THE ECONOMIC CONSEQUENCES OF OUTDOOR AIR POLLUTION Elisa Lanzi OECD Environment Directorate FEEM Venice, September 1 2016
Structure of the presentation OECD s CIRCLE project Overview of the air pollution report Methodology Main results Conclusions 2
THE OECD S CIRCLE PROJECT 3
The OECD CIRCLE project Two key objectives: Quantify how changes in environmental quality, climate change, degradation and scarcity of natural resources affect the economy, and prospects for long-term growth (costs of inaction) Assess benefits, as well as trade-offs, associated with policy responses to these environmental challenges (benefits of policy action) Regional and sectoral quantitative approach where possible, coupled with more general insights where needed Market impacts: production function approach Non-market impacts: valuation approach 4
CIRCLE project themes Climate change Report published in 2015 Air pollution Report recently published Land-water-energy nexus Report to be published of this year Water Scoping paper to be published this year Biodiversity and ecosystems Resource scarcity Scoping paper published in 2015 Scoping paper published in 2015 and further work planned for the next biennium scarcity 5
AIR POLLUTION REPORT 6
Impacts of air pollution Health impacts Mortality Morbidity: illness (especially respiratory and cardiovascular diseases) Other impacts Agriculture Biodiversity and ecosystems Buildings and cultural heritage Visibility 7
Economic consequences The impacts of air pollution on health and the environment have economic consequences (e.g. through labour productivity changes) Economic feedback effects best captured in a general equilibrium framework, which considers direct and indirect effects Some economic costs cannot be calculated in a general equilibrium framework (e.g. mortality) 8
Non-market costs Types of costs Health costs Market costs Direct costs Direct costs Direct costs Disutility of illness Health expenditures Indirect costs Labour productivity Agricultural yields Indirect costs Indirect costs Mortality 9
Previous studies (I) - Mayers and van Regemorter (2008): air pollution feedbacks in Europe (GEM-E3 model) - Utility is derived from consumption, leisure and health status - Vrontisi et al. (2016): benefits of air pollution policies in the EU (GEM-E3 model) - Simpler approach, similar to what done for climate change in PESETA 10
Previous studies (II) - Studies with the EPPA model - Health incorporated in the EPPA model as a consumption tradeoff between healthcare and leisure expenditures - Matus (2005; 2011): costs of air pollution impacts and benefits of policies in China - Matus et al. (2008): air pollution health effects in the US - Nam et al. (2009): welfare loss from air pollution in Europe 11
Chosen approach - Global study - Calculate market costs in a general equilibrium framework - Following Vrontisi et al. (2008) and existing work on climate change - Calculate non-market costs separately based on results from valuation studies -> overview of both aspects and types of costs 12
METHODOLOGY 13
Methodological steps Effects of air pollution impacts on economic growth to 2060 Economic activity ENV-Linkages model Emissions ENV-Linkages model Emission coefficients from IIASA s GAINS model Concentrations EC-JRC s TM5-FASST model Biophysical impacts Impacts on crop yields with TM5-FASST model Health impacts using functions based on GBD Economic costs Economic feedbacks using ENV-Linkages model Non-market costs calculated based on results of valuation studies 14
The ENV-Linkages model Computable General Equilibrium (CGE) model Multi-regional, multi-sectoral All economic activity is part of a closed, linked system Simultaneous equilibrium on all markets Structural trends, no business cycles Dynamics Solved iteratively over time (recursive-dynamic) Capital vintages 15
The ENV-Linkages aggregation 25 regions and 35 sectors Agriculture Paddy rice Wheat and meslin Other grains Vegetables and fruits Sugar cane and sugar beet Oil seeds Plant fibres Other crops Livestock Forestry Fisheries Natural resources and energy Coal Crude oil Gas extraction and distribution Other mining Petroleum and coal products Electricity (5 technologies*) Manufacturing Services Paper and paper products Chemicals Non-metallic minerals Metals n.e.s. Fabricated metal products Other manufacturing Motor vehicles Electronic equipment Textiles Land transport Air transport Water transport Construction 16 Trade other services and dwellings Other services (government)
Emission projections Emissions linked to projections of economic activities in ENV-Linkages using data from GAINS Emissions from combustion linked to fossil fuel inputs in relevant sectors (e.g. power generation) Other emissions linked to output (e.g. chemicals) Pollutants sulphur dioxide (SO2) nitrogen oxides (NOx) black carbon (BC) organic carbon (OC) carbon monoxide (CO) volatile organic compounds (VOCs) ammonia (NH3) 17
Concentrations Impacts of air pollution depend on the levels of concentrations of pollutants in the air Calculating concentrations needs Downscaling from macro regions to local level Data on regional emissions and geographical variables (e.g. presence of urban areas in a certain region) Concentrations of particulate matter (PM2.5) and ground level ozone (O3) calculated with the EC-JRC s TM5-FASST 18
Biophysical impacts Concentrations are used to calculate impacts increased mortality (premature deaths) increased morbidity (number of sick days, hospital admissions ) changes in crop yields Health impacts are calculated based on the Global Burden of Disease (GBD) Uncertainty range reflects two specifications of the concentrationresponse function used Agricultural impacts are calculated using TM5-FASST 19
Valuation of health impacts Market impacts Additional health costs Non-market impacts Cost of premature deaths Costs of pain and suffering Baseline unit values (for OECD; USD, 2005 PPP exchange rates) Effect Cost element Value Mortality, deaths Welfare cost 3 million Chronic bronchitis in adults (new cases) Welfare cost 61,610 Healthcare cost 13,070 Productivity 0 Bronchitis in children (cases) Welfare cost 680 Healthcare cost 57 Equivalent hospital admissions Welfare cost 575 Healthcare cost 3,430 Restricted activity days Welfare 106 Minor restricted activity days Welfare 48 Source: OECD (2016) The Economic Consequences of Outdoor Air Pollution. Based on Holland (2014) 20
Market costs Study economic feedbacks in ENV-Linkages (production function approach) Health expenditures Cases of bronchitis in children Cases of chronic bronchitis in adults Hospital admissions Labour productivity Linked to increasing number of work days lost Agriculture Reduced crop yields 21
Non-market costs: the VSL The unit values for mortality, are based on the OECD VSL methodology The 2012 book Mortality Risk Valuation in Environment, Health and Transport Policies established a new method for calculating country-specific VSL based on income levels The 2014 book The Costs of Air Pollution combined estimates of mortalities caused by outdoor air pollution from the 2010 GBD study with VSL figures to find economic costs of almost USD 1.6 trillion in 2010 for OECD countries alone 22
RESULTS 23
(Index wrt 2010) Projections of air pollutants emissions Source: OECD (2016), The economic consequences of outdoor air pollution 24
Concentrations of air pollutants Annual average total anthropogenic PM2.5 (µg/m3) 2030 2060 2010 2060 Source: OECD (2016), The economic consequences of outdoor air pollution 25
Number of deaths per year per million people, 2060 Premature deaths caused by outdoor air pollution Premature deaths 2010: 3 million Projection 2060: 6 9 million 26 Source: OECD (2016), The economic consequences of outdoor air pollution
(GDP percentage change wrt no-feedback baseline) Market costs: global GDP changes over time Health Expenditures Labour productivity Agriculture All 0.0% -0.2% -0.4% -0.6% -0.8% -1.0% -1.2% 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 27 Source: OECD (2016), The economic consequences of outdoor air pollution
(GDP percentage change wrt no-feedback baseline) 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2056 2057 2058 2059 2060 Market costs: direct and indirect costs 0.0% -0.2% -0.4% -0.6% -0.8% -1.0% -1.2% Direct costs Indirect costs Source: OECD (2016), The economic consequences of outdoor air pollution
(GDP percentage change wrt no-feedback baseline) Canada Chile Mexico USA EU large 4 4 Other OECD EU EU EU Other OECD Aus. & & NewZ. Japan Korea China Non-OECD EU Russia Caspian region Other Europe Brazil Other Lat.Am. Middle East North Africa ASEAN 9 9 Indonesia India Other Asia South Africa Other Africa World Regional market costs Interaction effects Agriculture Labour productivity Health Expenditures 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% -3.5% OECD America OECD Europe OECD Pacific Rest of Europe & Asia Latin America Source: OECD (2016), The economic consequences of outdoor air pollution Middle East & North Africa South and South-East Asia Sub Saharan Africa 29
Non-market costs: mortality 2015 2060 OECD America 440 1100-1140 OECD Europe 730 1660-1690 OECD Pacific 250 680-710 Rest of Europe & Asia 1130 7730-9850 Latin America 80 470 Middle East & North Africa 110 1030-1180 South and South-East Asia 380 5300-9950 Sub-Saharan Africa 40 330-340 World 3160 18300-25330 OECD 1420 3440-3540 Non-OECD 1740 14860-21790 (Billions of USD, 2010 PPP exchange rates) Source: OECD (2016), The economic consequences of outdoor air pollution 30
Canada Chile Mexico USA EU large 4 Other OECD EU Other OECD Aus. & NewZ. Japan Korea China Non-OECD EU Russia Caspian region Other Europe Brazil Other Lat.Am. Middle East North Africa ASEAN 9 Indonesia India Other Asia South Africa Other Africa Non-market costs: morbidity 700 600 500 400 300 200 100 0 OECD America OECD Europe OECD Pacific Rest of Europe & Asia Latin America Middle East & North Africa South and South-East Asia Sub- Saharan Africa Illness Restricted activity days Hospital admissions (USD per capita, 2010 PPP exchange rates, 2060) Source: OECD (2016), The economic consequences of outdoor air pollution 31
Billions of USD (2010, in Purchasing Power Parity) Non-market costs Non-market costs (mortality and morbidity) 35000 30000 25000 20000 15000 10000 5000 0 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 Mortality costs: USD 3 trillion in 2015 -> USD 18 25 trillion in 2060 Morbidity costs: USD 300 billion in 2015 -> USD 2 trillion in 2060 Source: OECD (2016), The economic consequences of outdoor air pollution 32
CONCLUSIONS 33
Conclusions (I) The potential market costs of outdoor air pollution could reach a yearly GDP loss of 1% by 2060 Higher costs in China, Caspian region and South East Asia Most market costs are health related (health expenditures and labour productivity) Indirect economic consequences as induced by the market impacts play an important role, which dominates morbidity impacts in the long term 34
Conclusions (II) The potential economic consequences of both market and non-market impacts are very large Specifically this report finds: number of premature deaths (6-9 million by 2060) market costs (a yearly GDP loss of 1% by 2060) welfare costs (USD 18-25 trillion by 2060 for mortality impacts) Combined, the magnitude of the problem implies a strong call for policy action 35
THANK YOU! For more information: www.oecd.org/environment/circle www.oecd.org/environment/modelling elisa.lanzi@oecd.org