Loss-of-Use Damages From U.S. Nuclear Testing in the Marshall Islands: Technical Analysis of the Nuclear Claims Tribunal's Methodology and Alternative Estimates

Publication Date: August 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Environment

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Abstract:

Key oversight committees in the 109th Congress have held joint hearings on the Republic of the Marshall Islands (RMI) Changed Circumstances Petition, which requests $522 million in additional compensation for loss-of-use of Enewetak and Bikini atolls due to U.S. nuclear testing. The $522 million appears to be significantly overstated because the methodology -- sample rent data, assumptions, and statistical procedures (i.e., the sampling technique and the use of the exponential regression model) -- overestimates the per-acre rental rate for land on Enewetak and Bikini, the key variable in the loss-of-use calculation.

Rents on Enewetak and Bikini are overestimated because an exponential regression model was applied to rents established not in a competitive, free market for agricultural land on Enewetak and Bikini, but rather to government-established, and predominantly commercial, rents on the more urbanized and densely populated, Majuro and Kwajalein atolls. Most land in the RMI is leased at "the official government rate" established by the RMI cabinet. This rate, which was set by the RMI at $2,500/acre on January 1, 1979 and increased to $3,000/acre on October 1, 1989, serves as the benchmark for all lease transactions. The RMI government is not only the tenant in over 40% of the leases -- a major source of the demand for RMI land -- but RMI government officials were also effectively the landlords during the estimation period when rents were government-controlled. Applying this methodology to unrepresentative sample rent data leads to projected rent/acre of $112,995/acre for the year 2027, which is equivalent to land asset value of nearly $1,774,024/acre. The Nuclear Claims Tribunal's (NCT) methodology also assumes that vaporized islands were not vaporized, undervalues the rentals on alternative atoll habitation, and assumes that 100% of the rental proceeds would have been saved.

The NCT's estimated average rent/acre -- e.g., $4,105/acre in 1996 -- also appears overstated when compared to average agricultural rents in the United States for similar periods: $17.50/acre in Montana, $115/acre in Oregon, $210/acre in California, $88/acre in New Mexico (1995 figures), and $66.50/acre for the United States generally (1998 figures). Using an alternative economic methodology, and applying it to RMI's national income and product accounts data, the Congressional Research Service (CRS) has developed alternative estimates of agricultural land rents for Enewetak and Bikini for the period 1982-1990, which are more consistent with the underlying real rental value of the two atolls (and the RMI economy), as well as with agricultural rents observed in the United States and in regions in the Pacific. CRS estimated rent/acre at $115/acre for the year1982 rising to $258/acre for 1990, as compared with the NCT's estimates of $1,902 for 1982 rising to $2,939 for 1990. Based on these rental rates, CRS estimates gross loss-of-use rentals for 1982-1990 (before adjustments and interest) of $6.4 million, about 10% of the $64 million estimated by the NCT. According to the NCT, the amount of loss-of-use compensation already paid by the United States over this period is $36 million. This report will not be updated.