Andersen, M.S., Frohn, L.M., Jensen, S.S., Nielsen, J.S., Sørensen, P.B., Hertel, O., Brandt, J. & Christensen, J. 2004. NERI Technical Report no. 507, 85 pp.

Summary

The basic aim of research focusing on the accounting of external effects is to provide estimates for the possible benefits of environmental policy projects.

There exists a demand within the field of environmental economic analysis for evaluations and estimates of the economic benefits arising from pollution reductions. Where benefits arising out of reduced emissions of harmful substances are concerned, these can be estimated according to the avoided damage costs associated with negative pollution impacts.

A scientifically based method designed for this purpose has been developed in the pan-European ExternE project via the EU research programmes. The ExternE project has been implemented with the aim of estimating monetary values for externalities (i.e. pollution impacts not considered in the market price) attached to air pollution accruing from energy production and transport. For this purpose, complex model-based environmental impact estimations have been coupled with corresponding monetary valuations via the modelling tool, EcoSense.

A problem arising in relation to EcoSense methodology has been that externalities are often of a local nature - pollution impact depending on the particular locality of the emission and dispersal characteristics in the surrounding environment. For instance, low-level airborne emissions in densely populated urban areas cause a greater impact on human health than emissions in rural areas. The economic estimation of the impacts of pollution, therefore, is necessarily based on a location-specific modelling system.

Four steps are included in this location-specific model:

1. An estimation of a change in pollution concentration arising from a change in activity, based on local and regional atmospheric modelling activities, with focus on both primary and secondary pollution concentration changes (where ‘secondary’ relates to the products of chemical transformation).
2. An estimation of changes in exposure resulting from point 1, above, where the exposure factor is estimated as change in concentration multiplied by factors based on GIS data distributed according to the EMEP grid.
3. An estimation of changes in impact endpoints (e.g. mortality, illness) based on scientifically based relationships between changes in exposure and in response (dose-response relationships).
4. An estimation of the economic costs of the harmful effects based on economic valuation of the individual end-points.

The EU Commission’s ‘Benefit Tables’ (BETA) which, to date, have formed the basis for estimation of costs in environmental economic analyses in the Danish Ministry for the Environment, derive from the method developed in ExternE. For a review of assumptions and justifications underlying the methodological considerations in BETA, the reader of this report is referred to the publication by Holland et al. (1999).

In NERI technical report no. 459 it was, however, noted that the underlying price calculations in BETA are based on average EU prices which are not reflective of Danish prices. Given the central role that externality adders play in environmental economic analyses, it was the aim of this project to take Danish prices into account and, to update the calculations with the most recent data.

In this report the following updates have been included, as compared to those of (Schleisner and Nielsen, 1997):

• background emission data is for 1998,
• particles are expressed in PM2.5 instead of PM10,
• a VSL approach is employed to calculate the value of a statistical life in contrast with the methodology employed in BETA,
• valuation of mortality and morbidity takes Danish relative prices into account through adjustments in purchasing-power-parities.

Omissions have also been made. In the analyses, calculations of the health effects of air pollution, a sizeable task in itself, have been made. Time considerations, however, have prevented calculations with regard to environmental impacts and, similarly, damage to buildings arising from air pollution has not been addressed. This is because valuations of impacts from these effects in EcoSense are not preference-based.

The results of EcoSense calculations for four localities are presented below. The calculations estimate externalities from a modern coal-fired power station in given localities. The two first are located in areas with moderate population density, and the results indicate background values with regard to externalities. The two following localities are representative of urban areas with 100,000 and 500,000 inhabitants, respectively.

Uncertainty surrounding the results is connected both to the underpinning science and the chosen valuation method for a statistical life. The intention is to provide the ‘best estimate’ based on best available data, models and knowledge on causal factors. However, as the scientific underpinning is continually changing at the same time as the model and data, the estimations are also to be expected to undergo associated changes.

The air dispersion model in EcoSense is relatively old, therefore the project in hand has compared estimations from a newer model (DEOM) with those from EcoSense, as documented in the annex to BETA. Direct comparison of the physical result output has not been possible as EcoSense’s user interface only generates economic output.

For some important emissions it is considered that EcoSense is able to estimate exposure changes within an acceptable margin. For nitrates there is, however, a significant difference between the concentration changes that can be estimated with DEOM and those estimated with EcoSense. This is not a straightforward comparison, as the scenarios differ in the Danish and in EcoSense. The report, therefore, necessarily limits itself to noting that there appears to be an increase in uncertainty surrounding the best estimate for NOX damage costs seen in relation to the remaining emissions.

As mentioned above a VSL method is used as a basis for valuation of a statistical life. Previously a different method was employed in the ExternE project, a value of life-year approach. However, the latter approach is not considered to be well grounded in the literature and theory relating to valuation of a statistical life. The approach employed in the current report is the same as that used in BETA.

It is considered that the calculated damage costs can be employed as guide price estimates for sources outside densely populated urban areas.

As damage costs are location-specific it can be useful, in the case of point sources close to or within urban areas over 100,000 inhabitants, to undertake specific calculations based on plant data for emissions and with description of the environmental impact in EcoSense. Individual calculations can also be useful for sources outside urban areas, in that plant-specific data can be taken into account, for instance, chimney height, etc. In the absence of specific calculations, the below figures can be used to approximate the external effects.

Table 1. Welfare economics damage costs for air emissions. Modern coal-fired power plant located in Zealand. 2002-prices.

Table 2. Welfare economics damage costs for air emissions. Modern coal-fired power plant located in West Jutland. 2002-prices.

Table 3. Town with 100,000 inhabitants. Supplement for welfare economic damage costs for air emissions. 2002-prices.

Table 4. Town with 500,000 inhabitants. Supplement for welfare economic damage costs for air emissions. 2002-prices.

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