Be able to discuss the problem

Be able to discuss the problems involved in determiningthe marginal damage of hazardous substances. Discuss the relateddifficulty in determining the correct level to control hazardoussubstances.

2.     Explain the relationshipbetween information on environmental risk and the efficiency ofmarkets to allocate risk.

3.     Describe the EPA’s toxicrelease inventory program? What is the program’spurpose?


Many industrial, agricultural and medical organisations usehazardous substances. The degree of hazard depends on theconcentration of the chemical.

Common hazardous substances in the workplace include:

  • acids
  • caustic substances
  • disinfectants
  • glues
  • heavy metals, including mercury, lead, cadmium andaluminium
  • paint
  • pesticides
  • petroleum products
  • solvents.

Possible side effects of exposure to hazardous substancesHealtheffects depend on the type of hazardous substance and the level ofexposure (concentration and duration). A hazardous substance can beinhaled, splashed onto the skin or eyes, or swallowed. Some of thepossible health effects can include:

  • poisoning
  • nausea and vomiting
  • headache
  • skin rashes, such as dermatitis
  • chemical burns
  • birth defects
  • disorders of the lung, kidney or liver
  • nervous system disorders.

Labels and MSDS for hazardous substances

Manufacturers and importers of hazardous substances in Victoriaare required by law to provide warning labels and MSDSs with theirproducts. (Note: MSDSs will be known as Safety Data Sheets fromJuly 2017 when new Occupational Health and Safety Regulations comeinto effect.)

Employers must ensure that the MSDS for each hazardous substanceused in the workplace is available to employees, and that a centralregister of hazardous substances is established.

In accordance with the Globally Harmonised System ofClassification and Labelling of Chemicals (GHS) or other methodsset out in the Occupational Health and Safety Regulations, warninglabels on hazardous substances should feature:

  1. hazard pictograms
  2. signal words (such as danger and warning)
  3. hazard statements (such as fatal if swallowed)
  4. precautionary statements (such as wear protective gloves).

The GHS classifies and communicates chemical hazards usinginternationally consistent hazard pictograms, terms and informationdisplayed on chemical labels and MSDS.

The MSDS lists important information on handling the productsafely, including:

  • potential health effects
  • precautions for use
  • safe storage suggestions
  • emergency first aid instructions
  • Reducing exposure to hazardous substances

Suggestions on reducing exposure to hazardous substances in theworkplace include:

where possible, perform the task without using hazardoussubstances where possible, substitute hazardous substances withless hazardous alternatives (for example, use a detergent in placeof a chlorinated solvent for cleaning)isolate hazardous substancesin separate storage areaspurge or ventilate storage areasseparately from the rest of the workplacethoroughly train employeesin handling and safety proceduresprovide personal protectionequipment such as respirators, gloves and goggles regularly monitorthe workplace with appropriate equipment to track the degree ofhazardous substance in the air or environmentregularly consult withemployees to maintain and improve existing safety and handlingpractices.


Economic actors have different attitudes towards risks. Itdepends on several factors, including the nature of the risk, theprobability of loss, the potential magnitude of the loss and theability to absorb its economic consequences. Assuming rationalityand perfect information, economic actors are able to calculate theactual value of a given risk by discounting the magnitude of theloss by the probability of its occurrence (PxL).

Once the risk is properly identified and evaluated, however,risk management decisions still need to be taken. In thisperspective, economic actors may be:

  • risk averse: if they are willing to pay even more than theactual value of the risk in order to transfer its harmfulconsequences to someone else;
  • risk preferring: if they prefer to retain the risk of loss,rather than transferring it by paying upfront an amount equal toits actual value.
  • risk neutral: if they are indifferent with respect to thealternative between (a) retaining the risk and (b) transferring itto someone else by paying upfront an amount equal to its actualvalue.

Risk aversion, therefore, generates demand for insurance.Insurance companies, in turn, are willing to undertake the risk inexchange for an amount of money relatively close to its actualvalue (the premium), because the law of large numbers makes themable to manage such risks effectively, by making predictable, withreasonable accuracy, the claims they will pay from year to year.According to this mathematical law, the larger the number ofexposures considered, the more closely the losses reported willmatch the underlying probability of loss. This means that insurancecompanies need to pool together a rather large number ofhomogeneous but independent risks in order to become riskneutral.

The traditional insurance mechanism can be divided into fourphases:

  • The risk assessment (the evaluation of risk, which is usuallyperformed through statistical and probabilistic analyses)
  • risk transfer (the shifting of its harmful consequences by wayof the insurance contract)
  • risk pooling (the placement of the risk in a pool ofhomogeneous but independent risks allows the insurer to spread therisk and to benefit from the law of large numbers)
  • risk allocation (the pricing of the risk though premiumsetting)

As the magnitude of expected losses increases, the insurers’financial ability to absorb them can be severely jeopardized. Inother words, over and above certain levels of financial exposure,insurers themselves tend to be risk averse. In this context,coinsurance and reinsurance are viable options for primary carrierswho are willing to cede part of the risk they undertook, inexchange for the payment of a fraction of the premiums theycollected.

Traditional reinsurance agreements may be of different types,among which:

  • quota share (proportional) treaties (by which the reinsurerundertakes a quota of the risk transferred to the primarycarrier)
  • excess of loss (stop loss) treaties (by which the reinsurerundertakes the upper layer of the risk, after a certain attachmentpoint).

2. Risk predictability, generalized uncertainty andinformational asymmetries insurance is able to perform itsfunctions correctly under specific conditions of risk anduncertainty. All agree that, in order to be insurable, the riskmust be predictable, at least by means of past experience andstatistical calculations.

Severe problems are posed by:

– Generalized uncertainty – which may undermine the insurer’sability to properly evaluate and assess the risk ex ante

– Informational asymmetries – in favor of the prospectiveinsured, generating distortions and agency problems:

  • Adverse selection
  • Moral Hazard

This report shows, inter alia, how traditional insurance andreinsurance mechanisms can face difficulties in covering:

1. the environmental liability risk.

2. the natural catastrophe risk.

Environmental liability risk is tightly connected with theunderlying legal and regulatory framework, whose features maygenerate uncertainty, or otherwise limit risk insurability. Factualuncertainty concerning the nature of the risk and its consequencesare also problematic. Finally, obstacles are posed by relevantinformation asymmetries.

The traditional insurance mechanism may also not be appropriateto cope with natural catastrophe risk, since risk predictability,the ability to spread the risk spatially and the financial capacityof the market are severely limited.

In both cases, furthermore, the magnitude of expected losses andthe information problems affecting risk predictability andassessment require joint efforts by several insurers andreinsurers. It is worth noting that the highlighted need forinformation sharing practices and market concentration – in orderto increase capacity.


The Toxics Release Inventory (TRI)

The Toxics Release Inventory (TRI) is a dataset compiledby the U.S. Environmental Protection Agency (EPA).It contains information on toxic chemicals handled by manyfacilities across the  United States,including details on quantities of chemicals managed throughdisposal or other release, recycling, energy recovery ortreatment.

The goal of EPA’s Toxics Release Inventory (TRI) Program is toempower citizens and other TRI stakeholders through informationabout how toxic chemicals are managed. Using TRI data and EPA’ssuite of TRI-related tools, one can:  

  • Identify potential environmental concerns and gain a betterunderstanding of potential risks;
  • Identify priorities and opportunities to work with industry,government and communities to reduce toxic chemical releases andpotential risks associated with them;
  • Provide the members of your community with information andinsights regarding toxic chemical releases and waste managementpractices in the community;  
  • Make informed decisions on the consequences of such practicesand take action; and
  • Establish reduction targets and measure progress toward thosetargets.

Since its inception, the program has grown in several importantways, including expanding the businesses covered and the chemicalson which they report. Equally important is the number of creativeways the general public, government agencies and reportingindustries use the available TRI information. This paper providesan introduction to and background on TRI and identifies a number ofimportant factors that must be considered when reviewing or usingthe data.

  • Key Factors to Consider When Analyzing TRI Data

The bulk of TRI data reflect annual quantities (in pounds) oftoxic chemicals released from a facility to the environment,managed by the facility as waste, transferred from the facility toanother facility for release or other waste management.

These data are particularly useful for:

  • Determining priorities for facilities based on pounds of toxicchemicals released or otherwise managed as waste,  
  • Tracking trends in year-to-year totals of toxic chemicalsreleased or otherwise managed as waste,  
  • Comparing toxic chemical releases and other waste managementamong industry sectors, for particular chemicals or individualfacilities and  
  • Assessing individual records to learn about specificfacilities.

Key factors to consider when analyzing TRI data include:

  • Toxicity – The level of toxicity varies among the coveredchemicals; data on amounts of the chemicals alone are inadequate toreach conclusions on health-related risks.
  • Environment and Exposure – The presence of a chemical in theenvironment must be evaluated along with the potential and actualexposures and the route of exposures, the chemical’s fate in theenvironment and other factors before any statements can be madeabout potential risks associated with the chemical or arelease.
  • Regulation by Environmental Statutes – Regulatory controlsapply to many of the releases reported; reporting facilities mustcomply with environmental standards under statutes such as theClean Air Act and the Clean Water Act, in addition to reportingreleases to TRI.
  • On-Site Waste Management – Many options for managing wastes aresubject to stringent technical standards and exacting state andfederal regulatory oversight.
  • Off-Site Waste Management – Some TRI reporters send chemicalsoff-site in waste to be managed at specialized waste managementfacilities that are also subject to TRI reporting requirements.Since both the facilities sending waste and the facilitiesreceiving waste report to TRI, adjustments must be made to avoiddouble counting.

TRI Covers an Important Subset of Chemicals Managed:

Reports must be filed by owners and operators of facilities thatmeet the following criteria:

  1. The facility falls within a TRI-reportable industry sector oris federally-owned or operated;  
  2. The facility has 10 or more full-time (or equivalent)employees;
  3. The facility manufactures, processes or otherwise uses (MPOU) aTRI-listed chemical in an amount above the TRI reporting thresholdduring a calendar year (thresholds vary depending uponchemical).

If a facility meets all three of these criteria, it must submita TRI report for each chemical for which it exceeded an MPOUthreshold.

If a facility does not meet all these criteria, it is notrequired to report to TRI. Information on facilities exempt fromTRI reporting might be available in EPA databases compiled by otherprograms that regulate the facilities. Other EPA databases withrelease and waste management information include:  

  • RCRAInfo – contains hazardous waste managementinformation;
  • PCS and ICIS-NPDES 8- contains monthly measurements ofchemicals released to water at facilities with dischargepermits;
  • National Emissions Inventory (NEI) – contains air releaseestimates for stationary and mobile sources;  
  • Risk Management Plan (RMP) – contains risk management plansthat state the amount of chemicals facilities have in on-siteprocesses.

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