Assessing damage of environmental disasters

By Dr Sirimewan Dharmaratne
, Senior Analyst, HM Revenue and Customs, UK

While Sri Lanka is grappling with wars on many fronts, people are reminded daily of the environmental disaster caused by the sinking of the X-Press Pearl vessel. The scenes of beaching of massive dead turtles, tons of toxic pollutants getting washed ashore, are all ominous signs of a silent killer. These are all precursors to the environmental desecration that is happening out in the deep sea away from human gaze. However, these visceral feelings of despair need to be replaced by realistic expectations on how this can be put right. This invariably leads to the question how to assess the damage that has been caused. Damage itself has no intrinsic cost. The cost comes only in the way of loss of value to humans. Therefore, it is essential that all losses are identified, and appropriate methods are used to value or cost them.

Framework for Assessing the Damage

Unless the government puts forward a compelling case, it is likely to come out short-changed from negotiations with the shipping company. Therefore, it is essential that damages are assessed using internationally accepted methods. Herein lies the difficulty of valuation of environmental goods and services. What is the value of a turtle or a dolphin? They are not bought or sold in markets. Value that we place on the environment is essentially human centric. A resource is valuable only as much as humans are willing to pay for it or how much they are willing to accept for its loss. If it can be replaced, then the cost of replacement to the original level is the value. There is a repertoire of methods that can be applied to capture all types of economic values of the environment.

Clean up costs

Cleaning up of the pollutant prevents further damage. Therefore, clean-up expenses is the minimum cost of any further damage that would have occurred if it had not taken place. For example, Exxon spent over US$2 billion to clean-up the Alaskan coast after the Exxon Valdez oil spill in 1989. This implies that if the clean-up was not done, Exxon would have anticipated at least that much more in further damage payments. Sri Lankan government should have closed all affected beaches and done a professional cleaning process immediately after the disaster. This would have given a much more solid case to recover clean-up costs from the polluter. Due to lack of protocol, there was no organised cleaning and it is unlikely that the government would be able to present valid cost estimates. Further, due uncontrolled access to polluted beaches, pollutants are likely to have been unwittingly transported all over the island, which is still happening. There are lessons to be learned here on how the country should be prepared and act when the next such disaster strikes, which may be just around the corner.

Damage Assessment

While clean-up only prevents future damage and loss of value, damage that has already been caused needs to be properly identified, quantified and cost. There are several immediately obvious losses, including loss of wildlife, loss of livelihood of fisherfolk, reduced fish catch and loss of tourism revenue. There may be other damages that are not as obvious, nevertheless, very real, such as damage to the seabed, that would cause enduring losses to wildlife and commercial fisheries. Health risk to those who were exposed to various pollutants is another cost. These may need more expert investigation and assessment. What is important is no final agreement is reached until a comprehensive analysis is done.

Replacement Costs

This method is used when the damaged resource can be replaced. For example, for each sea otter rescued, Exxon paid US$40,000 to US$90,000 for rehabilitation. Further, US$32 million was paid to replace the reported 2,800 sea otters that were lost. The total cost of replacing just four species including seals, eagles and sea birds was about US$113 million. Clearly, this depends on whether the lost resources can be replaced. This method could be used to value numerous turtles that have been killed. But first it is essential to establish how many turtle deaths can be attributed exclusively to this disaster over and above what could have occurred naturally. This requires careful scientific proof and not facetious comments by dim-witted politicians. Not only such conjectures are imprudent but also harmful. They could be picked up by the offending parties to put forward a case against just compensation.

If the replacement cost of a sea otter was about US$47,000 over 30 years ago, one could expect the cost of replacing a turtle, a creature that is much harder to replace, would be much higher. Even with a conservative estimate of US$50,000 per turtle, then for the 140 or so turtles that were reported to have been killed, compensation would be around US$7 million. Further, as most were mature adults, their loss would have a significant impact on the breeding stock of this extremely critical species. This could cause a permanent reduction in the turtle population. Then there is the cost of rehabilitating turtles and other animals that were rescued. Those who are working on damage assessment need to do some investigation to understand how replacement and rehabilitation costs have been calculated in previous similar cases. As these are already established and accepted by such institutions as the Department of the Interior and the National Oceanic and Atmospheric Association of the USA, these methodologies have a solid pedigree.

Loss of direct values

These are the losses incurred by all those who based their livelihood on the coastal environment that is now polluted. These are not only the loss of profits of fisherfolk, but losses to all those who are involved in the distribution chain. This is because fish caught generate value at each point they change hands and generate economic rent to someone. In fact, if there is any increase in market prices that causes loss of economic welfare to the final consumer, it is also a direct economic loss. Further, not just a one-time loss, but a stream of future losses until such time that fish stock recovers to pre-disaster level.

Loss of recreational value-tourism

Loss of value from tourism is hard to measure because even if these beaches become unavailable, there will be other substitute beaches that the tourists could go to. However, there are again accepted methods that could put value on a specific beach or a recreational area when individuals have a choice of similar sites. It would be good to have such studies done when the country returns to normal. So that when the next disaster hits, either man-made or natural, the country would be able to accurately estimate economic losses.

While in the current environment, there may not be a strong case for losses from international tourism, there may be a case for loss of value for domestic recreational use. The value of these beaches for those living in the vicinity or within easy commuting distance could be high, especially during these times of travel restrictions. There are well established internationally accepted methods that can be used. While they require extensive data and technical expertise, they have also been successfully applied when data and technical resources are limited.

Loss of non-use values

Demise of numerous and often valuable sea creatures, pollution of pristine beaches and real or perceived long lasting adverse environmental effects human welfare. What is important is one does not have to be directly affected to experience this loss. Hence it is applicable to all Sri Lankans. It is conceivable that even those who may never visit the affected area or see a turtle at a beach or at sea, is ‘worse-off’ after this disaster. While this value is not related to any use, it is nevertheless real. Such values are globally acknowledged and known as ‘non-use’ values.

In the case of the Exxon Valdez oil spill, these non-use values were estimated at US$2.8 billion to all US households. Over 30 years ago, the non-use value for each US household was estimated to be about US$ 31. Thirty years later and considering the income differences of the two countries, if one put it at a measly US$5 per household in Sri Lanka, for the 5 million or so households, non-use value would be around US$25 million. Further, turtles are a global resource, which is valued by the global population as a critically endangered species. Therefore, theoretically this value could be even extended to the global population.

This is by no means a theoretical concept. Robust methods, perfect over the years, exist to capture non-use value. This is palpable by the fact that the Exxon Valdez incident led to the US Oil Pollution Control Act of 1990, which held companies responsible for non-use value in the case of future oil spills. This legislation from the major economic power provides a compelling backdrop for Sri Lanka to add non-use values to the mix of economic losses when seeking compensation.

If all different components of the total economic value are added-up, it is likely that the total would far exceed the interim compensation of US$40 million that has been claimed. Because there are so many precedents from all over the world, Sri Lanka does not need to reinvent the wheel. The government could easily draw upon the plethora of literature that is available on this subject and seek advice and help from experts. However, it is better that the country finds homegrown expertise, without being dependent on foreign consultants.

Way forward

The government is well advised to refrain from reaching an immediate settlement in the interest of making a few quick dollars. Although a few million may look extremely attractive to a cash strapped economy, any immediate compensation should be accepted as interim payments until a proper and comprehensive economic valuation is done. There is no hurry to come up with a settlement. In all previous cases it has taken years to properly assess damage and value. What is important is that it is done to internationally accepted standards so that there is little room for dispute. It is more than likely that the polluter, presented with compelling evidence, will agree to out of court settlements to avoid bad publicity and punitive damages.

Policy making process in Sri Lanka is generally reactive. When a crisis happens, a policy is hastily conjured as a temporary solution. This invariably falls by the wayside due to lack of planning or commitment from stakeholders. It is imperative that a highly trained, numerate and technical team of analysts are put together as a permanent task force to take leadership in situations such as these. They should comprise professionals from all relevant disciplines who are willing to work together as a team for the common good.

There is no doubt that the country has many adroit young professionals who could fill these roles. This is clear from the comments expressed through different media. However, this itself is the problem. There is no value to opinions unless they can be translated to real outcomes. Further, most appear to contradict each other and, in some cases, politically aligned. This not only effete their professional conduct, but also provide ample reasons for offending parties against any settlement. What is needed is not a scattered bunch of individuals who are on personal ego trips, or trying to impress with affectation, but a carefully put together team of fastidious individuals, who are willing to work together and produce high-quality, internationally accepted outputs.