Potential Environmental Costs and Liabilities
Phase I Environmental Site Assessment Identifies REC's
This project was concerned with potential environmental liabilities at a large chemical processing and distribution facility in central Illinois. A Phase I ESA determined that there were twelve recognized environmental conditions, including former and current production and handling areas. A Phase II ESA determined that there was soil and groundwater contamination throughout the facility. There was no history of prior regulatory compliance related to the soil and groundwater contamination.
Potential compliance costs were estimated using the expected value method described in the Standard Guide for Estimating Monetary Costs and Liabilities for Environmental Matters (ASTM E 2137-06). This involves estimating costs for a range of scenarios, plus the probability of each scenario. The expected value is considered to be the mean value of the probability-weighted costs.
Site Investigation: Estimating Compliance Costs
In this case, a decision tree approach was used. Criteria included the extent of contamination and the scope of site investigation and remediation. Twelve project-specific criteria (input parameters) were identified, resulting in 72 potential outcomes. The probability of each outcome was determined, and cost matrices were developed that could be applied to the potential outcomes. The probability of each outcome was then multiplied by the estimated cost to determine each outcome’s contribution to the expected value.
Figure 1 shows the range of estimated costs in terms of the probability of exceedence. The graph shows that there is a 90% probability that compliance costs would exceed $137,000 and a 10% probability that costs would exceed $2.1 million. The expected value, or probability-weighted mean, equals $787,000.