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THE ECONOMIC CONSEQUENCES
OF OUTDOOR AIR POLLUTION
Elisa Lanzi Environment and Economy Integration Division
OECD Environment Directorate
Task Force on Integrated Assessment Modelling (TFIAM) 2 May 2017, Paris
• Quantify how changes in outdoor air quality affect the economy, and prospects for long-term growth (costs of inaction)
• Regional and sectoral quantitative approach where possible, coupled with more general insights where needed – Market impacts: production function approach
– Non-market impacts: valuation approach
• Global assessment, 2060 time horizon
2
Objectives and scope
Health impacts
• Mortality
• Morbidity: illness (especially respiratory and cardiovascular diseases)
Other impacts
• Agriculture
• Biodiversity and ecosystems
• Buildings and cultural heritage
• Visibility 3
Impacts of air pollution
Economic consequences
General equilibrium framework
Willingness to pay
approaches
Market costs
Non market costs
+
4
Pain and
suffering
from
illness
Mortality
Labour
productivity Health
expenditures
Agricultural
yields
Types of costs
Market
costs:
Non-market
costs
Direct costs
Indirect costs
5
Methodological steps
Effects of air pollution impacts on economic growth to 2060
• ENV-Linkages model Economic activity
• ENV-Linkages model
• Emission coefficients from IIASA’s GAINS model
• Projections for SO2, NOx, BC, OC, CO, VOCs, NH3 Emissions
• EC-JRC’s TM5-FASST model for PM2.5 and O3 Concentrations
• Impacts on crop yields with TM5-FASST model
• Health impacts using functions based on GBD Biophysical impacts
• Economic feedbacks using ENV-Linkages model
• Non-market costs calculated based on results of valuation studies
Economic costs
6
• Study economic feedbacks in ENV-Linkages (production function approach)
– Health expenditures • Cases of bronchitis in children
• Cases of chronic bronchitis in adults
• Hospital admissions (respiratory and cardiovascular diseases)
– Labour productivity • Linked to increasing number of work days lost
– Agriculture
• Reduced crop yields
Market costs
7
Non-market costs Valuation of non-market health impacts
• Cost of premature deaths OECD method for calculating country-specific VSL based on
income levels
• Costs of pain and suffering from illness E.g. bronchitis in adults and children, respiratory and
cardiovascular diseases, asthma
Disutility or welfare costs are evaluated based on willingness to pay results from stated preference studies (Holland, 2014 – report for the European Commission)
RESULTS
8
9
Projections of air pollutants emissions
Source: OECD (2016), The economic consequences of outdoor air pollution
(In
de
x w
rt 2
010)
Annual average total anthropogenic PM2.5 (µg/m3)
10
Concentrations of air pollutants
2060
2010
2030
2060
Source: OECD (2016), The economic consequences of outdoor air pollution
Maximal 6-month mean of daily maximal hourly ozone, M6M, in ppb
11
Concentrations of ozone
Source: OECD (2016), The economic consequences of outdoor air pollution
2010
2030
2060
12
Market costs: global GDP changes over time
(GD
P p
erc
en
tage
ch
an
ge
wrt
no-f
ee
db
ack b
ase
line
)
-1.2%
-1.0%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
Health Expenditures Labour productivity Agriculture All
Source: OECD (2016), The economic consequences of outdoor air pollution
13
Nu
mb
er o
f d
eath
s p
er y
ear
per
mil
lio
n p
eop
le,
20
60
Premature deaths 2010: 3 million
Premature deaths caused by outdoor air pollution
Projection 2060: 6 – 9 million
Source: OECD (2016), The economic consequences of outdoor air pollution
14
Welfare costs of mortality
0
2000
4000
6000
8000
10000
12000
OECDAmerica
OECD Europe OECD Pacific Rest ofEurope & Asia
Latin America Middle East &North Africa
South andSouth-East
Asia
Sub-SaharanAfrica
Bil
lio
ns
of
US
D,
20
10 P
PP
ex
cha
ng
e ra
tes
2015 2060, lower estimate 2060, higher estimate
Source: OECD (2016), The economic consequences of outdoor air pollution
15
Welfare costs of morbidity
0
100
200
300
400
500
600
700
Ca
nad
a
Ch
ile
Me
xic
o
US
A
EU
la
rge 4
Oth
er
OE
CD
EU
Oth
er
OE
CD
Au
s. &
Ne
wZ
.
Jap
an
Ko
rea
Ch
ina
No
n-O
EC
D E
U
Ru
ssia
Ca
spia
n r
eg
ion
Oth
er
Eu
rop
e
Bra
zil
Oth
er
Lat.
Am
.
Mid
dle
Ea
st
No
rth
Afr
ica
AS
EA
N 9
Ind
on
esia
Ind
ia
Oth
er
Asia
So
uth
Afr
ica
Oth
er
Afr
ica
OECD America OECD Europe OECD Pacific Rest of Europe & Asia LatinAmerica
MiddleEast &NorthAfrica
South and South-East Asia
Sub-Saharan
Africa
US
D p
er
ca
pit
a, 2
01
0 P
PP
ex
ch
an
ge
ra
tes
, 2
06
0
Illness Restricted activity days Hospital admissions
Source: OECD (2016), The economic consequences of outdoor air pollution
16
Components of regional welfare costs of outdoor air pollution
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Canada (81%)
Chile (74%)
Mexico (82%)
USA (82-83%)
EU large 4 (83-84%)
Other OECD EU (82%)
Other OECD (87%)
Aus. & NewZ. (61-75%)
Japan (83%)
Korea (80-81%)
China (74-79%)
Non-OECD EU (56%)
Russia (67%)
Caspian region (82-83%)
Other Europe (62%)
Brazil (87%)
Other Lat.Am. (87%)
Middle East (76-79%)
North Africa (74-75%)
ASEAN 9 (76-79%)
Indonesia (76-77%)
India (79-89%)
Other Asia (75-83%)
South Africa (72%)
Other Africa (74-75%)
OE
CD
Am
eri
ca
OE
CD
Euro
pe
OE
CD
Pacific
Re
st
of
Euro
pe
&A
sia
La
tin
Am
erica
Mid
dle
East
&N
ort
hA
fric
a
South
an
dS
outh
-E
ast A
sia
Sub-
Saha
ran
Afr
ica
Direct market costs Indirect market costs Disutility Mortality
Source: OECD (2016), The economic consequences of outdoor air pollution
Shares in total welfare costs based on linear values for mortality, 2060
Note: numbers in brackets represent the share of mortality costs for the range of linear and non-linear values
Welfare costs of outdoor air pollution: evolution over time
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2015 2020 2025 2030 2035 2040 2045 2050 2055 20600
3,500
2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
Billions of USD, 2010 PPP exchange rates
Market costs (direct)
Market costs (indirect)
Non-market costs (lower estimate)
Non-market costs (higher estimate)
Market costs
Non-market costs
0
35,000
Source: OECD (2016), The Economic Consequences of Outdoor Air Pollution 17
• The total welfare costs of outdoor air pollution (the “costs of inaction”) will increase significantly in OECD, and may explode globally, in the absence of more stringent policies
• Overall, largest component of welfare costs is the value of premature deaths (80-90% of total costs, depending on region). These losses are the highest in China and India.
• Indirect economic consequences as induced by the market impacts play an increasingly dominant role in the long run, relative to the direct market impacts
• These economic consequences imply a strong call for policy action, not only in China and India, but also in OECD countries
18
Main insights
Elisa.Lanzi@oecd.org
19
Thank You
www.oecd.org/environment
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