session 9a introduction to the economics of pollution control: health issues

GEF

Session 9A

Introduction to the Economics of Pollution Control: Health Issues

John A. [email protected]

Ashgabad, November, 2005Adapted from materials prepared by Maureen Cropper

The World Bank

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Caspian EVE 2005/UNDP and WBI John A. Dixon, Economics of Pollution Control

What Questions Can Economic Valuation/BCA Help Answer? How stringent should environmental standards be for

Air quality? Surface water quality? Drinking water quality? What about POPs? Any other pollutant?

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Benefits and Costs of Pollution Control Four categories of benefits could be examined:

Human health (the focus here) Visibility (amenity values) Ecological Effects (and ecosystem

services) Agricultural Benefits (change in

production)

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Valuing Environmental Health Effects

Damage Function Approach Value of number of cases of illness/death avoided =

Number of Cases Avoided * Value per Case Value per Case Avoided should reflect individual’s

willingness to pay (WTP) to avoid illness or risk of death

Human Capital/Cost of Illness Approach, which focuses on lost productivity, medical costs, generally serves as a lower bound to WTP

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The numbers can be large! For example, in 2010 the Monetized Benefits from the US Clean Air Act are estimated as follows:

0 20 40 60 80 100 120

Agriculture

Visibility

Productivity

Other Morbidity

Chronic Bronchitis

Mortality

Cost

Billions of 1990 US$

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Steps in Calculating Health Benefits for Air or Water Quality Improvements

Predict change in emissions of criteria pollutants associated with air/ water quality regulations

Translate changes in emissions into population-weighted changes in ambient exposures

Calculate associated changes in health outcomes Reduced premature mortality Reduced hospital admissions Fewer cases of chronic bronchitis or diarrhea

Assign a dollar value to cases of illness, mortality avoided

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Air Pollution Example: Studies of the Health Impacts

Examine effects of acute air pollution exposure on Premature death Hospital admissions for heart, lung disease Emergency room visits for heart, lung disease Work-loss days

Examine effects of chronic exposure on Premature death Chronic bronchitis

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Interpretation of Dose-Response Function (or DRR)

Dose-response function relates health effects to air pollution concentrations and other factors affecting health

Slope of dose-response function measures the percentage change in the health outcome for a one unit change in PM10

For example, a 10 microgram reduction in PM10 reduces deaths by about 4% in studies of the impact of long-term exposure to air pollution on deaths

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Projected Reductions in Illness due to the US Clean Air Act, Titles I - V

Health Endpoint Pollutant 2010 Mean reduction

Mortality

Age 30+ PM et al 23,000

Chronic Illness

Chronic bronchitis

Chronic asthma

PM

Ozone

20,000

7,200

Hospitalization

Respiratory admissions

Cardiovascular admissions

Asthma-related emergency room visits

PM, CO, NO2, SO2, Ozone

PM, CO, NO2, SO2, Ozone

PM, Ozone

22,000

42,000

4,800

Minor Illness

Avoided respiratory illnesses and symptom-days, asthma attacks, work loss days, etc.

PM, NO2, SO2, Ozone Millions of cases/incidence

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Valuing Environmental Health EffectsThe Damage Function Approach: Value of number of cases of illness/death avoided = Number of

Cases Avoided * Value per Case

Value per Case Avoided should reflect individual’s willingness to pay (WTP) to avoid illness or risk of death

Human Capital/Cost of Illness Approach, which focuses on lost productivity, medical costs, generally serves as a lower bound to WTP

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Valuing Risks to Life: What Is to Be Valued?

Epidemiologic studies predict number of deaths avoided

Treat these as equivalent to reducing risk of death for each person in the exposed population

Risk reduction per person = (Number of deaths avoided)/(Size of exposed population)

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Key Concepts Concept of a Statistical Life

Reducing risk of death by 1 in 10,000 for each of 10,000 people saves one statistical life

Value of a Statistical Life (VSL) If each of the 10,000 people is willing to pay

$500 for the 1 in 10,000 risk reduction the Value of a Statistical Life is = 10,000 x

$500 = $5,000,000

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How to Measure WTP for a Reduction in Risk of Death?

Labor Market Studies Use compensating wage differentials to value risks

of death Contingent Valuation Studies

Ask people directly what they would pay for a change in risk of death

Averting Behavior Studies Use data on seatbelt use, purchase of smoke detectors,

switch to low-tar cigarettes

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Empirical Estimates of Value of a Statistical Life (VSL) in the US

Value of Statistical Life estimates range between $ 1 - 10 million (1990 USD); USEPA’s preferred estimate is $4.8M (1990 USD)

Problems: Average age of worker is 40—older than average age

of person whose life is extended by an environmental program

Estimates of VSL from Averting Behavior Studies almost one order of magnitude lower than in Labor Market Studies

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Valuing Reductions in Morbidity (sickness) Private WTP for a reduction in risk of illness

should reflect: Value of lost work time Value of lost leisure time Value of expenditures to treat illness Value of expenditures to avoid illness Discomfort (pain) of illness

Value to Society of the Risk Reduction = Individual’s WTP plus reduction in costs borne by society

Cost of Illness = Value of lost work time + Value of medical expenditures

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Approaches to Valuing Morbidity Ask directly WTP to avoid illness or risk of

illness

Look at rate of substitution of one risk for another (Risk-Risk Tradeoffs)

Use Cost of Illness estimates as a lower bound to WTP

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Health Effects in the US: Valuation per health outcome (1990 $)

Endpoint Pollutant Valuation (mean est.)

Mortality PM10 4,800,000 Per case

Chronic Bronchitis PM10 260,000 Per case

Chronic Asthma O3 25,000 Per case

Hospital Admissions

All Respiratory SO2, NO2, PM10,O3 6,900 Per case

All Cardiovascular SO2, NO2, CO, PM10,O3 9,500 Per case

Emergency Room Visits for Asthma PM10,O3 194 Per case

Respiratory Illness and Symptoms

Acute Bronchitis PM10 45 Per case

Asthma Attack or Moderate or Worse Asthma Day PM10,O3 32 Per case

Acute Respiratory Symptoms SO2, NO2, PM10,O3 18 Per case

Upper Respiratory Symptoms PM10 19 Per case

Lower Respiratory Symptoms PM10 12 Per case

Shortness of Breath, Chest Tightness, or Wheeze PM10, SO2 5.3 Per day

Work Loss Days PM10 83 Per day

Mild Restricted Activity Days PM10,O3 38 Per day

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Valuing Morbidity and Mortality in the Caspian region Persian Gulf Environmental Damages (air pollution

from burning oil wells) VSL calculations from Iran Other examples And don’t forget the other types of values:

Amenities Ecosystem effects Agricultural/ fisheries production

session 9a introduction to the economics of pollution control: health issues

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