Session 9A Introduction to the Economics of Pollution Control: Health Issues John A Dixon johnkailua@aol.com Ashgabad, November, 2005 Adapted from materials prepared by Maureen Cropper The World Bank GEF 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? Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF 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) Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF The numbers can be large! For example, in 2010 the Monetized Benefits from the US Clean Air Act are estimated as follows: Cost Mortality Chronic Bronchitis Other Morbidity Productivity Visibility Agriculture Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control 20 40 60 80 Billions of 1990 US$ GEF 100 120 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF  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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF Projected Reductions in Illness due to the US Clean Air Act, Titles I - V Health Endpoint Mortality Age 30+ Chronic Illness Chronic bronchitis Chronic asthma Hospitalization Respiratory admissions Cardiovascular admissions Asthma-related emergency room visits Minor Illness Avoided respiratory illnesses and symptom-days, asthma attacks, work loss days, etc Pollutant 2010 Mean reduction PM et al 23,000 PM Ozone 20,000 7,200 PM, CO, NO2, SO2, Ozone PM, Ozone 22,000 42,000 4,800 PM, NO2, SO2, Ozone Millions of cases/incidence PM, CO, NO2, SO2, Ozone Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF Valuing Environmental Health Effects The 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF 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) Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF Key Concepts  Concept of a Statistical Life   Reducing risk of death by 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 in 10,000 risk reduction the Value of a Statistical Life is = 10,000 x $500 = $5,000,000 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF How to Measure WTP for a Reduction in Risk of Death?  Labor Market Studies   Contingent Valuation Studies   Use compensating wage differentials to value risks of death 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF Empirical Estimates of Value of a Statistical Life (VSL) in the US   Value of Statistical Life estimates range between $ - 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF 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 194 Per case Emergency Room Visits for Asthma PM10,O3 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 PM10 83 Per day PM10,O3 38 Per day Work Loss Days Mild Restricted Activity Days Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF [...]...  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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution. .. of Pollution Control GEF 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF Health Effects in the US: Valuation per health outcome (1990 $) Endpoint Pollutant... 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF How to Measure WTP for a Reduction in Risk of Death?... wage differentials to value risks of death 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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF Empirical Estimates of Value of a Statistical Life (VSL) in the US   Value of Statistical Life...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) Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF Key Concepts  Concept of a Statistical...  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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF Valuing Reductions in Morbidity (sickness)  Private WTP for a reduction in risk of illness should... Respiratory SO2, NO2, PM10,O3 6,900 Per case All Cardiovascular SO2, NO2, CO, PM10,O3 9,500 Per case 194 Per case Emergency Room Visits for Asthma PM10,O3 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... case Lower Respiratory Symptoms PM10 12 Per case Shortness of Breath, Chest Tightness, or Wheeze PM10, SO2 5.3 Per day PM10 83 Per day PM10,O3 38 Per day Work Loss Days Mild Restricted Activity Days Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF Valuing Morbidity and Mortality in the Caspian region     Persian Gulf Environmental Damages (air pollution from burning oil...    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 Caspian EVE 2005/UNDP and WBI John A Dixon, Economics of Pollution Control GEF