Health Benefits of Air Pollution

Milan Ščasný

Charles University in Prague

Second Ad-hoc Technical Workshop on CIRCLE

2-3 October 2014, OECD Paris

Contribution

Agenda: How can air pollution impacts be monetised and linked to specific economic activities and what additional work is required to do so?

• Linking the economic model with AQ-benefit assessment: Drivers of the pressures

• Identifying impacts: Going from pressure to impacts

• Deriving benefits: Moving from (health) impacts to monetary valuation

• Linking the modeling approaches on the top: Economic assessment within a general equilibrium framework

From econ model to AQ-benefits < Impact pathway approach >

POLLUTANT

& NOISE

EMISSIONS

MONETARY

VALUATION

TRANSPORT

& CHEMICAL

TRANSFORMATION

DIFFERENCES OF

PHYSICAL IMPATS

3

From econ model to AQ-benefits

Drivers

Output-

linked

coeff

Fuel-

linked

coeff

Fuel-linked

projections

(CIRCLE?)

Scale The change in performance of the

whole economy

Composition The change in relative sizes of sector

Fuel Intensity The change in fuel consumption per

unit of value added

Fuel Mix The change in fuel-mix used in

production

Emission

Intensity

The change in emission volume per unit

of fuel used (affected by end-of-pipe)

1

• MR EE IOTs (EXIOBASE, CREEA) is very rich and useful source on fuel-specific country-specific emission coefficients, but it describes economy in the past (2007)

From pressures to impacts

CIRCLE:

• mortality, morbidity, pain attributable to airborne pollutants (SO2, NOx,PM2.5,OC,BC,NH3)

• primarily health benefits, but effect on crop, biodiversity, cultural heritage later

Comments

• building materials soiled or corroded the ExternE project series

• benefits can be valued only if reliable DRFs/ERFs/CRFs exist

PMcoarse, NMVOC, heavy metals ExternE (NEEDS, DROPS, HEIMTSA,…)

(GHGs health effects included in DICE, FUND, PESETA, GLOBAL-IQ, …)

Contribution of impact categories to total

externalities External costs from power sector in Czech Rep. (2005)

mil. €

% total externalities

% classic pollutants

mortality 956.75 32.4% 54.1% chronic YOLL 947.43 32.1% 53.6% acute YOLL 8.30 0.3% 0.5% infant mortality 1.02 0.0% 0.1% morbidity 484.89 16.4% 27.4% chronic bronchitis 150.07 5.1% 8.5% RAD 98.54 3.3% 5.6% LRS 82.87 2.8% 4.7% cough 3.02 0.1% 0.2% HA 0.95 0.0% 0.1% broncholidator 0.17 0.0% 0.0% WLD 149.27 5.1% 8.4% crops 16.07 0.5% 0.9% materials 75.74 2.6% 4.3% loss of biodiversity 184.32 6.2% 10.4% North hemispheric 50.00 1.7% 2.8% micro-pollutants 16.63 0.6% climate change (21€/t) 1 171.32 39.6% TOTAL 2 955.71 100.0%

Work-loss-days

Valuing benefits

< monetary valuation > CIRCLE:

• Market and non-market value

• GBD-based?

Comments

• GPD measured via QALY or DALY does not conform to welfare economics

• quantify welfare changes due to avoiding specific health outcome or risk

MEDCOST - Medical treatment costs medical costs paid by the health service (covered by insurance), and any other personal

out-of-pocket expenses

LOSSPROD - Indirect (opportunity) costs in terms of loss productivity work time loss, lower efficiency of performance, and the opportunity cost of leisure

DISUTILITY welfare loss due to inconvenience, suffer, pain, or premature death

Valuing benefits /2 < Are they any values? WTP for other health

outcomes? >

• benefits can be valued only if monetary values (willingness-to-pay) are available

…reviews by Mike Holland & Anna Alberini

respiratory illness NEEDS (cough, hosp admission, etc.); HEIMTSA (COPD, chronic bronchitis), ECHA-WTP (asthma)

fertility Value of a Statistical Pregnancy of approx. €30,000 in ECHA-WTP study (Ščasný & Zvěřinová 2014)

developmental toxicity

WTP - €4,000 minor birth defects; €130,000 defects of internal organs, metabolic and genetic disorder; €125,000 very low birth weight ECHA-WTP

€5-20,000 loss of earnings due to one point IQ DROPS

carcinogens

VSL as well as VSCC for cancer, controlling for quality of life and pain impact (Alberini and Ščasný, 2014)

skin sensitisation and dose toxicity

WTP for dermatitis and renal failure by Máca and Braun Kohlová (2014)

Valuing benefits /3

< methodological issues >

VSL vs. VOLY (Value of a Statistical Life vs. Value of a Statistcal Life Year)

– due to shorter expected lifespans of elderlies, the VOLY assigns a lower value VOLY called as "senior death discount“

– EPA‘s SAB rejected using the VOLY approach (2008), similarly OECD CBA by Pearce et al. (2006) is recommending using VSL rather than VOLY

– Economic theory suggests to value changes in risk of dying WTP for ‘a micromort’ Value of a Statistical Life

– My suggestion:

use WTPs for mortality risk reduction and link it with Risk Rates estimated in epidemiological studies

If RR are transferred into Life Losts, use VSL

If RR are transferred into YOLLs, use VOLY if it was based on WTP for risk reductions (partly in Desaigues et al. (2007; 2011)

do not link VOLY on QALYs/DALYs, or make it with very caution

Valuing benefits /4

< methodological & normative issues >

• Premiums in a Value of a Statistical Case

10% ‘malus’ for morbidity associated with mortality risk

50% bonus for infants

no strong evidence for such premiums (Alberini and Ščasný 2012 for ‘child’ premium; Alberini and Ščasný 2014 for QoL in cancer risks)

but, benefits for premature death should include both DISUTILITY (hence VSL) and Cost-Of-Illness (for instance, MEDCOST of cancer treatment is €6,000 and LOSSPROD are €40,000 in Czech Rep; Ščasný & Máca 2008)

Linking the models on the top MEDCOST and LOSSPROD

• MEDCOST - Medical treatment costs

medical costs paid by the health service (covered by insurance), and any other personal out-of-pocket expenses

both public health service (sector in SAM) and personal out-of-pocket expenses (final use in SAM)

Premature death may reduce governmental expenditures on pensions and health care (final use in SAM)

public health system may affect the length of sickness leave LOSSPROD

• LOSSPROD - Indirect (opportunity) costs in terms of loss productivity

work time loss, lower efficiency of performance, and the opportunity cost of leisure

average wage, GDP per capita / employee – D(L)

costs of absenteeism (CBI 1999), direct and indirect – P(L), MPL

friction costs based on a concept of replacement (Koopmanschap et al. 1995)

Valuing benefits /5

< normative issue: social planner

perspective >

One value across countries and regions ?

• WTP for pain, inconveniences, or premature death

consensus

• MEDCOST

so far one ‘average’ value used, maybe for simplicity

• LOSSPROD

one value for whole EU, as far as I know, but the value is a population weighted average, at least for the EU

Linking the models on the top WTPs in GE framework /2

• One ‘EU-average’ WTP values used in EcoSenseWeb tool (ESW) using different values matter

Table: Health-related externalities due to pollution from power sector in the Czech Republic if different monetary values are used. Source: Máca and Ščasný 2009 (NEEDS project)

• one average value of MEDCOST and LOSSPROD is not consistent with SAM

• using one WTP value of DISUTILITY (pain, mortality, fertility) may be fine because there is no its counterpart in SAM, and no component in the CGE utility function

0

200

400

600

800

1000

1200

1400

1600

ESW

ESW

inde

x

ESW

inde

x CZ

ESW

wea

lth

ESW

wea

lth C

Z

LITRVin

dex

LITRVin

dex C

Z

LITRVw

ealth

LITRVw

ealth

CZ

mil. €

outside of CZ

within the CZ

PPP-

adjusted

GDP-

adjusted Based on our literature

review

EU-wide

values

Linking the models on the top WTPs in GE framework /3

• Impacts, and hence benefits, are NOT distributed among emitting-country residents only

Table: Health-related externalities due to pollution from power sector in the Czech Republic disaggregated according to the region where the impact would occur, % of total . Source: Máca and Ščasný 2009 (NEEDS project)

• To ensure consistency with SAM, physical impacts (health outcomes) should be derived for country/regions, as used in CGE regional structure

• Otherwise, one would need to assume that damage attributable to emissions released by region x are affecting residents from region x only

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ESW LITRVindex LITRVwealth ESWindex ESWwealth

% o

f to

tal e

xte

rna

liti

es

rest

TR+YU+HR

UA+RUS

HU+RO+SVK

POL

CZ

NL+UK+BE

ITA+FRA+AT

DE

Linking the models on the top

WTPs in GE framework /4

• Keep WTP value over time constant (when income may increase)?

where g is percentage change in income per capita in period t (i.e. endogenous in CGE), ε is

elasticity of WTP wrt income (invariant in time?)

• present value of WTPt to be consistent with CGE utility discounting (PRTP) vs. consumption discounting (PRTP + g*εy), where εy is the elasticity of the marginal utility of consumption

• consistency between variations (coming from CLI in CGE) and surpluses (CSU/ESU coming form stated preference valuation studies)

• WTP values reported in FINAL prices, however, expenditures in SAM are recorded in BASIC prices (i.e. excluding taxes) – to be consistent with national accounts, WTP values would have to be ‘cleaned’ (taxes put out)

𝑊𝑇𝑃𝑡 =𝑊𝑇𝑃 ∙ (1 + 𝑔𝑡 ∙ 𝜀𝑡)

Thanks for your attention

Milan Ščasný

Univerzita Karlova v Praze

milan.scasny@czp.cuni.cz