Fort Walton Beach Council agenda — 12-24-2010 Regular — reading text

14.1. 16 Economic Analysis of the Proposed Numeric Nutrient Criteria for Florida There are significant distributional and socioeconomic impacts of EPA' s proposed regulations. There will be high costs to economically distressed areas as well as substantial economic costs and dislocation impacts on certain economic sectors in the state. Over 20 counties in Florida have poverty rates that exceed 20 percent (the national average is 14 percent); annual compliance costs in these high poverty counties are expected to total $256 to $ 647 million annually. While some industries such as construction may benefit from the criteria, many industries such as housing and retail trade are expected to suffer. The benefits associated with EPA' s new water quality standards are uncertain. There is little quantifiable benefit demonstrated with respect to improving water quality in healthy water bodies that will now be considered " impaired" under EPA regulations. For example, with 90 - ipe compliance costs for these " newly" impaired water percent certainty, the annual end -of p bodies are estimated in this study to range from $0. 8 to $ 2. 1 billion, with an average estimated cost of $1. 3 billion. ES. 1 Direct Compliance Costs of the Proposed Federal NNC Far Exceed the EPA Estimates The EPA cost estimates fail to consider the impact of uncertainty and therefore underestimate the overall cost of the proposed federal NNC regulation. There are two factors driving the uncertainty about the direct compliance costs: 1. Uncertainty in the level of treatment that will be required of affected entities ( i. e., expected increased per unit treatment cost to dischargers), and; 2. Uncertainty in the number of affected entities ( i.e., expected number of dischargers needing new or additional treatment). The EPA Economic Analysis estimates costs of implementing BMPs and upgrading current technology, but notes " it may be infeasible to meet the criteria instream due to technology limitations (p. 6) ". The EPA states that regulatory relief may need to be considered, including lakes criteria adjustment procedures, site -specific alternative criteria ( SSAC), restoration standards, variances, or use attainability analyses ( together referred to as " variances" hereafter). In its economic analysis, the EPA did not address the feasibility or costs of utilizing these provisions. The EPA asserts that it does not know the extent of the use of these variances and therefore it cannot estimate compliance costs. A more reasonable approach would be to estimate the costs of using alternative technologies ( such as reverse osmosis) that may be required for dischargers to meet the actual federal criteria and estimate the uncertainty that end -of p- ipe criteria may be required for all water bodies. The Cardno ENTRIX study uses this latter approach. The study synthesizes the results of several existing cost estimates to provide a clearer picture of the costs and uncertainties associated with the proposed federal NNC. The study uses standard statistical techniques for estimating costs under uncertainty and different enforcement scenarios about compliance levels for the proposed federal NNC. Compliance costs were estimated for two treatment level scenarios: 1) an End -of P - ipe Requirement that assumes that the proposed federal NNC will require all dischargers on affected water bodies to reduce their effluent levels to at or below the NNC; and 2) a less strict requirement that assumes that compliance will be achieved using standard BMPs and reaching LOT of existing technology. Effluent levels under the standard BMP and LOT Requirement will not achieve the criteria, and November 2010 Cardno ENTRIX Executive Summa Packet Pg. 100  14. 1. b Economic Analysis of the Proposed Numeric Nutrient Criteria for Florida actual nutrient reductions required to comply with the proposed federal NNC will be specific to each water body. According to the EPA, to an unknown degree, variances from strict compliance with the criteria may be granted for specific water bodies. We could find no information about the likelihood that variances would be granted although members of the public filed comments regarding the lack of perceived feasibility of pursuing and receiving widespread variances from the rule. Also, EPA' s reliance on variance provisions raises a more fundamental issue regarding the reasonableness of analyzing the economic impact of the proposed federal NNC in the context of regulators granting an unknown and potentially limitless number of exceptions to the standards. Due to the uncertainty regarding both variances and the treatment requirement, we include implementation of standard BMPs and LOT as an alternative scenario to the End -of P - ipe Requirement. This scenario does not include the costs of conducting studies in attempts to obtain variances. Additionally, the study estimates compliance costs using different numbers of affected entities based on varying assumptions regarding the application of the proposed federal NNC to different water body types ( i. e., currently impaired, newly impaired due to NNC, and unimpaired under NNC). The EPA Economic Analysis assumes that increased treatment costs occur only for newly impaired water bodies; our analysis estimates costs for newly impaired, currently impaired, and unimpaired water bodies. Under all scenarios, compliance cost estimates use Florida' s current water quality standard as the baseline. Furthermore, under all scenarios, compliance cost estimate are based on current costs of water treatment and do not anticipate changes in cost structures due to advances in technology. The figures below summarize the results. Figure ES -1 and Figure ES -2 show the potential range of annual compliance costs associated with the two principal scenarios we evaluated. Figure ES -1 shows that there is a 90 percent chance that total annual costs will (potentially indefinitely) range from $3. 1 to $ 8. 4 billion (in 2010 dollars) assuming an End -of P - ipe Requirement for complying with the proposed federal NNC for all inland water bodies, excluding South Florida. Figure ES -2 shows there is a 90 percent chance that annual costs for affected entities under the BMP and LOT Requirement scenario on all water bodies will range from $ 1. 0 to $ 3. 3 billion. Much of this cost is upfront capital cost that likely would be incurred in the first few years of implementing the NNC. Cost estimates are based on the assumption that capital costs are paid back during a 30- year time period; however the estimated annual costs may extend indefinitely past the 30 -year period as operation and maintenance and, potentially, new capital costs will be required. Again, it is important to note that, under both scenarios, these costs would be in addition to current or currently anticipated costs for compliance under Florida' s existing water quality standards and associated regulations. November 2010 Cardno ENTRIX Executive S Packet Pg. 101  14. 1. b Economic Analysis of the Proposed Numeric Nutrient Criteria for Florida 10000 C-) c 75 ° 0 v CD 0 a> 2Z O a a O W m N C 2500 C7 O C a 3 c J Annual Costs ( Billions $ O to Q Figure ES -1 Financial Risk —End -of -Pipe Requirement Annual Cost M CL 5. 0 00 i 40.0 0 0 i 0 5A 00 O 10000 O r A R C7 75 ° 0