This document outlines the methodology for a project analyzing the macroeconomic costs of air pollution. The project will use emission projections to model pollutant concentrations. Health impacts from increased mortality and morbidity will then be calculated and valued in economic terms. Finally, a macroeconomic model will assess the overall costs of air pollution impacts on healthcare costs, labor productivity, and premature death. Policy scenarios will explore benefits of reducing air pollution through emissions standards and technology adoption.

1. IMPACTS OF LOCAL AIR POLLUTION:
CONSEQUENCES FOR ECONOMIC GROWTH
Elisa Lanzi
Environment Directorate, OECD
CIRCLE Ad-hoc expert workshop
Paris, 4 October 2014

2. 2
Impacts of air pollution
• Air pollution is one of the most serious
environmental health risks
– WHO (2014) estimates that in 2012 around 7
million people died as a result of air pollution
exposure
– OECD (2014) finds that the total economic costs of
deaths from ambient air pollution amount to 1.6
trillion USD in 2010 in OECD countries
• Impacts also to crop yields, biodiversity and
cultural heritage

3. 3
The CIRCLE project approach
• Macroeconomic cost of the impacts of air pollution
– Include impacts of air pollution to the economy in the
ENV-Linkages model
• Labour productivity
• Increased health expenditures
• …
– Adjustments take place in the model to finally give the
final macroeconomic cost of air pollution
• Non-market costs
– Premature deaths
– Pain and suffering

4. 4
Methodology
1. PROJECTIONS OF AIR POLLUTANTS EMISSIONS
2. CONCENTRATIONS OF AIR POLLUTANTS
3. IMPACTS OF AIR POLLUTION ON HEALTH
4. ECONOMIC CONSEQUENCES OF HEALTH IMPACTS
5. MACROECONOMIC IMPACTS OF AIR POLLUTION
OECD, IIASA
EU JRC (Ispra)
EMRC
EMRC
Methodological steps Project partners
OECD

5. 5
1. Projections of air pollutants emissions
• Emission data from the sectoral GAINS model (IIASA)
– SO2, NOx, PM2.5, OC, BC, NH3
– Projections for Current Policy Scenario of IEA’s WEO 2012
• Link emissions to production activities in different key
sectors
– Combustion of fossil fuels in energy and industrial sectors
– Production of goods
• Sector and region specific emission coefficients
• Projections of coefficients calculated using the WEO
2012 to 2035 and then linear extrapolation to 2060

6. • Calculating concentrations requires
– Downscaling from macro regions to local level
– Data on regional emissions, climatic and geographical variables
(e.g. altitude, location of industrial areas, temperatures…)
• Calculations will be done by the EU JRC (Ispra)
– FAst Scenario Screening Tool (FASST), which describes relations
between precursor’s emissions and pollutant’s concentrations
– Output:
• Concentrations of PM2.5, including from primary (BC and OC) and
secondary (SO4 and NO3) emission sources
• SO2 and NOx
• Ozone
6
2. Concentrations of air pollutants

7. • Concentrations are used to calculate the
impacts on health
• Demographic variables also needed as input
– Population growth
– Ageing
– Fertility rates
• Impacts that would ideally be included are
– increased mortality (premature deaths)
– increased morbidity (number of sick days,
hospital admissions…)
7
3. Impacts of air pollution on health

8. • Once the health impacts are calculated, they need to be
evaluated
• Market impacts
– Additional health costs (from hospital admissions or healthcare)
– Changes in labour productivity
• Non-market impacts
– Cost of premature deaths
– Costs of pain and suffering
• The challenge
– Break down morbidity costs between market and non-market costs
8
4. Valuation of health impacts

9. 9
5. Macroeconomic impacts of air pollution
• Health impacts will be modelled directly in the CGE
model, as much as possible
• Production function approach
– increased mortality: loss of labour supply
– increased morbidity: decreased labour productivity,
increased demand for healthcare
• Aspects that cannot be captured in CGE models
– Presented separately from the macroeconomic impacts
– Economic costs of premature deaths, costs of ‘pain and
suffering’
– Challenge: how to combine market and non-market
impacts?

10. • Policies can improve air quality and reduce the impacts on health
– Adoption of end-of-pipe technologies
– Shifting of economic activity away from polluting to less polluting sectors
– Improvements in production processes, e.g. energy efficiency
improvements, fuel switching
• Potential air pollution scenario: Maximum Technically Feasible
Reduction (MTFR) scenario, which reflects the implementation of the
best available end-of-pipe technologies to reduce air pollution
– Need data on the costs of implementation of the policies, i.e. the costs of
the adoption of new and more efficient technologies
• Interactions between air pollution and climate change mitigation
policies
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Benefits of policy action

11. • Model Marginal Abatement Cost Curves
– Identify how policies affect technology choice and then specify the
position on the MACC
– The MACC reflects investments in abatement as a consequence of
policies such as
• mandating specific end-of-pipe techniques
• incentives to adopt improved technologies
• road pricing schemes
• air quality targets
• Consider other impacts
– Agricultural yields
– Biodiversity
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Possible future developments

12. • Q4 2014
– Finalise the modelling of air pollutants in ENV-Linkages
– Calculate concentrations
– Finalise the methodology to calculate and evaluate impacts
• Q1 2015
– Calculate and evaluate impacts
• Q2 2015
– Quantitative assessment of the economic consequences of the health
impacts of air pollution
– Develop relevant policy scenarios
• Q3 2015
– Calculate benefits of policy action
• Q4 2015
– Finalise the work and draft a report, which should be ready in early 2016
• Q1 2016
– Finalise the report
12
Next steps and timeline

13. THANK YOU! For more information: www.oecd.org/environment/CIRCLE.htm www.oecd.org/environment/modelling elisa.lanzi@oecd.org