Economic mechanisms in the Resource Conservation and Recovery Act for hazardous waste management

The role of commercial insurance in regulating hazardous waste management under the Resource Conservation and Recovery Act (RCRA) has been limited by liability uncertainty and inherent limitations in risk-based premium assessments. Current financial provisions promote its use, particularly with smaller firms, but empirical field surveys show that firms with sufficient assets primarily rely on other financial tools. In addition, insurers have argued that the basic elements of insurability often are lacking, placing the insurer in the position of trading one form of uncertainty for another and creating reinsurance problems for the hazardous waste sector. In order to identify a proper role for insurance, the structure and goals of current RCRA legislation were examined from the perspective of generally-accepted public policy, legal and economic approaches to pollution control. Theoretical and practical aspects of insurance markets were identified, and RCRA constraints were compared with insurance models in order to determine how market insurance availability affects compliance with RCRA. The research shows that new insurance instruments, in combination with government support of reinsurance, advances in risk assessment protocols, and the disappearance of inherently uninsurable firms will allow the market to survive; rationalizing the legal system may actually permit the market to flourish. The current technical standards for firms complying with RCRA also appear to be adequate, and do not justify imposing additional incentives for waste minimization since the resulting gains will be small for compliance firms. However, the benefits may be considerable for both large firms currently disposing of waste outside the legal system and small quantity generators (SQGs). The location of most SQGs in populated areas, lack of supervision through Federal or state RCRA program enforcement, and economic disincentives for approved waste disposal practices makes them unsuitable candidates for insurance, although a few states have developed new insurance instruments. A Pennsylvania survey was used to devise a risk-based subsidy to increase compliance from illegal SQGs, and the results suggest that a subsidy approach targeted for the most hazardous waste streams can offer environmental benefits consistent with social cost-benefit accounting requirements.