Drinking Water
Revisions to EPA's Cost Analysis for the Radon Rule Would Improve Its Credibility and Usefulness Gao ID: GAO-02-333 February 22, 2002The Safe Drinking Water Act requires the Environmental Protection Agency (EPA) to set a drinking water standard for radon. In a proposed rule issued in November 1999, EPA presented a unique and complex drinking water regulation for radon. GAO found that EPA's analysis of the costs to implement the proposed radon rule has several strengths. EPA's estimates of the typical costs for water systems to buy and install radon removal technologies--a key determinant of total national costs--are reasonable for estimating national compliance costs. Moreover, EPA used recommendations from an expert panel to estimate the costs to install and maintain radon removal equipment. EPA also developed a range of annual cost estimates, rather than a single estimate, to account for uncertainty about the extent to which the less costly alternative standard will be adopted by states. EPA's analysis of the national annual costs to comply with its proposed radon drinking water rule has several limitations that, if corrected, would likely increase EPA's best estimate of these costs. EPA made two errors in estimating the various costs associated with programs to reduce radon levels in indoor air under the alternative standard--one that understated radon testing and mitigation costs by $37 million and another that overstated administrative costs by $31 million--resulting in a combined understatement of costs by $6 million. In addition, EPA's exclusion of "mixed" water systems, which use a mix of groundwater and surface water sources, effectively understated compliance costs by about $17 million.
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Director: Team: Phone:GAO-02-333, Drinking Water: Revisions to EPA's Cost Analysis for the Radon Rule Would Improve Its Credibility and Usefulness
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Radon Rule Would Improve Its Credibility and Usefulness' which was
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United States General Accounting Office:
GAO:
Report to Congressional Committees:
February 2002:
Drinking Water:
Revisions to EPA‘s Cost Analysis for the Radon Rule Would Improve Its
Credibility and Usefulness:
GAO-02-333:
Contents:
Letter:
Results in Brief:
Background:
EPA‘s Cost Analysis Has a Number of Strengths:
Limitations of EPA‘s Cost Analysis Reduce Its Credibility and
Usefulness:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Scope and Methodology:
Appendix I: Adjustments to EPA‘s Best Estimates of Total National Costs
to Address Limitations in EPA‘s Economic Analysis:
Appendix II: GAO Contact and Staff Acknowledgments:
[End of section]
United States General Accounting Office:
Washington, DC 20548:
February 22, 2002:
The Honorable James T. Walsh:;
Chairman:
The Honorable Alan B. Mollohan:
Ranking Minority Member:
Subcommittee on VA, HUD, and Independent Agencies:
Committee on Appropriations:
House of Representatives:
The Honorable Barbara A. Mikulski:
Chairman:
The Honorable Christopher S. Bond:
Ranking Minority Member:
Subcommittee on VA, HUD, and Independent Agencies:
Committee on Appropriations:
United States Senate:
The National Academy of Sciences has estimated that about 20,000 lung
cancer deaths occur in the United States each year from exposures to
radon, a naturally occurring radioactive gas found in soil, rock
formations, and water. The vast majority of these deaths result from
the inhalation of radon that has been released to indoor air from soil
beneath homes. However, about 160 of these deaths are estimated to stem
from inhalation of radon that has evaporated from drinking water. The
Safe Drinking Water Act, as amended, mandates that the Environmental
Protection Agency (EPA) issue a regulation setting a drinking water
standard for radon. In setting the standard, EPA must, among other
things, consider the costs and benefits of control programs for radon
from other sources, such as air. While EPA does not directly regulate
radon in indoor air,[Footnote 1] the Safe Drinking Water Act authorizes
EPA to set a drinking water standard that allows states and water
systems to offset high radon levels in drinking water with reductions
of radon levels in indoor air.
In a proposed rule issued in November 1999, EPA presented a unique and
complex drinking water regulation that used the framework for regulating
radon specified in the Safe Drinking Water Act. Under the proposed
radon rule, states and water systems could, for the first time, choose
one of two different standards, or limits, for a drinking water
contaminant. The first standard reflects the typical regulatory
approach under the Safe Drinking Water Act”that is, it imposes a health-
based limit on the level of radon in drinking water and requires water
systems to provide drinking water that does not exceed the limit. The
second standard, called the alternative standard, allows considerably
higher levels of radon in drinking water, but may be used only when an
EPA-approved program to reduce radon in indoor air is also implemented.
The alternative standard allows higher levels of radon in drinking
water because the associated health risks are offset by reduced
exposure to radon in indoor air. EPA believes that the most cost-
effective approach to reducing the health risks associated with radon
in water is to use the alternative standard, along with a program to
reduce radon levels in indoor air.
EPA estimated that the benefits of its proposed rule”consisting almost
entirely of reduced cancer deaths”would be worth $362 million annually.
EPA estimated that the annual cost of implementing the rule would range
from $60 million to $408 million, with $121 million as EPA‘s best
estimate.[Footnote 2] EPA‘s cost estimates are designed to reflect the
typical costs that water systems would incur to monitor water and
install treatment technologies, when needed, to comply with the
regulation. The estimates also reflect the administrative costs that
states and water systems would incur to implement programs encouraging
homeowners to reduce radon in indoor air and homeowners‘ costs to do
so. As of February 2002, EPA has not yet developed a schedule for
issuing the final rule.
Citing the significant financial implications of the 1999 proposed
rule, the conference report accompanying EPA‘s fiscal year 2001
appropriations act directed us to report on the financial impacts of
the proposed radon rule and encouraged EPA to consider our findings
prior to finalizing the rule. As agreed with your offices, this report
identifies the (1) strengths and (2) limitations of EPA‘s cost analysis
for the proposed rule. Because the scope of our review was limited to
EPA‘s cost analysis, we did not evaluate EPA‘s analysis supporting the
benefits the agency expects the proposed rule to provide. EPA officials
said the agency plans to revise its estimate of the benefits in the
final rule.
Results in Brief:
EPA‘s analysis of the costs to implement the proposed radon rule has a
number of strengths. First, EPA‘s estimates of the typical costs for
water systems to purchase and install radon removal technologies”a key
determinant of total national costs”are reasonable for estimating
national compliance costs. Most of the radon removal technologies that
EPA‘s cost analysis assumes will be used most frequently are already
being used by a number of water systems across the country to remove
radon and other contaminants, and EPA‘s cost estimates are generally
within the ranges of costs reported in case studies on these
technologies. Other strengths of the analysis include EPA‘s (1) use of
recommendations from an expert panel in estimating water systems‘ costs
for construction, engineering, and labor needed to install and maintain
radon removal equipment and (2) development of a range of annual cost
estimates, rather than a single estimate, to account for uncertainty
about the extent to which the less costly alternative standard will be
adopted by states.
EPA‘s analysis of the national annual costs of complying with its
proposed radon drinking water rule has several limitations that, if
corrected, would likely increase EPA‘s best estimate of these costs.
Specifically, EPA:
* made two errors in estimating the various costs associated with
programs to reduce radon levels in indoor air under the alternative
standard”one that understated radon testing and mitigation costs by
about $37 million and another that overstated administrative costs by
about $31 million” resulting in a combined understatement of costs by
about $6 million; and;
* excluded from its analysis ’mixed“ water systems, which use a mix of
groundwater and surface water sources, effectively understating
compliance costs by approximately $17 million.
Correcting these errors and including the mixed water systems alone
would increase EPA‘s estimate by about 20 percent, from about $121
million to about $145 million (see appendix I). Other aspects of EPA‘s
analysis may have further understated total compliance costs, although
by an unknown amount. For example, EPA assumed that more water systems
than suggested by some evidence would choose the less-costly
alternative standard. In addition, EPA may have insufficiently
considered potential costs faced by water systems to alleviate concerns
about the use of water treatment technologies that would vent radon
near homes, schools, or other population centers. Further, EPA‘s cost
analysis reflects inadequate quality assurance, does not consistently
comply with EPA‘s guidelines calling for clarity and transparency in
presenting economic analyses, and includes a number of inaccuracies.
For example, the economic analysis contains inconsistent and inaccurate
information about an important cost factor as well as unclear or
conflicting information about the responsibility for certain costs, and
it omits assumptions underlying a key cost determinant. EPA has taken
steps to improve the agency‘s quality assurance process, but it is not
clear that these steps will be sufficient to identify and correct
deficiencies like those we found.
Because of the limitations we identified, we are making several
recommendations aimed at improving EPA‘s cost analysis for the radon
rule and its economic analyses in general. In commenting on a draft of
this report, EPA officials from the Offices of Water; Air and
Radiation; and Policy, Economics, and Innovation generally agreed with
our findings and recommendations, providing some technical and
editorial suggestions that we have incorporated into the report, as
appropriate. However, while agreeing that the proposed rule contained
the errors and other inaccuracies we identified, the Office of Water
did not agree that an effect of these errors was reduced credibility of
EPA‘s cost analysis. While our report identifies a number of strengths
of the cost analysis, these strengths do not offset or negate the
effects of the errors and inaccuracies we found. We continue to believe
that, collectively, the limitations we identified reduced both the
credibility and usefulness of the cost analysis for the radon rule.
Background:
The majority of the estimated cancer deaths in the United States
associated with radon are related to the inhalation of radon in outdoor
or indoor air. Specifically, the National Academy of Sciences has
estimated that about 700 deaths occur from inhaling radon in outdoor
air and more than 19,000 deaths occur each year from inhaling radon in
indoor air.[Footnote 3] Some radon in indoor air is derived from the
evaporation of drinking water, and the academy estimated that about 160
of these 19,000 deaths are associated with such releases. In addition,
the academy estimated that consumption of drinking water containing
radon causes about 23 deaths from stomach cancer each year. EPA relied
on the academy‘s estimates of radon health risks in developing the
proposed rule on radon in drinking water.
EPA‘s proposed radon rule applies to water systems that include only
groundwater and those that include both ground and surface water
(rivers and lakes), referred to as mixed systems.[Footnote 4] Radon is
usually present in only negligible amounts in surface water because
this water is exposed to the air and the radon in it will tend to be
released to the air. Groundwater originating in underground aquifers is
not similarly exposed to air. As a result, high levels of radon are
sometimes found in groundwater that collects and flows under the
earth‘s surface. Radon levels in groundwater vary across the country,
with the highest levels in New England and the Appalachian uplands of
the Middle Atlantic and Southeastern states. There are also isolated
areas in the Rocky Mountains, California, Texas, and the upper midwest
where radon levels tend to be higher than the U.S. average. According
to EPA, at the state level, high levels of radon in drinking water can
occur in areas with low levels of radon in the soil (thus low levels in
indoor air) and vice versa.
1996 Safe Drinking Water Amendments Require EPA to Establish a Radon
Standard:
Under the Safe Drinking Water Act, EPA sets health-based, legally
enforceable standards limiting the level of drinking water contaminants
that can adversely affect public health. In developing a standard, EPA
establishes a health-based goal at a level that causes no known or
anticipated adverse health effects and that allows an ’adequate margin
of safety.“ If a contaminant, such as radon, is likely to cause cancer,
EPA generally sets the goal at zero. After setting the goal, EPA
typically issues a regulation establishing an enforceable standard,
called a maximum contaminant level, that is as close to the health-
based goal as is feasible, considering the available technology,
treatment techniques, and costs. Under the 1996 amendments, when
proposing a standard, EPA is also required to perform an economic
analysis to determine whether the benefits of the standard justify the
costs. If the benefits do not appear to be justified, EPA may adjust
the standard to a level that ’maximizes health risk reduction benefits
at a cost that is justified by the benefits.“
The 1996 amendments also included a number of provisions specific to a
radon standard. First, the amendments required EPA to withdraw its 1991
proposed rule on radon. Before issuing a new proposed rule on radon,
EPA was required to obtain from the National Academy of Sciences an
assessment of the health risks from radon in drinking water and arrange
for the academy to assess the health risk reduction benefits from
various measures to reduce radon levels in indoor air. In addition, EPA
was also required to (1) publish and seek public comment on its
analyses of the costs and health risk reduction benefits for standards
being considered for radon in drinking water and (2) respond to all
significant public comments received on the analyses in the preamble
for the proposed rule. In setting a radon standard for drinking water,
EPA was also required, under the amendments, to consider the costs and
benefits of programs to reduce radon exposures from other sources, such
as indoor air.
The amendments specified that if the drinking water standard is more
stringent than necessary to reduce the concentration of radon in indoor
air from drinking water to a level equivalent to the national average
concentration of radon found in outdoor air, then EPA must also
promulgate an alternative standard (alternative maximum contaminant
level). The alternative standard must be set at a level that would
result in a concentration of radon in indoor air from drinking water
equivalent to the national average concentration of radon in outdoor
air. The alternative standard would allow more radon in drinking water
than the more stringent standard. To offset the higher level, the water
systems that use the alternative standard must be covered by an EPA-
approved program to reduce radon in indoor air. Such a program could be
managed by either states or water systems. To be approved, a program‘s
expected health risk reduction benefits must be equal to or greater
than the health risk reduction benefits that would result from
compliance with the more stringent standard for radon in drinking
water. Finally, the 1996 amendments required EPA to propose a new radon
rule in 1999 and to promulgate it within 12 months. EPA issued the
proposed rule in 1999. As of February 2002, EPA has not yet developed a
schedule for issuing a final rule.
EPA Developed a Proposed Radon Rule and a Supporting Economic Analysis:
In developing the proposed rule, EPA obtained and relied on assessments
conducted by the National Academy of Sciences and issued its economic
analysis for public comment in February 1999.5 When EPA issued the
proposed radon rule in November 1999, it set the health goal at zero,
proposed a standard of 300 picocuries per liter of water, and proposed
an alternative standard of 4,000 picocuries per liter to be used in
conjunction with state or water system programs that reduce radon in
indoor air.[Footnote 6]
In the economic analysis supporting the proposed radon rule, EPA
indicated that 46 percent of the 40,863 groundwater systems that would
be subject to the rule would, in the absence of any additional
treatment, exceed the standard of 300 picocuries. (The majority of
these water systems serve 500 or fewer customers.[Footnote 7]) Further,
EPA estimated that if these systems had to comply with the more
stringent standard, the systems would incur costs of about $2.5 billion
to purchase and install radon treatment technologies, or about $233
million each year for 20 years. EPA estimated that the total annual
cost of the rule would be about $408 million,[Footnote 8] as follows:
* $233 million to purchase and install radon treatment technologies,
* $152 million to operate and maintain the treatment technologies,
* $14 million to monitor water for radon,
* $6 million to administer these activities, and,
* $2.5 million for states to oversee the water systems.
However, EPA estimated that the vast majority of water systems would
not incur any water treatment costs because they would be subject to
the alternative standard of 4,000 picocuries. EPA estimated that only
about 4 percent of water systems subject to the rule have radon levels
in excess of the alternative standard. EPA provided lower-bound, best,
and upper-bound cost estimates that reflect varying assumptions about
the proportion of states and local water systems that would choose the
alternative standard and thus implement programs to reduce radon levels
in indoor air, as follows:
* EPA‘s upper-bound estimate of $408 million annually assumed that all
water systems would be subject to the more stringent water standard.
* EPA‘s best estimate of $121 million annually assumed that about two-
thirds of water systems would be subject to the less stringent
alternative standard.
* EPA‘s lower-bound estimate of $60 million annually assumed that about
97 percent of water systems would be subject to the less stringent
alternative standard.
The benefits that EPA estimates would be provided by the proposed rule”
$362 million annually”are the same under all the scenarios, differing
only in the extent to which the lives are saved because of water
treatment versus reductions of radon in indoor air. Considering these
costs and benefits, along with more subjective benefits and costs that
EPA did not quantify,[Footnote 9] EPA determined that the costs of the
proposed rule were justified by the benefits. EPA stated that in making
this determination, the agency also considered that costs would be
substantially less than $408 million annually if most states implement
indoor air programs, allowing water systems to comply with the less
stringent water standard. Regarding the benefits, we note that EPA‘s
estimates of future benefits in the proposed rule were not discounted
(reduced) to present value, although the cost of purchasing and
installing radon equipment was appropriately discounted. According to
EPA officials, EPA will discount the benefits in the final rule in
response to recommendations from the Science Advisory Board.
EPA‘s Guidelines for Preparing Economic Analyses highlight the
importance of economic analyses in making informed policy choices and
specify criteria for effective presentation of economic analyses, such
as the cost analysis supporting EPA‘s proposed radon rule.[Footnote 10]
Primary criteria include clarity and transparency of all aspects of the
analyses and descriptions of all important data sources, key
assumptions, and their justifications. In addition, EPA‘s Office of
Water has a quality management plan to guide its quality assurance and
control activities, specifying which types of such activities are
necessary and the various procedures for conducting quality reviews.
The quality assurance elements include internal peer review, external
peer review, external agency review, and stakeholder meetings, among
other measures.
EPA‘s Cost Analysis Has a Number of Strengths:
EPA‘s cost analysis has a number of strengths. First, and most
importantly, the estimates of the typical costs for a water system to
remove radon are reasonable for the purpose of estimating the rule‘s
national costs. The estimates of typical costs are for currently used
technologies whose effectiveness is generally known and for which
published cost data are available. Moreover, these estimates have been
improved by input from a blue ribbon panel of drinking water and cost
experts and other stakeholders. Further, while some concerned parties
questioned several of EPA‘s assumptions on water treatment issues”such
as the extent to which water systems would have to address certain
water quality issues and how they would be addressed”our review
indicated that EPA generally had a reasonable basis for its
assumptions. Another strength of the analysis is that EPA estimated a
range of costs to account for uncertainty about the approach that
states will use to comply with the rule.
EPA‘s Estimates of Typical Costs for Water Treatment Are Reasonable for
Estimating National Costs:
EPA‘s estimates of the typical costs for water systems to purchase,
install, and operate radon removal technologies”a key determinant of
total national costs to implement the proposed rule”are reasonable for
use in estimating national compliance costs. To estimate the typical
costs for a system to remove radon from drinking water, EPA generally
assumed the use of aeration technologies that have been commonly used
by water systems to remove radon and other contaminants, such as
volatile organic compounds.[Footnote 11] EPA estimated radon removal
costs for eight size categories of water systems, ranging from those
that serve between 25 to 100 people to those serving between 100,000
and 1 million people. EPA‘s cost estimates for systems to purchase and
install treatment technologies ranged from about $45,000 for the
smallest systems to more than $6 million for the largest”or about
$4,200 to $580,000 per year for 20 years. In addition, EPA estimated
operations and maintenance costs ranging from about $3,600 per year for
the smallest systems to about $440,000 for the largest.
Information on the cost of installing aeration technologies is
available in published case studies, which EPA used to cross-check its
estimates. For example, in 1998, the American Water Works Association
published a guide for water utilities to use for evaluating and
selecting radon treatment technologies that includes construction cost
information for 33 water treatment sites, including 12 very small
facilities, and performance information for most of the sites. EPA‘s
technology cost estimates are generally within the ranges of costs
identified in this and in other case studies. Such data are not always
available to inform regulatory cost estimates. For example, in
estimating costs for its arsenic rule, EPA had to rely on more limited
data because some of the technologies for removing arsenic from
drinking water are not commonly used.
Moreover, EPA‘s estimates of the typical costs for a water system to
remove radon have benefited from the recommendations of an expert panel
of water design and cost engineers from utilities, state and federal
agencies, consulting firms, and public utility regulatory commissions.
Following the reauthorization of the Safe Drinking Water Act, EPA
convened the panel to help improve the accuracy of the agency‘s cost
estimates for all drinking water regulations. EPA‘s cost analysis for
the radon rule relies on the panel‘s recommendations in estimating a
water system‘s cost for construction, engineering, and labor needed to
install and maintain radon removal equipment. For example, based on the
panel‘s recommendations, EPA increased its estimates of the labor costs
to operate and maintain such equipment to include not only base
salaries but also fringe and other benefits.[Footnote 12]
In addition, EPA incorporated advice from other stakeholders in
developing its estimates. For example, in response to comments that its
initial estimates were not adequate, EPA increased its radon technology
costs for pumps and blowers needed to operate aeration equipment.
Although some stakeholders said that EPA did not increase its
technology cost estimates sufficiently, our analysis of the key issues
they raised indicates that EPA generally used reasonable assumptions in
developing its estimates, as the following examples show.
* Some parties commented that EPA did not include adequate costs for
water systems to remove iron and manganese from water. These parties
said that water systems would, in many cases, need to remove iron and
manganese from their water before it is aerated so as not to damage the
aeration equipment. However, EPA assumed that water systems that need
to treat for iron and manganese would generally be able to add
chemicals to neutralize these elements, which is less expensive than
removing them. Based on estimates of the number of water systems with
elevated levels of iron and manganese, EPA included costs for 25
percent of small systems (systems serving fewer than 10,000 people) and
15 percent of large systems (systems serving more than 10,000 people).
In addition, EPA assumed that systems with levels of iron and manganese
too high for chemical neutralization would already be removing these
elements because high levels of these elements result in unacceptable
discoloration of water. Because these removal costs would not be
incurred as a result of the radon rule, EPA‘s cost estimates do not
include them. We believe that EPA‘s assumptions are reasonable for the
purpose of estimating national costs.
* Some parties commented that EPA did not include adequate costs for
water systems to disinfect water that might be contaminated by microbes
during aeration. For example, a stakeholder said that the cost
estimates may be understated for clearwells”wells or tanks that are
needed to hold water so that it can be disinfected. This comment
stemmed from two conflicting sets of cost estimates for clearwells, one
much higher than the other, which EPA included in a supporting report
on technology costs. EPA used the lower estimates in its cost analysis.
EPA officials told us that the higher estimates were incorrect and were
inadvertently included in the supporting report and that the lower
estimates”generated by EPA‘s cost model for aeration technologies”were
correct. The lower estimates are consistent with EPA‘s guidance manual
for disinfecting drinking water and incorporate best engineering
judgment.[Footnote 13] We note that national costs for clearwells may
be overstated because EPA included these costs for all systems that add
radon treatment. However, as case studies show, a number of systems
(particularly those that already disinfect their water) will be able to
use existing clearwells.
* A stakeholder commented that EPA did not include adequate costs to
address the increased corrosiveness of water resulting from aeration.
We believe, however, that EPA‘s addition of such costs for a small
portion of water systems is appropriate based on information from the
National Academy of Sciences and case studies indicating that aeration
does not generally increase the corrosiveness of water.
* A stakeholder commented that EPA might have understated treatment
costs for large water systems because it underestimated the number of
treatment sites at these systems. Underestimating the number of
treatment sites that potentially need to have radon treatment
technologies would understate costs because costs increase as the
number of sites needing radon treatment increases. In its cost
analysis, EPA estimated that there were an average of 13.1 treatment
sites for groundwater systems serving between 100,000 and 1,000,000
customers.[Footnote 14] In contrast, the stakeholder commented that its
survey of water systems serving over 100,000 customers indicated the
correct number of average treatment sites would be 23.8. We believe,
however, that EPA‘s estimate was adequately supported, based on our
review of EPA‘s assumptions and data as well as the information
provided by the stakeholder. For example, the stakeholder‘s estimate of
23.8 sites included systems serving more than 1,000,000 customers and
therefore was not directly comparable to EPA‘s estimate. When, as part
of our review, the stakeholder provided us with an estimate that was
consistent with EPA‘s size categories, the estimate was 14.7”a number
reasonably close to EPA‘s estimate of 13.1. Further, our limited review
of the stakeholder‘s data indicates that such data would need to be
evaluated for accuracy and representativeness. Specifically, in
reviewing information about 4 of the 102 survey respondents, we found
that an entity identified as having 650 sites”an atypically high number
[Footnote 15]” was incorrectly classified as a single system. This
entity represents a number of affiliated water districts of varying
sizes in different locations, each with its own rate structure. The
stakeholder acknowledged that these water districts should have been
analyzed as individual water systems, not aggregated into one system.
[Footnote 16]
In finding that EPA‘s technology cost estimates are appropriate for
estimating national costs, we recognize that some systems would incur
higher costs than EPA estimates and others would incur lower costs.
Costs for individual water systems”even those of similar size”would
vary depending on factors such as the technologies selected and the
site-specific conditions, including water quality and management
skills. EPA‘s estimates should not be interpreted as being
representative of the individual decisions that thousands of water
systems will make on the basis of their unique circumstances.
EPA Supported Its Assumption about States‘ Compliance with the Rule:
In developing its best estimate of total national costs for the rule,
EPA assumed that 50 percent of states would implement EPA-approved
indoor air programs that have expected health risk reduction benefits
equal to or greater than the benefits that would result from compliance
with the more stringent drinking water standard. As a result, the vast
majority of local water systems in those states would not have to
mitigate radon levels in drinking water because only those with radon
levels in excess of 4,000 picocuries (the alternative standard) would
have to reduce the radon in the water.[Footnote 17] EPA‘s assumption
was supported by the results of a survey of state indoor air and
drinking water officials conducted by the American Water Works
Association.[Footnote 18] Fifty percent of the survey respondents
indicated that they probably would adopt the indoor air option, and 9
percent indicated that they definitely would.
EPA‘s assumption about the decisions states would make is also
supported by extensive discussions between EPA and state
representatives and recognizes the potential difficulties that may
dissuade some states from implementing the option. Most states already
conduct indoor air programs for radon. To comply with the proposed
rule, states would have to upgrade their existing programs by setting
quantitative risk reduction goals, reporting on progress toward those
goals, and allowing for extensive public participation in developing
the indoor air programs. According to EPA, program officials from many
states believe they would be able to comply with these requirements
without too much difficulty. Furthermore, officials from many states
believe that it makes good public health sense to mitigate radon levels
through indoor air, rather than water, because indoor air risks are
much higher than drinking water risks and indoor air mitigation is more
cost-effective. However, other states are not inclined to use the
indoor air option to comply with the rule because of concerns about
potential public relations problems that could arise because of
different protections people will receive, depending upon where they
live. Specifically, the executive director of the Association of State
Drinking Water Administrators told us that states are greatly concerned
about explaining to the public that the same level of radon in drinking
water is safe in some states but unsafe in others, depending on whether
the state adopted the indoor air option. She stated that trading the
drinking water risks of the community for the indoor air risks of
relatively few residents would cause substantial public confusion.
Similarly, the National Academy of Sciences stated that concerns
regarding the equity of risk trading ’might ultimately constitute the
deciding factor“ in whether the air mitigation option is undertaken. A
program official from one state told us that her state would likely not
adopt the air mitigation option partially because the unequal treatment
of radon risks could lead to court cases.
Nonetheless, according to EPA officials, their estimate that 50 percent
of the states would upgrade their indoor air programs to comply with
the radon drinking water rule may be conservative. These officials told
us that after several workshops EPA held with the states in late 2000,
nearly two-thirds of the state program managers indicated that they
would likely adopt the indoor air option. However, an EPA official
acknowledged that some state program managers that favor the program
may not be the ones making this decision, and therefore some of these
’likely“ states may not adopt the program. This recognition
corroborates a potential impediment that program officials from some
states had discussed with us”that is, adopting the indoor air option
could be subject to the approval of the legislature or the governor. As
a result, the decisions of the state program managers may be subject to
political processes, the outcomes of which cannot be certain. Overall,
we believe that EPA had a reasonable and supported basis for its
assumption, reflected in its best estimate of costs, that 50 percent of
states would choose the indoor air option, as the assumption reflects
the potential disincentives that could prevent some states from
participating.
EPA‘s Estimates Include a Range of Costs to Account for Uncertainty
about How States Would Choose to Comply with the Rule:
Another strength of EPA‘s cost analysis for the proposed radon rule is
that it provided a range of national annual compliance costs to address
the uncertainty about how states would choose to comply with the rule.
EPA‘s designation of a range helps decisionmakers and the public
understand how costs could vary depending on how the rule is
implemented, and it is consistent with EPA‘s guidelines for preparing
economic analyses, as well as with guidance issued by the Office of
Management and Budget in 2000. Because it is generally less costly to
reduce radon risks in indoor air than in drinking water, the estimated
costs of compliance with the radon rule are lower when more states are
assumed to implement indoor air programs. Reflecting a range of
potential responses, EPA‘s cost estimates range from $60 million to
$408 million per year.[Footnote 19] EPA designated $121 million as its
best, or most likely, estimate of annual costs.
Limitations of EPA‘s Cost Analysis Reduce Its Credibility and
Usefulness:
EPA‘s analysis of the national annual cost of complying with its
proposed radon drinking water rule has several limitations that, if
corrected, would likely increase EPA‘s best estimate of national costs.
Specifically, EPA made two errors in estimating the annual costs
associated with programs to reduce radon levels in indoor air under the
alternative standard”one that understated radon testing and treatment
costs by about $37 million and another that overstated administrative
costs by about $31 million. Correcting the two errors would increase
EPA‘s best estimate of national annual costs for the proposed rule by
about $6 million. In addition, EPA excluded from its analysis mixed
water systems”those that get their water from a mix of both groundwater
and surface water sources”which effectively understates compliance
costs by approximately $17 million. Correcting these errors and
including the mixed water systems alone would increase EPA‘s estimate
by about 20 percent, from about $121 million to about $145 million.
Other aspects of EPA‘s analysis may have underestimated total
compliance costs, although by an unknown amount. Specifically, EPA:
* assumed that more water systems than suggested by some evidence would
choose the less-costly alternative standard and;
* insufficiently considered potential costs faced by water systems that
remove radon from water using aeration facilities”which vent the radon
to the outside air”located near homes, schools, or other population
centers.
Further, EPA‘s cost analysis reflects a lack of quality assurance in
certain important respects. For example, the analysis contains
inconsistent and inaccurate information about an important cost factor
and unclear or conflicting information about the responsibility for
certain costs, and omits the assumptions underlying a key cost
determinant. EPA has taken steps to improve its quality assurance
process, but it is not clear that they will be sufficient to identify
and correct deficiencies like those we identified.
EPA Miscalculated Costs for the Rule‘s Indoor Air Option:
In estimating costs for reducing radon levels in indoor air under the
alternative water standard, EPA made two errors”one that understated
the costs of testing and treating indoor air for radon by about $37
million and another that overstated administrative costs to implement
and oversee the programs by about $31 million. Correcting the two
errors would increase EPA‘s best estimate of national annual costs for
the proposed rule by about $6 million. (See appendix I.)
EPA‘s first error resulted in an underestimate of the annual costs for
reducing radon levels in indoor air that the agency expects will be
borne by individual households. EPA multiplied its assumed cost of
testing and treating for radon in indoor air per life saved
($700,000)[Footnote 20] by the expected number of lives saved per
year,[Footnote 21] and then amortized the result over 20 years at a
discount rate of 7 percent. However, EPA should not have amortized the
result because it represents costs that would be incurred every year.
For example, in its best estimate, EPA assumed that 59 lives[Footnote
22] would be saved every year at a total cost of $41 million (59 lives
times $700,000 per life). EPA then amortized the $41 million over 20
years, resulting in an estimated annual cost of $3.9 million, even
though the $41 million cost would be incurred each year. EPA officials
acknowledged that they should not have amortized the $41 million cost
and told us that they intend to correct this error in EPA‘s economic
analysis for the final rule.
The second error occurred because EPA inadvertently included costs to
administer and oversee indoor air programs of water systems that will
not implement such programs. EPA‘s estimate did not reflect the fact
that regardless of whether the states choose to implement indoor air
programs, water systems with radon levels below 300 picocuries would be
required only to monitor the radon level in their water. They would not
be required to treat their water, nor would they be required to
implement their own indoor air programs. The estimate also did not
reflect that water systems with radon levels above 4,000 picocuries are
unlikely to implement indoor air programs because they would be
required to treat their water regardless of whether they implement
these programs. As a result, EPA‘s best estimate of national annual
costs included $53 million in costs associated with oversight and
administration of about 18,400 water systems‘ indoor air programs,
inadvertently including costs for about 10,800 water systems. We
estimate that correcting this error would reduce costs associated with
oversight and administration of water systems‘ indoor air programs to
about $22 million. EPA plans to correct both errors in its economic
analysis for the final rule.
EPA Excluded Certain Systems That Would Be Subject to the Rule:
EPA‘s cost analysis excluded mixed water systems, which get their water
from a combination of groundwater and surface water sources, even
though these systems would be subject to the radon rule. EPA officials
told us that they did not include costs for mixed systems in the
economic analysis because of data limitations and because their
preliminary analysis indicated that including the mixed water systems
in its analysis would not have a significant effect on the total annual
cost of complying with the rule. However, EPA did include mixed systems
in its economic analysis for the January 2001 arsenic rule. An EPA
official told us that there does not seem to be a strong technical
basis for handling mixed systems differently in the two rules. In
January 2002, EPA officials told us that the agency would consider
including costs for these systems in the economic analysis for the
final rule. We estimate that including mixed systems in EPA‘s best
estimate would further increase total annual costs by about $17 million
(see appendix I).[Footnote 23] Including these systems would also
increase the estimated benefits of the proposed rule.[Footnote 24]
EPA May Have Underestimated Compliance Costs for Some Water Systems:
A key factor in EPA‘s cost estimate is the extent to which programs to
mitigate radon levels in indoor air would supplant the more costly
approach of mitigating radon levels through water treatment. While
EPA‘s assumption about the number of states that would adopt indoor air
programs is well supported, we found that its assumption about the
number of local water systems that would do so is not and appears to be
overly optimistic. A decrease in the estimated number of systems
choosing the less expensive approach would increase the total annual
cost of compliance.
In the 50 percent of states where EPA did not assume selection of the
indoor air option, EPA assumed that 90 percent of local water systems
would elect the alternative standard and establish their own indoor air
programs. According to EPA officials, the assumption was based solely
on the premise that water systems would choose the least costly
approach to mitigating radon risks. EPA officials acknowledged that
they did not collect any data on the extent to which water systems
would establish air programs.
This data limitation reduces the credibility of EPA‘s optimistic
assumption in light of questions that have been raised about the
likelihood of small water systems adopting air programs. For example,
EPA‘s assumption conflicts with the opinions of the National Academy of
Sciences and state and industry associations. Specifically, the
National Academy of Sciences reported in 1999 that ’non-economic
considerations“ could play a large role in a local water system‘s
decision about whether to use an indoor air program to meet the rule‘s
requirements. According to the academy‘s report, experience with
certain provisions of the Clean Water Act indicates that small entities
have had difficulties dealing with complex federal program
requirements. While EPA may be correct in its assertion that the
requirements for indoor air programs are not as complex as the
requirements cited by the academy, small water systems may have
limitations or concerns that could lead them to choose compliance with
the more stringent standard. For example, the executive director of the
Association of State Drinking Water Administrators told us that local
water companies, especially the small ones, will not want to be
involved in public meetings, goal setting, and program monitoring and
reporting” activities required under the proposed rule‘s indoor air
option. The National Association of Water Companies, a trade
association representing the nation‘s privately owned drinking water
utilities, expressed similar doubts in its comments on the proposed
rule: ’We believe that the prospect of water systems implementing local
(indoor air) programs in the absence of state programs is unrealistic—
Tracking new home construction and remedial venting of existing homes
is far removed from the chartered objectives of community water
systems, not to mention the expectations of water ratepayers.“ In our
view, these are reasonable concerns.
The academy also raised concerns that the indoor air option may not be
practical for some local water systems that have elevated radon in
their water but not in their customers‘ indoor air. EPA acknowledges
that elevated radon in drinking water and in indoor air may not occur
in the same geographic area. Program officials from several states
concurred that the indoor air option may be problematic for some local
water systems for this reason. One of these officials also said that
using the indoor air option would not work nearly as well at the local
level as it would at the state level. The official explained that
because states have a larger geographic area than local water systems,
states would have a much better chance to offset one area‘s elevated
radon in drinking water by mitigating another area‘s indoor air radon.
Considering the evidence indicating a fair amount of uncertainty about
the extent to which local water systems, in the absence of a state
program, would choose the indoor air option to comply with the rule,
EPA‘s assumption that 90 percent of systems would do so appears overly
optimistic. As discussed previously, the uncertainty about adopting the
indoor air option is particularly strong for small water systems”the
majority of systems subject to the rule. Adjusting EPA‘s assumptions to
reflect less optimistic scenarios would increase the total national
cost estimate for the proposed rule. For example, assuming that 75
percent, instead of 90 percent, of local water systems would choose the
indoor air option would increase national annual costs by $23 million;
assuming 50 percent of systems would choose the option increases the
estimated national annual cost by $61 million (see app. I). In January
2002, EPA officials told us that in finalizing the economic analysis
for the rule, they plan to include a range of costs based on different
assumptions about how many water systems will adopt indoor air
programs. EPA‘s planned use of varying assumptions about the choices of
water systems would appropriately reflect the uncertainty associated
with the responses of water systems. (As discussed previously, EPA‘s
proposed rule already included a range of costs to reflect uncertainty
about how many states would adopt indoor air programs.)
EPA May Have Underestimated the Costs to Address the Risks from Radon
Emitted during Aeration:
EPA‘s cost estimates may not adequately account for the additional
costs to address the health risks from radon that would be emitted into
outdoor air as it is removed from drinking water through aeration.
These risks may be of particular concern where water treatment
facilities that remove radon in water and vent it into the air would be
located close to homes and schools and other population centers. In
these cases, water systems may face public relations problems due to
residents‘ concerns. Credible information on the estimated risks from
such emissions could help water systems address such concerns.
However, we found that EPA‘s analysis of these health risks has some
limitations that tend to underestimate the risks and reduce its
credibility. The limitations stem from the use of outdated health risk
data and the outdated air quality model EPA used to develop its
estimate of risk from emissions for the proposed radon rule.
Specifically, EPA‘s estimates of the risks from radon emitted during
aeration inadvertently did not incorporate updated information from the
National Academy of Sciences. EPA officials said that updated
information from the academy indicated that the health risk from
exposure to radon was about 2.5 times higher than its previous
estimate. While EPA incorporated this revision in its estimates of the
risks from radon in drinking water, it erred by not doing so for its
estimates of the risks associated with radon emissions from aeration.
Furthermore, EPA used the deficient health risk data in an outdated
1988 model that the agency acknowledged has substantial limitations,
even though the agency had newer models available. Specifically, EPA‘s
documentation of the 1988 air quality model states that the resulting
estimates of human health risks associated with radon emitted during
aeration are (1) ’preliminary in nature and should be used with
caution,“ and (2) ’do not account for the additive impact of emissions
from plants located close to one another.“
A 1999 study commissioned by a water district in California suggests
that EPA‘s 1988 model may understate these health risks. Specifically,
the study includes a comparison of the estimated health risks
associated with using aeration technologies to remove radon from the
district‘s water first using the 1988 model, and then using an updated
EPA model. In this site-specific analysis, the risk estimate developed
from the updated model was five times higher than the estimate
developed using EPA‘s 1988 model.
In discussing this issue, EPA officials told us that they may update
the final rule‘s estimates of the health risks from radon emissions by
incorporating the academy‘s updated risk information and using updated
air quality models. However, the officials said that taking these steps
would not substantially change the overall risk estimates for exposures
to radon emissions from water treatment shown in the proposed rule.
They also said that the health risks associated with emissions of radon
from treatment plants would still be negligible compared to the risks
of radon in water. While the officials agreed that higher risk
estimates could lead to higher national costs to implement the rule,
they believe the cost increases would be insignificant. However,
without an updated risk estimate using current data and models, water
systems may have difficulty addressing concerns their customers may
raise about the risks”actual or perceived” of radon treatment. These
concerns could increase costs if, for example, customers demand more
expensive technologies to reduce risks associated with treating water
for radon.[Footnote 25] Along these lines, we note that in commenting
on the proposed rule, the American Water Works Association pointed out
that ’the perception of risk is often as important as the actual risks
when siting any industrial process, including water treatment systems.
The mitigation of such concerns of the citizenry can result in
substantially increased costs...“
EPA‘s Cost Analysis Indicates Inadequate Quality Assurance:
EPA‘s cost analysis for the proposed radon rule does not consistently
comply with EPA guidance calling for clarity and transparency of all
aspects of the analyses and inclusion of all important data sources,
key assumptions, and their justifications. These presentation
deficiencies, as well as analytical errors, occurred despite the
agency‘s quality assurance process. As a result, the credibility of the
analysis was reduced and the ability of affected parties to provide
informed comments was hampered.
Documents Were Not Uniformly Clear, Accurate, and Consistent:
EPA‘s guidelines for preparing economic analyses state that EPA should
strive for maximum clarity and transparency of all aspects of the
assessments and clearly describe all important data sources, key
assumptions, and their justifications. The guidelines also say that the
presentation should highlight the key elements that dominate modeling
frameworks and its results and address uncertainties by identifying
ranges for inputs and results. We found a number of instances in which
EPA did not comply with its guidance. For example:
* EPA‘s proposed rule and the accompanying regulatory impact analysis
contain inconsistent and inaccurate information about an important cost
factor”the number of sites at which each water system would have to
monitor radon concentrations and potentially install treatment
technologies. In both documents, EPA states that it assumed treatment
would occur at each well with a radon level higher than the applicable
drinking water standard. Tables presenting numbers of wells accompany
these statements. However, EPA actually assumed that testing and
treatment would occur at sites known as ’entry points“ where water from
multiple wells is often combined. Because there are many fewer entry
points than wells, assuming treatment at each entry point instead of
each well leads to a much lower national cost estimate. Comments on the
proposed rule show that affected parties were confused about how EPA
could have arrived at its national cost estimate by assuming treatment
at each well, as EPA incorrectly indicated it had done.
* EPA‘s documents are not clear about whether implementing an indoor
air program in lieu of treating radon in drinking water is a choice or
a requirement for small local water systems”because the documents
contain conflicting statements. Both the proposed rule and the economic
analysis state that small water systems ’must“ implement an indoor air
program if there is no state indoor air program that meets the rule‘s
requirements. However, both documents also state that small water
systems may ’choose“ to either implement an indoor air program or
comply with the more stringent water standard. In fact, under the
proposed rule, implementing an indoor air program would be a choice”
not a requirement”for small local water systems, just as it is for
large water systems. These conflicting statements confused some
affected parties about the proposed rule‘s requirements and the
associated costs.
* Both the proposed rule and the economic analysis lack transparency
and clarity about who would incur the costs to test and, if necessary,
treat indoor air for radon. The documents incorrectly indicate that
state and community water systems would pay to test indoor air and
reduce radon levels in homes under the proposed rule‘s alternative
standard. However, EPA officials told us that, in fact, households
would be expected to bear most of these costs and that EPA intends to
clarify this in the final rule. By misstating who would bear a
substantial portion of the costs of the proposed rule, EPA did not
disclose that the success of this rule depends on the ability of states
and water systems to persuade thousands of households to spend a total
of about $41 million each year to reduce their health risks from
exposure to radon in indoor air. As discussed previously, EPA also
erred in estimating these annual costs in the proposed rule, reporting
them as $3.9 million.
* EPA‘s documents do not disclose the agency‘s assumptions regarding
how many systems would need to remove 50 percent, 80 percent, or 99
percent of the radon in their water under the proposed rule. Because
costs increase with the level of radon removed, the number of systems
assumed to fall into each of the removal categories is a key
determinant of the total national cost of the proposed rule. EPA‘s
omission of these assumptions prevented stakeholders from readily
assessing the reasonableness of EPA‘s cost estimate.
* EPA‘s proposed rule is unclear about whether EPA accounted for the
additional costs to reduce the risks from radon that would be emitted
into outdoor air as it is removed from drinking water through aeration.
For example, in the proposed rule, EPA first states that its cost
estimates do not include the additional costs associated with reducing
the risks from such radon emissions. Yet later in the proposed rule,
EPA states that its cost estimates do include these additional costs.
EPA‘s confusing presentation contributed to affected parties‘ concerns
that EPA‘s estimates had not accounted for any of these additional
costs. In fact, EPA did include some costs for reducing the risks from
radon that would be emitted through aeration,[Footnote 26] as shown by
documentation that EPA provided to us. However, as noted previously,
EPA may have understated these costs because it underestimated the
health risks associated with radon emissions generated by aeration
equipment.
We also found that stakeholders questioned certain cost estimates, in
part, because of the lack of clarity and transparency about cost
elements in the documents supporting the rule. For example, as
discussed previously, EPA cited two sets of cost estimates for
clearwells. In addition, regarding the costs for treating iron and
manganese, EPA said in its proposed rule that it included some costs
for this task, but said in its regulatory impact analysis that it
excluded them.
Some of the flaws we identified in the cost analysis for the radon rule
are similar to those that we previously identified in EPA‘s economic
analyses for other rules. For example, in 1997 we reported that in
several of the analyses we reviewed, EPA did not describe certain key
assumptions used to estimate costs and benefits.[Footnote 27]
EPA‘s Quality Assurance Process Did Not Identify Analytical Errors and
Documentation Flaws in the Cost Analysis:
The analytical errors and documentation flaws that we identified in
EPA‘s proposed rule and cost analysis were not detected or corrected by
the agency‘s quality assurance process. EPA officials said that the
Office of Water has a quality management plan that guides its quality
assurance and control activities, specifying which types of such
activities are necessary and the various procedures for conducting
quality reviews. The quality assurance elements include internal peer
review, external peer review, external agency review, and stakeholder
meetings, among other measures. According to EPA officials, the primary
quality assurance elements that EPA relied on for the proposed radon
rule were:
* the National Academy of Sciences‘ assessments of the health risks
from radon;
* recommendations from an expert panel on the costs water systems would
incur for construction, engineering, and labor related to installing
radon water treatment equipment;
* recommendations from EPA‘s National Drinking Water Advisory Council
on issues related to the analysis of costs and benefits of drinking
water regulations in general;
* recommendations from EPA‘s Science Advisory Board valuing the
benefits of cancer cases avoided in environmental regulations in
general;
* comments received at three national meetings with stakeholders; and;
* meetings with the American Water Works Association to examine
technical components of the rulemaking.
In addition, EPA published its health risk reduction and cost analysis
for public comment more than 6 months prior to issuing a proposed rule
on radon. The expert groups and the public comments provided EPA with
valuable information that it used to improve key components of the
proposed rule during its development. However, these reviews did not
provide a detailed, comprehensive review of the completed cost analysis
supporting the proposed radon rule.
EPA‘s economic analyses do not undergo external peer review nor have
they typically undergone formal internal peer review by experts outside
of the program offices that prepared them. We have previously stated
that important economic analyses supporting regulations should receive
peer review”the critical evaluation of scientific and technical work
products by independent experts”to enhance the quality, credibility,
and acceptability of both the analyses and the associated agency
decisions.[Footnote 28] Experts in economic analysis have also noted
the importance of peer review. For example, a diverse panel of renowned
economists recommended in a 1996 paper[Footnote 29] that peer review of
economic analyses be used for regulations with potentially large
economic impacts. In addition, the Presidential/Congressional
Commission on Risk Assessment and Risk Management reported that
agencies did not give enough attention to the quality and
interpretation of economic analyses and recommended that these analyses
receive adequate peer review.
EPA has recognized the need to improve the quality of its economic
analyses, and in August 2001, the EPA Administrator approved the
implementation of the recommendations of an agency work group to, among
other things, require internal review of EPA‘s major rules and the
economic analyses supporting them. As part of this effort, EPA‘s
National Center for Environmental Economics has begun to develop a
process to systematically review economic analyses for the agency‘s
major rules. The center has developed a draft ’Economic Regulatory
Review Summary and Critique,“ dated December 12, 2001, that includes a
lengthy checklist the center may use to review key data, assumptions,
and modeling techniques used in the analyses and the transparency and
clarity of the economic analyses. The center‘s reviews of the economic
analyses prepared by EPA‘s program offices could provide the agency
with meaningful internal peer review of its economic analyses.
Implementation of the regulatory work group‘s recommendation that the
economic analyses supporting major rules undergo internal peer review
has the potential to improve the quality of EPA‘s rules and eliminate
some of the errors and other limitations we identified in the proposed
radon rule. EPA‘s National Center for Environmental Economics has
already conducted several internal peer reviews of economic analyses
supporting major rules as case studies, and EPA has found that such
reviews can produce meaningful results. For example, the center‘s
director told us that one of the peer reviews served as a forum for
airing differences of opinion among program office and legal staff on
whether and how to account for pre-existing subsidies. As a result of
discussions of this issue during the internal peer review, the proper
accounting method was selected. If the subsidies had not been properly
recognized and accounted for, the costs of the rule would have been
understated by about $700 million.
The draft checklist that the center is developing to peer review
economic analyses contains many questions divided into nine sections:
regulation description, baseline, benefits, costs, economic impact
analysis, equity assessment, discounting, sensitivity analysis, and
summary and critique of the entire economic analysis. The sections on
costs and the summary and critique of the economic analysis include the
following:
* Was the proper modeling approach used to assess the economic costs?
* Were relevant and high quality data sources used?
* Did the analysis address all significant economic costs?
* Are all of the data sources and assumptions clearly described?
* Is the analysis generally clear and transparent?
The questions in the draft are reasonable and specifically address some
of the problems we identified with the proposed radon rule, such as the
lack of clarity and transparency. However, the questions do not
incorporate basic quality assurance checks for accuracy and consistency
that could better ensure that the agency‘s economic analyses do not
contain errors such as inappropriately amortized costs. The errors that
EPA made in conducting and presenting its economic analysis supporting
the radon rule could, in most cases, have been easily avoided with
basic quality assurance checks for accuracy and consistency.
While EPA‘s proposed radon rule was issued before the agency started to
implement its new regulatory review process, the director of EPA‘s
National Center for Environmental Economics told us that the drinking
water rule on radon will be subject to the review process before the
rule is finalized.
Conclusions:
In developing its proposed rule on radon in drinking water, EPA sought
and was generally responsive to advice from experts and stakeholders,
which strengthened important aspects of the cost analysis supporting
the proposed rule. However, because of the limitations we identified in
EPA‘s cost analysis, the agency did not provide policymakers and
stakeholders with complete and reliable estimates of the expected
compliance costs of the proposed rule and who would bear them.
Identifying the regulatory costs that water systems are expected to
incur is particularly important in light of the anticipated financial
demands on water systems to enhance security and comply with other
pending drinking water regulations. It is also important to accurately
estimate the costs that households would have to incur”on a voluntary
basis”to remove radon from the indoor air in their homes to reduce
radon health risks as anticipated by the rule. The limitations in EPA‘s
cost analysis and presentation also hampered the ability of interested
parties and the public to provide informed comments to EPA. Whether
addressing these limitations would change EPA‘s conclusion that the
rule is economically justified is not known given that EPA will also be
revising its estimate of the benefits in the final rule, for example,
to respond to recommendations from the Science Advisory Board that
estimates of benefits be discounted to present value.
EPA appears to be moving in the right direction by requiring internal
peer reviews of the economic analyses supporting its major rules and
starting to develop standard procedures for these reviews. The internal
peer reviews”if properly and routinely conducted”should improve the
credibility and usefulness of the agency‘s economic analyses and
improve its regulatory actions overall. While we continue to believe
that some economic analyses may also warrant external peer review,
there are signs that an internal peer review process could produce
meaningful results at EPA. In our view, the agency‘s efforts to
establish standard procedures for the reviews of economic analyses
could help the agency ensure that its reviews are thorough and
consistent. Yet it is not clear whether EPA‘s review procedures, as
presently drafted, would be sufficiently rigorous and detailed to
identify some of the errors we identified, such as the accounting error
that incorrectly amortized an annual cost over a 20-year period.
However, EPA still has the opportunity to build in such procedures.
Recommendations for Executive Action:
To improve the credibility and usefulness of its economic analysis for
the final drinking water rule on radon, we recommend that the
administrator, EPA, require the Office of Water to:
* correct its cost estimates for testing for and treating radon in
indoor air and disclose that homeowners are expected to bear these
costs,
* correct its estimates of states‘ and water systems‘ costs for
administration of indoor air programs,
* include mixed water systems in its economic analysis,
* revise its economic analysis to include less optimistic assumptions
about how many water systems will use indoor air programs to comply
with the rule, and,
* revise its estimate of the risks from radon emitted during water
treatment by incorporating the National Academy of Sciences‘ increased
estimate of these risks, and by using the agency‘s current air quality
models, and assess the extent to which the revised risk estimate would
change costs.
To better ensure the quality of economic analyses for the radon rule and
other major rules prepared by EPA, we also recommend that the
administrator, EPA, require the agency to expeditiously implement
standard procedures for conducting internal peer reviews of its economic
analyses. These procedures should include quality assurance measures to
identify errors in calculations; check the reasonableness of assumptions
and methodologies; and ensure that the documentation of the analyses is
clear, transparent, accurate, and complete.
Agency Comments:
We provided EPA with a draft of this report for its review and comment.
In response, officials from the Offices of Water; Air and Radiation; and
Policy, Economics, and Innovation generally agreed with our findings and
recommendations. The officials provided some technical and editorial
suggestions that we have incorporated into the report, as appropriate.
However, while agreeing that the proposed rule contained the errors and
other inaccuracies we identified, the Office of Water did not agree
that an effect of these errors was reduced credibility of EPA‘s cost
analysis. While our report identifies a number of strengths of EPA‘s
cost analysis, these strengths do not offset or negate the effects of
the errors and misstatements we found. We continue to believe that,
collectively, the limitations we identified reduced both the
credibility and usefulness of the cost analysis for the radon rule. For
example, we believe that the credibility of EPA‘s estimates was reduced
by an analytic error and a presentation error that EPA made related to
an important cost component”the cost of testing and treating indoor air
for radon. The analytic error involved EPA estimating annual costs of
$4 million, when the correct estimate is about $41 million. The
presentation error involved EPA indicating that states and local water
systems would bear these costs, when such costs would actually be borne
largely by individual households. We believe that correcting these and
other errors would, in fact, improve the credibility and usefulness of
the analysis to policymakers and stakeholders.
Scope and Methodology:
To assess the strengths and limitations of EPA‘s cost estimate for the
November 1999 proposed radon rule, we reviewed the two primary EPA
documents describing the agency‘s cost analysis; namely, the proposed
rule and the agency‘s economic analysis supporting the rule (the
regulatory impact analysis). In addition, we reviewed key EPA documents
that the agency used to support its economic analysis, including
Technologies and Costs for the Removal of Radon from Drinking Water;
Methods, Occurrence, and Monitoring Document for Radon in Drinking
Water; Technical Support Document for the 1992 Citizen‘s Guide to
Radon; and the October 1999 supporting statement for information
collection request for radon. We reviewed case studies identifying the
costs associated with installing and maintaining aeration equipment,
including Critical Assessment of Radon Removal Systems for Drinking
Water Supplies published by the American Water Works Association
Research Foundation and the American Water Works Association in 1998.
In addition, we met with EPA officials responsible for the proposed
rule and the economic analysis to obtain information about key
assumptions and methodologies. These officials provided us with
internal documents, such as costing models and spreadsheets that
supported the analysis, which we also reviewed. We reviewed stakeholder
comments made on the proposed rule, including those by the American
Water Works Association, the National Rural Water Association, and the
Association of State Drinking Water Administrators. We met with
representatives of the American Water Works Association and interviewed
water treatment professionals who have experience with radon removal.
Because the scope of our review was limited to assessing EPA‘s cost
estimate, we reported on, but did not evaluate, EPA‘s estimates of the
expected benefits of the proposed rule. As also agreed with your
offices, we reviewed the assumptions EPA used in its cost models to
generate its water treatment estimates, but we did not validate the
costing models or the data EPA used in developing its cost estimates.
For several of the analytical limitations we identified, we developed
estimates of the change in EPA‘s estimated costs if EPA were to correct
its analysis (see app. I). We developed these estimates based on
information from EPA‘s primary documents and additional internal
documents that we obtained from EPA officials. We did not have a basis
to estimate increased costs that water systems might incur if EPA
updated its estimate of the health risks from radon that would be
emitted into outdoor air as it is removed from drinking water through
aeration. We conducted our work from May 2001 through January 2002 in
accordance with generally accepted government auditing standards.
We will send copies of this report to the administrator, EPA, and make
copies available to others who request them. If you or your staff have
questions about this report, please call me on (202) 512-3841.
Signed by:
John B. Stephenson:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Adjustments to EPA‘s Best Estimates of Total National Costs
to Address Limitations in EPA‘s Economic Analysis (Dollars in
millions):
Cost components: Water: Capital;
EPA‘s best estimate: $23.1;
EPA‘s best estimate corrected for two accounting errors: $23.1;
EPA‘s best estimate corrected for two accounting errors and including
mixed systems[A]: $26.0;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 75% of systems: $44.6;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 50% of systems: $75.6.
Cost components: Water: Operations and Maintenance;
EPA‘s best estimate: $15.5;
EPA‘s best estimate corrected for two accounting errors: $15.5;
EPA‘s best estimate corrected for two accounting errors and including
mixed systems[A]: $17.4;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 75% of systems: $29.6;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 50% of systems: $49.8.
Cost components: Water: Monitoring;
EPA‘s best estimate: $14.1;
EPA‘s best estimate corrected for two accounting errors: $14.1;
EPA‘s best estimate corrected for two accounting errors and including
mixed systems[A]: $15.9;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 75% of systems: $15.9;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 50% of systems: $15.9.
Cost components: Water: System Administration;
EPA‘s best estimate: $2.5;
EPA‘s best estimate corrected for two accounting errors: $2.5;
EPA‘s best estimate corrected for two accounting errors and including
mixed systems[A]: $2.5;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 75% of systems: $2.5;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 50% of systems: $2.5.
Cost components: Water: Subtotal;
EPA‘s best estimate: $61.3;
EPA‘s best estimate corrected for two accounting errors: $61.3;
EPA‘s best estimate corrected for two accounting errors and including
mixed systems[A]: $68.1;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 75% of systems: $98.8;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 50% of systems: $150.1.
Cost components: Indoor Air: Testing and treatment[B];
EPA‘s best estimate: $3.9;
EPA‘s best estimate corrected for two accounting errors: $41.2;
EPA‘s best estimate corrected for two accounting errors and including
mixed systems[A]: $51.3;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 75% of systems: $47.2;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 50% of systems: $40.5.
Cost components: Indoor Air: System administration of Systems' indoor
air programs;
EPA‘s best estimate: $45.1;
EPA‘s best estimate corrected for two accounting errors: $18.6;
EPA‘s best estimate corrected for two accounting errors and including
mixed systems[A]: $19.1;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 75% of systems: $15.9;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 50% of systems: $10.6.
Cost components: Indoor Air: State oversight of systems' indoor air
programs;
EPA‘s best estimate: $7.8;
EPA‘s best estimate corrected for two accounting errors: $3.3;
EPA‘s best estimate corrected for two accounting errors and including
mixed systems[A]: $3.4;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 75% of systems: $2.9;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 50% of systems: $2.0.
Cost components: Indoor Air: State administration of states' indoor air
programs[C];
EPA‘s best estimate: $2.9;
EPA‘s best estimate corrected for two accounting errors: $2.9;
EPA‘s best estimate corrected for two accounting errors and including
mixed systems[A]: $2.9;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 75% of systems: $2.9;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 50% of systems: $2.9.
Cost components: Indoor Air: Subtotal;
EPA‘s best estimate: $59.8;
EPA‘s best estimate corrected for two accounting errors: $66.1;
EPA‘s best estimate corrected for two accounting errors and including
mixed systems[A]: $76.7;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 75% of systems: $68.9;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 50% of systems: $56.0.
Cost components: Total costs;
EPA‘s best estimate: $121.1;
EPA‘s best estimate corrected for two accounting errors: $127.4;
EPA‘s best estimate corrected for two accounting errors and including
mixed systems[A]: $144.8;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 75% of systems: $167.8;
EPA‘s best estimate corrected for two accounting errors; including
mixed systems; and adjusting overly optimistic assumption from 90% of
systems to 50% of systems: $206.1.
Note: Line items may not sum to totals due to rounding.
[A] Our estimate of the costs for mixed systems is based on an estimate
that EPA developed and we reviewed. The estimate includes 1,074 mixed
water systems receiving more than 50 percent of their water from
groundwater sources. However, it does not include the costs for three
systems serving more than 1,000,000 customers that receive some of
their water from groundwater sources and that EPA believes would incur
costs to comply with the radon rule. We did not develop an estimate for
these costs, which should also be included in EPA‘s cost estimate for
the final radon rule.
[B] EPA assumes that most of these costs will be borne by individual
homeowners.
[C] EPA‘s best estimate assumes 25 states will have indoor air
programs, but its estimate of state administration costs is based on
costs for 23 states. According to EPA, the estimate in the final rule
will include costs for 25 states.
Source: GAO‘s analysis of EPA data.
[End of table]
[End of section]
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Christine Fishkin (202) 512-6895:
Staff Acknowledgments:
Other key contributors to this report include David Goldstein, Timothy
Guinane, Patricia Manthe, Cynthia Norris, and Amy Webbink.
[End of section]
Footnotes:
[1] According to EPA, the agency does not have the statutory authority
to directly regulate radon in indoor air.
[2] EPA reported its estimates of the costs and benefits of the radon
rule in 1997 dollars.
[3] National Academy of Sciences, Risk Assessment of Radon in Drinking
Water, Washington, D.C.: 1999.
[4] The proposed rule excludes certain groundwater systems: (1)
nontransient noncommunity water systems are excluded on the basis that
the more limited exposure to radon from drinking water in the schools,
hospitals, and factories in this category results in lower health risks
compared with life-time exposures in homes and (2) transient
noncommunity water systems are excluded because most people who use
such facilities (service stations, campgrounds) do so only
occasionally.
[5] U.S. Environmental Protection Agency, Radon in Drinking Water
Health Risk Reduction and Cost Analysis (Washington, D.C.: Feb. 26,
1999).
[6] A picocurie is one trillionth of a curie, a unit of radioactivity.
[7] Most (96 percent) groundwater systems serve 10,000 or fewer
customers; 67 percent of the systems serve 500 or fewer customers.
[8] Most of the estimated cost”$405 million”would be borne by water
systems.
[9] These nonquantified benefits and costs include, among other items,
customer comfort from knowing that radon is being removed from their
water and customer anxiety about living near treatment plants that emit
radon gas.
[10] EPA replaced its 1983 Guidelines for Performing Regulatory Impact
Analyses with Guidelines for Preparing Economic Analyses in September
2000. EPA was using draft revised guidelines for economic analyses when
the proposed radon rule was issued. The criteria for effective
presentation of economic analyses were substantially the same in the
1999 draft guidelines and the issued guidelines.
[11] Aeration technologies force air through drinking water and strip
away contaminants, which are then vented into outdoor air.
[12] EPA analysts had previously assumed labor rates for water
treatment professionals to be about $15 per hour. For the proposed
rule, EPA adjusted labor rates to add fringe and other benefits,
resulting in hourly labor costs ranging from $28 to $52, depending on
the size of the water system.
[13] U.S. Environmental Protection Agency, Guidance Manual for
Compliance With the Filtration and Disinfection Requirements for Public
Water Systems Using Surface Water Sources (Washington, D.C.: March
1991).
[14] This is the largest category of groundwater systems for which EPA
included costs. According to EPA, its review of the two groundwater
systems that serve more than 1 million customers indicated that these
systems would not have to treat for radon.
[15] According to the stakeholder‘s survey data, most large systems
have an average of 11 sites.
[16] Because this system serves more than 1,000,000 customers, its
inclusion distorted the stakeholder‘s estimate of 23.8 sites per system
but did not distort its subsequent estimate of 14.7 sites.
[17] EPA estimates that 1,776 systems nationwide have radon levels
above 4,000 picocuries.
[18] American Water Works Association, State Response to the Proposed
Multimedia Mitigation Program Option, Washington, D.C.: 2000.
[19] EPA‘s estimates are in 1997 dollars.
[20] This assumption is based directly on an estimate described in
EPA‘s Technical Support Document for the 1992 Citizen‘s Guide to Radon
(May 1992). EPA did not adjust the estimate, which was reported in 1991
dollars, for inflation because it believed that testing and treatment
costs had not increased since 1991.
[21] EPA‘s estimate of the number of lives saved per year assumes that
the indoor air programs adopted in conjunction with the less stringent
drinking water standard would save the same number of lives as
compliance with the more stringent standard. This assumption is based
on the requirements of the 1996 amendments to the Safe Drinking Water
Act.
[22] EPA estimated that if all systems were required to comply with the
alternative standard of 300 picocuries, 62 lives would be saved each
year. However, in the case of EPA‘s best estimate, about 95 percent of
systems either would be in states with indoor air programs or would
implement their own indoor air programs, so indoor air programs would
be expected to save 59 lives (95 percent of the 62 lives that would be
saved assuming that all systems were required to comply with the more
stringent standard of 300 picocuries).
[23] Our estimate of the costs for mixed systems is based on an
estimate that EPA developed and we reviewed. The estimate includes
1,074 mixed water systems receiving more than 50 percent of their water
from groundwater sources. It does not include the costs for three
systems serving more than 1,000,000 customers that receive some of
their water from groundwater sources and that EPA believes would incur
costs to comply with the radon rule. We did not develop an estimate for
these systems, which should also be included in EPA‘s cost estimate for
the final radon rule.
[24] Of the limitations we found, the exclusion of mixed systems is the
only one that has an effect on EPA‘s estimates of the benefits of the
rule.
[25] One alternative technology, granular activated carbon (GAC), is
much more costly than aeration for all but the very smallest water
systems. This technology does not vent radon into the air during
treatment but collects the radon in filters.
[26] Specifically, EPA‘s analysis assumed that (1) no systems serving
populations smaller than 3,301 would face additional costs to address
emissions from water treatment because EPA believes that these small
systems are generally located in rural areas where emissions would not
be a concern and (2) 15 percent of systems that serve populations
larger than 3,300 and that install aeration treatment would incur
additional costs to address emissions, at an average annual cost of
$39,000 per system. This cost represents a 35-percent increase to these
systems‘ average costs for treating and monitoring their water for
radon.
[27] U.S. General Accounting Office, Air Pollution: Information
Contained in EPA‘s Regulatory Impact Analyses Can be Made Clearer,
[hyperlink, http://www.gao.gov/products/GAO/RCED-97-38] (Washington,
D.C.: Apr. 14, 1997).
[28] U.S. General Accounting Office, Regulatory Reform: Comments on S.
981”The Regulatory Improvement Act of 1997, [hyperlink,
http://www.gao.gov/products/GAO/T-GGD/RCED-97-250] (Washington, D.C.:
Sept. 12, 1997).
[29] Arrow, Kenneth J. et al., Benefit-Cost Analysis in Environmental,
Health, and Safety Regulation: A Statement of Principles (the American
Enterprise Institute, the Annapolis Center, and Resources for the
Future, 1996).
[End of section]
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