volume 2 – case studies€¦ · guidelines for economic evaluation of environmental health...

Department of Health and Ageing and enHealth Council

Guidelinesfor Economic Evaluation of

Environmental Health Planningand Assessment

Volume 2 – Case Studies

January 2003

ii Guidelines for Economic Evaluation of Environmental Health Planning and Assessment • Volume 2 • Case Studies

© Commonwealth of Australia 2003

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iiiGuidelines for Economic Evaluation of Environmental Health Planning and Assessment • Volume 2 • Case Studies

Preface

Launched in 1999, the National Environmental HealthStrategy was developed to enhance national environmentalhealth management through a framework drawn from the

range of issues that encompass environmental health. Thestrategy identifies the following key areas for improvingenvironmental health in Australia: strategic management,capacity building, and improving practice. Under the area ofstrategic management, the strategy identifies the need to bringtogether environmental and health economic techniques todevelop a new paradigm for environmental health economics.

A workshop was convened on 10 April 2000 to investigate anddiscuss the application of economic evaluation methodologies toenvironmental health planning. Following the workshop, theenHealth Council agreed that development of guidelines forenvironmental health economic evaluation was a priority. Theseguidelines are the product of that initiative.

These Guidelines for Economic Evaluation of Environmental Health

Planning and Assessment describe the method of economicevaluation and its application to environmental health policyissues. They consist of two volumes:

Volume 1 describes the major principles and practices ofeconomic evaluation with special reference to environmentalhealth issues.

Volume 2 describes four studies that illustrate the application ofeconomic evaluation methods to environmental health issues:

● Safety fencing of swimming pools, NSW.

● Water quality in Wallis Lake, NSW.

● Control of Legionnaires’ disease in Victoria.

● Control of sulfur dioxide emissions in Mount Isa,Queensland.

The Guidelines for Economic Evaluation of Environmental Health Planning

and Assessment are prepared for environmental health policymakers and others who work with environmental health issues.This includes environmental policy makers, epidemiologists,urban planners, engineers and allied health professionals.Economists are expected to consult the Guidelines when theyundertake environmental health economic evaluations.

PREFACE

iv Guidelines for Economic Evaluation of Environmental Health Planning and Assessment • Volume 2 • Case Studies

DISCLAIMER • ACKNOWLEDGMENTS

• LIST OF ABBREVIATIONS

DisclaimerThis document has been prepared in good faithexercising due care and attention. However, norepresentation or warranty, expressed or implied, ismade as to the relevance, accuracy, completeness orfitness for purpose of this document in respect of anyparticular user’s circumstances. Users of this documentshould satisfy themselves concerning its application to,and where necessary, seek expert advice about, theirsituation. The Department of Health and Ageing, theenHealth Council, and Queensland Health shall not beliable to the purchaser or any other person or entitywith respect to liability, loss or damage caused oralleged to have been caused directly or indirectly bythis publication.

AcknowledgmentsThe process of developing the draft Guidelines hasbeen managed by Queensland Health on behalf of theenHealth Council, with funding provided by theCommonwealth Department of Health and Ageing.The draft Guidelines have been prepared by AppliedEconomics Pty Ltd under contract to QueenslandHealth, with the principal consultant for AppliedEconomics Pty Ltd being Dr Peter Abelson. Overalldirection to the development process has been providedby a Steering Committee that consisted of thefollowing members:

● Dr Helen CameronCommonwealth Department of Health andAgeing.

● Mr Marc CarterEnvironment Australia, (previously representedby Ms Jeannette Heycox).

● Mr Jim DoddsBeaudesert Shire Council.

● Ms Sophie DwyerQueensland Health.

● Dr Latiffa LingQueensland Department of StateDevelopment.

● Professor Brian OldenburgQueensland University of Technology.

● Dr Thomas TenkateQueensland Health (Project Manager).

● Mr Brian HarrisonCommonwealth Department of Health andAgeing, provided substantial technical adviceon health economics.

List of Abbreviations

CBA Cost-benefit analysis

CEA Cost-effectiveness analysis

COI Cost of illness

CUA Cost-utility analysis

CV Contingent valuation

DALY Disability adjusted life year

HRQL Health related quality of life

NPV Net present value

NSB Net social benefit

QALY Quality adjusted life year

QoL Quality of life

SC Stated choice

VOLY Value of a life year

VOSL Value of statistical life

WHO World Health Organisation

WTA Willingness to accept

WTP Willingness to pay

vGuidelines for Economic Evaluation of Environmental Health Planning and Assessment • Volume 2 • Case Studies

Contents of Volume 2

Preface iii

Disclaimer iv

Acknowledgments iv

List of Abbreviations iv

Contents of Volume 2 v

1 Summary of Case Studies 1

1.1 Introduction 11.2 Economic Evaluation of Mandatory Fencing of Backyard

Pools in New South Wales 11.3 Economic Evaluation of Policies to Improve Water Quality

in Wallis Lake, New South Wales 21.4 Economic Evaluation of Regulations to Reduce the Risk of

Legionnaires’ disease in Victoria 41.5 Economic Evaluation of Sulfur Dioxide Emissions from

Mount Isa Mines, Queensland 61.6 Key Messages 7References 8

2 Economic Evaluation of Mandatory Fencing for BackyardSwimming Pools in New South Wales 9

2.1 Introduction 92.2 The Base Case and the Mandatory Fencing Policy 102.3 Swimming Pools and Drownings in the Base Case 122.4 Approach to Evaluation: Identifying the Incremental Impacts 132.5 Costs of Pool Fencing and Water Safety Programs 142.6 Benefits of Pool Fencing and Water Safety Programs 152.7 Overall Evaluation of Policy, Risks and Distributional Analysis 182.8 Conclusions 19References 20

3 Economic Evaluation of Policies to Ensure Public Health byImproving Water Quality in Wallis Lake, New South Wales 21

3.1 Introduction 213.2 Water Quality Policies: The Issues 213.3 Approach to Economic Evaluation: Policy Options and Impacts 243.4 Estimating Policy Costs 243.5 Estimating Policy Benefits 293.6 Evaluation of Overall Result, Risks and Distributional Effects 38

References 39

CONTENTS OF VOLUME 2

vi Guidelines for Economic Evaluation of Environmental Health Planning and Assessment • Volume 2 • Case Studies

4 Economic Evaluation of Risk Reduction Policies forLegionnaires’ disease in Victoria 40

4.1 Introduction: The Issues 404.2 Policies to Reduce Legionnaires’ disease: Base Case and Options 41

4.3 Overview of Evaluation Method 424.4 Estimated Costs of the New Regulations 424.5 Estimated Benefits of the New Regulations 434.6 Results of the Economic Evaluation 464.7 Distributional Impacts 484.8 Review of Alternatives 484.9 Comments on the Economic Evaluation 49References 49

5 Economic Evaluation of Policies for Sulfur DioxideEmissions from Mount Isa Mines, Queensland 50

5.1 Introduction 505.2 Nature of the Issues 505.3 Outline of an Economic Evaluation 535.4 Mount Isa Mines Panel Assessment Study 555.5 Economic Assessment of Health Effects 585.6 Mount Isa Mines Study: Evaluation Issues 61References 62

enHealth Council Publications 63

Terms of Reference and Membership of the enHealth Council 64

CONTENTS OF VOLUME 2

1Guidelines for Economic Evaluation of Environmental Health Planning and Assessment • Volume 2 • Case Studies

1

Summary of Case Studies

1.1 IntroductionVolume 2 of the Guidelines describes thefollowing four economic evaluations ofenvironmental health issues:

1. Mandatory isolation fencing of backyardswimming pools in New South Wales (NSW).

2. Policies to improve water quality in WallisLake, NSW.

3. Regulations to reduce the risk ofLegionnaires’ disease in Victoria.

4. The impact of sulfur dioxide emissions fromMount Isa Mines (MIM), Queensland.

The first two case studies were prepared byApplied Economics. The other two studies arereviews of evaluations prepared respectively bythe Victorian Department of Human Services(2001), and the MIM Panel Assessment Study(2001).

The case studies are intended to illustrate themethodology for economic evaluations describedin the Guidelines (Volume 1). The results of thecase studies may also be of interest, but the focusof this volume is on methodology rather thanresults.

As described in Volume 1, an economicevaluation typically consists of nine steps (seeBox 1.1). The first two case studies broadly followthese steps, although variations in proceduresarise as the issues vary in each case. TheVictorian study also contains most of theelements of a standard economic evaluation.The MIM study focuses mainly on the health andecological impacts of sulfur dioxide emissions andis a less complete economic evaluation.

This chapter summarises the main proceduresand results for each case study. The final sectionof the chapter identifies some core messages thatemerge from the case studies.

Box 1.1 Standard steps ineconomic evaluation

As described in the Guidelines (Volume 1),there are nine standard steps in aneconomic evaluation.

1. Identify the issues and objectives

2. Establish the baseline scenario

3. Develop policy options

4. Identify incremental impacts: costsand benefits

5. Quantify/value the costs andbenefits

6. Estimate the overall value of projector policy

7. Test the effects of program risks

8. Consider equity and distributionalissues

9. Prepare report

1.2 Economic Evaluation ofMandatory Fencing ofBackyard Pools in NSW

The case study in Chapter 2 demonstrates themethodology for evaluating mandatory fencingof backyard pools, based on the experience inNSW.

In 1990, the NSW parliament passed legislationthat required all private pools in NSW to haveisolation fencing, including existing pools.Following lobbying by pool owners, the 1990legislation was replaced by the Swimming Pools Act

1992. This Act required all pools built after1 August 1990 to be surrounded by isolation

2 Guidelines for Economic Evaluation of Environmental Health Planning and Assessment • Volume 2 • Case Studies

fencing. In conjunction with the fencinglegislation, various government and non-government agencies devote considerableexpenditure to water safety programs, educationand training for all ages, especially for pre-schoolchildren.

The study estimates the costs of enclosingswimming pools, of maintaining the fencing, andof local council monitoring inspections, to 2015.It also includes estimated expenditures on watersafety programs for pre-school children, althoughthe only data are current data.

The estimated benefits are the value of livessaved, health improvements due to reductions innear drownings, and savings in acute and chronichealth care costs, to 2015.

Drawing on limited existing data, the results areindicative rather than conclusive. In particular,estimates of the impacts of the isolation fencingregulations are problematic. Drownings werefalling before the regulations were introduced.Although this falling trend continued, the impactof the regulations on the trend is hard to quantify.

The study suggests that the quantified costs of theprogram may have slightly exceeded the benefits.A possible explanation is that all households arerequired to provide isolation fencing forswimming pools, regardless of the probability ofpre-school children gaining access without afence. The benefits will not accrue to thosehouseholds with no chance of vulnerable pre-school being in proximity. However, this overallresult is sensitive to the choice of discount rateand to the period of the evaluation.

As is generally the case, parts of the analysis aremore robust than other parts. Most of the costestimates are quite robust, although there isuncertainty about the proportion of public safetyprograms aimed at pre-school safety and abouthistoric expenditures on these safety programs.The most significant quantified uncertainty is theimpact of the legislation and the public safetyprograms on drownings and near drownings.

Also, there are some significant unquantifiedeffects. Chief among these is the impact of safetyfencing on minor accidents and the reduction infamily distress associated with the reduction indrownings and near drownings.

This means that the technical economic analysisprovides only a partial picture of all the costs andbenefits associated with the safety policies. For thedevelopment of public policy, social and politicaljudgement is required as well as technicaleconomic analysis.

Apart from the results, the case study illustratessome important evaluation principles. Theseinclude the importance of incremental analysis,discounting, the measurement of benefits, andsensitivity tests.

1.3 Economic Evaluation ofPolicies to ImproveWater Quality in WallisLake, NSW

In the summer of 1997 consumption of oystersfrom Wallis Lake caused an estimated 444 peoplearound Australia to suffer from viral hepatitis A.

The Commonwealth and NSW Governmentsand the Great Lakes Shire immediately initiated apackage of policies to improve water quality andensure the safety of oyster consumption. Thepackage included:

● Policies to prevent human waste entering intoWallis Lake.

● Substantially increased monitoring of waterquality in Wallis Lake.

● Stronger measures to ensure safe oysters.

● Stronger measures to deal with animal waste.

● Many other improvements in catchmentmanagement.

This case study focuses on the first three sets ofpolicies. The costs and benefits of the newpolicies are assessed relative to a baselinescenario, based on the policies with respect tohuman waste disposal, oyster production, andwater quality in place at the end of 1996. Costsand benefits are assessed over the period 1997 to2020 in approximate 2000 prices.

The costs include: a substantially augmenteddistrict sewerage system, improved on-sitesewerage systems for existing and new houses,improved maintenance and increased Councilmonitoring of on-site systems, improved public

SUMMARY OF CASE STUDIES


toilets on islands in the lake, increased testing ofoysters, and increased monitoring of waterquality in Wallis Lake. For each cost item, thereport explains the basis for the cost estimate.With a 5 per cent discount rate, the estimatedpresent value of these costs is $13.9 million.

Benefits of the water quality programs areestimated for:

● consumers of oysters who avoid ill health,

● oyster producers who gain income fromincreased output,

● local property owners who have increasedresidential amenity,

● local landowners who can subdivide anddevelop their property,

● visitors to the area who do not have to switchto a less preferred holiday location, and

● owners of caravan parks whose risk of amajor adverse incident is reduced.

Local businesses also benefit from avoidingrevenue loss in a crisis. However, any such benefitwould be at the expense of businesses in otherareas and is not included in the basic economicevaluation. No significant benefit was found forthe local fishing industry.

With a 5 per cent discount rate, the estimatedpresent value of the benefits is $13.0 million.Accordingly, the estimated net present value ofthe programs is –$0.9 million.

However, there are significant uncertainties withregard to costs and benefits, the resolution ofwhich is beyond the scope of this paper. Someuncertainties could be reduced by more localresearch. For example, local research couldimprove data on the incremental cost of theNabiac District sewerage scheme, the incrementalcapital and maintenance costs of the new on-sitesewerage requirements for existing and newhouses, and the benefits of improved seweragesystems to various types of property owners.

Other uncertainties are more fundamental. Oneis the cost of illness. The estimated benefits ofimproved health are based in these studies on avalue of a healthy life year of $150,000. This is a

defensible value, but a relatively high one forAustralian studies. Ideally, there would be somecentral direction and uniformity of values used ineconomic studies. The second uncertainty is theprobability of occurrence of hepatitis A andNorwalk viruses without, and with, the newpolicies. There have been few incidentshistorically on which to base forecasts of futureprobability of an outbreak. These probabilitieshave a significant impact on the estimatedbenefits.

The distributional impacts of the new policiescan be assessed from several perspectives: localresidents, owners of properties that obtainedreticulated sewerage services, owners of on-sitesewerage systems, oyster producers andconsumers, local tourism businesses, visitors, andso on.

For example, to estimate the overall benefits tolocal residents, it would be necessary:

● to exclude state government contributions tothe cost of the Nabiac district seweragescheme.

● to exclude benefits to non-resident consumersof oysters and to visitors to the Great LakesShire, and

● to include benefits to local businesses that aretreated as transfer payments in the economicevaluation.

As it happens, these effects approximately offseteach other and the estimated net present value ofthe water quality policies to local residents is–$1.0 million. Among local residents, gainersfrom the new policies include local oysterproducers whose gains exceeded theirincremental expenditures, local oyster consumers,local landowners who can subdivide their landafter reticulated sewer services are provided, andlocal businesses. The main losers were those whowere required to invest in and maintain improvedon-site sewerage systems. Households andcaravan park owners who received reticulatedsewerage services had to contribute to theseservices, but also gained from them. Some ofthese may have gained and others lost from thenew policies.



1.4 Economic Evaluation ofRegulations to Reducethe Risk of Legionnaires’disease in Victoria

In 2001 the Victorian government introduced apackage of regulations designed to reduce the riskof Legionnaires’ disease associated with coolingtowers and warm water systems. This case studydescribes and comments on the economicevaluation of the proposed regulations, whichwas prepared by the Department of HumanServices (DHS, 2001). The focus of this study ison the method of evaluation rather than on themerits or otherwise of the regulations.

The new regulations deal with operating systemsrather than capital requirements. They specifyrequirements for maintenance of man-madesystems, which are expected to increasecompliance. There is to be a register of coolingtower systems along with various requirementsfor management plans, annual audits, inspectionprograms and maintenance and testing systems.The new standards are also stricter. Thethreshold level of bacteria triggering remedialaction was reduced from 500,000 CFU/ml to100,000 CFU/ml.

New regulations dealing with disinfection andsystem requirements are also introduced forwarm water systems. On the other hand, therequirement that thermostatic mixing valves beroutinely maintained are eased because of itshigh cost and limited benefit.

The main features of the economic evaluationare as follows:

● The baseline scenario is the control costs forcooling towers and warm water systems andthe cases of Legionnaires’ disease that wouldoccur in the absence of the new regulations.

● The package of control measures is evaluatedas a whole. DHS (2001) argues that theestimated benefits can be considered only inaggregate and not with particular programs.

● The incremental costs and benefits areestimated over a 10-year life. Recurrent costsare the main expenditures.

● Cost and benefits are discounted to presentvalues using a real discount rate of 6 per cent.

● The evaluation does not explicitly value livessaved. It presents the difference between theestimated cost of the package and theestimated benefits of the control measuresexcluding the value of lives saved andestimates the net cost per life saved.

● The report produces one sensitivity test basedon the number of lives that would be saved. Italso describes the main distributional effects.

● The report discusses various alternativepolicies but does not formally evaluate them.

DHS officers estimated in detail the incrementalcosts of the control programs based oninformation supplied by industry participants andlaboratory personnel. The report estimates thatthere are 10,000 cooling towers, distributedamong 3500 premises. There are alsoapproximately 200 warm water systems andabout 10,000 thermostatic mixing valves.

The estimated total present value of the costs ofthe control package is $50.1 million (presumablyin 2001 dollars). Most of these costs are associatedwith cooling towers. The net costs for warm watersystems are low because there are fewer suchsystems and the new package allowed fortnightlytests of thermostatic mixing valves in warm watersystems to be replaced by annual tests, whichproduced estimated savings of $5.3 million.

DHS (2001) identifies direct and indirect benefitsof the new regulations. Direct benefits are earlydeaths and illness avoided. Indirect benefits arereduced industrial disputes, increased tourism,fewer industrial shutdowns, and increasedconfidence in public buildings. The reportquantifies deaths and illness avoided. However, itmonetises only the benefits of illnesses avoided.The report attaches little weight to the indirectbenefits and does not quantify them.

Drawing on expert opinion, DHS (2001)estimates (i) that 80 per cent of the cases ofLegionnaires’ disease are associated with coolingtowers or warm water systems and (ii) that thenew regulations would reduce these cases by 25 to50 per cent. The report estimates that the newregulations would avert a total of 10 to 20premature deaths over 10 years.

DHS (2001) adopts similar assumptions for non-fatal cases. An important assumption is that



incidents of the disease are ten times the numbersnotified. The report estimates that 1248 cases ofLegionnaires’ disease would be averted in10 years. Allowing for savings in hospitalisationand medical expenses and for $5000 loss ofoutput per incident, the estimated present valueof reductions in non-fatal cases is between$11 million and $22 million. This does not allowfor reduced pain and suffering.

Given the estimated present value of the costsand benefits, DHS estimates that the estimatedcost per life saved is between $1.43 million and$3.93 million. DHS argues that these valuationsper life saved are within ‘accepted benchmarksfor effective policy’.

This conclusion overlooks two points. One is that,if the lives saved occur after year one, the valueof the lives should be discounted. The second isthat if the regulations avert the early death ofelderly persons, they will save fewer years thanthe 40 years that are the basis for most ‘values oflife’.

However, as DHS notes, the report has notvalued pain and suffering, which represents animportant additional but unquantified benefit.

In terms of the burden of the regulations, DHS(2001) estimates that the regulations wouldincrease expenditure by small businesses bybetween $510 and $1730 per annum.

DHS (2001) considers nine alternatives, includingsix options for changes in the regulatory processand three substantive options. The report argueson qualitative grounds that none of these optionsis preferred to the proposed regulations. DHS didnot consider two other rather more radicaloptions. One would be a strengthening of theengineering requirements for buildings. Theother would be a pure legal liability system.

Comments on Methodology

The DHS (2001) economic evaluation of theproposed regulations for cooling towers andwarm water systems is broadly consistent with the

Guidelines (volume 1). There is a clear statementof the need for higher control measures and theobjectives of the measures. Costs and benefits areestimated relative to the established baselinescenario. Assumptions are stated clearly.

DHS (2001) argues that the package ofregulations should be evaluated as a wholebecause benefits cannot be attributed toparticular regulations. This may be broadly true.However, it appears that the net benefits of theregulations on cooling towers and warm watersystems could be estimated separately. This couldbe insightful because the regulations appear morebeneficial for warm water systems than forcooling towers.

Many estimates are subject to significantuncertainty. Compliance is a major issue. If thecurrent level of compliance is overestimated,baseline costs of regulations are overestimatedand incremental costs are underestimated. Onthe other hand, if compliance with the newregulations is overestimated, both incrementalcosts and benefits are overestimated.

Other important assumptions are the number ofcooling tower systems, maintenance costs, thenumber of cases of Legionnaires’ disease notnotified, the value of output lost, and the efficacyof the new regulations. The reliability of theseestimates and the effects of these uncertainties onthe results might be explored further.

DHS (2001) did not include values of lives (oryears) saved in the CBA. The Guidelinesrecommend including the estimated value of(statistical) lives saved, or preferably the estimatedvalue of (statistical) life years saved.

DHS reviewed nine policy options as well as therecommended package. However, it did notreview a strengthening of the engineeringrequirements for cooling towers and warm watersystems. The engineering requirements were takenbroadly as a given. Limitations on the scope ofeconomic evaluations have to be accepted. Thislimitation might have been made more explicit.



1.5 Economic Evaluation ofSulfur DioxideEmissions from MountIsa Mines

Smelting operations from Mount Isa Minesproduce a net output of sulfur dioxide (SO

2)

emissions of about 500,000 tons per annum.These emissions sometimes exceed nationalambient standards. They are perceived todamage the health and amenity of residents ofthe local town of Mount Isa and to damageecosystems with a 15 to 20 kilometre radius ofthe smelting operations.

Under the Mount Isa Mines Limited Agreementbetween the Queensland Government and MIM,a Panel Assessment Study was commissioned toexamine the (SO2) emissions from the smelters.The study was required to provide advice on:

● The impact that the SO2 emissions mighthave on community health and the naturalenvironment;

● Feasible emission control technologies thatwould enable MIM to meet relevant ambientair quality standards for sulfur dioxide.

The study took four years. In addition to theFinal Report (MIM Panel Assessment Study,2001), there are twelve supporting reports. Theseinclude reports on site history, options to controlSO2 emissions, the impact of emissions on thenatural environment, community health impacts,and economic assessments of health impacts andthe contributions of the smelter operations to theregional and national economies.

The Panel Assessment Study found that SO2

emissions from MIM are usually (though notalways) below national ambient standards. If theycause health and ecosystem damages, thedamages are considered minor compared withthe economic benefits of the smelter operations.The Panel concluded that some additionalemission control technologies for the smelterscould be viable and warranted furtherexamination.1 However, the study does notprovide a formal economic evaluation of policiesto reduce sulfur dioxide emissions.

The purpose of this case study is to illustrate theissues that arise in this kind of case and methodsfor dealing with them. It is not the aim of thispaper to debate whether the Panel AssessmentStudy reached correct conclusions.

Our case study starts with an assessment of theproblem. In principle, methods to reduce SO2

emissions should be introduced when themarginal benefit of controls exceeds the marginalcost. Thus estimates of marginal benefit and costare required.

Section 5.3 then outlines how an economicevaluation might be conducted. Following theGuidelines, the evaluation would identify theproblem to be assessed, establish the baselinescenario, identify the main policy options,estimate the policy costs, estimate the health andother benefits of the policy, estimate the net socialbenefits of the options, and describe thedistributional effects.

Section 5.4 discusses the general approach andfindings (summarised above) of the PanelAssessment Study. Section 5.5 focuses on thehealth impacts of sulfur dioxide emissions,describing methods for identifying, quantifyingand monetising the health impacts. The finalsection draws some conclusions. The main onesare as follows.

Comments on Methodology

The Panel Assessment Study cannot be regardedas an economic evaluation for several reasons.First, the Panel compares the gross value of theoutput of the smelters and related downstreamactivities with the estimated health costs. This is afalse comparison. The real (social) value ofoutput produced by the smelters and relateddownstream activities is the gross value less theopportunity cost of the resources employed toproduce this output.

More fundamentally, a comparison of the valueof output produced by the smelters and the healthcosts due to the smelters does not address the realproblem. The real economic problem is notwhether to close down the smelters, but how tofind the optimum level of SO2 emissions and the


1 Ten members of the Panel Assessment Study signed the Final Report. Three members from the Queensland Conservation Council did not sign the report.


most cost-effective way to produce this level ofemissions. The Panel does not address these issues.

Related to this, the Panel study does not addressincremental (marginal) issues. The issue in MountIsa is whether SO

2 emissions should be reduced

by certain methods by a little at various times inthe year or day. To determine this, estimates ofmarginal cost and marginal benefit are required.

Fourth, the Panel report does not discuss thecapital and operating costs of any of the optionsto reduce SO2 emissions.

Fifth, the Panel does not attempt to estimate thefull benefits of reductions of SO

2 emissions.

These benefits would include the benefits ofimproved health, amenity and ecosystems.Certainly, the Panel examined the health andecosystem impacts of SO2 emissions inconsiderable depth and produced someinformative findings. It may be inferred from thesefindings that the benefits of improved health wouldbe low and that it would be difficult to achievesignificant improvements in local ecosystems.

However, the Panel did not attempt to estimatewhat people would be willing to pay for improvedhealth, amenity and ecosystems. Varioustechniques are available to measure willingness topay values, including hedonic property priceanalysis and contingent valuation.

These points should not be construed as acriticism of the Panel’s work or conclusions. ThePanel was charged by the Minister to fulfil certainterms of reference. These terms of reference didnot explicitly include carrying out an economicevaluation of policy alternatives to reduce SO2

emissions from MIM smelters.

1.6 Key MessagesCertain important messages emerge from thesecase studies. First, it is important to identify theproblems to be addressed and the options forsolving them. In the Wallis Lake case, a majorpackage of policies involving large expenditurewas implemented partly because it was difficult toidentify the cause of the outbreak of hepatitis A.Hence many policies were implemented simply toimprove water quality. Some of theseexpenditures may not have been justified.

In the MIM case study, the problem that shouldhave been addressed was the optimum amountand control of sulfur dioxide. But the study wasnot formulated in this way.

A major related issue is the importance ofidentifying incremental or marginal costs andbenefits. For example, the Victorian study ofregulations to reduce the risk of Legionnaires’disease did not attempt to estimate the marginalcosts and benefits of the regulations separately forcooling towers and warm water systems.

Where possible, costs and benefits should bequantified. The first three case studies reported inthis volume show the advantages of providing anexplicit set of estimates for costs and benefits.

Costs and benefits should also be estimated inrelation to time period and the costs and benefitsdiscounted to a present value to provide anestimated overall net social benefit. In the MIMstudy, costs and benefits were not estimated over atime profile and no estimates of net social benefitwere made. This limited the value of the work.The Legionnaires’ disease study reportedestimated lives saved but did not provide a timeprofile or allow for the timing of the lives saved.

However, even with a fairly detailed study, such asthe Wallis Lake and Legionnaires’ studies, thereare inevitably uncertainties and unknowns.Sensitivity analysis can show how the results mayvary with changes in important assumptions andis generally useful.

Nevertheless, some impacts such as pain andsuffering are difficult to quantify. In theswimming pool case study, it was not possible toquantify the incidence of minor pool accidents orthe reduction in social distress and familydysfunction due to fewer drownings. Thesefactors could be significant for policy makers andshould be clearly reported.

Policy makers may also be interested in thedistributional impacts of any policy. This is notalways the case and sometimes policy makers donot want an explicit analysis of distributionalimpacts. However, the economic evaluationshould provide sufficient data for the policymakers to understand and address thedistributional impacts, as they consider appropriate.



Finally, the economic evaluation should bepresented so as to provide a structured view ofthe main costs and benefits of any policy orprogram. This will generally be very helpful topolicy makers. Almost always, however, there willbe some unquantified impacts or risks or socialconsiderations that will also be taken into accountin policy makers’ decisions.

ReferencesDepartment of Human Services, 2001,

Legionnaires’ disease: Managing the Health Risk

Associated with Cooling Towers and Warm Water

Systems, Regulatory Impact Statement Health(Legionella) Regulations, 2001. Melbourne.

Mount Isa Mines Panel Assessment Study, 2001,Final Report, Mount Isa Mines, Queensland.



Economic Evaluation of MandatoryFencing for Backyard Pools in NewSouth Wales

2.1 IntroductionIn most developed countries, drowning rankssecond or third behind motor vehicles and fires asa cause of unintentional injury deaths to childrenunder the age of 15 (Thompson and Rivara,2001). Drowning is the major cause of death forchildren under five. Further, private backyardswimming pools are the site of two–thirds ofthese deaths (Sayer et al., 1998).

Pool fencing is a passive environmentalintervention designed to reduce unintendedaccess to swimming pools and thus to preventdeaths in the pre-school age group. In particular,isolation fencing places a barrier between a houseand a pool and has a self-closing gate. AllAustralian States and Territories have introducedvarying requirements for pool fencing.

Some studies in Australia and New Zealand haveshown that isolation pool fencing can be aneffective environmental intervention that reducesunintended access to pools (Thompson andRivara, 2001). If properly maintained, isolationfencing can significantly reduce the risk ofdrowning for pre-school children (Fergusson andHorwood, 1984; Pitt and Balanda, 1991).

However, there has been little economicevaluation of pool fencing. The main exception isthe study by Harris et al. (1995) of experience inWestern Australia. This study concluded that thecost of fencing per life saved was between$4.2 million and $6.7 million, which wassignificantly higher than most Australian valuesof life. Thus the costs of mandatory isolationfencing exceeded the benefits.

The case study in this chapter evaluates the casefor mandatory fencing of backyard pools basedon experience in New South Wales (NSW).Because the paper draws on limited existing data,the results are indicative rather than conclusive.

Apart from the results, the case study illustratessome important evaluation principles, includingthe importance of incremental analysis,discounting, the measurement of benefits, andsensitivity tests (see Box 2.1).

Box 2.1 Economic evaluationprocess

This case study illustrates the process ofeconomic evaluation.

● Identify the policy or program tobe evaluated

● Establish the base case

● Identify the incremental costs andbenefits

● Identify the costs and benefits tobe quantified

● Estimate the costs and benefitsover time of the policy

● Estimate the overall net benefit ofthe policy

● Consider sensitivity of results toassumptions and unquantifiedeffects

● Describe the distributionalimplications of the policy

● Draw conclusions

The study starts with a description of the NSWlegislation and public health programs designedto achieve pool safety. Section 2.3 providesstatistics on pools and pool drownings in the basecase. The following sections identify the majorimpacts, estimate the costs and benefits ofmandatory pool fencing, and summarise theresults of the evaluation.

2


2.2 The Base Case and theMandatory FencingPolicy

In 1990, the NSW parliament passed legislationthat required all private pools in NSW to haveisolation fencing, including existing pools. Thiswould have imposed significant expenses on poolowners and, in some cases, difficult landscapingsolutions. There were few precedents forretrospective domestic safety legislation and nonerequiring individual households to incur outlaysof such proportions (Carey et al, 1994).

Following pool owner lobbying against the 1990legislation, the 1990 legislation was replaced bythe Swimming Pools Act 1992. This Act requires allpools built after 1 August 1990 to be surroundedby isolation fencing. Pools built before this dateneed be surrounded only by a child-resistantbarrier that separates a pool from any adjoiningpremises.

In 1998, the government enacted the Swimming

Pools Regulation 1998. Clause 5 of the NSWRegulation prescribes AS1926 (fences and gates forprivate swimming pools) as the minimumstandard for the design, construction, installationand maintenance of a child-resistant fencesurrounding a swimming pool. Clause 6(2)provides that a doorway giving access to theswimming pool must be a child-safe door, andmust be kept child-safe by means of a lock, latchetc, located at least 1.5 metres above the ground.There must not be any footholds wider than10 millimetres between the release mechanism ofthe door and any point 100 millimetres aboveground level.

Compliance with legislation

Local councils in NSW are responsible forregulating and enforcing the Swimming Pools Act

1992. Each council is required to ensure that it isnotified of the existence of all swimming poolswithin its boundaries and to promote localswimming pool owners’ awareness of the fencingrequirements of the Act (s5). However, manylocal councils believe that pool owners areresponsible for ensuring a pool complies with thelegislation and that a council inspection isrequired only for a pool installation subject to abuilding application (Sayer et al, 1996).

Although there is no clear requirement forcouncils to inspect swimming pools regularly forcompliance, councils may prosecute householdsthat fail to comply. In practice, councils maydecide whether regular inspections of swimmingpools are necessary (s27).

In 1993 The NSW Pool Fencing AdvisoryCommittee recommended that a regular surveyor inspection program of private pools beundertaken to collect information on the numberof private pools, including data on fencingconfiguration and compliance. Thisrecommendation was never implemented (Sayeret al, 1996). Because of the inadequacy of dataon pool owner compliance with the 1992 Act, itcannot be assumed that:

● all pools built after 1 August 1990 complywith the legislation; or that

● August 1990 or even 1992 represents a majorturning point in the fencing of swimmingpools.

Some councils would have formulated theirstrategies pursuant to the 1990 and 1992 Actsonly in 1993. Even then, strategies would havelikely taken most of 1993 to implement, andowners of pools subject to the legislation (ie poolsbuilt after 1 August 1990) may not haveresponded immediately.

Water safety programs

In conjunction with fencing legislation, variousgovernment and non-government agencies inNSW devote considerable expenditure to watersafety promotion, education and trainingprograms. The main sources of water safetyactivity are the Royal Life Saving Society, NSWBranch (RLSS) through its Keep Watch andInfant Aquatic Programs, and the NSWDepartment of Sport and Recreation through theWater Safety Task Force. The RLSS’s KeepWatch Program features the incorporation of acassette tape, brochure and poster on toddlerwater safety in the ‘bounty bags’ that aredelivered to parents of all newborns. As theseprograms are aimed at many age groups, it isdifficult to disentangle what is specificallytargeted on water safety promotion to parents ofchildren in the 0–4 age group.

ECONOMIC EVALUATION OF

MANDATORY FENCING FOR

BACKYARD POOLS IN NSW


Table 2.1 Estimated private backyard swimming pools in NSW

Year Total stock Stock to which Estimated no. Estimated %of pools 1992 Act appliesa of fenced poolsb of fenced pools

1986 215,000 0 43,000 20.0

1987 221,500 0 44,200 20.01988 228,000 0 45,600 20.01989 235,000 0 47,000 20.01990 242,000 2,000 50,000 20.7

1991 250,000 10,000 58,000 23.21992 258,000 18,000 66,000 25.61993 266,000 26,000 74,000 27.81994 275,000 35,000 83,000 30.11995 284,000 44,000 92,000 32.3

1996 294,000 54,000 102,000 34.7

1997 304,000 64,000 112,000 36.81998 315,000 75,000 123,000 39.01999 326,000 86,000 134,000 41.12000 336,000 96,000 144,000 42.8

2001 346,000 106,000 154,000 44.52002 356,000 116,000 164,000 46.12003 367,000 127,000 175,000 47.72004 378,000 138,000 186,000 49.22005 389,000 149,000 197,000 50.6

2006 400,000 160,000 208,000 52.02007 412,000 172,000 220,000 53.3

2008 424,000 184,000 232,000 54.72009 436,000 196,000 244,000 56.02010 448,000 208,000 256,000 57.1

2011 460,000 220,000 268,000 58.32012 473,000 233,000 281,000 59.42013 486,000 246,000 294,000 60.52014 499,000 256,000 304,000 60.92015 513,000 269,000 317,000 61.7

a Act applies to all pools built after 1 August 1990.

b Assumes that 20 per cent of pools built before 1990 were fenced and 100 per cent compliance with 1992 legislation.

Source: Hansard, 7 May 1992; Sayer et al (1996); SWSAHS, NSW Health (http://www.swsahs.nsw.gov.au/livtrauma/public/injprevent/drowning.asp); Swimming Pool and Spa Association of NSW Ltd





2.3 Swimming Pools andDrownings in the BaseCase

There is no central register and few data onprivate backyard swimming pools in NSW. Therewere an estimated 250,000 pools in 1991(Hansard, 7 May 1992) and 326,000 pools in1999 (NSW Health). This represents a growthrate of slightly over 3 per cent per annum.

We draw on these data to estimate the number ofprivate backyard swimming pools in NSW from1986 to 2015 in Table 2.1. The forward andbackward projections use a 3 per cent net annualgrowth rate in pools, which allows for some poolsto be taken out of commission. The table alsoshows the estimated number of swimming poolssubject to the 1992 Act and the estimated totalnumber of fenced pools. The latter figureassumes that 20 per cent of pools in existence in1990 were fenced (based on discussions withpeople in the industry) and that no more of these

were fenced after 1990, but that all post August1990 pools comply with the 1992 Act. Theassumption that no existing 1990 pools would befenced after 1990 may be an underestimate. Onthe other hand, the assumption of 100 per centcompliance with the 1992 Act is doubtless anoverestimate.

Drownings and near drownings inNSW

Table 2.2 shows estimated drownings and neardrownings for the 0–4 age group in NSW.Information on drownings is drawn from the bestcontinuous data available, using relevant ‘E’codes for purposes of Supplementary classification of

external causes of injury and poisoning. Near drowningrelates to toddlers who survive immersion butrequire hospitalisation because of a neurologicaloutcome (Ross et al, forthcoming). For neardrowning, useful continuous data are availableonly from 1992, after the Swimming Pool Act wasintroduced.

Table 2.2 Toddler drowning and near drowning in NSW, 1986 – 1999

Rate per Rate per100,000 Rate per No. of 100,000 Rate per

Year No. of persons 100,000 near persons 100,000drownings aged 0–4 pools drownings aged 0–4 pools

1986 21 5.07 9.741987 18 4.31 8.101988 20 4.74 8.741989 21 4.94 8.911990 18 4.21 7.43

1991 11 2.55 4.401992 17 3.89 6.60 48 10.99 18.751993 11 2.51 4.13 44 10.02 16.921994 10 2.27 3.64 58 13.18 21.09

1995 12 2.61 4.22 46 10.02 16.191996 5 1.09 1.71 27 5.88 9.181997 11 2.39 3.62 10 2.17 3.281998 10 2.18 3.18 23 5.02 7.321999 6 1.39 1.84 36 8.32 11.04

Total 191 – – 292 – –

Source: Injury Risk Management Centre, UNSW





Table 2.2 shows a very substantial fall indrownings, especially relative to the number ofpools. Drownings fell from over 8 per 100,000pools in the 1980s to less than 4 per 100,000pools in the mid-1990s. Figure 2.1 shows theoutcome graphically.

For near drownings, useful continuous data areavailable only since 1992, after the Swimming Pool

Act 1992 was introduced. In the 1990s, there wereabout 4 recorded near drownings for eachrecorded drowning. The near drowning rate alsofell by over 50 per cent in the 1990s.

2.4 Approach to Evaluation:Identifying theIncremental Impacts

The economic evaluation assesses the costs andbenefits of the fencing of swimming poolsbetween 1990 and 2001 as a result of the NSWpool fencing legislation and the associated publicwater safety programs. The evaluation period is1990 to 2015. The end point allows for a 25–yearprogram, but is inevitably arbitrary. Sensitivitytests to 2020 are also made.

The costs are the estimated costs associated withpool fencing and water safety programs from1990. It should be noted that only the incremental

costs of pool fencing are included. The costs ofpool fencing for the 20 per cent of pools that areassumed would be fenced without the poollegislation are not included. The costs include thecosts of fencing the other 80 per cent of poolsbuilt since August 1990, annual inspection andmaintenance costs, and expenditures on child–based water safety programs. The latter isincluded because it is not possible to identify theseparate impacts of pool fencing and water safetyprograms.

The evaluation does not include anyinconvenience and aesthetic cost associated withpool fencing. Some pool owners object to poolfencing on these grounds. However, no measureof these costs is available.

The benefits of pool fencing and water safetyprograms are the reductions in drownings andnear drownings that resulted between 1990 and2015. In order to estimate these benefits,estimates are required for the drownings and neardrownings that would have occurred in the base

0

2

4

6

8

10

12

1984 1986 1988 1990 1992 1994 1996 1998 2000

YEAR

DR

OW

NIN

G R

ATE

Drowning rate Log of drowning rate

Figure 2.1 Drownings per 100,000 Pools 1986–1999





case, without the program, which is sometimesdescribed as estimating the counterfactual. This isdiscussed in Section 2.6.

For the estimated reduction in drownings, a valueof life saved of $2.5 million is allowed, which isconsistent with the value proposed in Volume 1of the Guidelines. For the estimated reduction innear-drownings, savings in acute and long-termhealth care costs and the value of improvementsin health (or the quality of life) are estimated. Insevere cases, long-term survival usually involvescontinuing care and support for the remainder oftheir lives.

This evaluation does not estimate the benefits ofminor pool accidents avoided because there areno data on these. Nor does the case studyestimate the reduction in social distress thatoccurs with toddler drowning and near drowning.There are many manifestations of thisphenomenon, including marital dysfunction,separation and divorce, suicide and otherdownstream mental illness. Estimating this socialdistress is beyond the scope of this study.However, in drawing up policy or in reachingpolicy conclusions, avoidance of this unnecessarysocial distress may well be an important factor.

All costs and benefits are estimated in 2002 pricesand discounted back to year 1990, when theinitial legislation came into operation. Followingthe Guidelines, discount rates of 3, 5 and7 per cent are applied.

2.5 Costs of Pool Fencingand Water SafetyPrograms

The costs of pool fencing depend on the additional

pools fenced between 1990 and 2110 as a resultof the legislation and the costs of fencing,inspection and maintenance of these pools up to2015. Table 2.3 shows the number of extra poolsfenced. The following are the unit cost estimatesused in the evaluation:

● Average cost of installing pool fencing—$2500 (Swimming Pool and Spa Associationof NSW).

● Cost of annual inspection—$45 (NSWDepartment of Sport and Recreation).

● Pool inspection rate—25 per cent. This maybe an overestimate, the real figure could be aslow as 5 per cent (NSW Department of Sportand Recreation).

● Annual cost of fence maintenance—$25(Swimming Pool and Spa Association ofNSW).

Turning to education and public safety programs,the RLSS has a budget of $3.8 million in2001/02, including $470,000 received from theNSW Department of Sport and Recreation(DSR). It estimates that it spends about60 per cent of its budget ($2.28 million) ontoddler safety. The RLSS receives an estimatedfurther $0.25 million, which is NSW’s share of anational sponsorship from a pharmaceuticalcompany. Total RLSS expenditure on toddlerwater safety during 2001/02 was about$2.53 million.

Box 2.2 Estimated costs and benefits and unquantified impacts

Costs Benefits

Estimated impacts Pool fencing expenses Lives savedAnnual maintenance Health improvementsPool fencing inspections Savings in acute care costsWater safety programs Savings in chronic care costs

Unquantified impacts Impacts on properties Reduction in minor accidentsReduction in social distress





In addition, DSR’s water safety expenditurestargeted at toddler drowning education, researchand promotion, net of its contribution to RLSS,was about $1.53 million in 2001/02. Thus,expenditure on toddler water safety programstotalled about $4.06 million in 2001/02.

RLSS and DSR program expenditures are notavailable for earlier years. For the costing exercise,it is assumed that expenditures rose by a real2.5 per cent per annum between 1990 and 2002.It is further assumed that expenditures will haveto be retained at $4.0 million per annum in 2002prices to obtain the benefits of pool fencing andto maintain the reduction in drownings that hasbeen achieved. In the overall evaluation inSection 2.7, the sensitivity of the results toassumptions about water safety expenditures istested.

2.6 Benefits of Pool Fencingand Water SafetyPrograms

As shown in Table 2.2, drownings and neardrownings in backyard pools have fallen greatly.Table 2.4 provides some summary statistics. Totaltoddler drownings fell by more than 50 per centbetween the late 1980s and late 1990s.Drownings per 100,000 pools fell from an averageof 8.6 per annum in 1986–90 to 5.0 per annumbetween 1991 and 1993, to 3.2 from 1994 to1996 and to 2.9 from 1997 to 1999.

On the other hand, because of the low numberof new pools relative to existing pools, theproportion of fenced pools rose only slowly (seeTable 2.1). It is therefore implausible to supposethat the 1990 / 1992 legislation, even in

Table 2.3 Incremental costs of fencing and water safety programs(2002 dollars)

Extra pools fenced Incremental costs of pool fencinga Water safety TotalAnnual Cumulative Fencing Inspection Maintenance Programs Costs

$m $m $m $m $m

1990 1600 1600 4.00 0.02 0.04 3.00 7.061991 6400 8000 16.00 0.11 0.20 3.07 19.381992 6400 14400 16.00 0.19 0.36 3.15 19.70

1993 6400 20800 16.00 0.28 0.52 3.23 20.031994 7200 28000 18.00 0.38 0.70 3.32 22.40

1995 7200 35200 18.00 0.48 0.88 3.40 22.761996 8000 43200 20.00 0.58 1.08 3.49 25.151997 8000 51200 20.00 0.69 1.28 3.58 25.551998 8000 59200 20.00 0.80 1.48 3.67 25.951999 8800 68000 22.00 0.92 1.70 3.76 28.38

2000 8000 76000 20.00 1.03 1.90 3.86 26.792001 8000 84000 20.00 1.13 2.10 3.96 27.192002 (a) 84000 na 1.13 2.10 4.00 7.132003 (a) 84000 na 1.13 2.10 4.00 7.13…2014 (a) 84000 na 1.13 2.10 4.00 7.132015 (a) 84000 na 1.13 2.10 4.00 7.13

a Case study evaluates costs and benefits of extra pools fenced between 1990 and 2001.na not applicable.





conjunction with the water safety programs,resulted in a very large increase in fenced poolsimmediately.

Ideally, statistical analysis would identify aprecisely quantified relationship between

drownings (and near drownings) and pool fencing.Typically this could be established by a regressionanalysis. However, as shown in Box 2.3, there isno simple statistical relationship betweendrownings and pool fencing legislation.

Box 2.3 Pool drownings and fencing legislation: statistical analysis

To examine the possible statistical relationship between pool drownings and fencinglegislation, we examined four possible relationships.

D/P = a0 + a1Y + a2DYx–1990 (1)

Ln D/P = a0 + a1Y + a2DYx–1990 (2)

D/P = a0 + a

1Y + a

2F (3)

Ln D/P = a0 + a1Y + a2F (4)

Where D/P is drownings per 100,000 pools, Y is year (1986 = 1), D is a dummy variableand DY

x–1990 is 1 in 1991, 2 in 1992 and so on. F is the proportion of fenced pools. The

results are as follows, where figures in brackets are t-statistics.

D/P = 10.5 –0.76Y + 0.21DYx–1990

R2 = 0.86 (1) (–2.70) (0.56)

lnD/P = 2.3 – 0.091Y – 0.040DYx–1990 R2 = 0.81 (2) (–1.3) (–0.46)

D/P = 9.05 – 0.72Y + 0.06F R2 = 0.86 (3) (–2.2) (0.36)

lnD/P = 2.83 – 0.08Y – 0.02F R2 = 0.81 (4) (–0.99) (–0.59)

It can be seen that the trend variable (Y) is highly significant in the arithmetic linearequations (1) and (3), but not significant at the 95 per cent level in Equations (2) and (4).Neither of the possible variables to represent the fencing legislation (DY

x–1990 or F) is

significant at the 95 per cent level. In Equations 1 and 3, the coefficient has the wrongsign.

Table 2.4 Summary statistics on drownings

Av. Drownings Drownings Estimated fencedPeriod per annum per 100,000 pools as %

pools of total pools

1986–90 20 8.6 20.0

1991–93 13 5.0 25.5

1994–96 9 3.2 32.4

1997–99 9 2.9 39.0





There are several reasons why a robust statisticalrelationship between drownings and fencing maybe difficult to establish. The number ofdrownings in any year is small and the series is ashort one. The statutory intervention started in1990 and worked slowly and incrementally. Thenumber of existing (1990) pools that were fencedis not known. Also, the number of drowningsdepends on various factors other than poolfencing, such as the water safety programs.However, these factors are often correlated withpool fencing. The data series for near drowningsis even shorter than the series for drownings.

The lack of a precise statistical relationshipbetween swimming pool incidents and fencing

does not mean that the pool legislation had noeffect. As seen in Table 2.4, drownings per100,000 pools have declined by two–thirds in thelast 15 years. Safer pool design and water safetyprograms have presumably contributed to thisdecline. In the 1990s, drowning deaths fell fromabout 20 a year to 10 a year. For the evaluation, itis assumed that the pool safety programs wereresponsible for half of this reduction (i.e. forsaving five deaths per annum by 2001). Withabout four near drownings per drowning, theprograms also saved an estimated 20 neardrownings a year by 2001.2 The detailed year-by-year assumptions about the effectiveness of watersafety programs are shown in Table 2.5.




2 Dr Anne Williamson (Injury Risk Management Centre, UNSW) draws on coroners’ reports to estimate 71 per cent of toddler drownings between 1995 and 2001 occurred despite the existence of a pool fence.

Table 2.5 Benefits of pool fencing legislation and water safety programs

Year Lives saved Near drownings Total

No. $m No. Acute care Chronic care Health quality Benefit$m $m $m $m

1991 0 0.00 0 0.00 0.00 0.00 0.001992 0 0.00 0 0.00 0.00 0.00 0.001993 1 2.50 4 0.02 0.10 2.11 4.731994 1 2.50 4 0.02 0.10 2.11 4.731995 2 5.00 8 0.04 0.20 4.22 9.46

1996 2 5.00 8 0.04 0.20 4.22 9.461997 3 7.50 12 0.06 0.30 6.33 14.191998 3 7.50 12 0.06 0.30 6.33 14.191999 4 10.00 16 0.08 0.40 8.44 18.922000 4 10.00 16 0.08 0.40 8.44 18.92

2001 5 12.50 20 0.10 0.50 10.55 23.652002 5 12.50 20 0.10 0.50 10.55 23.652003 5 12.50 20 0.10 0.50 10.55 23.652004 5 12.50 20 0.10 0.50 10.55 23.652005 5 12.50 20 0.10 0.50 10.55 23.65

2006 5 12.50 20 0.10 0.50 10.55 23.652007 5 12.50 20 0.10 0.50 10.55 23.652008 5 12.50 20 0.10 0.50 10.55 23.652009 5 12.50 20 0.10 0.50 10.55 23.652010 5 12.50 20 0.10 0.50 10.55 23.65

2011 5 12.50 20 0.10 0.50 10.55 23.652012 5 12.50 20 0.10 0.50 10.55 23.652013 5 12.50 20 0.10 0.50 10.55 23.652014 5 12.50 20 0.10 0.50 10.55 23.652015 5 12.50 20 0.10 0.50 10.55 23.65


3 Allowing $30,000 (in 2002 prices) per annum for 40 years, and a discount rate of 5 per cent, the present value of the long-term case costs would be just over $500,000.* PV Present value. NPV Net present value.

To estimate the benefit per drowning saved,$2.5 million per life saved is allowed as per theGuidelines (Volume 1) and the other case studiesin this volume.

Table 2.6 Cost and benefitsummary ($m)

Year Total Total Netcosts benefits benefit

1990 7.06 0.00 –7.061991 19.38 0.00 –19.381992 19.70 0.00 –19.701993 20.03 4.73 –15.301994 22.40 4.73 –17.67

1995 22.76 9.46 –13.301996 25.15 9.46 –15.691997 25.55 14.19 –11.361998 25.95 14.19 –11.761999 28.38 18.92 –9.46

2000 26.79 18.92 –7.872001 27.19 23.65 –3.542002 7.23 23.65 16.422003 7.23 23.65 16.422004 7.23 23.65 16.42

2005 7.23 23.65 16.422006 7.23 23.65 16.422007 7.23 23.65 16.422008 7.23 23.65 16.422009 7.23 23.65 16.42

2010 7.23 23.65 16.422011 7.23 23.65 16.422012 7.23 23.65 16.422103 7.23 23.65 16.422014 7.23 23.65 16.422015 7.23 23.65 16.42

PV* @ 5% 252.31 206.33 –25.97

NPV@ 7% 1990–2015 –41.88NPV@ 5% 1990–2015 –25.97NPV@ 3% 1990–2015 1.02

NPV@ 7% 1990–2020 –30.28NPV@ 5% 1990–2020 –5.97NPV@ 3% 1990–2020 35.91

To estimate the benefit per near drowningavoided, three categories of benefit areincluded.

Savings in acute care costs. Acute care consists ofinitial hospitalisation and medical care. Basedupon a case-by-case review of 39 near drowningsin NSW, acute care attributable to near drowningis in the range between $730 and $8,200 per case(Injury Risk Management Centre, UNSW). Thisevaluation allows an average of $5000 per case.

Savings in long-term (chronic) care costs. Permanentneurological damage occurs in some 5 per cent ofhospitalisations attributable to near drowning(Ross et al, forthcoming). The SteeringCommittee for the Review of Commonwealth/State Service Provision (1998) estimated that thecost of accommodation, community support,respite care and employment services totalled$25,822 per disabled person. These costs areincurred over the life of the damaged child. Tosimplify the spreadsheet model, a present value of$500,000 per damaged person is allowed forthese long-term care costs.3

Improved quality of health. Mathers et al. (1999)estimate that the disability adjusted life year(DALY) weight for drowning is 0.211 (which is anaverage weight across all injury sequelae). With aDALY, a healthy year with no disability has aweight of 0 and death a weight of 1. Assuming acardinal scale, a weight of 0.211 means thatsomeone loses 21.1 per cent of the value of ahealthy year. Given that the accident occurs to ayoung child, this is equivalent to losing 21.1 percent of the value of life (or $527,000 in presentvalue terms). This loss is incorporated into theeconomic evaluation under loss of health quality.

2.7 Overall Value of Policy,Risks andDistributional Analysis

The estimated costs, benefits, and net benefits ofthe evaluation for the years 1990 to 2015 aresummarised in Table 2.6.

Based on the estimates in this case study, using a5 per cent discount rate, swimming pool fencing





near drownings. These may very well besubstantial benefits. On the other hand, the studydoes not attempt to estimate the negative impactsthat the fencing of swimming pools can have onthe landscaping and amenity of gardens.

Distributional analysis

The major costs and benefits of the public safetyprograms are borne or received by households.The balance is borne by government.

Table 2.7 shows the estimated present values ofthe major components of cost and benefit overthe 1990–2015 period discounted to 1990. As thetable shows, households are a net beneficiary ofthe programs. In present value terms, they gainbenefits of life and health values at an estimated$201 million and spend $170 million on fenceconstruction and maintenance. Of course, thebenefits of the programs are unevenly distributedamong households according to whether or notthey have pre-school children.

On the other hand, government bears a net costfrom the programs as the cost of the public safetyprograms considerably exceeds the estimatedcosts of the savings in health expenditure.

2.8 ConclusionsThis analysis of the NSW Swimming Pool Act 1992

and associated public water safety policiesillustrates the process of economic evaluation.

between 1990 and 2001 and related water safetypolicies show a negative net present value tosociety of $26.0 million over the 1990 to 2015period. A possible explanation for this result isthat many households are required to provideisolation fencing although they do not have pre-school children.

Sensitivity tests

However, the result is sensitive to the assumptionsespecially concerning the discount rate used andthe period of the evaluation. The estimated netpresent value of the program to 2015 varies from–$41.9 million with a 7 per cent discount rate to+$1.0 million with a 3 per cent discount rate. Ifthe evaluation period is extended to 2020,estimated net present value of the program variesfrom –$30.3 million with a 7 per cent discount rateto +$35.9 million with a 3 per cent discount rate.

Other significant uncertainties relate to the fall indrowning and near-drownings attributable to thesafety programs, the value of life assumed, andexpenditure on water safety programs directed atreducing drownings. Clearly, variations in any ofthe study’s assumptions about these values couldaffect the results.

Unquantified effects

As noted above, the study makes no allowance forthe benefits of avoiding minor swimmingaccidents or for the substantial reduction in socialdistress that is associated with drownings and




Table 2.7 Estimated present values of major costs and benefitsa

$m Main incidence

CostsFence construction 150 HouseholdsFence maintenance 20 HouseholdsFence inspections 11 GovernmentPublic safety programs 52 GovernmentTOTAL 232

BenefitsLives saved 109 Households / individualsImproved health 92 Households / individualsAcute care savings 1 GovernmentChronic care savings 4 GovernmentTOTAL 206

a For the period 1990–2015, discounted at 5 per cent.


The major steps include:

● Identifying the policy or program to beevaluated

● Establishing the base case

● Identifying the incremental costs and benefitsto be quantified

● Estimating the costs and benefits over time ofthe policy

● Estimating the overall net benefit of thepolicy

● Considering sensitivity of results toassumptions and unquantified effects

● Describing the distributional implications ofthe policy

The study suggests that the quantified costs of theprogram may have slightly exceeded the benefits.A possible explanation is that all households arerequired to provide isolation fencing forswimming pools, regardless of the probability ofpre-school children gaining access without afence. The benefits will only accrue to thosehouseholds with a chance of vulnerable pre-school being in proximity. However, this overallresult is sensitive to the choice of discount rateand to the period of the evaluation.

As is generally the case, parts of the analysis aremore robust than other parts. Most of the costestimates are quite robust, although there isuncertainty about the proportion of public safetyprograms aimed at pre-school safety and abouthistoric expenditures on these safety programs.The most significant quantified uncertainty is theactual impact of the legislation and the publicsafety programs on drownings and neardrownings.

Also, there are some significant unquantifiedeffects. Chief among these is the impact of safetyfencing on minor accidents and the reduction infamily distress associated with the reduction indrownings and near drownings. This means thatthe technical economic analysis provides only apartial picture of all the costs and benefitsassociated with the safety policies. For thedevelopment of public policy, social and politicaljudgement is required as well as technicaleconomic analysis.

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Commonwealth/State Service Provision,1998, Report on Government Services, Vol.2,Community Services, Housing, Melbourne.

Thompson D and Rivara F., 2001, ‘Pool fencingfor preventing drowning in children’(Cochrane Review) in The Cochrane Library,Issue 4, Oxford: Update Software





Economic Evaluation of Policies toEnsure Public Health by ImprovingWater Quality in Wallis Lake, NSW

3.1 IntroductionIn the summer of 1997 consumption of oystersfrom Wallis Lake caused an estimated 444 peoplearound Australia to suffer from viral hepatitis A.The Commonwealth and NSW Governmentsand the Great Lakes Shire immediately initiated awide–ranging package of policies to improvewater quality and ensure the safety of oysterconsumption. The package included:

● Policies to prevent human waste entering intoWallis Lake.

● Substantially increased monitoring of waterquality in Wallis Lake.

● Stronger measures to ensure safe oysters.

● Stronger measures to deal with animal waste.

● Many other improvements in catchmentmanagement.

This case study evaluates the first three sets ofpolicies, which focus on safe oyster consumption,but which also produce various other benefits.The costs and benefits of these policies areassessed relative to a baseline scenario, in whichend–1996 policies for human waste disposal,oyster production, and water quality would nothave changed. Costs and benefits of the policychanges are assessed over the period 1997 to 2020.

Section 3.2 describes the issues and the policiesthat were introduced. Section 3.3 describes thepolicy options and impacts. Sections 3.4 and 3.5describe the cost and benefit estimates. Section3.6 describes the overall economic evaluationincluding a discussion of sensitivity tests anddistributional effects.

3.2 Water Quality Policies:The Issues

Wallis Lake is part of the Great Lakes region inthe mid-North Coast of New South Wales, about250 kilometres north of Sydney (see Figure 3.1).The lake has a water area of 85km2 and is one ofthe largest coastal lagoons in Australia. Five riversenter Wallis Lake, the main ones being WallambaRiver from the north and Coolongook River fromthe west. The total area of the catchment is1440km2.

Wallis Lake is an outstanding natural asset. Itcontains significant ecological resources, notablyseagrass populations, fisheries, and many birdspecies. The lake also has many uses, includingtourism, boating and swimming, commercial andrecreational fisheries, as well as conservationvalues.

The local towns of Forster and Tuncurry have aresident population of about 20,000. Thepopulation doubles in the summer holidayperiods. The urban housing is on mains seweragesystems, but about 3500 properties outside thetowns have on-site sewerage systems. Agriculture,especially livestock, is a significant activity in thecatchment.

By most measures of water quality, Wallis Lakeand its associated river system are of high quality.Nitrogen and phosphorus loads into the lake arelow. Because of regulations on agricultural useand low industrial activity in the catchments,toxicants (heavy metals and pesticides) aregenerally not significant.

3


The main issues for management of the lake arenutrient enrichment, loss of seagrasses, and therisk of toxic algal blooms. Also, there is a risk offaecal contamination and human pathogens.Nitrogen is the key element for nutrientenrichment and policies to control nitrogen loadinto the lake are critical.

Despite the high level of water quality, in the firstquarter of 1997, consumption of oysters fromWallis Lake was responsible for an estimated 444cases of hepatitis A across Australia, including274 cases in New South Wales (Conaty et al.2000). Nearly one in seven cases was hospitalised.One, 77-year old, person died two weeks aftersymptom onset.

The NSW Department of Health notified theGreat Lakes Shire Council of the outbreak on11 February 1997. Oyster production in the lakewas closed down on 14 February.

The Council immediately initiated a search forthe source of the contamination. First, oysterhandlers were tested for the hepatitis A virus, butnone were found positive. Second, samples ofoysters were collected from 11 locations in WallisLake, which yielded one positive result for thehepatitis A virus. Third, because it is not practicalto test water for the hepatitis A virus, sedimentsamples were collected from eight locations.Three positive results were obtained within theWallamba River or its catchment area to thenorth of the lake.

The Council then undertook a sanitary survey of482 premises in an attempt to determine thesource of the virus. The survey covered 418premises in the Wallamba catchment area,30 vessels in Wallis Lake, 4 other premises withinthe Lake, and 30 oyster sheds. Council found that14 premises were discharging polluted effluentinto waterways, 53 premises were a high risk ofpolluting the waterways, and another 94 premisescould pollute the waterways under high rainfallconditions (Brooker, 1998). Four caravan parkslocated on the shores of the lake disposed ofeffluent by spray irrigation. About 40 houseboatsused the lake, of which only two had appropriatedisinfected holding tanks. Many boats visit thelake with an unknown capacity for sewagedisposal.

However, Council could not identify the sourceof the hepatitis A virus. No one in the WallisLake catchment reported hepatitis or anysymptom of hepatitis. Between 26 March and4 April 1997, 20 000 oysters were tested and nohepatitis virus was found. Nor was any furthercase of the virus found in the samples ofsediment. On 18 April, the lake was reopened tooyster production.

In addition to the health impacts, the hepatitisoutbreak had substantial economic impacts onthe oyster industry in Wallis Lake, and possibly inNew South Wales. The outbreak affected localtourism and may have affected the local fishingindustry. These impacts are discussed in Section3.4 below.

In order to minimise the likelihood of futureoutbreaks of hepatitis A or other diseases fromoyster consumption and to ensure long–term waterquality, the NSW government and the Great LakesShire Council adopted a package of policies.

Policies to prevent human waste enteringinto Wallis Lake, including:

● The Nabiac–Wallamba district seweragescheme, which serviced 640 propertiesand four caravan parks in the northernpart of the catchment;

● Improved standards and increasedmonitoring for on-site sewerage services;

● More toilets around lake;● More stringent regulations for waste

disposal from boats; and● Increased fines for illegal waste disposal.

Substantially increased monitoring ofwater quality in Wallis Lake.

Stronger measures to ensure safe oysters:● Continued closing down of oyster

production when water quality is low;● Testing of oysters before the depuration

process; and● Testing of oysters after the depuration

process.

Stronger measures to deal with animalwaste, including:● Improved catchment controls for primary

producers; and● Regulations for dogs.

ECONOMIC EVALUATION OF POLICIES TO

ENSURE PUBLIC HEALTH BY IMPROVING

WATER QUALITY IN WALLIS LAKE, NSW


Improvements in catchment management,including:● Reduction in urban stormwater runoff;● Reduction in soil erosion (sedimentation

controls); and● Reduction in acid sulfates.

The Wallis Lake Catchment Management Plan(CMP) was published in November 2001.

The measures to control future disease outbreaksand to maintain the general water quality ofLake Wallis are described in more detail inSection 3.4 below.

The Wallis Lake incident also prompted Statechanges in sewerage management. The NewSouth Wales Government approved a $200 millionexpansion of the Country Towns SewageScheme, which provides reticulation to smallcommunities. The government also amended theLocal Government Act to provide for strongercontrols over on-site sewerage systems.

Despite intensive investigations over the five yearssince the outbreak of hepatitis A, the cause of theoutbreak is not known and responsibility for it isdisputed. A Melbourne–based law firm (Slaterand Gordon) initiated a class action forcompensation on behalf of the victims ofhepatitis A against the NSW government, theGreat Lakes Shire Council, and Graham Barclays(the largest oyster producer in Wallis Lake).

The firm also issued writs against other oysterfarmers, which it will pursue if the action againstGraham Barclays is successful. In 1999, theFederal court under Justice Wilcox found for theplaintiff (Mr Ryan) and awarded him $30,000 ina test case and against all three defendants. In2000, the Full Bench upheld the judgementsagainst the NSW government and GrahamBarclays, but exonerated the Shire Council.

Both sides have made appeals to the High Court,which remain to be heard.

Figure 3.1 Wallis Lake Catchment

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3.3 Approach to theEvaluation: PolicyOptions and Impacts

How can policies to prevent outbreaks ofhepatitis A be evaluated? And, a related question,how can policies to improve and maintain waterquality in Lake Wallis be evaluated?

There are two general evaluation problems. First,several policies may be required to address a singleissue, such as the risk of hepatitis A. To constructan efficient policy package, the incremental costsand benefits of each policy component should beidentified. However, this may be difficult.

Second, many policies have multiple benefits. Forexample, preventing human waste from enteringthe lake reduces faecal contamination and the riskof hepatitis A, reduces nutrient load, weed growthand algal bloom, and preserves the sea grasses.These ecological effects reduce the incidence ofdiseases other than hepatitis A, increase biodiversityand aquatic life, and enhance recreationalopportunities in and around the lake. Theevaluation cannot be limited to the relationshipbetween controls over human waste and hepatitis A.

Various policies for Wallis Lake are listed inTable 3.1. These include the policies described inSection 3.2 and policies from the CMP.Sustainable management of the fishery is alsolisted although this is not discussed in the CMP.The table also shows the main physical effectsand user benefits that are the basis of anyevaluation.

Like most environmental plans, the CMP focuseson physical water quality parameters. Theseparameters include dissolved oxygenconcentrations, nutrient loads (nitrogen andphosphorus), electrical conductivity (salinity),turbidity, bacterial water quality (faecal coliformcounts), and heavy metal concentrations.

However, in cost-benefit analysis, the focus is onthe relationship between the environmentalpolicies and the user benefits shown in the endcolumn. Of course, user benefits can be achievedonly if physical targets are achieved. However,the important point is that the costs of thepolicies shown in column one are compared withthe benefits obtained in column three.

Wallis Lake case study

This case study focuses on policies to ensure safeoyster consumption. It therefore assesses theestimated costs and benefits of policies in rows(1), (2) and (8) in Table 3.1, namely:

● policies that reduce human waste enteringinto the lake,

● safer oyster production, and

● improved monitoring of water quality.

These costs and benefits are assessed over theperiod 1997 to 2020 in year 2000 prices. Becausethe end year is arbitrary, the sensitivity of theresults to a longer time period is also assessed.Costs and benefits are assessed relative to abaseline scenario, which is the policies andenvironment with respect to human wastedisposal, oyster production, and water quality inplace at the end of 1996. The net benefits arediscounted back to 1997, using a 3, 5 and 7 percent discount rate.

Ideally each policy within the overall packagewould be evaluated. An efficient use of resourcesrequires that the marginal benefit of each policyis greater than the marginal cost. However, anassessment of individual policies is not possiblegiven the data available.

Nor does this case study attempt to evaluate thecatchment management plan. Thus, the impactsof policies in row (3) to (7) in Table 3.1 are notassessed here. This means, for example, that thecosts of stormwater programs are not included inthis evaluation.

3.4 Estimating Policy CostsThe following sub-sections describe the costs ofthe new policies for human waste disposal, oysterproduction and water quality monitoring. Thelast part provides a summary.

Baseline scenario for human wastedisposal

In the early 1990s, the towns of Forster andTuncurry were on a reticulated sewerage system,supported by treatment works in Forster andTuncurry. Another 3700 properties had on-sitesewerage systems. The latter systems typically





collect and isolate the sewage, assist the sewage tobreak down, and release the by-products, mainlywater, back into the environment. There wereapproximately 80 completely non–functioningsystems, 3400 functioning septic tanks, and 200aerated wastewater treatment systems in theGreat Lakes Shire.

Many on-site systems were defective or managedinefficiently. Wallis Lake was threatened withcontamination from multiple sources, especiallyalong Wallamba River. Many septic tanksoverflowed or leaked. Many trench systems were

not sized and spilled over. There was much illegaldumping of septic waste. In a sanitary survey in1997, Council found that 82 services required apumpout service (Brooker, 1997). Justice Wilcox(1999) reports many complaints about sewageand the unpleasant odours from failing on-sitesystems, especially in Nabiac, a township of 600people at the north end of the catchment. In thefull bench judgement, Justice Lee (2000) observedthat ‘the situation at Nabiac with respect toappropriate disposal of human waste seems tohave been deplorably deficient for a number ofyears before 1996’.




Table 3.1 Major policies and their main impacts

General policies for Wallis Lake Physical effects in lake Main user benefits

1 Reduce human waste entering lake Reduces faecal contamination Improves personal healtha

Lowers nutrient load Improves residential amenityReduces weeds, algal bloom Increases biodiversityPreserves sea grasses Improves fishing

Improves bird watchingImproves recreation/amenity

2 Safer oyster production Oysters with less risk of Improves personal healthviruses and unhealthy bacteria

3 Reduce animal waste entering lake Reduces faecal contamination Improves personal healthb

Lowers nutrient load Increases biodiversityReduces weeds, algal bloom Improves fishingPreserves sea grasses Improves bird watching

Improves recreation/amenity

4 Reduce soil erosion Reduces turbidity Improves personal healthPreserves sea grasses Increases biodiversity

Improves fishingImproves bird watchingImproves recreation/amenity

5 Reduce sulfuric acid leachate Reduces heavy metals in lake Improves most aquatic lifeImproves personal health

6 Reduce urban run off Lowers nutrient load Improves personal healthReduces turbidity Increases biodiversityReduces weeds, algal bloom Improves fishingPreserves sea grasses Improves bird watchingReduces faecal contamination Improves recreation/amenity

7 Manage fish stock sustainably Maintains level of fish stock Increases biodiversityImproves fishing

8 Improve monitoring of water quality Implements all other policies Contributes to all benefits

a Includes not only hepatitis A, but also other viruses, intestinal diseases etc.b Health benefits may be indirect. Lower animal waste reduces nutrient load. This reduces toxic algal blooms.


Wilcox (1999) also reported at length on thefailures of the sewerage systems in the Shalimarand Wallamba caravan parks, which containmobile homes as well as a large number ofcaravans. Both caravan parks discharge effluentultimately into Wallamba River.

Many public toilets around Wallis Lake and onthe islands in the lake were defective. Thepumping system on a holding tank serving theLittle Street public toilets around the lake failedoccasionally and sewage overflowed onto theforeshore land and probably into the lake. Abouttwenty oyster sheds and depuration plants on theislands had little or no toilet facilities. Visitors tothe islands mainly used irregular facilities such asdrums and pits.

A sanitary survey of 31 private watercraft onWallis Lake found that nearly half did not haveproper facilities. Direct disposal units werecommon. Pump-out facilities were under-utilised.(Wilcox, 1999).

Stormwater drains are another possible source ofthe hepatitis A virus. Readings taken by Councilin February and March 1997 regularly showedover 300 colony forming units (cfu) /100ml,including some concentrations of over 1000cfu/100ml. However, it is not known whether sewageeffluent was the cause and, if so, what was thesource of the effluent.

Mid-Coast Water, the local wastewater utility, wasspending substantial sums in upgrading thesewerage services around Wallis Lake. Worksundertaken included significant upgrading to theForster Sewerage System including tertiarytreatment of its effluent, provision of sewerage toGreen Point, Pacific Palms and northern areas ofTuncurry, and provision of sewerage to CampElin, Tiona Park and the national park complexessouth of Forster. Similar work could be expectedto continue in the baseline scenario.

Mid-Coast Water also planned to sewer CoombaPark and to provide a localised seweragereticulation system for the Nabiac township,including a small treatment plant in Nabiac,which would do tertiary treatment and dischargeeffluent to sand dunes adjacent to the river.

New policies for human wastedisposal

After the hepatitis incident, many policy changeswere initiated for disposal of human waste.Changes include an extended seweragereticulation system for the Nabiac-Wallambadistrict, tighter controls over on-site sewerage,improved public toilets, and more stringentregulations for waste disposal from boats.

The revised Nabiac-Wallamba seweragescheme included local reticulation and a localtreatment plant at Nabiac, but added in a systemfor pumping and transporting all effluent to thetreatment plant at Hallidays Point for furthertreatment and disposal into the sand dunesthere.4 The scheme also included reticulation tocaravan parks and dwellings adjacent to thetransportation lines. In all, 640 properties wereconnected to the scheme.

The total cost of the revised and nowimplemented Nabiac-Wallamba DistrictSewerage Scheme was $10.9 million. Thisrepresented an average cost of $17,000 perproperty. The typical cost for connection to themains sewer is $15,000 per house. The NSWDepartment of Land and Water Conservationprovided a 50 per cent subsidy for the scheme.

The total expenditure included $5.9 million onthe Nabiac township component, $2.2 million ondistrict transportation lines, and $2.8 million ondistrict reticulation. Of these components, thelatter two, summing to $5.0 million may beregarded as the incremental component over thebaseline scenario.

Mid-Coast Water estimates that the increased sizeof the Nabiac District sewerage scheme raisedthe annual operating cost by $10,000 from$70,000 to $80,000.

Following the hepatitis incident, in April 1997 theNSW EPA prohibited four caravan parks fromusing their on-site sewerage management systemsand required them to adopt an alternativedisposal system. Three parks had spray irrigationsystems that had been approved by the EPA. Onecaravan park closed down for three months. Theother three parks removed effluent from their

4 Because the Hallidays Point works has spare capacity, no additional work has been required to-date. However, the extended Nabiac system will bring forward the upgrade of the Hallidays Point system.





sites by tanker. Brooker (1997) estimated that thiscost each caravan park over $100,000 per annum.The caravan parks received reticulation servicesin December 1998. However, the reticulationcosts are included in the expenditure figures forMid-Coast Water above. No extra costs areallowed for the temporary pumping costs.

Tighter controls over on-site sewerageservices were another major initiative. In 1999,the NSW Government legislated to ensure higherstandards for on-site sewerage systems and totighten public controls over maintenance of on-site human waste disposal.5

The Australian Standards Association standard(AS1547) establishes standards for DisposalSystems for Effluent from Domestic Premises fornewly constructed systems. NSW Healthapproves models or septic tanks and aeratedwastewater treatment systems. Council appliesAS 1547 if the disposal site is adequate.

Evaporation (transpiration) areas increased from100 m2 to 500 m2. The on-site disposal area mustbe sufficient to absorb the effluent. The typicalcost of a new septic tank system for on-sitedisposal increased from about $5000 to $8000,inclusive of a site geotech study. Thetranspiration area can be reduced to 50 m2, butcosts then increase substantially. Aeratedwastewater treatment systems cost up to $8000.

Special problems arise with reconstructingsystems in existing developments. All on-sitesystems depend on effective householdermaintenance. Previously Council had noauthority to enter residential properties unless apublic health event occurred. It can nowroutinely inspect a property. Householdersrequire a permit to operate an on-site system.

Also Council now has funding to monitorpumpout services. Council charges $30 perannum per service for general supervision of on-site services plus $60 per inspection. Council canfine individuals $750 and companies $1500under the Protection of Environment Operations Act

1997 if considered appropriate.

For costs for new on-site waste disposal policies,the evaluation allows for 20 new houses to be

built each year in the catchment with an averageincremental cost of $3000 per house, thus a totalextra cost of $60,000 per annum. This is allowedto 2015.

For existing housing stock with on-site systems,Council required 80 properties to provide newseptic tank systems at an average cost of $6000,which would be a total cost of $480,000.

Of the other 3200 properties with on-siteservices, council found that 15 per cent of thoseinspected in year 2001 required major upgradesat an average cost of $5000. Most otherproperties also require expenditure. Allowing that500 properties require a $5000 upgrade and thatanother 2700 properties require an average $300upgrade, the total cost was $3.3 million.

In addition, properties must now spend between$50 and $700 per annum to maintain their on-site systems. Expenditures in the base case werelow. The evaluation allows an average increase inexpenditure of $100 per annum per property,which totals $248,000 per annum. In addition,Council’s monitoring costs are $80,000 perannum.

Council has developed a number of toiletsaround Wallis Lake at a capital cost of $60,000.Maintenance costs are $20,000 per annum.

Council has also introduced more stringentregulations for waste disposal from boats. Pump-out facilities are mandatory for tourist boats.However, these costs are not known.

In addition, Council develops educationprograms, typically covering a range ofenvironmental issues and currently employs astormwater education officer at an annual cost of$50,000. For the evaluation, $20,000 per annumis allowed for education and communication costsfor Council’s human waste disposal programs.

Policies to reduce risks from oysterconsumption

Wallis Lake oyster farms produce about2.4 million dozen oysters (21,000 bags) perannum, with a wholesale value of some$8.5 million (about $3.50 per dozen oysters).

5 Local Government (Approvals) Regulation 1999, part 4 – Approvals Relating to Management of Waste.





Oysters present a health risk. They are eaten rawand easily contaminated as they absorb largeamounts of water. Before 1997, the oysterindustry in Wallis Lake reduced contaminationrisk by depuration of all oysters and by cessationof farming after heavy rainfall. But the localcouncil had not conducted a sanitary survey,there was no regular testing of water quality, andlimited testing of oysters.

Depuration based on ultra-violet light technologywas the prime method used to reduce the risksassociated with oyster consumption. Oysters filterfeed in optimal conditions of salinity andtemperature for at least 36 hours using estuarywater subjected to ultra-violet disinfection. Thiswas a mandatory government requirement,introduced after oysters in the Georges Riverwere contaminated in 1978.

The cost of depuration is $25–30 per bag orabout $600,000 per annum. This does notinclude general maintenance and replacement ofdepuration facilities or allow for stress on oysters.In addition, oyster farms generally ceasedharvesting after rainfall events and tested someoyster meat for indicator organisms. The costdepends on the rainfall conditions, but may total$25,000 per annum. These policies havecontinued since 1997.

The main policy changes have been industrytesting of oysters before depuration, increasedtesting of oyster flesh after depuration, andgreater quality control measures. Under the localQuality Assurance Program (QAP), the localindustry now conducts faecal tests on oysters,before depuration, on a fortnightly basis at 12sites. To permit harvesting, E.coli must be lessthan 10 cfu per 1000ml. The tests cost $22,000per annum, including labour, fuel and laboratorycosts.

In addition, each farmer does product testingafter depuration. To permit sale, the E.coli countmust be less than 1 cfu per 1000ml afterpurification. A test is required every 30 bags ofproduction or once a week, whichever comesfirst. The cost of oyster meat testing is $45 persample of 12 oysters. The cost of these tests tothe industry is about $30,000 per annum

New QAPs include mandatory membership ofthe national Shellfish Quality AssuranceProgram, introduction of the Food SafetyScheme on the industry, implementing HazardAnalysis Critical Control Points (HACCP)principles into each business, estuarymanagement committees, and record keeping.There are stricter arrangements for closing downoyster production when water quality is low.These enhanced QAPs have not been costed.

In summary, before 1997 the oyster industry inWallis Lake spent $650,000 – $700,000 perannum to ensure its oysters were safe forconsumption. The new policies have increasedindustry costs by about $80,000 per annum.

The NSW Government is consideringintroducing a water classification system based oninternational practice, which has been used inother Australian states. In high quality water,depuration would not be required. In low qualitywater, oyster harvesting would not be allowed.This regime would increase water testing, reducedepuration costs, and generally affect theeconomics of the local industry. However, it hasnot been introduced to–date.

Policy changes for monitoringwater quality in Wallis Lake

The Great Lakes Shire Council tested fortemperature, density, total and faecal coliformsfrom 1989 to 1993. However, Council thenstopped testing water quality because itconsidered that the tests were done on too small ascale (monthly) to be useful and provided littlereal indication of the water quality. The onlycontaminants tested for were coliforms. However,the counts depended heavily on weatherconditions and there were no adverse trends.There were (and are) no reliable water qualitytests for viruses.

Following the outbreak of hepatitis A, Councilhas conducted weekly water tests at 12 sites at acost of $13,000 per annum, including specialadditional testing during pollution events. TheNSW oyster industry QAP funds tests for waterquality at another 8 sites at a cost of about$9,000 per annum. For this evaluation, an annualcost of water quality testing of $22,000 is allowed.





Other policy changes and costs

This evaluation focuses on improved controls onhuman wastes, safer oyster production, andimproved monitoring of water quality. Otherpolicies, such as better controls on urban andfarm run off of stormwater, may also improvewater quality. Supported by the CommonwealthGovernment, the Great Lakes Shire has spent$2.0 million to control urban stormwater run offsince 1997. The Commonwealth also fundedpreparation of the catchment management plan.The Companion Animal Act 1998 empoweredcouncils to raise fines for public dog waste from$75 to $220. These policy changes are notincluded in this assessment.

Summary of costs of newprograms

Table 3.2 provides a summary of the estimatedcosts of the new environmental programs forhuman waste disposal, oyster testing and waterquality monitoring. Between 1997 and 2002,these costs totalled $10.8 million, mainly in

improvements in human waste disposal. Note thatseveral costs continue after 2002 (see footnotes).

3.5 Estimating PolicyBenefits

To estimate the benefits of improved seweragesystems, reduced human waste effluent in WallisLake, safer oyster production, and increasedmonitoring of water quality, the gains of each setof beneficiaries are assessed separately. Potentialbeneficiaries include consumers and producers ofoysters, fishermen, local residents, visitors andsuppliers of services to visitors. When people aremembers of more than one group, for exampleconsumers of oysters may be local residents, eachbenefit is counted only once.

A user benefit is generally based on an observedphysical environmental change. For example,consumption of oysters or swimming in WallisLake is safer if toxic viruses or bacteria in the lakeare actually reduced. The evidence for improvedwater quality is therefore considered first below.

Table 3.2 Estimated costs of new environmental programs(first six years)

Program 1997 1998 1999 2000 2001 2002

Human waste disposal

District sewerage systems 1,000,000 2,000,000 2,000,000

Additional operating expensesa 10,000 10,000 10,000

New housesa 60,000 60,000 60,000 60,000 60,000

Existing housesb 120,000 240,000 120,000

Existing housesc 300,000 500,000 500,000 500,000 500,000

Property owners recurrent costsa 248,000 248,000 248,000 248,000

Council monitoring costsa 80,000 80,000 80,000 80,000 80,000

Public toiletsa 60,000 20,000 20,000 20,000 20,000

Communications and educationa 20,000 20,000 20,000 20,000 20,000

Total 120,000 1,760,000 3,048,000 2,938,000 938,000 938,000

Increased oyster testinga 80,000 80,000 80,000 80,000 80,000

Water monitoring costsa 22,000 22,000 22,000 22,000 22,000

Total: all programs 120,000 1,862,000 3,150,000 3,040,000 1,040,000 1,040,000

a Annual costs continue at 2002 level to year 2020.

b Houses requiring septic systems.

c Houses requiring upgraded on-site systems. Requires another $1.0 million in capital expenditure in 2003 and 2004.





However monitoring water quality may reducethe risk of using water even if water quality isunchanged. People may be aware when oysterconsumption or another water-based activity isrisky and avoid the risk. A study of the pattern oftemporary cessations of oyster farming mightestablish such a benefit, but this has not beenmade.

Water quality in Wallis Lake

The WLCMP Steering Committee (2001) reportson the state of water quality in Wallis Lake withregard to nitrogen and phosphorus content,conductivity (salinity), turbidity and faecalcoliforms (the measure most relevant to this study).

However improvements in water quality cannotbe estimated precisely. As the Steering Committeenotes (p.92), ‘the Water Quality Programcommenced in October 1998. … Prior to thisthere was no systematic data available to describewater quality conditions in the catchment’. Therewas little monitoring of water quality before thehepatitis A incident. Consequently, estimates ofbenefits from water quality programs rely onjudgement rather than statistical tests. A seniormember of the WLCMP Steering Committeeobserved to the consultant that there is littleinformation about how the catchment works.

Nitrogen and phosphorus loads in Wallis Lakeare generally low. Unlike in Myall Lake, therehave been few blue-green algae problems. Thenitrogen load into Wallis Lake is about 3 tonnesper km2 of water surface per year. This is close topristine conditions of 2 tonnes per km2 per yearand well below the threshold for significantdamage of 10 tonnes per km2 per year (WLCMPSteering Committee, 2001). This level ofnutrients has negligible impact on algae or seagrasses, which are vital to water quality and fishlife. Only 29 tonnes of phosphorus enter the lakeeach year, which is relatively low. The Committeeconcluded that ‘few sites (in Wallis Lake) are atrisk of deteriorating water and sediment qualitiesand eutrophication’.

Median conductivity measures (µS/cm) are alsolow, well below the poor level. Turbidity ismoderate in most parts of the Wallamba River,though poor in spots in the Wang Wauk andCoolongolook River catchments.

In the critical matter of faecal pollution, Brooker(1998) tested conditions in the Wallamba Riverbefore and after the sewerage rectification worksand found no fall in CFUs after the works. TheWLCMP Steering Committee found that in 12out of 15 sites tested, CFUs were below 150CFUs per 100ml, which is the guideline forrecommended contact in ANZECC’s 1992Primary Contact Recreational Guidelines. The CFUsexceeded the Guidelines at the other three sites.

Further investigations used sterol testing toidentify the source and type of faecal material.At most sites birds contributed over 90 per centof the CFUs. There are 300 pelicans and 2000swans resident in the Lake system (Brooker,1998). Cattle contributed most of the rest of theCFUs. Drawing on Brooker’s tests, the SteeringCommittee concluded that ‘no sterols indicatingthe presence of human contamination weredetected in any samples’.

In summary, water quality in Wallis Lake isgenerally high, and has usually been high exceptafter heavy rain. There is little evidence ofpollution. It appears that various water qualityimprovement measures, notably the seweragereticulation systems, have worked. Also manysmall-scale problems are now cleaned up, forexample, reduced contamination from boats.However, the scale of the improvement appearsto have been quite small.

Benefits to consumers of oysters

Reducing the risk of gastroenteritis fromconsuming oysters, especially the risk of thenorwalk and hepatitis A viruses, is a major aim ofthe Wallis Lake policies.

The norwalk virus is in human sewage. The mostcommon symptoms of the virus are nausea anddiarrhoea, followed by vomiting, stomach cramps,headache, fever/chills, and joint pain. Stafford etal. (1997) estimated that the illness exists from6 hours to 10 days with a median time of48 hours. But there appear to be no secondarycases due to person to person spread.

There have been at least three outbreaks of thenorwalk virus in New South Wales. In June 1978an outbreak involving over 2000 people wastraced to consumption of oysters grown in theGeorges River, Sydney. In the summer of 1989/90,





1200 people suffered gastroenteritis from norwalkor parvo viruses in NSW oysters. Anotheroutbreak of norwalk virus gastroenteritisoccurred in September 1996 followingconsumption of oysters from Tweed Heads.Some 100 cases were identified, but the numberof sufferers may have been larger.

The only outbreak of hepatitis A known to bedue to oyster consumption was the Wallis Lakeincident in early 1997. As noted, this caused anestimated 444 cases of hepatitis. One 77-year oldperson died as a result. Conaty et al. (2000) alsonote that 973 cases of hepatitis A were notified inNew South Wales in 1996, which was the highestnumber for five years. Some of these cases mighthave been due to oyster consumption but noconnection was established.

Hepatitis A causes aches and pains, fever, nausea,lack of appetite, abdominal discomfort, darkurine, and yellowing of the eyeballs and skin. Thedisease has a fatality rate of 0.1 per cent forchildren, rising to 2.7 per cent for the aged(Benenson, 1995). Wilcox (1999) notes thatattacks ‘vary in severity from person to person.A mild attack may produce slight jaundice andindisposition lasting two to three weeks. A severeattack, however, can be prolonged with jaundicelasting several months’. Sufferers are commonlyunable to undertake household tasks such as foodpreparation and childcare, cannot work, and mayrequire assistance with personal hygiene such astoilet and washing. Hepatitis A occurs in mostadult age groups, but occurs predominantly inmales and females over 55 (Mathers et al. 1999).

Other intestinal diseases may be associated withoyster consumption. In 1992, salmonellosis wasattributable to faecal contamination of oysters inWallis Lake by birds.

In order to evaluate the benefits of programs toreduce the risk of oyster contamination, estimatesare required of (a) the reduction in risk forspecific illnesses and (b) the benefits of avoidingillness.

Estimating disease incidence is problematic.Given only one known outbreak of hepatitis A inNew South Wales, the probability of itsrecurrence due to Wallis Lake pollution, with andwithout policy changes, is difficult to establish.Moreover, as we have seen, ‘the precise cause of

contamination of oysters in Wallis Lake withhepatitis A virus remains unknown’. Althoughmuch has been spent on the assumption that lackof sewerage reticulation was the cause, this is notknown. The CMP does not discuss hepatitis A.

Drawing broadly on historical experience, theevaluation assumes that, in the base case, in anyone year there would be a one in twenty fiveprobability of an outbreak of the norwalk virus inWallis Lake and a one in fifty probability of anoutbreak of hepatitis A.

The evaluation also assumes that the new policieswill ensure that future outbreaks of the norwalkvirus and hepatitis A virus are avoided. This is astrong assumption without a stronger waterclassification system. Testing water quality maybe effective together with classifying waters aftersanitary surveys and testing a large sample ofoyster meat. Testing water quality for faecalcontent does not itself provide any indication ofcontamination from human effluent or viralpresence.

To cost an outbreak of the norwalk virus, the evaluationallows 1200 cases per outbreak and mean illnessperiod of three days. Half of the sufferers areassumed to be employed and half not employed.Stafford et al (1997) note that persons contractingthe virus ranged from 13 to 83 years of age. Foremployed persons, an average loss of output of$160 per day or $480 in total is allowed.No additional personal loss is allowed. A personmay even prefer to be at home with a moderateillness for 2–3 days to feeling well but at work. Anaverage loss of $50 per day is allowed for eachaffected unemployed person, includingdependents. This represents the notional amountthat would be required to compensate anunemployed person for the illness. It is consistentwith other cost estimates for short-term morbidity(Tolley et al. 1994). The cost of the norwalk virusto an unemployed person would therefore be $150.

In addition, about a quarter of persons with thevirus consult a medical practitioner (Stafford etal., 1997). A consultation cost of $40 is allowed.There are no drugs to treat the norwalk virus.The total cost to an employed person is therefore$520 and to an unemployed person is $190. With600 cases in each category, the total cost of anoutbreak would be $0.43 million.





The expected benefit in any year is the productof the cost of an outbreak avoided and itsprobability. With an assumed 1 in 25 probabilityof an outbreak of the norwalk virus in a year inthe base case, the expected benefit is$430,000 x 0.04 = $17,200 per annum.

To estimate the cost of a hepatitis A virus outbreak, 500cases and one death of an elderly person areassumed per outbreak. We could use the sameapproach to estimating costs as for the norwalkvirus. However, we illustrate another approach,based on the cost of a disability adjusted life year(DALY), which is described in the Guidelines(Volume 1). In the Burden of Disease and Injury in

Australia, Mathers et al. (1999) draw oninternational work to propose the followingDALY weights for hepatitis A:

Uncomplicated episode 0.093Prolonged or relapsing episode 0.140Complicated episode 0.420

Recall that with DALYs, zero is perfect healthand 1.0 is death. A value of 0.1 means loss of10 per cent of the value of health, measured on alinear scale from 0 to 1. Following the Guidelines,the value of a healthy year is $150,000. The costof an average uncomplicated episode of hepatitisA would be $13,950 (equal to $150,000 x 0.093)and the cost of a complicated case would be$63,000.6

Conaty et al (2000) found that 14 per cent ofhepatitis A cases in 1997 were hospitalised.Correlating these with the complicated cases,70 of the hypothesised 500 cases would becomplicated and 430 would be uncomplicated.The total cost of ill health in an outbreak wouldbe $10.4 million

This figure may be considered high on twocounts. First, the DALY weights for hepatitis Aappear high for hepatitis in Australia. Second,allowing $150,000 for a healthy year is at the highend of values used in Australia. Reducing bothparameters by 50 per cent, the total cost of illhealth due to hepatitis A caused by oysterconsumption would fall to $2.1 million.

The cost of premature death depends on loss oflife expectancy. Generally, early death will occur

for an elderly person, as in the 1997 incident. If aperson loses say 10 years of life, the cost equals apresent value of $1.22 million in the year of thepremature death:

$1.22 million = $150,000 + $150,000 / 1.05… + $150,000/(1.05)

Again, this allows $150,000 for loss of a life year.At $75,000 for a life year, the present value wouldbe $0.61 million.

The health costs of treating infectious hepatitistotalled $10.6 million in 1993–94 (communi-cation from AIHW), with hospital costs andspecialist services each accounting for one-thirdof the costs. Allowing health care costs of $1000per case of hepatitis A, health care costs for 500cases would be $0.5 million.

Drawing on the above, including Mathers et alvalues for DALYs and $150,000 for the value of ahealthy life year, the total cost of a major incidentof hepatitis A involving 500 persons, includingone death and 70 hospitalised cases, would be$12.1 million. Reducing the DALYs and the valueof a life year by 25 per cent would reduce thetotal cost by about a half.

Given a one in fifty probability of an outbreak ofthe hepatitis A virus in Wallis Lake in any year inthe base case, the expected benefit is:$12.1 million x 0.02 = $249,000 per annum.

Benefits to oyster farmers

The benefit of a policy to oyster farmers is thereal increase in producer net income. If a policyincreases gross income by $100,00 and costs by$60,000, net income is $40,000. However, if thecosts include employment of two people for$50,000, who would have earned only $30,000 inalternative employment, these workers wouldincrease their net income by $20,000. Thus thetotal increase in net income is $60,000 ($40,000+ $20,000). Equivalently, gross income is$100,000 and the real opportunity cost ofproduction (the output foregone) is $40,000, sothe total increase in net income is $60,000.

Estimates of the net income of oyster farmerswith and without the new policies vary. Majoroyster farmers in Wallis Lake report that

6 Thus exceeds the award by Justice Wilcox (1999) for injury costs totalling $24,446 to Mr Ryan for a lengthy episode of hepatitis A, but with no hospitalisation. The Full Bench upheld these costs.





production is still 20 per cent below pre-1997levels and that employment has fallen by about60 workers because of the loss of the Wallis Lakebrand name and investor and consumerconfidence. Of course, oyster production couldhave fallen by more without the new policies andoyster output may now increase as investor andconsumer confidence returns.

Table 3.3 shows available data for oysterproduction from Wallis Lake and New SouthWales from 1994/95 to 1999/00 (the latestavailable data). These figures show:

● In the two financial years before the hepatitisA incident, oyster farmers from Wallis Lakeproduced 2.85 million dozen oysters, or about33 per cent of oyster production in NSW.

● In 1996/97, the year of the incident,production in Wallis lake fell to 2.11 milliondozen oysters and accounted for only 27 percent of oyster production in NSW.

● In 1997/98, oyster production increased to2.70 million dozen oysters, assisted by acarryover from the previous year andexcellent growing conditions in 1997/98.

● However, in 1998/99 and 1999/00, oysterproduction in Wallis Lake averaged only2.02 million dozen oysters and 25.6 per centof NSW production.

Before assessing the implications of these figures,two other issues should be discussed; namely thatthe hepatitis incident may have affected (a)production of oysters across NSW and (b) thepremium price that could be charged for WallisLake oysters.

Table 3.3 shows that oyster production in the restof NSW averaged 5.93 million dozen oysters in1994/95 and 1995/96, fell to 5.69 million dozenoysters in 1996/97, and averaged 6.02 milliondozen oysters in 1997/98 and 1998/99. Thissuggests that NSW oyster output may have fallenin 1996/97, but that there was no subsequentdecline in production. However, the 1996/97figures are similar to those for 1995/96 and1998/99. Therefore, even the short-term impactof the incident on oyster output from the rest ofNSW is unclear.

In value terms, Wallis Lake oysters accounted for31.3 per cent and 33.6 per cent of the NSWmarket in 1994/95 and 1995/96 respectively.This was similar to the lake’s physical share of theNSW market (see Table 3.3). It appears that therewas no significant brand premium.

Drawing on recent figures, the followingassumptions are made for the evaluation:

● The new policies will improve water qualityand safeguard oysters so that oysterproduction from Wallis Lake will average2.5 million dozen oysters per annum;

● In the base case, there would be occasionalhepatitis and Norwalk virus health scares,ongoing concerns about water quality, moretemporary cessations of oyster farming andreduced confidence in oyster consumption,which would result in a long-term averageproduction of 2.3 million dozen oysters perannum; and

● Oyster production has a gross revenue of $4per dozen oysters and provides a net

Table 3.3 Oyster Production (Dozens of oysters)

Fin. Year Wallis Lake Rest of NSW NSW Wallis Lake (%)

1994/95 2,847,094 6,219,932 9,067,026 31.5

1995/96 2,886,528 5,627,325 8,513,853 33.9

1996/97 2,115,502 5,693,946 7,809,448 27.1

1997/98 2,703,000 6,344,881 9,047,881 29.9

1998/99 1,808,038 6,072,196 7,880,234 22.9

1999/00 2,236,870 5,662,584 7,899,454 28.3

Source: NSW Fisheries





incremental income of $2 per dozen oystersto oyster farmers and their employees.

The new policies would therefore increase netincome of oyster farming by $0.4 million perannum (200,000 dozen oysters x $2).

Benefits to fishermen

In February 1997, the Sydney Fish Market askedthe Wallis Lake Fisherman’s Co-operative to stopsending fish for a short period, until NSW Healthannounced that the fish were not a health riskbecause they were cooked. However, the Marketdeclined to accept crabs for a further period.Brooker (1997) reports that, when fish sales to themarkets were resumed, the fish sold at 30 per centbelow the market value. He estimates that localproduction fell by 75 per cent ($1000 a day)initially and was still 30 per cent down in May.Some commentators have suggested that thewhole fishing industry in NSW lost sales due tothe health concerns.

Official fish catch figures for Wallis Lake andNSW are shown in Table 3.4. The Wallis Lakecatch was 9 per cent lower in 1996/97 than theaverage for the previous four years. This suggeststhat local commercial fisheries may have lost$150,000 – $200,000 in sales in the first half of1997, which is consistent with Brooker’s estimate.Given that fishing trips and costs were more orless fixed, most of this loss of income would beloss of profit. However, little reliance can beplaced on the data after 1996/97. The data are

based on the mandatory catch forms submitted toNSW Fisheries, which are only partially validatedand do not include late forms. The data for WallisLake are low compared with data provided to theconsultant by the Wallis Lake Fish Co-operative.The halving of the NSW fish catch in the 1990sis not credible. This limits the inferences that maybe drawn.

In summary, the local fish industry may benefitfrom improved water quality in Wallis Lake, ifonly from the lake’s reputation as a clean watersource. However, the benefits appear slight. Waterquality in the lake was high in the base case andthe new policies have had little impact on fishstock or quality. Humans do not catch viraldisease through fish that are cooked. No benefitto commercial fishermen is included in theevaluation.

Benefits to local residents

Before sewerage improvements were introduced,sewage overflows left nasty odours in Nabiac andother unsewered areas. The improvements shouldtherefore increase residential amenity andproperty values, specifically the land component.Rateable values are currently as at 1999 levelsand do not reflect the sewer connections.Therefore, to examine property impacts, data onproperty values were sought from the two mainreal estate agents in the Nabiac district.

One estate agent observed that average price ofsewered properties in and around Nabiac has

Table 3.4 Commercial fish catch from Wallis Lake andNew South Wales

Year Wallis Lake New South Wales Wallis Lake percentageKg ‘000 $ ’000 Kg ‘000 $ ’000 Weight Kg Value $

1992/93 523 2,004 28,448 96,262 1.84 2.081993/94 499 1,949 29,989 107,524 1.66 1.811994/95 501 2,255 26,248 92,854 1.91 2.451995/96 533 2,274 26,114 92,030 2.04 2.471996/97 470 2,091 25,938 90,579 1.81 2.311997/98 439 2,057 18,637 66,491 2.36 3.091998/99 466 2,201 15,418 63,787 3.02 3.451999/00 439 2,110 14,451 67,375 3.04 3.13

Source: NSW Fisheries Commercial Fishing Database





risen by $20,000–$25,000 in the last six monthsbut he could not estimate how much of thisincrease, if any, was due to sewerage. The otherestate agent noted that prices of three-bedroomcottages in Nabiac are still generally under$100,000 and considered that sewer reticulationhas not significant affected prices. Likewise, hebelieved that land values were typically about$50,000, barely covered costs, and included littlefor sewerage value.

However, the latter agent also observed thatavailability of sewerage services had facilitatedthe subdivision of rural residential lots in theGreater Taree City Council and the Great LakesShire Council areas. Typically land valuesincrease from $100,000 to $180,000 (afterallowing $20,000 for sewerage). Allowing 10subdivisions a year, this produces a developmentbenefit to landowners of $800,000 per annum.

The evaluation allows that 640 existing propertiesappreciated by $3000 as a result of the sewerage,giving a total benefit of $1.92 million. Inaddition, 50 subdivisions over five years wouldproduce land development benefits of $800,000per annum from 2000.7

Benefits to visitors and suppliersof services to visitors

The new policies reduce the risk of a majoradverse event, such as a hepatitis incident, whichmay affect the quantity of visitors and the qualityof the tourist experience.

Table 3.5 shows tourist accommodation in theGreat Lakes area for 1996 and 1997. Figures forguest nights and turnover for 1996 and 1997suggest that the hepatitis incident in February1997 had little impact on visitors in the firstquarter of 1997. However, it apparently had avery large impact in the second quarter and asmall impact in the third quarter. There appearsto have been no effect in the fourth quarter. Nocomparable dips in visitors to Port Macquarie orCoffs Harbour occurred in the second and thirdquarters in 1997. Comparable data are notavailable for 1ater years because of boundarychanges from 1998.

Accommodation revenue fell by over $1.1 millionin the second and third quarters of 1997 in theGreat Lakes region. However, capacity is fixedand employment scarcely fell. Allowing for smallsavings in labour costs associated withpreparation and cleaning of the rooms, theaccommodation sector in Forster/Tuncurry lostnet income of some $1.0 million in 1997. It maybe concluded that avoiding a similar hepatitis Aincident would save the local accommodationindustry $1.0 million.

However, any such saving would reduce incometo tourist accommodation in other areas. Suchincome transfers are generally excluded fromcost-benefit studies. The same point applies toother expenditures by visitors on meals,refreshments, petrol and so on. A loss (gain) totourist businesses in the Great Lakes area is again (loss) to businesses in other areas.

On the other hand, when visitors switch tosecond choice destination, there is a loss ofconsumer satisfaction (described technically as aloss of consumer surplus, see Volume 1). Therewere 43,000 fewer guest nights in the Great LakesRegion in the second and third quarter of 1997than in 1996. In the absence of survey data onthe amount that consumers would be willing topay for their first choice destination (compared

7 A detailed property study should provide more accurate estimates, but this research is outside the scope of this case study.

Table 3.5 Visitors to the GreatLakes Region

Year Guest Turnover(qtr.) Employees nights ($000)a

(‘000)

96 (1) 186 69.2 195396 (2) 185 43.0 122996 (3) 174 43.8 122896 (4) 185 56.4 163497 (1) 195 68.6 202397 (2) 191 8.1 36497 (3) 189 38.1 106197 (4) 197 61.8 1788

a Income from accommodation.

Source: Tourist Accommodation Small Area Data NSW, ABS, Cat. No. 8635.1.





with their second choice), the evaluation allows$30 per night for this loss of consumer preference.This produces a loss of consumer surplus of$1.29 million due to the hepatitis A incident(43,000 x $30). Equivalently, avoiding such anincident provides a benefit of this amount.

To allow for this visitor loss, the evaluation allowsan expected saving in consumer surplus of$26,000 per annum. This is a loss of$1.29 million x 0.02, which is the probability ofoccurrence of a hepatitis or other major incident.

A general improvement in water quality may alsoenhance the quality of visitor use of Wallis Lake.Local opinion is that water quality monitoring

has increased confidence and tourism, includingpopular boat hire activities. However, there islittle evidence for this and the evaluation does notquantify this possible benefit.

In addition, the amenity of the four caravanparks has improved with reticulated sewerageservices. This should increase rentals andoccupancy rates or consumer satisfaction, orboth. However, the evidence is weak. Onecaravan park owner responded to writtenquestions that the environment (odours) hasimproved but that the small increase in chargesand visitors was not necessarily attributable to thesewerage reticulation. Another owner responded

Table 3.6 Economic Evaluation of Selected Policies to Improve Water Qualityin Wallis Lake ($ ‘000, 2000 prices)

Costs 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Human waste disposal

District sewerage system 1000 2000 2000Extra operating costs 10 10 10 10 10 10 10 10New houses on-site system 60 60 60 60 60 60 60 60 60 60Existing houses on-site costs 120 540 620 500 500 500 500 500Property owner maintenance 248 248 248 248 248 248 248 248 248Council sewerage monitoring 80 80 80 80 80 80 80 80 80 80Public toilets 60 20 20 20 20 20 20 20 20 20Communications 20 20 20 20 20 20 20 20 20 20

Total 120 1760 3048 2938 938 938 938 938 438 438 438Oyster testing 80 80 80 80 80 80 80 80 80 80Water quality monitoring 22 22 22 22 22 22 22 22 22 22

TOTAL COSTS 120 1862 3150 3040 1040 1040 1040 1040 540 540 540

Benefits toOyster consumers 266 266 266 266 266 266 266 266 266 266Oyster producers 200 200 200 400 400 400 400 400 400 400Existing Nabiac residents 1920District landowners 800 800 800 800 800Visitors to Great Lakes 26 26 26 26 26 26 26 26 Caravan parks 8 8 8 8 8 8 8 8

TOTAL BENEFITS 0 466 466 3220 1500 1500 1500 1500 700 700 700

Benefits – costs –120 –1396 –2684 180 460 460 460 460 160 160 160

Overall results 1997–2020 Results 1997–2025NPV @ 7 per cent –1,249 NPV @ 7 per cent –1070NPV @ 5 per cent –933 NPV @ 5 per cent –637NPV @ 3 per cent –466 NPV @ 3 per cent 29





that charges have increased but the number ofvisitors has not. A local estate agent doubtedwhether the reticulation would affect the value ofthe caravan parks. Accordingly, no generalamenity benefit is estimated in this evaluation.

Nevertheless the caravan parks may benefit fromreduced risk of a major adverse incident. Brooker(1997) reports that many bookings in March 1997were cancelled, one caravan park closed down forthree months and the others tankered effluent toCouncil’s treatment plant at an estimated cost$100,000 per annum. The incident may also haveaffected caravan parks further from the WallambaRiver. If a major health incident costs the parks

$400,000 in various ways, the expected gain fromthe new policies is $8000 per annum (i.e.$400,000 x 0.02, the probability of occurrence ofa major health scare).

Summary of estimated benefits

Benefits have been estimated for:

● consumers of oysters who avoid ill health,

● oyster producers who gain income fromincreased output,

● local property owners who have increasedamenity,

● local landowners who can subdivide property,

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 PV@5%

4,49410 10 10 10 10 10 10 10 10 10 10 10 10 12860 60 60 60 60 60 60 60 701

3010248 248 248 248 248 248 248 248 248 248 248 248 248 326480 80 80 80 80 80 80 80 80 80 80 80 80 107920 20 20 20 20 20 20 20 20 20 20 20 20 30820 20 20 20 20 20 20 20 20 20 20 20 20 270

438 438 438 438 438 438 438 438 378 378 378 378 378 1260780 80 80 80 80 80 80 80 80 80 80 80 80 107922 22 22 22 22 22 22 22 22 22 22 22 22 297

540 540 540 540 540 540 540 540 480 480 480 480 480 13918

266 266 266 266 266 266 266 266 266 266 266 266 266 3588400 400 400 400 400 400 400 400 400 400 400 400 400 4851

18293464

26 26 26 26 26 26 26 26 26 26 26 26 26 3338 8 8 8 8 8 8 8 8 8 8 8 8 103

700 700 700 700 700 700 700 700 700 700 700 700 700 12985

160 160 160 160 160 160 160 160 220 220 220 220 220 –933





● visitors to the area who do not have to switchto a less preferred holiday location, and

● owners of caravan parks whose risk of amajor adverse incident is reduced.

The estimated benefits are shown in Table 3.6.Excluded are any local business and fishingbenefits. Local businesses benefit from not losingvisitor revenue in a crisis, but any such benefitwould be at the expense of businesses in otherareas and so not included in the economicevaluation. No significant benefit was found forthe local fishing industry.

3.6 Evaluation of OverallResult, Risks andDistributional Effects

The economic evaluation of policies to improveWallis Lake quality is shown in Table 3.6. With a5 per cent discount rate the estimated presentvalue of the costs is $13.9 million and the presentvalue of the benefits is $13.0 million. Accordinglythe estimated net present value is –$0.9 million.The benefit-cost ratio is 0.94.8

It may be concluded that the estimated costs ofinvestment in improved water quality haveslightly exceeded expected benefits. However, thepurpose of this case study has been to illustratehow the policy issues may be evaluated and thecosts and benefits estimated. There are significantuncertainties with regard to costs and benefits theresolution of which is beyond the scope of thispaper.

Sensitivity tests

On the cost side, there is significant uncertaintyabout several large cost items. These include theproportion of the Nabiac District seweragescheme that would have been done in the BaseCase and the extra amount due to the new policycomponent, and the incremental capital andmaintenance costs of the new on-site seweragerequirements for existing and new houses.

On the benefit side there is significant uncertaintyabout the benefits of the improved seweragesystems to existing property owners and residents

and to landowners who can now subdivide theirland.

These uncertainties could be narrowed byresearch. However, two uncertainties are morefundamental. One is the cost of illness. Thecentral estimate above is based on a value of ahealthy life year of $150,000. This is a defensiblevalue, but a high one for Australian studies.Ideally, there would be some central direction anduniformity of values used in economic studies.The second uncertainty is the probability ofoccurrence of hepatitis and Norwalk viruseswithout, and with, the new policies. There havebeen few incidents historically on which to baseforecasts of future probability. These probabilitieshave a large impact on the estimated benefits.

The final column in Table 3.6 shows theestimated present values of each line item. Thus,estimating the impacts of alternative assumptionson the overall result is straightforward. Forexample, if the benefits of the Nabiac seweragesystem to Nabiac residents or local landownerswere double those estimated, which they couldbe, the estimated net present value of thepackage of policies would be positive. On theother hand, use of a lower discount rate hasminimal impact on the results, because the timeprofiles of the costs and benefits are more similarthan is often the case.

Distributional effects

The distributional impacts may be assessed fromseveral points of view: for example, localresidents, owners of on-site sewerage systems,owners of properties that obtained reticulatedsewerage services, oyster producers andconsumers, local tourist businesses, visitors, andso on. The following comments draw on theresults from Table 3.6.

For example, to estimate the overall benefits tolocal residents, it would be necessary:

● to exclude the contributions of the NSWDepartment of Land and WaterConservation to the cost of the Nabiacdistrict sewerage scheme ($2.2 million inpresent value terms),

8 This assumes that all benefits are in the numerator and all costs in the denominator. In some formulations of the benefit-cost ratio, operating costs are included in the numerator and only capital costs are included in the denominator.





● to exclude benefits to non-resident consumersof oysters and to visitors to the Great Lakes(which sum to about $3.3 million in presentvalue terms), and

● to include $1.0 million of benefits to localbusinesses that are treated as transferpayments in the economic evaluation.

The net effect of these changes is exclude$2.2 million of costs and to reduce benefits by$2.3 million. With a discount rate of5 per cent, the estimated net present value of thepolicies to local residents is about –$1.0 million.9

Among local residents, who were winners andlosers? The winners include oyster producerswhose gains exceeded their incrementalexpenditures, local oyster consumers, locallandowners who could subdivide their land afterreticulated sewer services were provided, andlocal businesses. The main losers were thehouseholds who were required to invest in andmaintain improved on-site sewerage systems.Households and caravan park owners whoreceived reticulated sewerage services had tocontribute to these services, but also gained fromthem. Some of these may have gained and otherslost from the new policies.

ReferencesAustralian and New Zealand Environment and

Conservation Council (ANZECC), 1992,Australian Water Quality Guidelines for Fresh and

Marine Waters, AGPS, Canberra.

Benenson, A.S., (ed:), Control of CommunicableDiseases Manual, American Public HealthAssociation, Washington, DC

Brooker, B., 1997, The impacts of wastewater oncommercial and recreational activities,mimeo.

Brooker, B., 1998, ‘The source of faecal coliformsin Wallis Lake’, mimeo, Great Lakes ShireCouncil.

Brooker, B., 1998, Affidavit of Brian Anthony Brooker,in Grant Ryan v Great Lakes Council & Ors.

Conaty, S., Bird, P., Bell, G, Kraa, E., Grohmann,G. and J.M. McAnulty, 1999, ‘Hepatitis A inNew South Wales, Australia, from consumptionof oysters: the first reported outbreak’,Epidemiology and Infection, 124, 121–30.

Lee, 2000, Graham Barclay Oysters Pty. Ltd. v Ryan

[2000], Federal Court of Australia, 1099.

Mathers, C., Vos, T. and C. Stevenson, 1999, The

Burden of Disease and Injury in Australia,Australian Institute of Health and Welfare,AIHW, cat. No. PHE 17, Canberra.

Stafford, R., Strain, D., Heymer, M., Smith, C.,Trent, M and J.Beard, 1997, ‘An outbreak ofnorwalk virus gastroenteritis followingconsumption of oysters’, Communicable Diseases

Intelligence, 21, 317–20.

Steering Committee, 2001, Wallis Lake Catchment

Management Plan, Department of Land andWater Conservation, Sydney.

Tolley, G., Kenkel, D., and R.Fabian (eds:), 1994,Valuing Health for Policy, University of ChicagoPress.

Wilcox, J., 1999, Ryan v Great Lakes Council [1999],Federal Court of Australia, 177.

9 The Commonwealth Government funded some Council’s expenditures, for example on local toilets, and preparation of the Catchment Management Plan.





Economic Evaluation of RiskReduction Policies for Legionnaires’Disease in Victoria

4.1 Introduction: The IssuesLegionnaires’ disease is a rare form ofpneumonia. Early symptoms resemble those offlu, such as headache, fever, muscle aches, andgenerally a dry cough followed by shortness ofbreath. Other systems in the body can beaffected, resulting in diarrhoea, mental confusionand kidney failure. Most sufferers are admitted tohospital. In extreme cases, death occurs. Box 4.1provides further context for the disease.

Official records indicate 20 to 40 cases ofLegionnaires’ disease each year in Victoria. Thenumber of cases notified has been rising.However, this may indicate greater clinicalawareness and improved diagnostic methods. TheDepartment of Human Services (DHS, 2001)considers that many more people suffer from thedisease without notification occurring. Deathsdue to the disease average four per annum inVictoria, but are also rising.

Concern about the apparently rising incidence ofLegionnaires’ disease along with a majoroutbreak associated with the MelbourneAquarium in 1998 led to a major reappraisal ofpolicies and regulations for control of the disease.In 2001 the Victorian government introduced apackage of regulations designed to reduce the riskof the disease associated with cooling towers andwarm water systems. DHS (2001) provides adetailed economic evaluation of theseregulations.

This case study describes and reviews the DHS(2001) evaluation. Section 4.2 describes the basecase and options. The following sections describethe evaluation method, the estimated costs andbenefits of the regulations, and the overall results.The final section provides some comments on theeconomic evaluation process.

Box 4.1 Legionnaires’ disease

Legionnaires’ disease is caused byLegionella bacteria, of which there areover 20 species. Legionella pneumophila

Sero Group 1 is responsible for mostcases in Victoria. Legionella is a water-associated bacterium. Infection isacquired through inhalation of aerosols(very fine droplets of water) that containthe bacteria. Legionella is found widelyin the environment, in lakes, rivers, hotsprings and other bodies of water andsoils. It is also found in man-madesystems such as:

● Cooling towers associated with airconditioning and industrialprocesses;

● Reticulated warm water systems,where the temperature is keptbetween 20o and 45o C;

● Spas and other water systems ableto produce aerosols; and

● Potting mixtures and composts.

These man-made systems can provideconditions in which the bacteriamultiply in large numbers. Coolingtowers have been implicated in severaloutbreaks of Legionnaires’ disease.

Eradication of the Legionella bacteriain the environment is impossible. Also,there is no vaccine available for theprevention of Legionnaires’ disease.

3


4.2 Policies to ReduceLegionnaires’ disease:Base Case and Options

In the 1990s the control of risk from Legionella inVictoria was based on the Health (Infectious

Diseases) Regulations 1990. This required the owneror manager of a cooling tower or warm watersystem to maintain the tower or systemconsistently with the Guidelines for the Control of

Legionnaires’ disease published by the then HealthDepartment of Victoria.

Control measures for Legionnaires’ diseaseincluded:

● Regular maintenance, including chemicaltreatment, of man-made systems such ascooling towers and reticulated warm watersystems that are capable of producingaerosols;

● Immediate notification of all cases under theHealth (Infectious Diseases) Regulations1990; and

● Investigation of all notified cases by thePublic Health Division of Human Services.

In June 2000 the Victorian government adopteda new pro-active strategy designed to furtherminimise the risks posed by Legionella. Thestrategy focuses on upgraded maintenancerequirements along with a preventive risk-basedmanagement approach, with improvedmonitoring and information flows.

The control measures include:

1 Establishing a register of cooling towersystems.

2 A requirement that risk management plans bedeveloped for all cooling tower systems.

3 Annual audits of the risk managementprograms.

4 An enhanced inspection program for coolingtower systems based on risk assessments andinformation from audits.

5 Upgrading maintenance and testing systems.

6 Enhanced technical advisory and investigativeservices.

7 Consultation with industry on plans to assesscapital upgrading of existing tower systemsthat do not meet Australian and NewZealand Standard AS/NZS 366 for microbialcontrol.

Measures (1), (2) and (3) were implementedthough amendments to the Building Act 1993 andthe Building (Legionella) Act, 2000, and relatedregulations.10 These provide for the registrationof cooling tower systems, the adoption of riskmanagement plans (RMPs), annual review andauditing of RMPs, and record-keepingrequirements.

Measures (4) and (6) require increasedgovernment allocations to inspection, advisoryand investigative services.

The Plumbing (Cooling Towers) Regulations 2001

introduced Australian and New ZealandStandard AS/NZS 366 for new cooling towersystems. However no capital upgrade of existingsystems has been required.

Measure (5), which is the heart of the control strategy, is

embodied in Health (Legionella) Regulations 2001.

The key provisions for cooling towers are:

● Cooling tower water must be kept clean andtreated with biocides to control the growth ofLegionella and with chemicals and otheragents to minimise corrosion and fouling;

● Tower systems must be disinfected, cleanedand re-disinfected at various start-up andshut-down times;

● Tower systems must be inspected at leastmonthly to check that systems are operatingcorrectly;

● Tower systems must be inspected at leastmonthly to determine the heterotrophiccolony count (HCC), i.e. the total bacterialcount of the system;

● If water contains more than 100,000 colonyforming units (CFUs) of bacteria permillilitre, various treatments and reviews arerequired; and

● If Legionella is detected in the system withoutany suspected or known case of legionellosis,the system must be disinfected and reviewed

10 The Building (Cooling Tower Systems Register) Regulations 2001 and the Building (Legionella Risk Management) Regulations 2001.

ECONOMIC EVALUATION OF RISK

REDUCTION POLICIES FOR

LEGIONNAIRES’ DISEASE IN VICTORIA


and faults corrected, followed by various testsand retesting programs.

Compared with the previous regulations, the newregulations for maintenance of man-madesystems establish clearly specified and enforceablerequirements, which are expected to increasecompliance. The previous guidelines were morepermissive. The new standards are also stricter.The threshold level of bacteria triggeringremedial action has been reduced from 500,000CFU/ml to 100,000 CFU/ml. Also, remedialaction is required where Legionella is detectedbut without any known case of Legionellosis.

New regulations were also introduced for moreregular cleaning, disinfecting, testing andinvestigating warm water systems. For example,the disinfection that previously applied only tohigh risk installations is extended to all warmwater systems. Disinfection is required on start upof the system and flushing is required for rarelyused outlets. Disinfection and system requirementhave been added where Legionella is detected inthe system without any suspected or known caseof Legionellosis. On the other hand, therequirement that thermostatic mixing valves beroutinely maintained is eased because of the highcost and limited benefit of the previousrequirements.

4.3 Overview of EvaluationMethod

The Department of Human Services (DHS,2001) evaluated the proposed package of controlmeasures for Legionnaires’ disease describedabove, which were subsequently introduced inHealth (Legionella) Regulations 2001 and the Building

(Legionella) Act, 2000, and related regulations.

The main features of the economic evaluationcan be summarised as follows:

● The baseline scenario is defined as the controlcosts and cases of Legionnaires’ disease thatwould have occurred in the absence of thepackage of regulations;

● The package of control measures is evaluatedas a whole. DHS (2001) argues that thepackage of measures is interdependent andthat the estimated benefits can be considered

only in aggregate. The benefits cannot beascribed to particular control measures.However, detailed estimates of the costs ofthe main measures are provided;

● The incremental costs and benefits areestimated over a 10-year life. Most costs arerecurrent. Capital expenditures are minor.The presumption is that all estimates are in2001 prices, although this does not appear tobe stated anywhere;

● Cost and benefits are discounted to presentvalues using a real discount rate of 6 per cent.DHS considered that this represents the realcost of capital to the businesses that will bearmost of the costs;

● The evaluation provides estimates of (a) thecost of the regulations and (b) the benefits ofthe measures excluding the value of lives saved.It then presents estimates of the net cost perlife saved. The report argues that this net costis within accepted benchmarks for policyacceptance (see Section 4.6 below);

● The report produces one sensitivity test basedon the number of lives that would be saved. Italso describes the main distributional effects;

● The report discusses various alternativepolicies but does not formally evaluate them(see Section 4.8 below).

4.4 Estimated Costs of theNew Regulations

DHS (2001) estimates the incremental costs ofthe new regulations separately for cooling towersand warm water systems, as shown in Table 4.1.

The estimated total present value of the costs ofthe control package is $50.1 million (presumablyin 2001 dollars). This includes $19.6 million forthe Health (Legionella) Regulations 2001, $26.4million for the Building Act and Regulations, and$4.0 million for other changes associated withextra inspections and technical assistance.

Note that the costs associated with the Health

(Legionella) Regulations 2001 break down into$20.6 million for cooling towers and –$1.0million for warm water systems. The latter figureis negative because DHS concluded that theexisting requirement that thermostatic mixing





valves in warm water systems should be testedfortnightly could be replaced by a lesserrequirement for annual cleaning andmaintenance. The existing regulation wasassessed to be costly and unnecessary and theestimated present value of the savings from therelaxation of the regulation was $5.3 million.Although this saving is technically due to thechange in regulations, it may be questionedwhether it should be counted as a cost offset.It appears that the estimated savings could beachieved in the base case and independently ofthe introduction of any other new regulation.

The costs of the control programs are based onestimates by DHS officers and informationsupplied by industry participants and laboratorypersonnel. The savings are based on estimates of(i) the number of cooling towers and warm watersystems and (ii) average incremental cost of aregulatory operation in a cooling tower or warmwater system. The report estimates that there are10,000 cooling towers, with 5000 cooling towersystems (integrated systems containing one ormore cooling towers), distributed among 3500premises.11 There are about 200 warm watersystems and 10,000 thermostatic mixing valves.

The regulatory operations include the cleaning,disinfection, testing, remedial and other actionsthat are shown in Table 4.1. The report describesin detail the assumptions made for the costs ofthese actions with the regulations in the 1990sand the new regulations.

Inevitably assumptions are required about thecosts of each operation. For example DHS (2001)estimated that owners of cooling tower systemsspent $4.5 million per annum in cleaning anddisinfecting their systems under the existingpermissive regulatory regime. If thisoverestimates the previous maintenance effort,the incremental costs of the new requirementsare underestimated. To give another example ofthe role of assumptions, the report estimated thatthe costs of cleaning and disinfecting a coolingtower system after a shutdown varied from $200to $1000, depending on the size of the system,and that the average cost was about $300 persystem.

4.5 Estimated Benefits ofthe New Regulations

DHS (2001) identifies direct and indirect benefitsof the new regulations. The direct benefits arebased on early deaths and illness avoided. Theindirect benefits are reduced industrial disputes,increased tourism, fewer industrial shutdowns,and increased confidence in public buildings.DHS quantifies deaths and illness avoided.However, in its estimate of the present value ofbenefits gained, it monetises only the benefits ofillnesses avoided. The report attaches littlequalitative importance to the indirect benefitsand does not quantify them.

Estimated early deaths averted

The DHS forecast of deaths averted is a functionof the expected deaths in the base case due toLegionnaires’ disease, the proportion of thesedeaths associated with cooling towers or warmwater systems, and the percentage of deathsaverted due to the new regulations.

The report uses regression analysis to estimatethe slowly rising trend in mortality fromLegionnaires’ disease:

Y = 3.186 + 0.065X (4.1)

where Y is the expected number of deaths and Xis the year, with 1979 = 1. The report does notprovide any confidence measures or otherdiagnostic statistics. Applying this trend theexpected number of deaths in the base casewould be 49.8 over 10 years.

DHS estimates that 80 per cent of these deaths(about 40 in total) are due to cooling towers orwarm water systems. This estimate is based onthe observation that no other major transmissionmechanism has been identified for communityacquired Legionnaires’ disease.

Third, DHS estimates that the new regulatorypackage will reduce these early deaths by25–50 per cent. The forecast is based on thecomprehensiveness of the package and the roleof experts in designing it. It assumes a highdegree of compliance with the regulations. Thereport acknowledges that there is no evidence on

11 The report notes, in footnote 32, that the number of cooling towers may exceed 10,000. If so, costs in the report would be underestimated.





which to base this assumption because there isnot comparable package in place elsewhere.

These assumptions together imply that thepackage will save 10 to 20 lives over the ten-yearlife of the regulations.

Estimated morbidity avoided

Under-reporting of Legionnaires’ diseasecomplicates estimates of possible reductions ofthe disease. DHS (2001) quotes a South

Australian report that found that prevalence ofthe infection in the general population was tentimes the notified cases of Legionnaires’ disease.

DHS reports that notifications of Legionnaires’disease in Victoria totalled 20 in 1991, 68 in 1998and 216 in the first nine months of 2000. Afterallowing for substantial under-notification and forgrowth of the disease12 , DHS estimated thatthere would be 290 cases in 2000 and 390 casesin 2010 in the base case.

Table 4.1 Costs of Legionella package: Set Out by Regulatory Instrument

Cost Item Year 1 Year 2 Year 3 Year 4

Health (Legionella) Regulations 2001

(a) Cooling TowersCleaning/disinfection after shutdowns $862,500 $862,500 $862,500 $862,500Monthly testing for HCC $1,671,000 $1,617,000 $1,591,000 $1,591,000Remedying high HCC readings $396,000 $126,000Remedying detected Legionella. $697,500 $348,750 $186,000 $186,000

(b) Warm water systemsStart-up requirements $2,800 $2,800 $2,800 $2,800Disinfection $15,600 $15,600 $15,600 $15,600Water testing $304,000 $76,000 $76,000 $76,000Flushing unused outlets $312,000 $312,000 $312,000 $312,000Thermostatic mixing valves (saving) –$716,645 –$716,645 –$716,645 –$716,645Record keeping $146,250 $146,250 $146,250 $146,250TOTAL (Health Regulations)

Building Act & RegulationsRegistration of cooling towers $855,000 $631,250 $631,250 $631,250Formulation of Risk Management Plans $1,512,500 $65,625 $65,625Review/updating of RMPs $570,000 $570,000Annual audit of RMPs $900,000 $900,000LegionellaTesting $1,075,000 $1,037,500 $1,020,000 $1,020,000Maintenance of records $562,500 $562,500 $562,500 $562,500TOTAL (Building Act & Regulations)

Other (non–regulated)Additional tech. Assistance (DHS) $250,000 $250,000 $250,000 $250,000Random inspections $300,000 $300,000 $300,000 $300,000

TOTAL Year 1 costs (PV) $6,733,505 $7,084,005 $6,774,880

TOTAL PV of costs

Source: DHS, 2001.

12 See regression reported in footnote 19 of the report.





As for deaths averted, DHS estimated that80 per cent of the cases of Legionnaires’ diseaseare associated with cooling towers or warm watersystems and that the new regulations wouldreduce these cases by 25 to 50 per cent. As shownin Table 4.2, based on the high (50 per cent)assumption, estimated cases averted rose from120 in year one to 156 in year 10. In total, up to1248 cases of Legionnaires’ disease would beaverted.

In order to quantify these savings, DHS estimatedthat:● 95 per cent of cases required hospitalisation

for an average of 14 days;● $16,810 would be saved for each

hospitalisation avoided;● $500 of other medical expenditures would be

saved for each incident of illness averted; and● five weeks of output valued at $1000 per

week would be gained for each incident ofillness averted.

Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 PV

$862,500 $862,500 $862,500 $862,500 $862,500 $862,500 $6,348,075$1,591,000 $1,591,000 $1,591,000 $1,591,000 $1,591,000 $1,591,000 $11,808,510

$485,724$186,000 $186,000 $186,000 $186,000 $186,000 $186,000 $1,996,370

$2,800 $2,800 $2,800 $2,800 $2,800 $2,800 $20,608$15,600 $15,600 $15,600 $15,600 $15,600 $15,600 $114,817$76,000 $76,000 $76,000 $76,000 $76,000 $76,000 $774,461

$312,000 $312,000 $312,000 $312,000 $312,000 $312,000 $2,296,347–$716,645 –$716,645 –$716,645 –$716,645 –$716,645 –$716,645 –$5,274,570

$146,250 $146,250 $146,250 $146,250 $146,250 $146,250 $1,076,413$19,646,757

$631,250 $631,250 $631,250 $631,250 $631,250 $631,250 $4,857,140$65,625 $65,625 $65,625 $65,625 $65,625 $65,625 $1,708,809

$570,000 $570,000 $570,000 $570,000 $570,000 $570,000 $3,150,216$900,000 $900,000 $900,000 $900,000 $900,000 $900,000 $4,974,025

$1,020,000 $1,020,000 $1,020,000 $1,020,000 $1,020,000 $1,020,000 $7,574,751$562,500 $562,500 $562,500 $562,500 $562,500 $562,500 $4,140,049

$26,404,989

$250,000 $250,000 $250,000 $250,000 $250,000 $250,000 $1,840,022$300,000 $300,000 $300,000 $300,000 $300,000 $300,000 $2,208,026

$50,099,794





It may be noted that the estimated savings perpatient are based on costs observed in notifiedcases. The report also allows for a large numberof non–notified cases and assumes that thesavings would be similar for these cases as fornotified cases. However, the savings per patientmay be lower for the presumably more minor,non-notified, cases.

The $1000 per week of output lost is applied toall persons affected regardless of whether they arein the workforce. Also, it is based on GDP peremployee (which includes the return to capital aswell as to labour) rather than average wage peremployee. The latter is a more accurate measureof loss of labour output. These benefits thereforeappear high.

On the other hand, DHS did not quantifyexplicitly the significant reductions in pain andsuffering that would occur. The report noted thatmethodologies to value pain and suffering arepoorly developed and that monetisation is oftenarbitrary. This omission, which is consistent withcommon practice, causes the estimated benefits tobe understated.

However, as noted, the DHS evaluation imputesa loss of $1000 per week per person affected. Inso far as that person is not working, this could beregarded as an implicit (possibly high) allowancefor pain and suffering.

Indirect benefits

DHS notes that a reduction in Legionnaires’disease could lead to fewer industrial disputes and

increased tourism. However, it also notes thatthere is little evidence on the incidence ofLegionella-related disputes or on the negativeeffects of Legionella on tourism. It does notattempt to quantify either effect.

DHS also discusses but does not quantify thecosts to businesses as a result of a Legionnaires’disease outbreak. A reduction in outbreaks couldreduce shutdown, legal and insurance costs. Thereport considers that some of these savings incosts are transfer costs rather than real resourcegains on the ground that one firm loses by shuttingdown, another firm may gain in increasedbusiness.13 Some legal costs are compensation fordamages already costed. Some insurance costsare likewise payments either for lost business orfor damages. However, the report also recognisesthat some legal and insurance costs are realadministrative costs and that consumers may losesome satisfaction if they have to transfer fromtheir chosen service provider to another one.

4.6 Results of the EconomicEvaluation

Table 4.3 provides a summary of expectedquantified costs and benefits based on thedetailed figures for 10 years shown in Tables 4.1and 4.2.

The results indicate that the present value of thecosts, discounted at 6 per cent, is $50.1 million.The costs are incurred fairly evenly over the yearswith a small decline after the first two years.

Table 4.2 Benefits of Legionella package, Scenario 1: 80% of cases attributableto cooling towers, regulations 50% effective in reducing cooling-towerrelated cases

Benefit Item Year 1 Year 2 Year 3 Year 4

Cases avoided 120 124 128 132

Hospital cost savings $1,916,340 $1,980,218 $2,044,096 $2,107,974Other medical savings $60,000 $62,000 $64,000 $66,000Output losses avoided $600,000 $620,000 $640,000 $660,000

Present Value of benefits

Source: DHS, 2001.

13 This is valid in a highly mobile economy. However, shutdowns can cause an overall loss of producer surplus (see the Guidelines, Volume 1).





There are no sensitivity tests for alternativeassumptions about the costs.

The estimated benefits include only savings inhospital and medical costs and the value ofeconomic output gained due to a lower incidenceof the disease. They exclude any benefits fromdeaths averted, reductions in pain and suffering,and any indirect benefits such as reduced lossesfrom business shutdowns.

The present value of the estimated benefitsranges from $10.8 million to $21.5 million,depending on the assumed effectiveness of theregulations in reducing the incidence ofLegionnaires’ disease.

The estimated net present value of the regulations(the difference between the benefits and the costs)is therefore –$28.6 million to –$39.3 million.

Given that DHS estimates that the regulationswill save 10 to 20 lives, the estimated cost per lifesaved is between $1.43 million and $3.93 million.DHS argues that these valuations per life saved

are within ‘accepted benchmarks for effectivepolicy, comparing favourably to many policyinterventions’.

This conclusion overlooks two points. First, itassumes implicitly that the lives will be saved inyear one. If the lives were saved on average halfway through the 10 year period, allowing for a6 per cent per annum discount rate, theequivalent value of life would have to be aboutone-third higher (i.e. $1.90 million to $5.2million) to equate to the same present values.Second, in so far as the regulations avert the earlydeath of elderly persons, which is the commoncase, they will save only a few years of life ratherthan the 40 years that are the basis for most‘values of life’ (see Guidelines, Volume 1, Chapter4).

DHS notes that the report has not valued painand suffering and that this represents animportant additional but unquantified benefit.This is an important point. However, as wasobserved above, in so far as the $1000 per weekover-values the loss of output per person affected,

Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 PV

136 140 144 148 152 156

$2,171,852 $2,235,730 $2,299,608 $2,363,486 $2,472,364 $2,471,242 $15,995,366.30$68,000 $70,000 $72,000 $74,000 $76,000 $78,000 $500,809.87

$680,000 $700,000 $720,000 $740,000 $760,000 $780,000 $5,008,098.66

$21,504,274.83




Table 4.3 Summary of estimated costs and benefitsover 10 years

Measure Value

Present value of total costs $50.1 millionPresent value of benefits $10.8 – $21.5 millionNet present value –$28.6 million to –$39.3 million

Number of lives saved 10 to 20Cost per life saved $1.43 million to $3.93 million

Source: DHS, 2001.


this overvaluation may be viewed as representingsome other loss to the individuals concerned.

4.7 Distributional ImpactsDHS reports that the owners and managers ofcooling tower systems will incur the direct costsassociated with the Legionella control packageand government costs of inspection and advice,which will be recovered in registration fees ofabout $100 per annum per tower.

The use of cooling tower systems is prevalent in:

● Air conditioning systems on medium andlarge buildings including offices, someresidential buildings, hospitals, hotels, majorcinema complexes and shopping centres;

● Large refrigeration units;

● Cooling of milk on dairy farms; and

● The removal of heat generated duringindustrial processes, for example in drycleaning.

DHS (2001) estimated that, with the oldregulations, a small business would spendbetween $1490 and $3177 per annum tomaintain a cooling tower system. The reportestimated that the new regulations would increasethis expenditure by between $510 and $1730 perannum.

DHS does not discuss the final impact of theregulation. In markets where all firms use coolingtower systems and bear the increase in costs,some or all of the costs may be passed on toconsumers. In markets where firms with coolingtowers compete with others that do not use coolingtowers it will be more difficult to pass on the costs.

As a group, the owners and managers of warmwater systems, which are installed mainly in thehealth and welfare sector, will incur only a smallincrease in costs.

4.8 Review of AlternativesDHS (2001) considers nine alternatives. Thesedivide into two main categories: six options thatalter the regulatory process and three substantiveoptions.

The regulatory process options include:

● Amending the Occupational and Safety(Plant) Regulations 1995;

● Making local governments responsible forkeeping registers of cooling tower systems;

● Increasing audits of cooling towers by DHS;

● Mandatory reporting of all test results toDHS;

● Making maintenance contractors responsiblefor testing of cooling towers; and

● Regulating the qualifications of companiesproviding maintenance testing and services.

The report argued that these options wouldreduce the responsibility of the owners andmanagers for the cooling tower and warm watersystems and that none of the options wouldprovide clear benefits in relation to the costsinvolved.

Of the substantive options, two would strengthenthe new regulations. One is on the spot fines forcontraventions of the regulations. DHSconsidered that to be effective such fines wouldhave to be large and that, if large, they should bedetermined through the court system. Also thefines would undermine the partnership approachembodied in the regulations. The second optionis mandatory monthly testing for Legionella. Thisoption was considered too prescriptive and costlyin relation to possible benefits.

The third substantive option would reduce thecosts of the new regulations. DHS (2001)estimated that not maintaining a register ofcooling tower and warm water systems wouldsave $5 million over 10 years. However, itconsidered that the benefits in investigatingcauses of Legionnaires’ disease and managingoutbreaks would more than offset the costs.

DHS (2001) did not consider two other optionsthat might be considered appropriate. One wouldbe a strengthening of the engineeringrequirements for buildings. As noted, theregulation focused on operations andmaintenance. Existing systems are not required tomeet the AS NZS 366 standard for cooling towersystems. Nor is any major new engineeringrequirement introduced for new buildings.





Second, DHS (2001) does not discuss a pure legalliability system. Under this approach, there wouldbe minimal or no regulations. Firms would ensurea safe environment in order to avoid the damagesassociated with outbreaks of Legionnaires’disease. In principle, firms would control theirrisks in a cost–effective manner. However, thisapproach relies on an expeditious and cost–effective legal process, which is not available inAustralia (or most countries).

4.9 Comments on theEconomic Evaluation

The DHS (2001) economic evaluation of theproposed regulations for cooling towers andwarm water systems is broadly consistent withGuidelines. It is clearly presented anddocumented, carefully estimated, and consistentwith accepted good economic practice. There is aclear statement of the need for higher controlmeasures and the objectives of the measures.Costs and benefits are estimated relative to anestablished baseline scenario.

However, one of the proposed changes is arelaxation of monitoring requirements. Under thenew system, the fortnightly testing ofthermostatic mixing valves in warm watersystems would be replaced by annual cleaningand maintenance with a savings of $5.3 millionover 10 years. If this relaxation (and the relatedsavings) could occur in any case in the base case,these savings are not attributable as a benefit ofthe new regulations. This illustrates theimportance of identifying the problem to besolved and the baseline scenario.

A related issue is the desirability ofdisaggregating the results of the analysis. DHS(2001) argues that the package of regulationsshould be evaluated as a whole because thebenefits cannot be attributed to particular partsof the regulations. This may be broadly true.However, it appears possible and useful toestimate separately the net benefits of theregulations on cooling towers and warms watersystems. Given the estimated savings inmonitoring warm water systems, the proposedchanges for the cooling towers may not be cost-beneficial.

Inevitably, many estimates are subject to a fairdegree of uncertainty. The proposed regulationsessentially deal with compliance with prescribedoperating standards for cooling towers and warmwater systems. If the current level of complianceis overestimated, the baseline costs of the currentregulations are overestimated and theincremental costs underestimated. On the otherhand, if compliance with the new regulations isoverestimated, both incremental costs andbenefits are overestimated.

Other important assumptions are the number ofcooling tower systems and the costs ofmaintaining them, the number of cases ofLegionnaires’ disease that are not notified and theaverage cost of treating these cases, and theefficacy of the new regulations. The reliability ofthese estimates and the effects of theseuncertainties on the results might have beenexplored further.

DHS (2001) estimated the net present cost of theregulations (the costs less certain benefits) per lifesaved. Because the net costs were discounted butlives were not, this cost-effective ratio is somewhatmisleading. The Guidelines recommendincluding the estimated value of (statistical) livessaved, or the estimated value of (statistical) lifeyears saved, in the evaluation along with otherbenefits, and discounting the full benefits asappropriate.

DHS reviewed nine policy options as well as therecommended package. However, it did notreview a strengthening of the engineeringrequirements for cooling towers and warm watersystems. The engineering requirements weretaken broadly as a given. Some limitations on thescope of economic evaluations have to beaccepted. This limitation might have been mademore explicit.

ReferencesDepartment of Human Services, 2001,

Legionnaires’ disease: Managing the HealthRisk Associated with Cooling Towers andWarm Water Systems. Regulatory Impact

Statement Health (Legionella) Regulations, 2001,

Melbourne.





Economic Evaluation of Policies forSulfur Dioxide Emissions fromMount Isa Mines, Queensland

5.1 IntroductionSmelting operations from Mount Isa Mines(MIM) produce a net output of sulfur dioxide(SO2) emissions of about 500,000 tons perannum. These emissions sometimes exceednational ambient standards. They are perceivedto damage the health and amenity of residents ofthe local town of Mount Isa and to damageecosystems up to 20 km from the smeltingoperations.

Under the Mount Isa Mines Limited Agreementbetween the Queensland Government and MIM,a Panel Assessment Study was commissioned toexamine the SO

2 emissions from the smelters and

to provide advice on:

● The impact that the emissions might have oncommunity health and the naturalenvironment;

● Feasible emission control technologies thatwould enable MIM to meet relevant ambientair quality standards for sulfur dioxide.

The detailed study took four years. In addition tothe Final Report (MIM Panel Assessment Study,2001), there are twelve supporting reports. Theseinclude reports on site history, options to controlSO2 emissions, the impact of emissions on thenatural environment, community health impacts,and economic assessments of health impacts andthe contributions of the smelter operations to theregional and national economies.

In summary, the Panel Assessment Study foundthat SO2 emissions from MIM are usually, but notalways, below national ambient standards. If theycause health and ecosystem damages, thedamages are considered minor compared with

the economic benefits of the smelter operations.The Panel concluded that some additionalemission control technologies for the smelterscould be viable and warranted furtherexamination.14 However, the study did notprovide a formal economic evaluation of policiesto reduce sulfur dioxide emissions.

The purpose of this case study is to illustrate theissues that arise in this kind of case and methodsfor dealing with them. The case study draws onand examines the methods used in the work ofthe Panel Assessment Study. It is not the aim ofthis paper to debate whether the PanelAssessment Study reached correct conclusions.

This case study starts with description of theissues concerning SO2 emissions in Mount Isa.Section 5.3 outlines how an economic evaluationmight be conducted. Section 5.4 discusses thegeneral approach and main findings of the PanelAssessment Study. Section 5.5 describes methodsfor identifying, quantifying and monetising thehealth impacts of SO2 emissions in Mount Isa.The final section draws some conclusions.

5.2 Nature of the IssuesMount Isa is a town of about 20,000 people innorth-west Queensland. The town is locatedalongside the copper and lead mining andsmelting operations of Mount Isa Mines Limited.The smelting operations produce about 680,000tonnes of sulfur dioxide emissions per annum.The copper smelter produces 540,000 tonnes perannum and the lead smelter 140,000 tonnes perannum. Emissions from the copper smelter areexpected to increase slightly.

14 Ten members of the Panel Assessment Study signed the Final Report. Three members from the Queensland Conservation Council did not sign the report.

5


In 1999, MIM constructed an acid plant, whichwas designed to convert 80 per cent of the SO

2

emissions from the copper smelter and 65 percent of the emissions from the lead smelter intoliquid sulfuric acid. The plan is to use the sulfuricacid in the manufacture of fertilisers at a facilityowned by WMC Fertilisers at Phosphate Hill, 100kilometres from Mount Isa.

In its first two years of operations, the acid plantoperated intermittently and at only one-third ofits capacity. In year 2000, the acid plant removed180,000 tonnes of sulfur dioxides from thecopper smelter emissions. Thus the output ofsulfur dioxides into the atmosphere from thecopper and lead smelters fell to about 500,000tonnes.

Sulfur dioxide damages health, mainly byexacerbating asthma. Also, with otheratmospheric compounds, SO2 forms sulfateaerosol particles that damage health. In thepresence of atmospheric moisture, gaseous SO

2

forms sulfuric acid (H2SO4), which damagesecosystems.

Approximately 85 per cent of the time, the windis to the west and away from the town. Thus, SO

2

emissions are blown away from the town most ofthe time. There are few exhaust emissions fromother sources in Mount Isa.

Ambient air quality standards

The Mount Isa Mines Limited Agreementprovides the ambient air quality standards forSO

2 emissions from MIM smelters (see Table

5.1). These levels must not be exceeded at any ofthe ten air quality monitoring stations located inthe Mount Isa area, except as a result ofabnormal operating or unpredictablemeteorological conditions.

The standards under the MIM Agreement areless stringent that those set by the Queenslandand Commonwealth governments. TheAustralian standard is a goal for 2008, withallowable excesses for the one-hour and 24-houraverage on one day a year.

Monitoring of emissions from the smelters showsthat national goals for ambient levels of SO

2 are

generally met except for short periods in the townduring adverse weather conditions.

For most of the year the wind blows the plume ofgases away from Mount Isa residential areas.However, during the passage of synoptic weatherfronts, the plume swings counter-clockwise acrossthe town and emissions may exceed ambientstandards. MIM operates an air quality control(AQC) system under which it shuts down itssmelters when excessive levels of SO2 in the townare predicted or detected.

Table 5.1 Air quality standards: maximum concentrationsof sulfur dioxide

MIM Agreementa Queenslandb Australiac

Urban standards

Annual average 80 mg/m3 or 0.028 ppm 0.02 ppm 0.02 ppm24 hour average 365 mg/m3 or 0.128 ppm 0.08 ppm3 hour average 1300 mg/m3 or 0.455 ppm1 hour average Not provided 0.2 ppm 0.2 ppm

Biological standard

Annual average 0.02 ppm24 hour average 0.04 ppm

a Mount Isa Mines Limited Agreement.b Environmental Protection (Air) Policy, 1997.c National Environment Protection (Ambient Air Quality) Measure 1998.

ECONOMIC EVALUATION OF POLICIES

FOR SULFUR DIOXIDE EMISSIONS FROM

MOUNT ISA MINES, QUEENSLAND


For predictive purposes, MIM uses data collectedby local meteorological stations. For reactivecontrols, MIM obtains real-time data from tencontinuous SO2 monitors in Mount Isa. Thesmelters are shut down if ambient air qualitystandards are likely to be exceeded. Downtimedue to AQC procedures has averaged about10 per cent at the copper smelter and 3 per centat the lead smelter.

Over the last 30 years, the average annual SO2

concentration in residential areas has fallen fromabout 0.035 parts per million (ppm) to0.0042 ppm. In recent years, annual averagelevels have been consistently below the nationalstandard of 0.02 ppm.

Measured concentrations exceed relevantstandards at some stations for a few days eachyear. The number of times the standard isexceeded varies from station to station, reflectingthe localised nature of high concentration events.During the last 10 years, individual stations haveexceeded:

● The national 24-hour standard of 0.08 ppmbetween zero and six days per year;

● The three-hour average concentrationstandard of 0.455 ppm embodied in theMount Isa Mines Limited Agreement between zeroand four 3-hour periods per year; and

● The national one-hour average of 0.2 ppmbetween 5 and 108 hours per year.

Impacts of sulfur dioxide

Three quarters of the residents of Mount Isabelieve that smelter emissions is the mostimportant environmental issue in Mount Isa andthat more could be done to reduce them. Manyresidents of Mount Isa believe that smelteremissions cause health problems affecting therespiratory tract, skin and eyes.

There is considerable evidence of the healthimpact of high SO2 emissions in other countries.As discussed in Section 5.5, there is limitedevidence of health problems from SO

2 emissions

in Mount Isa. There are higher rates of hospitaladmissions for some respiratory complaints(including asthma in males) compared with otherwestern Queensland towns.

The dominating smelter plumes may create visualdisamenity and be part of the reason forcommunity disapproval of the sulfur dioxideemissions. However, the MIM Panel AssessmentStudy gave little consideration to visual amenity.

Ecosystems within 15 kilometres of Mount Isahave undergone measurable change as a result ofSO

2 emissions. The richness of bird species and

the diversity of reptile species have fallen close tothe smelters. The richness of ant species has beenhalved in some areas within five kilometresdownwind of the smelters.

Sulfur deposition arising from emissions hascontributed to acidification of soils, especially tothe north-west of Mount Isa. This has biologicalimplications in areas up to 20 kilometresdownwind for soil depths to two centimetres andin areas up to five kilometres for soil depths up to10 centimetres.

Issues for economic evaluation

The prime economic question is ‘what is thesocially efficient atmospheric concentration ofSO2 in Mount Isa and surrounding areas?’15 Thisis a cost–benefit problem. Related to thisquestion, how can this level of SO2 be achieved?

Of course, if the regulations establish the efficientSO

2 standard in the atmosphere, only the second

question matters. The issue is then simply a cost-effectiveness issue: what is the most economic wayto achieve this standard?

Several technologies are available for reducingSO2 emissions from the Mount Isa smelters.These include ensuring that all process gases fromthe copper plant are treated in the acid plant andinstalling an acid plant to treat off-gases from thesintering machine in the lead smelter (see Section5.4).

In principle, technology to reduce SO2 emissions

should be introduced when the marginal benefitof controls exceeds the marginal cost. Thusestimates of marginal benefit and cost are required.Given the reductions in SO2 emissions that havebeen achieved, the marginal cost of reducingemissions further may exceed any marginalbenefit. But this would have to be established.

15 In principle, the optimal level of SO2 in the atmosphere could vary by time of year, week or day as well as by location.





Box 5.1 Key economic questions

What is the optimum level of SO2

concentration in the atmosphere?

What is the most economic way toachieve this level of SO2 concentration?

Which control policy produces thehighest net economic benefit?

What is the marginal cost and benefitof any particular control policy?

5.3 Outline of an EconomicEvaluation

First steps in the evaluation

Following the Guidelines, an economic evaluationshould start by:

● Identifying the problem to be addressed;

● Establishing the baseline scenario; and

● Identifying the main policy options

The nature of the economic problem is describedabove. The SO

2 emissions from the MIM

smelters create potential health, amenity andecosystem damages. Controlling these emissionswould involve control costs but also benefits in theform of reduced damages. Cost-benefit analysisdoes not prejudge the ambient air qualitystandards to be met, although certain standardsmay be taken as a constraint that must not beexceeded. The starting point of a cost-benefitanalysis is identification of the main costs ofpollution and conversely the main benefits thatcan be achieved from pollution reduction. Thecost-benefit problem is to determine the policythat produces the highest excess of benefit overcost.16 If no policy produces a net benefit, theno–change base case is more efficient than anypolicy change.

The second step in a CBA is identification of thebaseline scenario. For this case study, the baselinewould include forecasts of SO2 concentrations inthe atmosphere above Mount Isa and the

surrounding areas for at least the next 10 years.The forecasts would be based on projected MIMoperations and any other possible sources of SO2

emissions given current policy settings, includinga realistic assessment of the operations of theacid plant.

Third, policy options would be identified. In thepresent case, these may be capital expendituresdesigned to reduce SO

2 emissions or operating

controls designed to reduce SO2 emissions whenconditions (notably wind conditions) are likely toproduce damaging outcomes for local residents.Another strategy would be to strengthen thepublic health response to adverse conditions, byencouraging potential victims of SO

2 emissions to

stay indoors at potentially unhealthy times.

Estimating policy costs

In order to estimate the costs of any policy, it isnecessary to estimate the incremental capital andoperating costs over the life of the policy. Thesystem costs of MIM operations without, andwith, the policy changes must be estimated. Thiscan be a complex exercise because a change toone part of the production system can affect otherparts of the operation. Accordingly, cost estimationmay require detailed engineering analysis oftechnical operating systems, often drawing on datathat are available only within the company.Sometimes these data are regarded as confidential.

However, a feasibility analysis generally requiresonly approximate costs in the first instance.Approximate costs can provide useful informationto policy makers. The difficulty of making preciseestimates should not be used as an excuse forfailing to provide any estimates.

Of course, if policy costs are borne bygovernment or by the general population, forexample via land use restrictions or by reductionsin out-door time, these costs should by estimated.

Estimating health benefits

Ostro et al. (1999) discusses specifically thehuman health benefits of sulfate aerosolreductions. They identify five (generallyapplicable) steps in the estimation of healtheffects of a policy or technical change:

16 If marginal policy adjustments are feasible, the efficiency objective requires that marginal cost and marginal benefit are equal.





● Estimate changes in SO2 emissions.

● Estimate changes in ambient sulfateconcentrations over defined land areas. Thismay require an air quality model to allow forwinds as well as for mixing with other sourcesof SO2 emissions or other pollutants.

● Match sulfate concentration changes topopulation, especially to vulnerablepopulation. Allowance should be made forforecast population changes.

● Estimate changes in premature mortality byage group and changes in cases of morbiditydue to changes in sulfate concentrations. Thisis often the most difficult step in the process,especially when improvements occur atmedium or low SO

2 concentration levels. The

most common estimation methods used areadoption of research results from comparablesituations or cross-section analysis thatcompares the area affected by SO2

concentrations with other areas that are not.In either case, care must be taken to ensurethat potential confounding factors are allowedfor.

● Estimate the monetary value of changes inthe health effects. As discussed in theGuidelines, the appropriate valuation is thewillingness to pay (WTP) value. The WTPvalue is the dollar amount that an affectedindividual is willing to pay to avoid an illness.Ostro et al. (1999) provides estimates of WTPamounts for various morbidities as well as formortality. For example, adult chronicbronchitis is valued at US$220,000, childacute bronchitis at US$320, and a restrictedactivity day at US$60. They valuedpremature mortality at US$3.6 million for aworking-age adult and at 75 per cent of thisfor a person over 65. They also note thatWTP values are typically twice as high as costof illness estimates.

Estimating other benefits of lowerSO2 emissions

As discussed in the Guidelines, residentialamenity effects can be valued by using analysis ofproperty prices (hedonic price analysis) or bysurveys of residents (contingent valuation).Hedonic price analysis compares the price ofproperties that are heavily impacted by plumes of

SO2 emissions with the prices of unaffected

properties. If the analysis is done thoroughly, withspecial attention to comparing like houses withlike and with sufficient explanatory variables, theprice differential associated with the visualdisamenity of the plumes indicates the discountthat people require to compensate for thedisamenity. In order to allow for confoundingvariables, a formal statistical analysis with severalhundred properties is generally preferred tocasual valuations by real estate agents. But ifquestioned carefully, real estate agents canprovide a guide to property price differentials andtheir causes. However, a general problem withboth formal and less formal methods of hedonicprice analysis is that property price differentialsmay also pick up the risk of ill health from theSO2 emissions.

Because hedonic price analysis is based onobserved market transactions, the results of awell–conducted hedonic price exercise are usuallymore reliable than answers to hypotheticalquestions about amenity in a contingentvaluation (CV) survey. However, an advantage ofa CV survey is that the questions can distinguishbetween amenity and health benefits.

Box 5.2 Estimating health benefitsof SO2 reductions

There are five main steps in theestimation of health benefits:

1. Estimate changes in SO2 emissions

2. Estimate changes in ambient sulfateconcentrations over defined landareas

3. Match sulfate concentration changesto population, especially tovulnerable population

4. Estimate changes in prematuremortality by age group and changesin cases of morbidity due to changesin sulfate concentrations

5. Estimate the monetary value ofchanges in the health effects





To value ecosystem changes, a similar procedureis required to that for valuing health effects:

● Estimate changes in SO2 emissions.

● Estimate changes in ambient sulfateconcentrations over defined land areas.

● Match sulfate concentration changes to landuses.

● Estimate physical changes in land uses, inland productivity, in flora and fauna.

● Value the services provided by the physicalchanges.

An example is the reduction in vegetation andfarmland values as a result of acid rain. The keypoint in this approach is identification of theservices that the ecosystem provides to society.Most services have some market value and thechange in market value is an indicator of theimpacts.

Where the policy change affects non-marketvalues, as for recreation, or the non-use value ofthe environment (when people appreciate theenvironment but do not use it), contingentvaluation surveys are the most applicableinstrument for obtaining values. However, thecaveats in the Guidelines about the use of CVsurveys are important.

Evaluating the results

Once the costs and benefits have been estimated,they should be allocated to the year in which theyoccur and discounted to present value figures.The estimated (mean) net benefit of the policy isthe difference between the present value of thebenefit and the present value of the costs.

Sensitivity tests should be employed to test forplausible variation in parameter values or in thevariables themselves.

5.4 Mount Isa Mines PanelAssessment Study

In 1997, the Queensland Government and MIMestablished a Panel Assessment Study to report onthe environmental impacts of sulfur emissionsfrom the smelters following the installation of theacid plant. The Minister for Environment set the

terms of references for the study and appointed agroup of experts to carry out the study andreport by February 2001. The Panel consisted ofseven members of MIM, three delegates of theQueensland Conservation Council, and sevenothers with expertise in technical or social aspectsof MIM’s operations (including two with a longemployment record with MIM).

The terms of reference for the Panel AssessmentStudy (see Appendix IV of the Report) requiredthe Panel inter alia to assess:

● the likely atmospheric dispersion of SO2

emissions from MIM;

● the likely economic, environmental and socialimpacts of the SO

2 emissions;

● the availability and feasibility of emissioncontrols to meet ambient air standards incompliance with environmental legislation;

● the community health impacts;

● the economic impacts of the smelteroperations;

● community views on the emissions and the airquality control systems; and

● recommendations for further research.

In order to determine these issues, the Panelcommissioned, or had access to, several studiesincluding studies on:

● The history of smelting, SO2 emissions, andair quality in Mount Isa;

● Community perceptions of health and theenvironment in Mount Isa;

● The economic cost of health impacts ofemissions from smelters;

● The impact of the smelters on soil acidity andflora and faunal diversity;

● The impact of smelter operations onregional, state and national economies; and

● Emission control options for MIM.

The thrust of the studies was to assess the impactof the SO2 emissions. The main evaluationcomponent of the terms of reference was therequirement that the Panel report on thefeasibility of meeting legislated ambient airquality standards.





The following summarises the main findings ofthe Panel, including its summary of the healthfindings.17

Options for emission controlmeasures

The Panel Assessment Study identified severaloptions for additional emission control measuresat the smelters (see Box 5.3). Note that the firstseven options are technical options designed toreduce SO2 emissions. The last option involveschanges in operating protocols, principallyincreases in shutdown periods to meet desiredambient standards when the wind is from the east.

However, none of the reports discusses the capitaland operating costs of any of these options. ThePanel notes that the commercial feasibility ofthese options is not established and requiresfurther investigation.

Impact of sulfur dioxide emissionson community health(see also Section 5.5)

The Panel acknowledges that many people inMount Isa believe that smelter emissions causehealth problems and that there are higher ratesof hospital admissions for some respiratorycomplaints in Mount Isa than in other westernQueensland towns. However it argues that thereis insufficient evidence to determine the causes ofthe difference.

The Panel notes that the rate of doctor diagnosedasthma in Mount Isa is not substantially differentfrom that in communities that are not influencedby SO2 emissions. Also, there is no evidence of apositive relationship between the rate of hospitaladmissions for respiratory conditions andambient levels of SO2 in the town.

The Panel concluded that the health impacts aredifficult to determine. It points out, however, thatindicative estimates of the economic costs ofhealth impacts are low compared with theeconomic value of the operations of the smelter.

Impact of sulfur dioxide emissionson soil chemistry

Approximately half of the sulfur emissions aredeposited on continental Australia by processesof dry deposition of sulfur dioxide and aerosolsulfate, and wet deposition of sulfate. The otheremissions are advected offshore. Sulfur depositionarising from emissions has caused acidification ofsoils, especially north-west of Mount Isa. Theacidification has reached a level likely to havebiological implications in areas up to20 kilometres downwind for soil depths to twocentimetres, in areas up to five kilometres for soildepths up to 10 centimetres, and not at all forgreater soil depths.

Drawing on a report by Ayers (1999), the Panelconcludes that a reduction in levels of acid

17 As noted above, ten members of the Panel signed the Final Report.

Box 5.3 Options for additionalemission control measuresat the smelters

The Panel Assessment Study identifiedthe following emission control measures:

● Ensuring that all process gasesfrom the copper smelter aretreated in the acid plant;

● Installing wet-scrubbingdesulfurisation systems to treat theventilation and fugitive gases;

● Modifying the acid plant to be adouble contact unit or installing awet scrubber to treat the tail gas;

● Installing an acid plant to treat off-gases from the sintering machinein the lead smelter;

● Improving the systems forcollecting copper smelter ventgases and fugitive emissions thatcontain sulfur dioxide emissions;

● Using alkali scrubbing on the ventgases from the copper smelter;

● Treating the tail gas from the acidplant; and

● Amending the operating protocolsof the air quality control system.





deposition will not improve the fertility ofaffected soils, except in the long term, becausethe soils’ capacity to neutralise acids has beenexhausted by the historical acid deposition.

Impact of sulfur dioxide emissionson ecosystems

Griffiths (1998) studied 58 sites between 5 and 35kilometres downwind (west and north) of theMIM smelters and 14 reference points not in thepath of the plume (to the east). Every site (onehectare) was sampled for plants and vertebrates,while a subset of sites was sampled for ants.Overall, the survey found a rich flora and faunain the Mount Isa district, including 570 species.Plants were the most diverse group with 260species, followed by ants (174 species), birds(94 species) and reptiles (42 species), mammals(17 species) and frogs (3 species).

However, Griffiths also found that the naturalenvironment within 15 km downwind of themetal smelters has undergone considerablechange directly or indirectly due to SO2

emissions. Specifically the report found that:

● Plant species richness increased as thedistance from the smelters increased in the15 km zone downwind of the smelters. Thenumber of species in the high sulfurdeposition zone was half that in the low andbackground zones. The composition of thevegetation close to the smelters wasdominated by exotic and parasitic species.Foliar injury symptoms consistent withtoxicity from SO2 emissions were recorded inup to 35 per cent of species in the high sulfurzone, but not outside that zone;

● Ants were abundant and diverse in the sulfurdeposition zones. However, species richnesswas 50 per cent lower in the high sulfur zonethan in the low and background sulfur zones;

● Reptile species diversity was reduced in ridgehabitat directly downwind of the smelters.Species that forage on insects during the daydeclined the most. Reptiles inhabiting thealluvial plain showed no obvious response toSO

2 emissions; and

● Bird species richness reduced close to thesmelters.

Drawing on Ayers et al. (1999), the Panelconcludes that lower SO

2 emissions should result

in proportionate reductions in direct plant foliarinjury in areas downwind of the smelters.

Economic importance of thesmelters

The Panel commissioned Kinhill Pty. Ltd. toestimate the economic impacts of closing downthe smelter operations at Mount Isa and thedownstream activities dependent on thesesmelters, including transport, copper refining inTownsville, and metal sales. Using input-outputtables, Kinhill (1999) estimated that MIM’soperations in Mount Isa contribute 8200 jobs,$344 million in annual wages, and $456 millionin annual gross product to Queensland. A highproportion of these estimated economic benefitsare in north-west Queensland. The Panel reportsthat these benefits would be lost if smelting wasdiscontinued at Mount Isa.

Community attitudes toenvironmental management atMount Isa

The Panel notes that about half of Mount Isa’sresidents believe that the air quality controlsystem is effective in managing air quality incommunity areas of the town.

However, it also notes that about three-quartersof the people living in Mount Isa believe thatsmelter emissions are the most importantenvironmental issue in Mount Isa and that morecould be done to reduce them.

Panel conclusions

The Panel recognises that SO2 levels in MountIsa sometimes exceed national goals for short-term ambient levels. However, it anticipates thatthis will become less frequent when the acid plantis more fully utilised.

The Panel concludes that no immediate action toreduce SO2 emissions is required. It recommendsresearch into:

● Quantifying the recovery of biodiversityimpacts likely to result from the operation ofthe acid plant;





● Quantifying the level of SO2 that people inMount Isa are actually exposed to, includingallowance for lower levels of exposureindoors;

● Determining if community perceptionschange after the acid plant becomes fullyoperational;

● Ways to improve the air quality controlsystem; and

● Measures to reduce SO2 emissions, as they

become practicable.

5.5 Economic Assessmentof Health Effects

In this review of the health effects of SO2

emissions in Mount Isa, we start with a briefoverview of the general scientific findings. Wethen describe five attempts to identify the effectsof SO2 emissions on community health in MountIsa. Finally, we describe Queensland Health’sestimates of the total health cost of SO2

emissions in Mount Isa. These estimates draw oninternational findings of epidemiologicaloutcomes and the cost of ill health.

SO2 impacts on health: generalresults of scientific literature

The scientific literature suggests that short-termexposure of one hour or less to elevated levels ofSO2 can induce asthma symptoms, includingwheezing, shortness of breath and bronchialconstriction, in asthmatics. However, the severityof the impacts is debated. The US EPA decidedthat a short-term standard for SO

2 ambient

quality is not justified because many reductions inlung function are small and transient, but theWorld Health Organisation supports a short-termstandard (Queensland Health, 2001, AttachmentA).

Ferrari and Salisbury (1998) observe ‘that short-term reductions in lung function may occur whenSO2 goals are exceeded (i.e. a 10 minute averageof greater than 0.25 ppm or a one hour averageof greater than 0.2 ppm)’. However they alsonote that ‘people with greater sensitivity to SO2

may experience clinically significant reductions in

lung function, and some who already haveimpaired lung function may be severely affected’.

Ferrari and Salisbury (1998) also observe that‘recent epidemiological evidence appears toindicate that moderately elevated ambient SO

2levels (annual means of above 0.008 ppm) arelinked to increased incidence of respiratory illnessand symptoms and decreases in pulmonaryfunction’. However it is not clear whether thisreflects many high short-term peaks rather thanthe long-run average level. Nor is it knownwhether SO

2 actually causes lung disease rather

than simply provoking attacks of asthma.

In Mount Isa, short-term ambient levels aresometimes in the range within which asthmaticsmay be affected.

In addition, and more significantly, SO2 in theemission plumes can form sulfate particles. Theseare a component of particulate matter with anaerodynamic diameter of less than 10micrometres (PM

10).

Many epidemiological studies have linkedelevated PM10 levels with increased mortality,morbidity and functional limitations due toasthma, respiratory disease and cardiovascularconditions (Queensland Health, 2001,Attachment B; US EPA, 1995). QueenslandHealth (ibid.) reports that overseas studiesconsistently show that a 10µg/m3 increase inPM10 causes a 1 per cent increase in mortality(from all causes). Queensland Health alsoobserves that there appears to be no thresholdpoint for particles below which particles areharmless and that the relationship betweenparticles and morbidity may be regarded asproportional.

Ayers (1999) indicates that smelter emissionsincreased annual average sulfate particles inresidential areas by 2–3µg/m3 above thebackground level. This is high by Australianstandards but low by US standards.

Mount Isa residents also complained that SO2

emissions cause eye and skin damage or irritation.However, McDowell (2000) suggests that this isunlikely at the SO2 levels in the community areasin Mount Isa.





Five epidemiological studiesconcerning Mount Isa

The Panel Assessment Study included fiveepidemiological studies of the incidence ofasthma and respiratory disease and SO

2

concentrations in Mount Isa. Four of thesestudies provided no evidence of SO

2 impacts on

morbidity in Mount Isa. The fifth study providessome evidence of SO2 impacts. However, thePanel argued that the evidence is inconclusive.

Study 1: the reported rate of doctor diagnosedasthma in Mount Isa and elsewhere.McLennan et al. (1999) say that reportedprevalence of asthma among adults is similarin Mount Isa to that reported nationally. InMount Isa, 16.9 per cent of adults reportedthat a doctor had diagnosed them as havingasthma. The comparable figure for NSW is16.2 per cent.

Study 2: comparison of reported respiratorysymptoms in children. McLennan et al. foundthat overall the respiratory symptoms inchildren in Mount Isa were not dissimilar tothose found in children in Newcastle andWollongong, although the SO2 levels arelower in the latter two cities. Specifically theyfound that:

● The incidence of dry coughing was less inMount Isa;

● The incidence of chest colds was higherin Mount Isa, but not necessarilysignificantly so; and

● The incidence of wheezing was similar inMount Isa to the other cities.

Study 3: A comparison of respiratory complaintsin different areas of Mount Isa. McLennan etal. (1999) found that there was no statisticallysignificant evidence that children living in themost affected sector of Mount Isa (the north-west) were more likely to suffer from drycoughing, chest colds or wheezing thanchildren in other parts of the city.

Study 4: a study of hospitalisations due toasthma symptoms and SO2 levels in MountIsa. Donoghue and Thomas (1999) studiedthe relationship between short-term ambientlevels of SO2 in Mount Isa and hospital

presentations and admissions for asthmasymptoms. They concluded that:

● There were more emergency-roompresentations and admissions to hospitalfor asthma in the winter months;

● There was no evidence of a relationshipbetween emergency-room presentationsand admissions to hospital for asthma andSO

2 levels; and

● Brief exposures to high concentrationsemanating from MIM do not causesymptoms in asthmatics serious enough torequire hospital presentation.

A possible explanation for this is that peopletypically spend 90 per cent of their timeindoors. In Mount Isa over 90 per cent ofhouses have evaporative air conditioners,which effectively remove SO2 from airentering the house.

Study 5: A comparison of hospitalisation ratesdue to respiratory complaints in Mount Isaand other towns. As shown in Table 5.2, theage-standardised hospital admission rates(ASRs) for all respiratory and cardiovasculardiseases are significantly higher in Mount Isathan in other comparable Queensland towns,although the differences are less marked forasthma. However, McLennan cautions thatthe observed differences in ASRs may be dueto other (non-smelter) factors, such as accessto hospital, differences in tobacco smoking ordiets, indigenous populations, and exposureto other microbiological agents. Because thestudy was not able to allow for suchconfounding effects, McLennan et al werereluctant to draw any conclusions about theimpact of SO2 emissions on hospitaladmissions.

Economic valuation of healtheffects

The economic analyst is confronted withinconclusive, and possibly inconsistent,epidemiological evidence in Mount Isa. On theone hand, international evidence suggests that thelevels of SO

2 emissions in the community areas,

and especially the impacts of sulfate particles, arelikely to have some adverse effects on communityhealth. Moreover, 46 per cent of the people in the





survey by McLennan et al (1999) considered thatfumes from the smelter had greatly or moderatelyaffected their health. Over half of those affectedreported nose or sinus problems. Other reportedconcerns included non-asthma respiratoryproblems, asthma, eye and skin problems. On theother hand, four out of five epidemiologicalstudies failed to support the hypothesis that SO2

emissions in community areas in Mount Isadamage health.

In response to these inconsistencies, QueenslandHealth (2001) estimated health costs by drawingon statistical relationships derived from overseasepidemiological studies. Queensland Healthassumed that, with no SO2 emissions, age-sexmortality rates in Mount Isa in the baseline casewould equal average age-sex rates for the

Table 5.2 Age-standardised rates per thousand for main diagnosis onadmission to hospital

Main diagnosis ASR for females ASR for males

Mount Isa Other towns Mount Isa Other towns

All respiratory diseases 69.0 60.8 76.9 65.1Asthma 19.4 19.2 15.9 12.8All COP diseasesa 8.3 3.7 8.0 13.5Lung cancer 0.7 0.3 1.6 1.7Pneumonia, acute bronchitisb 30.1 23.8 35.1 23.2All cardiovascular diseasesc 45.5 28.8 40.9 38.3

a Chronic obstructive pulmonary diseases.b And influenza.c Including heart disease, high blood pressure and stroke.

Source: McLennan et al., 1999.

Box 5.4 Five epidemiological studies of the impacts of SO2 emissions

The Panel Assessment Study reported on five epidemiological studies ofthe impacts of SO2 emissions:

1. Reported rate of doctor diagnosed asthma in Mount Isa and elsewhere in Australia

2. Comparison of reported respiratory symptoms in children in Mount Isa, Newcastleand Wollongong

3. Comparison of respiratory complaints in different areas of Mount Isa

4. Study of hospitalisations due to asthma symptoms and SO2 levels in Mount Isa

5. Comparison of hospitalisation rates due to respiratory complaints in Mount Isa andother towns

Northern Zone of Queensland. Cardiovascular(circulatory system) mortality was assumed toincrease by 0.35 per cent and respiratory systemmortality to increase by 0.85 per cent becausePM10 particles are 2 to 3 µg/m3 above thebackground level in Mount Isa. QueenslandHealth also allowed a value of statistical life of$3.2 million for children up to the age of 15, withthe value of statistical life declining to under$1.0 million for persons over 80 years of age.From these assumptions, Queensland Healthderived an annual health cost of $182,000 due topremature mortality caused by SO

2 emissions.

Allowing for various other factors, the studyconcluded that the premature mortality costscould range from $150,000 up to $500,000 perannum.





Drawing on overseas data, mainly from the U.S.,Queensland Health (2001) also estimatedincreased person days for adult chronicbronchitis, respiratory and cardiac hospitaladmissions, child acute bronchitis, restrictedactivity days, asthma symptom days and acuterespiratory symptom days due to SO2 emissionsin Mount Isa. Low, medium and high (willingnessto pay) costs per person day were estimated foreach condition, based on a combination of USand Queensland data. The estimated totalmorbidity cost ranged from $100,000 to$220,000 per annum.

Combining mortality and morbidity costs,Queensland Health (2001) estimated that healthcosts due to SO2 emissions in Mount Isa totalledbetween $252,000 and $722,000 in year 2000.The Department acknowledges that theseestimates draw on US data that may not be fullyapplicable, for example because there are fewersecondary pollutants from SO

2 emissions in

Mount Isa than is usually the case in the US andbecause the population in Mount Isa is relativelyyoung. The Department also acknowledges thatthe estimated costs would fall when the acid plantworks at fuller capacity.

5.6 Mount Isa Mines Study:Evaluation Issues

The Panel Assessment Study concluded that:

● The economic benefits of the smelters faroutweighed any small health costs to the localcommunity;

● Major reductions in SO2 emissions areunlikely to be necessary when the acid plant isin fuller operation; and

● The feasibility of various policies to reduceSO2 emissions should be assessed.

Although these may appear to be conclusions ofan economic evaluation, the Panel AssessmentStudy cannot be regarded as an economicevaluation for several reasons. First, the Panelcompares the value of the gross output of thesmelters and related downstream activities withthe health costs. This is a meaninglesscomparison. Estimation of the value of grossoutput of the smelting operations (or grossemployment or gross wages) is essentially a public

relations exercise, not an economic exercise. Thereal (social) value of output produced by thesmelters and related downstream activities is thegross value less the opportunity cost of theresources employed to produce this output. Thereal value is almost certainly less than one-fifth ofthe value of gross output.

Second, and more fundamentally, even if the realvalue of smelter operations were correctlycomputed, a comparison of the value of outputproduced by the smelters and the health costs dueto the smelters does not address the real problem.The real economic problem is not whether toclose down the smelters, but how to find theoptimum level of SO

2 emissions and the most

cost-effective way to produce this level of emissions.The Panel does not address these key issues.

Third, and related to the second issue, the Panelstudy does not address marginal issues. A keyfeature of a good economic evaluation is analysisof marginal cost and marginal benefit. Althoughit is often difficult to estimate these marginalamounts, awareness of the principle is a basicaxiom of rational decision making. In Mount Isa,the issue is whether SO2 emissions should bereduced by certain methods by a little at varioustimes in the year or day. To determine this,estimates of marginal cost and marginal benefitare required.

Fourth, the Panel report does not discuss thecapital and operating costs of any of the optionsto reduce SO2 emissions. After four years ofstudies, the Panel notes that the commercialfeasibility of these options is not established andrequires further investigation. Of course, aneconomic evaluation would also account for thesocial costs of the SO

2 emissions.

Fifth, the Panel does not attempt to estimate thefull benefits of reductions of SO2 emissions.These benefits would include the benefits ofimproved health, amenity and ecosystems.Certainly, the Panel examined the health andecosystem impacts of SO

2 emissions in

considerable depth and produced some veryinformative findings. It may be inferred fromthese findings that the benefits of improvedhealth would be low and that it would be difficultto achieve significant improvements in localecosystems.





However, the Panel did not attempt to estimatewhat people would be willing to pay for improvedhealth, amenity and ecosystems. As ProfessorMooney (2000) points out in his note onestimating health costs, several issues warrantfurther consideration, for example how to valuepeople’s subjective feelings that the SO2 emissionswere causing health problems. Also many peopleincur a cost by going indoors to avoid the airpollution, a common response to the perceivedSO

2 problem. As discussed in Section 5.3,

hedonic property price analysis could be used todetermine if there are amenity effects from theSO

2 emissions. Contingent valuation could be

used to determine willingness to pay values forecosystem protection.

These points should not be construed as acriticism of the Panel’s work or conclusions. ThePanel was charged by the Minister to fulfil certainterms of reference. These terms of reference didnot explicitly include carrying out an economicevaluation of policy alternatives for SO2

emissions from MIM smelters.

The purpose of this case study is to illustrate thekind of work required to carry out an economicevaluation, not to challenge the conclusions ofthe Panel. The kind of work required is describedin Section 5.3.

ReferencesAyers, G.P., 1999, PM10 aerosol/sulfate at Mount

Isa, Report to the MIM Panel AssessmentStudy.

Donoghue, A.M. and M. Thomas, 1999, ‘Pointsource sulfur dioxide peaks and hospitalpresentations for asthma’, Occupational and

Environmental Medicine, 56, 4, p232.

Ferrari, L., and Salisbury, J., 1998, Sulfur dioxide,

National Environmental Health ForumMonographs, Air Series No. 4.

Griffiths, A. D., 1998, Impact of sulfur dioxide

emissions on savanna biodiversity at Mount Isa,

Queensland, Final report to Mt lsa MinesLtd..

Kinhill Pty Ltd, 1999, Economic analysis of the

operations of the smelters at Mount Isa, Report tothe MIM Panel Assessment Study.

MacLennan, R., Hensley, M., and D. Lloyd,2000, Community opinion and public health impacts

in Mount Isa from sulfur dioxide emissions by Mount

Isa Mines Ltd, Report to the MIM PanelAssessment Study.

Mooney, G., 2000, Mount lsa Mines: Some comments

from an economist’s perspective on the assessment of

the health effects, Report to the MIM PanelAssessment Study.

Mount Isa Mines Limited Panel AssessmentStudy, 2001, Final Report, Mount Isa Mines,Queensland.

Ostro, B., Chestnut, L., Mills, D. and A.Watkins,1999, ‘Estimating the effects of air pollutantson the population: human health benefits ofsulfate aerosol reductions under Title IV ofthe 1990 Clean Air Act’, pp. 899-915 in Air

Pollution and Health, Academic Press, NewYork.

Queensland Health, 2001, Economic Assessment of

the Health Impact of Sulfur Dioxide (SO2)

Emissions in Mount Isa, a report to the MountIsa Mines Panel Assessment Study.

US EPA, 1995, Human health benefits from sulfate

reductions under Title IV of the 1990 Clean Air Act

Amendments, EPA, Washington DC.





enHealth Council Publications

Foundation Documents

The National Environmental Health Strategy 1999The National Environmental Health Strategy Implementation Plan 2000

Human Environment Interface

Water SeriesGuidance for the control of Legionella (1996)Guidance on water quality for heated spas (1996)Guidance on the use of rainwater tanks (1998)

Soil SeriesHealth-based soil investigation levels, 3rd ed. (2001)Exposure scenarios and exposure settings, 3rd ed. (2001)Composite Sampling (1996)

Metal SeriesAluminium, 2nd ed. (1998)Zinc (1997)Copper (1997)

Air SeriesOzone (1997)Benzene (1997)Sulfur dioxide (1999)

Exposure SeriesChild activity patterns for environmental exposure

assessment in the home (1999)

General SeriesPesticide use in schools and school grounds (1997)Paint film components (1998)Guidelines for the control of public health pests –

Lice, fleas, scabies, bird mites, bedbugs andticks (1999)

Counter Disaster SeriesFloods: An environmental health practitioner’s emergency management guide (1999)

N.B. Any monographs published before 1999 were produced by the National Environmental HealthForum, which the enHealth Council has replaced.)

ENHEALTH COUNCIL PUBLICATIONS

Environmental Health Justice

Indigenous Environmental Health SeriesIndigenous Environmental Health No. 1 (1999)Indigenous Environmental Health No. 2 (2000)Indigenous Environmental Health No. 3 (2001)

Environmental Health SystemsNational standard for licensing pest management

technicians (1999)Environmental Health Risk Perception in Australia

(2000)Health Impact Assessment Guidelines (2001)

You can obtain copies of the above publications from:http://enhealth.nphp.gov.au/council/pubs/ecpub.htm

or ph. 1800 020 103 and ask for extension 8654.


TERMS OF REFERENCE AND

MEMBERSHIP FOR THE

ENHEALTH COUNCIL

Terms of Reference and Membershipof the enHealth Council

The enHealth Council, a subcommittee of the National Public Health Partnership, brings together topEnvironmental Health officials at the Federal and State/Territory level along with representation fromthe Australian Institute of Environmental Health, the environment and public health sectors, theIndigenous community and the wider community. The Council has responsibility for providingnational leadership, implementation of the National Environmental Health Strategy, forgingpartnerships with key players, and the development and coordination of advice on environmentalhealth matters at a national level. The advice development process is strongly based on collaborationand consultation.

Terms of Reference

1. Provide national leadership on environmental health issues by:

i) coordinating and facilitating environmental health policies and programs

ii) establishing strategic partnerships between environmental health stakeholders

iii) setting priorities for national environmental health policies and programs

iv) providing an open consultative system for policy development

v) facilitating cost effective use of environmental health resources

2. Drive the implementation of National Environmental Health Strategy

3. Provide guidance on national environmental health issues to Commonwealth, Statesand Territories, and Local Governments, and other stakeholders

4. Undertake the development of environmental health action plans at the national leveland facilitate their development at a local and state level.

5. Promote and develop model environmental health legislation, standards, codes ofpractice, guidelines and publications.

6. Strengthen the national capacity to meet current and emerging environmental healthchallenges.

7. Provide a pivotal link between international fora and environmental health stakeholdersin Australia and strengthening Australia’s collaboration with countries in the Asia-Pacific region.


TERMS OF REFERENCE AND

MEMBERSHIP FOR THE

ENHEALTH COUNCIL

Membership

Chair

Mr Michael Jackson, Executive Director –Population Health, Health Department of WA.

Members

State and Territory Health Departmentrepresentatives:

Australian Capital TerritoryManager Health Protection Service

New South WalesDirector Environmental Health

Northern TerritoryProgram Director Environmental Health

QueenslandManager Environmental Health

South AustraliaDirector Environmental Health

TasmaniaDirector Environmental and Public Health

VictoriaManager Environmental Health

Western AustraliaDirector Environmental Health

New ZealandNew Zealand Ministry of Health

Commonwealth Department of Health andAgeing – Director of Environmental Health

Australian Institute of Environmental Health

Environment Australia

Public Health Association of Australia

Australian Consumers’ Association

National Indigenous Environmental Health Forum

Australian Local Government Association

Aboriginal and Torres Strait Islander Commission

National Health and Medical Research Council.

Secretariat

Services provided by the Environmental HealthSection of the Commonwealth Department ofHealth and Ageing.