In this Jan. 12, 2014 file photo, a local resident fills jugs with water at a distribution center in Charleston, W.Va., after a chemical spill in the Elk River contaminated the public water supply in nine counties. A federal health official on Wednesday, Feb. 5, 2014 said that West Virginians can use tap water however they choose after last month's chemical spill contaminated it for days. Still, public skepticism remains over its safety and some local doctors are advising some of their patients not to ingest it.

How the Elk River Spill Makes the Case for Better Regulation

We've deluded ourselves about the true cost of doing business.

In this Jan. 12, 2014 file photo, a local resident fills jugs with water at a distribution center in Charleston, W.Va., after a chemical spill in the Elk River contaminated the public water supply in nine counties. A federal health official on Wednesday, Feb. 5, 2014 said that West Virginians can use tap water however they choose after last month's chemical spill contaminated it for days. Still, public skepticism remains over its safety and some local doctors are advising some of their patients not to ingest it.

A local resident fills jugs with water at a distribution center in Charleston, W.Va., after a chemical spill in the Elk River.

By SHARE

In West Virginia, business owners are in revolt over regulation.  But it’s not the kind of revolt you might expect. They’re not protesting regulation, they’re protesting the lack of regulation. Last week, 60 business owners signed a letter asking their governor to impose stronger regulations and tougher enforcement.

Who are these business owners, and why do they want to be regulated?

The business owners who are protesting are at ground zero of a major chemical spill that left 300,000 West Virginians without water for days. These business owners include restaurateurs, bakers and caterers who were forced to close for lack of water, hoteliers who lost business due to cancelled travel plans and shop owners who lost sales as fearful consumers stopped shopping and spent their time searching for bottled water. They include owners of myriad other businesses that lost productivity because employees had to watch their kids after schools were abruptly closed.

[See a collection of political cartoons on the economy.]

The crisis that shut down 16 percent of West Virginia’s economy was caused by a chemical spill. On January 9, a chemical leak at a facility owned by Freedom Industries dumped thousands of gallons of 4-methylcyclohexanemethanol, or MCHM, and other chemicals into the Elk River, from which the Charleston metropolitan area gets its water. MHCM is used by the coal industry, to wash pollutants from coal before it is burned. The chemical is dangerous to people in quantities greater than one part per million.

Freedom Industries did not inform authorities about the leak, but when dozens of residents noticed their water smelled odd, the West Virginia Department of Environmental Protection investigated and found the spill. Up to 7,500 gallons of chemicals had entered the water supply. Authorities promptly declared an environmental disaster and banned the use of tap water for drinking, bathing and cooking.

Four days later, concentrations of the chemical finally dropped, and officials asked the public to flush their plumbing and resume using water normally. But the effects of the spill continued as citizens continued to report strange smells and sediment in their water supply, and cancelled travel caused lingering economic damage long after the water supply was declared safe.

The owners of Freedom Chemical have so far evaded legal responsibility for the spill. Faced with multiple lawsuits, the privately-held business was put into Chapter 11, which freezes all damage claims.  But wait, it gets worse: the company apparently does not have sufficient insurance to cover the claims, and it paid out substantial funds in executive bonuses and consulting contracts to related parties in December 2013, shortly before the leak occurred. It appears the company has been stripped of assets, like a foreclosed house is quickly stripped of its copper.

[See a collection of political cartoons on energy policy.]

With its assets stripped, and a Chapter 11 filing in place, the horse has bolted the barn with respect to those who lost money from the spill. But the protestors want to make sure they are protected in the future. And they want to send a message about the many regulatory failures in this case:

  • Freedom Industries was allowed to store toxic chemicals in substandard facilities.
  • Their facilities had not been inspected since 1991.
  • The company did not have a plan for timely notification of the local water company in the event of a spill.
  • The water company did not have a plan for stopping the damage by shutting down the intake involved.
  • Little was known about the true risk of MCHM and other chemicals in the water because the relevant legislation – the Toxic Substances Control Act – has not been updated since the 1970’s. (American Sustainable Business Council is calling for revisions to bring the act up to date.)

This sorry incident points out the real value of regulations in a modern economy. Regulations, when they are well-written, make the economy more efficient because they force costs to be paid for by the party whose action imposes the cost in the first place. Simply put, regulations say to everyone: “Clean up after yourself.” If the owners of Freedom Industries were truly responsible for the costs of their leak, they would have made sure their tanks were in good condition, and they had good procedures in place to keep any spilled chemicals out of the water supply.  

[Read more from blogger David Brodwin.]

Without good regulations, we delude ourselves about the true cost of doing business, and that makes the economy inefficient. It makes chemical storage look cheaper than it really is, and it makes running a hotel or restaurant in West Virginia look more expensive. With the right regulatory framework, the chemical industry – and the coal industry which it supports – would have to bear the full and fair cost of its own hazards, and not impose these costs on others. As a result, coal would be marginally more expensive, and a restaurant meal would be marginally cheaper. West Virginia would export less coal, and attract more tourists to its beautiful rivers and rolling hills. That would make the economy more efficient, as well as a more sustainable.