What Role Should Cost-Benefit Analysis Play in Air Quality Management in Asia?

1. 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

2. Outline of Talk • 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?

3. 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

4. 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

5. 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

6. 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)

7. 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

8. 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

9. 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

10. 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.

11. 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