[Federal Register Volume 59, Number 119 (Wednesday, June 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15192]


[[Page Unknown]]

[Federal Register: June 22, 1994]


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DEPARTMENT OF COMMERCE
15 CFR Part 990

RIN 0648-AE13

 

Natural Resource Damage Assessments

AGENCY: National Oceanic and Atmospheric Administration (NOAA), 
Commerce.

ACTION: Summary of Public Comment; Notice of Specific Issues for 
Comment; Notice of Availability of Summary of Cooperative Damage 
Assessment Workshops.

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SUMMARY: Section 1006(e)(1) of the Oil Pollution Act of 1990 requires 
the President, acting through the Under Secretary of Commerce for 
Oceans and Atmosphere, to promulgate regulations for the assessments of 
natural resource damages resulting from the discharge of oil. The 
National Oceanic and Atmospheric Administration (NOAA) proposed those 
regulations on January 7, 1994. (59 FR 1062) Since its rule was 
proposed, NOAA has held six regional workshops and a public meeting in 
Washington, D.C. It was requested, and NOAA agreed, to publish a 
summary of the public comments received at the workshops and 
Washington, D.C. meeting. In light of the extension of the comment 
period until October 7, 1994, this Notice requests the public address 
some of the issues and questions raised during the workshops.
    In addition to the workshops, NOAA in cooperation with the American 
Petroleum Institute and the Coastal States Organization, held six 
regional workshops on cooperative natural resource damage assessment. 
This Notice informs the public of the availability of the ``Summary 
Report of Six Cooperative Natural Resource Damage Assessment 
Workshops.''

DATES: Written comments should be received no later than October 7, 
1994.

ADDRESSES: Written inquiries are to be submitted to: Damage Assessment 
Regulations Team (DART), c/o NOAA/DAC, 1305 East-West Highway, SSMC #4, 
10th Floor, Workstation #10218, Silver Spring, MD 20910-3281.

FOR FURTHER INFORMATION CONTACT: Linda Burlington or Eli Reinharz, 
Office of General Counsel, DART, telephone (202) 606-8000, FAX (202) 
606-4900.

SUPPLEMENTARY INFORMATION: The Oil Pollution Act of 1990 (OPA), 33 
U.S.C. 2701 et seq., provides for the prevention of, liability for, 
removal of, and compensation for the discharge, or substantial threat 
of discharge, of oil into or upon the navigable waters of the United 
States, adjoining shorelines, or the Exclusive Economic Zone. Section 
1006(e) requires the President, acting through the Under Secretary of 
Commerce for Oceans and Atmosphere, to develop regulations establishing 
procedures for natural resource trustees to use in the assessment of 
damages for injury to, destruction of, loss of, or loss of use of 
natural resources covered by OPA. Section 1006(b) provides for the 
designation of federal, state, Indian tribe and foreign natural 
resource trustees to determine resource injuries, assess natural 
resource damages (including the reasonable costs of assessing damages), 
present a claim, recover damages, and develop and implement a plan for 
the restoration, rehabilitation, replacement, or acquisition of the 
equivalent of the injured natural resources under their trusteeship.
    NOAA has published eight Federal Register Notices, 55 FR 53478 
(December 28, 1990), 56 FR 8307 (February 28, 1991), 57 FR 8964 (March 
13, 1992), 57 FR 14524 (April 21, 1992), 57 FR 23067 (June 1, 1992), 57 
FR 44347 (September 25, 1992), 57 FR 56292 (November 27, 1992), and 58 
FR 4601 (January 15, 1993) requesting information and comments on 
approaches to developing damage assessment procedures prior to issuing 
its proposed rule on January 7, 1994 (59 FR 1062).
    The proposed rule summarizes the written comments received by the 
agency and issues raised during the public meetings and workshops, 
responds to those comments, and contains proposed regulatory language 
on the various issues raised. Many of the specific comments summarized 
in the proposed rule refer to the status report published by NOAA in 
the March 13, 1992, Federal Register Notice. Within the preamble to the 
proposed rule, NOAA specifically listed a series of issues that were 
raised during the various meetings and comments (at 59 FR 1071-1074). 
The goal of this statement of issues of interest was to stimulate 
discussions on some of the more intriguing suggestions considered in 
developing the proposed rule.
    After publication of the proposed rule, NOAA held six regional 
meetings in January and February of 1994 in New Orleans, Chicago, 
Atlanta, Boston, San Francisco, and Seattle. These meetings began with 
a discussion of the issues identified in the preamble to the proposed 
rule, but were open to discussion of other issues. There was a diverse 
turnout, interest, and response at those meetings. In response to 
requests from many interested parties, on March 1, 1994, NOAA extended 
the comment period on the proposed rule to July 7, 1994. (59 Fed Reg 
9688) A final workshop on March 25, 1994, was held in Washington, D.C. 
A set of discussion papers was distributed at the Washington meeting. 
These discussion papers reflected issues and questions raised during 
the regional meetings. The discussion papers were not intended to 
reflect final agency position on any issue. Instead, they were intended 
to focus on some relevant questions raised by the rulemaking to date. 
Although the Washington, D.C. meeting emphasized the issues presented 
in those papers, discussions on other concerns were encouraged. These 
discussion papers have been incorporated into this Notice.
    The 6 regional workshops of January and February 1994, were 
sponsored by the National Oceanic and Atmospheric Administration 
(NOAA), the American Petroleum Institute (API), and the Coastal States 
Organization (CSO). Attendance at the workshops included federal, 
state, Indian, and foreign trustees, industry, protection and indemnity 
(P&I) clubs, environmental groups, and private citizens. Information 
disseminated for the workshops included NOAA's proposed rule, an 
outline of the proposed rule, a draft memorandum of agreement, and an 
agenda for the workshops. The purpose of the agenda was to reach 
agreement on many of the issues of cooperative NRDA through open 
discussion among participants.
    This Notice provides a summary of information, concerns and 
recommendations received by NOAA at the workshops and requests further 
comment on specific issues raised by NOAA and members of the public at 
the workshops. In addition, this Notice makes available to the public a 
document summarizing the proceedings at the six workshops on 
cooperative damage assessment. The document entitled ``Summary Report 
of Six Cooperative Natural Resource Damage Assessment Workshops'' is 
available upon request to the address provided above.

Issues on Injury and Related Concepts

    Sections 1002(a) and (b)(2) of OPA establish the elements for a 
natural resource damage claim. Under OPA, a party responsible for a 
vessel or facility is liable if there is (1) a discharge or a 
substantial threat of discharge (2) of oil (3) from the vessel or 
facility (4) into or upon navigable waters, adjoining shorelines, or 
the Exclusive Economic Zone. Damages are measured in terms of the 
injury to natural resources resulting from such an incident.
    Damages resulting from an incident include those associated with 
injury to, destruction of, loss of, and loss of use of natural 
resources. OPA adds the phrase ``loss of use of'' which is not explicit 
under CERCLA. The proposed rule defines ``injury'' to incorporate these 
concepts. The damage assessment process as under the proposed rule is 
designed to: determine if there is an injury to a natural resource 
(Injury Determination), and subsequently quantify the extent of those 
injuries (Injury Quantification).
    The OPA proposed rule defines ``injury'' as ``any adverse change in 
a natural resource or impairment of a service provided by a resource.'' 
While measurement is not required for Injury Determination, it is 
usually needed for Injury Quantification. It is necessary to quantify 
the injury to provide the basis for restoration and determine the 
extent or amount of damages. Injury Quantification also may be relevant 
in establishing that the natural resource injuries resulted from or 
were caused by the incident.
    In contrast to the definition under the proposed rule, ``injury'' 
under the CERCLA regulations is generally defined as ``a measurable 
adverse change, either long- or short-term, in the chemical or physical 
quality or the viability of a natural resource resulting either 
directly or indirectly from exposure to a discharge of oil or release 
of a hazardous substance, or exposure to a product of reactions 
resulting from the discharge of oil or release of a hazardous 
substance.'' The CERCLA regulations provide specific injury definitions 
for various categories of natural resources in the Injury Determination 
Phase.
    The OPA proposed rule specifies that an injury resulting from the 
incident is demonstrated in the case of direct exposure, if: (a) the 
natural resource was exposed, (b) there is a pathway between the 
discharge and exposed natural resource, and (c) the exposure of oil, 
its components, or by-products have been shown by rigorous and 
appropriate scientific methodology to have an adverse effect on the 
natural resource in laboratory experiments or the field. In the absence 
of direct exposure, an injury resulting from the incident is 
demonstrated if: (a) the adverse effect on or impaired/diminished use 
of a natural resource has been shown by rigorous and appropriate 
scientific methodology; and (b) the adverse effect on or impaired/
diminished use of the natural resource would not have occurred but for 
the discharge or threat of a discharge. This definition differs from 
the corresponding definition under the CERCLA rule (43 CFR 11.62(b)-
(f)), but this difference should not produce inconsistencies.
    NOAA is developing guidance on the types of adverse effects that 
are associated with discharges of oil in a technical support document 
for Injury Determination and Quantification. Generally, when attempting 
to determine whether there is an injury, quantify that injury, and 
evaluate whether the injury is a type of injury associated with the 
discharge of oil, the trustee should identify those adverse effects 
that meet certain ``acceptance criteria.'' Factors that are relevant in 
choosing a methodology to use to demonstrate adverse effect include the 
extent to which that methodology has been able to demonstrate adverse 
effect in the laboratory or field, and the scientific appropriateness 
of that methodology.

Summary of Comments

    The discussions at the regional workshops and the Washington, D.C. 
meeting focused on whether trustees should be required to ``measure'' 
an adverse change in order to show injury under OPA. NOAA presenters 
discussed the distinction between establishing ``liability'' under OPA 
and proving ``damages.'' Participants indicated that the proposed rule 
should explain the distinction better than it does now.
    Another issue of concern to many participants was the perception 
that some biological effects or responses to exposure to oil are 
produced in the laboratory but are not reflected in field studies. 
There was some criticism that the proposed rule allowed unobserved 
biological responses to be characterized as ``injury'' to natural 
resources and that this amounted to assessing damages for a ``risk of 
injury'' rather than actual injury.
    One commenter stated that OPA required the injury to be of the type 
that required restoration or be relevant to restoration before damages 
would be owed a trustee. This commenter suggested that adverse effects 
on natural resources were not enough by themselves, that the adverse 
effects had to require restoration in order to constitute injury under 
OPA.
    One participant argued that OPA is a civil damages statute imposing 
tort liability and therefore requires a demonstration of injury-in-fact 
on-site to result in damages. It was also suggested that the proposed 
rule presumed injury if a discharge of oil occurs and that NOAA has no 
statutory authority for such a presumption.

Specific questions on which NOAA is seeking comment:

    1. Does NOAA's proposed definition of ``injury'' reflect the 
general understanding of the term in the scientific and legal 
community? Should NOAA define ``adverse change?'' If yes, how?
    2. Does NOAA's proposed definition of ``injury'' presume injury or 
must the trustee present evidence of ``injury'' for purposes of 
establishing damages under OPA?
    3. NOAA's proposed rule includes a definition of the phrase 
``injury resulting from a discharge of oil'' (see 59 Fed. Reg. 1169). 
OPA section 1002 provides that liability is for removal costs and 
damages ``that result from such incident.''
    a. Does NOAA's proposed definition of ``injury resulting from a 
discharge'' mingle the concepts of ``injury'' with ``causation?''
    b. Does the proposed definition mingle concepts of legal causation 
with scientific premises for establishing cause-in-fact?
    c. Should NOAA provide a regulatory definition of ``injury 
resulting from...such incident...''?
    d. Should NOAA limit its regulatory approach to describing 
acceptable ways trustee and responsible parties may develop evidence of 
injury ``resulting from'' an incident; i.e.''acceptance criteria?''
    4. NOAA has suggested that where multiple factors may have 
contributed to the injury, the injury be viewed as ``resulting from'' 
the discharge or incident if the discharge, or incident was a factor 
contributing to the injury. Should this view of the ``contributing 
factor'' test be included in either ``acceptance criteria'' or a 
definition of ``injury'' or some other appropriate place in the 
regulations?

Compensation Formulas

    The proposed rule is designed to provide a new simple and cost-
effective damage assessment procedure for small discharges--
compensation formulas for both estuarine/marine and inland waters. The 
proposed compensation formulas would be applicable to the vast majority 
of oil discharges and for a wide range of the most commonly discharged 
oil products. An analysis of reported coastal discharges of oil shows 
that 99.8% of the discharges were less than 50,000 gallons and 99% were 
less than 10,000 gallons. Compensation formulas would be used for most 
of these relatively small discharges. These formulas provide an 
estimate of damages per gallon taking into account average restoration 
costs, plus average lost direct use values pending restoration. For 
various reasons, passive use values are not included in these formulas 
at this time. The damages calculated with the formulas vary with the 
amount and type of oil discharged and region and habitat type in which 
the discharge occurs. This approach allows both national consistency 
and regional specificity. By comparing the habitat of the actual 
discharge with the geographical province and specific habitat used to 
estimate the damages in the formula, the trustee should, in most cases, 
find the most applicable scenario.
    The simplified damage assessment procedures produce calculations 
based on statistical averages and are designed to reasonably reflect 
the damages of the actual injury in a timely and economical manner. 
However, any time a simplified assessment is used, it is unlikely that 
the exact circumstances of an actual discharge will be represented. 
Although the damage calculation is designed to be correct on average, 
in some cases, the formula will over-state or under-state the damages. 
In cases where the circumstances of an actual discharge are determined 
to be well beyond the parameters of the compensation formula, the 
trustee should consider the use of another assessment procedure.

Summary of Comment

    There was a wide range of comment on NOAA's proposed use of the 
compensation formulas for spills of less than 50,000 gallons. The 
comments ranged from NOAA's lack of statutory authority to use such 
formulas to the notion that the compensation formulas are a ``black box 
used to club the RP'' into settlement. Other participants focused on 
the predictability the compensation formulas will bring to the process 
of assessing smaller spills and the cost effectiveness of using the 
formulas for locations where access is difficult. One participant noted 
that it was unreasonable for NOAA to rely on formulaic averages when 
the state of science is insufficient to develop predictive models.
    Several suggestions were made at the workshops. It was recommended 
that NOAA provide guidance or criteria for proceeding from pre-
assessment to the assessment phase, as well as guidance for the use of 
the compensation formulas. In particular, it was suggested that NOAA 
provide guidance on when the formula should be used and when the Type A 
model should be used, as sometimes the Type A model resulted in lower 
damages than the formulas. It was also suggested that NOAA develop a 
set of appropriate, ``off-the-shelf'' studies for the trustees to use 
in small spills to confirm actual injury. One commenter stated that the 
formulas resulted in extraordinarily high per gallon damage figures for 
certain hypothetical spills. It was suggested that these worst case 
scenarios were damaging NOAA's credibility and would affect industry's 
view of the simplified procedures generally. To address this problem, 
the commenter recommended NOAA develop a ceiling or cap for dollars per 
gallon spilled.
    Questions were received as to how the various state formulas and 
NOAA's proposed formulas would compare or work together, and what to do 
when a complex assessment results in lower damages than the formulas or 
the Type A model. Lastly, some comments and questions were posed as to 
when and how the compensation formulas could be attacked in litigation.

Specific questions on which NOAA is seeking comment:

    1. The proposed compensation formulas are based upon various 
representative province/habitat combinations. Since the compensation 
formulas are based upon averages, it is impossible to include all known 
coastal habitats and every combination of discharges. By comparing the 
habitat of the actual discharge with the province and specific habitat 
used to estimate the damages in the formula, the trustee should, in 
most cases, find the most applicable scenario. However, any time a 
simplified assessment is used, the exact circumstances of an actual 
discharge will only be approximated.
    Although there is no direct statutory language calling for this 
form of assessment procedure, NOAA recognized the need for such a 
procedure. NOAA emphasizes that the primary advantages of a 
compensation formula are simplicity and cost-effectiveness. Are the 
values of simplicity and cost-effectiveness in the compensation 
formulas outweighed by their inherent technical limitations?
    2. The compensation formulas were developed after extensive review 
of the scientific and economic literature, with particular emphasis on 
restoration of various habitat types. This information was then 
compiled to be used with both the current Type A model for Coastal and 
Marine Environments and a draft version of the Type A model under 
development for the Great Lakes Environments, which provide the basis 
for the compensation formulas. Was this procedure for developing the 
formulas appropriate and reasonable?
    3. Because NOAA's proposed rule may be published as a final rule 
before the Department of the Interior (DOI) publishes the two Type A 
models as final rules, NOAA is seeking comment on three options: (1) 
Publish the formulas as final rules, with the option to revise once the 
DOI Type A models are promulgated as final rules; (2) publish the 
formulas as interim final rules, pending revision based upon the 
completion of the Type A models; or (3) reserve the formulas as 
proposed rules pending the completion of the Type A models, with the 
rest of the NOAA rule being published as a final rule; or (4) repropose 
each formula after the model upon which it is based is published as a 
proposed rule.
    4. NOAA is proposing that the damages generated by the compensation 
formulas be conclusive in nature for those resources and/or services 
covered by the formulas. That is, once the rule becomes final and 
survives any judicial review, parties may challenge the information 
used in applying the formulas in a particular assessment or the 
appropriateness of using the formula for a specific incident, but may 
not challenge the underlying algorithms and data used in developing the 
formulas. NOAA is specifically seeking comment on this approach.
    5. Passive use (nonuse) values are not included in the formulas at 
this time, since NOAA determined that sufficient information does not 
currently exist concerning average passive use values applicable to the 
compensation formula approach. NOAA decided to propose the formulas 
without passive use values so that they would be available for trustee 
use rather than delay proposing to a future date. The trustee, of 
course, may use some other assessment method to estimate lost passive 
values. NOAA specifically requests comments on how such passive values 
might be included in the compensation formulas.
    6. Several simplified natural resource damage assessment schemes 
have been developed by State trustees over the last few years to 
estimate damages to natural resources resulting from discharges of oil. 
How may any inconsistencies among the various State assessment methods 
and NOAA's proposed rule be addressed through NOAA's rulemaking?

Regional Restoration Plans

    Section 1006(f) of OPA requires that sums recovered as damages be 
used to develop and implement a plan for the restoration, 
rehabilitation, replacement, or acquisition of the injured natural 
resources. The proposed rule allows the trustees either to develop an 
Incident-Specific Restoration Plan to address the effects of the 
incident of concern, or to pool recoveries to apply them to a Regional 
Restoration Plan.

    These regional plans could be developed on a geographical or 
ecosystem basis to allow the recovery of the system covered by the 
plan. Where such a plan already exists (i.e., National Estuary Program 
(NEP), established by Congress in 1987; includes 21 estuaries), whether 
developed through prespill planning efforts or under regular management 
efforts, that plan may be used if it is developed through a public 
review and comment process that considers the major factors contained 
in the restoration planning guidance in the rule. The restoration 
action must address similar or comparable resource injuries as those 
identified in the assessment procedure.

    In NOAA's view, there are a number of benefits to aggregating 
recovered monies in a regional restoration plan. First, it is not cost-
effective for trustees to attempt to restore natural resources affected 
by oil if those restored resources are still going to be at risk from 
other pollutant sources that trustees have no authority to address. 
This problem is less likely to arise when a regional restoration plan 
is used because regional plans are more likely to include a wide range 
of federal, state, and local enforcement authorities to address 
pollutant sources (i.e., point and nonpoint sources) affecting the 
region in question. Second, the trustees could also benefit from 
information gathered by the regional planning process conducted by 
other agencies (i.e., EPA's Comprehensive Conservation and Management 
Plans developed under the NEP) in efficiently and effectively 
addressing injured resources. Third, where a coordinated structure 
involving both public and private parties already exists, it is prudent 
to take advantage of that structure for public review of trustee 
restoration plans.
Comment Summary 
    Comments centered on the accountability of trustees for monies in a 
regional restoration pool and protections necessary to prevent monies 
intended for restoration from being used for other purposes. In 
general, there was suspicion that the regional restoration funds would 
be siphoned off for non-restoration-related purposes or for research 
projects related to natural resource damage assessment. One commenter 
stated that NOAA has no statutory authority for pooling recoveries and 
that each recovery must be spent for the restoration of resources 
injured by a particular incident. One suggestion received was that 
pooled recoveries be permitted only on a consensual basis with each 
responsible party. Another suggestion was that a time limit be imposed 
on trustees for the expenditure of pooled restoration monies.

Specific questions on which NOAA is seeking comment:

    1. Is it likely that these regional plans would be useful in areas 
with long-term pollution effects, where damages from a single incident 
would be too small to ``restore'' the injured natural resources or 
where the planning costs for the restoration after a single incident 
would be quite high compared to the damage figure?
    2. Is pooling of funds contrary to the principles of restitution or 
compensatory damages?
    3. Does the use of such regional plans contradict section 1006(f) 
that ``there be a nexus between monies recovered resulting from a 
particular spill and their use to restore or enhance the specific 
resources `affected by a discharge.'''?
    4. May some percentage of the ``pooled'' funds be used to pay for 
the planning costs to develop such plans, since the estimated 
restoration costs from the underlying incidents do include planning 
costs?
    5. If pooled recoveries are intended to fund an existing multi-year 
plan, how are individual amounts to be earmarked and set aside for 
funding a particular component of that multi-year plan? What kind of 
accounting or reporting requirements should be used?

Obligation of Trustee to Plan for Restoration

    Section 1006(c) of OPA requires federal, state, tribal and foreign 
trustees to ``develop and implement a plan for the restoration, 
rehabilitation, replacement or acquisition of the equivalent, of the 
natural resources under their trusteeship.'' 33 U.S.C. 1006 
(c)(1),(2),(3), and (4). In addition, OPA provides that such ``[p]lans 
shall be developed and implemented under this section only after 
adequate public notice, opportunity for a hearing and consideration of 
all public comment.'' Id. (emphasis added). In NOAA's view, OPA 
requires restoration planning to proceed like any other federal 
statutorily-mandated planning activity--in the sunshine, subject to 
review under the Administrative Procedures Act (APA), and in compliance 
with the National Environmental Policy Act (NEPA), the Endangered 
Species Act (ESA), and other applicable federal laws.
    To fulfill the trustee obligations for restoration planning NOAA 
has proposed a process for the development of an administrative record 
documenting all aspects of an incident relevant to the trustee 
obligation to restore, rehabilitate, replace, or acquire the equivalent 
natural resources. In NOAA's view an administrative record for injury 
assessment and selection of restoration alternatives achieves four 
important objectives: (1) It provides a central repository, open to the 
public, for all scientific data relevant to the incident; (2) it 
facilitates public participation; (3) it documents trustee 
decisionmaking and selection among alternatives to restore, replace or 
acquire the equivalent; and (4) it minimizes transaction costs by 
encouraging an open, participatory process for the ultimate resolution 
(i.e. restoration of natural resources) of an incident rather than 
resolution through litigation.
    NOAA's attempt to minimize transaction costs and discourage complex 
litigation and other activities not leading to restoration of natural 
resources is born of the unsatisfactory experience of the Exxon Valdez 
oil spill. In that incident all parties were criticized by the public 
for maintaining the confidentiality of scientific studies, conducting 
science for purpose of litigation, and then settling the case without 
providing for the release of the scientific data gathered. It is 
generally accepted that such a process does not serve the resources, 
the public, or the responsible party well.
    NOAA's proposed rule seeks to address these problems by providing 
for a contemporaneous public repository of scientific data for injury 
assessment and restoration activities. As presently proposed, the 
administrative record documents trustee decisionmaking processes for 
injury assessment, selection of restoration activities, the trustee 
costs, and anticipated costs of restoration, and may include the 
economic valuation of injury resulting from the incident.
    As an open record process, subject to the opportunity for public 
hearing and comment, NOAA intends the trustee's selection of 
restoration activities, and their costs, to be available for judicial 
review under the Administrative Procedure Act. The standard for 
judicial review under the APA in an informal rulemaking context is 
whether the actions of the trustee were ``arbitrary, capricious, or 
otherwise not in accordance with law.''
    NOAA has taken the position that NEPA should be implemented during 
the restoration planning process and integrated into the development of 
the Draft Assessment Restoration Plan (DARP). It is NOAA's view that 
those procedures normally contemplated as part of the DARP can be 
framed and addressed as NEPA analysis and full NEPA compliance achieved 
without additional paperwork or data collection. A concise analysis of 
available restoration alternatives and the consequences of their 
implementation in the post-spill environment should form the heart of 
the DARP document as well as any NEPA document with which it may be 
combined.

Comment Summary

    Public comment on the proposed DARP was varied. Some commenters 
suggested NOAA prepare a guidance document with a standardized format 
and criteria for information to be included in the record. Another 
participant suggested that NOAA refer to the EPA guidance for 
preparation of an administrative record. Commenters felt that 
organization and cross-referencing mechanisms were important if the 
record was to be useful to people in the field.
    Several commenters discussed the importance of including all 
available data and the QA/QC criteria in the record. It was often 
stated that from the scientist's point of view, there is no reason not 
to put all data in the record as long as it is accompanied by sound 
study design, appropriate sampling and QA/QC protocols and a 
description of the level of review. Another commenter suggested that a 
standing peer review committee should review data before it is entered 
in the record. One participant asked whether or how the record could 
contain useful information or documents that do not meet pure chain of 
custody requirements. There was some concern raised about parties 
``stuffing'' or ``dumping'' material in the record to force the other 
party to respond or overwhelm the other party. Another concern raised 
was that the proposed rule does not require the trustee to invite 
responsible party participation.
    Some participants stated that the proposed administrative record 
process would promote litigation rather than reduce transaction costs. 
There was a strong feeling on the part of some commenters that NOAA's 
position that the administrative record would receive judicial review 
under the Administrative Procedure Act using the standard of 
``arbitrary and capricious'' was fundamentally unfair to the 
responsible party and a violation of due process. Several commenters 
felt the trustees had too much flexibility and too much control over 
the contents of the record. Some commenters felt the responsible party 
was entitled to challenge the trustee's decisions on a ``preponderance 
of the evidence'' before a jury. Another commenter suggested NOAA set 
up an adjudicative process where an administrative law judge would 
preside and apply the ``substantial evidence'' standard to the 
trustee's record and allow extra-record evidence to be produced at an 
administrative trial.
    Finally it was suggested that federal trustees need not comply with 
NEPA because the DARP would qualify under the ``functional 
equivalency'' doctrine. Another commenter queried whether the 
responsible party would have to bear the costs of NEPA compliance.

Specific questions on which NOAA is seeking comment:

    1. Should trustee decisionmaking on the record include all aspects 
of injury assessment and restoration/replacement activities including 
financial costs and economic valuation or should the trustee decisions 
on the record include only the injury assessment and restoration/
replacement activities excluding a determination of costs and economic 
values as aspects of money damages suitable for de novo trial along 
with liability?
    2. Is a ``bifurcated'' review process practical, i.e. will an 
administrative record review for injury assessment and restoration 
selection and a separate litigation-driven process for determination of 
liability and money damages prove workable or raise significant timing 
issues and evidentiary problems?
    3. Is a trial appropriate for determination of liability and/or 
money damages under OPA? Is a trial appropriate for review or 
litigation of trustee's decisions during injury assessment and 
selection of restoration activities? If yes, should such a trial be to 
the court or to the jury?
    4. Is the administrative record process for developing the 
trustee's assessment and/or restoration alternatives ``informal 
rulemaking'' or ``quasi-adjudicative'' under the APA? How would an 
administrative record prepared by a state trustee be reviewed by a 
state court?
    5. Should there be a means for preventing any one party from 
``stuffing'' the administrative record to achieve a preponderance of 
evidence or strain the ability of other parties to respond on the 
record? If so, what should it be? Should there be designated times for 
the submission of materials to the record? Should the rule define the 
types of data, analysis and other documents submitted to the record?
    6. How should the trustee comply with section 1006(c)(5) of OPA 
[restoration plans developed and implemented only after adequate public 
notice, opportunity for hearing and comment] in the context of 
settlement? Specifically, what type of process would satisfy the 
potential desire to settle an OPA claim with specific performance of a 
restoration activity as well as comply with section 1006(c)(5) and 
NEPA?
    7. The rule as currently proposed requires public review only when 
the trustee releases the Draft Assessment and Restoration Plan. Should 
there be additional requirements for public review or participation? 
Should the requirements vary according to the type of assessment chosen 
by the trustee?
    8. Does NEPA apply to the trustee's selection of restoration 
alternatives? At what point is restoration planning a ``major federal 
action'' or ``irretrievable commitment of resources'' for purposes of 
NEPA compliance? Is it appropriate to postpone NEPA compliance until 
the trustee has received the money damages? Is it practical to combine 
NEPA compliance with the development of the DARP?
    9. If an administrative adjudication process conducted by an 
administrative law judge were set up for the review of the 
administrative record and the trustee's demand for damages, would 
transaction costs be reduced from the present system? Would the 
trustees be forced into a disadvantage by providing all of their data 
and basis for decisionmaking on the record while the responsible party 
waited until the administrative trial to attack the record with expert 
witnesses and extra-record evidence? Who would bear the costs of 
setting up and operating administrative adjudication system? Would 
state or tribal trustees be required to use such a system?

Compensable Values Issues

    Much attention has been given to valuing damages to natural 
resources. This attention has been directed, for the most part, at the 
controversial economic valuation method of contingent valuation. 
However, given the expense and time associated with designing and 
implementing site-specific studies, such as contingent valuation, 
natural resource trustees have turned to alternative methods for the 
majority of oil spill damage assessments. Two alternative methods have 
been included in the natural resource damage assessment regulations 
promulgated pursuant to the OPA: 1) the benefits transfer method and 2) 
the habitat or species replacement cost method. These alternatives 
allow the trustee to estimate compensable values or estimate damages 
for interim lost services at a lower cost than with site-specific 
studies. A third alternative may also be considered that would involve 
government expenditures on a resource as a lower bound for the 
``value'' of that resource.
    Benefits Transfer: The benefits transfer method uses existing 
estimates of use values or of valuation functions that were developed 
in one context to address a similar resource valuation question in a 
different context. Where resource values exist that have been developed 
through an administrative or legislative process, or where other values 
are appropriate, use of these values may allow a less time-consuming 
and less expensive damage estimation than original valuation analysis.
    Habitat or Species Replacement Cost: The habitat or species 
replacement cost method may be used to estimate damages for lost 
services from the injured habitats and/or biological resources, when 
human services provided by the habitat or species are difficult to 
quantify. This method involves estimating damages in terms of the cost 
of obtaining from alternative services the equivalent of the resource 
and/or services. In order to ensure that the scale of the compensatory 
restoration or replacement project(s) on which the cost calculation is 
based does not over- or under-compensate the public for injuries 
incurred, the proposed OPA rule suggests that the trustee must 
establish an equivalency between the present discounted value (PDV) of 
the quantity of lost services and the PDV of the quantity of services 
provided by the replacement project(s) over time.
    Contingent Valuation: NOAA's proposed rule allows the use of 
contingent valuation (CV) to produce assessments of interim lost value, 
including lost passive use value, based on its preliminary finding that 
such methodology is reliable enough for use in a judicial or 
administrative determination of natural resource damages. To achieve 
the reliability necessary for this purpose, however, NOAA has proposed 
a set of requirements to which the studies must adhere. This proposal 
was based on the guidance provided by the report of the NOAA Blue 
Ribbon Panel on Contingent Valuation (chaired by Professors Kenneth 
Arrow and Robert Solow) as well as other comments submitted to NOAA.
    NOAA worked closely with The U.S. Department of the Interior (DOI) 
in drafting and refining the contingent valuation (CV) language for the 
rule and in outlining the scope of a possible CV guidance document. DOI 
and NOAA agreed to propose similar language for both the Comprehensive 
Environmental Response, Compensation and Liability Act (CERCLA) and Oil 
Pollution Act (OPA) rules, thereby providing consistent approaches to 
CV in the two regulatory schemes.

Comment Summary

    Comments on the economic methods for computing compensable values 
generally took the form of question or dialogue. There was some 
dialogue among members of the public and NOAA presenters concerning the 
appropriateness of including contingent valuation as a method for 
estimating nonuse or ``passive'' values. One commenter queried whether 
trustees could do inexpensive contingent valuation surveys for smaller 
spills. Another participant wondered how the trustees would respond to 
a situation where a contingent valuation study used to measure total 
compensable value resulted in damages less than necessary for 
restoration. Conversely, the commenter queried how the rule would guide 
the trustee for whom a contingent valuation survey resulted in total 
compensable values of 100 million dollars when habitat replacement 
would result in damages of 100 thousand dollars.
    Habitat replacement was the subject of significant interest as 
commenters inquired whether it was a compensable values methodology or 
a restoration methodology. One commenter recommended NOAA provide a 
more clear explanation of the habitat replacement method in the rule 
and distinguish between habitat replacement and acquisition of the 
equivalent. In addition, it was suggested that NOAA clearly identify 
the possible double counting issues.
    One commenter suggested better guidance be made available on the 
``benefits transfer'' methodology. Of particular concern was the 
situation where baseline studies failed to be reliable.
    Lastly, the question of whether trustees should apply ``offsets'' 
when calculating damages was a topic of extensive discussion. Several 
commenters felt that in some circumstances a discharge of oil will 
cause an improvement in conditions for some natural resources or 
increase the services of other natural resources. These commenters felt 
that the responsible party should receive a positive offset against the 
injury to other natural resources or loss of their services. The 
``offset'' concept was viewed by some commenters as particularly 
appropriate for direct uses vis a vis passive uses.

Specific questions on which NOAA is seeking comment:

    1. What should be the role, if any, of the requirements for site-
specific CV studies measuring passive use value in determining whether 
the quality of a CV study is adequate for use in benefits transfer? How 
would the extent of the market be determined for benefits transfer 
using CV studies? Should the conditions be different for valuing direct 
use losses and for valuing passive use losses?
    2. Government expenditures (per unit of services injured) have been 
suggested as a proxy for the value of those services lost as a result 
of an incident. Should the OPA rule suggest that government 
expenditures may be used as a proxy for the value of a resource? Under 
what circumstances would use of this method be appropriate? For 
example, should the trustee be directed to consider whether the 
following two conditions be met in determining appropriateness of the 
method: changes in the quality/quantity of the injured resources can be 
related to the (change in) level of government expenditures; the 
government programs for which expenditures have been accounted are the 
major cause of the changes in the quality/quantity of the affected 
resource?
    3. The proposed OPA rule specifies that the trustee is to use the 
U.S. Treasury rate to discount for all three categories of damages: 
restoration costs, interim lost value, and damage assessment costs. 
Following the guidance in OMB Circular A-94 (for cost-effectiveness 
analysis and for federal leasing), nominal interest rates are to be 
used with damages in nominal terms (for example, past costs) and real 
rates (with an adjustment based on the Administration's prediction for 
future inflation published in the President's budget) are to be used 
for damages in real terms. ``Nominal terms'' refers to calculations 
expressed in the dollars of the year in which the damages accrued; 
``real terms'' refers to damages expressed in dollars of a base year 
(such as the year in which the claim is presented).
    For restoration costs, what if the return on accounts available to 
the trustee(s) for placement of recovered funds is lower than the U.S. 
Treasury rate, so that the present discounted value of future 
restoration costs will not support the full restoration project?
    4. The proposed OPA rule provides that the trustee must document 
the method used to calibrate hypothetical willingness to pay to actual 
willingness to pay. In the absence of such documentation, the trustee 
must divide by two. This calibration procedure is to ``correct'' for 
the combined effects of two countervailing potential biases: the 
mandated elicitation of willingness to pay (WTP) measures may 
understate the correct measure of damages [willingness to accept], 
whereas the elicitation of hypothetical WTP in contingent valuation 
studies may overstate ``true'' WTP.
    a. Is calibration appropriate? If so, is the proposed default 
calibration factor appropriate?
    b. On what basis could ``calibration'' factors be developed for 
individual cases?
    c. If reliable calibration of hypothetical to actual WTP is not 
feasible, would it be reasonable to rely on unadjusted WTP results of 
CV studies as a valid measure of nonuse values/use values?
    5. The proposed OPA rule states that two independent ``scope'' 
tests are to be conducted, showing significant changes in respondents' 
WTP in response to variations in the scope of injuries (from the injury 
scenario to be proved in the case), unless the trustee(s) can show 
creation of two alternate scenarios to the base case is infeasible due 
to considerations of cost or lack of plausibility of scenarios. The 
tests are to be conducted with an additional sample for each additional 
scenario, (a ``split sample'' test). Procedures are outlined for 
limiting the differences in scope between the base case and alternative 
scenarios.
    a. How many sensitivity to ``scope of injury'' tests are 
appropriate to require? Are restrictions on differences between 
scenarios appropriate or feasible?
    b. Is it appropriate to allow the trustee(s) to conduct the scope 
test with the base survey instrument, by constructing a valuation 
function to examine whether variations in belief about injuries predict 
variations in WTP, controlling for demographic and attitudinal factors? 
Are there additional/alternative internal validity test(s) that NOAA 
should consider?
    6. 70% is the minimum allowable response rate contained in the 
proposed OPA rule. In order to minimize non-response bias, should a 
minimum response rate be specified? If so, is 70% the appropriate 
level? If 70% is not the appropriate rate, what rationale is there for 
a different rate?
    7. In the proposed OPA rule, the trustee(s) is directed to use a 
choice mechanism that is credible and incentive-compatible, i.e., one 
that does not provide respondents with incentives to understate or 
overstate their true value. The reasons are outlined in the preamble 
for recommending the use of a referendum as the choice mechanism in a 
survey. Are these requirements appropriate?
    8. Should respondents with no knowledge of the resources and/or 
injuries prior to survey be assigned a zero value? What is the 
appropriate use of data on respondents' prior information?
    9. Should there be thresholds for damages, below which CV could not 
be used in a damage assessment, e.g., an expected $5/household times 
the number of households expected to hold passive values; and/or twice 
the cost of a contingent valuation survey following these regulations. 
What threshold, if any, is appropriate? How would the threshold be 
implemented (without performing a CV study?
    10. In the proposed rule, the trustee(s) has the option of choosing 
the mode of administration of a survey, but the choice must be 
justified. Is one mode, e.g., in-person, telephone, or mail, preferable 
to another? If so, or if not, what rationale supports it?
    11. Should the rule or preamble provide guidance as to criteria to 
be employed in determining the extent of the market?
    12. What requirements, if any, should be imposed on CV studies for 
valuing direct use only?
    13. What requirements, if any, should be imposed on contingent 
behavior studies?

    Dated: June 17, 1994.
Douglas K. Hall,
Assistant Secretary for Oceans and Atmosphere.
[FR Doc. 94-15192 Filed 6-21-94; 8:45 am]
BILLING CODE 3510-12-P