A Natural Resource Damage Assessment case study for the classroom and beyond:
A long-fought legal battle to recover $8.9 billion in damages from Exxon Mobil Corporation for the contamination and loss of use of more than 1,500 acres of wetlands, marshes, meadows and waters in New Jersey has been quietly settled by the state for around $250 million.
The lawsuits, filed in 2004, had been litigated by the administrations of four New Jersey governors, finally advancing last year to trial. By then, Exxon's liability was no longer in dispute; the only issue was how much it would pay in damages.
The stakes were high, given the enormous cost the state's experts had placed on restoring and replacing the resources damaged by decades of oil refining and other petrochemical operations, as well as of the public's loss of use of the land. ...
But a month ago, with a State Superior Court judge believed to be close to a decision on damages, the Christie administration twice petitioned the court to hold off on a ruling because settlement talks were underway. Then, last Friday, the state informed the judge that the case had been resolved. ...
The attorney general's office said in its brief in November that the sites had been "adversely affected by or buried under the discharge of hazardous substances," including over 600 identified chemicals.
On the Bayway site, a 2007 court opinion noted, marshland adjacent to a creek was "now mostly covered with a tar of petroleum products or filled with other hazardous constituents and debris." Another 45 acres comprised "sludge lagoons," one-time tidal marshes that had been used as hazardous waste disposal facilities.
The state had set the cost of primary restoration of the sites at $2.6 billion; the state also sought $6.3 billion for what it described as compensatory or "loss of use" damages, intended "to make the public whole." ...
Exxon had vigorously contested the lawsuit, and in its brief after the trial said that it had long ago taken responsibility for cleaning up the contamination; that there were "fully functioning" marshes, forests and wildlife on the sites; and that, because they had been closed to the public for years, the state was seeking a windfall "for something the public never lost."
Exxon argued that the state's arguments "ignore the evidence, science and the law" and that no damages should be awarded.
The fourth [New Jersey Department of Environmental Protection] expert was Stratus, whose bills totaled $416,900.90. Stratus and TEA prepared a November 2006 report entitled "Natural Resource Damages at the ExxonMobil Bayway and Bayonne Sites" (the Stratus report). The Stratus report outlined a plan to restore and replace natural resources at the Bayway and Bayonne sites, which would cost $8.9 billion. The report addressed only the refinery sites themselves, and not "the Arthur Kill, the Kill van Kull, Newark Bay, New York Harbor, or the broader Hudson-Raritan Estuary," which would be addressed in future reports. The Stratus report described in great detail the natural environment that was present at the sites before they became contaminated, the nature of the contamination found on the sites and a proposed restoration plan, relying upon the on-site restoration specifications and costs established in the 3TM report. The report estimated that the Bayway site could sustain restoration of 464 acres of intertidal wetlands, 59 acres of palustrine meadow and 28 acres of upland forest; the Bayonne site, with ongoing industrial operations, could sustain 25 acres of restored intertidal habitat. Those on-site restorations would cost $2.5 billion. In addition, off-site replacement of 11,000 acres of intertidal salt marsh, 19,000 acres of palustrine meadow/forest, and 3,400 acres of upland meadow/forest would be needed to compensate for the decades of harm at the site and because some portions of the site cannot be restored; this would cost $6.4 billion.
Another expert for defendant, William H. Desvousges, Ph.D., opined in his February 2008 report that no significant losses in ecological services had occurred at the Bayonne site, so he did not calculate any damages for that site. As to the Bayway site, he calculated past reductions in ecological services only from 1977 and projecting forward until remediation/restoration activities are completed. He used the 1977 date "on advice of counsel." He found that only twenty to forty-seven acres of onsite restoration would be required, and restoration costs would range from $1,378,000 to $1,837,000. If he instead used the higher estimates developed by Dr. John Rogers for restoration of all habitat areas, Desvousges calculated that restoration damages would range between $1,965,000 and $3,004,000; the top of that range reflected the higher cost for an offsite salt marsh project, the approach that Rogers preferred. The cost under that calculation would be $45,600 per acre, well within the $10,000 to $84,000 per-acre range that Desvousges had seen for similar projects, whereas the DEP's experts used a figure well outside that range, $274,000 per acre. Desvousges criticized the Stratus report as "inherently flawed" and "unlike any that I have seen in more than 20 years of conducting NRDAs." He contended that the Stratus report failed to conform to sound economic principles or practices, failed to account for contamination from other sources, and overstated the baseline conditions including the effects of the refinery structures in the damage estimates.
I can't find anything on the methods used to develop the $6.4 billion estimate. Stratus Consulting (who just recently merged with Abt, according to their website) and WH Desvousges & Associates (both institutional members of AERE) have disagreed before over the contingent valuation method in the NRDA context (e.g., adequate responsiveness to scope in contingent valuation).
Hat tip: An editorial in the NY Times that lays some blame on the administration of Gov. Christie for the lowball settlement (Shortchanging NJ by billions).