Cost-benefit analysis of the CAFE Programme

1. Cost-benefit analysis of the CAFE Programme Mike Holland, EMRC Gothenburg, October 2004

2. Project team • Paul Watkiss, Steve Pye, AEA Technology, UK • Mike Holland, Sheri Kinghorn, EMRC, UK • Fintan Hurley, Institute of Occupational Medicine, UK • Alistair Hunt, Anil Markandya, University of Bath, UK • Stale Navrud, ECON, Norway • Peter Bickel, IER, Germany • Elisabeth Ruijgrok, Witteveen en Bos, Netherlands

3. Activities specific to CAFE Scenario development and target setting CBA RAINS model EMEP Quantification of impacts Processing of Modelling of pollutant Health, crops, pollutant data concentration across materials, social and Europe on 50 x 50 km macroeconomic Assessment grid vs. targets, e.g. effects, etc. critical loads exceedance Monetisation of impacts where possible Other models Cost analysis Comparison of quantified TREMOVE costs and benefits PRIMES Etc. Extended CBA - Related activities EC DG Research Programmes Working Groups under Convention on Long - Range Transboundary Air Pollution (CLRTAP) WHO Europe commentary on air pollution impacts Overview of the CAFE analysis

4. RAINS and CBA • RAINS • Cost-effectiveness: What is the most efficient way of meeting pre-defined targets based on the measures included in the RAINS database? • Cost-benefit analysis • Can it be demonstrated explicitly that it is worth meeting the targets?

5. Similar CBA work • Gothenburg Protocol (AEA Technology, 1999) • NEC Directive (AEA Technology, 1999) • Appraisals of the US Clean Air Act and similar legislation • Various CBAs of the air quality daughter directives, some emission standards, etc.

6. Conclusions of the CBAs of the NEC Directive and Gothenburg • Estimated health damages were substantial, outweighing estimated costs of various scenarios across Europe • Similarly, at the national level • Chronic effects of secondary particles on mortality were the single largest quantified impact

7. Main limitations of the CBAs of the NEC Directive and Gothenburg • Effects of air pollution on ecosystems quantified only in terms of critical loads exceedance • No assessment of damage to cultural heritage • Very basic structure for dealing with unquantified effects • No account taken of effects of primary particle emissions • Very coarse resolution for modelling • Non-marginal basis for modelling

8. Improvement vs. the CBAs of the NEC Directive and Gothenburg • Functions, valuations updated • More effects considered (though only partial assessment of ecosystems, etc.) • ‘Extended CBA’ for dealing with unquantified effects, describing effects in more detail • Primary particles considered • Finer resolution modelling • Scenario and marginal basis for modelling • Methods have been peer reviewed

9. Review of the CAFE CBA • Series of three draft reports • October 2003, February and June 2004 • Workshops held in Brussels to discuss • Discussion of methods at ICP meetings • Formal peer review (summer 2004) • Alan Krupnick (Resources for the Future, Washington) • Bart Ostro (California Office of Environmental Health Hazard Assessment ) • Keith Bull (UNECE CLRTAP Secretariat)

10. Current status • Methodology report currently being finalised • Overall method finalised, but some revisions possible as work goes on • Definitions of impacts • Functions • Valuations

11. Monetised effects in the CBA • Health – mortality and morbidity • Crops – direct effects of ozone on yield • Materials – erosion/corrosion of buildings in ‘utilitarian’ applications • Macroeconomic impacts on the wider economy (from GEM-E3 model) • Most are quantified using impact pathway approach

12. Quantifying pollutant effects

13. What is left that is or may be important? • Crop losses through visible injury • Crop losses through stimulation of pests • Impacts on natural ecosystems • Damage to cultural heritage • Effects on water quality • Indoor exposure to pollution • Impacts via social inequity • Restriction of visible range • Treat using ‘Extended CBA’

14. Key Costs Benefits Outcomes of CBA Cost or Benefit € Case 1 Case 2 Case 3 Etc.

15. ‘Extended CBA’ • Highlight effects that have not been monetised • Describe them, quantitatively and qualitatively to the extent possible (now extending to all effects) • Invite stakeholders to use their judgement on how inclusion of unquantified effects would affect the cost-benefit ratio

16. Example: Cultural heritage Qualitative assessment • Define impacts. • Summarise strength of knowledge on link between pollution and effect. • Identify economic components of impacts (existence values, amenity value, repair costs, etc.).

17. Example: Cultural heritage Semi-quantitative assessment • Use maps to show exceedence of critical load and possible improvement under scenarios being considered. • Refer to a selection of case studies that provide more detail. • Identify most sensitive components of European cultural heritage.

18. Example: Cultural heritage Semi-quantitative assessment • Provide review of existing economic research (does it point to values being significant?). • Comment on development of past trans-boundary air pollution legislation and importance of impacts on cultural heritage.

19. Example: Cultural heritage Semi-quantitative assessment • Likely to conclude that impacts could be economically important, though rates of deterioration are much reduced.

20. What this would give us… • A nice description of impacts • Mix of quantitative and qualitative data • Buried at the back of a long report • How do we draw attention to the things that we cannot monetise?

21. Presenting results

22. Key

23. Presenting results

24. Conclusions on the role of the Extended CBA • Can integrate some impacts with CBA much better than previously • Improves understanding • Provides decision makers with a structure from which to factor their own weightings on damage to cultural heritage, ecosystems and other impacts into the CBA

25. Dealing with uncertainty • Variety of techniques • Statistical analysis • Sensitivity analysis • Extended CBA • Need to consider uncertainty in results for both costs and benefits • These techniques to be tested once first results become available

26. Summary • Much work has gone into refinement of methods for air pollution CBA • Methodology has been extensively peer reviewed • More extensive framework than previously used • First results will shortly be available

27. Questions • Do we go far enough in quantification? • Is the ‘Extended CBA’ approach useful? • Are there good examples of similar work that transparently account for uncertainty in CBA? • Are there new sources of information that we should take into account?