Question

Be able to discuss the problems involved in determining the marginal damage of hazardous substances. Discuss the related difficulty in determining the correct level to control hazardous substances.

2.     Explain the relationship between information on environmental risk and the efficiency of markets to allocate risk.

3.     Describe the EPA’s toxic release inventory program? What is the program’s purpose?

Answer 1

Many industrial, agricultural and medical organisations use hazardous substances. The degree of hazard depends on the concentration of the chemical.

Common hazardous substances in the workplace include:

• acids
• caustic substances
• disinfectants
• glues
• heavy metals, including mercury, lead, cadmium and aluminium
• paint
• pesticides
• petroleum products
• solvents.

Possible side effects of exposure to hazardous substancesHealth effects depend on the type of hazardous substance and the level of exposure (concentration and duration). A hazardous substance can be inhaled, splashed onto the skin or eyes, or swallowed. Some of the possible health effects can include:

• poisoning
• nausea and vomiting
• headache
• skin rashes, such as dermatitis
• chemical burns
• birth defects
• disorders of the lung, kidney or liver
• nervous system disorders.

Labels and MSDS for hazardous substances

Manufacturers and importers of hazardous substances in Victoria are required by law to provide warning labels and MSDSs with their products. (Note: MSDSs will be known as Safety Data Sheets from July 2017 when new Occupational Health and Safety Regulations come into effect.)

Employers must ensure that the MSDS for each hazardous substance used in the workplace is available to employees, and that a central register of hazardous substances is established.

In accordance with the Globally Harmonised System of Classification and Labelling of Chemicals (GHS) or other methods set out in the Occupational Health and Safety Regulations, warning labels on hazardous substances should feature:

1. hazard pictograms
2. signal words (such as danger and warning)
3. hazard statements (such as fatal if swallowed)
4. precautionary statements (such as wear protective gloves).

The GHS classifies and communicates chemical hazards using internationally consistent hazard pictograms, terms and information displayed on chemical labels and MSDS.

The MSDS lists important information on handling the product safely, including:

• potential health effects
• precautions for use
• safe storage suggestions
• emergency first aid instructions

• Reducing exposure to hazardous substances

Suggestions on reducing exposure to hazardous substances in the workplace include:

where possible, perform the task without using hazardous substances where possible, substitute hazardous substances with less hazardous alternatives (for example, use a detergent in place of a chlorinated solvent for cleaning)isolate hazardous substances in separate storage areaspurge or ventilate storage areas separately from the rest of the workplacethoroughly train employees in handling and safety proceduresprovide personal protection equipment such as respirators, gloves and goggles regularly monitor the workplace with appropriate equipment to track the degree of hazardous substance in the air or environmentregularly consult with employees to maintain and improve existing safety and handling practices.

2.

Economic actors have different attitudes towards risks. It depends on several factors, including the nature of the risk, the probability of loss, the potential magnitude of the loss and the ability to absorb its economic consequences. Assuming rationality and perfect information, economic actors are able to calculate the actual value of a given risk by discounting the magnitude of the loss by the probability of its occurrence (PxL).

Once the risk is properly identified and evaluated, however, risk management decisions still need to be taken. In this perspective, economic actors may be:

• risk averse: if they are willing to pay even more than the actual value of the risk in order to transfer its harmful consequences to someone else;
• risk preferring: if they prefer to retain the risk of loss, rather than transferring it by paying upfront an amount equal to its actual value.
• risk neutral: if they are indifferent with respect to the alternative between (a) retaining the risk and (b) transferring it to someone else by paying upfront an amount equal to its actual value.

Risk aversion, therefore, generates demand for insurance. Insurance companies, in turn, are willing to undertake the risk in exchange for an amount of money relatively close to its actual value (the premium), because the law of large numbers makes them able to manage such risks effectively, by making predictable, with reasonable accuracy, the claims they will pay from year to year. According to this mathematical law, the larger the number of exposures considered, the more closely the losses reported will match the underlying probability of loss. This means that insurance companies need to pool together a rather large number of homogeneous but independent risks in order to become risk neutral.

The traditional insurance mechanism can be divided into four phases:

• The risk assessment (the evaluation of risk, which is usually performed through statistical and probabilistic analyses)

• risk transfer (the shifting of its harmful consequences by way of the insurance contract)
• risk pooling (the placement of the risk in a pool of homogeneous but independent risks allows the insurer to spread the risk and to benefit from the law of large numbers)

• risk allocation (the pricing of the risk though premium setting)

As the magnitude of expected losses increases, the insurers’ financial ability to absorb them can be severely jeopardized. In other words, over and above certain levels of financial exposure, insurers themselves tend to be risk averse. In this context, coinsurance and reinsurance are viable options for primary carriers who are willing to cede part of the risk they undertook, in exchange for the payment of a fraction of the premiums they collected.

Traditional reinsurance agreements may be of different types, among which:

• quota share (proportional) treaties (by which the reinsurer undertakes a quota of the risk transferred to the primary carrier)
• excess of loss (stop loss) treaties (by which the reinsurer undertakes the upper layer of the risk, after a certain attachment point).

2. Risk predictability, generalized uncertainty and informational asymmetries insurance is able to perform its functions correctly under specific conditions of risk and uncertainty. All agree that, in order to be insurable, the risk must be predictable, at least by means of past experience and statistical calculations.

Severe problems are posed by:

- Generalized uncertainty – which may undermine the insurer’s ability to properly evaluate and assess the risk ex ante

- Informational asymmetries – in favor of the prospective insured, generating distortions and agency problems:

• Adverse selection
• Moral Hazard

This report shows, inter alia, how traditional insurance and reinsurance mechanisms can face difficulties in covering:

1. the environmental liability risk.

2. the natural catastrophe risk.

Environmental liability risk is tightly connected with the underlying legal and regulatory framework, whose features may generate uncertainty, or otherwise limit risk insurability. Factual uncertainty concerning the nature of the risk and its consequences are also problematic. Finally, obstacles are posed by relevant information asymmetries.

The traditional insurance mechanism may also not be appropriate to cope with natural catastrophe risk, since risk predictability, the ability to spread the risk spatially and the financial capacity of the market are severely limited.

In both cases, furthermore, the magnitude of expected losses and the information problems affecting risk predictability and assessment require joint efforts by several insurers and reinsurers. It is worth noting that the highlighted need for information sharing practices and market concentration – in order to increase capacity.

3.

The Toxics Release Inventory (TRI)

The Toxics Release Inventory (TRI) is a dataset compiled by the U.S. Environmental Protection Agency (EPA). It contains information on toxic chemicals handled by many facilities across the  United States, including details on quantities of chemicals managed through disposal or other release, recycling, energy recovery or treatment.

The goal of EPA’s Toxics Release Inventory (TRI) Program is to empower citizens and other TRI stakeholders through information about how toxic chemicals are managed. Using TRI data and EPA’s suite of TRI-related tools, one can:  

• Identify potential environmental concerns and gain a better understanding of potential risks;
• Identify priorities and opportunities to work with industry, government and communities to reduce toxic chemical releases and potential risks associated with them;
• Provide the members of your community with information and insights regarding toxic chemical releases and waste management practices in the community;  
• Make informed decisions on the consequences of such practices and take action; and
• Establish reduction targets and measure progress toward those targets.

Since its inception, the program has grown in several important ways, including expanding the businesses covered and the chemicals on which they report. Equally important is the number of creative ways the general public, government agencies and reporting industries use the available TRI information. This paper provides an introduction to and background on TRI and identifies a number of important factors that must be considered when reviewing or using the data.

• Key Factors to Consider When Analyzing TRI Data

The bulk of TRI data reflect annual quantities (in pounds) of toxic chemicals released from a facility to the environment, managed by the facility as waste, transferred from the facility to another facility for release or other waste management.

These data are particularly useful for:

• Determining priorities for facilities based on pounds of toxic chemicals released or otherwise managed as waste,  
• Tracking trends in year-to-year totals of toxic chemicals released or otherwise managed as waste,  
• Comparing toxic chemical releases and other waste management among industry sectors, for particular chemicals or individual facilities and  
• Assessing individual records to learn about specific facilities.

Key factors to consider when analyzing TRI data include:

• Toxicity - The level of toxicity varies among the covered chemicals; data on amounts of the chemicals alone are inadequate to reach conclusions on health-related risks.
• Environment and Exposure - The presence of a chemical in the environment must be evaluated along with the potential and actual exposures and the route of exposures, the chemical’s fate in the environment and other factors before any statements can be made about potential risks associated with the chemical or a release.
• Regulation by Environmental Statutes - Regulatory controls apply to many of the releases reported; reporting facilities must comply with environmental standards under statutes such as the Clean Air Act and the Clean Water Act, in addition to reporting releases to TRI.
• On-Site Waste Management - Many options for managing wastes are subject to stringent technical standards and exacting state and federal regulatory oversight.
• Off-Site Waste Management - Some TRI reporters send chemicals off-site in waste to be managed at specialized waste management facilities that are also subject to TRI reporting requirements. Since both the facilities sending waste and the facilities receiving waste report to TRI, adjustments must be made to avoid double counting.

TRI Covers an Important Subset of Chemicals Managed:

Reports must be filed by owners and operators of facilities that meet the following criteria:

1. The facility falls within a TRI-reportable industry sector or is federally-owned or operated;  
2. The facility has 10 or more full-time (or equivalent) employees;
3. The facility manufactures, processes or otherwise uses (MPOU) a TRI-listed chemical in an amount above the TRI reporting threshold during a calendar year (thresholds vary depending upon chemical).

If a facility meets all three of these criteria, it must submit a TRI report for each chemical for which it exceeded an MPOU threshold.

If a facility does not meet all these criteria, it is not required to report to TRI. Information on facilities exempt from TRI reporting might be available in EPA databases compiled by other programs that regulate the facilities. Other EPA databases with release and waste management information include:  

• RCRAInfo – contains hazardous waste management information;
• PCS and ICIS-NPDES 8- contains monthly measurements of chemicals released to water at facilities with discharge permits;
• National Emissions Inventory (NEI) – contains air release estimates for stationary and mobile sources;  
• Risk Management Plan (RMP) – contains risk management plans that state the amount of chemicals facilities have in on-site processes.