. Tile next Congress should reopen this whole question of risk management, focusing on those steps that might allow the market to play a more positive role. Thoughtful environmental legislation should improve the world in which we live—not deplete our resources in a fruitless search for the risk• less society. Congress should reform —not expand — Superfund.