Unit Damage Cost Estimates

The approach taken in this thesis is that damage from air pollution is included regardless o f where that damage occurs, i.e. whether within the national borders or in another country. The question arises, however, o f how to value emissions o f air pollutants in different countries. The transfer o f damage functions appear to be a possible answer. However, the lack o f data precludes this option. An alternative, simpler approach has been to utilise the damage estimates for one country, and using a simple benefit transfer approach, adjust them for other countries. This method has been employed in the present study, using the results from the report Coal Fuel Cycle - Estimation o f Physical Impacts and Monetary Valuation f o r Priority Impact Pathways (ETSU & 1ER, 1994) (hereafter called the Report). This Report was one in a series o f reports on Externalities o f Energy from the ExtemE-Project. The ExtemE-Project is a European continuation o f a collaborative project, the EC/US Fuel Cycles Study, between the European Commission’s DG XII and the U .S. Department o f Energy. This collaboration was set up because no agreed methodol­ ogy for calculation and integration o f external costs o f fuel cycles had been established, despite widespread recognition o f the potential significance o f these costs. One study for the British Department o f Energy (Pearce et al. y 1992) attempted to bring existing valuation studies together to provide damage estimates for air pollutants relevant to fuel cycles. But, since this study was based on existing studies, it was unable to fully address the issue o f transboundary impacts. However, the results o f this study have continually been updated in light o f improved information, and as progress has been made on methodological issues, and indeed, the adaptions performed in the present thesis should be viewed as a refinement o f the original study by Pearce et al. (1992). With the collaborative project between the US and the European Commission, good progress was made towards reaching agreement on a variety o f methodological issues on both sides o f the Atlantic (ETSU & 1ER, 1995). The estimates o f impacts in the Report (ETSU & 1ER, 1994) were not a result o f original basic research, but were instead made following critical reviews o f existing data and models. This review was undertaken by a multi­ disciplinary team o f experts in the fields o f health, forestry, ecology, materials science, atmospheric chemistry and physics, energy technology, computer science

and economics. Thus, while research under the ExtemE-Project is ongoing, the damage estimates in the Report must be regarded as state-of-the-art at the present time^.16

However, as indicated by the fact that research is being continued, the estimates o f the Report are far from perfect, and a number o f criticisms can be raised. The main criticism is that the damage estimates are not complete; a number o f impacts have not been valued, thus the estimates for each receptor is likely to be an underestimate o f the actual damage. Thus, for example the damage estimate for buildings includes only material damage, and does not take account o f cultural and/or aesthetic losses. Dose-response functions need to be developed for crops that were not included in the damage estimates given in the Report. The damage estimates for forests need to be revised as dose-response functions are further developed. For damages to freshwater fisheries, valuation o f the impacts are still to be included. For natural eco-systems and for effects o f aquatic emissions on drinking water and on aquatic eco-systems the Report included only a review o f impacts; they still need to be quantified and valued. In the case o f global warming only preliminary valuation has been undertaken, and much more research is deemed necessary on the definition o f impacts, development o f dose-response functions together with full marginal analysis and inclusion o f risk aversion. It should be noted that the Report includes the global warming damage estimates o f four different studies, and while these criticisms might apply in general, the estimates included here (Fankhauser & Pearce, 1993) are based on a marginal damage approach. Also, the Fankhauser & Pearce (1993) estimates include a Monte Carlo simulation o f damage estimates, so uncertainty is incorporated to a certain extent. Not reflected in their ‘best guess’ values are the costs o f potential catastrophic events, such as the melting o f the polar caps and the tundra. The valuation o f health impacts o f SO2, NO^ and PM^o emissions only consider acute effects, and it is suspected that chronic effects may be significantly greater than the acute effects which tend to mostly affect those, who are already suffering from ill

Another study o f the externalities associated with electricity production was published at the end o f 1995 (Rowe et al. y 1995). This relates to the US only, and has been criticised for not including transboundary effects.

health and thus have short life expectancies. This ties in with another point o f criticism which relates to the way acute mortality effects are valued using the value o f a statistical life (VOSL). This may be inappropriate, given that the estimate for VOSL used in the Report is based on studies o f respondents with a ‘normal’ expectancy o f life as opposed to the short life expectancy o f those affected by acute mortality impacts. A third criticism, not so much o f the results in the Report itself, but more relating to the appropriateness o f using those estimates in the present thesis, is that the results are site and technology specific. For example, the study provides damage estimates for each pollutant in terms o f kWh produced, a statistic that is obviously dependent on the respective technology employed at each site. However, this criticism is partly addressed, as this study adapts those damage estimates, so that they are measured in terms o f actual emissions o f the relevant pollutants, thus avoiding the problem o f site specificity. The assumptions that underlie this conversion, together with the necessary steps in the calculation, are explained in the remainder o f this chapter and in Annex 3.

Two forms o f adjustment are undertaken. One attempts to take account o f the geographical dispersion o f the air pollutants, whilst the other seeks to allow for differences in willingness to pay between countries by adjusting with differences in incomes at PPP-rates and with the income elasticity o f demand for environmental quality. Thus, the adaption o f the ExtemE-Project results performed in this chapter, and detailed in Annex 3, provides damage estimates for SO2, N0% and particulates for each o f the 12 European Member States which can be used for any emission o f these pollutants regardless o f the source, unlike the ExtemE-Project results which are specific to the power stations they have been estimated for.

Critical Loads

However, a necessary assumption, is that the physical damage caused by the deposition o f a unit o f pollutant is the same no matter where it occurs. This appears to be a simplification o f reality. The damages caused by acidic deposition, for instance, depend both on the acidity o f the soil and water it falls on, together with the ambient air quality. An alkaline soil will more easily compensate for any acid

deposition, thus limiting the damage caused, whereas an already acid soil or lake cannot compensate for the increased acidity. Thus countries with an acid soil will generally experience a greater degree o f damage per unit o f acidic deposition, than countries with an alkaline soil. If one employed maps showing the variations in the PH-value o f soil across Europe and differences in critical loads (CL), then it should be possible to take this into account.

The following example illustrates the importance o f differences in critical loads. Assume that there are two different CL in location 1 and 2 (these can be read o ff the maps showing critical loads). For ease o f exposition, assume that the total damage function is linear and is the same for both locations, even though the CLs differ. This gives Figures 3.1a, 3.1b and 3.1c.

Damage Costs ECU

Deposition CLT— ^

ASi AS