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