Review of 2013 EPA Economic Analysis of Proposed Revised Definition of Waters of the United States

1. Review of 2013 EPA Economic Analysis of Proposed Revised Definition of Waters of the United States David Sunding, Ph.D. February 20, 2014

2. Presenter Information David sunding Principal│San Francisco David.Sunding@brattle.com +1.415.217.1000 Prof. Sunding holds the Thomas J. Graff Chair of Natural Resource Economics at the University of California, Berkeley. He is the founding director of the Berkeley Water Center and currently serves as the chair of his department. He has won numerous awards for his research, including grants from the National Science Foundation, the U.S. Environmental Protection Agency, and private foundations.

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4. Agenda • Incremental Jurisdictional Determinations • Incremental Acreage Calculations • Incremental Cost Calculations • Incremental Benefit Calculations

5. Incremental Jurisdictional Determinations

6. Calculation of Incremental JDs USACE review of 262 project files from FY 2009/10 • 67% streams, 27% wetlands, 6% other waters • Old JD: • 98% of streams, 98.5% of wetlands, 0% of other waters • USACE Review: • 100% of streams, 100% of wetlands, 17% of other waters • 2.7% incremental JDs

7. Calculation of Incremental JDs • Key Limitations • No discussion of impacts of new jurisdictional terminology (“neighboring”) and revised definitions (“adjacent”, “tributary”, “riparian areas”, “floodplain”) on number of permit applications • ORM2 database (USACE) categories of jurisdictional waters not compatible with EPA draft rule categories • Universe of jurisdictional waters underrepresented in ORM2 database • Preliminary JDs not included • Majority of individuals not seeking permits likely for isolated waters category • Only impacted areas currently included (omitting non-impacted portion of site)

8. Section 404 Permitting Process Omitted from EPA Analysis • Statistically invalid procedure that likely underrepresents impacts • PJDs are improperly aggregated with JDs

9. Incremental Acreage

10. Calculation of Incremental Acreage

11. Calculation of Incremental Acreage • Underestimation of impacted acreage • FY 2009/10 baseline not representative • Period of reduced development and economic contraction (impacting both number of projects and average size of projects) • USACE review does not address potential new permit seekers • Only concerns applicants already in system • Section 404 impacts unreasonably extended to all CWA programs • Heterogeneity in project files ignored • State-level and project size differences not addressed

12. FY 2009/10 Baseline Not Representative Source: US Census Bureau

13. Incremental Costs

14. Calculation of Incremental Costs • Section 404 • Permit Application Costs • Compensatory Mitigation Costs • Permitting Time Costs (omitted from EPA analysis) • Impact Avoidance and Minimization Costs (omitted from EPA analysis)

15. Section 404 Permit Application Costs

16. Section 404 Permit Application Costs • Key Limitations • Changes in distribution of individual/general permits not addressed • Average project sizes ignore heterogeneity across projects • Values from Sunding & Zilberman study nearly 20 years old and unadjusted for programmatic changes and inflation • Permitting time costs and impact avoidance/minimization costs not addressed

17. Section 404 Compensatory Mitigation Costs • Key Limitations • Discrepancy between EPA 2011 and 2013 analyses • Unit costs and amount of mitigation lower in 2013 analysis

18. Calculation of Incremental Costs • Other (Non-404) Sections • Adopt old estimates • Adjust for 2.7% incremental increase in jurisdictional waters • Adjust for changes in program size • Key Limitations • Impacts to some programs omitted due to lack of data • Other programs assumed to be cost neutral without explanation • Example: Section 303 (state water quality standards and implementation plans) and Section 402 (NPDES permits) • Estimates of Section 404 impacts (+2.7%) not applicable to non-404 programs

19. Incremental Benefits

20. Calculation of Incremental Benefits • Section 404 • Increased clarity in CWA jurisdictional determination (omitted from EPA analysis) • Ecosystem benefits from increased compensatory mitigation

21. Section 404 Mitigation Benefits • Benefit Transfer Analysis • Synthesized 10 contingent valuation studies providing willingness to pay (WTP) estimates of wetland preservation • WTP estimates multiplied by acres and households for each wetland region

22. Section 404 Mitigation Benefits • Key Limitations • Selection of WTP studies arbitrary and not representative • 9 of 10 studies more than a decade old (oldest ~30 years old) • Several studies not published in peer-reviewed journals • Unreasonable presumption of transferability of results • Localized benefits assumed to accrue to all members of wetland region • No adjustment for changes in economic trends, recreational patterns, stated preferences over time

23. Calculation of Incremental Benefits • Other (Non-404) Sections • Adopt old estimates • Adjust for 2.7% incremental increase in jurisdictional waters • Adjust for changes in program size • Key Limitations • Assumption that negative impacts would occur without increase in federal jurisdiction is unreasonable • State programs well-suited to protect local resources

24. Summary of Incremental Costs/Benefits

25. Conclusion • Underestimation of Incremental Acreage • Flawed calculation of Incremental Costs • Focus on Section 404 costs, other sections ignored • No consideration of permitting time costs and impact avoidance/minimization costs • Flawed calculation of Incremental Benefits • Benefit transfer analysis not consistent with best practices in environmental economics • Analysis poorly documented and contains multiple inconsistencies with previous analyses