Valuing the Environment: Courts' Struggles with Natural Resource Damages
Thompson, Dale B., Environmental Law
How much is a dead seal worth? How much is a day at the beach worth? How much is the Grand Canyon worth? These are questions that courts have faced, or might face in the future, in efforts to protect natural resources. Many people, however, have raised significant moral and ethical objections to valuing the environment in this manner. Furthermore, courts seem ill-prepared to satisfactorily answer these questions.
In the late 1980s, new economic techniques (1) seemed to offer the means to answer these questions. The shining star of these new techniques was the contingent valuation method (CVM). (2) Initially used in the early 1960s, CVM became the subject of significant research in the mid- to late-1980s, because it seemed to offer the only means for calculating what is called "nonuse values" (3) for natural resources.
In the midst of the advancement of these techniques came perhaps the most significant case addressing natural resource damages (NRD), (4) Ohio v. United States Department of Interior (Ohio). (5) In this case, Ohio and other states challenged the regulations written by the Department of the Interior (Interior or DOI) to specify techniques for estimating natural resource damages claimed under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund). (6) In overturning these regulations, the Court of Appeals for the District of Columbia Circuit laid out two general principles: 1) The principal purpose of natural resource damages is to restore the resource, and thus, damages should be based primarily on "restoration costs" (7) rather than on "use values;" and 2) "nonuse value" damages should be compensated, using the contingent valuation method.
After the Ohio court announced its support for contingent valuation, a study using the CVM technique to calculate nonuse values estimated that possible damages in the Exxon Valdez case were approximately nine billion dollars. (8) In Southern California, a CVM study in United States v. Montrose Chemical Corp. (9) estimated that damages were over half of a billion dollars. (10)
The Ohio decision opened the door to potentially enormous damage claims and generated significant debate among legal scholars, il Furthermore, the National Oceanic and Atmospheric Administration (NOAA), charged with drafting regulations under the Oil Pollution Act of 1990 (OPA), (12) assembled a "blue ribbon panel," including two Nobel Prize winners in economics, to determine whether it would be possible to implement this decision. (13) However, this debate and the panel's analysis have been general and abstract. Now, twelve years after Ohio, there is the opportunity to examine how these principles have held up in practice.
Implementation of these principles requires introducing economic evidence in litigation to prove natural resource damages. Natural resource damages present a significant challenge for the legal system because in most cases they are non-market commodities. (14) As such, widely-accepted, traditional methods of valuation that rely on market prices are frequently not applicable. Instead, litigators will need to employ other economic techniques for determining monetary damages in NRD cases.
A problem arises in applying these economic techniques in a legal forum. The legal system requires evidence to possess a certain level of certainty and concreteness. (15) While market-based methods of valuation are widely accepted, non-market techniques may not be able to achieve these levels of certainty and concreteness. "Unfortunately, in the frenzy of litigation pressure, these often unrefined or experimental [non-market] valuation methods have been pushed beyond their methodological parameters and have resulted in damage claims of highly questionable validity." (16) Thus, courts will grapple with the validity of economic evidence in NRD cases. …