ecological economics lecture 11 27th may 2010 tiago domingos assistant professor environment and...
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Ecological EconomicsLecture 11
27th May 2010
Tiago DomingosAssistant Professor
Environment and Energy SectionDepartment of Mechanical Engineering
Collaboration: Rui Pedro Mota
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Exercise 1.9 c)• Return to capital is constant on a balanced growth path (BGP)
• Share of output going to capital is constant on a BGP
• Share of output going to labor is constant on a BGP
0r f f k
r f f
' ''
0 0r K Y
n g n gr K Y
rK
Y
wL
Y
0w L Y
g n n gw L Y
0w A kf k
gw A f kf
''
'
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Exercise 1.9 d)• Growth rate of r
• Growth rate of w
• For concave functions
0r f f k
r f f
' ''
w A kf kg
w A f kf
''
'
0f kf '
0f ''
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Expressions for GNNI and GS
• Green Net National Income:
• Genuine Saving (Adjusted Net Saving):
• The value of time
R(Q f ) S e ER tGNNI NNI Q
R(Q f ) SR tGS NNI C Q
( )( )t R s tst
Q t F e ds
RY RQI W
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GNNI in Portugal
• Starting from conventional SNA aggregates:
– Deduct the damage from flow pollution emissions,
– Deduct (add) the value of rents from resource depletion (or not),
– Add the value of technological progress .
e E
R(Q f ) SR
tQ
-20000
0
20000
40000
60000
80000
100000
120000
140000
1990 1995 2000 2005
Mill
ion
€
GNI
CFC
Air emissions
Forest Depl.
Tech. Progress
GNNI
Pot GNNI
GNNI, T=100
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• Models point to measure emissions at the – Marginal cost of abatement (MCA), or
– Marginal social cost (MSC) = Marginal benefit of abatement (MBA), a.k.a. Marginal Damage Costs (MDC)
• Measurement away from the optimum– c, over-polluting (assumed current state) => a is upper bound
– d, under-polluting => b is lower bound
Social costs vs Marginal abatement
Constant MDC
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• Use the marginal damage per tonne of emission estimated in the CAFE-CBA project.
– Pollutants: sulphur dioxide (SO2), nitrogen oxides (NOx), particulate matter (PM2.5), ammonia (NH3) and volatile organic compounds (VOC).
• Assess the costs and benefits of air pollution policies, and conduct analysis of scenarios.
• Impacts considered:– Exposure to PM2.5 and ozone
– Health damages of PM2.5 (both acute and chronic effects) and ozone, O3 (only acute). Both long-term (chronic) and short-term (acute). Both mortality (i.e. deaths) and morbidity (i.e. illness)
• Most important health damages relate to mortality, restricted activity days and chronic bronchitis.
CAFE-CBA
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• Regarding the effects of each pollutant on PM2.5 concentration:
CAFE-CBA
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• Regarding the effects of each pollutant on O3 concentration:
CAFE-CBA
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• Impacts quantified in monetary units. Beware of double counting.
CAFE-CBA
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• Impacts omitted from the analysis.
CAFE-CBA
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• Modelling and valuing of a uniform relative (?) reduction in emissions within each country.
• A change of 1000 t of each pollutant causes changes in concentration of PM2.5 and O3 in Europe.
• This regards a 15% emission reduction (the last 15%) of SO2, NOx, NH3, VOCs and PM2.5 at the emission level of current legislation in 2010.
CAFE-CBA – Marginal costs
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Impact Pathway Aproach
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• Quantification of emissions
• Description of pollutant dispersion across Europe (grid 50 x 50 km)
• Quantification of exposure of people, environment and buildings that are affected by air pollution;
– Source-receptor functions
• Quantification of the impacts of air pollution– Health damages, damages to crops and to buildings
• Valuation of the impacts
• Description of uncertainties
CAFE-CBA
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• Evaluate the impacts on health of air pollution, concentrating on the two main pollutants of concern to CAFE – PM and ozone.
• Monetization of chronic mortality in terms of changing longevity (years of life lost), i.e., Value of a Life Year (VOLY).
• Premature mortality due to air pollution is valued in terms of the Value of a Statistical Life (VSL).
• VSL involves dividing some estimate of the WTP for a mortality risk reduction by that risk reduction.
• VOLY involves dividing some estimate of the willingness to pay (WTP) for an improvement in life expectancy by that life expectancy improvement.
– VOLYs have been computed mainly through computational adjustments of existing VSL
CAFE-CBA – Health Damages
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• VSL can be multiplied by the statistical deaths averted by a policy to arrive at the benefits of that policy.
• Variation in the method used to value mortality
CAFE-CBA – Health Damages
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• Marginal PM2.5 damage (€) per tonne emission for 2010
– 3 sets of sensitivity analysis
• Quantification of ozone effects on mortality should use the metric SOMO35 (sum of means over 35 ppb)
– relationship of daily ozone with daily mortality should be restricted to quantifying the effects at concentrations greater than 35ppb daily maximum 8-hr mean, on days when the daily maximum 8-hr mean exceeded that level.
CAFE-CBA – Health Damages
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• Based on a scale of incapacity weights, ranging from 0 (healthy) to 1 (death).
• Weights are obtained from surveys.
Setting DALY’s
Severity weights
Indicator conditions
0.00-0.02 Vitiligo on face, weight-for-height less than 2 SDs
0.02-0.12 Watery diarrhoea, severe sore throat, severe anaemia
0.12-0.24Radius fracture in a stiff cast, infertility, erectile dysfunction,
rheumatoid arthritis, angina
0.24-0.36 Below-the-knee amputation, deafness
0.36-0.50 Rectovaginal fistula, mild mental retardation, Down syndrome
0.50-0.70 Unipolar major depression, blindness, paraplegia
0.70-1.00 Active psychosis, dementia, severe migraine, quadriplegia
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DALY’s in Portugal
Men Women
Healthy Life Expectancy at Birth 64.3 69.4
Expectation of Lost Healthy Years at Birth 8.5 10.7
Life Expectancy at Birth 72.8 80.1
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• DALYs transform any type of morbidity or mortality into an equivalent number of life years:
– Preferences over health and longevity may depend only on health consequences, and not on other characteristics of the individual (e.g wealth) or the risk (e.g.
uncontrollable, unfamiliar, dreaded).
• WTP is the rate of substitution between health and wealth– Preferences may depend on characteristics of the individuals and the risk.
– WTP to reduce mortality risk is the Value per Statistical Life (VSL or VOSL). VSL can be calculated using:
• the relationship bewteen job risks and wages paid,
• expenses made for safety gear
• people’s willingness to pay for risk reductions
– Value of a Statistical Life Year (VSLY or VOLY) can be calculated as the annuity equivalent to VSL (Pearce, 2000). Empirically, VSL is a decreasing function of age, has an income elasticity of 0.5-0.6, and depends on union status.
– However, standard applied economic analysis uses constant VSL
DALY’s in Portugal
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• VSL (Value of Statistical Life)– Spain, 1999:
2.1-2.7 M€/VSL (Font et al., 2006)
– European Union:
1.7 M€/VSL (Pearce and Koundouri, 2004)
• DALY (Disability Adjusted Life Year)– Noise interference with communication; sleep interference:
45-125 kUSD(2000)/DALY (Hofstetter and Muller-Wenk, 2005)
– Health costs in the UK:
5.6 k€/DALY (Pearce and Koundouri, 2004)
– VSL in the UK:
90 k€/DALY (Pearce and Koundouri, 2004)
– Direct studies of the Willingness to Pay per DALY
10-400 kUSD/DALY (Gyrd-Hansen, 2005)
DALY’s in Portugal