REGULATORY STUDIES PROGRAM. Public Interest Comment Series:

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1 Mercatus Center REGULATORY STUDIES PROGRAM Public Interest Comment Series: The Environmental Protection Agency's Request for Comments on National Drinking Water Regulations for Arsenic Agency: Environmental Protection Agency Rulemaking: Request for comment on a range of maximum contaminant levels (MCLs) for arsenic in drinking water Stated Purpose: EPA is requesting comment on whether the data and technical analyses associated with the arsenic rule published in the January 22, 2001 Federal Register as well as any new information that may be available would support setting the enforceable arsenic standard at the feasible [or higher] level[s]. Summary of RSP Comment: It is technically feasible to reduce arsenic levels in drinking water to very low levels (3-5 ug/l). Without any change in federal standards, communities concerned about elevated arsenic levels in their drinking water can implement controls to reduce those levels, and individual households can install filters at their taps to remove arsenic. Before requiring all communities to make those investments, EPA is wise to examine carefully the public health benefits and the social costs of achieving lower and lower levels of arsenic in drinking water. Though evidence from other countries supports an association between arsenic and certain forms of cancer, the effect of exposure to the low doses present in the U.S. water supply is very uncertain. The households that will ultimately bear the costs of a more stringent arsenic MCL are also the beneficiaries of the health risk reductions. Thus, compelling communities to reduce arsenic takes money that could be used to protect against bio-terrorism threats, or to buy better schools, new emergency response equipment, or increased traffic safety. Before requiring those expenditures, EPA should carefully evaluate and understand the risks, benefits, and tradeoffs involved. (1 of 2) [2/10/ :53:33 PM]

2 Mercatus Center EPA's approach to setting the standard will determine whether communities will make investments that truly improve their public health, or be forced to divert scarce resources from more valuable investments. It will also set a precedent for drinking water standards in the future. Therefore, it is important that EPA make its benefit and cost estimates more transparent and robust, as recommended by its review panels, and recognize the variation in costs and benefits across system sizes, and regions of the country. While it should share information about arsenic levels and hazards, it should not impose its judgment, based on national average costs and benefits, on individual communities as to how best to invest in their own public health. Submitted: October 31, 2001 RSP Open the comment in PDF format Mercatus Center George Mason University 3301 North Fairfax Drive, Suite 450 Arlington, VA (703) Fax: (703) mercatus@gmu.edu (2 of 2) [2/10/ :53:33 PM]

3 REGULATORY STUDIES PROGRAM Public Interest Comment on the Environmental Protection Agency s Request for Comments on National Drinking Water Regulations for Arsenic 1 Docket number: W VI The Regulatory Studies Program (RSP) of the Mercatus Center at George Mason University is dedicated to advancing knowledge of the impact of regulation on society. As part of its mission, RSP conducts careful and independent analyses employing contemporary economic scholarship to assess rulemaking proposals from the perspective of the public interest. This response to the Environmental Protection Agency s (EPA) request for comment on a range of maximum contaminant levels (MCLs) for arsenic in drinking water is the third comment we have submitted to the agency on this topic. It does not represent the views of any particular affected party or special interest group, but is designed to evaluate the effect of the Agency s proposals on consumer welfare. EPA is to be commended for the efforts it has taken to understand the health effects associated with chronic exposure to low levels of arsenic, and the costs and benefits of standards to reduce levels of arsenic in public water supplies. Since January 2001, it has commissioned three reviews of the science, costs, and benefits of the rule: 1. Arsenic in Drinking Water: 2001 Update, National Research Council, Subcommittee to Update the 1999 Arsenic in Drinking Water Report, September Arsenic Rule Benefits Analysis: An SAB Review, A review by the Arsenic Rule Benefits Review Panel (ARBRP) of the US EPA Science Advisory Board (SAB) August Report of the Arsenic Cost Working Group to the National Drinking Water Advisory Council, August 14, After offering brief comments on these three reports, this public interest comment discusses the opportunity costs of meeting the standard, and offers recommendations and conclusions. 1 Prepared by Susan E. Dudley, Senior Research Fellow, Regulatory Studies Program, Mercatus Center at George Mason University. This comment is one in a series of Public Interest Comments from Mercatus Center s Regulatory Studies Program. The views expressed herein do not reflect an official position of George Mason University. Regulatory Studies Program, Mercatus Center, George Mason University 1

4 I. NRC Subcommittee Report The National Research Council of the National Academy of Sciences convened an ad hoc Subcommittee to update the review of scientific analyses, uncertainties, studies published and relevant data developed since a 1999 NRC report, and to evaluate the analysis EPA presented in support of its January 2001 rule. This Subcommittee concluded that the risks for bladder and lung cancer incidence are greater than the risk estimates on which EPA based its January 2001 pending rule. Other scientists have criticized both the representation on the Subcommittee and the objectiveness of its approach. 2 For example, in comments prepared for the City of Albuquerque, the Lovelace Respiratory Research Institute (LRRI), a private, nonprofit medical research foundation investigating cures for respiratory disease observed that the Subcommittee ignored or dismissed data in other published studies that do not support an association of arsenic and bladder or lung cancer risk at levels seen in the U.S., 3 with the effect of overestimating the bladder and lung cancer risks for arsenic levels found in the U.S. LRRI goes on to point out that risks as high as the NRC report suggests would be impossible to miss in the general population, yet such risks are not observed in a Utah study of 4,500 individuals who faced high exposures (166 micrograms per liter vs. a current standard of 50 µg/l) of arsenic in drinking water. The NRC risk assessment would suggest a 3.5 fold increase in bladder cancer and a 2.5 fold increase in lung cancer for this group. In fact, neither bladder nor lung cancer risks were elevated at all even though these exposures were significantly higher than allowed by the current standard. 4 Scientists also question the NRC Subcommittee s extrapolation of risk from the high doses observed in available Taiwanese and Chilean studies to the low doses observed in the U.S. Because it failed to consider published research by Rossman and colleagues at the New York University School of Medicine on the mechanisms of action of arsenic compounds as found in drinking water, the Subcommittee s risk assessment likely 2 The recommendation, like that in previous reports ordered by the Clinton administration, was based on studies conducted in Taiwan and South America, and discounted studies done in the United States that yielded different results. The scientific review has degenerated into a mostly political debate, with little reference to the actual public health risks and benefits associated with lowering the arsenic standard. Washington Post, Poisonous Decision, A Low Arsenic Standard Carries a High Cost, By Floyd Frost, Sunday, September 16, 2001; Page B05. 3 Comments submitted to the EPA docket from the City of Albuquerque, October 31, The added lifetime bladder cancer risks from waterborne arsenic in the highest exposure group of the Lewis Utah cohort (166 ppb arsenic) would, according to the NRC, be 1.99% (i.e. almost 2% of the people will suffer from arsenic-cause bladder cancer.) The background lifetime bladder cancer risk in the 1970 s for Utah females was about 0.8% (i.e. fewer than 1% of Utah women had bladder cancer during their lifetime). Thus, if the NRC is correct, there would have been a 3.5-fold increased bladder cancer risk for the highest exposure group. For female lung cancer the added lifetime risk from drinking water arsenic would be 3%. In the 1970 s Utah women only had a 2% lifetime risk of getting lung cancer. Therefore, the cohort should have experienced a 2.5-fold increased lung cancer risk. Neither bladder nor lung cancer risks were elevated in the Lewis cohort. These very large risks are impossible to miss in a cohort of 4500 people. Ibid. Regulatory Studies Program, Mercatus Center, George Mason University 2

5 overstates risk. 5 Rossman concludes that the risk analysis for arsenic in drinking water should not be based on a linear extrapolation with no threshold, because it does not react with DNA to cause mutations and is not genotoxic in several tests. Rather, he finds that it appears to enhance the risk of cancer (caused by smoking and other risk factors) by inhibiting DNA repair and increasing cell proliferation (growth). 6 Such chemicals enhance the risk of cancer, but do so with a sharp dose-response relationship and a threshold that is often quite high. 7 Applying a threshold, non-linear dose-response function to arsenic would result in significantly lower estimates of lung and bladder cancer, which would be more consistent with observations in the U.S. In conclusion, there is a wide range of uncertainty in the science surrounding the health effects of arsenic in U.S. drinking water supplies, yet the Panel appears to have selectively chosen one extreme set of assumptions on which to base its report, while disregarding data and analysis that do not support the premise that low levels of arsenic exposure lead to high risks of bladder and lung cancer. Such a precautionary approach muddles pure risk assessment with risk management and policy decisions and can actually increase, rather than reduce, public health risk. Though evidence from other countries supports an association between arsenic (at significantly higher doses than observed in the U.S. and with possible contributing factors) and certain forms of cancer, science alone cannot determine the appropriate level of an MCL. The Safe Drinking Water Act Amendments direct EPA to consider other factors as well in its decisions, particularly the benefits and costs of achieving different levels. These are discussed below. II. SAB Panel Benefits Analysis EPA s Science Advisory Board (SAB) convened an ad hoc panel (the Arsenic Rule Benefits Review Panel) to address five questions regarding the benefits analysis used to support the January 2001 rule. We comment below on three of those questions, and the Panel s responses. Regarding how latency (between time of exposure, and onset of cancer) should be addressed in the benefits estimates, we concur with the Panel s observation that EPA s assumption of a zero latency produces an upper bound to benefits, and its recommendation that alternate assumptions be included in the primary analysis. The Panel s recommendations that EPA recognize a time path of cancer cases avoided under different scenarios, and the age at which cancer is predicted to occur are also sound. With information on the time path of cancer cases avoided, estimated benefits can be compared (via discounting) more appropriately to estimated costs. Additionally, EPA s value of $6.1 million per statistical life is based on studies that reflect the value of life at roughly 40 years of age. Since these same studies observe that 5 Rossman and Weinburger, C&EN, August 4, 2001, page 2, and Rossman, Mutat. Res., 478, 159, Ibid. 7 Ibid. Regulatory Studies Program, Mercatus Center, George Mason University 3

6 values for a statistical life-saved tend to increase with age up to 40 years, and then decline again (SAB/EEAC, June 2000), EPA s value likely overstates the benefits of the rule. (The typical ages of death from lung cancer and bladder cancer are 66 and 77 respectively.) As discussed in our earlier comment, this can be addressed with sensitivity that estimates benefits based on a value per life-year saved, or an age-adjusted value per life. The Panel correctly observes that benefits and costs should be calculated on a water system basis, with results summarized in a format that breaks them down by system size, because the net benefits (benefits minus costs) are likely to vary substantially by system size, and this information should be made clear to policy makers and the public. The Panel s comment that in the case of model uncertainty, it is appropriate to rely on sensitivity analysis [and] the assumptions underlying each sensitivity analysis should be clearly spelled out when presenting results, is important. Other reviewers have specifically called for EPA to conduct sensitivity analysis on the range of plausible doseresponse models that fit the data used to assess risk and the associated uncertainties. 8 Addressing these issues raised by the Panel should make EPA s resulting benefits estimates more transparent and robust. III. NDWAC Working Group Cost Review EPA s National Drinking Water Advisory Council (NDWAC) convened an Arsenic Cost Working Group to review the costing methodologies, assumptions, and information underlying the system-size and aggregate national cost estimates used to support the January 2001 rule. It noted that estimates of national cost cannot and will not capture the actual decisions that will be made by utilities at the individual level once the rule is promulgated, due to the uniquely different circumstances of thousands of different and independent local/regional water suppliers. 9 This is an important point that we will return to in section IV below. As the Working Group notes, EPA should include the cost of acquiring land for treatment technologies, as well as costs associated with monitoring and maintenance, and operator training and certification. As many of these treatments will be untested, the Working Group recommends that EPA include on-site pilot testing of all technologies. As increasingly stringent MCLs are considered, community water systems (CWS) must adopt more expensive treatment options to attain the higher arsenic removals necessary to comply. Yet, EPA s analysis fails to reflect the reality that, for example, a system with arsenic levels of 25 ug/l can comply with a 20 ug/l MCL at much lower cost than if it had to attain a 5 ug/l or 3 ug/l standard. EPA appears to have applied a constant costper-covered-utility to all of the MCL options. Indeed, the mean household cost of 8 Op. Cit. Albuquerque/LRRI 9 Report of the Arsenic Cost Working Group to the National Drinking Water Advisory Council, August 14, P. 11. Regulatory Studies Program, Mercatus Center, George Mason University 4

7 increasingly stringent standards actually declines under EPA s approach. 10 This is unrealistic and understates the incremental costs (perhaps significantly) of moving to more stringent MCL options. 11 EPA assumes that contaminated residuals will not be classified as hazardous wastes, yet the Working Group found that the test EPA used to draw this conclusion may underestimate the toxic characteristics of residual solids generated by arsenic treatment facilities. Therefore, water utilities may face considerable costs (and liabilities) for onsite storage, eventual transport to an approved facility and, ultimately, suitable disposal. EPA should consider these in its cost estimates. The Working Group recommends that EPA present cost estimates separately for each of the eight system size categories evaluated. It is essential that policymakers understand the different impacts of proposed MCLs on communities of different sizes. In addition, EPA should provide policymakers information on the variation of costs (and benefits) by region of the country. IV. Implications for regulatory approach Before the 1996 Amendments, the Safe Drinking Water Act required EPA to establish MCLs as low as was technically feasible. 12 Recognizing that there are times when what is technically feasible is not necessarily a wise investment in public health protection, Congress in 1996 provided a mechanism by which the benefits and costs could be weighed and a more prudent level of risk reduction achieved. Provisions inserted in the Safe Drinking Water Act Amendments of 1996 (SDWAA) enable EPA to set an MCL at a level less stringent than what is technically feasible. Specifically, an MCL less stringent than what is technically feasible may legally be established in cases where the Administrator determines that the benefits of the technically feasible level do not justify the costs (Section 1412(b)(6)(A)). The arsenic rule is the most compelling case to date for using this authority, and how EPA does so will set a precedent for future drinking water standards. The documentation supporting the January 2001 rule reveals that the costs of moving from the current U.S. standard of 50 ug/l to levels approaching what is technically feasible (e.g., 3 or 5 ug/l) 13 are high. Also, the benefits that consumers receive from reducing their current arsenic exposures to such levels are uncertain and may be quite 10 Economic Analysis, Exhibit Mean annual household costs for small water systems declines from $ to achieve a 20 ug/l MCL to $ to achieve a 3 ug/l MCL. 11 Of course, marginal costs per household cannot decrease as the standard gets harder to achieve. EPA derives this impossible result because the simulations used to estimate costs assume an affordability cap of $ As more water systems are forced over the affordability cap, the model assumes systems don t have to comply with the standard, except with point-of-use technologies. 12 Specifically, the Act before 1996 required that the MCL be set as close to the risk-free health protection goal (MCLG) as feasible. However, for all carcinogens, the risk free goal implied an MCLG of zero, so technical feasibility was the sole determinant for where the standard could be set. 13 EPA s proposal claimed that 3 ug/l is technically feasible, but the feasibility of moving below 5 ug/l has been questioned by the Agency s Science Advisory Board and drinking water utilities. Regulatory Studies Program, Mercatus Center, George Mason University 5

8 modest. However, in setting the standard of 10 ug/l, EPA did not embrace its new benefit-cost mandate enthusiastically. It constrained its decision with internally-imposed levels of acceptable risk, which are not supported by economics or the statute, and set the standard at a level that its own analysis revealed would impose net costs on users of drinking water systems. The benefits and costs presented in the final economic analysis reveal that for every MCL considered, the costs of achieving the standard exceed the benefits. As noted in the sections above, the net benefits derived in the EA are likely to overstate actual net benefits nationally, and will certainly overstate net benefits for smaller systems, and those in certain regions of the country. EPA Estimates of National Annual Costs, Benefits and Net Benefits ($ millions) MCL µg/l Total Cost* Total Benefits* Net Benefits 3 $792.1 $213.8 to $90.9 -$578.3 to -$ $471.7 $191.1 to $ $280.6 to -$ $205.6 $139.6 to $ $66 to -$ $76.5 $66.2 to $75.3 -$10.3 to -$1.2 * From Arsenic in Drinking Water Economic Analysis, EPA December In addition to calculating total benefits and costs for each MCL option, EPA should calculate incremental benefits and costs of reaching tighter standards. The table below is derived from EPA s total benefit and cost estimates, and shows that the incremental net cost (cost minus benefit) rises as increasingly tighter standards must be achieved. EPA s Estimate of Incremental Annual Costs, Benefits and Net Benefits* ($ millions) MCL µg/l Incremental Cost Incremental Benefits Incremental Net Benefits 3 $320.4 $22.7 to $ $297.7 to -$ $266.1 $51.5 to $ $214.6 to -$ $129.1 $129.1 to $73.4 -$55.7 to -$ $76.5 $66.2 to $75.3 -$10.3 to -$1.2 * Derived from total costs presented above. Regulatory Studies Program, Mercatus Center, George Mason University 6

9 These tables show that, even before adjusting its benefit and cost analysis as suggested by reviewers, EPA has not shown that the benefits of achieving MCLs more stringent than 20 ug/l justify the costs. Indeed, EPA s estimates suggest that a standard between 20 ug/l and the current standard of 50 ug/l is more likely to optimize benefits and costs. These national net cost results are significant, but really do not address the most important issues involved in protecting public health from potential hazards in drinking water. As the NDWAC Working Group observed, water systems face uniquely different circumstances and are complicated. A national benefit-cost analysis cannot capture the different circumstances or trade offs individual communities face. In addressing the risks of arsenic in drinking water, EPA must recognize that individuals and communities ultimately bear the costs of meeting a more stringent standard. There is no party with a vested economic interest in keeping arsenic levels in drinking water high. Community water systems (CWS) are either: investor-owned and economically regulated so as to obtain a reasonable return on any arsenic removal investments they would have to make, or publicly owned (e.g., municipal) and thus represent the same people who would benefit from reduced arsenic levels (and can recover the costs through increased rates or taxes). 14 Meeting a 10 ug/l or lower standard will drain community and individual resources that could, if used elsewhere, achieve much greater health protection benefits. The city of Albuquerque estimates that its residents and those of other large cities would have to pay an additional $10 to $40 per month for water. 15 EPA estimates that the mean increase in water bills for households getting water from small systems will be over $300 per year, and this mean figure excludes communities in which household bills are expected to exceed $500 per year. 16 Forcing communities to make such investments requires them to forego other opportunities that could have more significant public health and welfare effects. In the wake of September 11, a far more urgent public health threat demanding community resources may be the potential for a terrorist attack on drinking water systems. Even apart from drinking water, a better investment in public health may be to invest that money in better schools, new emergency response equipment, or increased traffic safety. Furthermore, at the higher rates, many drinking water system users may opt to drill their own wells, exposing themselves to greater levels of arsenic as well as a host of other potential contaminants. 14 Also, because arsenic typically is a naturally occurring compound when found in drinking water supplies, there are few business entities with potential third-party liabilities or pollution control costs associated with a more stringent drinking water standard. The impact on clean-up standards applied to Superfund sites may be a matter of concern for many parties, however. 15 Frost, Washington Post 16 EA Exhibit 8-4. Regulatory Studies Program, Mercatus Center, George Mason University 7

10 V. Conclusions It is technically feasible to reduce arsenic levels in drinking water to very low levels (3 5 ug/l). Without any change in federal standards, communities concerned about elevated arsenic levels in their drinking water can implement controls to reduce those levels, and individual households can install filters at their taps to remove arsenic. Before requiring all communities to make those investments, EPA is wise to examine carefully the public health benefits and the social costs of achieving lower and lower levels in drinking water. Though evidence from other countries supports an association between arsenic and certain forms of cancer, the effect of exposure to the low doses present in the U.S. water supply is very uncertain, and science alone cannot determine the appropriate level of an MCL. The households that will ultimately bear the costs of a more stringent arsenic MCL are also the beneficiaries of the health risk reductions. Hence the debate about how stringently to set the MCL is, in reality, a question about what level of protection against arsenic exposure the regulation should compel American households to make on their own behalf. Individuals and communities have limited resources, and a variety of options available to improve their quality of life. Whether spending scarce resources on reducing arsenic levels in drinking water would actually improve public health in individual communities will depend on what other welfare-improving activities would have to be sacrificed to achieve those lower standards. If these standards are to improve public health, it is essential that they recognize this opportunity cost. Compelling communities to reduce arsenic takes money that could be used to protect against bio-terrorism threats, or to buy better schools, new emergency response equipment, or increased traffic safety. Before requiring those expenditures, EPA should carefully evaluate and understand the risks, benefits, and tradeoffs involved. EPA s approach to setting the standard will determine whether communities will make investments that truly improve their public health, or be forced to divert scarce resources from more valuable investments. It will also set a precedent for drinking water standards in the future. Therefore, it is important that EPA recognize the variation in costs and benefits across systems sizes, and regions of the country. While it should share information about arsenic levels and hazards, it should not impose its judgment, based on national average costs and benefits, on individual communities as to how best to invest in their own public health. Regulatory Studies Program, Mercatus Center, George Mason University 8