What Role Should Cost-Benefit Analysis Play in Air Quality Management in Asia? Maureen L. Cropper University of Maryland and World Bank December 8, 2004

Outline of Talk What Information Is Required to Conduct a CBA? What Do We Mean By a Cost-Benefit Analysis (CBA)? By a Cost-Effectiveness Analysis (CEA)? Why Is It Important to Conduct Cost-Benefit Analyses of Air Quality Control Strategies? What difference has it made in the United States? What role could it play in Asian cities? What Information Is Required to Conduct a CBA? What Is the Potential for Using CBA in Asian Cities?

Cost-Benefit and Cost-Effectiveness Analyses Cost-Benefit Analysis: Monetizes the costs and benefits of an air pollution control strategy, which requires placing a dollar value on health benefits Can be used to determine if costs of a given control strategy exceed the benefits Can be used to rank control strategies—or alternate ambient standards—according to net benefits Cost-Effectiveness Analysis: Divides the cost of an air pollution control strategy by the number of disability-adjusted life years saved (DALYs) DALYs aggregate health benefits in terms of healthy time lost; this avoids monetization Can compare the cost per DALY of air pollution control with the cost per DALY of other health programs

Why Is Cost-Benefit Analysis Useful? It indicates which pollution control measures give the biggest “bang for the buck” In the United States, benefit-cost analyses of air pollution regulations by the USEPA have demonstrated large net benefits from reducing fine particles Title IV of the 1990 Clean Air Act which has reduced SO2 from power plants costs only $2 bil. per year but yields over $60 bil. per year in health benefits Measures to reduce ground-level ozone produce lower net benefits: Costs of ozone control, 1970-1990, constituted 42% of total air pollution control costs but produced less than 42% of benefits Full implementation of the 1997 8-hour ozone standard doesn’t pass the benefit-cost test

How Has Cost-Benefit Analysis Been Used in the U.S.? In the U.S., at the federal level, it has focused air pollution control on the control of fine particles Following the 1990 Clean Air Act, 4 major regulations have been enacted to control fine particles: Tier II emissions standards for passenger vehicles, reduction in sulfur content of gasoline Emission regulations for heavy duty diesel engines, reduction in sulfur content of diesel Control of off-road diesel emissions Additional controls on power plants At the state and local levels, CBA is increasingly being used to craft strategies to comply with ambient standards within an airshed ASAP is a tool for performing cost-benefit analysis at the local level that the USEPA will make available in 2005

How Could Cost-Benefit Analysis Be Used in Asia? To determine the relative effectiveness (net benefits) of stationary source v. mobile source controls This will depend on: The size of emissions reductions achieved by each policy Where within a metropolitan area emissions are reduced The size of the exposed population in each area The costs of the control measures To help select among alternate mobile source controls: Some mobile source options with high cost per ton of PM reduced (e.g., CNG buses) may pass the benefit-cost test Looking only at the cost per ton removed ignores: Where spatially emissions are reduced (how many people are affected) The value of the health benefits (a high cost per ton strategy can dominate a low cost per ton strategy that affects fewer people)

What Information Is Required for a Cost Benefit Analysis? An emissions inventory Must describe emissions, by location (grid square), with and without the control strategy An air quality model, calibrated for the city Need to simulate ambient concentrations of key pollutants (e.g., PM10, PM2.5) with and without the control strategy Inputs to the model include an emissions inventory, meteorological data and other information (e.g., ammonia concentrations) Outputs = Ambient pollution concentration for each location Information to calculate health effects Size of the population in each location (grid square) Baseline incidence of each health endpoint to be evaluated (death rate by cause, incidence of chronic bronchitis) Slope of concentration-response function for each endpoint Value of each health endpoint Costs of the control strategy

What Information Is Easiest to Acquire for Asian Cities? Information to calculate health effects Geo-referenced population data may be obtainable from national census Baseline incidence of each health endpoint: Obtain death rates from vital statistics data Morbidity incidence may be available at from national health surveys Slope of concentration-response function: Epidemiological literature in Asian countries is growing Concentration-response transfer possible if done with care Value of each health endpoint Conservative approach to estimating value of avoided illness and death requires data on earnings and medical costs Asian studies of willingness to pay to avoid illness and reduce risk of dying are growing; benefits transfer is possible Costs of the control strategy

What Information Is Hardest to Acquire for Asian Cities? An Emissions Inventory Requires geo-referenced data on location of sources Requires emissions factors and activity levels for each source Software to facilitate construction of an emissions inventory is available, but must be careful to use local emissions factors An Air Quality Model, Calibrated for the City Simple air quality model for directly emitted PM (e.g., Box model) may be adequate if PM is main pollutant of interest and secondary particle formation is not a consideration Modeling of ground-level ozone, secondary particle formation is more difficult Once a model has been calibrated, it can be approximated by a response surface to simplify further calculations

What Is the Potential for Using CBA in Asian Cities? Cost-Benefit Analyses Have Been Conducted in Several Asian Cities CBAs of stationary source control measures in Shanghai (Li et al. 2004; Chen et al. 2002) IES study of co-benefits of measures to reduce CO2 in Hyderabad IDEAS Model (World Bank) has analyzed strategies for Bangkok; databases assembled for Hanoi, Jakarta, Shanghai and Manila Emissions Inventories and Air Quality Models Are Available in Other Asian Cities Haq et al. (2004) summarize air quality management capacity in 23 Asian cities.

What Is the Potential for Using CEA in Asian Cities? If a CBA has been conducted for air pollution control measures, their cost-effectiveness can be calculated If most benefits are avoided premature mortality, can calculate cost per life-year saved of the control option Alternately, life years saved can be combined with avoided illness using DALYs to compute a cost per DALY avoided DALY = fraction of a year of healthy time lost because of illness (e.g., if living one year with chronic bronchitis is equivalent to living 2/3 year in good health, chronic bronchitis = 1/3 of a DALY) Advantages of calculating cost per DALY: Avoids monetization of health effects Encourages comparison of air pollution control with other health measures