How do we get areas into attainment

1
(No Transcript)
2

• Memo due next Friday, March 6
• Next weeks discussion section
• Reading, but not required.
• Internships at Economic Research Service
  deadline March 6
• Discussion section grades (and grade changes)
  will be posted soon.
• Sample memo now online.

3
Todays class

• Memo content
• Memo format
• Citations
• Benefit-Cost Analysis
• How benefits are accounted for.

4
Memo

• You should cover such things as (depending on
  your topic)
• Who is being regulated?
• Which landowners?
• Which polluters?
• What do the regulated entities have to do?
• If voluntary
• Who is in charge State or Federal government?
• What pollutant?
• Example, try not to say ethanol is cleaner than
  gasoline.
• Go back to original handout for more info.

5
If your policy spends money

• What kinds of activities will receive money?
• Are these the right kinds of activities?
• How flexible? (Think energy efficiency.)
• How will the payments be determined?
• Auction-bidding? Cost-plus?
• Why payments rather than other form of
  regulation?
• These policies are a little harder because we
  have not covered this approach yet.

6

• Third section (usually)
• Advantages/disadvantages
• Benefits/costs
• Pros/cons
• What alternative approaches could we take?
• Memos must be balanced Do not be one-sided.
• Fourth section
• Recommendation, if you want.

7
Memos Writing

• Short paragraphs
• Block paragraphs
• Subheadings (required)
• Citations (next slide)

8

• Citations at the end (best).
• No special format.
• You do not need to give citations for general
  knowledge.
• Example CAFE standards prescribe the
  fleet-wide average mileage for new cars sold in
  the U.S. does not need a citation.
• Example

9
Sample exam q

• Which of the following statements is true for
  standards issued under the Safe Drinking Water
  Act?
• The standard for lead in drinking water must be
  the one that maximizes benefits minus costs.
• The standard for lead in drinking water must
  achieve an adequate margin of safety, regardless
  of the costs.
• The standard for lead in drinking water must be
  the one that maximizes the ratio of benefits to
  costs.
• The standard for lead in drinking water must take
  into consideration both benefits and costs
• None of the above.
• Which entity or entities are regulated by the
  Safe Drinking Water Act?

10

• Arsenic in drinking water
• EPAs Benefit-Cost Analysis for the SDWA

11

• Benefits minus costs (using mid-range)
• 3 µg/l -393
• 5 -171
• 10 -23
• 20 -1
• 50 ?
• BCA is supposed to help us make better decisions.
  
• What arsenic standard should we choose?
• What effluent level should be permitted in a
  water pollution permit?
• What SO2 caps should we choose?

12
Benefit-Cost Analysis What it is

• Specify the regulation or policy to be analyzed.
• BCA is project-by-project analysis.
• Divide the regulation into Benefits and Costs.
• Determine the regulations effects (e.g., on air
  quality or drinking water.)

13

• Determine the environmental and health effects
  (benefits) of improved air or water quality.
• Assign a dollar value to those benefits.
• Assess the costs of the regulation. (These are
  usually simpler.)
• Compare benefits and costs.

14

• Compare benefits and costs.
• Must measure benefits and costs on a common
  scale.
• Then ask
• Is B gt C?
• or
• Is B-C as large as we can make it?

15
Environmental benefits in benefit-cost analysis

• Need to put benefits and costs in the same units.
  
• Find the value of fewer cancer cases or fewer
  premature deaths (for policies that have health
  effects).

16
Environmental benefits

• Direct market benefits. Items that directly
  affect our material well-being.
• Trees, fish
• Agricultural production
• Material damages (e.g., sculptures affected by
  acid rain)
• Downstream dredging costs (erosion)
• Health care costs sick days etc.
• Natural disasters
• These items are pretty straightforward to include
  in BCA.

17
Environmental benefits

• Quasi-market benefits.
• Benefits that are not directly marketable that
  are available in something like a market.
• Recreation
• Amenities (scenery, etc.)
• Visibility
• Health
• These items receive the most attention in BCA.

18
Environmental benefits, cont.

• Ecological Services
• The environments inputs into the previous two
  categories.
• Climate (crops amenities)
• Biodiversity
• Water quality
• Pollination
• Lots of others

19
Environmental benefits, cont.

• Other benefits?
• Cultural, religious, moral, etc.
• Where do Future Generations fit in?

20
Quasi-market benefits(health, recreation,
amenities)

• Usually the biggest component of environmental
  benefit-cost analyses (compared to direct
  market).
• More concrete than other non-market benefits
  (e.g., ecological services).
• Large body of research on these.

21
Quasi-market benefits, cont.

• REVEALED VALUES, sometimes called REVEALED
  PREFERENCE
• Values inferred from market decisions that
  individuals make about goods and services that
  are similar to the item being studied.

22
Revealed values

• Amenities
• Look at what people already spend to live in
  neighborhoods with cleaner air or nicer scenery.

23
Revealed values

• Recreation
• Look at what people spend to visit parks, fishing
  sites, etc.
• If people travel farther to go to a better
  area, then by definition they are spending more.
• The extra amount that people spend to go to an
  area with better hiking or higher fish catch is a
  measure of the value they place on those items.
• Note These are not about local community
  effects.

24
Revealed Values, cont.

• Health
• Should we rely on direct costs or revealed
  values?
• What are the direct costs?
• What are the revealed values?

25
Revealed value methods for health

• Morbidity (healthiness)
• Air purifiers
• Water filters
• Bicycle helmets
• Others?
• Mortality (risk of death)
• Passenger air bags, etc.
• Higher wages for riskier jobs
• In other words, look at what people already spend
  to protect their health or their lives.

26

• Mortality (premature deaths) Look at what
  people spend to achieve small changes in
  risk-of-death.
• Use risks that are comparable in size to the
  environmental health risk.
• A statistical Life is a change in a small risk
  multiplied by the number of people at risk.

27
Statistical lives, cont. The change in a small
risk multiplied by the number of people at risk.

• Suppose a health or safety regulation will lead
  death rates to fall from 120 in 1 million to 115
  in 1 million. (Small risk.)
• ? 0.000005.
• Suppose 20 million people experience this
  benefit.
• 20 million ? 0.000005 100 statistical lives
  saved.

28

• Risks must be small.
• There is no clear-cut line distinguishing a
  statistical life from a non-statistical life
• Miners trapped in a mine are not statistical
  lives!
• Workers in very risky jobs face risks of about 1
  in 10,000. These risks are considered
  statistical.
• Borderline Contractors in Iraq.

29

• Next What is the value of this small change in
  the risk-of death?
• What would you pay to obtain a 0.000005 reduction
  in risk?
• I guess youll say 10.
• The value of a statistical life is the value of a
  small change extrapolated to a risk of one.
• 10/0.000005 2 million.
• Is this more or less than what we currently use
  in BCA?
• Federal govt. currently uses 5-10 million for
  BCA.

30
Revealed Preference for health risk valuation

• Higher wages for riskier jobs.
• Wages are higher even when we account for job
  worker characteristics.
• Lower housing prices near Superfund sites.
• Prices are lower even when we account for house
  other neighborhood characteristics.
• VSL 5 - 10 million

31
Example for Clear Skies (similar to Clean Air
Interstate Rule)

• Benefits (per year) by 2020
• 14,100 fewer premature deaths
• 8,800 fewer cases of chronic bronchitis
• 23,000 fewer non-fatal heart attacks
• 30,000 fewer visits to hospitals and ERs.
• 12.5 million fewer days with respiratory
  symptoms/ illnesses

32
Clear Skies, cont.

• Health benefits 110 billion/year (by 2020)
• Visibility benefits 3 billion/year (by 2020)
• Costs 6.3 billion/year
• (Source Testimony of Jeff Holmstead, Asst. EPA
  Administrator, July 8, 2003.)

33
Revealed preference valuation

• - Requires a lot of data and assumptions.
• There must be a market good that is close to the
  environmental good.
• Need to know who is buying this good, how much it
  costs, how much health (etc.) it provides.
• Assume people are fairly well-informed about the
  risks.
• Advantages

34
Stated Preference valuation

• Stated Preference Ask people directly what they
  would be willing to pay for environmental
  improvement.
• Sometimes called contingent valuation.
• Examples