Clean Water Act improves water quality, creates modest changes in housing values
October 8, 2018
Ames, Iowa — Two new studies shed light on the environmental impacts and economic efficiency of the Clean Water Act.
Both studies were conducted by David Keiser, assistant professor of economics at Iowa State University, and Joseph Shapiro, associate professor of economics at University of California, Berkeley. Catherine Kling, professor of environmental, energy, and resource economics at Cornell University, also collaborated on one of the studies.
Examining the environmental effectiveness of the CWA
In 1972, the federal government passed a sweeping series of amendments, commonly known as the Clean Water Act (CWA), amid ever-growing concerns about water quality in the United States. Since that time, the CWA has become one of the most expensive pieces of environmental legislation in U.S. history. To date, the total cost has topped $1 trillion, or more than $100 per person per year.
For decades, researchers and policy makers have noted a lack of empirical evidence about the effectiveness of CWA regulations. The lack of empirical evidence has contributed to a poor understanding of how these regulations have affected water quality and human well-being.
“Even answers to basic questions such as how water pollution has changed since 1972, and how the Clean Water Act contributed to these changes, have been absent,” said Shapiro. “The data required to answer these questions have been notoriously hard to compile—it took several Freedom of Information Act requests and years of effort,” Keiser said.
Keiser and Shapiro collected 50 million pollution readings from 240,000 monitoring sites, a network of all U.S. rivers, and information on over 35,000 grants from the federal government to local municipalities—the most comprehensive set of files ever compiled on U.S. water pollution and its determinants.
This gave them the ability to effectively examine the federal grants program that helps local municipalities upgrade wastewater treatment plants, which is one of the CWA’s main policy levers.
The collected data led them to three main conclusions—water pollution concentrations have fallen substantially in the United States, the CWA’s municipal grants improved water quality downstream of treatment plants, and the municipal grants created modest increases in local housing values.
By examining pollution readings, the authors found evidence of decreases in major indicators of water pollution, including dissolved oxygen deficits, biochemical oxygen demand, and fecal coliforms. They also found that between 1972 and 2001, the share of waters unsafe for fishing fell by 12 percentage points.
When they examined the CWA grant program, which accounts for $650 billion of the program’s total expenditure, not only did they find that the program has resulted in cleaner water downstream of treatment plants, they found it costs about $1.5 million to make one river-mile fishable for one year.
The increase in housing values they found was about one-quarter of the grants’ costs. This estimate, Keiser said, may be low due to several factors, including local residents misperceiving the health benefits from the grants, and the researchers not counting changes in housing values of houses more than 25 miles from a river.
“The benefits we were able to measure were substantially lower than the corresponding costs,” Keiser said. “Surprisingly, this is consistent with other studies that find small benefit-to-cost ratios for water pollution regulations.”
Measuring the economic efficiency of the CWA
Keiser said that CWA policies not passing a cost-benefit analysis is unusual for the U.S. government. “From an economics perspective, environmental policy should pass a cost-benefit analysis,” he said. “However, many prior studies by the Environmental Protection Agency and others, including one we did, have generally found that the measured benefits of the Clean Water Act are near or lower than their costs.”
To determine why many CWA policies don’t appear to pass a cost-benefit analysis, Keiser, Shapiro and Kling examined twenty previous studies of CWA policies to see how those researchers measured costs and benefits. They found that existing evidence of the benefits are limited for a number of reasons, including some studies that undercount certain categories of benefits.
“There are a number of potentially important categories of benefits that have been difficult to measure,” Keiser said. “A big one is understanding how these policies affect human health.”
Keiser noted that most current analyses count little or no health impacts of improved surface water quality. “This could be true since we filter and treat water before we drink it. However, this could also be a false assumption since it’s possible that there are adverse health impacts from pollution at levels below current EPA standards, or from pollutants that we don’t monitor,” he said.
Some studies of Clean Water Act policies also exclude what economists call non-use values. Non-use value is when members of society place value on something even if they never have or never will use it. “For example, some people place value on certain types of fish, even if they will never see them or fish for them,” Keiser said.
Ultimately, Keiser said that a change in the way researchers examine CWA policies could help reveal their true cost-benefit ratio.
“There has been a tremendous amount of work over the last two decades to improve our understanding of climate and air pollution on economic well-being. Using methodological improvements that have been refined for the air pollution and climate change literature could help us better understand the impacts of water pollution on society,” Keiser said.
The analysis by Keiser and Shapiro appears in a study published in the Quarterly Journal of Economics (https://doi.org/10.1093/qje/qjy019). The analysis by Keiser, Shapiro, and Kling appears in the Proceedings of the National Academy of Sciences (https://doi.org/10.1073/pnas.1802870115).