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- Report n°4: How Much to Spend for the Protection of Health and Environment
Report n°4: How Much to Spend for the Protection of Health and Environment
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Table of contents
- Introduction
introduction
In the past most environmental decisions were taken without quantitative comparison of costs and benefits, because environmental cost-benefit analysis (CBA) had been too controversial for several reasons. Skepticism was indeed justified because the benefits had extreme uncertainties, if they could be estimated at all. However, recent years have seen impressive progress in the science of estimating benefits, especially in the field of air pollution, thanks in large part to the ExternE [1998, 2000, 2004] project series of the European Commission. Of course, the uncertainties are still very large, and there is always the risk that the author(s) of a study manipulate the assumptions in such a way as to obtain a favorable result. The solution to this problem is to demand that authors clearly state the assumptions and indicate where subjective choices have been made. In any case, even with uncertainties it is better to at least attempt an analysis, because without it the damage cost could be anywhere between zero and infinity; such a range can only be reduced.
But CBA has also been rejected by people who claim that it is immoral because (a) it assigns a monetary value to goods such as life or biodiversity and (b) it cannot deal with crucial ethical considerations such as the right to a clean environment. In fact, (a) is a misunderstanding of the unfortunate term "value of statistical life" (VSL) used by economists. In reality VSL is merely a shorthand for "willingness-to-pay (WTP) to avoid the risk of an anonymous premature death". WTP (including ability to pay) is limited, even if we feel that the value of life is infinite - to save an individual in danger, no means are spared. The same goes for the valuation of goods such as biodiversity: it is not the intrinsic value that is needed by CBA but the WTP to avoid a loss. (b) is a misunderstanding of the proper use of CBA. It is an essential input to a decision, but in many if not most cases there are important non-monetary considerations, e.g. equity, or impacts for which the costs are too uncertain; they must be taken into account by means of a multicriteria analysis (MCA). Ideally the MCA should be done in consultation with the stakeholders. A thorough and well-documented CBA can provide a systematic assessment of the consequences of a decision before it is too late, and if it clearly exposes the assumptions, it facilitates informed discussion of disagreements.
Furthermore, making a decision without a CBA implies a ranking of values without saying so. The resulting decisions are not consistent with each other, especially between different sectors, for instance between road safety and pollution control. The resulting inconsistent allocation of resources has been documented in a major study by Tengs et al [1995]. Tengs and Graham [1996] estimate that in the USA a more consistent allocation of expenditures for the protection of health could save $31.1 billion/year, without lowering the number of life years saved; that is about 0.5% of GdP.
In this paper I provide an overview of the methodology used by ExternE for the calculation the impacts and costs of pollution (the damage costs are often called external costs because they are not included in the market price of goods). The results are relevant for all environmental sectors: water supply, waste management, energy production, transport etc. In particular I present some results from the SusTools project [Rabl et al 2004a] that I coordinated recently. The objective was to develop a framework for applying the damage costs and test it with some case studies. The results shown here concern a comparison of incineration and landfill for the treatment of municipal solid waste. I also offer guidelines and specific benefit estimates for use in a CBA of options to reduce the exposure of the population to a pollutant, for instance for As and Pb in drinking water. The application of the results in a CBA is illustrated with the example of NOx abatement for incinerators.