Costbenefit analysis of the CAFE Programme

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Cost-benefit analysis of the CAFE Programme

• Mike Holland, EMRC
• Gothenburg, October 2004

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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

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Overview of the CAFE analysis
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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?

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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.

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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

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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

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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

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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)

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Current status

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

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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

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Quantifying pollutant effects
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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

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

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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.).

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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.

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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.

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Example Cultural heritage

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

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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?

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Presenting results
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Key
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Presenting results
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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

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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

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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

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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?