Natural Resource Damage Assessments

SUMMARY: This notice solicits comment on proposed revisions of the

regulations for assessing natural resource damages resulting from a

discharge of oil into navigable waters under the Clean Water Act or a

release of a hazardous substance under the Comprehensive Environmental

Response, Compensation, and Liability Act. The Department of the

Interior has previously developed two types of natural resource damage

assessment regulations: Standard procedures for simplified assessments

requiring minimal field observation (the type A rule); and site-

specific procedures for detailed assessments in individual cases (the

type B rule).

The Department is proposing, as part of its compliance with a court

remand, to revise the type B rule to address the use of the economic

methodology known as contingent valuation to assess lost values of

injured natural resources. In general, the Department is considering

and soliciting comment on a proposed natural resource damage assessment

rule regarding contingent valuation recently published by the National

Oceanic and Atmospheric Administration pursuant to the Oil Pollution

Act of 1990. This notice constitutes the Department's proposed

rulemaking document and solicits comment on rule language under

consideration for a final rule. Upon consideration of the comments

received in response to this notice, the Department intends to issue a

final rule. The Department recently published a final rule to revise

the type B rule to comply with all other aspects of the court order.

DATES: Comments must be received by July 7, 1994.

ADDRESSES: Comments should be sent in triplicate to the Office of

Environmental Policy and Compliance, ATTN: NRDA Rule, Mail Stop 2340,

Department of the Interior, 1849 C Street, NW., Washington, DC 20240.

FOR FURTHER INFORMATION CONTACT: Mary C. Morton or David Rosenberger at

(202) 208-3301.

SUPPLEMENTARY INFORMATION: This notice is organized as follows:

I. Background

A. Statutory Provisions

B. Regulatory History

C. Judicial Review

D. Implementation of the Court Order

E. Other Rulemakings

II. Calculation of Damages Under the Type B Rule

A. Costs of Restoration, Rehabilitation, Replacement, and/or

Acquisition of Equivalent Resources

B. Compensable Value

III. Contingent Valuation: Discussion and Rule Language under

Consideration

A. Survey Instrument Design and Development

B. Survey Administration

C. Nature of Results

D. Calibration

E. Reporting

F. Additional Requests for Comment

IV. Technical Information Document

V. Response to Comments

I. Background

A. Statutory Provisions

The Clean Water Act, as amended (33 U.S.C. 1251 et seq.) (CWA) and

the Comprehensive Environmental Response, Compensation, and Liability

Act of 1980, as amended (42 U.S.C. 9601 et seq.) (CERCLA) authorize

natural resource trustees to recover compensatory damages for injury

to, destruction of, or loss of natural resources resulting from a

discharge of oil into navigable waters or a release of a hazardous

substance. CWA sec. 311(f); CERCLA sec. 107. Federal and State

officials may be designated to serve as natural resource trustees under

CERCLA and CWA. CERCLA also recognizes the authority of Indian tribes

to commence actions as natural resource trustees.

Damages may be recovered for those natural resource injuries and

losses that are not fully remedied by response actions. All sums

recovered in compensation for natural resource injuries must be used to

restore, rehabilitate, replace, or acquire the equivalent of the

injured natural resources. Trustee officials may also recover the

reasonable costs of assessing natural resource damages and any

prejudgment interest.

CERCLA requires the promulgation of two types of regulations for

the assessment of natural resource damages resulting either from a

discharge of oil under CWA or from a release of a hazardous substance

under CERCLA. CERCLA sec. 301(c). The type A regulations constitute

standard procedures for simplified assessments requiring minimal field

observation. The type B regulations constitute site-specific procedures

for detailed assessments. Both regulations identify the best available

procedures for determining natural resource damages. Assessments

performed by Federal and State natural resource trustee officials in

accordance with these regulations receive a rebuttable presumption in

court. CERCLA sec. 107(f)(2)(C). The promulgation of these regulations

was delegated to the Department of the Interior (the Department). E.O.

12316, as amended by E.O. 12580.

The Oil Pollution Act (33 U.S.C. 2701 et seq.) (OPA) was signed

into law on August 18, 1990. Among other things, OPA amended the

natural resource damage provisions of CWA. OPA authorized the National

Oceanic and Atmospheric Administration (NOAA) to develop new natural

resource damage assessment regulations for discharges of oil into

navigable waters. The Department is coordinating its rulemakings with

NOAA to ensure, to the maximum extent appropriate, that consistent

processes are established for assessing natural resource damages under

CERCLA and OPA. OPA provides that until NOAA develops final

regulations, the Department's regulations may be used to assess natural

resource damages under OPA. OPA sec. 6001(b).

B. Regulatory History

The Department has issued various final rules for the assessment of

natural resource damages: 51 FR 27674 (Aug. 1, 1986); 52 FR 9042 (March

20, 1987); 53 FR 5166 (Feb. 22, 1988); and 53 FR 9769 (March 25, 1988).

These rulemakings are all codified at 43 CFR part 11. The Department

also recently published a final rule that has not yet been codified in

the Code of Federal Regulations. 59 FR 14261 (March 25, 1994).

The natural resource damage assessment regulations provide an

administrative process for conducting assessments as well as technical

methods for the actual identification of injuries and calculation of

damages. Under the regulations, both type A and type B, assessments

consist of four major phases.

The first phase of an assessment conducted under the regulations

involves the activities that precede the actual assessment. For

example, upon detecting or receiving notification of a discharge or

release, trustee officials perform a preassessment screen to ascertain

whether further assessment actions are warranted.

The second phase involves the preparation of an Assessment Plan.

The Assessment Plan, which is subject to public review and comment,

assists the involvement of other interested trustee officials,

potentially responsible parties (PRPs), and the general public. The

Assessment Plan also ensures that assessments are performed at a

reasonable cost.

In the third phase, trustee officials conduct the work described in

the Assessment Plan. The work involves three steps: Injury

Determination; Quantification; and Damage Determination. In Injury

Determination, trustee officials determine whether any natural

resources have been injured. If trustee officials determine that

resources have been injured, they proceed to Quantification, in which

they quantify the resulting reduction in services provided by the

resources. Finally, in Damage Determination, trustee officials

calculate the monetary compensation to be sought as damages for the

natural resource injuries.

In a type A assessment, trustee officials perform Injury

Determination, Quantification, and Damage Determination through the use

of standardized procedures involving minimal field work. The Department

has adopted a phased approach to developing type A procedures for

different environments. Only one type A procedure has been developed to

date. The existing type A procedure provides for the use of a computer

model to assess damages from small releases or discharges in coastal or

marine environments. For other releases or discharges, trustee

officials conduct a type B assessment, in which Injury Determination,

Quantification, and Damage Determination are performed through the use

of a range of alternative scientific and economic valuation

methodologies. This notice addresses the use of a particular valuation

methodology during the Assessment Phase.

The fourth phase of every natural resource damage assessment,

whether the type A or type B rule is followed, consists of post-

assessment activities such as: Preparation of a Report of Assessment;

establishment of an account for damage assessment awards; and

development of a Restoration Plan for use of the awards.

C. Judicial Review

A party may petition the Court of Appeals for the District of

Columbia Circuit to review any regulation issued under CERCLA. CERCLA

sec. 113(a). A number of parties filed such petitions for review of the

natural resource damage assessment regulations.

The type B rule was challenged in State of Ohio v. United States

Department of the Interior, 880 F.2d 432 (DC Cir. 1989) (Ohio v.

Interior). The court in Ohio v. Interior upheld various challenged

aspects of the type B rule but did remand three issues. The court

ordered the Department to revise the rule to reflect the statutory

preference for using restoration costs as the measure of natural

resource damages. The court used the term ``restoration costs'' to

encompass the cost of restoring, rehabilitating, replacing, and/or

acquiring the equivalent of the injured natural resources. 880 F.2d at

441.

The court also ordered the Department to allow for the assessment

of all reliably calculated lost values of injured natural resources,

including both lost use values and lost nonuse values. Use values are

derived through activities such as hiking or fishing. Nonuse values are

not dependent on use of the resource. Nonuse values include existence

value, which is the value of knowing that a resource exists, and

bequest value, which is the value of knowing that a resource will be

available for future generations. Finally, the court asked the

Department to clarify whether the natural resource damage assessment

regulations apply to natural resources that are not actually owned by

the government.

The type A rule was challenged in State of Colorado v. United

States Department of the Interior, 880 F.2d 481 (DC Cir. 1989)

(Colorado v. Interior). The court held that, based on the reasoning in

the Ohio v. Interior decision, the type A procedure for coastal and

marine environments should be revised to allow for the calculation of

restoration costs.

D. Implementation of the Court Order

The Department published an advance notice of proposed rulemaking

on September 22, 1989, to announce its intent to revise the type B rule

to comply with Ohio v. Interior. 54 FR 39016. The Department issued a

proposed rule on April 29, 1991, with comments requested by June 28,

1991. 56 FR 19752. On July 2, 1991, the Department extended the comment

period to July 16, 1991. 56 FR 30367. On July 22, 1993, the Department

reopened the comment period to allow consideration of additional

comments, including newly developed information on the contingent

valuation methodology (CV), the only method currently available for the

express purpose of estimating nonuse values. 58 FR 39328. The comment

period was originally reopened until September 7, 1993, and then

extended until September 22, 1993. 58 FR 45877 (Aug. 31, 1993).

After reviewing the comments received in response to the July 22,

1993, Federal Register notice, the Department proposes to revise the

type B rule to include appropriate standards to improve the reliability

of CV when used to estimate lost nonuse values. The Department is

issuing this notice to ensure that interested parties have an adequate

opportunity for review and comment.

On March 25, 1994, the Department published a final rule to revise

the type B rule to comply with all aspects of the Ohio v. Interior

remand other than the assessment of lost nonuse values. 59 FR 14281.

Pending completion of this rulemaking, the Department is temporarily

leaving unchanged the language of the original type B rule concerning

the assessment of lost nonuse values.

E. Other Rulemakings

CERCLA mandates biennial review and revision, as appropriate, of

the natural resource damage assessment regulations. The Department

plans to begin the biennial update of the type B rule in July 1994. All

aspects of the administrative process and the type B rule will be

subject to review during that update. During the biennial review, the

Department will consider ways of ensuring the greatest consistency

appropriate between its damage assessment regulations and the damage

assessment regulations being developed by NOAA.

Further, later this year the Department plans to issue a proposed

rule to revise the type A rule for coastal and marine environments in

compliance with Colorado v. Interior. The Department is also developing

an additional type A rule for assessing damages in the Great Lakes.

Like the type A rule for coastal and marine environments, the type A

rule for the Great Lakes will incorporate a computer model.

II. Calculation of Damages Under the Type B Rule

A. Costs of Restoration, Rehabilitation, Replacement, and/or

Acquisition of Equivalent Resources

The type B rule as originally published on August 1, 1986, provided

that damages consisted of the lesser of the cost of restoring the

injured resources (plus the lost interim use value) or the diminution

in the value of the injured resources without restoration. In Ohio v.

Interior, the court ordered the Department to revise the rule to

reflect the statutory preference for using restoration costs as the

measure of natural resource damages. CERCLA provides that sums

recovered in natural resource damage actions may be used to restore,

rehabilitate, replace, or acquire the equivalent of the injured natural

resources. The court used the simple term ``restoration'' costs as

shorthand for the cost of performing any of these actions. 880 F.2d at

441. On March 25, 1994, the Department published a final rule that

revised the type B rule to allow trustee officials to recover the costs

of restoration, rehabilitation, replacement, and/or acquisition of

equivalent resources in all cases. 59 FR 14281.

The March 25, 1994, final rule provides guidance on projecting the

costs of restoring, rehabilitating, replacing, and/or acquiring the

equivalent of the injured resources. Under that final rule, trustee

officials first identify and consider a reasonable number of possible

alternatives for restoring, rehabilitating, replacing, and/or acquiring

the equivalent of the injured resources. Trustee officials also

estimate those services that are likely to be lost to the public

pending completion of each alternative under consideration. Trustee

officials then select one of the possible alternatives based on several

factors. The trustee officials document their decisions in a

Restoration and Compensation Determination Plan, which is subject to

public review and comment.

Once the trustee officials select a restoration, rehabilitation,

replacement, and/or acquisition alternative, they choose the methods

they intend to use to estimate the costs of implementing that

alternative. To do this, trustee officials select among specified cost

estimating methodologies. Trustee officials include the rationale for

their selection in the Restoration and Compensation Determination Plan.

B. Compensable Value

Under the March 25, 1994, final rule, the costs of restoring,

rehabilitating, replacing, and/or acquiring the equivalent of the

injured resources are the basic measure of damages; however, these

costs are only one component of the damages that trustee officials may

assess. Trustee officials also have the discretion to assess the value

of the resource services that the public lost from the date of the

release or discharge until completion of restoration, rehabilitation,

replacement, and/or acquisition of equivalent resources. 59 FR 14283.

The term ``compensable value'' is used to encompass all of the lost

public economic values, including both lost use values and lost nonuse

values. The Restoration and Compensation Determination Plan includes a

description of the methodologies trustee officials intend to use when

estimating compensable value during Damage Determination.

The original type B rule provided a ranked list of methodologies

that could be used to calculate lost use values. If the market for the

injured resource was ``reasonably competitive,'' then the diminution of

the market price attributable to the discharge or release was used to

estimate damages. If a market price methodology was not applicable,

then the trustee officials were required to use appraisal

methodologies. Only when neither market-price nor appraisal

methodologies were appropriate for the resources being assessed did the

original version of the rule allow trustee officials to use non-market-

based methodologies.

Further, Secs. 11.83(b)(2) and 11.83(d)(5)(ii) of the original

version of the type B rule provided that lost nonuse values could only

be assessed if trustee officials could not determine any lost use

values. In the August 1, 1986, preamble to the original type B rule,

the Department provided the following explanation for this restriction:

Ordinarily, option and existence values would be added to use

values. However, section 301(c) of CERCLA mentions only use values.

Therefore, the primary emphasis in this section is on the estimation

of use values * * * Another related reason for this limitation is

that more is known about the determination of use values than option

and existence values. Option and existence values are less well-

defined and more uncertainty surrounds their measurement. 51 FR

27719.

Ohio v. Interior held that the type B rule incorrectly established

a strong presumption in favor of the use of market price and appraisal

methodologies to estimate lost use values. The court also held that the

Department had ``erroneously construed the statute'' with regard to the

assessment of lost nonuse values. The court stated:

(S)ection 301(c)(2) requires Interior to ``take into

consideration factors including, but not limited to * * * use

value.'' 42 U.S.C. 9651(c)(2) (emphasis added). The statute's

command is expressly not limited to use value; if anything, the

language implies that DOI is to include in its regulations other

factors in addition to use value. 880 F.2d at 464.

The court went on to say that the Department

is entitled to rank methodologies according to its view of their

reliability, but it cannot base its complete exclusion of option and

existence values on an incorrect reading of the statute. Id.

The court instructed the Department to consider a rule that would

permit trustee officials to include all reliably calculated lost values

in their damage assessments. Id.

CV is currently the only method available for the express purpose

of estimating nonuse values. Under the original type B rule, CV was

listed as a non-market-based methodology for calculating either lost

use or lost nonuse values. Ohio v. Interior upheld the Department's

inclusion of CV as a ``best available procedure.'' Id. at 478. However,

the court did not require the Department to allow unlimited use of CV.

Moreover, the court did not address the difference between use of CV to

calculate lost use values and use of CV to calculate lost nonuse

values.

The March 25, 1994, final rule leaves trustee officials free to

choose among the listed valuation methodologies, including CV, when

estimating lost use values. 59 FR 14285-86. The final rule provides a

number of criteria to guide the selection of valuation methodologies,

including a requirement that the chosen methodologies are reliable for

the particular incident and type of damage being measured. The final

rule renumbers Secs. 11.83(b)(2) and 11.83(d)(5)(ii) of the original

rule, which restrict the assessment of lost nonuse values to cases

where lost use values cannot be determined, as new

Secs. 11.83(c)(1)(iii) and 11.83(c)(2)(vii)(B), respectively. Pending

completion of this rulemaking to address the final issue affected by

the Ohio v. Interior remand, the Department is temporarily leaving

unchanged the language of these renumbered sections.

III. Contingent Valuation: Discussion and Rule Language Under

Consideration

CV is a survey-based approach to the valuation of nonmarket goods

and services that relies on a questionnaire for the direct elicitation

of information about the value of the good or service in question. The

value obtained for the good or service is said to be contingent upon

the nature of the constructed (hypothetical or simulated) market and

the good or service described in the survey scenario. In the natural

resource damage assessment context, CV studies generally derive values

through elicitation of respondents' willingness to pay (WTP) to prevent

injuries to natural resources or to restore injured natural resources.

The first published CV study, valuing outdoor recreation, appeared

in 1963. There are now over 1,400 documented papers, reports, and books

on CV. In recent years, CV has become one of the most widely used

methods of nonmarket valuation.

Four basic elements common to CV questionnaires are: (1) An

explanation of the structure and rules of the market in which the good

or service being valued is either bought or sold; (2) a description of

the good or service and how it is to be provided; (3) the value

elicitation question; and (4) validation questions to verify

comprehension and acceptance of the scenario and to elicit

socioeconomic and attitudinal characteristics to interpret the

variation in responses to the valuation question across respondents.

There are no universal rules on how each of these elements of a CV

questionnaire should be designed, since the appropriate formulation of

each depends on the good or service being valued and its context and,

consequently, will vary across applications.

CV surveys generally measure total value of a good or service,

which includes both use values and nonuse values. However, nonuse

values, unlike use values, are not linked to observable behavior and,

thus, are more difficult to validate externally than use values.

Therefore, criticisms of CV pertain primarily to its use in valuing the

nonuse component of total value and the difficulty of external

validation of that component of total value. Among the most commonly

cited criticisms of CV studies of nonuse values are: The stated

intentions of WTP in CV surveys may exceed ``true'' WTP; CV may produce

results that appear inconsistent with the tenets of rational choice;

respondents to CV surveys on nonuse may be unfamiliar with the good or

service being valued and therefore may not have an adequate basis for

articulating their true value; CV respondents may be expressing a value

for the satisfaction (warm glow) of giving rather than the value of the

good or service in question; and respondents may fail to take CV

questions seriously because the financial implications of their

responses are not binding. Most proponents of CV acknowledge that

poorly designed and administered CV studies can produce results that

reflect the potential problems identified above. However, proponents

also assert that these problems are not inherent to the method and that

well-designed and well-executed CV studies can eliminate them or render

them inconsequential. Proponents further assert that survey design,

development, and administration standards will improve quality control

for CV surveys.

The Department received many, often conflicting, comments on the

use of CV to calculate nonuse values. As the Department noted in the

July 22, 1993, Federal Register notice, NOAA convened a panel of

economic and survey experts (the NOAA panel), pursuant to its

rulemaking authority under OPA, to evaluate the reliability of CV to

measure nonuse values. The NOAA panel issued a report in January, 1993.

58 FR 4601 (Jan. 15, 1993).

Based upon consideration of all comments received and the NOAA

panel report, the Department is proposing to revise the type B rule to

include standards for the use of CV to estimate lost nonuse values. The

Department believes that standards to improve the reliability of CV

surveys of lost nonuse values are needed in the Department's type B

rule, because assessments performed in accordance with the rule will be

given a rebuttable presumption in litigation over the specific amount

of money a particular party must pay as compensation for liability.

However, this same level of precision for CV surveys may not

necessarily be required for other applications of CV, such as use of CV

in regulatory cost-benefit analyses.

On January 7, 1994, NOAA published a proposed natural resource

damage assessment rule under OPA. 59 FR 1062. Section 990.78(b)(5) of

NOAA's proposed rule includes standards for the use of CV. 59 FR 1182-

83; see also 59 FR 1142-48. In the interest of consistency and after

consultation with other Federal agencies, the Department is soliciting

comment on whether the Department's type B rule should be revised to

include standards for the use of CV substantially similar to those

proposed by NOAA. Upon consideration of the comments received in

response to this notice, the Department intends to issue a final rule.

NOAA's proposed standards for use of CV cover five areas: (1)

Survey instrument design and development; (2) survey administration;

(3) the nature of the results; (4) calibration; and (5) reporting.

NOAA's proposed standards are intended to provide flexibility to

trustee officials so that they can take advantage of new developments

that may occur in CV methodology. Further, any standards included in

the Department's type B rule may be subject to amendment during the

statutorily required biennial review of the regulations to reflect the

results of new research.

A. Survey Instrument Design and Development

The reliability of a CV study begins with the design and

development of the survey instrument. NOAA has proposed several survey

instrument design and development standards. The Department solicits

comment on whether the same standards should be included in the

Department's type B rule. NOAA's proposed rule language, which the

Department is considering for its type B rule, is as follows:

Survey instrument design and development--(A) Willingness to pay

for Prevention or Restoration. (1) The survey instrument shall

elicit from respondents their willingness-to-pay (WTP) either to

prevent described injuries to natural resources or to restore

injured resources as described to their baseline or comparable

condition.

(2) The trustee(s) shall document the rationale for selecting a

prevention program or restoration program as the commodity to be

valued.

(B) Commodity definition. (1) During development of the survey,

the trustee(s) shall determine whether respondents understood and

found credible the description of the injuries (including whether

they are permanent or interim losses) and the program (including the

timing of the process) for preventing injuries or restoring the

natural resources.

(2) Prior to the value elicitation, the trustee(s) shall

identify the natural resource context of the injured resources, if

related resources exist, including commodities that might serve as

substitutes.

(C) Budget constraints. Prior to the value elicitation,

respondents shall be reminded of their budget constraints and their

alternative expenditures. Respondents shall be reminded that their

WTP for the environmental program in question would reduce their

expenditures on other goods. This reminder should be more than

perfunctory, but less than overwhelming. The goal is to induce

respondents to keep in mind other likely expenditures, including

those on other environmental goods, when evaluating the main

scenario. After the value elicitation, respondents shall be reminded

again of their alternative expenditure possibilities. Respondents

shall be given an opportunity to reconsider and change their votes

(bid) after this second reminder of alternative expenditure

possibilities.

(D) Comparability with real transactions. (1) The survey

instrument shall use a credible choice mechanism and payment

vehicle.

(2) The trustee(s) shall select a choice mechanism that is

incentive compatible and shall document the rationale for the

selected choice mechanism.

(3) The trustee(s) shall ask follow-up questions to determine

whether the respondents accepted the choice mechanism and payment

vehicle as credible.

(4) (Note: Calibration requirement discussed in Section III.D of

this notice)* * *

(E) Pretesting. (1) Survey development shall include adequate

field testing to ensure that the above design criteria are met. 59

FR 1182-83.

One important aspect of survey instrument design and development is

the selection of a choice mechanism. Past CV studies have used

different methods to elicit values, including open-ended WTP questions;

bidding cards; and voting formats typically termed ``referenda.'' The

Department believes that selection of a choice mechanism should be left

to the discretion of trustee officials, as provided in NOAA's proposed

rule. Nonetheless, the Department believes that the current state of

the art shows many advantages for using a voting format as the choice

mechanism for CV surveys in natural resource damage assessments.

Therefore, if trustee officials select a choice mechanism other than a

voting format, they should document the factors that led them to reject

a voting format. Nevertheless, the Department solicits comments

regarding the incentive compatibility of alternative choice mechanisms

and whether the final regulation or its preamble should state a

preference for the voting format. The Department also solicits comments

regarding the administrative and analytical costs associated with

alternative choice mechanisms.

The Department believes that the method of elicitation should be

one with which people are familiar and one which provides a realistic

context in which respondents can choose to increase levels of public

goods. Local jurisdictions and State governments often ask voters to

increase taxes on themselves so that public goods may be increased

(e.g., school bond issues; special assessments for public

infrastructure). Second, in our society, most goods are offered using

posted prices. Asking an individual to reveal his or her maximum WTP

for a good is both unfamiliar and unrealistic. Third, it is important

that respondents believe that they will receive the program offered in

the CV survey. To CV respondents, the cost of the program naturally

determines the price they must pay. If no set price is offered, the

respondents may perceive uncertainty regarding the program's costs and,

therefore, uncertainty regarding the provision of the program. Finally,

the voting format is incentive compatible. Respondents must reveal

their preference and vote for the program if they desire the program at

the stated price. Voting against or refusing to vote will only lower

the probability of obtaining the program.

B. Survey Administration

The most carefully designed CV survey can produce unreliable

results if the survey administration is faulty. NOAA has proposed

several standards for survey administration. The Department solicits

comment on whether the same standards should be included in the

Department's type B rule. NOAA's proposed rule language, which the

Department is considering for its type B rule, is as follows:

Survey administration--(A) Sampling procedures. (1) The

trustee(s) shall determine the relevant population(s) to be sampled

and document the rationale for that determination.

(2) The trustee(s) shall draw a probability sample(s) from the

target population for the administration of the final survey. Less

rigorous sampling is suitable for pretesting and pilot surveys so

long as the heterogeneity of the target population is considered.

(3) The sample size(s) shall be sufficient to draw statistically

significant population inferences and to estimate WTP valuation

functions or to test relevant statistical hypotheses.

(4) The trustee(s) shall minimize nonresponse bias to the extent

practicable by striving for as high a response rate in the final

survey as possible, consistent with the requirements of reasonable

cost. In no case shall the response rate be less than seventy

percent.

(5) The trustee(s) shall document the rationale for the selected

response rate.

(B) Mode of administration. (1) The trustee(s) shall document

the rationale for the selected mode of survey administration.

(2) If interviewers are used, the survey administration shall be

conducted by trained interviewers who are supervised by experienced

interviewer field managers.

(3) Regardless of the mode of administration, the trustee(s)

shall use an experienced survey research organization to administer

the survey.

(C) Confidentiality. The trustee(s) should ensure respondent

confidentiality. 59 FR 1183.

One important aspect of survey administration is the determination

of an appropriate response rate. The Department believes that trustee

officials should obtain as high a response rate as possible, consistent

with the requirements of reasonable cost, in order to ensure reliable

inferences to the general population. Low response rates pose a risk of

compromising the statistical validity of the survey when nonrespondents

have systematically different values than respondents. Another risk

associated with low response rates is that estimates of response

variance may be significantly affected such that the indicated

confidence of survey results is questioned. Since the likelihood of

these risks cannot be determined unless nonrespondents have been

surveyed, trustee officials should minimize nonresponse in the final

survey to the extent practicable. For example, trustee officials could

design the survey instrument so that individuals must decide whether to

respond before the exact nature of the environmental insult is

revealed.

NOAA has proposed that response rates shall not fall below 70

percent. The Department solicits comments on whether there should be a

specified minimum response rate and, if so, whether 70 percent is a

reasonable floor. Further, the Department solicits comments regarding

the administrative costs associated with alternative response rates.

Another important aspect of survey administration is selection of

the mode of administration. The three generally used CV survey

administration modes are in-person, mail, and telephone. There are

advantages and disadvantages of each method, and often the selection of

the appropriate method is dependent on a number of factors such as

cost, turn-around time, desired response rate, type of information to

be conveyed, use of visual aids, required population coverage, and the

ultimate use of the survey results. For example, telephone surveys can

approximate simple random sampling of households through random digit

dialing; can produce fast results; are relatively easy to administer;

and are less expensive than in-person interviews. On the other hand,

visual aids cannot be used; interviews need to be relatively short;

interviewer bias may be involved; and individuals without telephones

are necessarily omitted from the sample. Self-administered mail surveys

are the least costly of the three methods. However, probability

sampling is difficult; respondents can review the survey before

deciding to participate (imparting self-selection bias); there can be

no random selection within the household and no control of question

sequencing; and a higher number of incomplete responses are likely to

result because there is no interviewer to motivate the respondent.

Finally, in-person interviews permit random selection of the respondent

within the household; maintain control of question ordering; allow the

use of visual materials; and generate high response rates. In-person

interviews, though, are the most costly method to administer; require

complex field operations; involve the use of many documents and forms

(e.g., calling cards, interviewer evaluation forms, verification

forms); and may involve interviewer bias. For a more in-depth

discussion of each method, see EPA, ``Survey Management Handbook,''

vol. II, pp. 24-35, 230/12-84-002, December, 1984.

The Department believes that selection of a mode of administration

should be left to the discretion of trustee officials, as provided in

NOAA's proposed rule. Nonetheless, the Department believes that in-

person interviews provide certain advantages in the natural resource

damage assessment context. Therefore, if trustee officials select a

mode of administration other than in-person interviews, they should

document the factors that led them to reject in-person interviews. The

Department solicits comments on whether the final regulation or its

preamble should state a preference for in-person interviews.

While recognizing that mail surveys can provide invaluable

information for many academic studies and regulatory purposes (e.g.,

the U.S. decennial census), the Department believes that mail surveys

at this time lack certain features that are desirable for use in the

natural resource damage assessment context. Telephone surveys also have

limitations. A CV survey designed for natural resource damage

assessment purposes is likely to impart a large amount of information

to respondents causing interviews to be lengthy and often complex. In-

person interviews offer the opportunity to motivate the respondents and

to hold their interest by providing important information in a graphic

and pictorial format and asking interactive questions regarding the

respondents' understanding and acceptance of key features of the survey

instrument. In-person interviews also permit interviewers to record

verbatim responses to important open-ended questions. Such information

may be critical in demonstrating that a trustee official has adhered to

regulatory standards for the design and administration of the CV study.

The Department also believes that trustee officials should consider

the use of modes of administration other than in-person interviews

during the survey instrument development stage. For example, a

telephone survey may be an appropriate and cost-effective method to

test a design feature such as question ordering or the understanding of

technical terms. Further, the Department is interested in comparative

empirical testing of other administration modes, such as random digit

dialing for initial contacts, followed by mailed descriptive

information and visual materials, culminating with a telephone survey.

If such testing demonstrates that other modes can produce the type of

information and results comparable to in-person interviews, the

Department would consider encouraging trustee officials to use those

methods for the final survey.

Regardless of the mode of administration, the Department believes

that all surveys should be administered by a survey research

organization, as provided in NOAA's proposed rule. The Department

believes that use of a survey research organization is necessary

because the preparation and administration of a general population

survey require practical survey expertise and substantial logistical

support. The Department also believes that trustee officials should

select a survey research organization that has implemented procedures

to meet the standards outlined in either the Council of American Survey

Research Organizations' Code of Standards for Survey Research or the

American Association for Public Opinion Research's Code of Professional

Ethics and Practices. Use of such an organization would help to

maintain reliability and confidentiality. Further, such organizations

are likely to have proven track records and the staff necessary to

conduct a survey in accordance with any regulatory standards.

Nevertheless, the Department solicits comments regarding the

requirement that surveys be administered by an experienced survey

research organization. Further, comments regarding alternative codes of

standards for survey administration are solicited.

C. Nature of Results

A commonly expressed concern about CV is that it can produce

results that are not sensitive to all relevant characteristics of the

described natural resource injuries and methods of preventing or

restoring the injured resources. NOAA has proposed a test to address

this concern. The Department solicits comment on whether the same test

should be included in the Department's type B rule. NOAA's proposed

rule language, which the Department is considering for its type B rule,

is as follows:

Nature of results. (A) Scope test. Controlling for attitudinal,

demographic, perceptual, and other differences across respondents,

the trustee(s) shall demonstrate statistically that the aggregate

WTP across all respondents for the prevention or restoration program

increases (decreases) as the scope of the environmental insult is

expanded (contracted). The scope of the environmental insult is

characterized by the severity of the natural resource injuries and

the level of effectiveness and timing of the restoration or

prevention program. The demonstration shall be conducted through the

use of split samples.

(B) Number of scenarios. The trustee(s) shall administer to

split samples different survey instruments containing three

variations of the scope of the environmental insult that respondents

perceive as different unless the trustee(s) can provide a reasonable

showing that the three-scenario test is infeasible due to

considerations of cost or lack of plausibility of scenarios. Where

three scenarios are feasible, the statistical test shall involve

pairwise comparisons. In either case, the scenarios may vary along

any of the margins of intensity, geography, and duration of damage

and, for prevention scenarios, the probability of an event

occurring. The trustee(s) shall document the rationale for the

selected variations of the scope of the environmental insult. In

determining the descriptions to be used with the split samples, the

trustee(s) shall use realistic injury scenarios and prevention or

restoration programs that the respondents accept as credible.

(C) Maximum amount of difference between scenarios. The

trustee(s) shall develop scenarios for the total value test. Prior

to the performance of the test, the trustee(s) shall demonstrate

that not more than ninety-five percent of respondents in a pre-test

or in focus groups indicate that there are meaningful value

differences between the scenarios to be tested in any pairwise

comparison. The demonstration shall be based on a minimum of sixty

valid responses. The trustee(s) shall exclude from this

demonstration any individuals who indicate in screening questions

that they are not willing to pay anything for any size environmental

cleanup or who would be willing to pay unrealistically large and

invariant amounts for any size environmental cleanup. 59 FR 1183.

If this test were included in the Department's type B rule, one

important aspect would be the determination of the relevant dimensions

of the scope of the environmental insult. The scope of an environmental

insult such as a discharge of oil or release of a hazardous substance

is multi-dimensional, where the dimensions are influenced by biological

and social attributes. A discharge or release can affect all or part of

an ecosystem. Its effects can be short- or long-lived, lethal or

sublethal, geographically contained or widely dispersed. From the human

perspective, the effects of a discharge or release may be directly

visible and disturbing, or out of sight and perceived only indirectly

once there is knowledge about the loss of natural resources.

In the first phase of NOAA's proposed test, the relevant dimensions

of the scope of the discharge or release under investigation would need

to be identified. Once the trustee official had defined the relevant

dimensions of scope, the trustee official would employ a split sampling

technique where some respondents were provided with an alternative

survey instrument. The trustee official would begin the analysis with

the primary survey instrument that would be used to estimate the values

lost due to the discharge or release in question. This instrument would

be designated the base instrument. Trustee officials would pre-test and

perform pilot tests on the instrument to ensure that the instrument met

any design and development standards. Analyses performed using

incompletely developed or tested preliminary instruments would not be

considered evaluations of scope sensitivity because in these situations

it would not be possible to distinguish the effects of variations in

survey instrument design from the effects of changes in the scope of

the injury or proposed prevention or restoration program.

In designing a CV survey instrument, trustee officials would

determine the dimensions of scope that were relevant to the discharge

or release under investigation and decide whether there existed a

subset of dimensions that were important to the values being measured

or whether all of the dimensions were linked and therefore equally

important. In cases where a subset were deemed important, trustee

officials would choose whether to scale these dimensions up or down in

relation to the levels described in the base instrument and by how much

to scale the dimensions. If all relevant dimensions were to be scaled,

trustee officials would still decide in which direction and magnitude

to scale each dimension.

After the trustee officials had decided on the dimensions to be

scaled, in what direction and by how much, they would produce second

and third instruments that differed from the base instrument only with

respect to the scope dimensions. Trustee officials could choose to

scale dimensions regarding the injury description, dimensions

concerning the prevention or restoration programs offered to

respondents, or both. Regardless, trustee officials must take care to

ensure that the expected ordinal change in WTP remains unambiguous when

simultaneously scaling different dimensions.

The scope test would be designed to determine ordinal changes in

the aggregate WTP estimates. The Department is considering a hierarchy

of preferred scope tests. The first priority in this hierarchy would be

to demonstrate the transitivity of aggregate WTP estimates with respect

to the scope of the environmental insult. The second priority would be

to demonstrate the sensitivity of aggregate WTP estimates to both an

expansion and a contraction of the environmental insult.

The most preferred test would involve two alternative instruments:

One reflecting an expansion of the environmental insult from that

described by the base instrument and the other reflecting a contraction

of the environmental insult from that described by the base instrument.

Joint pairwise comparisons would determine whether the three aggregate

WTP estimates were transitive (i.e., A<B and B<C, where B is the

aggregate WTP estimate of the base instrument).

The Department recognizes that such a test may not be feasible all

cases. It may not be feasible in some cases to design credible

alternative instruments reflecting either an expansion or a contraction

of the environmental insult. For those cases, the second most preferred

test would involve two alternative instruments: Both reflecting either

an expansion or a contraction of the environmental insult from that

described by the base instrument. Regardless, joint pairwise

comparisons would determine whether the three aggregate WTP estimates

were transitive (e.g., A<C and C<B, where B is the aggregate WTP

estimate of the base instrument).

Alternatively, it may not be feasible in some cases to determine

whether the three aggregate WTP estimates were transitive if different

dimensions were scaled in the two alternative instruments. For those

cases, the third most preferred test would involve separate pairwise

comparisons to determine ordinal changes in the aggregate WTP estimates

(e.g., A<B and C<B, where B is the aggregate WTP estimate of the base

instrument).

Finally, it may not be feasible in some cases to design two

credible alternative instruments. For those cases, the test would

involve one alternative instrument reflecting either an expansion or a

contraction of the environmental insult from that described by the base

instrument. This would be the least preferred test. In all cases,

trustee officials would be required to document the rationale for the

selected scope test. The Department solicits comments on the need for

and desirability of such a hierarchy of preferred scope tests.

After the scaled instruments were pretested, all three instruments

would be employed in a split sample design. Since inferences to the

relevant population would not be part of a scope analysis, true

probability sampling would not be required and convenience samples

could be employed so long as random assignment of the different

treatments were maintained. Trustee officials would endeavor to employ

large samples in these analyses since changes in scope could be small

and large samples may be needed to attain significant differences in

WTP. Trustee officials would be free to demonstrate sensitivity to

scope using statistical techniques of their choosing.

The validity of the scope test could depend on the respondents'

perception of differences in the scope dimensions across the three

treatments. Trustee officials would include questions that could be

used to determine whether respondents understood and found credible the

description of the injuries.

The three-scenario approach would not be required when trustee

officials provided a reasonable showing that it was infeasible due to

considerations of cost or lack of plausibility of the scenarios. In

such circumstances, trustee officials could perform the analysis using

only the original scenario and one alternative scenario. However, as CV

surveys are routinized and their costs fall, trustee officials may find

that the three-scenario analysis is feasible in most cases.

Concern has been expressed that differences between the scenarios

not be so large that passing the scope test would be a foregone

conclusion, nor so small that it would be very difficult to demonstrate

statistical differences without extremely large (and costly) split

samples. The issue is complicated by the possibility, based on the

State of Alaska-sponsored study of the Exxon Valdez spill, that a

significant minority of the population may be insensitive to any

reasonable differences in scenarios: Some individuals may not be

willing to pay anything for any environmental cleanup, others may be

willing to pay unrealistically high (and invariant) amounts for any

size environmental cleanup. In response to this concern, NOAA has

proposed that trustee officials should develop procedures for

identifying and eliminating these responses, so that the demonstration

that the scenarios are meaningfully different would rest on the

remaining participants. To accept the scenarios for the scope test, no

more than 95 percent of the remaining participants could indicate that

the differences between the scenarios were real and meaningful, i.e.

that the values of the respective commodities differed. The Department

is seeking comment on ways to design such a procedure to demonstrate

differences in scenarios, and on alternative schemes to achieve a

comparable goal. For example, should ``insensitive'' individuals be

excluded from the survey and, if so, how should such individuals be

identified? How should the threshold defining ``meaningful

differences'' be characterized? Should the threshold criterion for

determining ``meaningful difference'' be adjusted, since individuals

impose internal consistency on their answers in the face of direct

comparisons (recognizing much finer differences than in split samples)?

Once a procedure has been developed to determine if individuals are

sensitive to the scope of the environmental insult, should this

information be incorporated into the selection of the sample for the

scope test?

While NOAA's proposed rule would require a split sample with

multiple scenarios for demonstrating the scope test, the Department

seeks comment on the option of alternatively using an indirect test to

explain variation in WTP as a function of a set of explanatory

variables, including belief in the size of the damage scenario, and/or

effectiveness of the prevention or restoration program. Commenters

should consider under what circumstances such an indirect test should

be allowed for performing the scope test. An indirect approach examines

the sensitivity to scope indirectly through the use of a WTP valuation

function, relying entirely on the base instrument. In the context of a

single dichotomous choice referendum (or a double-bounded formulation),

a WTP valuation function may relate the probability of a yes vote to a

list of variables assumed to underlie the voting decision (e.g., the

amount the household is asked to pay, household demographics, etc.).

The indirect approach may expand this list to include variables based

on information collected from respondents that are related to the scope

dimensions of the discharge or release. These measures must be

meaningful to the respondent given the information provided in the

survey. For example, a useful question following the WTP elicitation

question is one that asks whether the respondent believed the injuries

caused by the discharge or release to be more or less severe than

described. All other things being equal (i.e. similar preferences,

budget constraints, etc.), respondents believing the injuries to be

worse than described, and having equal confidence in the prospects for

restoring the injured resources through the offered plan, might be

willing to pay more. Such a finding would be an indirect verification

of scope sensitivity.

D. Calibration

NOAA has proposed a requirement that trustee officials calibrate

WTP values derived from CV studies to ``actual'' WTP. The Department is

aware of a number of studies examining the relationship between

``hypothetical'' WTP and ``actual'' WTP. In this work, an effort is

made to calibrate hypothetical WTP values derived from CV studies to

actual WTP. The results of this work are not definitive and are based

on CV studies of a lower quality survey design than would be required

under NOAA's proposed rule. However, because of uncertainty associated

with CV estimates, the Department is soliciting comment on whether the

calibration requirement in NOAA's proposed rule should be included in

the Department's type B rule. NOAA's proposed rule language requiring

calibration is as follows:

The survey instrument or analysis method shall provide a factor

for calibrating hypothetical WTP to actual WTP. The trustee(s) shall

document the rationale for the selected calibration factor. If the

survey instrument or analysis method fails to provide such a factor

or the trustee(s) fails to document the rationale for the selected

factor, actual WTP shall be presumed to be one-half of stated WTP.

59 FR 1183.

As NOAA's preamble recognizes, the proposed default factor was

included for the purpose of soliciting comment. 59 FR 1146.

The Department seeks comment on a number of questions regarding the

calibration of CV results. Is a calibration requirement necessary in

light of the other proposed standards for survey instrument design and

development, survey administration, and nature of results? Is a

calibration requirement warranted given that, but for the difficulties

in elicitation, willingness to accept (WTA) would be a more appropriate

measure of damages than WTP? The economics literature concludes that,

for changes in the provision of a public good, the difference between

WTA and WTP depends on the availability of substitute goods. The fewer

substitutes available, the greater the difference between WTA and WTP.

See W.M. Hanemann, ``Willingness to Pay and Willingness to Accept: How

Much Can They Differ?'' American Economic Review, vol. 81, pp. 635-647

(1991). This result suggests that WTP may significantly understate WTA,

the more appropriate measure of damages for natural resource injuries.

The Department also seeks comment on: The rationale for calibration or

the justification for assuming that hypothetical WTP equals actual WTP;

the appropriate default, if any, for a calibration factor; whether a

calibration requirement should be included in a technical information

document rather than in the rule; and whether inclusion of a

calibration requirement is consistent with the Ohio v. Interior

decision upholding the inclusion of all reliably calculated values in a

damage assessment.

Finally, the Department solicits comments regarding whether

marketing research which attempts to establish relationships between

stated intentions to purchase and actual purchase behavior for private

goods is relevant to the calibration of CV results for natural resource

damage assessments. If commenters believe that research to be relevant,

additional comments are solicited regarding the appropriate actual

behavior with which similar relationships could be established the

hypothetical behavior elicited by CV studies. Commenters should

explicitly state the behavioral links between the suggested actual

behavior and the hypothetical behavior elicited by CV studies.

The Department wishes to emphasize to those who support the use of

a default calibration factor that they should supply specific

information to support whatever factor they believe the Department

should adopt. The adoption of a definite calibration factor would have

to be supported by information in the administrative record.

E. Reporting

NOAA has proposed a standard for reporting the results of CV

surveys. The Department solicits comment on whether the same standard

should be included in the Department's type B rule. NOAA's proposed

rule language, which the Department is considering for its type B rule,

is as follows:

Reporting. The trustee(s) shall ensure that reports of

contingent valuation studies discuss the relevant factors identified

in the standards pertaining to survey instrument design and

development, survey administration, and nature of results in this

section. A copy of the survey instrument shall be included. 59 FR

1183.

F. Additional Requests for Comment

1. Prior Knowledge

The objective of conducting a CV study in a natural resource damage

assessment is to determine the damages suffered by the public as a

result of a discharge of oil or a release of a hazardous substance into

the environment. For consideration of lost nonuse values, the relevant

public may include the entire U.S. population, or may include a

regional subset of the population. Damages may be sustained by each

individual in the relevant public, but only a small fraction of the

public will actually participate in the survey. The damages an

individual suffers from a discharge or release depend on many factors.

These include the effects of the discharge or release on natural

resources, how much the individual uses the services provided by the

injured resources, individual preferences, and the individual's

information about the release or discharge and the world in general.

In conducting the survey, it is necessary to educate the respondent

about the natural resource itself, the facts surrounding a discharge or

release, and the impacts of the discharge or release on the resource.

This education process greatly changes the respondent's information

set. Upon gaining this new information, respondents are then asked to

place a value on the losses suffered. There is general agreement that

the losses an individual experiences from a discharge or release after

learning the new information are likely to be systematically different

than the losses they would experience prior to learning the new

information.

Some commenters have argued that the fact that the CV method itself

actively changes the information set of an individual prior to valuing

the good or service makes it fundamentally different from other

economic valuation methodologies. These commenters have questioned

whether it is appropriate to extrapolate value estimates based on post-

survey information to the general population. Given the assessment's

objective of estimating damages owed to the public at large, and the

small fraction of the public that actually participates in the survey,

some have argued that the relevant information set for the purposes of

extrapolating to the general population is the pre-survey information

set. One way to move towards value estimates that reflect the

information set of the general public is to obtain information in the

survey itself regarding the respondents' pre-existing knowledge about

the resource and injury to it. Regardless of the value a respondent

states after learning information from the survey, those respondents

who were not aware of the resource or an injury to it or both would be

assigned a value of zero. The rationale for assigning a zero value is

that if X percent of the survey respondents did not know about the

resource or injury, then X percent of the relevant public is likely to

be similarly uninformed. (Implicit is the assumption that individuals

who are unaware of the injury at the time of the survey would continue

unaware, but for the survey, for the foreseeable future.)

Other commenters have articulated the point of view that the level

of respondents' prior information about the injury is irrelevant to the

determination of natural resource damages. According to these

commenters, an education process increases the reliability of CV by

exposing respondents to a uniform set of information regarding the

characteristics of the commodity, availability of substitutes, and

prices. Consumers undertake a similar education process in private

markets to form their demands for other commodities. In this sense, the

education process is necessary so that CV is not fundamentally

different from other valuation methodologies. Further, these commenters

have stated that the fact that an individual is not informed of a

specific injury does not mean that he or she suffers no loss as a

result of the injury. Natural resources are held in trust for the

public. Therefore, WTA rather than WTP would be the most appropriate

measure of lost values of injured resources, were it not for the

technical difficulties involved in eliciting WTA. Each member of the

public has an interest in the injured natural resources being valued

regardless of whether he or she is aware of the particular resources

and injuries. Therefore, these commenters believe it would be

inappropriate to require that CV respondents' values only be counted if

they were aware of the injured resources before the survey.

The Department seeks comments on whether it is appropriate to use

information regarding pre-existing knowledge of respondents to reassign

to zero any positive values expressed by individuals who were unaware

of the injuries prior to the survey in the calculation of damages.

Commenters who believe it is appropriate to assign zero damages to

individuals with limited prior knowledge should articulate the

rationale for doing so. Commenters who believe that it is inappropriate

to assign zero damages to individuals with limited prior knowledge

should articulate their rationale for using the post-survey information

set to extrapolate damages to a public that only has pre-survey

information.

2. Screening or Threshold Factor

Because of concern by many commenters that CV surveys may be

undertaken in damage cases where expected damages may be too small to

justify the costs of the CV survey, the Department is seeking comment

on the concept of a screening factor that trustee officials should

apply in deciding whether to conduct a CV survey of nonuse values in a

particular case. Factors currently limiting the use of CV include the

high costs of surveys to meet NOAA's proposed standards, trustee budget

and staff limitations, and trustee desire for speedy judgment to enable

expeditious restoration activities. To employ an additional screening

factor, expected damages might be estimated using a small sample with

protocols designed to minimize survey costs and, therefore, not

necessarily subject to the standards contained in NOAA's proposed rule.

Alternatively, expected damages might be estimated by scaling damages

estimated in other CV studies. Other methods may be possible. Several

possible thresholds have been suggested. These possibilities include

setting the threshold for a particular case at the greater of twice the

expected cost of a full CV survey or the product of multiplying $5 per

household by the number of households expected to hold nonuse values

for the resource of concern. The Department is specifically seeking

comment on: Whether such a screening factor would be appropriate; what

form a factor might take; whether the factor should apply to total

damages or only to lost nonuse values; and whether inclusion of a

screening factor is consistent with the Ohio v. Interior decision

upholding the inclusion of all reliably calculated values in a damage

assessment.

IV. Technical Information Document

The Department intends to work with NOAA and other interested

agencies to develop a guidance document on use of CV. This document

will provide additional technical information on possible means of

satisfying any standards contained in the damage assessment regulations

as well as other issues involved in conducting CV studies. Once a draft

of the document has been prepared, the Department will publish a notice

in the Federal Register announcing its availability and soliciting

comment.

The Department requests comments on additional tests for

determining the reliability of CV estimates for possible inclusion in

the technical information document. In order to evaluate any additional

tests, the Department requests that commenters provide a complete list

of the behavioral assumptions underlying their theoretical framework of

rational choice. The Department assumes that commenters will begin with

what economists consider to be the generally accepted axioms of

neoclassical consumer choice theory or revealed preference theory. The

Department requests that commenters clearly state all further

assumptions underlying the test and describe the sensitivity of the

test's results to the assumptions presented. Second, if commenters are

proposing tests that rely on marginal or infra-marginal changes in the

scope of the injuries, the commenters should describe how the variation

of scope dimensions involved in the test would be quantified. Third,

and perhaps most important, the Department asks that commenters explain

how any proposed test can be accomplished feasibly within the survey

instrument design and development and survey administration standards

specified in NOAA's proposed rule. Tests causing CV surveys to violate

these standards are themselves unreliable tests. Fourth, the commenter

should give examples of how these tests would be structured in the

context of a hazardous substance release.

Finally, commenters have expressed concern about the valuation of

past nonuse losses. The Department believes that when little time has

elapsed since the occurrence of a nonuse loss, trustee officials might

conclude that CV respondents' WTP is not likely to have changed

significantly. On the other hand, in cases where a great deal of time

has elapsed since the occurrence of the nonuse loss, determination of

WTP becomes more problematic. Therefore, the Department is soliciting

comment on methods for estimating nonuse values lost over a significant

amount of time for possible inclusion in the technical information

document.

V. Response to Comments

The Department received numerous comments on the July 22, 1993,

Federal Register notice. The Department appreciates the time and effort

expended by the commenters. This notice discusses only those comments

concerning the assessment of lost nonuse values or the use of CV. All

other comments submitted on the July 22, 1993, Federal Register notice

are addressed in the notice of final rulemaking to revise the

Department's type B rule, which was published on March 25, 1994. 59 FR

14261.

Comment: The comments on the assessment of lost nonuse values were

widely divergent but generally fell into two primary schools of

thought. One set of commenters thought that trustee officials should

have the discretion to decide on a case-by-case basis when lost nonuse

values should be included in a damage assessment. These commenters

stated that assessment of lost nonuse values is necessary to ensure

that the public is made whole for natural resource injuries. One

commenter noted that inclusion of lost nonuse values in damage

assessments is particularly crucial in the case of injuries to tribal

resources because of the special spiritual and cultural significance

that natural resources hold for Indian tribes. Some commenters stated

that if the Department does not include provisions for assessing lost

nonuse values in the regulations, then the Department would send

inappropriate economic signals to PRPs and could cause risky activities

to be directed toward pristine environments where use values are very

low.

Further, this set of commenters thought that CV is a reliable

methodology for calculating lost nonuse values. Some of these

commenters stated that studies purporting to demonstrate that CV

produces unreliable results have failed to distinguish between well and

poorly designed CV surveys. A few of these commenters took issue with

the Department's discussion in the July 22, 1993, Federal Register

notice of the potential for bias in CV studies. Some commenters stated

that the Department had failed to recognize that the real bias lies in

using methodologies that consistently undervalue public losses by

computing compensable value based solely on lost use values. Other

commenters questioned the Department's statement in the July 22, 1993,

Federal Register notice that although all valuation methodologies have

potential reliability problems, CV, when used to estimate lost nonuse

values, poses more significant problems because the per-person bias is

multiplied by a larger population. These commenters thought that the

Department's line of reasoning, if taken to its logical extreme, would

dictate the nonsensical result that only small values should be

measured. A number of commenters made reference to the report issued by

the NOAA panel. According to these commenters, the NOAA panel report

concluded that CV can produce reliable estimates of lost nonuse values.

The other set of commenters thought that the rule should not

include any provisions for the assessment of lost nonuse values. These

commenters stated that assessment of lost nonuse values is not

necessary to compensate the public because trustee officials already

have the discretion to assess lost use values in addition to the cost

of restoring, rehabilitating, replacing, and/or acquiring the

equivalent of the injured resources. These commenters stated that

assessment of lost nonuse values was inconsistent with general legal

principles designed to prevent speculative damages. For example, the

commenters noted that courts only allow certain categories of

individuals to recover damages for pain and suffering in tort cases.

Other commenters stated that allowing assessment of lost nonuse values

would be punitive because it amounts to charging PRPs for hurting the

public's feelings. Some commenters expressed concern that allowing

assessment of nonuse values could drive companies out of business and

cause an increase in consumer prices. A few commenters expressed

skepticism that nonuse values were actually economic values.

This set of commenters also thought that CV cannot reliably

calculate nonuse values. These commenters stated that the results of CV

studies are inconsistent with rational decisionmaking. For example, a

number of commenters cited CV surveys in which stated WTP did not

respond to increases in the commodity being valued. Some commenters

stated that the results of CV surveys are overly sensitive to the

wording and administration of the survey instrument. Several commenters

thought that CV results seem unrealistically high compared to actual

contributions to environmental causes. Some commenters stated that such

disparities result because CV respondents do not adequately consider

their budget constraints when determining their WTP. A number of

commenters thought that responses to CV surveys were likely to reflect

feelings of vengeance toward PRPs or the warm glow of supporting a

worthy cause rather than the respondents' actual WTP to prevent injury

to the specific resources in question. Other commenters noted that CV

studies require respondents to perform difficult valuation tasks with

which they have little prior experience. A few commenters expressed

particular concern about the public's ability to provide accurate

values for injuries in industrial areas where contamination may exist

that is unrelated to the release in question.

Some commenters provided citations to studies purporting to

demonstrate the unreliability of CV. A number of commenters stated that

even some CV practitioners have called CV experimental. Other

commenters noted that the NOAA panel did not conclude that CV could

produce estimates of lost nonuse values that were reliable enough to be

granted a rebuttable presumption. Rather, according to these

commenters, the NOAA panel stated that even if a CV study met a number

of strict standards, it would only be reliable enough to serve as a

starting point in litigation. Therefore, these commenters thought that

even if the Department allowed CV to be used to estimate lost nonuse

values, it should not grant the results of CV studies of lost nonuse

values a rebuttable presumption. Finally, most of the commenters who

thought that CV was unreliable when used to estimate lost nonuse values

also thought that this unreliability was the result of fundamental

flaws that economists do not know how to correct at this time.

Response: Section 11.80(b) of the March 25, 1994, final rule

provides that trustee officials have the discretion to include all or a

portion of compensable value in their natural resource damage

assessments. 59 FR 14283. Ohio v. Interior held that the Department's

type B rule should allow for the recovery of all reliably calculated

lost values of injured resources, including lost nonuse values. 880

F.2d at 464. Therefore, the focus of this notice is not whether lost

nonuse values per se are an appropriate component of a natural resource

damage assessment. This notice addresses whether lost nonuse values can

be reliably calculated and, if so, under what conditions.

The Department acknowledges that a poorly designed or administered

CV study, like any poorly designed or administered valuation study, can

produce unreliable results. However, based on the evidence received to

date, the Department does not believe that CV is a fundamentally flawed

methodology. The Department believes that a properly designed and

administered CV study can produce reliable estimates of lost nonuse

values.

The Department also believes that the results of a CV study of lost

nonuse values performed in accordance with whatever standards are

ultimately included in the type B rule should receive a rebuttable

presumption. CERCLA provides that the natural resource damage

assessment regulations are to identify the best available procedures

and that assessments performed in accordance with the regulations

receive a rebuttable presumption. Ohio v. Interior further instructed

the Department to consider a rule that would permit trustee officials

to include all reliably calculated lost values in their damage

assessments. The Department believes that a properly designed and

administered CV study is a best available procedure and can produce

reliable estimates of lost nonuse values.

Comment: There were numerous comments on possible guidance for the

conduct of CV studies. A few commenters thought that guidance was

unnecessary. Most commenters, though, thought that some guidance was

advisable. A number of commenters, noting that NOAA is developing

standards based on the NOAA panel report, suggested that the Department

postpone development of guidance until NOAA evaluates the report and

issues a proposed rule. Some commenters thought that the Department

should incorporate NOAA's rulemaking record before deciding on

guidance. Other commenters urged the Department to make any proposed

guidance available for public review and comment before issuing a final

rule.

Response: The Department believes that standards for the use of CV

should be included in the type B rule to improve reliability. The

Department does not think it is advisable to incorporate NOAA's

rulemaking record because that record covers a wide range of issues

beyond CV. However, the Department did consider the NOAA panel report.

Also, numerous commenters on the Department's July 22, 1993, Federal

Register notice submitted copies of comments they had provided to NOAA

on its rulemaking. The Department agrees that commenters should have an

adequate opportunity to review and comment on the standards being

considered for the use of CV; therefore, the Department has issued this

notice. The Department invites commenters on NOAA's proposed rule to

submit comments to the Department on this proposed rule as well.

Comment: A number of commenters responded to the Department's

request for suggestions on the content of possible guidance on the use

of CV to estimate lost nonuse values. Several commenters suggested that

the Department adopt some or all of the standards contained in the NOAA

panel report. Some commenters thought that the Department should

include both the standards in the NOAA panel report and additional

standards. Other commenters offered their own standards. The suggested

standards covered six major areas: restrictions on the type of resource

for which lost nonuse values could be assessed; restrictions on the

relevant population; protection against the influence of improper

motives; standards for ensuring that respondents consider all relevant

factors when estimating their WTP; standards for determining whether CV

results are consistent with basic tenets of rationality; and methods of

calibrating CV results.

Some commenters thought that assessment of lost nonuse values

should be limited to cases where there have been long-lasting injuries

to resources with few substitutes. These commenters stated that such a

limitation was necessary to prevent speculative claims. These

commenters also agreed with the Department's statement in the July 22,

1993, Federal Register notice that in cases where injuries are of short

duration and where the injured resources have many substitutes, nonuse

losses are likely to be minimal. Other commenters objected to such a

limitation noting that there is no empirical evidence that there cannot

be a loss of nonuse values in cases where injuries are of short

duration or where there are many substitutes for the injured resources.

These commenters also noted that such a restriction is unrelated to

reliability. Some commenters stated that such a limitation might

prevent assessment of lost nonuse values where individual animals had

been killed but overall population levels were unaffected. These

commenters stated that the public may well experience nonuse losses for

the death of the individual animals since each individual animal is, in

some sense, irreplaceable.

A number of commenters suggested that trustee officials be required

to limit the relevant population to those persons with prior knowledge

of the release or discharge and the affected resources. These

commenters thought that if individuals did not have prior knowledge of

the injury, then they could not have experienced a loss.

Several commenters suggested that the Department develop standards

to protect against the influence of improper motives. These commenters

expressed concern that respondents might provide answers based on the

warm glow of supporting a worthy cause rather than their WTP for injury

prevention or resource restoration. These commenters also thought that

the Department should ensure that respondents are not motivated by

vengeance against PRPs. In particular, some commenters suggested that

trustee officials be required to demonstrate that the results of a CV

study do not change if respondents are asked their WTP to prevent a

naturally occurring injury rather than an injury resulting from human

activity.

Other commenters thought that, given the novelty of the task they

are asked to perform, CV respondents are unlikely to consider all

relevant factors on their own. Therefore, these commenters suggested

that respondents be reminded of their budget constraints and the

availability of substitutes for the resources being valued.

Numerous commenters thought there should be standards for

determining whether CV studies produce results consistent with the

basic tenets of rationality. For example, several commenters thought

that WTP should increase as the amount of the commodity being valued

increases.

Several commenters thought that the Department should develop

guidance on how to calibrate hypothetical WTP with actual WTP. Some

commenters suggested that trustee officials attempt to collect actual

funds from CV respondents and use the results to calibrate stated WTP.

Other commenters thought that the Department should develop a formula

for calibrating WTP based on a ratio between lost use values and lost

nonuse values.

Response: The Department has carefully reviewed the standards

offered by the commenters and the standards included in the NOAA panel

report. The Department does not believe that assessment of lost nonuse

values should be restricted only to cases involving long-lasting

injuries to resources with few substitutes. The Department believes

that such a restriction would not address the reliability of CV and,

therefore, would be inconsistent with Ohio versus Interior.

With regard to restricting the relevant population to persons with

prior knowledge of the discharge or release and the affected resources,

the Department has decided to solicit additional comment, as discussed

above.

With respect to improper motive, the Department finds no evidence

to suggest that warm glow and vengeance are necessarily prevalent in CV

studies. The Department believes that when CV respondents are asked

their WTP in a credible context they are adequately focused on the

commodity of injury prevention or resource restoration rather than some

other commodity such as the warm glow of giving or vengeance toward

PRPs. NOAA's proposed rule includes a requirement that trustee

officials use a choice mechanism that is credible and incentive

compatible. Further, the Department believes that vengeance is not a

prevalent motivation in a CV study in which respondents are asked how

much they would be willing to pay rather than how much a PRP should be

required to pay.

The Department agrees that CV respondents may not always consider

every relevant factor on their own. NOAA's proposed rule would require

that the survey instrument place the commodity to be valued in the

context of related natural resources. NOAA's proposed rule would also

require respondents to be reminded of their budget constraints prior to

being asked their WTP.

The Department also agrees that questions of unreliability arise

when studies produce results that are inconsistent with basic tenets of

rationality. NOAA's proposed rule includes a standard to ensure that CV

survey responses satisfy one important tenet of rationality, namely

that WTP increases as the severity of the injuries or the level of

effectiveness and timing of the restoration or prevention program

increase.

With regard to calibrating hypothetical WTP to actual WTP, NOAA's

proposed rule includes a calibration requirement.

Comment: Several commenters responded to the Department's request

for comment on the proper placement of any guidance developed for the

use of CV. Some commenters thought that any guidance developed by the

Department should be placed in the preamble or in a guidance document.

These commenters noted that CV is an evolving methodology and expressed

concern that placing guidance in the rule could lock in standards that

might soon be found to be ill-advised. Other commenters thought that

detailed standards should be placed in the rule itself to minimize the

risk of unreliable studies being given a rebuttable presumption. Some

commenters thought that the establishment of clear standards in the

rule was particularly important since there are no generally accepted

standards among CV practitioners. These commenters noted that any

standards placed in the rule could be updated during biennial reviews.

Response: The Department believes that poorly designed and

administered CV studies can pose reliability problems. Therefore, the

Department believes that standards for the use of CV should be included

in the rule itself to improve the reliability of CV studies that

receive a rebuttable presumption. However, the Department recognizes

that CV is an evolving methodology. Therefore, the Department believes

that only those standards that are unlikely to change over time should

be included in the rule and that trustee officials should be given some

flexibility in determining how to meet these standards.

Further, as discussed above, the Department intends to work with

NOAA and other interested agencies to develop a technical information

document on the use of CV. This document will provide additional

technical information on possible means of satisfying any standards

contained in the rule as well as other issues involved in conducting CV

studies.

Comment: A few commenters responded to the Department's request for

comments on how to ensure that CV studies are cost-effective and can be

performed at a reasonable cost. Some commenters thought that the real

issue was how to reduce the cost of performing a CV study, rather than

how to ensure cost-effectiveness and reasonable cost. These commenters

suggested that the Department fund reference CV studies.

Response: As discussed above, the Department intends to work with

NOAA and other interested agencies to develop a technical information

document on use of CV. This document should assist trustee officials in

conducting reliable studies at a reasonable cost. The Department may

consider the feasibility and utility of funding reference CV studies in

the future. However, consideration of such studies is beyond the scope

of this rulemaking, which is designed solely to comply with Ohio versus

Interior.

Comment: Some commenters stated that trustee officials should

provide PRPs with the opportunity to conduct an independent review of

all data collected in a CV survey.

Response: The Department agrees that PRPs should have access to all

assessment data collected by trustee officials, including any data

collected in a CV study. Section 11.90 of the Department's existing

type B rule provides that at the conclusion of an assessment, trustee

officials must prepare a Report of Assessment that is presented to the

PRP. The Report of Assessment includes all test results. NOAA's

proposed rule provides that the report of a CV study must include a

discussion of the relevant factors identified in the standards

pertaining to survey instrument design and development, survey

administration, and nature of results, as well as a copy of the survey

instrument. If the same standards were added to the Department's type B

rule, the report of the CV study would be included in the Report of

Assessment. Also, under Sec. 11.91(c) of the Department's existing type

B rule, everything in the administrative record of the assessment,

including all data collected in a CV survey, would be available for

review during the judicial discovery process.

Comment: A few commenters noted that WTA, not WTP, is the correct

theoretical measure of lost resource values. These commenters

acknowledged that there are practical problems with using CV studies to

calculate WTA. However, the commenters stated that the Department

should allow trustee officials to use methods that translate WTP into

WTA and provided copies of articles describing such methods.

Response: As was stated in the August 1, 1986, preamble to the

original rule:

The Department maintains that willingness to pay and willingness

to accept are both theoretically valid criteria for estimating

damages to nonmarketed natural resources. In addition, the

Department continues to maintain that willingness to accept may be

the criterion most germane to natural resource damages, since the

public has the property right to the injured natural resource.

However, the Department also agrees with many of the comments that

recognize that the application of the willingness-to-accept

criterion can lead to more technical difficulties and uncertainties

than the willingness-to-pay criterion. 51 FR 27721.

The Department believes it is inadvisable at this time to revise the

rule to allow for use of methods to translate WTP into WTA.

Comment: A few commenters thought that if the Department allows

assessment of lost nonuse values, it should not allow assessment of so-

called intrinsic values that purport to represent the value of the

resource in and of itself rather than the value of the resource to

humans.

Response: Compensable value includes only those values lost by the

public. Therefore, only human values should be considered in a CV study

of lost nonuse values.

Comment: Some commenters stated that if the Department allows

assessment of lost nonuse values, it should also require trustee

officials to assess the benefits to society of the activity giving rise

to the release or discharge and claim only the net loss.

Response: When Congress passed CERCLA and CWA it decided that

parties responsible for hazardous substance releases or oil discharges

should compensate the public for the resulting natural resource

damages, notwithstanding the possible societal benefits of the

activities giving rise to the release. CERCLA and CWA were designed to

ensure full compensation for natural resource damages resulting from

hazardous substance releases or oil discharges. Nothing in the statutes

suggests that trustee officials are required to assess the benefits to

society of the activity giving rise to the release or discharge and

claim only the net loss. Further, many of these benefits are already

accounted for in current market activity whereas the costs of the

associated release or discharge are not.

Comment: A few commenters disagreed with the Department's statement

that CV is the only method available for estimating lost nonuse values.

These commenters thought that trustee officials should be allowed to

estimate lost nonuse values through analysis of charitable donations,

insurance premiums, and conservation expenditures.

Response: Section 11.83(c)(3) of the March 25, 1994, final rule

allows trustee officials to use any valuation methodology, regardless

of whether it is explicitly listed, provided it measures the public's

WTP and satisfies the criteria set forth in Sec. 11.83(a)(2). 59 FR

14286. The Department is currently unaware of any methodology available

for the express purpose of estimating economically valued nonuse losses

of specific injured resources, other than CV, that meets these

specifications.

Comment: Some commenters thought that if assessment of lost nonuse

values is allowed, the Department should restrict such assessment to

present and future values.

Response: Where little time has elapsed since the occurrence of a

nonuse loss, trustee officials might conclude that CV respondents' WTP

is not likely to have changed significantly. On the other hand, in

cases where a great deal of time has elapsed since the occurrence of

the nonuse loss, determination of WTP becomes more problematic.

Therefore, as discussed above, the Department is soliciting comment on

methods for estimating nonuse values lost over a significant amount of

time for possible inclusion in a technical information document.

Comment: A few commenters requested that the Department clarify

that even if a CV study of lost nonuse values met any conditions set

forth in the natural resource damage assessment regulations, it would

still have to meet judicial standards for admissibility of evidence.

Some commenters cited case law for the proposition that CV studies of

lost nonuse values do not meet judicial standards for admissibility of

evidence. State of Idaho v. Southern Refrigerated Transport Inc., No.

88-1279, slip op. (D. Idaho Jan. 24, 1991) (Idaho v. Southern

Refrigerated Transport).

Response: CERCLA and Ohio v. Interior mandate that the natural

resource damage assessment regulations include the best available

procedures for reliably calculating lost values of injured resources.

Therefore, the Department believes that any CV study of lost nonuse

values performed in accordance with these regulations should satisfy

judicial standards for admissibility of evidence.

The Department is unaware of any case that has held CV studies per

se to be inadmissible in court. Idaho v. Southern Refrigerated

Transport addressed the use of a particular CV study in a case where

the natural resource damage assessment regulations were not followed.

The study had been conducted not for the purposes of the specific case

but rather to guide a utility council in making operational changes in

a hydropower system. Slip op. at 20. The court did not rule that the

study was inadmissible. However, the court did find that the study was

not sufficiently persuasive to sustain the claim for lost nonuse

values, noting that the survey questions were aimed at doubling fish

runs from 2.5 million to 5 million whereas only 1,688 fish had actually

been lost due to the specific release in question. Id.

National Environmental Policy Act, Regulatory Flexibility Act,

Paperwork Reduction Act, and Executive Orders 12866, 12630, 12778, and

12612

The Department has determined that this rule does not constitute a

major Federal action significantly affecting the quality of the human

environment. Therefore, no further analysis pursuant to section

102(2)(C) of the National Environmental Policy Act (43 U.S.C.

4332(2)(C)) has been prepared.

The Department certifies that this rule will not have significant

economic effect on a substantial number of small entities under the

Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The rule provides

technical procedural guidance for the assessment of damages to natural

resources. It does not directly impose any additional cost. As the rule

applies to natural resource trustees, it is not expected to have an

effect on a substantial number of small entities.

It has been determined that this rule does not contain information

collection requirements that require approval by the Office of

Management and Budget under the Paperwork Reduction Act (44 U.S.C. 3501

et seq.).

This final rule has been reviewed under Executive Order 12866 and

has been determined to constitute a significant regulatory action.

However, because of the difficulty of evaluating the effects of

alternatives to this rule, the Office of Information and Regulatory

Affairs within the Office of Management and Budget has waived

preparation of the assessments described in sections 6(a)(3)(B) and

6(a)(3)(C) of Executive Order 12866 for the final rule.

It has been determined that this rule does not have takings

implications under Executive Order 12630. The Department has certified

to the Office of Management and Budget that this rule meets the

applicable standards provided in sections 2(a) and 2(b)(2) of Executive

Order 12778. It has been determined that this rule does not have

federalism implications under Executive Order 12612.

Dated: April 28, 1994.

Bonnie R. Cohen,

Assistant Secretary--Policy, Management, and Budget.

[FR Doc. 94-10636 Filed 5-3-94; 8:45 am]

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