SESSION 6_Milan Scasny_Health Benefits of air pollution- CIRCLE workshop Oct. 2014

1. Health Benefits of Air Pollution
Milan Ščasný Charles University in Prague Second Ad-hoc Technical Workshop on CIRCLE 2-3 October 2014, OECD Paris

2. 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

3. From econ model to AQ-benefits
< Impact pathway approach >
POLLUTANT
& NOISE
EMISSIONS
MONETARY
VALUATION
TRANSPORT
& CHEMICAL
TRANSFORMATION
DIFFERENCES OF
PHYSICAL IMPATS
3

4. 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)

5. 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, …)

6. 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

7. 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

8. 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)

9. 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

10. 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)

11. 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)

12. < 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

13. 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
ESWindex
ESWindex CZ
ESWwealth
ESWwealth CZ
LITRVindex
LITRVindex CZ
LITRVwealth
LITRVwealth CZ
mil. €
outside of CZ
within the CZ
PPP-adjusted
GDP-adjusted
Based on our literature
review
EU-wide
values

14. 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
% of total externalities
rest
TR+YU+HR
UA+RUS
HU+RO+SVK
POL
CZ
NL+UK+BE
ITA+FRA+AT
DE

15. 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)
푊푇푃푡=푊푇푃∙(1+푔푡∙휀푡)

16. Thanks for your attention Milan Ščasný Univerzita Karlova v Praze milan.scasny@czp.cuni.cz