The Economic Costs of Indoor Air Pollution: New Results for Indonesia, the Philippines, and Timor- Leste

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1 Journal of Natural Resources Policy Research ISSN: (Print) (Online) Journal homepage: The Economic Costs of Indoor Air Pollution: New Results for Indonesia, the Philippines, and Timor- Leste Agustin Arcenas, Jan Bojö, Bj rn Larsen & Fernanda Ruiz Ñunez To cite this article: Agustin Arcenas, Jan Bojö, Bj rn Larsen & Fernanda Ruiz Ñunez (2010) The Economic Costs of Indoor Air Pollution: New Results for Indonesia, the Philippines, and Timor-Leste, Journal of Natural Resources Policy Research, 2:1, 75-93, DOI: / To link to this article: Published online: 11 Jan Submit your article to this journal Article views: 1655 View related articles Citing articles: 7 View citing articles Full Terms & Conditions of access and use can be found at Download by: [ ] Date: 20 November 2017, At: 09:32

2 Journal of Natural Resources Policy Research Vol. 2, No. 1, 75 93, January 2010 The Economic Costs of Indoor Air RJNR Journal of Natural Resources Policy Research, Vol. 2, No. 1, October 2009: pp. 0 0 Pollution: New Results for Indonesia, the Philippines, and Timor-Leste The A. Arcenas Economic et al. Costs of Indoor Air Pollution AGUSTIN ARCENAS*, JAN BOJÖ**, BJØRN LARSEN & FERNANDA RUIZ NUNEZ *Diliman School of Economics, Manila, University of the Philippines, The Philippines; **Sustainable Development Department, East Asia & Pacific Region, World Bank, Washington DC; Health and Environment, Vientiane, Lao PDR; Sustainable Development Department, South Asia Region, World Bank, Washington DC ABSTRACT Indoor air pollution (IAP) from biomass fuels is clearly linked to acute respiratory infections (ARI) and chronic obstructive pulmonary disease (COPD), and there is evidence of links to tuberculosis and lung cancer. Children under 5 years and adult women are particularly affected. The resulting morbidity and premature mortality can be calculated, and assessed in monetary terms through the use of the Cost of Illness (COI), the Human Capital Approach (HCA) and Value of Statistical Life (VSL) analysis. This article presents new results of the economic cost of health impacts for Indonesia, the Philippines, and Timor-Leste and discusses policy implications of these findings. These three countries, in which the World Bank recently undertook Country Environmental Analysis (CEA), were selected as they span large differences in income, population, mortality rates, and household prevalence in solid fuel use for cooking. Introduction Globally, about half of the population cooks with solid fuels, such as wood, dung, coal, or agricultural residues (Rehfuess et al., 2006). Particularly when used in traditional unimproved, open stoves, these fuels emit substantial amounts of harmful pollutants, such as particulate matter (PM), carbon monoxide, and nitrogen and sulfur oxides. Women and young children are most exposed, and there is a well documented relationship between indoor air pollution (IAP) and several diseases, most strongly with acute lower respiratory infections (ALRI) and chronic obstructive pulmonary disease (COPD), but also with lung cancer and tuberculosis (Desai et al., 2004). WHO has reported that almost 40% of ALRI, more than 20% of COPD, and almost 3% of the global disease burden (DALYs) are caused by IAP from solid fuels. 1 This makes IAP the second most important environmental risk factor after water, sanitation, and hygiene (WHO, 2002). Correspondence Address: Jan Bojö, Lead Economist, World Bank, 1818 H Str NW, Washington DC 20433, USA. bojo@worldbank.org. ISSN Print/ Online 2010 Taylor & Francis DOI: /

3 76 A. Arcenas et al. The purpose of this article is to derive and present new results for the economic cost of IAP from household solid fuels in Indonesia, the Philippines, and Timor-Leste, and discuss their policy implications. These countries span large differences in income, population, mortality rates, and household prevalence of solid fuel use, and are the first countries in this region for which the World Bank has undertaken a Country Environmental Analysis (CEA) (World Bank 2009a, 2009b, 2009c). We use a common approach across the three countries, but with some variations as explained below. The approach proceeds through seven steps to derive the burden of disease from solid fuel-related IAP. We then value these impacts for both premature mortality and morbidity. The results are summarized in absolute amounts, as well as in relation to the size of the economies. We also discuss policy implications of these results, and point to specific promising interventions. There are other problems related to the use of solid fuels, such as deforestation and withdrawal of dung and residues that would otherwise fertilize agricultural lands. These are important issues, and discussed in the CEAs, but are not the subject of analysis here. These costs will reinforce the need for the type of interventions suggested in the last section, however. Methodology The mains steps in calculating the burden of disease related to IAP are the following: 2 (1) Determine the share of the population using solid fuels for cooking. 3 (2) Determine the exposure by adjusting for type of cooking practices, equipment, and household environment (ventilation factor). (3) Determine what diseases (health outcomes) are relevant in relation to IAP. (4) Establish the baseline burden of disease for the chosen health outcomes. (5) Establish the risk of being afflicted by the relevant disease from exposure to IAP (relative risk, RR). (6) Calculate the share of this disease burden that can be attributed to IAP (attributable fraction, AF) using the relative risk and share of the population using solid fuels. (7) Multiply the incidence of disease and premature mortality with the AF to derive the number of IAP-related cases of health effects. With that measure of the burden of disease, the next sequence concerns the economic valuation. For morbidity: (1) Determine the duration of each case of illness. (2) Apply unit costs for treatment per case. (3) Apply units costs for productivity losses per case. For chronic morbidity, the additional step of calculating the present value of the cost over a long time horizon is added. In line with WHO (2002), we are using an annual real discount rate of 3%. Inflation is not considered. For premature mortality: (1) As a lower-bound value, calculate the Human Capital Cost (i.e. present value of foregone future income). (2) As an upper-bound value, calculate the Value of Statistical Life and apply to each case. 4 (3) Summarize in terms of absolute costs, and relative costs in relation to national income measure.

4 The Economic Costs of Indoor Air Pollution 77 Following this methodology, Section 2 presents calculations of the baseline and the IAP related burden of disease (BOD) for the three countries. Section 3 proceeds to the economic valuation and presents the main results. Section 4 discusses some policy implications and solutions, and how efficient they are from an economic perspective. Calculating the Burden of Disease Related to IAP Step 1: Solid Fuel Use In many countries outdoor sources of air pollution are more significant than indoor sources in terms of volume, but indoor sources may still dominate in terms of population exposure, as so much time is spent in the household environment. A starting point to determine exposure is to examine household energy use. Household surveys often allow a determination of the main source of household fuel. Households may use several fuels for cooking, but surveys generally request information only concerning the main fuel. Table 1 below brings out some striking differences between the three countries. All three countries have significant use of firewood and other biomass, with Timor-Leste showing almost complete dependence. The tradition of subsidizing kerosene in Indonesia is reflected in high use of that fuel, while such subsidies were discontinued after Timor-Leste achieved independence. Firewood, straw, and other biomass fuels (except charcoal) are mostly used by lower income strata, as shown in Tables 2 and 3, and Figure 1. Table 1. Main cooking fuel: Percentage of households Indonesia The Philippines Timor-Leste Electricity <1 1 0 Gas/LPG Kerosene Charcoal <1 7 0 Firewood/straw Notes: Figures may not add to 100% due to rounding. There is insignificant use of coal, which has been left out in this comparative table. A 0 signifies less than 0.5%. Sources: Indonesia (Indonesia DHS, 2002/2003), The Philippines (Household Energy Consumption Survey, 2004) (National Statistics Office and Department of Energy, 2004), Timor-Leste (Timor-Leste DHS, 2003). Table 2. Household fuel use by wealth quintiles, Indonesia 2003 Type of cooking fuel (percentage) Poorest Poorer Middle Richer Richest Electricity LPG, natural gas Kerosene/coal, lignite/charcoal/firewood, straw/other Source: Indonesia DHS (2002/2003).

5 78 A. Arcenas et al. Table 3. Household fuel use by wealth quintiles, Timor-Leste 2003 Type of cooking fuel (percentage) Poorest Poor Middle Richer Richest Electricity LPG, natural gas Kerosene/coal, lignite/charcoal/firewood, straw/other Source: Timor-Leste DHS (2003). Figure 1. Household use of solid fuel by monthly income class, the Philippines Source: The Philippines Household Energy Consumption Survey (HECS), Step 2: Exposure Exposure to air pollution from solid fuel use (SFU) can be modified by an adjustment referred to as a ventilation factor. This factor includes a consideration of the household cooking environment and cooking equipment. Cooking outdoors only reduces, but does not eliminate, exposure to air pollution from solid fuels. Dasgupta et al. (2004) showed that in Bangladesh, cooking outdoors with biomass fuel decreases PM10 concentrations on average by approximately one third compared to indoor cooking, but the level of concentrations remains a threat to health. However, cooking outdoors often implies the use of a simple shelter from rain and wind which captures and retains a portion of the emissions. Outdoor cooking also does not address the community effects and entering of smoke into dwellings. Desai et al. (2004) suggest using a ventilation factor of 0.25 for households that use improved stoves or cook outdoors, and a ventilation factor of 1.00 for those that use traditional open stoves indoors. In other words, it is assumed that the former type of households have a 75% lower risk of health effects from solid fuel smoke than households cooking indoors with unimproved stoves. The validity of the outdoor or improved stove ventilation factor has not been comprehensively tested. A recent intervention study in Guatemala for instance finds that a well-maintained wood stove with chimney (vs. cooking on open fire) reduces individuals pollution exposure by 45 60%, and the risk

6 The Economic Costs of Indoor Air Pollution 79 reduction in health effects, i.e. ALRI (pneumonia) in young children, was, although substantial, much less than 75% (WHO, 2007; McCracken et al., 2009; Smith et al., 2006). Thus a ventilation factor of 0.25 might be too conservative and understate the health effects even with improved stoves or outdoor cooking. For Indonesia, there are no data available on the percentage of households using either improved stoves or cooking outdoors. Some anecdotal evidence suggests that most of the Indonesian families cook indoors. Due to the lack of official data on this matter, we explore three different scenarios: (i) 100% of the households cook outdoors; (ii) 50% of the households cook outdoors; and (iii) 100% of the households cook indoors. In the Philippines, a ventilation factor of 0.25 is used for urban and rural areas outside Metro Manila as households in these areas typically do their cooking outdoors. Metro Manila households that use solid fuels, however, are assigned a ventilation factor of 0.5 since they would normally be found in informal settlements where houses are crammed together. In Timor-Leste, where 80% of the population that use solid fuels cook outdoors (World Bank 2007a), this study applies a ventilation factor of 0.25 to adjust the level of exposure to SFU. Step 3: Identifying Relevant Diseases In this study, only those health outcomes associated with indoor air pollution are included for which there is a sufficiently extensive literature on relative risk of health effects and for which country data are accessible. Table 4 describes health outcomes according to their association with SFU based on a meta-analysis of available literature by Desai et al. (2004) and more recently for ALRI in children under five by Dherani et al. (2008). 5 The studies reviewed and included in the meta-analyses by Desai et al. (2004) and Dherani et al. (2008) are observational studies. A shortcoming of these studies is that there may be factors confounding the relationship between IAP from solid fuel use and the associated health outcomes even when observed differences in household characteristics are controlled for. A second consideration is that there can be intra-household differences in behaviour, such as the women who cook have the worst health endowments (Duflo et al., 2008). However, this assumes that households (i) have a choice of whom to assign to Evidence Table 4. Level of evidence of health effects related to IAP from solid fuels Health outcome Group (sex, age in years) Relative risk (central estimate) Strong ALRI Children <5 2.3 (1.8*) COPD Women Lung cancer (from exposure to coal smoke) Women Moderate-I COPD Men Lung cancer (from exposure to coal smoke) Men Moderate-II Lung cancer (from exposure to biomass Women smoke) Tuberculosis All Note: Risk of health outcome is relative to using non-solid fuels such as LPG. Sources: Desai et al. (2004). *Dherani et al. (2008).

7 80 A. Arcenas et al. cooking, and (ii) that households are aware of the link between IAP and poor health. We would venture to propose that assignment of cooking responsibilities would likely be a function of seniority, skills, and preferences, rather than the result of an optimization of assigning the person with the worst health to be most exposed. Furthermore, there are empirical data to indicate that many households simply do not make the connection between IAP and poor health even conceptually (World Bank, 2005). The first of its kind randomized control trial was conducted in Guatemala in in which an intervention group received and cooked with a well-maintained improved wood stove with chimney and the control group cooked with traditional open wood fires. Children were closely monitored till the age of 18 months. The study found that these children s CO exposure associated with the improved stove declined by about 45% (WHO, 2007; McCracken et al., 2009). Severe non-rsv (respiratory syncytial virus) pneumonia in these children declined by about 40% relative to the children in the control group, while there was no decline in RSV pneumonia (WHO, 2007; Smith et al., 2006). If two-thirds of severe ALRI in children is severe non-rsv pneumonia, then the relative risk of ALRI is about 1.4 for an open fire vs. improved chimney stove. 6 Thus the Guatemala study provides support for the findings in the meta-analysis of observational studies in Dherani et al. (2008) of a ALRI relative risk of 1.8 from use of solid fuels (open fires/unimproved stoves) vs. clean fuels such as LPG. The study in Guatemala also allowed for an analysis of intervention effects on adult female blood pressure. PM2.5 exposure and blood pressure was measured over the study period in women > 38 years of age. PM2.5 exposure was 264 ug/m 3 in the control group cooking on open wood fires and 102 ug/m 3 in the intervention group cooking with improved chimney stoves. 7 The improved stove intervention was associated with a 3.7 mm Hg lower systolic blood pressure (SBP) and 3.0 mm Hg lower diastolic blood pressure (DBP) (McCracken et al., 2007). This is an important finding because elevated blood pressure (BP) predicts cardiovascular morbidity and mortality (Lawes et al., 2004). A mm Hg reduction in BP is associated with more than 10% risk reduction in ischaemic heart disease (IHD) and cerebrovascular disease (CBD) in the population 45+ years. 8 IHD and CBD accounts for 30 40% of all deaths in age group 45+ years and 20 25% of all-age population all-cause mortality in Southeast Asia according to the Global Burden of Disease estimates. Thus a 10% change in risk of IHD and CBD may translate into a substantial change in premature mortality. Cardiovascular mortality has long been associated with outdoor ambient pollution (PM) in the urban environment (Pope et al., 2002). Studies have however not been available to establish this link with household solid fuel use. While the Guatemala study does provide first evidence, it is not included here for our three countries. Health outcomes included in each of the countries are presented in Table 5. These deviate somewhat from the outcomes included in Desai et al. (2004). Acute respiratory infections (ARI), i.e. both acute upper (AURI) and acute lower respiratory infections (ALRI) in children under five years were included in Indonesia and Timor-Leste. In the Philippines, respiratory infections were restricted to ALRI (pneumonia and acute bronchitis) but included for both children under five and adult females. The motivation for this is based on for instance findings by Ezzati and Kammen (2001) in Kenya. 9 COPD in adult females were included in all three countries. COPD in males, and tuberculosis and lung cancer from biomass smoke was only included in the Philippines as national data on the number of reported cases of these health outcomes were available. We do not consider lung cancer

8 The Economic Costs of Indoor Air Pollution 81 Table 5. Health outcomes included in the three country studies Indonesia The Philippines Timor-Leste ARI Yes (children under 5) Only ALRI Yes (children under 5) ALRI Included in ARI Yes (children under 5; adult Included in ARI females)* COPD Yes (adult females) Yes (adult females; adult males) Yes (adult females) Tuberculosis No Yes (adults) No Lung cancer from biomass smoke No Yes (adult females)** No Notes: *Only ALRI morbidity (not mortality) was included for adult females. **Only lung cancer mortality was included (insufficient data on lung cancer morbidity). Sources: Arcenas (2009), Bojö & Ruiz Nuñez (2008), World Bank (2009c). from coal smoke because of the very low level of household coal use. All in all, this implies that we have taken a conservative, lower-bound approach in estimating the costs of IAP. Step 4: Determining the Relevant Gross Burden of Disease In this step, we determine the gross burden of disease for the selected health outcomes. Subsequently, we estimate the fraction of this burden attributable to IAP from solid fuel use. National data on the burden of these diseases were generally not available for Indonesia; therefore this study relies in part on the burden of disease estimated for WHO sub-region South and South-East Asia (SEAR B) 10 for year 2002 by WHO (revised data). Assuming that Indonesia is representative of SEAR B, the sub-regional estimates were adjusted by the population weight for Indonesia. 11 For COPD in women >30 years, the result is deaths per year (Table 6). In terms of morbidity, the COPD female prevalence rate by age group in the sub-region (Shibuya et al., 2001), combined with the female population age distribution in Indonesia (United Nations, 2006), indicates that women >30 years have COPD in Indonesia. For ALRI mortality in children <5 years old, the sub-regional ALRI percent of child mortality was applied to the Indonesian under-5 child mortality rate in According to the Indonesia DHS 2002/03, two-week ARI prevalence in children under 5 years old Table 6. Estimated gross burden of disease (annual cases) Morbidity* Mortality ARI (children under 5) COPD (females 30+) ALRI (children under 5) COPD (females 30+) Indonesia The Philippines** Timor-Leste Notes: *ARI in all three countries is annual incidence. COPD morbidity in Indonesia and Timor-Leste is prevalence while annual incidence in the Philippines. **ALRI in children under 5 and females 30+. Sources: Arcenas (2009), Bojö & Ruiz Nuñez (2008), World Bank (2009c).

9 82 A. Arcenas et al. was (i.e. 7.6% of children had ARI starting or continuing into the two-week observation period). To convert prevalence to annual incidence per child, the prevalence rate is multiplied by 365/(14+average duration of ARI), with average duration assumed to be seven days. 13 The annual ARI incidence rate is calculated to be 1.32 cases per child per year, and the total annual cases of ARI in children under-5 are estimated to be approximately 27.9 million. For the Philippines, national reported cases of illness and mortality were mostly used to establish the gross burden of disease, which allowed for broader coverage of diseases and age-group classifications. ALRI mortality in children below age 5 was however adjusted upwards by a factor of 2.7 to reflect under-registration of child mortality and to arrive at mortality figures consistent with estimates of overall under-5 child mortality rates. For COPD morbidity, regional incidence data from WHO and Shibuya (2001) were used. Of over 4.4 million cases of ALRI in children <5 and adult women, about 560 thousand were in adult women (Table 6). The gross burden of disease for health outcomes only included in the study of the Philippines is presented in Table 7. The derivation of cases in Timor-Leste was very similar to the procedure followed in Indonesia, using Timor-Leste DHS 2003 for ARI morbidity, under-5 child mortality in Timor-Leste for ALRI mortality, and regional estimates by WHO and Shibuya et al. (2001) for COPD morbidity and mortality. The steps are therefore not repeated here. Step 5: Relative Risks The population that is exposed to elevated levels of indoor air pollution from solid fuels runs a higher risk of contracting the diseases that we have discussed above. The statistical measure of this is referred to as relative risk (RR). We apply the results from Desai et al. as these are based on a formal meta-analysis of the entire evidence base (2004, p. 8). In the case of Indonesia and Timor-Leste, we used a central estimate and a lower and upper confidence interval bound to derive the health impacts of IAP. 14 Table 8 shows the central estimate, as well as a lower and upper bound. These ratios represent the risk of illness for those who are exposed to pollution from household SFU compared to the risk for those who are not exposed. 15 For the Philippines, the relative risk ratio for ALRI in children <5 was modified based on recent meta-analysis by Dherani et al. (2008) and also applied to ALRI in adult females (Table 9). The relative risks for COPD, lung cancer and tuberculosis are from Desai et al. (2004). Table 7. Additional gross burden of disease in the Philippines (annual cases) Morbidity Mortality COPD (males 30+) Lung cancer (females 30+) Not available Tuberculosis (all 15+) Note: COPD morbidity is annual incidence. Source: Derived from Arcenas (2009).

10 The Economic Costs of Indoor Air Pollution 83 Table 8. Relative risk ratios applied to Indonesia and Timor-Leste Relative risk Health outcome Low Central High ALRI (Children < 5) COPD (Women 30) Source: Desai et al. (2004). Table 9. Relative risk ratios applied to the Philippines Health outcome Risk ratios ALRI/acute bronchitis and pneumonia in children < 5 years and women > = COPD, women > = COPD, men > = Lung cancer (from exposure to biomass smoke), women > = Respiratory tuberculosis, men and women > = Sources: Desai et al. (2004); Dherani et al. (2008). Step 6: Attributable Fractions Only a fraction of the total cases of morbidity and mortality associated with the health outcomes discussed above is attributable to SFU. For example, tobacco smoking is an important factor in explaining pulmonary disease and lung cancer. However, smoking is not likely to be a confounding factor among the groups mostly in focus for our analysis. 16 Conceptually, the attributable fraction depends on the proportion of the population that uses solid fuels and the level of risk elevation from SFU. Hence, we calculate the attributable fractions of morbidity and mortality from IAP as: AF = i= n i i i= 1 i= n i i i= 1 PV( RR 1) 1+ PV( RR 1), where P i is the share of population using solid fuels under various ventilation conditions, i; RR is the relative risk of morbidity and mortality for each relevant health outcome from Desai et al. (2004) and Dherani et al. (2008); and V i is ventilation factors reflecting stove types and/or cooking practices ranging in our case from 0.25 for outdoor cooking to 1.0 for indoor cooking with unimproved stove. As shown in Tables 10 12, the central estimate of attributable fraction varies between 7% and 49% depending on disease, risk ratios,

11 84 A. Arcenas et al. Table 10. Attributable fractions of disease from SFU in Indonesia Attributable fractions Disease, sex, age group Scenarios Low Central High ALRI, children <5 I II III COPD, women 30 I II III Source: Bojö and Ruiz Nunez (2008). Table 11. Attributable fractions of disease from SFU in the Philippines Health outcome Attributable fractions ALRI/Acute bronchitis and Pneumonia for children younger than 5 and women older than 30. COPD, women > = COPD, men > = Lung cancer (from exposure to biomass smoke), women > = Respiratory tuberculosis, men and women > = Source: Arcenas (2009), based on risk ratios in Desai et al. (2004) and Dehrani et al. (2008). Table 12. Attributable fractions of disease from SFU in Timor-Leste Attributable fractions Disease, sex, age group Low Central High ALRI, children < COPD, women Source: World Bank (2009c). and age group. Further details are provided in Bojö and Ruiz Nunez (2008) and Arcenas (2009). Step 7: Determining the Cases of IAP-related Disease and Mortality With steps 1 6 completed we now derive the burden of disease attributable to IAP from SFU by multiplying the attributable fractions in Tables with the gross burden of

12 The Economic Costs of Indoor Air Pollution 85 Table 13. Estimated annual health effects from SFU related IAP Morbidity Mortality ARI/ALRI* COPD** ALRI COPD** Indonesia ( 000) Philippines ( 000) Timor-Leste*** Notes: *ALRI for the Philippines (children < 5 and females > 30). **Females and males for the Philippines. ***Range represents low and high attributable fractions. Sources: Arcenas (2009); Bojö and Ruiz Nunez (2008); World Bank (2009c). Table 14. Additional annual health effects estimated for the Philippines Morbidity Mortality Tuberculosis Tuberculosis Lung cancer The Philippines ( 000) Source: Arcenas (2009). disease in Tables 6 7. Results are summarized and rounded in Tables to indicate magnitudes. Numbers are presented in thousands for Indonesia and the Philippines, but in number of cases for Timor-Leste, with its much smaller population. The estimated mortality burden in Indonesia (using scenario II and central relative risk ratio) is approximately deaths which represent 0.8% of the national total in In the Philippines the estimated burden is deaths, or about 1.3% of the national total in 2003 (mortality from only ALRI and COPD constitutes nearly 0.9% of total mortality in 2003). In Timor-Leste, the estimated burden is 305 deaths (central estimate) which represent 4% of the national total in This in line with findings in Desai et al. (2004) for India (3.4%). Some of the estimates are not comparable across the three countries. ALRI morbidity is estimated for the Philippines, which is a fraction of ARI. In terms of COPD morbidity, the attributable fraction of annual incidence of new cases of COPD was estimated for the Philippines, while attributable fractions of prevalence was estimated for Indonesia and Timor-Leste. We now have quantitative estimates of the burden of disease from SFU related IAP in each of the three countries. But what is the economic cost of all this? We turn to this question in the next section. Economic Valuation of the Burden of Disease Related to Indoor Air Pollution The annual cost of health effects of indoor air pollution is estimated computing the cost of mortality and morbidity presented in the previous section. The cost of mortality is based on the Value of Statistical Life (VSL) as a higher bound and on the Human Capital

13 86 A. Arcenas et al. Approach (HCA) as a lower bound. However, for Indonesia and Timor-Leste HCA was used for mortality among children. The cost of morbidity is estimated using the cost of illness (COI) approach, i.e. the annual medical treatment cost and value of lost time. For the case of COPD, since it is a long term illness, the present value of COI over the duration of a new case of COPD is also included. VSL is based on valuation of mortality risk estimated through revealed or stated preferences. It is important to note that this study is not placing a value on any particular person s life, and the suffering and grievance that is associated with death. However, people s behaviour and statements reveal something about the economic benefits of reducing the statistical risk of death. This is important for rational social decision-making. Mrozek and Taylor (2002) provide a meta-analysis of VSL estimates from labour market studies from around the world. The study concludes that a range for VSL of $ million can be reasonably inferred from these studies when best-practice assumptions are invoked. The sample of countries used in Mrozek and Taylor (2002) has an average GNI per capita of $ Since there are no studies of VSL conducted in any of the three countries in this study, the benefit transfer approach is applied using an income elasticity of one as a conservative estimation. In other words, it is assumed that willingness to pay for mortality risk reductions is proportional to the income level across countries. The results are summarized in Table 15. The HCA is based on the economic contribution of an individual to society over the lifetime of the individual. Death involves an economic loss that is approximated by the loss of all future income of the individual. Just as in the case of VSL, this is not a judgment of the value of the life of an individual, but an estimation of the economic value of the statistical life. Following World Health Organization (WHO) standard practice, an annual discount rate of 3% is applied. An annual per capita growth of real income of 2% is assumed following the example of Larsen (2006). Average annual income is approximated by GNI per capita. In the case of children, it is assumed that the lifetime income on average starts at age 20 and ends at expected length of life of 57 years for Indonesia and Timor-Leste (65 years in the case of the Philippines). For adults, 7.5 years are assumed lost from COPD mortality (Larsen, 2006). In order to measure the cost of morbidity, the COI is used to estimate the cost of ARI/ALRI, COPD, and, in the case of the Philippines, tuberculosis. The COI is composed of medical cost and the value of time losses, with no provision for the human suffering. Hence, it is certainly an underestimate of the full cost. COPD is a long term illness and therefore the present value of costs over disease duration is included. Table 15. VSL values applied through benefit transfer ($ 000) Indonesia The Philippines Timor-Leste VSL Note: The VSL for Indonesia and Timor-Leste is for year 2006 based on the range in Mrozek and Taylor (2002) while the VSL for the Philippines is for the year 2003 based on the mid-point estimate in Mrozek and Taylor (2002).

14 The Economic Costs of Indoor Air Pollution 87 Results In the case of Indonesia, the range of economic costs illustrates how critical the choice of valuation approach is. The lower bound is determined by use of HCA, while the VSL approach drives the upper bound of mortality cost results for all in the Philippines and adults in Indonesia and Timor-Leste. Using HCA certainly gives us an underestimate of the cost, as human suffering is not accounted for. It should also be recalled that we are focusing here only on diseases that have a very strong association with IAP. We conclude that a central estimate of the total health costs is in the order of $1.4 billion, or about 0.4% of the GNI of Indonesia in 2006 (see Table 16). In the case of the Philippines total costs for morbidity and mortality were estimated to be $ million, again depending on the valuation approach used (see Table 17). This corresponds to about % of the GNI in Hence, the estimated economic damage relative to GNI is somewhat lower than found in Indonesia, although more health outcomes are included for the Philippines. This is because population adjusted solid fuel pollution exposure in the Philippines is 0.14 vs in Indonesia (for Scenario II), although the relative share of households using firewood or other solid fuels is similar. Table 16. Total IAP-related health costs in Indonesia ($ million/year). a Scenario II ARI Morbidity Mortality COPD Morbidity Mortality Total Notes: The cost range reflects low and high attributable fractions. ARI mortality (children) is valued using HCA. COPD mortality (adults) is valued using HCA as a lower bound and VSL as an upper bound. a All dollars ($) are US dollars. Source: Bojö and Ruiz Nunez (2008). Table 17. Total IAP-related health costs in the Philippines ($ million/year) ALRI Morbidity 16 Mortality COPD Morbidity 2.0 Mortality Tuberculosis Morbidity 1.0 Mortality Lung cancer Mortality 1 9 Total Note: The cost range reflects the use of HCA as a lower bound and VSL as an upper bound. Source: Arcenas (2009).

15 88 A. Arcenas et al. Timor-Leste is a much smaller country than the other two, but the annual morbidity and mortality cost of health effects from indoor air pollution associated with the use of solid fuel is estimated at some $12.5 million with a lower bound of $5 million and an upper bound of $20 million. The mean estimate is equivalent to about 1.4% of Timor-Leste GNI in 2006 (see Table 18). This is much higher than in Indonesia and the Philippines because of the higher population adjusted solid fuel pollution exposure and child mortality in Timor-Leste than in the two other countries. We conclude that IAP inflicts significant economic costs in the three countries studied. In addition, it is clear that those costs hurt the poorest segments of society who are most susceptible to these illnesses, and who also have the least ability to absorb the costs. This is particularly clear in the case of the Philippines, where we have shown a close correlation between income and the use of dirty fuels. For the other two countries, it is less obvious since we have not decomposed the aggregate of kerosene/coal/charcoal/firewood/other reported in the DHS. It would be fair to assume that the poorest use the most inexpensive and dirtiest of these fuels. All of this lends further importance to the need for active interventions. Interventions must be effective in reducing exposure to IAP, affordable for the poor, and culturally acceptable, as cooking habits are bound by tradition and not easily changed. The next section discusses some options. What can be done about IAP? Since the analysis of indoor air pollution health effects in this paper centres solely on the solid fuel use, the suggested interventions in this section address exposure to smoke from solid fuels generated from the home. The interventions are discussed in four groups: improvement of ventilation, change in cooking practices, or change of the kind of stoves and fuels used in the home. Fundamental to any intervention is a basic awareness of the problem. A study in Guatemala showed that women were not aware of the link between health and smoke from SFU, but behavioural changes were observed when information was disseminated (World Bank, 2005). The source of information and the form it is presented are crucial. The information should be Table 18. Total IAP-related health costs in Timor-Leste ($ million/year) ARI Morbidity Mortality COPD Morbidity Mortality Total Note: The cost range reflects low and high attributable fractions used in the original source. ARI mortality (children) is valued using HCA. COPD mortality (adults) is valued using HCA as a lower bound and VSL as an upper bound. The cost range for morbidity also reflects a range in treatment cost per case of illness. Source: World Bank (2009c).

16 The Economic Costs of Indoor Air Pollution 89 readily understandable and delivered by a reliable source. Medical practitioners and other health workers are perceived to be the most credible according to surveys done around the world. Promoting Improved Household Living Environment Household living environment (i.e. house structure, room layout, windows and ventilation) is one of the most important factors affecting the level of exposure to indoor air pollution. House design greatly affects the concentration and distribution of pollutants inside the homes and there are significant differences in pollutant concentration based on the location of cooking areas and kitchen (Zhang & Smith, 2007; Jin et al. 2005; Qin et al., 1991). A simple solution would be to have a separate or outside kitchen. This is not always possible, however, because of the costs. There are other ways to increase ventilation without being too costly or inconvenient. These include increasing the number of windows/openings in the kitchen, providing gaps between the roof and the walls, or moving the stove out of the living area (Desai et al., 2004). Remarkable benefits from a cooking window or a fume cupboard have been noted by Nystrom (as cited in WHO, 2000). The usefulness of hoods with flues, enlarging and repositioning windows and enlarging eaves in rural Kenya has been studied. These interventions (especially the use of hoods) which have been developed with the participation of local women were very effective in reducing pollution and personal exposure to harmful pollutants (WHO, 2000). In order to promote the adoption of these interventions by households, an information drive a campaign to inform, educate, and communicate about these alternatives needs to be launched. If done correctly, this could change the behaviour of household members regarding indoor cooking and the use of solid fuel. Promoting Improved Stoves or Fuel Switching Studies on indoor air pollution exposure prevention have concluded that the use of improved stoves lessens exposure to indoor air pollution (Mehta & Shaphar, 2004, McCracken et al., 2007; Duflo et al., 2008; McCracken et al., 2009). Actual exposure can be influenced by lack of proper maintenance, and possible more time spent closer to a cleaner stove than next to a more polluting one. There is a shortage of studies that fully document the impact of better stoves on health. The most comprehensive study of this type is the RESPIRE study in Guatemala which found significant health gains associated with improved chimney stoves. While our understanding of the links between poor health and IAP control is weak, the evidence of this randomized study suggests that the gains can be quite large (Smith et al., 2006; WHO, 2007; McCracken et al., 2009). Others have highlighted the reduction in disease burden that a household gains from using LPG or kerosene. Biomass stoves approximately costs $ per DALY averted according to Smith (1998) while Hughes et al. (2001) estimated that introduction of kerosene or LPG stoves in rural areas costs around $ per DALY averted. Households will only be enticed to switch technologies when their perceived benefits outweigh the costs of adoption of the new and better technology. The household s cost-benefit considerations are also influenced by taste, tradition, convenience, and liquidity constraints when buying new hardware. While households can directly observe the reduction of emissions or greater fuel efficiency of improved stoves, the monetary value of these benefits are less apparent (Larson & Rosen, 2000).

17 90 A. Arcenas et al. A study by Hutton et al. (2006) evaluated the cost and benefits of household energy interventions using data from 11 developing and middle-income WHO sub-regions. The improved stove intervention is the chimneyless rocket stove, being used in Latin America, some parts of Asia, and Africa. It is relatively cheap compared to other improved stoves (approximately $6 acquisition cost per piece). The study assumed a 35% reduction in health effects from solid fuels based on personal exposure measures of air pollution of unimproved, open stoves vs. improved stoves in Naeher et al. (2000); Bruce et al. (2002, 2004, 2006). The overall economic benefits at the global level for the improved stove intervention in Hutton et al. (2006) are as follows: time and/or fuel savings (84%); health-related productivity (14%); environmental benefits (2%) and health care savings (less than 0.1%). Hence, the most striking benefit from this calculation was the time and/or fuel saving aspect. If these results are correct, by far the most important benefits would accrue to the household directly. It is therefore questionable why not more households would opt for improved stoves and fuel switching. In a study for the Philippines CEA, Larsen (2009) presents benefit-cost ratios for switching to improved wood stoves in the Philippines in the range of 7 19 for households cooking indoors and 5 9 for households cooking outdoors or cooking indoors with good ventilation. 18 These estimates reflect both health benefits and time savings from reduced fuel wood collection. However, health benefits alone are as great, or greater than the cost of adopting improved wood stoves even in households cooking outdoors or indoors with good ventilation. The study assumes a 50% reduction in health effects from IAP by switching to an improved wood stove. The health outcomes evaluated are the same as presented for the Philippines in this paper. Switching to LPG is expensive. Although LPG would eliminate the health effects of solid fuel IAP, Larsen (2009) finds that health benefits only exceed costs for households cooking indoors with poor ventilation, and only when mortality is valued using VSL. However, benefits of switching from unimproved wood stoves to LPG do exceed costs when mortality is valued using VSL, and if time savings are included. This is consistent with the fact that many higher income households in the Philippines, whose valuation of time is higher than in poor households, have switched to LPG. Fuel switching has been studied in eight developing countries and in particular in Guatemala by Heltberg (2004, 2005). His analysis documents in detail the fact that modern fuels have made much more progress in urban areas. The policy implication is that that intervention to promote fuel switching should target areas where the purchasing power and infrastructure are favourable for their introduction and sustainable use. With the prospect of persistently high petroleum product prices, LPG may only be affordable for better-off households and some households who have made the switch to LPG may even revert back to solid fuels. However, gasifier stoves are increasingly considered and tested as a viable alternative, as they provide very clean burning of solid fuels comparable to LPG if properly maintained and operated (Smith, 2006). It will however take some time for these stoves to be commercially available. In Conclusion Different types of interventions will be suitable for different socioeconomic levels. At the very basic level, improvements in ventilation and cooking practices can achieve some gains. When more resources are available in the household, there is a menu of increasingly

18 The Economic Costs of Indoor Air Pollution 91 sophisticated, clean but expensive options to enhance combustion and channel pollutants away from the household. At the top end of the scale, a switch to a clean fuel will eliminate the exposure to pollution from solid fuels, and strongly reduce the incidence of respiratory disease. With the proper valuation of the health impacts, such measures will often be rational from an economic point of view, and sometimes even from a limited financial point of view. Decision-making is rarely entirely rational, but can be aided by clear analysis conveyed in a manner that is tailored to the audience. Acknowledgements The authors wish to thank Rasmus Heltberg and two anonymous referees for helpful comments on an earlier version. Notes 1. DALY is disability adjusted life year. 2. Burden of disease related to IAP refers here only to IAP from household use of solid fuels. There are often other sources of IAP with health effects, such as tobacco smoke, that are not considered in this paper. 3. Fuels for heating are not considered here, as the countries we study are in the tropical zone. 4. However, for children we use human capital approach (HCA) also as an upper-bound in Indonesia and Timor-Leste. 5. Desai et al. (2004) also include asthma and cataracts in Moderate II. Sufficient data are however not available to estimate these effects in the three study countries. 6. See Robertson et al. (2004) for a review of four studies in developing countries of RSV non-rsv lower respiratory infections in children. 7. Although the chimney stove in the Guatemala study removes the smoke from the kitchen, household member exposure reductions is smaller than the exposure reduction in the kitchen because smoke re-enters dwellings and people are exposed to the smoke outside dwellings. For instance, the Guatemala study found a 90% reduction in PM2.5 concentrations in the kitchen from the improved chimney stove, but only a 20% reduction in the bedroom. 8. Estimated here by the authors based on age-specific relative risk ratios of disease from changes in blood pressure, and RR=exp(b * Δ mmhg) where b is derived from relative risks in Lawes et al. (2004) for a 10 mmhg change in blood pressure. 9. Note that the distinction between acute upper and lower respiratory infections is of minimal importance in terms of mortality. According to the Global Burden of Disease estimates by WHO, less than 2% of acute respiratory mortality is from upper respiratory infections (and even less in children under-5) in South and South-East Asia (WHO, 2004). 10. This region includes Indonesia, Sri Lanka and Thailand. 11. Indonesia comprises 72% of the population of SEAR B (WHO, 2004). 12. The under-5 mortality rate was 36 per 1000 in 2005 (World Bank, 2007b). 13. The denominator includes average duration of ARI because some cases of ARI reported in the two-week prevalence started before and ended after the two-week period. Not including the duration in the denominator would therefore result in double counting of some cases of ARI. 14. The relative risk of ALRI was applied to ARI. For instance, Ezzati and Kammen (2001) found a similar or higher relative risk of ARI than of ALRI. 15. Note that these relative risk ratios are assumed valid for indoor cooking with unimproved solid fuel stoves, i.e. without adjustment for outdoor cooking or use of improved stoves. 16. Several of the studies reviewed in Desai et al. (2004) control for smoking. 17. Atlas methodology: that is, market-based exchange rates are used, as opposed to purchasing power parity. 18. The range reflects valuation of mortality using the human capital approach (low end) and VSL (high end). A ventilation factor of 1.0 is applied to households cooking indoors and a factor of 0.25 to households cooking outdoors or with good indoor ventilation.

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