ENVIRONMENTAL AND HEALTH COSTS
Petroleum products cause a variety of environmental and health damages, most of which go unreimbursed. These external costs are among the most difficult to quantity and estimates of the size of damages vary considerably. Calculations of environmental costs are also complicated by the varying methodologies used by analysts. For example, some calculate the damages caused by using oil; others calculate the costs of reducing or avoiding pollution. As Table 5 shows, estimates for the total external environmental and health costs associated with petroleum range from $25.5 billion to $267 billion in current dollars.
| Groundwater, soil, and air pollution | 24,867-240,333 |
| Additional costs associated with global warming | 633- 26,667 |
| TOTAL | 25,500-267,000 |
Environmental Effects from Within-border Spills and Leaky Tanks Accidental (and sometimes deliberate) oil and gas spills pollute our surroundings. As one home-grown illustration, Lake Superior suffered an estimated 36 spills in 1994, consisting of a total of more than 11,000 gallons of fuel oil.[49]
Perhaps more ominous than spills are the 2.5 million underground and 250,000 aboveground storage tanks scattered around the country, filled mostly with petroleum products.[50] Thousands of these tanks have sprung leaks; the Environmental Protection Agency has estimated that more than 25 percent may be leaking or will leak within the next 3 to 5 years.[51] Cleanup is costly: the state of Texas has estimated its cost of cleaning up leaky underground storage tanks (cleverly termed LUSTs) at $2.5 billion, for instance. California has at least 30,000 known USTs; environmental lawyers working in the private sector estimate that half of their practice deals with oil and gas UST issues.[52] In one horrific 1988 incident, over 700 thousand gallons of diesel fuel spewed into Pennsylvania's Monongahela River from a collapsed storage tank.
Minnesota has its share of problems, with over 70 tank farms and some large refineries located within the state. In March 1994, for example, a leaky tank at Ashland Petroleum's St. Paul Park facility released upwards of 130,000 gallons of gasoline into the groundwater. In May of the same year, 1,500 gallons of oil leaked into the Mississippi River. As much as 2 million gallons of petroleum products are estimated to have accumulated on the water table over the last 50 years at the St. Paul Park site.[53]
How do we pay for this mess? In part, with a battery of fees and fines. In the past, we have designed some liability-based excise taxes in attempts to include these social costs in the final prices of petroleum and other potentially hazardous products. At the federal level, these have included Superfund, LUST, and oil spill taxes. These taxes are no longer being collected, although balances exist in each fund.[54] Moreover, a good part of the funds goes toward assessment studies, research, and lawyer fees rather than restoration.[55] And the funds devoted to contaminated sites pay only for costs of cleanup, not damages manifested by lower crop yields, medical bills, and the like. Superfund does not even apply to petroleum products - benzene, a known carcinogen, will not qualify contaminated gasoline stations as Superfund sites.[56]
Minnesota has certain fees and taxes in place devoted to dealing with petroleum contamination. The state charges an inspection fee of 85 cents per thousand gallons of petroleum products. We also have a LUST charge of 2 cents per gallon of petroleum products received in the state, subject to a cap on total collections; this tax is on a 4-month cycle and is not currently being collected. We impose fines on violators as well - Ashland faced $330,000 in penalties for the March 1994 LUST spill, although the company could reduce the fine if it complies with safety upgrades ahead of schedule.
Some fees, such as federal and state pipeline safety user fees, go toward regulation and inspection. Unlike liability-based excise taxes, such measures arguably help prevent problems rather than pay for pollution that has already occurred. Although user fees and fines on violators help fund the operation of oversight, taxpayers certainly bear some of the costs. Minnesota has over 50 thousand miles of pipelines.[57]
Fees typically do not come close to paying for petroleum-related damages. Legal remedies are a potential alternative to fees: private citizens have some recourse to the courts if they suffer injuries due to petroleum contamination. Yet causation is hard to establish.[58] And people often have no one to sue. Those injured by a LUST, for example, may find that the tank belonged to an independent dealer who bought from several distributors, then went bankrupt. Those who do win lawsuits often gain only injunctive relief - stopping further damages - rather than gaining compensation for damages that have already occurred.
Explicit fees and civil remedies place some responsibility for environment on the producers and consumers of oil. Despite these measures, the bulk of environmental damages from within-border spills and LUSTs probably rests implicitly on ordinary citizens.
One estimate of the costs associated with petroleum leaks and spills alone is 237 million barrel-equivalents of oil annually, or about $4.3 billion worth.[59] The Environmental Protection Agency estimates the cost just of cleaning up petroleum-contaminated groundwater at $790 million per year.[60] Delucchi estimates the health and environmental effects of leaking motor vehicle storage tanks at $120 million to $1.8 billion a year in current dollars.[61]
Oil Spills In the Ocean Oil is spilled into the ocean fairly often, but the amount spilled per incident tends to be relatively small - except in some widely known instances. (Because many tankers as yet have only a single hull, the probability of an oil spill in an accident is relatively high.[62]) One of the first large ocean oil spills was by the Amoco Cadiz in 1978, near the French coast. At the time, the losses were estimated at $190 to $290 million (in 1978 dollars).[63] More recently, 9,276 tanker accidents occurred worldwide in 1989, with 518 resulting in oil spills. One year later, one of the largest-ever spills took place - the Exxon Valdez dumped over 11 million gallons of oil off the shoreline of Alaska. The company paid a settlement of over $1 billion (and deducted most of it from taxable income). In 1991, only 3 known major oil spills occurred, putting about 55,000 gallons of oil in the ocean.
How much are U.S. residents affected by ocean oil spills? The Valdez incident may just be the tip of the iceberg -- more than one-third of all petroleum products transported by oceangoing tankers pass through U.S. waters. 64 And the Valdez was exceptional: many spills probably go unreported and unattributed. As a result, most of the cost of ocean oil spills is likely borne by everyone but the responsible parties. Delucchi estimates the cost of oil spills as $2.4 to $6.0 billion a year in current dollars[65]
Mortality, Morbidity, and Reduced Crop Yields Associated with Petroleum Pollution Whole hosts of medical ailments are related to exposure to petroleum products. Respiratory problems and cancer rank among the biggest offenders, although eye irritation, cardiovascular problems, and injuries caused by fires, explosions, and gasoline ingestion also occur.[66] Benzene, a major component of gasoline, is a proven human carcinogen. Other components of gasoline and oil likely cause cancer as well.[67] Reduced crop yields and acid rain are yet other side-effects of petroleum contamination.
Air pollution caused by fossil-fuel combustion and volatility is a major contributor to these ills - even with the standards set by the Clean Air Act (as amended) and the 1990 Pollution Prevention Act. Fuel combustion is responsible for almost half of the human-generated emissions of nitrous oxides, major ingredients of ozone and, in turn, smog.[68] It generates more than half of all carbon monoxide emissions and more than a third of all volatile organic-compound emissions.[69] It is a significant factor in a variety of air-quality and health-related problems, from ground-level smog and carbon monoxide to atmospheric acid rain. Even with new-car fuel-efficiency standards and pollution-emission requirements, motor vehicles generate an immense amount of pollution because we continue to drive more cars for longer distances each year.[70]
You might think that, compared to other states, Minnesota's air pollution problems are not so bad. You would be right, in a sense - state air generally falls within the National Ambient Air Quality Standards (NAAQS). Yet, because of petroleum products, the Twin Cities and Duluth frequently violate NAAQS. Among the largest single air polluters in Minnesota are Ashland and Koch. Ashland was penalized nearly $60,000 in April 1995 for violating air quality standards.[71] What is more, both the Environmental Protection Agency and Congress acknowledge that scientists often find that pollution concentrations they formerly thought were safe are in fact harmful.[72] Furthermore, the NAAQS do not reflect the latest scientific knowledge because the Environmental Protection Agency does not have the resource to keep the NAAQS up to date.[73] So Minnesota's air probably causes more harm than the statistics reveal.
Isolating the health and agricultural effects of exposure to petroleum products is a difficult task. Nevertheless, some studies have attempted it. The Office of Mobile Sources of the Environmental Protection Agency recently estimated that the U.S. cancer incidence associated with gasoline ranges from 400 to 754 cases per year; the incidence associated with diesel exhaust is 178 to 860 cases per year.[74] Private researchers have estimated even higher figures.[75] One study estimated that ozone air pollution is associated with 10 to 20 percent - and nearly 50 percent on bad days -- of all respiratory hospital visits and admission. Another found that a 1 percent increase in the concentration of ozone was associated with a .015 percent increase in total mortality.[76]
Some researchers have couched their results in monetary rather than morbidity terms. Air pollutants such as ozone and nitrous oxide, substantially generated by motor vehicles, cause an estimated $2 billion to $4 billion loss in U.S. crop yields annually, for instance.[77] One study estimated that the costs of ozone alone generated by motor vehicles -- in terms of health effects, lost labor hours, and reduced agricultural yields -- came 8.3 cents per gallon of gasoline (in current dollars). That translates into more than $9 billion a year. 78 Others have calculated the cost of illness, premature death, reduced visibility, lower agricultural production, and damage to materials at $25 billion to $240 billion (current dollars) per year.[79]
Global Warming Petroleum products cause health and other problems at current levels of consumption. Yet they also create significant problems for the future because they contribute to global warming. Experts estimate that up to one-half of greenhouse gas emissions (particularly carbon dioxide) are from fossil fuel combustion, with transportation activities being the largest single source.[80]
Why should we care? Because global warming could cost us considerably. Estimates of the current cost of US fuel-cycle emissions of greenhouse gas emissions range from $3 billion to $27 billion.[81] One scholar predicts that we may experience a 2.5 degree Centigrade warming by the year 2025 at current emission levels and trends. In the U.S. alone, that will translate into overall damages of $60 billion annually from agricultural losses, a rise in sea level, increased mortality, losses to the ski industry, increased electrical use from air conditioners, and lost water supply.[82]
Various researchers have estimated the benefits of curbing emissions so as to keep them at a certain level or to stabilize the atmospheric concentration of carbon dioxide.[83] The Office of Technology Assessment rated the economic health benefits of holding emissions constant at $633 million to $5 billion a year in current dollars.[84] These estimates focus on constant levels of emissions, however. If we want to halt global warming, we would actually need to cut emissions considerably. This would call for a substantial tax.[85] Experts have suggested that we need taxes ranging from 20 to 75 cents per gallon of oil to accomplish this.
The current U.S. administration speaks of its commitment to addressing the problem of global warming. In his speech at the Rio de Janeiro conference held on Earth Day 1992, President Clinton expressed his desire to return U.S. emissions of greenhouse gases to 1990 levels by the year 2000.[86] Indeed, since 1990 the Environmental Protection Agency has issued or proposed numerous regulations and guidance designed to reduce air pollution and greenhouse gas emissions. But the agency does not have the resources to enforce its own standards and, in fact, has fallen far behind in implementing many of the provisions of the Clean Air Act.[87]
Conclusion From the various studies reviewed, we extracted a range of estimates for environmental and health costs of $25.5 billion to $267 billion. Our best-guess estimate is $30 billion, which translates to 11.5 cents per gallon. This figure gives little weight to the costs of global warming.
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