THE ECONOMIC CONSEQUENCES OF OUTDOOR AIR POLLUTION · Structure of the presentation . ... OECD...

THE ECONOMIC CONSEQUENCES

OF OUTDOOR AIR POLLUTION

Elisa Lanzi OECD Environment Directorate FEEM Venice, September 1 2016

• OECD’s CIRCLE project

• Overview of the air pollution report

• Methodology

• Main results

• Conclusions

2

Structure of the presentation

THE OECD’S CIRCLE PROJECT

3

• 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

The OECD CIRCLE project

CIRCLE project themes

Climate change

Air pollution

Land-water-energy nexus

Water

Biodiversity and ecosystems

Resource scarcity

5

Report published in 2015

Report recently published

Report to be published of this year

Scoping paper to be published this year

Scoping paper published in 2015

Scoping paper published in 2015 and further work planned for the next biennium scarcity

AIR POLLUTION REPORT

6

– Health impacts

• Mortality

• Morbidity: illness (especially respiratory and cardiovascular diseases)

– Other impacts

• Agriculture

• Biodiversity and ecosystems

• Buildings and cultural heritage

• Visibility

7

Impacts of air pollution

– 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

Economic consequences

9

Disutility of

illness

Mortality

Market costs

Direct costs

Indirect costs

Labour productivity

Health expenditures

Direct costs

Indirect costs

Agricultural yields

Direct costs

Indirect costs

No

n-m

ar

ke

t c

os

ts

Health costs

Types of costs

- 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 (I)

- 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

Previous studies (II)

- 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

Chosen approach

METHODOLOGY

13

14

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 Emissions

• EC-JRC’s TM5-FASST model 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

15

• 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

The ENV-Linkages model

16

25 regions and 35 sectors

The ENV-Linkages aggregation

Agriculture Manufacturing

Paddy rice

Wheat and meslin

Other grains

Vegetables and fruits

Sugar cane and sugar beet

Oil seeds

Plant fibres

Other crops

Livestock

Forestry

Fisheries

Paper and paper products

Chemicals

Non-metallic minerals

Metals n.e.s.

Fabricated metal products

Other manufacturing

Motor vehicles

Electronic equipment

Textiles

Natural resources and energy Services

Coal

Crude oil

Gas extraction and distribution

Other mining

Petroleum and coal products

Electricity (5 technologies*)

Land transport

Air transport

Water transport

Construction

Trade other services and dwellings

Other services (government)

17

• 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)

Emission projections

18

• 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

Concentrations

• 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 concentration-response function used

• Agricultural impacts are calculated using TM5-FASST

19

Biophysical impacts

Baseline unit values (for OECD; USD, 2005 PPP exchange rates)

20

Valuation of health impacts

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

• Market impacts – Additional health costs

• Non-market impacts – Cost of premature deaths

– Costs of pain and suffering

Source: OECD (2016) “The Economic Consequences of Outdoor Air Pollution”. Based on Holland (2014)

21

• 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

Market costs

• 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

Non-market costs: the VSL

RESULTS

23

24

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)

25

Concentrations of air pollutants

2060

2010

2030

2060


26 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


27

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


Market costs: direct and indirect costs

(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%

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32

20

33

20

34

20

35

20

36

20

37

20

38

20

39

20

40

20

41

20

42

20

43

20

44

20

45

20

46

20

47

20

48

20

49

20

50

20

51

20

52

20

53

20

54

20

55

20

56

20

57

20

58

20

59

20

60

Direct costs Indirect costs

29

Regional market costs

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Can

ada

Chi

le

Mex

ico

US

A

EU

larg

e 4

Oth

er O

EC

D E

U

Oth

er O

EC

D

Aus

. & N

ewZ

.

Japa

n

Kor

ea

Chi

na

Non

-OE

CD

EU

Rus

sia

Cas

pian

reg

ion

Oth

er E

urop

e

Bra

zil

Oth

er L

at.A

m.

Mid

dle

Eas

t

Nor

th A

fric

a

AS

EA

N 9

Indo

nesi

a

Indi

a

Oth

er A

sia

Sou

th A

fric

a

Oth

er A

fric

a

Wor

ld

OECD America OECD Europe OECD Pacific Rest of Europe & Asia LatinAmerica

MiddleEast &NorthAfrica

South and South-EastAsia

SubSaharan

Africa

Interaction effects Agriculture Labour productivity Health Expenditures

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Can

ada

Chi

le

Mex

ico

US

A

EU

larg

e 4

Oth

er O

EC

D E

U

Oth

er O

EC

D

Aus

. & N

ewZ

.

Japa

n

Kor

ea

Chi

na

Non

-OE

CD

EU

Rus

sia

Cas

pian

reg

ion

Oth

er E

urop

e

Bra

zil

Oth

er L

at.A

m.

Mid

dle

Eas

t

Nor

th A

fric

a

AS

EA

N 9

Indo

nesi

a

Indi

a

Oth

er A

sia

Sou

th A

fric

a

Oth

er A

fric

a

Wor

ld




SubSaharan

Africa


-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Can

ada

Chi

le

Mex

ico

US

A

EU

larg

e 4

Oth

er O

EC

D E

U

Oth

er O

EC

D

Aus

. & N

ewZ

.

Japa

n

Kor

ea

Chi

na

Non

-OE

CD

EU

Rus

sia

Cas

pian

reg

ion

Oth

er E

urop

e

Bra

zil

Oth

er L

at.A

m.

Mid

dle

Eas

t

Nor

th A

fric

a

AS

EA

N 9

Indo

nesi

a

Indi

a

Oth

er A

sia

Sou

th A

fric

a

Oth

er A

fric

a

Wor

ld




SubSaharan

Africa


-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

Can

ada

Chi

le

Mex

ico

US

A

EU

larg

e 4

Oth

er O

EC

D E

U

Oth

er O

EC

D

Aus

. & N

ewZ

.

Japa

n

Kor

ea

Chi

na

Non

-OE

CD

EU

Rus

sia

Cas

pian

reg

ion

Oth

er E

urop

e

Bra

zil

Oth

er L

at.A

m.

Mid

dle

Eas

t

Nor

th A

fric

a

AS

EA

N 9

Indo

nesi

a

Indi

a

Oth

er A

sia

Sou

th A

fric

a

Oth

er A

fric

a

Wor

ld




SubSaharan

Africa


(GD

P p

erc

en

tage

ch

an

ge

wrt

no-f

ee

db

ack b

ase

line

)


30

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)


31

Non-market costs: morbidity

0

100

200

300

400

500

600

700

Ca

na

da

Ch

ile

Me

xic

o

US

A

EU

la

rge

4

Oth

er

OE

CD

EU

Oth

er

OE

CD

Au

s. &

New

Z.

Ja

pa

n

Ko

rea

Ch

ina

No

n-O

EC

D E

U

Ru

ssia

Ca

spia

n r

egio

n

Oth

er

Eu

rop

e

Bra

zil

Oth

er

La

t.A

m.

Mid

dle

Ea

st

No

rth

Afr

ica

AS

EA

N 9

Ind

on

esia

Ind

ia

Oth

er

Asi

a

So

uth

Afr

ica

Oth

er

Afr

ica




Sub-Saharan

Africa

Illness Restricted activity days Hospital admissions

(USD per capita, 2010 PPP exchange rates, 2060)


32

Non-market costs

Mortality costs: USD 3 trillion in 2015

0

5000

10000

15000

20000

25000

30000

35000

2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Non-market costs (mortality and morbidity)

Bill

ion

s o

f U

SD

(20

10

, in

Pu

rcha

sin

g P

ow

er

Pa

rity

)

-> 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

CONCLUSIONS

33

• 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 (I)

• 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

Conclusions (II)

THANK YOU!

For more information:

www.oecd.org/environment/CIRCLE

www.oecd.org/environment/modelling

[email protected]

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