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Water: Regulation Development

Economic Analysis

This page provides information on EPA’s approach to economic analysis when developing standards for drinking water contaminants. By way of context and background, the first section presents a brief Overview of the regulatory development process before and after the most recent (1996) amendments to the Safe Drinking Water Act (SDWA). The second section, Current Practices and Policies, describes how EPA has been implementing the parts of these requirements that require economic analyses, including discussions of data collection, benefit and cost calculations and economic model development. A Water Treatment Technology Cost Models and a Technology Overview section is now available via the tabs below.

History

The Safe Drinking Water Act (SDWA) was originally passed by Congress in 1974 to protect public health by regulating the nation's public drinking water supply. Amended in 1986 and 1996, the law requires a variety of actions to protect drinking water and its sources: rivers, lakes, reservoirs, springs, and ground water wells. SDWA defines public water systems as having either 15 service connections or regularly serving at least 25 individuals in (SDWA 1401(4)). Community water systems are public water systems that serve at least 15 service connections used by year-round residents or regularly serves at least 25 year-round residents. Non-community water systems are public water systems that are not community water systems.

The 1996 amendments greatly enhanced the original statute by adding components that addressed source water protection, operator training, funding for water system improvements and public information requirements. Since enactment of the original statute, EPA has set standards for more than 90 chemical, microbiological, radiological and physical contaminants in drinking water.

SDWA Statutory Requirements

The 1996 SDWA amendments require that a variety of economic analyses be conducted whenever EPA proposes a national primary drinking water regulation. Components of the analyses include treatment design, unit treatment costs and national costs, model systems development, baseline estimates, and benefits analysis.

The 1996 amendments place a significant responsibility upon the Environmental Protection Agency (EPA) to realistically assess the capabilities of and resources available to those who could be affected as a result of any future drinking water rulemaking. Section 1412 (b) (3) (C) establishes requirements for health risk reduction and cost analysis under which quantifiable and non-quantifiable benefits of a proposed rule must be measured against its cost. Section 1412 (b) (6) addresses additional health risk reduction and cost considerations by allowing the Administrator in certain circumstances to set a contaminant level that maximizes health risk reduction benefits at a cost justified by the benefits. Sections 1415 and 1416 require EPA to look at costs and economic factors when considering whether or not to allow a variance or an exemption to a treatment requirement for a particular water system.
The 1996 amendments explicitly include cost-benefit analysis as part of the regulatory process, a change from earlier requirements The Agency's choice of regulatory levels was guided by statutory language requiring EPA to set Maximum Contaminant Levels (MCL) as close to the Maximum Contaminant Level Goal as is "feasible" [SDWA, Section 1412(b)(4)(B)], and defined feasible as the use of the best technology and treatment techniques examined for efficacy under field conditions, taking cost into consideration [SDWA, Section 1412(b)(4)(D)]. Under the Amendments, EPA, at the discretion of the Administrator, may now establish less stringent MCLs if the costs of achieving the lowest feasible level are not justified by its benefits. Additional information on the Safe Drinking Water Act may be found on EPA’s Safe Drinking Water site.

To make better estimates of regulatory costs (and benefits) EPA must take into consideration the diversity of water systems that make up the regulated drinking water community: from the smallest non-community water system (NCWS), such as a restaurant, to the largest urban surface water system. Clearly the multiple types of water systems will have highly divergent needs and methods of installing treatment, in addition to varying distributions of regulatory costs and benefits.

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Other Statutory Requirements

In addition to requirements for economic analysis imposed by the 1996 amendments to the Safe Drinking Water Act, other statutes contain additional requirements for such analysis. Preparation of an Economic Impact Assessment is required by the Regulatory Flexibility Act (RFA) and the Small Business Regulatory Enforcement Reform Act (SBREFA. In 1996, SBREFA amended the RFA to require EPA to convene a small business advocacy review panel prior to proposing any rule that will have a significant economic impact on a substantial number of small entities. Analysis to determine what constitutes “significant economic impact” must be based on a clear picture of the baseline characteristics of the water supply industry and its customers as they currently exist before the effects of new regulations can be calculated.

Similarly, the development of new regulations must take into account the requirements of the Unfunded Mandates Reform Act (UMRA), which was designed to avoid imposing unfunded federal mandates on state, local, and tribal governments, or the private sector. The analyses required by this law can only be conducted once the availability and size of existing state and local government resources are known.

The Paperwork Reduction act requires an assessment of the financial burden of any new regulation on both state and local entities. The time spent complying with a new regulation must be monetized to the extent possible, and must be factored into the total cost of a rule.

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General

EPA has used benefit-cost analysis for many years as one of several sources of information on the impacts of alternative policy choices. Traditionally, the cost side of the analysis includes estimating the expenditures needed to comply with new regulations (e.g., to install contaminant removal technologies) and determining the market effects of these expenditures (e.g., the cost increase to the household water bill). The benefits side of the analysis generally focuses on the effects of reducing exposure to contaminants, including effects on human health and the environment. In order to develop quantifiable estimates for these benefits and costs, many non-economic analyses need to be developed, such as methods for evaluating dose-response relationships for critical and noncritical effects. Also required are additional analyses of subgroups of the population that may be more sensitive than the general population to exposure to contaminants in drinking water.

The following sections describe, in more detail, some of the main components that EPA’s Office of Ground Water and Drinking Water uses in benefit-cost analyses for drinking water contaminants.

Data for Economic Analysis of Drinking Water Standards

Health Effects:

EPA’s framework for risk assessment provides detailed guidance on risk assessment and health effects evaluation. Health effects data, provided by health scientists and risk assessors, are used in identifying and quantifying health effects for a specific drinking water contaminant (e.g., estimating the number of avoided gastrointestinal illnesses from a cryptosporidium outbreak). Using the most current health effects data available is essential to accurately assessing the benefits of a proposed rule and is crucial to developing regulations that will protect human health.

Finished Water Occurrence:

Occurrence data for finished water are used in the quantification of benefits for drinking water standards by allowing the analyst to calculate a baseline of contaminant occurrence together with exposure data. EPA gathers data from States and individual water systems across the country for contaminant occurrence information.

Regulated Community (Water Systems) Baseline:

The Community Water System Survey (CWSS), conducted periodically by EPA, contains information on community supplies, such as the types of treatment in place, water production and design flow, the number and types of water sources, and water distribution and storage configurations. This information, along with the water system financial data collected, serves as a baseline against which the effects of newly proposed regulations can be measured. Non-community water systems are not included in this survey.

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Benefits

The benefits of regulatory action are reflected in improvements in human welfare. Equivalently, they represent the avoided damages or losses in welfare that humans would have experienced in the absence of regulatory action. For environmental regulations, EPA generally defines benefits as the impacts of reducing the emissions of pollutants into the environment. In the case of regulations that establish MCLs (or, when necessary, treatment technique requirements) for public drinking water systems, these benefits result largely from reducing the adverse effects of contamination on users of this water, both in community and non-community water systems. The most significant effects of these regulations are improvements in human health, but other types of benefits may also accrue (such as improved taste, reduced pipe corrosion; and a reduction of the need to boil water, buy bottled water, or purchase a filter)). However, these other benefits are not included in the benefit/cost comparison.
The benefits of regulatory action are reflected in improvements in human welfare. Equivalently, they represent the avoided damages or losses in welfare that humans would have experienced in the absence of regulatory action. These important categories of benefits often considered in the analysis qualitatively, due to the difficulty of quantification and data availability.

Human Health Improvements:

Foremost among the damages avoided by public water treatment are the human health problems associated with contaminants in drinking water. The illnesses caused by these contaminants can either be characterized according to general health effects and diseases, or they can be described by more specific health outcomes, including morbidity and mortality.
In performing economic analysis for potential drinking water standards, these health effects data are a crucial part of the benefits assessment process. Health effects data should include those for which there is the greatest amount of evidence linking contaminant exposure to the health effect. Data on dose-response relationships (the amount of a contaminant that may cause an adverse health effect), relative source contributions (the amount of a contaminant coming from sources other than water, such as food and air), mortality rates, duration and severity of illness data, distribution of risk (in the population and over time), and effects on sensitive sub-populations, such as children and older persons, all play a role in assessing the potential benefits of regulation.

For a more detailed discussion of benefits calculations in drinking water regulations consult:

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Costs

To make better estimates of regulatory costs, EPA must take into consideration the diversity of the regulated drinking water community: from the very smallest of non-community water systems (NCWS), to the largest urban water systems.
EPA has defined the "cost" side of the analysis as including estimates of the expenditures needed to comply with new regulations (e.g., of installing contaminant removal technologies) and of the market effects of these expenditures (e.g., annual household water bill increase). The economic analysis document for the Arsenic Rule provides a detailed example of how costs are calculated and used in the development of National Primary Drinking Water Rules (NPWDR). This example also utilizes some elements of the work breakdown structure unit cost modeling procedures that will be used in future drinking water rules. Other examples may be found under the “Helpful Links” title at the bottom of this page.

Role of Economic Models

In recent decades, economic considerations have played an increasing role in government decision making and policy setting. Since the 1996 amendments to the SDWA, the Office of Ground Water and Drinking Water has worked to further integrate the use of economic benefit and cost modeling into the regulatory process. Models can serve to provide decision makers with the best available information for use in setting contaminant standards that protect human health and the environment while minimizing the burden on the public.

Helpful links for Economic Analysis at EPA:

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Water Treatment Technology Cost Models

Federal laws and executive orders require EPA to estimate compliance costs for new drinking water standards. The three major components of compliance costs are treatment, monitoring and administrative costs. Treatment technologies remove or destroy pollutants such as arsenic, radon, disinfection byproducts and waterborne pathogens. To estimate treatment costs, EPA developed several engineering models using a bottom-up approach known as work breakdown structure (WBS). The WBS models derive system-level costs, and provide EPA with comprehensive, flexible and transparent tools to help estimate policy costs.

Each WBS engineering model contains a work breakdown for a particular treatment process. Engineering equations estimate equipment requirements given user-defined inputs such as design and average flow. Each model has many design assumptions, such as redundancy requirements, and provides unit cost and total cost information by component. The models also contain estimates of add-on costs (e.g., permits, pilot study and land acquisition), indirect capital costs (e.g., site work and contingency) and annual operation and maintenance costs.

WBS models use the following structural features to generate treatment costs:
TreatmentCost

The WBS models integrate these features into a series of worksheets in a Microsoft® Excel workbook for each technology. An input sheet allows users to define parameters such as system design and average flows, target contaminant and raw water quality. Critical design assumptions generally reflect engineering practices, but users can revise these values to reflect site-specific requirements.

General documentation for the WBS approach and common features may be found in the Work Breakdown Structure-Based Cost Models for Drinking Water Treatment Technologies (PDF) (145 pp, 2MB, About PDF).
Particularly useful sections of this report include:

  • Chapter. Introduction
  • Chapter 2. WBS Model Overview
  • Appendix A. Valves, Instrumentation and System Controls
  • Appendix B. Building Construction Costs
  • Appendix C. Residuals Management Costs
  • Appendix D. Indirect Capital Costs.
WBS cost models are available to the public for the following treatment technologies:
  • Granular Activated Carbon (GAC) (XLSM) (919K) is a porous adsorptive media that is useful for the removal of taste and odor compounds, natural organic matter, volatile organic compounds, synthetic organic compounds, disinfection byproduct precursors and radon.

  • Packed Tower Aeration (PTA) (XLSM) (720K) uses towers filled with a packing media to mechanically increase the area of water exposed to non-contaminated air. PTA reduces the concentration of volatile contaminants including volatile organic compounds, disinfection byproducts, radon gas, hydrogen sulfide, carbon dioxide and other taste-and-odor-producing compounds.

  • Multi-Stage Bubble Aeration (MSBA) (XLSM) (468K) uses basins and diffusers to release small air bubbles, which cause volatile contaminants to pass from the water into the air. MSBA removes volatile organic compounds or radon gas from source water, and improves the taste and odor of the water.
See the technology overview tab for each of the above treatment technologies, which provides a general description, advantages, disadvantages and WBS model approach.

Granular Activated Carbon

What is Granular Activated Carbon?
Granular activated carbon (GAC) is a porous adsorptive media with extremely high internal surface area. GACs are manufactured from a variety of raw materials with porous structures including bituminous coal, lignite coal, peat, wood, coconut shells and others. Physical and/or chemical manufacturing processes are applied to these raw materials to create and/or enlarge pores, resulting in a porous structure with a large surface area per unit mass.

Why is it useful?
GAC is useful for the removal of taste- and odor-producing compounds, natural organic matter, volatile organic compounds (VOCs), synthetic organic compounds, disinfection byproduct precursors and radon. Organic compounds with high molecular weights are readily adsorbable. Treatment capacities for different contaminants vary depending on the properties of the different GACs, which in turn vary widely depending on the raw materials and manufacturing processes used.

What are the advantages of using GAC?
GAC is a proven technology with high removal efficiencies (up to 99.9%) for many VOCs, including trichloroethylene (TCE) and tetrachloroethylene (PCE). In most cases, GAC can remove target contaminants to concentrations below 1 µg/l. Another advantage is that regenerative carbon beds allow for easy recovery of the adsorptive media.

What are the disadvantages of using GAC?
The media has to be removed and replaced or regenerated when GAC capacity is exhausted. In some cases, disposal of the media may require a special hazardous waste handling permit. Other adsorbable contaminants in the water can reduce GAC capacity for a target contaminant.

How can the WBS model for GAC be used?
The work breakdown structure (WBS) model can estimate costs for two types of GAC systems: 
  1. Systems where the GAC bed is contained in pressure vessels in a treatment configuration similar to that used for other adsorptive media (e.g., activated alumina), referred to as “pressure GAC”
  2. Systems where the GAC bed is contained in open concrete basins in a treatment configuration similar to that used in the filtration step of conventional or direct filtration, referred to as “gravity GAC.”
The WBS model for GAC includes standard designs to estimate costs for treatment of a number of different contaminants, including atrazine, radon and various VOCs. However, the WBS model can be used to estimate the cost of GAC treatment for removal of other contaminants as well. To simulate the use of GAC for treatment of other contaminants, users will need to adjust default inputs (e.g., bed volumes before breakthrough, bed depth) and potentially, critical design assumptions (e.g., minimum and maximum loading rates).

Where can I find more information on GAC?
Chapter 3 of the technical report Work Breakdown Structure-Based Cost Models for Drinking Water Treatment Technologies discusses GAC technology in detail.

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Packed Tower Aeration

What is Packed Tower Aeration?
Aeration processes, in general, transfer contaminants from water to air. Packed tower aeration (PTA) uses towers filled with a packing media designed to mechanically increase the area of water exposed to non-contaminated air. Water falls from the top of the tower through the packing media while a blower forces air upwards through the tower. In the process, volatile contaminants pass from the water into the air.

Why is it useful?
PTA is useful for removing volatile contaminants, including volatile organic compounds (VOCs), disinfection byproducts, radon gas, hydrogen sulfide, carbon dioxide and other taste- and odor-producing compounds. The more volatile the contaminant, the more easily PTA will remove it. PTA readily removes the most volatile contaminants, such as radon and vinyl chloride. With sufficient tower height and air flow, PTA can even remove somewhat less volatile contaminants, such as 1,2-dichloroethane.

What are the advantages of using PTA?

PTA is a proven technology and can achieve high removal efficiencies (99 percent or greater) for most VOCs. PTA removal efficiency is independent of starting concentration and, therefore, can remove most volatile contaminants to concentrations below 1 µg/l. PTA generates no liquid or solid waste residuals for disposal.

What are the disadvantages of using PTA?
Depending on the location and conditions, air quality regulations might require the use of air pollution control devices with PTA, increasing the technology cost. PTA uses tall towers that could be considered unsightly in some communities. Under certain water quality conditions, scaling or fouling of the packing media can occur if precautions are not taken.

How can the WBS model for PTA be used?
The work breakdown structure (WBS) model for PTA includes standard designs to estimate costs for treatment of a number of different contaminants, including methyl tertiary-butyl ether (MTBE), radon and various VOCs. However, the WBS model can be used to estimate the cost of PTA treatment for removal of other contaminants as well. To simulate the use of PTA for treatment of other contaminants, users will need to adjust default inputs (e.g., Henry’s coefficient, molecular weight) and, potentially, critical design assumptions (e.g., minimum and maximum packing height).

Where can I find more information on PTA?
Chapter 4 of the technical report Work Breakdown Structure-Based Cost Models for Drinking Water Treatment Technologies discusses PTA technology in detail.

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Multi-Stage Bubble Aeration

What is Multi-Stage Bubble Aeration?
Aeration processes, in general, transfer contaminants from water to air. Multi-stage bubble aeration (MSBA) uses shallow basins that are divided into smaller compartments, or “stages,” using baffles. Inside each stage, diffusers (consisting of perforated pipes or porous plates) release small air bubbles that rise through the water. The bubbles and their resulting turbulence cause volatile contaminants to pass from the water into the air.

Why is it useful?
MSBA is useful for removing volatile contaminants, including volatile organic compounds (VOCs), radon gas, hydrogen sulfide, carbon dioxide and other taste- and odor-producing compounds. The more volatile the contaminant, the more easily MSBA will remove it. Vendors supply MSBA in skid-mounted, pre-packaged systems that can be particularly suitable for small systems.

What are the advantages of using MSBA?
MSBA is a proven technology. In recent EPA pilot tests, MSBA achieved high removal efficiencies (98 percent to greater than 99 percent) for most VOCs, removing them to concentrations below 1 µg/l. MSBA is a “low-profile” aeration technology that does not require tall, potentially unsightly towers. MSBA generates no liquid or solid waste residuals for disposal.

What are the disadvantages of using MSBA?
Depending on the location and conditions, air quality regulations might require the use of air pollution control devices with MSBA, increasing the technology cost. MSBA is less efficient at removing contaminants than packed tower aeration, requiring high air flow rates to remove the most recalcitrant VOCs. Treating large water flows with MSBA can require a large number of basins, which might not be practical for large systems.

How can the WBS model for MSBA be used?
The work breakdown structure (WBS) model for MSBA model includes standard designs for the treatment of a number of contaminants, including radon and various VOCs. However, the WBS model can be used to estimate the cost of MSBA treatment for removal of other volatile contaminants as well. To simulate the use of MSBA for treatment of other contaminants, users will need to adjust default inputs (e.g., air-to-water ratio, number of stages) and potentially, critical design assumptions (e.g., maximum air surface intensity).

Where can I find more information on MSBA?
Chapter 5 of the technical report Work Breakdown Structure-Based Cost Models for Drinking Water Treatment Technologies discusses MSBA technology in detail.

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