MATHTECH

           The Technical Research
          and Consulting Division of
              Mathematica, Inc.
   BENEFIT AND NET BENEFIT ANALYSIS OF


ALTERNATIVE NATIONAL AMBIENT AIR QUALITY


    STANDARDS FOR PARTICDLATE MATTER




               VOLUME I

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     BENEFIT AND NET BENEFIT ANALYSIS OF

  ALTERNATIVE NATIONAL AMBIENT ATR QUALITY

      STANDARDS FOR PARTICOLATE MATTER



                  VOLUME I
                Prepared for:

          Benefits Analysis Program
          Economic Analysis Branch
    Strategies and Air Standards Division
Office of Air Quality Planning and Standards

    U.S.  ENVIRONMENTAL PROTECTION AGENCY
   Research Triangle Park, North Carolina
                 March 1983

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                              EPA PERSPECTIVE


     There has been growing concern with the effectiveness and burden  of
regulations imposed by the Federal government.  In order to improve the
process by which regulations are developed, Executive Order 12291  was
Issued.  The order requires that Federal agencies develop and consider, to
the extent permitted by law, Regulatory Impact Analyses (RIA) for  the
proposal and promulgation of regulatory actions which are classified as
major.  According to the order, a significant component of the RIA is  to  be
an economic benefit and benefit-cost analysis of the regulatory alternatives
considered.  Under the Clean Air Act, the Administrator of EPA may not
consider economic and technological feasibility in setting National  Ambient
Air Quality Standards (NAAQS).  Although this precludes consideration  of
benefit cost analyses in setting NAAQS, it does not necessarily preclude
consideration of benefit analyses for that purpose.

     In full support of the Executive Order, the EPA commissioned  Mathtech,
Inc. to accomplish an economic benefit and benefit-cost analysis of  some  of
the alternatives that were thought likely to be considered in the  development
of proposed revisions to the NAAQS for particulate matter (PM). The report,
entitled "Benefit and Net Benefit Analysis of Alternative National  Ambient
Air Quality Standards for Particulate Matter," documents the results of the
contractor's study.  One of the major objectives of the study was  to give a
better understanding of the complex technical issues and the resource
requirements associated with complying with the spirit of the Order for the
NAAQS program.  In order to achieve this objective, the contractor was
given a wide range of latitude in the use of data, analytic methods, and
underlying assumptions.

     It is important to stress that the benefit analysis portion of the
Mathtech study has not had a role to date in the development of proposed
revisions to the NAAQS for particulate matter.  Staff recommendations
currently under consideration are based on the scientific and technical
information contained in two EPA documents.  They are the "Air Quality
Criteria for Particulate Matter and Sulfur Oxides" and the "Review of  the
National Ambient Air Quality Standards for Particulate Matter:   Assessment
of Scientific and Technical Information, OAQPS Staff Paper."  These documents
have undergone extensive and rigorous review by the public and the Clean
Air Scientific Advisory Committee in accordance with the Agency's  established
scientific review policy.  Although the Mathtech study reflects the
"state-of-the-art" in particulate matter benefit analysis, the approach and
results have not been subjected to a comparable extensive peer review
process.  In addition, some EPA staff have raised questions regarding  the
approach taken in the analysis and the significance of the results for
standard setting purposes under the Act.  These circumstances do not
necessarily preclude use of the benefit analysis in some manner after
appropriate peer review and further consideration of the questions that
have been raised.

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     BENEFIT AND NET BENEFIT ANALYSIS OF ALTERNATIVE
       NATIONAL AMBIENT AIR QUALITY STANDARDS FOR
                   PARTICDLATE MATTER
                           By:
Ernest H. Manuel, Jr.
Robert L. Horst, Jr.
Kathleen M. Brennan
Jennifer M. Hobart
Carol D. Harvey
Jerome T. Bentley
Marcus C. Duff
Daniel E. Klingler
Judith K. Tapiero
                 With the Assistance of:
David S. Brookshire
Thomas D. Crocker
Ralph C. d'Arge
A. Myrick Freeman. Ill
William D. Schulze
James H. Ware
                     MATHTECH, INC.
                      P.O. Box 2392
              Princeton, New Jersey  08540
             EPA Contract Number 68-02-3826
                    Project Officer:
                     Allen C. Basala
                Economic Analysis Branch
          Strategies and Air Standards Division
      Office of Air Quality Planning and Standards
          U.S. Environmental Protection Agency
      Research Triangle Park, North Carolina  27711
                       March 1983

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     The analysis and conclusions presented in this report  are
those of the  authors and should  not be  interpreted as necessarily
reflecting  the official  policies  of the U.S.  Environmental
Protection Agency.

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                                  PREFACE
     This report was  prepared for the U.S.  Environmental Protection Agency
by Mathtech,  Inc.   The report  is  organized  into  five  volumes containing a
total of 11 sections  as follows:
     Volume I
         Section  1:
         Section  2:
The Benefit Analysis
The Net Benefit Analysis
     Volume II
         Section  3:
         Section  4:
         Appendix:
Health Effects Studies in the Epidemiology Literature
Health Effects Studies in the Economics Literature
Valuation of Health Improvements
     Volume III
         Section  5:
         Section  6:
         Section  7:
         Section  8:
Residential Property Value Studies
Hedonic Wage Studies
Economic Benefits of Reduced Soiling
Benefits of National Visibility Standards
     Volume IV
         Section  9:
         Section 10:
Air Quality Data and Standards
Selected Methodological Issues
     Volume V

         Section 11:
Supplementary Tables
                                     IV

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                             ACKNOWLEDGMENTS
      While preparing this report, we had the benefit of advice, comments
 and other assistance from many individuals.  Allen Basala, the EPA Project
 Officer, and James Bain,  former Chief of the Economic Analysis Branch
 (EAB),  were especially helpful.   They provided both overall  guidance on
 project direction as well  as  technical review and comment on the report.
 Others in EAB who assisted us included Thomas Walton,  George Duggan, and
 John O'Connor, the  current  Chief  of EAB.

      Others  within EPA/OAQPS  who  reviewed  parts of the  report and assisted
 in various ways included Henry  Thomas,  Jeff Cohen, John Bachman,  John
 Haines, Joseph Padgett,  and Bruce Jordan.

      Several  individuals within EPA/OPA also provided  comments  or  assis-
 tance at  various stages of the project.  These included Bart Ostro,  Alez
 Cristofaro, Ralph Luken, Jon Harford.  and Paul Stolpman.

      Others  outside EPA who  reviewed parts of the  report and provided
 comments  included V. Kerry Smith,  Paul  Portney, Lester Lave, Eugene Seskin,
 and William  Watson.   Other Mathtech  staff  who assisted  us in  various  ways
 were Donald Wise,  Gary Labovich,  and  Robert  J.   Anderson.   We   also
 appreciate the assistance  of Al Smith and Ken Brubaker  of Argonne National
 Laboratory who conducted the  parallel analysis of control costs and air
 quality impacts.

     Naturally,  it  was  not  possible  to  incorporate  all comments  and
 suggestions.  Therefore,  the individuals listed above do not  necessarily
 endorse the analyses or conclusions of the  report.

     The production of a report this  length in several draft versions,  each
 under a tight time constraint,  is  a j ob  which taxes the  pa-tience and sanity
 of a secretarial  staff.   Carol  Rossell  had  this  difficult  task and managed
 ably with the  assistance  of Deborah Piantoni,  Gail Gay, and Sally Webb.
Nadine Vogel and Virginia Wyatt, who  share the same burden at EAB,  also
assisted us on  several  occasions.

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                                 CONTENTS

                                 VOLUME I



Section                                                               Page


    1.   THE BENEFIT ANALYSIS

          Introduct ion	  1-1

          Scope of the Benefit Analysis 	  1-2

               Air Quality Standards 	  1-2
               Coverage of Effects/Benefit Categories 	  1-3

          Overview of the Study Approach 	  1-4

               Identification and Classification of Existing
                    Research Studies 	  1-4
               Review and Selection of Best Available Studies 	  1-6
               Benefit Calculation Procedures 	  1-6
               Sources of Uncertainty in the Benefit Calculations ...  1-9

          Scenarios Analyzed 	  1-12

               Basel ine Air Qual ity	  1-12
               Alternative Standards 	  1-13

          Index of Exposure 	  1-18

               Averaging Times and Distribution Parameters 	  1-19
               Particle Measures 	  1-19
               Geographic Areas and Monitor Types 	  1-21
               Plausibility Checks 	  1-23

          Measurement and Economic Valuation of Health Improvements  .  1-24

               Reduced Mortality Risk 	  1-25
               Reduced Morbidity Risk 	  1-27
               Applicable Exposure Ranges for Concentration-
                    Response Functions 	  1-27
                                    VI

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                           CONTENTS (Continued)
Section
                                                                      Page
    1.    THE BENEFIT ANALYSIS (Continued)

          Summary of Results in Specific Benefit Categories 	  1-34

               Health Effects 	  1-34
               Soil ing and Materials Damage 	  1-40
               Visibility and Aesthetics 	  1-41
               Property Value and Labor Market Studies 	  1-42

          Aggregate Incremental Benefits 	  1-43

               Methods of Aggregation 	  1-43
               Results of the Aggregation Procedures 	  1-51
               Incremental Benefits for Other Standards and
                    Scenarios 	  1-54
               Geographic Distribution of Benefits 	  1-61

          Findings and Conclusions	  1-63

               Estimates of Incremental Benefits	  1-63
               Limitations of the Estimates 	  1-64

          References 	,	  1-65
    2.   NET BENEFIT ANALYSIS

          Introduct ion ..............................................  2-1

          Benefit-Cost Analysis:  Evaluation Criteria ...............  2-2

               Incremental Benefits and Costs .......................  2-2
               Cost Effectiveness ....................................  2-3
               Efficiency Criterion ........................ . ........  2-3
               Scope of Analysis ....... . ............................  2-4

          Benefit-Cost Analysis :  Methodology .......................  2-5

               Benefit-Cost Analysis:  Incremental Benefits and
                          ...........................................  2-6
               Distributional Effects ...............................  2-6
                                    Vll

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                           CONTENTS (Continued)
Section                                                               Page


    2.   NET BENEFIT ANALYSIS (Continued)

          Measurement of Benefits and Costs 	  2-8

               Measurement of Benefits and Costs:  Conceptual
                    Issues	  2-8
               Estimates of Benefits 	  2-10
               Estimates of Costs 	  2-14
               Consistency of Benefits and Costs Estimates 	  2-29

          Limitations and Qualifications of Benefit-Cost Analysis ...  2-32

          Benefit-Cost Analysis of Alternative PM NAAQS 	  2-33

               Benefit-Cost Analysis:  Incremental Net Benefits 	  2-34
               Distribution of Incremental Net Benefits 	  2-47

          Conclusions and Qualifications 	  2-56

               Conclusions 	  2-57
               Qualifications 	  2-59

          References 	  2-60
                                    vui

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                                  FIGURES

                                 VOLUME I



Figure No.                                                            Paae


   1-1.   Basic Steps in Estimating Benefits for an Individual
          Study	  1-8

   1-2.   Typical Air Quality Scenario 	  1-16

   1-3.   Residual Non-Attainment (Scenario "A") 	  1-17


   2-1.   Basic Steps in Estimating Emissions Control Costs 	  2-16
                                    IX

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                                  TABLES

                                 VOLUME I



Table No.                                                             Paae
  1-1.    Effects Categories Potentially Relevant to Alternative
          PM Standards 	  1-3

  1-2.    Sources of Uncertainty in the Benefit Calculations 	  1-11

  1-3.    Alternative Air Quality Standards 	  1-14

  1-4.    Summary of Concentration Ranges in EPA/OAQPS Staff Paper ..  1-29

  1-5.    Incremental Health Benefits for the PM10 (70, 250)
          Scenario B Standard 	  1-35

  1-6.    Comparison of Incremental Health Benefits for the PH10
          (70, 250) Scenario B Standard, With and Without a
          Lower Bound Applied 	  1-39

  1-7.    Incremental Benefits of Reduced Soiling for the PM10
          (70, 250) Scenario B Standard	  1-41

  1-8.    Incremental Health and Welfare Benefits for the PM10
          (70, 250) Scenario B Standard as Measured from
          Property Value and Hedonic Wage Studies 	  1-43

  1-9.    Alternative Aggregation Procedures 	  1-44

  1-10.   Incremental Benefits for the PM10 (70, 250) Scenario B
          Standard 	  1-52

  1-11.   Incremental Benefits for Alternative PM10 and TSP
          Standards (B Scenarios) 	  1-55

  1-12.   Incremental Benefits for Alternative PM10 and TSP
          Standards (A Scenarios) 	  1-58

  1-13.   Incremental Benefits for Alternative PM10 and TSP
          Standards, With Lower Bound Applied (B Scenarios) 	  1-59

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                            TABLES (Continued)
Table No.


  1-14.   Incremental Benefits for Alternative PM10 and TSP
          Standards, With Lower Bound Applied (A Scenarios)  	   1-60

  1-15.   Incremental Benefits by Region for the PM10 (70, 250)
          Scenario B Standard 	   1-62


  2-1.    Summary of Incremental Cost Estimates 	   2-27

  2-2.    Incremental Net Benefits for Alternative PM10 and
          TSP Standards (B Scenarios) 	   2-36

  2-3.    Incremental Net Benefits for Alternative PM10 and
          TSP Standards (A Scenarios) 	   2-37

  2-4.    Incremental Net Benefits for Alternative PM10 and
          TSP Standards With Lower Bound Applied (B Scenarios)  	   2-38

  2-5.    Incremental Net Benefits for Alternative PM10 and
          TSP Standards With Lower Bound Applied (A Scenarios)  	   2-39

  2-6.    Domain  of Economically Preferred Standards  	   2-43

  2-7.    Incremental Net Benefits by Region for the  PM10
          (70,  250) Scenario A Standard	   2-49

  2-8.    Incremental Net Benefits by Region for the  PM10
          (70,  250) Scenario A Standard With Lower Bound Applied  ....   2-50

  2-9.    Incremental Net Benefits by Region for the  TSP
          (70,  260) 9-Year Scenario  A Standard	   2-52

  2-10.   Incremental Net Benefits by Region for the  TSP
          (70,  260) Scenario A Standard With Lower Bound Applied  ....   2-53

  2-11.   Capital and After-Tax Annualized Costs (ATAC) of Control,
          By Industry,  for the TSP  (75, 260) 9-Year Standard
           (Scenario A)  	     2-55

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      SECTION 1





THE BENEFIT ANALYSIS

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                                SECTION 1
                          THE BENEFIT ANALYSIS
INTRODUCTION

     This report develops estimates of the benefits and net benefits of
alternative  national  ambient air quality standards  for  particulate matter
(PM).  The  report has  been prepared  to  assist the U.S. Environmental
Protection  Agency in responding to the requirements of Executive Order
12291 which requires an analysis of the costs,  benefits,  and net  benefits
of major  regulatory initiatives  (1).  This section  is  a  summary of the
benefit analysis  results and methods documented in  detail  in Sections 3
through 11 of  the  report.

     Benefit estimates alone are not  sufficient  to identify  the  economi-
cally preferred standard.  The costs of  attaining  and maintaining the
standards  must also be considered.  The benefits and costs  of the  alterna-
tive standards are  compared in Section 2 of  this  report  and  the estimated
net benefits are calculated.  The cost estimates were developed  by another
contractor using analytical  methods described in a separate  report  (2).

     While cost analyses for new regulatory initiatives have been routinely
developed by  the U.S. Environmental Protection Agency, benefit analyses
have only recently been  undertaken.  Benefit analysis  in the  past  has been
hindered  primarily  by  limitations  of data  and methods  available for
measuring health and  welfare effects of air pollution.

     Recognition of the technical complexities  confronting benefit  analysis
suggests  use of an  analysis  strategy which has  three key elements:
                                    1-1

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     •    Insuring that the analysis identifies  and makes use of the
         best data and information  currently available.
     •    Incorporating validation checks and sensitivity analyses
         into the analysis at  each  stage where technical uncertainty
         is present.
     •    Using  a range of estimates or methods for valuing health
         improvements.

These efforts  help identify the  degree  of  uncertainty  present and  provide
greater assurance  about the quality  of the  results.

     Section 1  is divided into nine parts including  this introductory
section.  The other eight parts discuss:  the scope of  the  analysis;  the
method of analysis;  the  air quality scenarios;  the indices used to  measure
air quality; the procedures for measuring and valuing human health improve-
ments;  the benefit estimates by benefit type;  the  aggregate benefits;  and
the conclusions.

SCOPE OF THE BENEFIT ANALYSIS

Air Quality Standards

     The benefit  analysis  examines  several  alternative  ambient  PM
standards.  The  alternative  standards involve various combinations of
particle size measures,   allowable  ambient  concentrations,  implementation
dates,  and  averaging times.  The standards  considered are a subset of those
analyzed in the  EPA's cost analysis and air quality modeling effort (2).
While  the alternatives do not exhaust  the list of possibilities,  they do
include  th« current primary and secondary  standards,  and a variety of  the
alternative revisions  to  those standards.   By  design,  the primary standard
is intended to protect human health,  while the secondary standard is to
provide protection of  the  public welfare.
                                   1-2

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Coverage of Effects/Benefit Categories

     Table 1-1 lists  the  major  health and welfare effects categories poten-
tially relevant in the consideration of alternative PM  standards.   In the
health category, effects  of interest include  mortality  and various types of
acute and chronic  morbidity.   The EPA/OAQPS  Staff  Paper  (3)  indicates that
the  potentially  relevant  morbidity  includes  effects  on respiratory
mechanics and  symptoms,  aggravation of existing  respiratory  and
cardiovascular disease, impairment of the body's defense mechanisms,  damage
to lung  tissues,  and care inogenesis.   The benefit  analysis is abl.e  to
provide partial coverage  of these effects,  with emphasis on mortality and
acute  and chronic respiratory  effects.   Currently  available data  and
methods limit the  scope of  coverage.

     In the  welfare area, the benefit analysis  emphasizes residential
soiling  effects and, to  a  lesser extent,  industrial  soiling.  Available
data  and  methods preclude consideration  of  soiling in the commercial.
                                Table 1-1
    EFFECTS CATEGORIES POTENTIALLY RELEVANT TO ALTERNATIVE  PM STANDARDS
  •  Health Effects
     -  Mortality
     -  Acute Morbidity
     -  Chronic Morbidity
  •  Soiling & Materials Damage
     -  Residential Facilities
        Commercial  & Industrial Facilities
     -  Governmental &  Institutional Facilities
  •  Visibility Effects
        Regional Haze
     -  Plume Blight
•  Acidic  Deposition
      Aquatic Life
      Crops  & Forests
      Materials
•  Climatic  Effects
      Temperature
      Precipitation
•  Non—User  Benefits
      Bequest Value
      Existence Value
      Option Value
                                    1-3

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governmental,  institutional,  and  most industrial  sectors.   Acidic  deposi-
tion and regional  haze  are  believed  to be primarily associated with  fine
particles  such as  sulfates.  It is difficult to predict  whether and  to  what
extent fine  particle concentrations  will be reduced by  the  control  strate-
gies required to  attain the alternative PM standards under consideration.
These effects are omitted from the analysis.  Incidents  of plume blight  may
be reduced also and this is not considered in the  analysis.  Little or no
information is available on the climatic effects of alternative  PM  concen-
trations.  Non-user benefits such as bequest value (the value placed on
preserving  a clean environment for future  generations) are  also  not
estimated.

     The coverage  of potentially  relevant  effects  categories  is thus  only
partially  complete in  terms of numbers of categories and  coverage  within
categories.   In  this respect,  the benefit  estimates  in  this report  may be
conservative  estimates of actual benefits.

UVKKV1KV OF THE  STUDY APPROACH

     The time schedule for the analysis did not allow the undertaking of
new effects studies.  In view of this constraint, the basic  strategy in the
analysis is to  make use  of  existing  research  results concerning the health
and welfare effects of  ambient  particulate matter.   That is,  the  existing
research  literature is  identified, classified, and reviewed.  Next,  the
best available  studies  for purposes of a  benefit  analysis are selected.
Finally,  the quantitative  relationships (e.g.,  concentration-response
functions)  in these studies are used to estimate  the  benefits  associated
with  the alternative PM standards  under consideration.  A more detailed
overview of these  steps  is provided  in the  subsections that follow.

Identification and Classification of Existing  Research Studies

     For purposes  of this analysis,  the existing  research literature on
health  and welfare effects  is classified  into the  following major
categories and  subcategories:
                                   1-4

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     •    Health  effects studies  in the  epidemiology literature
          including studies  of
               Mortality due to  acute  (short-term) exposures.
          -    Acute morbidity due  to  acute exposures.
               Acute morbidity due  to  chronic (long-term) exposures.
          -    Chronic  morbidity due to chronic exposures.
     •    Health  effects  studies  in  the  economics literature
          including studies  of
               Mortality due to  chronic exposures.
          -    Acute morbidity due  to  chronic exposures.
          -    Chronic  morbidity due to chronic exposures.
     •    Soiling and materials  damage studies  including  studies  of
          effects in the
               Household sector.
               Manufacturing sector.

As noted previously, available studies  and data limit the focus of this
analysis to health  effects  and  soiling or  materials damage effects.  The
study areas listed above represent  the spectrum of available  literature  in
these effects areas.  Visibility studies are also available and are  identi-
fied in the analysis but,  as noted  previously, may not be applicable  to the
PM control strategies under consideration.

     Note  that in the  list above,  a  distinction is made  betireen  health
studies in the epidemiology literature and those  in  the economics  litera-
ture.   While  there  are  technical similarities betireen these two  groups  of
health  studies,  the studies are treated separately in the  EPA Criteria
Document  (4).  The  two groups  are  thus kept separate in this analysis  to
allow comparison and separate use of their  results.

     Two additional literature areas are also identified.  These include:

     •    Property value studies.
     •    Labor market  (hedonic  wage)  studies.
                                    1-5

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Tie basic  benefit estimates  in this analysis  are  developed  using the
studies in the health and soiling  effects areas  listed earlier.   Property
value  and  hedonic wage studies  provide an alternative method for estimating
air pollution control benefits.  They are thus  used  in this  analysis to
provide independent benefit estimates  which can serve as a validation check.
on the basic  benefit  results.

Review mad Selection of Best Available Studies

     In each  of  the literature  areas  listed above,  a comprehensive  review
and critique  of  the available  research is  undertaken.   The starting  points
for this review  are the EPA Criteria Document and the EPA/OAQPS Staff Paper
for particulate matter.   The objective of the review is to identify the
best available studies for a benefit analysis in each area.   Studies are
evaluated  in terms of such criteria as  the soundness of the technical
approach,  the adequacy of the  underlying  data, the adaptability to esti-
mating benefits, and  the adequacy of study documentation.

     An important  feature  of this review is  a recognition that the various
studies often differ widely in their findings concerning the effects of
particulate matter.  In the absence of a consensus, it  may not be desirable
to rely solely on one particular study for  estimating the benefits in a
particular category.  Thus, in  each benefit category,  an effort  is made to
identify both a best  available study  and one or more plausible alternate
studies.  Separate benefit estimates are then developed  for  each  of the
selected studies in that category.  Use of  several plausible studies to
calculate  benefits helps illustrate both the  possible range of  benefits as
well as the degree of uncertainty present in the  existing research base.

Benefit Calculation Procedures

    Benefit  calculations  in this analysis follow a three part procedure.
In the  first part (1),   the  quantitative  relationships found in  each
selected study are used to calculate the  benefits of a given  air quality
improvement.  In  the second  part   (2),  the  benefit  results  for  the
                                   1-6

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individual  studies are used  to estimate  the  benefits in each benefit
category.  Recall  that  this  is  required because more  than one  study  is
typically selected in each benefit  category.   In the third part (3).  the
results  for  each  benefit category are used to estimate  aggregate  benefits.
The third part cannot  be accomplished  by  simply adding  up all the benefit
categories because  some  overlap  may  be present  among the categories.   The
next several paragraphs provide further details on part (1), while parts
(2) and  (3)  are  discussed  subsequently  when the benefit  results  are
presented.

     Part (1)  calculations encompass estimating the benefits  implied by
each study.   These calculations are done according to a four or five  step
procedure.   As  shown in Figure 1-1,  the first step is to identify  the
magnitude of the ambient air  quality  improvement  that  is  estimated  will
occur in each county  and year.   This  is  the improvement achieved after
implementation of a particular ambient standard,  relative to  a  baseline
situation reflecting air pollution  controls  already in  place.   The  proce-
dures for estimating air quality  improvements are discussed  in Section 9  of
this report.

     The second  step involves estimating the health and welfare  improve-
ments that  are expected  to occur as  a result  of  the improvement  in ambient
air quality.   This  step  makes use of the research  findings extracted  from
the literature review  discussed  previously.   These  findings include  either
linear  or nonlinear relationships between health or welfare  status and
ambient concentrations of particulate matter.  These  relationships are
discussed  in detail irf Sections 3  through 8  of this report.  Note  that
estimates are required  for each county and year in which there is  an air
quality  improvement.

     The third step  is to impute an  economic  value to the estimated changes
in health and  welfare status.   This  is  shown  in  the figure as  Step 3a.   For
the health  studies,  this is perhaps the  most difficult  step  conceptually.
There is limited evidence on how to estimate  the economic value of  some
changes  in  health status (e.g.,   improved  lung function).   For this reason,

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STEP
  1
   Identify air quality improvement
        in county i at year t
STEP
  2
      Estimate health or welfare
  improvement in county i at year t
                                   3a
                          3b
STEP
  3
Estimate economic value of the health
   or welfare improvement for i, t
STEP
  4
      Aggregate over t to obtain
      discounted present values
STEP
  5
      Aggregate over i to obtain
     regional and national totals
  Figure 1-1.  Basic steps in estimating benefits for an individual study
                                    1-8

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a variety  of methods  and estimates  of value are  employed  in order to
evaluate  how they influence the  results.  Note also  that  in  some  cases it
is possible  to estimate  economic values  directly from the  air quality
improvement.  This  is  shown in the figure  as Step 3b.   Property value
studies are an example of this approach.  These studies analyze variations
in residential property values within  a metropolitan area to identify  the
variation due to perceived differences  in environmental  amenities  such as
air quality,  while statistically controlling  for  variation  due to  differ-
ences in housing quality and other  locational  attributes.   Studies  of  this
type  thus  allow direct estimates of  the perceived economic value  of
environmental improvements.

     The fourth  step is to aggregate  results over a specific period of
years to obtain discounted present  values.  The number of years depends on
the particular standard under  consideration.  In Step 5,  benefits  for  each
county are  also summed to obtain regional and national  totals.

Source* of  Uncertainty in the Benefit Calculations

     Benefit  analyses  are subject to several sources  of uncertainty,
especially  when human health effects are of  interest.  The major categories
of uncertainty in this  analysis  concern:

     •   The scope and  magnitude of air quality improvements likely
         under alternative standards.
     •   The evidence  of  the health and welfare effects of PM.
     •   The economic  value of  reduced adverse health  risk.
     •   The  coverage  of  potentially relevant  effects/benefit
         categories.

     Within  each major category of uncertainty there are more specific
problems of  incomplete  or  conflicting data  and  analytic methods.   For
example,   the  air quality analysis  uses county-wide  linear rollback
techniques.  These techniques introduce  a large element of uncertainty  when
estimating  the air quality impacts of  source  emissions growth or specific
                                   1-9

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control  options.   Similarly,  the  estimates  of health effects are based on
existing community health studies.  All  of  these  studies  have  limitations
either in study design,  data or analytic  methods  which limit the accuracy
or reliability  of  the results.

     Table  1-2  contains  a more detailed list of selected  major sources of
uncertainty in this study.   Items in the list are  defined and discussed
further later  in this section or in other sections of the report.   The
other sections  also contain more detailed lists.

     For some  of the  items  in Table 1-2,  the degree of uncertainty is
estimated quantitatively.  For example,  alternative benefit calculations
can be carried  out using:   each available study, each available functional
form  implied by each study,  upper- and lower-bound (i.e., + 2a)  coefficient
estimates,  alternative  low-level concentrations, upper- and  lower-bound
health values,  and alternative  methods of aggregation.   That is,  an effort
is  made to  identify  the  range  of uncertainty  present  in the benefit
estimates.   The estimates of this range are explicitly reported.   Sources
of uncertainty  that  could not be  quantified are described qualitatively in
each  report  section.

     One source of uncertainty that is particularly difficult to address is
the variation  in  completeness of  benefits/effects  coverage among studies.
This  includes   two  problems.  First,  studies  may provide overlapping
coverage,  in which case double  counting  of benefits may occur.   This
problem is addressed in the aggregation  procedures discussed shortly.
Second,  studies may provide incomplete coverage, which would lead to under-
counting benefits.  As  an example, this analysis  includes very limited
coverage of PM   soiling in the industrial  sector and excludes entirely the
commercial, institutional,  and  governmental  sectors.

     It should  also be noted that all of the studies used for estimating
benefits are community studies as opposed to controlled laboratory experi-
ments.  As  such,  the results  of these studies are  generally in  the form of
identified  statistical  associations between PM concentrations  and various
                                   1-10

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                                 Table 1-2

            SOURCES OF UNCERTAINTY IN THE BENEFIT CALCULATIONS
   •   Scope and Magnitude of Air Quality Improvements*

           Use of county-wide rollback to predict air quality change at
               worst-case monitor.
       -   Use of proportionality to predict change elsewhere in county.
       -   Failure to account for potential air quality improvements
               resulting from emissions controls in adjacent counties.
       -   Approximations required in converting among different PM
               measures (TSP, PM10, BS).
           Use of 1977-78 as base year.
       Evidence of Health and Welfare Effects

       -   Conflicting evidence across studies.
       -   Incomplete control for confounding factors.
       -   Use of study results from one time and area to estimate
               effects in another time and area.
       -   No information on the size distribution of particles present
               during the studies.
       -   Alternative functional forms possible.
       -   Sampling variation in coefficient estimates.
       -   Degree of risk at lower level PM concentrations.
   •   Valuation of Health Improvements

       -   Inability to value some health changes.
       -   Large variations in estimates of value assigned to mortality
               risk reductions.
   •   Coverage of Effects/Benefit Categories

       -   Omission of potentially relevant categories.
       -   Incomplete coverage within evaluated categories.
       -   Possible overlap among certain categories.
* Note that uncertainty  in  the  air quality estimates will  affect both the
  cost and benefit calculations.
                                     1-11

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indicators  of health or  welfare  status.  Use of  these  statistical associa-
tions for benefit  calculations requires the inference  that  the associations
reflect  cause-effect relationships.   Such inferences are controversial
because cause-effect  relationships cannot be proven by  statistical associa-
tions.   Conclusions  about causality are ultimately a  matter of judgment,
typically based on a consideration  of  such factors as  the  strength of the
statistical association  and  its  consistency and plausibility in comparison
with other studies and facts.  Consequently, the benefit analysis is care-
ful to evaluate each group  of studies on  this basis.  This evaluation is
reflected in the  subset  of studies selected for benefit calculations and in
the sensitivity analyses conducted  on  the  results obtained.

SCENARIOS ANALYZED

Baseline Air Quality

     The baseline  for all scenarios  is  a projection of ambient  air quality
in each  county for  the  period 1987 through 1995  (or  1989 to 1995).   The
baseline projection  reflects  the  following major components:  background
ambient concentrations, area  source  emissions (e.g.,  roadway  dust),
emissions from current stationary sources and emissions from new stationary
sources coming on-line during  the period.   Thus,  ambient  air quality in a
county may  improve  or deteriorate  in  the  baseline scenario,  depending on
the relative growth rates for  area  sources and new stationary  sources and
retirement/replacement rates for existing  stationary sources.

     In the baseline  scenario,  some  pollution controls  are  assumed to be in
place.   In  particular,  unretired  sources and one-half of any  replacement
sources  are  assumed to  be controlled at 1978 control levels.   The other
replacement sources  and  all  net  new  sources are  assumed to  be controlled at
new  source  control levels.   New source controls  include BACT (Best Avail-
able Control Technology) which represents NSPS (New Source Performance
Standards)  and other new source control  requirements.   Further  details
concerning  the baseline  can  be found in the cost analysis  report (2).
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     The baseline scenario reflects  some air quality improvement relative
to the  no-control  situation.   The  alternative  PM standards  under
consideration would  represent an incremental  improvement in air quality
compared to  the baseline  scenario.   For  this  reason,  the  benefits
associated  with the alternative  PM standards are incremental  benefits.
These are the benefits estimated in this analysis.   The  total  benefits  of
both baseline controls  and the alternative  PM standards are not estimated.

Alternative  Standards

     The various ambient standards considered in the benefit  analysis  are
listed  in Table 1-3.  The standards are listed approximately  in order of
increasing stringency.   The  standards are distinguished by:

     •    Particle measure
          -     PM10  (particles with an aerodynamic diameter less than
               or equal to a nominal 10 |im)     ,
          -     TSP  (total suspended particulates,  i.e., particles
               measured by the "hi-volume" sampler which collects
               particles of aerodynamic diameter of up to 25 to 45
               (im.)
     •    Ambient concentration allowed
     •    Averaging  time and distribution parameter
          -     Annual,  arithmetic mean
          —     Annual,  geometric mean
          -   • 24-hour,  expected maximum value
          -     24-hour,  one  exceedance per year  (i.e., second highest
               value)
     •    Implementation date
               1989  (all PM10  standards;  some TSP standards)
               1987  (all other TSP standards)
     •    Attainment status
          -     Scenario B  (all counties attain the standard)
          -     Scenario A  (some counties remain in nonattainment).
                                    1-13

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                                                Table 1-3

                                     ALTERNATIVE AIR QUALITY STANDARDS

                                               (in |ig/m3)
Pollutant
PM10
PM10
PM10
PM10
PM10
PM10
TSP
TSP
TSP
TSP
Annual Standard
Concentration
70
55
55
55
55
48
75
—
75
—
Parameter
AAM
AAM
AAM
AAM
AAM
AAM
AGM
—
AGM
—
24-Hour Standard
Concentration
250
—
250
200
150
183
260
150
260
150
Parameter
EMV
EMV
EMV
EMV
EMV
EMV
2nd High
2nd High
2nd High
2nd High
Implementation
Date
1989
1989
1989
1989
1989
1989
1989
1989
1987
1987
Attainment
Status
A, B
A. B
A, B
A, B
A, B
A, B
A. B
A, B
A. B
A, B
     AAM = Annual arithmetic mean.
     AGM = Annual geometric mean of all 24-hour average values.
     EMV = Expected 2nd maximum value of all 24-hour average values.
2nd High = Second highest 24-hour average value observed per year.
       A = Some counties experience non-attainment.
       B = All counties attain and maintain the standard.

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     In both  the  cost and benefit analyses, pollution controls  are assumed
to be implemented at  the  beginning of the year (1987 or 1989).  In the
Scenario B cases, all counties are also assumed to achieve attainment of
the standard  at  the beginning of  the  implementation year and to maintain
the  standard through the end of 1995.   In  the Scenario A cases,  some
counties may not be in attainment during some or all of the period.  As
indicated  in the table, all  standards were evaluated under both partial
attainment  (Scenario A)  and complete attainment (Scenario B) conditions.

     Several  of   the  key concepts  defined  above  can be  illustrated
graphically  as   shown  in Figure 1-2.   The  upper  curve  in  the  figure
represents the projection of baseline air quality.  As noted previously,
the baseline  reflects sources  and controls in place in 1978  plus growth and
retirement/replacement  of  sources  after  that date.  The dashed  line
represents the standard.  The bottom curve identifies  the  improved air
quality after implementation  of  additional controls  in this  case  in  1989.
Benefits are  generated by  the improvement in  air quality indicated by the
shaded  area.  Note that some improvement below the standard can occur.
This  results  from approximations required  in the cost analysis.
Constraints are imposed to insure that the  approximations do  not  result in
predicted air quality improvements below background air quality  levels.

     Figure 1-2  illustrates the  situation with complete  attainment of the
standard (type "B"  scenarios).  Figure 1-3 illustrates  the  case of partial
attainment (type  "A" scenarios).  In this case,  sufficient  control options
are not available to  attain and maintain the standard  throughout the
applicable time  period.   As  a result, both costs and benefits are  lower
than if complete  attainment occurred.

     As the previous figures indicate,  benefits occur over a period of
several years.  It is  thus convenient to express benefits in discounted
present  value  terms.   In calculating the discounted  present  value of
benefits, the following conventions are employed:
                                   1-15

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Ambient
Concentration
(pg/m3)
                                             Baseline
                                                                             Source of
                                                                             Benefits
                                                                                          Standard
                                                            With Incremental Controls
                      1978
1989
  I
1995
Year
                                   Figure 1-2.   Typical Air Quality Scenario

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  Ambient
  Concentration
i
H-«
-J
                                                  Baseline
                                                                                Source of
                                                                                Benefits
                     ual Non-Attainment
                                                             With Incremental Controls
                                                                                               Standard
                           1978
1989
1995
                                                                                                Year
                                  Figure 1-3.  Residual Won-Attainment  (Scenario "A")

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    •    Time horizon corresponding to the standard  (7 or 9 years).

    •    Present value  as of January 1,  1982.

    •    Real discount  rate of 10 percent.

    •    Estimates stated in 1980 dollars.

    •    Exclusion of benefits occurring after 1995.


INDEX OF EXPOSURE


    The  studies of the health and welfare effects of PM each employed
specific indices of air pollution  exposure.  Many  of the indices  are
different  from those specified in  the air quality standards under consid-
eration.   To use the results of these studies in a benefit  analysis,  the
air quality estimates associated  with  the  alternative  TSP and PM10
standards  must be converted to  indices  consistent with  the  studies.   The
studies used in  the benefit  analysis  employed indices  with  the following
characteristics:
     •    All  studies used either an annual  average  concentration,  a
          24-hour average concentration,  or  a  second-highest 24-hour
          average concentration per year.

     •    All  but two studies used a TSP  measure; the other two used
          British Smoke  (BS) and Suspended Particulate  Matter  (SPM),
          respectively.   None used a  PM10 measure.

     •    The   geographic  areas  included  Census  tracts,  cities,
          counties and  SMSAs (Standard  Metropolitan  Statistical
          Areas).

     •    The  number of monitors  in each area ranged from one to a
          dozen or more;  in an area with  multiple monitors,  the
          original  studies  typically used the monitor  recording the
          highest concentrations, or an average across monitors in
          the  area.


Use of studies with the above characteristics  is further complicated by

limitations in the  air quality data available  from  the  cost analysis.   The

most  important limitation  is the lack of air quality data other than an

estimate of the county  maximum concentration  in the  baseline, and post-
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control situations.  The benefit analysis  requires more  complete data and
must make  additional approximations to  supplement the data available.
These  approximations, and those associated  with the  index conversions
described above, introduce another source of uncertainty in the benefit
analysis.  These issues are  discussed in more  detail in Sections  9  and 10,
and to a lesser  extent in the other report  sections.  The  issues are
summarized briefly here.
Averaging T^^es md. Distribution P>f •eters

     Ambient  air quality data incorporating the required  averaging times
and distribution parameters  are  supplied from the cost and air quality
analysis.  The  required  averaging  times include  annual and  24-hour
averages.  The required distribution parameters  include the  arithmetic
mean, geometric mean, and second-highest 24-hour concentration.   The proce-
dures employed to develop these data are described in the cost analysis
report referenced earlier.

Particle Measures

     To evaluate standards based on TSP, most of  the  studies are used
directly since they were originally done in terms of TSP.   The  study based
on SPH is also used  directly based on the approximate equivalence of TSP
and SPH measures.  The study based on British smoke requires a specific
transformation procedure from TSP to BS which is described  in  an  appendix
to Section 3.

     For standards based on PM10,  the cost and air quality analysis pro-
vides estimates of both  the PH10 and  TSP  concentrations  that result.  The
PM10  information cannot be used  directly since none  of  the health or
welfare  studies used a PM10 measure.  However,  the availability of TSP
concentration data makes it possible to estimate  approximate benefits using
the TSP studies (and the study requiring the TSP to BS transformation).
This approach involves  estimating  the  benefits  of  the TSP  reduction that
results when  controls are applied to attain the PM10  standards.
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     Note that using  TSP reductions  to  estimate the  benefits of PM10
standards  limits  the comparisons possible  between PM10  and TSP  standards.
Comparisons  are  possible  only in terms  of alternative  levels of  TSP
stringency, not particle size.  That is, the benefit  analysis is not able
to distinguish  between a TSP  standard and a PM10 standard that results in
the same  TSP reduction.

     Evidence cited in the EPA/OAQPS Staff Paper indicates that smaller
particles (1 10 (im in diameter) pose a greater  risk to the respiratory
system than larger  particles.   Thus,  the benefits of PM10 standards can be
different than suggested by the benefits calculated from  the associated  TSP
reduction.  This could  occur if the PM10 controls  produce a proportionately
different reduction in PM10 than in TSP.

     The  cost  and air  quality  analysis provides estimates  of  the PM10  and
TSP concentrations before and after implementation  of controls.   A  review
of these  estimates  for selected standards  indicates that, in a majority of
counties.  PM10 does not decline  proportionately more  than TSP.   This  was
found to be the case for both the PH10 and TSP  standards examined.*  This
apparently results because control options  available for PH10 in many cases
also  control  larger  particles  as well.   Hence,  if emissions sources
selected for control  are producing both small and large particles,  the
proportionate reductions in PM10 and TSP may not differ appreciably.
* The standards examined were  the PM10 (70, 250), the PM10 (55, 150)  and
  the 7-year  TSP  (75,  260).  All  were Scenario  A (partial attainment)
  cases.  All comparisons  were before and after  controls  in  1989.   All
  comparisons were between the PM10 annual arithmetic mean and the  TSP
  .annual  arithmetic mean  because  the  data available  for the  24-hour
  averaging  time were based  on different statistical measures and cannot be
  directly  compared.   For  all  three standards, about 60 percent of  the
  counties were  predicted to  experience a proportionately larger reduction
  in TSP;  the  other 40  percent experienced a  proportionately larger reduc-
  tion  in PM10.   About the  same  percentages  were  observed  among  the
  counties  predicted to receive the largest benefits.  In  most of these
  counties,  the predicted absolute  change  in the PM10  fraction was  0.01 to
  0.03  under all three  standards.
                                   1-20

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     As  indicated  above,  small differences  are predicted between the PH10
standards  and TSP standards  analyzed, in terms  of the resulting PM10
fractions.   This  implies that health benefits estimated based on the TSP
change may be  of  similar accuracy for either type  of  standard.   If the
estimates are of  similar accuracy,  then it  is appropriate in this  study to
draw comparisons  between the PM10 and TSP standards.   However, as noted
previously,  these represent  comparisons  of alternative  levels of TSP
stringency (i.e.,  alternative reductions  in  TSP).   That is,  the  benefit
analysis  cannot distinguish among standards on the basis  of particle  size.

     It  is  important  to  note  that  limitations  and  approximations  required
in the cost and  air  quality analysis make the  estimates  of the PM10
fraction  in each county uncertain.  Predicted baseline PM10 levels  for each
county in 1989-95 are based on an  assumed PM10/TSP ratio of 0.55  in 1978,
and predicted growth rates and small particle  fractions  for  each emissions
source category in the post-1978 period.  Actual  conditions may differ from
these assumptions.*  Furthermore, other factors,  such as differences in
small and large particle  dispersion patterns,  are not accounted for  in the
cost  and  air quality model, not thus in the  benefit analysis.   These  uncer-
tainties  suggest that additional caution be  used when comparing the benefit
estimates for the  PH10 and TSP standards.

Geographic  Areas and Monitor Types

     Ambient  air  quality data available from the  cost  analysis are
estimates of conditions  at  the  "design value"  pollution  monitoring site in
each county.  The  design  value  monitor  in a  county typically  is the monitor
which recorded the highest ambient concentration (TSP  annual mean or 24-
hour second high)  in 1977 and 1978.  Concentrations at other monitors in
the county  are  thus generally lower than at  the design value monitor.  Non-
monitored areas in a county may experience higher  or lower  concentrations
* For example,  more recent data indicates  that in late 1981-early 1982  the
  PM10 fraction was  closer to 0.46 on a national average basis (5).  The
  PM15 fraction was closer to 0.55 at  that  time.
                                   1-21

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than the design value monitor,  but  lower concentrations  are  more likely.
Air quality conditions at these other monitors and locations are  not  esti-
mated in the cost analysis.*  The cost and air quality analysis  also  omits
the possibility  of  air quality improvements due to  controls applied  in  an
adjacent county.

     Since projections  of air quality  and economic  data are  available
primarily for county areas,  the county is the basic unit of  analysis  in
this study.   This approach provides a good match with the  original studies
that used either county or SMSA data.  The  air quality change  in  the county
is then taken to be either the change at the design value monitor, or the
average change across all monitors in the  county,  depending on the  measure
used in the  original study.   When the  average change is required,  it  is
estimated from the  design value monitor change by  applying  the proportion-
ality factor which  existed  between these two values for each county in the
1978 base year.   The proportionality factor on average was 0.74  for the
annual mean  and  0.70  for the 24-hour second-highest  concentration.

     Note that the above method for estimating  the  average  air quality
improvement across monitors in a county is only  approximate.  This  is
because the improvement  at  a  particular monitor may  or may not be propor-
tional  to the improvement at the  design value  monitor.  That  is, the
dispersion properties of PM attenuate  the air quality improvement  occurring
at  various  distances from the  emissions sources being incrementally
controlled.  The proportionality assumption is  an  approximation to the
actual attenuation.   The  degree  of attenuation cannot be assessed  without
detailed dispersion modeling' of  the  PM  emission  controls   applied  in  each
county.  Such modeling  is very time  and resource intensive, and thus not
practical in a nationwide  study.  As a result,  the cost analysis  relies  on
the more approximate county-wide rollback method for predicting air quality
improvements at the design monitor  in each county.   County-wide rollback
methods assume that the  change in air quality  (net of background  concentra-
* For a small number of counties (12  out of 501),  air quality is  estimated
  for subcounty  areas.
                                   1-22

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tions) at any location in a county is proportional to the change in total
county emissions.  Thus the use of proportionality  in the benefit analysis
to estimate  the  average air quality improvement  across other monitors in a
county is  essentially a further  application of county-wide rollback.

     Lack of dispersion modeling also hinders use of studies which measured
air quality effects at the city or Census tract level.  For most  appro-
priate use of the results of these studies, it would be desirable to have
dispersion modeling results for subcounty areas.   For example, for the same
reasons noted previously, use  of the air quality change projected at the
county design value  monitor may  overstate the change which occurs elsewhere
in the county.  To provide a better air quality  measure  for  these studies,
the average air quality  change across all monitors in a county  is also
used.   The average  change is more representative than  the design  monitor
change.   The average change  is estimated as  described previously.

Plausibility Checks

     As noted  above,  the ideal situation would be to identify the change in
PM concentration experienced by the population in each  part  of  the  county.
In the absence of dispersion modeling results, the approximations described
above attempt to improve upon  the available concentration measure,  the
design monitor.  Two plausibility  checks were performed  on these approxima-
tions.  The  first  plausibility  check concerned  the  use  of  the  county
average  as an additional measure of  the  PM concentration.   This check
involved comparing the  county averages  in the 1978 base year with corres-
ponding readings at monitors designated by EPA as "population-oriented"
monitors.  This analysis found that readings at population monitors are
typically much closer to the  county average  than  to the design value
monitor  readings.*  This is not  too surprising since 73 percent  of all
monitors in 1978 are designated as population-oriented.   This suggests that
* The correlation between the average  of  all  population monitors  in a
  county and the average of  all monitors in a county ranged between 0.95
  and 0.96,  depending on  the averaging time.  For population monitors  and
  design values,  the correlation ranged between 0.48  and  0.50.
                                   1-23

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the county  average air quality is  likely to be more representative than the
design monitor  as an estimate of the actual  population exposure.

     The  second plausibility check concerned the accuracy of estimating the
change in county  average  air quality  based  on  a proportionality  relation-
ship to the change at the county design monitor.  An analysis was under-
taken to  evaluate the  quality of  this approximation.   The  analysis, which
is discussed further  in Section 10,  centers  on the Chicago,  Illinois  area
(Cook County).  This area was chosen because it accounts for the largest
fraction  of total national benefits among  all counties in the analysis  and
also had  been the  subject of  detailed dispersion modeling previously.   The
analysis  compares  benefits  estimated using  two methods.   First,  benefits
are calculated  based  on detailed  dispersion  modeling results for 31  sub-
areas within Cook County.  In the second method, dispersion modeling is
used  to predict the change  at  the design monitor only  and  proportional
changes are assumed  throughout  the rest of the county.  The second method,
which is  comparable  to the  approach used in the national  benefit  analysis,
leads  to  estimates which  are  a  factor of  2 to 4 higher  than  the first
method.  This  suggests that the  assumption of proportional air quality
changes may introduce an upward  bias in the  national  benefit analysis.
However,  there  are a number of differences between the Chicago analysis  and
the national analysis  which  preclude an accurate estimate of  the magnitude
of the bias or its  importance relative  to other sources of upward  and
downward bias in  the  national analysis.

MEASUREMENT AND ECONOMIC VALUATION OF HEALTH IMPROVEMENTS

     A companion  study assesses the cost of  pollution controls designed to
attain alternative  PM standards.   Comparison of costs and benefits in
commensurate terms requires placing  an economic value on reductions in the
risks of  mortality and morbidity.   Alternatives to  a formal  economic valua-
tion  process include  choosing policy objectives which reduce all  risk at
whatever  the cost, or which implicitly and sometimes unknowingly value
reductions in risk.   The  alternative selected in this  analysis is to
explicitly value reductions in both mortality and morbidity risk.  This
                                   1-24

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allows the costs and benefits of the standards to be compared in commen-
surate terms.

Reduced Mortality Risk

     The  benefits of a reduction in mortality  risk are evaluated based on a
four-part calculation.  The  calculation  is  done  for  each geographic  area.
The four  parts  involve estimates of:

     •    The reduction in ambient PM concentration.
     •    The reduction in mortality risk corresponding to the reduc-
          tion  in ambient PM.
     •    The  number of individuals experiencing  the risk reduction
          (i.e., experiencing the PM  reduction).
     •    The  dollar value that one  individual places on a unit
          reduction  in mortality risk.

     A hypothetical example will  illustrate the  four-part calculation.
Suppose  the annual  mortality  rate in an area is 15 deaths per 100,000
people.   This may  include deaths  from  a  variety of causes as well as  from
air pollution.  If we let r denote the  annual  mortality rate,  then in this
example  r = 0.00015.

     Another way to interpret r is as a probability.  In this view,  there
is a 15  in 100,000 chance  that an  individual chosen at random  will die
during the year.  That is,  the  representative individual faces  a 0.00015
risk of mortality during the year.

     Now  suppose  that  epidemiology studies indicate that reducing air
pollution by, say, 100 |ig/m annual  average would cause r to decline  by  an
                                   1-25

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amount Ar.   For example,  Ar  might be 0.00001.*  The question then is how to
value this  reduction  in mortality risk.

     In benefit analyses,  the economic  value of a  small reduction in
mortality risk is estimated  by  adding  together the values that  individuals
assign  to  the redaction.   Previous studies and  surveys have  developed
estimates of individual values.   These studies and surveys are reviewed in
the Appendix to Volume II of this report.   A typical approach is  to observe
the wage premiums associated with occupations involving differing degrees
of mortality risk.  The studies and surveys suggest that individuals are
willing to pay about $1.00 per year  for  each reduction of 1  x  10    in
annual  mortality risk.   For the previous example  of a reduction  Ar =
                —(%
0.00001 = 10 x 10  , the  individual willingness to pay for this reduction
is about $10.00  per year.   This implies that a group of 100,000  individuals
together would be willing to pay a  total  of (100,000)($10.00) =  $1,000,000
if each experienced  a risk reduction of 0.00001.

     The actual values used  in  this  benefit analysis  for a  unit reduction
of 1 x 10   in annual mortality risk are:

     •   Minimum estimate:     $0.36
     •   Point estimate:       $1.58               (All in 1980 $)
     •   Maximum estimate:     $2.80

This range  reflects the different values  implied  by the studies  and surveys
reviewed in the Appendix  to Volume II.
* The analysis can be made more  exact by examining changes  in mortality
  rates for various  subgroups  in  the population (e.g.,  the elderly).   How-
  ever,  this is appropriate only if specific  subgroups were analyzed in the
  underlying research  study that is used to estimate Ar.
                                   1-Z6

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Reduced Morbidity Risk

     The benefits of a reduction in morbidity risk are estimated using a
similar four-part calculation as in the case of mortality risk.  In step
two, however, the concern is with the reduction in  morbidity risk per unit
reduction in ambient PM; and in step four,  the  issue is one of valuing
small  changes in morbidity risk.  The reductions  in morbidity risk are
estimated using  results from previous epidemiology and economic studies.
Valuation of morbidity  risk  is done taking into account three factors:  the
value of fewer expected work days lost due to illness;  the value of fewer
expected nonwork days with reduced  activity  levels  due to  illness;  and the
savings in expected  medical  expenditures.  The  method used  to value each of
these effects is identified below.  The specific values vary from county to
county.

                 Effect                    Method of Valuation
          Lost workday                    Average  daily wage
          Reduced activity day            One-half of  the
                                         average  daily wage
          Change  in direct                Proportional to change
          medical expenditures            in disease  incidence
     As discussed in the Appendix to Volume II,  the  above  approach probably
underestimates  total  willingness to pay  for  morbidity risk reductions
because it excludes consideration of  residual pain,  suffering,  and incon-
venience.

Applicable Concentration Ranges for Concentration— Response
     The results of health. effect s  studies can often be expressed in the
form of concentration-response  functions.   Such functions  represent a quan-
titative statement of  the  relationship between health status and ambient
                                    1-27

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concentrations  of  an environmental  pollutant  such  as particulate  matter.*
Concentration-response functions are useful in a benefit  analysis  because
they provide a mathematical basis for calculating health improvements
associated with air quality changes  over different  concentration  ranges.
This subsection is  concerned with the ranges over which the concentration-
response  functions  should be applied.

Concentration Ranges Suggested by CASAC and the EPA/OAQPS Stmff Pmper —

     The  EPA/OAQPS Staff Paper explicitly addressed the question of  concen-
tration  ranges  over which health  effects may occur.  The  Staff Paper
identified one set of ranges at  or above which health effects  are likely to
occur among sensitive  groups in the population; it identified a  second,
lower set of ranges over which effects may be  possible, but for which the
evidence and level of risk was  less certain.  These ranges  were  derived
from the EPA Criteria Document  and  reflect consideration of the epidemi-
ology studies  judged to provide the most reliable  quantitative evidence.
The numerical values of  these ranges are identified in Table 1-4.

     EPA's Clean Air  Scientific  Advisory Committee  (CASAC) also addressed
the question of concentration  ranges over  which  health effects  may occur.
Their conclusions  were   summarized  in the  CASAC  Chairman's closure letter
(6) on the Staff Paper.   CASAC concluded that detectable  health  effects
occur at  the upper  bound of the "Effects Possible" ranges identified in the
Staff Paper.  These ranges are 150 to 350 jig/m3 for  24-hour  PM10 concentra-
tions (150 to 250 |ig/m3  BS) and 55 to 110 |ig/m3 for annual  average PM10
concentrations (110 to  180 }ig/m3 TSP).   The closure letter also  made it
clear that these conclusions  were  based  solely on a review of currently
available quantitative evidence from epidemiology studies.  That is, CASAC
did not  say that  there are no health effects at the  lower end or below
* Following the  practice of the EPA/OAQPS  Staff Paper, this report  uses  the
  term "concentration-response  function" when referring to  community
  studies of ambient  air  pollution effects.  The more  traditional term
  "dose-response function"  implies  greater knowledge of actual  exposure,  as
  would be the  case  in a laboratory study.

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                                Table 1-4
         SUMMARY OF CONCENTRATION RANGES IN EPA/OAQPS  STAFF PAPER*


"Effects Likely"
"Effects Possible"
Short-Term
BS
250-500
. 150-250
PM10
350-600
150-350
Long-Term
TSP
1 180
110-180
PM10
90-110
55-110
* All entries  are in (ig/m .  Concentrations are given in both original
  study units and approximately equivalent PM10  units.
Source:   EPA/OAQPS Staff Paper, op. cit..  Tables 1  and 2.
these concentration ranges; it merely  said that there was currently no
quantitative evidence of effects.
Other Considerations  in Selecting Concentration Ranges for the Benefit
Analysis —
     Some of the alternative PM  standards under consideration may result in
ambient PM  concentrations below  the  lower  bounds  of  the  Effects  Possible
ranges identified by the  Staff Paper.  The lower bounds,  150 jig/m  for 24-
hour PM10 (150 ng/m3 BS) and 55  (ig/m3 for annual average PM10  (110 |ig/m3
TSP),  will hereafter be referred to  as  the  "Staff Paper lower bounds".   As
discussed in Sections 9 and  10,  concentations  below  the  Staff Paper  lower
bounds  can result  for several  reasons.   One example  is that controls
required in an area  to attain a 24-hour  standard may lead to  associated
reductions  in annual average concentrations  below the lower-bound annual
concentration.   The reverse  can also happen.   Sections  9  and 10  give
additional  examples.

     The existence of air quality improvements below the Staff Paper  lower
bounds poses  difficult  problems  for the benefit analysis.  On the one hand.
                                    1-29

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one can qnestion the appropriateness of attributing benefits  to  air quality
improvements below  the Staff Paper lower bounds.   The EPA staff  has clearly
given careful consideration to  selection of the lower bounds.  On  the other
hand,  constraining the benefit  calculations by the Staff  Paper lower bounds
also presents problems.  The problems  include:  1)  the possibility that
imposing the lower-bound constraints  may introduce  statistical  bias in the
benefit estimates;  2) the  uncertainty concerning the existence of effects
below the Staff Paper lower bounds; 3) data limitations  which limit atten-
tion to the annual  lower-bound concentration  only;  and 4) possible differ-
ences between the  economic principles of benefit-cost analysis and the
criteria  used  in  selecting  the "Effects Possible" range for  standard
setting purposes.  These issues are discussed briefly below  and further in
Section 10.

     Possible Statistical Bias — Practical  constraints limit the benefit
analysis to use  of concentration-response functions which,   in  most cases,
are taken directly  from the original  research studies. None  of  the studies
used in the benefit analysis imposed the Staff  Paper lower bounds at the
time  the  concentration-response functions  were statistically estimated,
either by the authors or by Hathtech.*  As discussed in Section  10, it is
improper statistical procedure to impose a lower-bound constraint when
calculating benefits  unless it was also imposed or accounted for  when the
concentration-response function was originally developed.  The  impropriety
most likely leads to downward-biased estimates of the  level of  benefits
with the  constraint imposed.   That is,  applying the constraint may lower
benefits for two reasons — first, because benefits below the  lower bound
are truncated, and  second,  because  the estimate of benefits above  the lower
bound may be downward biased.

     Uncertainty About Lower—Bound Concentrations — As noted  in the EPA
Staff  Paper (7),  the available epidemiological data "do not  ...  show
evidence of clear population thresholds but suggest a continuum of response
* Some of the studies discussed  the  issue  of no-effects thresholds, but
  none accounted for such a possibility when estimating  concentration-
  response functions.
                                   1-30

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with both the risk of effects  occurring and the magnitude  of  any potential
effect decreasing with concentration."  This situation complicates any
attempt to choose an "Effects Possible"  concentration range.   The fact that
health effects  exist  on  a  continuum  creates a  difficulty in  selecting the
lower bound of the "Effects Possible" range.   And  the decreasing magnitude
of any effects as  concentrations  decrease  raises  the  question of  whether
particular  effects are of sufficient  health significance  to  influence
choice of the range.  Both of these factors combine to make  selection of
the lower bound  subject  to  informed judgment as well as  quantitative
evidence.

     The degree to which judgment must ultimately enter the decision is
illustrated  by the selection of the lower-bound annual  concentration.  The
annual lower bound is based largely on a study of  two Connecticut towns by
Bouhuys, Beck and Schoenberg (8).  The  study  found evidence  of  increased
respiratory  symptoms (cough, phlegm, and dyspnea)  in the town with dirtier
air (Ansonia),  but  no differences  in prevalence  rates for chronic bronchi-
tis or lung function.   Concentrations of TSP  in the cleaner  town averaged
       3                                                        3
40 ug/m  annual mean.   Concentrations in Ansonia averaged 63  ug/m   annual
mean during the year of the study, and up to 152 ug/m   annual mean during
the previous seven years.  The  EPA  Staff  Paper characterizes pollution in
                                     3
Ansonia by a median value of 110  ug/m  TSP annual mean (9) and this value
is the primary basis  for the lower-bound annual concentration (10).*

     Alternative  conclusions are also possible  from  the Bouhuys  et al.
                                           3                         3
study.  For example, the choice of 110  ug/m  out of the range 63 ug/m  to
152 ug/m  is not  the only option.   Furthermore, there is some possibility
that any value in the 63-152 ug/m range would not fully protect  against
increased  respiratory  symptoms.  The presence  of symptom differences
between the two towns  implies  symptoms are produced at concentrations at
least as low  as  in the dirtier town (63-152  ug/m ) and  possibly lower.
Thus,  a lower bound below  110  ug/m   might  be  necessary if it were desired
* The EPA Staff Paper also  cites  studies by Ferris et al.  (11-12) and Lunn
  et al.  (13)  as  providing  supporting evidence  for this choice.   See
  Section 10 for further discussion.
                                   1-31

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to protect against symptomatic effects with a margin of safety.  This study
thus points out  the  twin difficulties  of  selecting  a  lower bound  and
deciding  on  the health significance  of observed effects.

     An additional issue  is  the limited extent of the epidemiological  data
base available for the selection  of  critical  concentration ranges.   Only  a
few studies  pass  the CASAC tests  of  acceptability, and  all of these studies
have technical  limitations  of  varying  degrees.   Consequently, as new
studies become  available,  it is possible  that they may  point towards
different conclusions.  A case in point is Ostro's  (14) recent reanalysis
of the  London mortality data that were the primary basis for the 24-hour
lower bound  identified by the Staff  Paper.  Ostro uses statistical methods
to test formally for the existence  of a threshold  at various levels  (the
Staff Paper's  analysis was informal).   He finds very strong association
between PH  and mortality at concentrations below 200 (ig/m  BS, strong
                           3                                        3
assoc iation below 100 (ig/m  BS, and some association below 75 |ig/m  BS.
Depending on the uncertain relationship between BS and  PH10 at lower
concentrations, these observed effects levels may be below the Staff Paper
lower  bound of  150  fig/m  PM10.   However,  Ostro's reanalysis was not
available to CASAC or the EPA staff at the  time they made their recom-
mendations.

     Data Limitations — The Staff Paper identified lower  bounds for  both
24-hour and  annual mean  concentrations.  Application of these  lower bounds
requires  pro-control and post-control air quality data on both a daily and
annual basis.   Air quality data  available from the control cost and air
quality analysis does not  include  daily data other than for the  second-
highest day  per year.   Thus,  the benefit  analysis can apply only the annual
mean lower bound.  The annual mean lower bound is directly applied to those
benefit models using  the  annual mean as  the  pollution  concentration index.
As explained in Section 10,  the annual mean lower bound can  also be applied
in the  benefit calculations  for the studies that  originally used daily
data.   The 24-hour lower bound, however,  cannot be applied.
                                  1-32

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     Differing  Objectives — The Criteria Document and Staff Paper provide
a comprehensive  discussion of PM-related health effects and the concentra-
tions at which the effects  appear.  As the Staff Paper's use of the Bouhuys
et al.  study and others suggests,  health  effects of a  significant  or
permanent nature are  stressed when selecting the "Effects Possible" concen-
tration range for the primary  standard.  Effects  in  the form  of  increased
symptoms, By themselves,  appear to be  less influential in determining that
range.   Hence, there  may be  symptomatic effects  occurring at concentrations
below the Staff  Paper lower bounds.

     In contrast, the benefit analysis is concerned with the benefits of
reducing ambient air  pollution.   Benefits are determined by individuals'
willingness  to  pay  for  pollution reductions.   Willingness to pay  will  be
influenced by both risk assessment  and risk valuation.  Individuals may
value a reduction in symptoms  as well  as valuing reductions in more signi-
ficant health problems.  Individuals may also have differing assessments  of.
the  health risks from  PM.   Either of  these  factors  could  lead to  the
existence  of benefits at concentrations below the lower bounds selected
during Staff  Paper development.  Thus,  application of the Staff Paper  lower
bounds in the calculation of benefits  may  be inappropriate because of  the
differing  objectives of benefit analysis  compared  to  Staff Paper  and
Criteria Document development.

Benefit Calculations  with Staff Paper Lower Bounds —

     In view  of  the  uncertainty  about  calculating benefits  below  the  Staff
Paper lower  bounds, two sets of benefit estimates are provided in this
report.  One set  is  based on  application of the concentration-response
functions over nearly the full  range of air quality improvements  predicted
for each county.  Only two constraints are imposed in this first set  of
estimates:   1)  limits implied  by the range of PM  concentrations present  in
the data of the original research studies; or 2)  narrower limits if implied
by the results of  an  individual study.  The second set of benefit  estimates
has an  additional constraint  imposed.   The  second set  excludes  all health
benefits predicted by the concentration-response functions  at  levels  below
                                   1-33

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the Staff Paper lower bounds. 'The summary sections of the report (Sections
1 and 2) provide highlights of both sets of results.   Full  details are
provided  in  Section 11.   However,  the  remaining sections of the report are
concerned primarily with benefit  calculations without the lower-bound con-
straints  imposed.

SUMMARY OP RESULTS IN SPECIFIC BENEFIT CATEGORIES

Health Effects

     This analysis considers six potential  categories of health effects
from  particulate matter and other forms of  air pollution:   mortality
effects due  to either acute or  chronic air  pollution  exposure,  acute
morbidity effects due  to either acute  or chronic exposure,  and chronic
morbidity effects due  to either  acute or chronic exposure.*  The  existing
research base  in each  of these  areas varies in scope  and  quality.   In
categories  where there is  some  evidence  of  the relationships  between
particulate matter concentrations and rates  of mortality and  morbidity,
estimates  are made  of the changes  in mortality  and morbidity risks
associated with alternative standards.  These risk reductions are then
valued using  the procedures described  previously.  The details of the
procedures and  results are described in Sections 3 and 4  of the  report.   An
overview  of  the health results is  provided below.
Economic Benefits of Health
     Table 1-5  summarizes the  estimated  economic benefits  of health
improvements associated  with  imposition of  the PM10  (70, 250) Scenario B
standard.**  Estimates based  on the epidemiology literature  and the
economic  literature  are  separately identified.   Note  that  neither
 * The terms  acute exposure and  chronic exposure  are taken to be  synonymous
   with the terms short-term exposure and long-term exposure, respectively.
** Estimates  for  the  other  standards  are  summarized  in  a  later subsection.
   Table entries are  displayed  to the nearest $10 million.  However, not
   all entries may be  accurate to that many significant digits.
                                   1-34

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                                       Table 1-5

        INCREMENTAL HEALTH BENEFITS FOR THE PH10 (70.  250) SCENARIO B STANDARD*
Health
Effect
Mortality

Morbidity
(Acute)
Morbidity
(Chronic)
Exposure
Acute
Chronic
Acute
Chronic
Acute
Chronic
Epidemiology Literature
Minimum
0.04
NA
0.15
0
NA
0.12
Point
1.12
NA
1.32
0
NA
0.12
Maximum
14.86
NA
11.91
1.44
NA
0.13
Economic Literature
Minimum
NA
0
NA
0.03
NA
2.61
Point
NA
12.72
NA
10.65
NA
11.40
Maximum
NA
62.10
NA
21.49
NA
20.19
  1982 discounted present values  in billions  of  1980  dollars for a 7-year time horizon
  (1989-95)  and  a 10 percent discount rate.
NA = No estimate available.

-------
literature provides estimates in all  six health-effect categories, but that
five categories are covered by the two  literatures taken together.

     One of  the largest benefit categories among the epidemiology-based
estimates is the acute exposure  mortality category.   The mortality benefits
are based on a study by Mazumdar e_t  a_l. (15) of total mortality in London
on a daily basis during 14 winters.  Both PM (measured as British smoke)
and SO-  measurements  were  included in the  study.

     The three morbidity estimates from the epidemiology literature are
based on studies by Samet et_ al. (16),  Saric e_t al. (17),  and Ferris et, .al.
(18-20),  respectively.  These studies were  concerned with acute or  chronic
respiratory disease.   Because  these studies do not clearly identify the
relative importance of PM and SO-, they may provide upward-biased estimates
of PM related respiratory  effects.   On the other hand,  the three morbidity
estimates are also potentially downward biased due  to  the exclusion of
nonrespiratory diseases and  the  conservative method for valuing morbidity
effects.

     The largest  benefits  among the  economic literature  estimates are in
the  chronic  exposure mortality category.   The  estimates  in this category
are based on  the results  of nine separate studies.   Most of the studies
control for either S02 or  S04 (a subset of PM),  as well as PM.  Six of the
studies  find  associations  between mortality and PM concentrations,  while
two  find the SO^  fraction  of PM to be  more influential.*  One study finds
little  evidence  of  effects.   This uncertainty is reflected  in the minimum
estimate of 0.0 for  this  category.   The point  estimate emphasizes the
studies by  Lave and  Seskin  (21) and by Lipfert (22-24),  and uses results
that are on  the low end of the range  of effects they observed.
* Sulfates  (S04) are primarily a constituent  of the fine particle (approxi-
  mately < 2.5 jim diameter)  fraction of PM.  As  noted previously, it is
  difficult  to predict whether  and to what extent fine particle  concentra-
  tions will be reduced by the  control  strategies required to attain the
  alternative  PM standards  under consideration.
                                   1-36

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     Estimates  for  the  chronic exposure acute  morbidity category are based
on studies by Ostro (25) and by Crocker et al. (26)  which look at  labor
productivity  effects (lost work  days).   The Ostro study also analyzes
reduced activity days.  These morbidity benefits may be underestimates
because  of  the valuation method  mentioned  earlier.   The  first  study
controls for both  PM  and  SO.,  while the other considers only PM  in  the
final specification.   Benefits in the chronic exposure-chronic morbidity
category are based on a single study of  labor productivity effects  by
Crocker  et  al.  (27) which includes  only PM  in  the final specification.

Range of Uncertainty —

     The variation  between the minimum and maximum estimates in Table  1-5
reflects several of the  types of uncertainty present  in the analysis.   The
general  types  of  uncertainty were  discussed previously.   The  epidemiology
study of acute  exposure  mortality effects by  Mazumdar et  al.  is illustra-
tive  of several  specific examples.  The variations  in this instance
reflect:   1)  use  of different  functional forms  for the dose-response
function, both of which are consistent with  the observed data; 2)  use of
the upper and lower bounds on the 95 percent confidence interval around  the
estimated coefficient  for particulate matter  in the concentration-response
function; 3) use of coefficients  estimated over different  subsamples  of  the
data; and 4) use of different estimates for the value  of  a marginal  reduc-
tion  in mortality risk.  Note  that other types  of  uncertainty are  not
reflected in the range. For example,  not  included are uncertainty about
the air  quality data and uncertainty introduced by using  the  results of a
London  study to evaluate U.S. conditions where particle composition  and
weather  may differ.

     The point estimate of benefits  in the  Mazumdar et al. example  is
obtained as follows.  First,  point  estimates for the  estimated coefficient
and  for  the value  of  a marginal risk reduction  are used to obtain  new
minimum  and maximum benefit estimates based  on the  different functional
forms and data  subsamples.  The  new estimates  have  a smaller range,  but  one
that still differs by an order of magnitude.  The geometric mean of  the  new
                                   1-37

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minimum  and  maximum values  in  each  county  is  then  calculated  and  summed
over counties to obtain the U.S. total.  The geometric mean is a natural
measure of central  tendency  for  numbers  which  differ  by  orders of  magni-
tude.

Sensitivity to Staff Paper Lower  Bounds —•

     As discussed  previously,   the  EPA Staff  Paper  and  the  Clean  Air
Scientific Advisory Committee  (CASAC) identified PM  concentration ranges
below which they concluded there was no quantitative evidence of health
effects.  These concentrations are 150 to  350 |ig/m3 for 24-hour PM10 and 55
           4                                       3
to 110 (ig/nr for annual  average  PM10 (110 to 180 (ig/nr for annual  average
TSP).   In theory, it is  possible  to calculate benefits under the  assumption
that no health benefits  are produced by reducing PM below  the lower bounds
of these concentration  ranges (the Staff Paper lower bounds).  However,
there are several practical problems  with doing  the calculation  as  part of
this analysis.  As discussed previously,  these problems range from  probable
statistical bias to lack of daily data on PM concentrations.   Subject to
these previously discussed limitations. Table 1-6 contains the benefit
estimates that result when all health benefits associated  with reducing PM
concentrations  below 110  |ig/m   annual average TSP  are excluded.   For
comparison purposes, the table also includes the corresponding estimates
when the lower-bound constraint  is   not  applied.  All  estimates are point
estimates for each  category.

     The estimates  exhibit varying  degrees of sensitivity to the  Staff
Paper lower bounds.  The  variations are due  to differences in:   1)  the
index  of PM exposure used;  2)  the  nonlinearity of  the concentration-
response function; and 3)  other  prior cutoffs  imposed to provide consis-
tency with the range of  PM concentrations or effects found  in the original
studies.   For the less  stringent standards such as PM10  (70, 250),  the
chronic exposure mortality and morbidity  estimates show little  sensitivity
to the  lower bounds;  they  exhibit  greater  sensitivity  with the more
stringent  standards.
                                   1-38

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                                           Table 1-6

     COMPARISON OF INCREMENTAL HEALTH BENEFITS FOR THE PM10 (70, 250) SCENARIO B STANDARD.
                            WITH AND WITHOUT A LOWER BOUND APPLIED*
Health
Effect
Mortality
Morbidity
(Acute)
Morbidity
(Chronic)
Exposure
Acute
Chronic
Acute
Chronic
Acute
Chronic
Epidemiology Literature
Lower Bound**
0.31
NA
0.18
0
NA
0.12
No Lower Bound
1.12
NA
1.32
0
NA
0.12
Economic Literature
Lower Bound**
NA
11.98
NA
1.43
NA
10.62
No Lower Bound
NA
12.72
NA
10.65
NA
11.40
 * 1982 discounted present values  in  billions  of 1980 dollars for a 7-year time horizon (1989-
   95) and a 10 percent discount rate.   Entries are point estimates for each  category.

** Lower bound of 110 ug/m3 TSP AAM applied.
NA = No estimate available.

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Estimates of Physical Effects —

     Implicit  in  the  estimates of economic benefits  are estimates  of
changes  in health status.  The changes in health status include reduced
risk of  mortality and morbidity.   For economic valuation purposes,  the
consequences of  reduced morbidity risk are further categorized  into  fewer
work days lost, fewer reduced activity days,  and reduced direct expendi-
tures for medical  care.  For informational purposes,  estimates for each of
the physical effects categories are also developed.  The estimates for each
standard and scenario  can be found in the supplementary  tables  in Section
11 of the report.   The estimates are based on the same methods and data
used  in calculating  economic  benefits  except  that the  final step  of
economic valuation is  not performed.

Soiling and Materials DM*go

     Existing  research on the soiling and materials effects  of particulates
has focused primarily on household soiling,  and to a  lesser extent  on
particle effects   on  paint,  building  stone  and certain  manufacturing
industries.  Benefits  in this  area  are  estimated  using the  results from a
number  of existing studies  which are  reviewed  in  Section 7.  As suggested
above,  the existing literature  to a large extent  constrains the estimates
to the benefits of reduced household soiling.

     Table 1-7 presents  estimates of the benefits of reduced household
soiling  with  the PH10 (70,250) Scenario B standard.  These estimates  are
based on three separate studies by Cummings et al.  (28),  Watson and Jaksch
(29),  and Mathtech (30).  Highest weight is given to the Mathtech study,
which had lower estimates than the other two.   Also shown in Table 1-7  are
estimated benefits of PM reductions in  part of  the  manufacturing sector.
These estimates are also based  on a study by  Mathtech  (31).   Only  a  few
studies  were  identified concerning  soiling  effects in the commercial,
governmental,  or institutional sectors.   Although these  studies  found no
effects,  the  results  may be unrepresentative because of  limitations in
study design.   In  view of the limited analysis of these  other sectors  and
                                   1-40

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                                Table 1-7
       INCREMENTAL BENEFITS OF REDUCED SOILING  FOR THE PM10 (70,250)
                          SCENARIO B STANDARD*

Household Sector
Manufacturing Sector
Minimum
0.73
0.73
Point
3.14
1.30
Maximum
13.85
9.45
* 1982 discounted  present  values  in billions  of 1980 dollars for a 7-year
  time horizon (1989-95) and a 10 percent discount rate.
the partial coverage of the manufacturing sector,  the benefits of reduced
soiling may be underestimated  in  this analysis.

Visibility and Aesthetics

     Decreases in ambient  concentrations of particulate matter may also
generate benefits  through improvements  in visual  range  and  the  aesthetic
quality of the environment.   These benefits may  accrue in  several ways.
For example,   improvements  in visiblity may enhance urban quality of  life.
They may  lead to  greater enjoyment of  recreational activities.   Further-
more, preservation of  unique  scenic vistas  can lead to  a type of benefit
known as "existence value".  Most visibility and aesthetic benefit studies
rely on contingent  valuation techniques which  make  use  of  specially
designed surveys.

     Visibility and aesthetic  benefits  associated  with achieving alterna-
tive PM10 and TSP standards are not estimated in  this analysis.   However,
contingent valuation studies have been  used  to develop point estimates  of
benefits  associated with  specified improvements  in visual range (see
Section 8).   Use  of  those  estimates  in this  analysis would require
knowledge of the  transformation between  changes in PM10 or TSP and changes
                                    1-41

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in visual range and plume blight.  The  transformation is complex  with
particle  size being one of the more important  factors.  Fine participates
(i.e., those with  diameters  less  than 2.5 Jim)  are  more influential  in
determining visual range.  Whether fine particulate concentrations are
reduced markedly  as a result of the alternative PM10  and TSP  standards
under consideration is  a function of the control  strategies employed.   The
EPA Staff Paper (32)  suggests  that the  control  strategies required may not
appreciably reduce fine particulate concentrations and, hence,  may not
improve visual range.  Changes in plume blight will also depend on the
control  strategies  selected.

Property Value and Labor Market Studies

     There are a  variety of studies  which indicate  that  some  of  the
observed  geographic  variation in  residential  property values  can  be
explained by site attributes including air quality.  Therefore, it has  been
suggested that property value differentials attributable to air quality
represent the capitalized market value  of cleaner air.  A smaller but
comparable literature suggests the  same phenomenon can be observed in the
geographic variation  in  labor wage rates.   Representative  studies  from
these literatures are  also used to develop benefits estimates  (see Sections
5 and 6 for details).   Note  that these estimates are  likely to reflect
market perceptions of  both health and welfare  benefits of air quality
improvements,  and thus cannot be  directly added to the health benefits
described previously.  However, they can provide an independent estimate of
perceived health and  welfare benefits.  The property value and wage  studies
are used in  this study to provide  a  cross-check on the health and welfare
benefit  estimates.

     The benefits  of the  PM10 (70, 250) Scenario B standard  as  estimated
from the property value and labor market studies are shown  in Table 1-8.
The estimate from the property value  literature is  based on about eight
studies, most of which control for both PM and SO, or S04.   The estimate
from the labor  market  literature  is based on two studies by Smith (33) and
Rosen (34), both of which include only PM in their final  specifications.
                                  1-42

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                                Table 1-8
 INCREMENTAL HEALTH AND WELFARE BENEFITS FOR THE PM10 (70,  250)  SCENARIO B
    STANDARD AS MEASURED FROM PROPERTY VALUE AND HEDONIC WAGE  STUDIES*

Property Value Studies
Hedonic Wage Studies
Minimum
3.43
9.81
Point
6.85
19.81
Maximum
11.42
37.21
* 1982 discounted present  values  in billions  of 1980 dollars for a 7-year
  time horizon (1989-95) and  a  10  percent discount rate.
The latter may be one explanation for why  the  labor  studies provide higher
estimates.  However,  another possibility is  that  the  labor  studies provide
a more complete estimate of benefits.

AGGREGATE INCREMENTAL BENEFITS

Methods of Aggregation

     The previous tables contain estimates  of  incremental  benefits  for a
variety  of benefit  categories.   The  remaining  task is to combine the
estimates for the individual categories in order  to  develop an estimate of
aggregate incremental benefits.   Aggregate numbers are required in order
for any benefit-cost analysis to proceed.   However,   aggregation cannot be
accomplished by simply summing all of the categories because this might
result in double  counting and other problems.

     Some of the  issues which must be considered in choosing an aggregation
procedure are:
          Does  the procedure give due consideration to  the  relative
          strength of  the  evidence  across  different benefit
          categories?
                                    1-43

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             Table 1-9




ALTERNATIVE AGGREGATION PROCEDURES


Mortality
Acute Morbidity
Chronic Morbidity
Household Sector
Soiling & Materials
Manufacturing Sector
Soiling & Materials
Other Sectors
Soiling & Materials

A
Mazumdar
et al.
—
Ferris
et al.
—
—
—

B
Mazumdar
et al.
Samet
et al.
Ferris
et al.
—
—
—

C
Mazumdar
et al.
Ostro
Ferris
et al.
Mathtech
—
—
Procedure
D
Lave & Seskin;
Lipfert
Ostro
Ferris
et al.
Mathtech
—
—

E
Lave & Seskin;
Lipfert
Ostro
Crocker
et al.
Geom. mean of
Cols. D & F
at county
level
Mathtech
—

F
Col. C +
Col. D
Col. B +
Col. C
Crocker
et al.
Watson &
Jaksch +
Cummings
et al.
Mathteoh
—

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     •    Does  the procedure avoid double  counting of benefits?
     •    Does  the procedure provide complete coverage of benefits?

Since no one procedure best satisfies  all three  criteria,  it is  useful to
consider various alternative approaches.  Six possible alternatives are
identified  in Table  1-9.   They  give  differing weights to  the three
criteria.  Each alternative is discussed  further below and in Section 10.

Procedure  A  —

     Aggregation Procedure  A  is  designed  to be consistent with  the  CASAC's
review of the scientific literature.  In  the Criteria Document  for  PH and
SO.  CASAC distinguished between studies  providing quantitative  evidence of
pollution-related effects and  those  providing less quantitative evidence.
Among  the health studies  considered adaptable for  use in this benefit
analysis, the studies by Hazumdar  et al. and Ferris  et  al. were judged by
CASAC to be  in  the quantitative category (35).  Procedure A includes only
these two health  studies.  (Other studies  were judged by CASAC as  providing
quantitative evidence,  but  they  could  not be  adapted  for benefit calcula-
tions. )

     Procedure A  also  excludes all non-health studies.  The  Criteria
Document acknowledges  the  probable  existence of non-health effects  such as
soiling (36), but  is noncommittal regarding the  availability of  quantita-
tive  evidence  for  such effects.

     It is  unlikely that  Procedure A  involves any double counting of
benefits.  This conclusion follows  because of its incomplete coverage of
benefit categories.

Procedure  B  —

     This  procedure  is  similar  to the previous one with the exception  that
the health study by Samet et  al. has been included.   This modification is
consistent  with  the conclusions of the EPA Staff  Paper (37)  concerning
                                   1-45

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studies providing reasonable evidence  of concentration-response relation-
ships for  health  effects.  The Staff Paper  includes  the  Samet  et al.  study
in this category,  as well as the studies in  Procedure A.

     As with Procedure A, no non-health studies are included.  The Staff
Paper,  like  the  Criteria Document,   is  noncommittal  regarding  the  availa-
bility of  quantitative non-health effects evidence.

Procedures C Through F —

     The studies  included in Procedures  A and B  are  among  those  judged by
CASAC and  the EPA Staff  Paper  as  providing  the most  reliable  quantitative
evidence  of air pollution effects.   Procedures  C,  D,  E,  and  F  make
increasing degrees  of use of other studies.   This includes  studies  such as
the one by Ostro  which had not yet been  formally  published prior to  closure
of the Criteria Document.  It  also includes  studies that CASAC  judged  to be
less reliable but that  still  have some  merit.   With these  latter studies,
it is  of  interest  to  trace out their  implications.  Even though these
studies were judged less reliable,  they  provide the only available evidence
of the potential magnitude of benefits  in  some  categories (e.g., chronic
exposure  mortality).    Including calculations based  on these studies
provides greater  assurance  that  potentially important  effects  of PH have
not  been  omitted  from the  benefit analysis.   At the  same  time,  the
distinction is maintained  between these studies and the  CASAC-approved
studies by including them in different aggregation procedures.

     Procedures  C through F differ in the degree to  which the additional
studies are used  (C is more selective).   The procedures  also differ in the
importance assigned to avoidance of double  counting versus  completeness of
coverage (C stresses avoidance of double counting).

Procedure  C —

     Procedure C brings in the study of acute  morbidity by Ostro.  This
recent  study is  not  cited in the  Criteria Document and, in fact, the
                                   1-46

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benefit • analysis  uses  later,  supplemental results not  available  prior  to
the Criteria Document final draft.

     Among  the  available  health  studies not already included in Procedures
A and B,  the Ostro study is rated very high  for  purposes of an economic
benefit  analysis.   The  Ostro  study has  several features  which,  taken
together, lead to this conclusion.  First, the  study uses data on indivi-
duals (microdata)  rather  than macrodata  such  as vital  statistics.   Micro-
data are preferred because  they improve  the accuracy  of  the estimates  of
the dose-response function parameters and enable more direct application of
proper statistical  controls.  Second, the  study uses data samples from  90
medium-sized U.S.  cities.   The  broad scope of  the sample  provides greater
assurance that the estimates of health effects can be used as the  basis  for
a national  benefit  analysis.  Third,  in identifying the pollution exposure
for each individual,  the study locates  individuals by city of residence
rather than by county or SMSA.  It also uses an average of the readings
among the population-oriented monitors  in each  city rather than using a
single monitor or worst-case  monitor.    Fourth,  the  study controls for
smoking  habits as well  as a variety of  other  economic  and demographic
variables.  While  the study does  have some limitations  (e.g., no control
for dietary habits,  limited control  for occupational hazards and exposure),
its other features  make it  clearly  superior for  use  in  a benefit analysis.

     With the addition of  the  Ostro study in  Procedure  C,  the  study  by
Samet et_ al.  is omitted to  avoid possible double counting  of benefits.  The
Samet et al.  study is  concerned with acute respiratory effects, which may
be a subset of  the  effects  captured in the Ostro study.   The Ostro study  is
also given  preference  over  the  acute  morbidity  study by Saric  et  al.  The
latter  study provides less complete coverage  of  diseases (respiratory
disease  only) and  limited concentration—response information  (e.g.,  no
separation  of PM/SO- effects,  no information on PM effects below  200 |ig/m3
annual mean, etc.).

     Procedure  C  also  incorporates  the Mathtech study of household soiling
effects.  The Criteria Document and Staff  Paper  reference this recent study
                                   1-47

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but are noncommittal as  to  its use for quantitative purposes.  The study is
included here  in  order  to  provide some coverage of soiling effects,  in
recognition of  its  strong analytical  features,  and because of the favorable
peer review which the study has received.

     Note that Procedure C excludes possible chronic exposure mortality
effects,  provides limited coverage of chronic morbidity effects (respira-
tory illness only),  and  offers limited coverage of soiling  effects.

Procedure D —

     Procedure  D addresses  some of the possible incompleteness of coverage
present with Procedure C.  In particular. Procedure C omits the possibility
of benefits from reduced mortality risk due to long-term exposure.   There
are many existing,  cross-sectional studies of long-term exposure mortality
effects.  The majority  conclude  that mortality  effects exist.  However,
these studies are  not highly regarded by  CASAC, so  care is taken in how the
results of  these studies are used in the benefit  analysis.   This includes
carefully assessing the limitations of each  study and ultimately using
results which are  at the low  end of the studies finding effects.

     Summarizing briefly, nine chronic exposure  mortality studies are
reviewed in detail in Section 4 of the report.  As noted previously,  six of
those  studies  found statistically  significant  associations between
mortality rates and PM  (generally  measured  as  TSP).  Two others found that
it was the  sulfate component of PM,  rather than TSP,  that  had an associa-
tion,   The  ninth found little  evidence of association between mortality and
air pollution.

     The three  studies finding  no  PM effects have been faulted for inclu-
sion  of an excessive  number  of pollution variables  and/or control
variables.   This leads to multicollinearity and reduces the possibility of
finding statistically significant PM effects.  At least one of the three
no-effect studies  also used relatively more recent data when mean levels of
TSP were reduced compared to earlier years,  thus  reducing  the possibility
                                   1-48

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of finding significant effects.  These negative results (no effects = no
benefits) are nonetheless retained for use as a lower-bound estimate of
zero for this category.

     The six  positive-effect studies (and the  no-effect  studies) have been
faulted  on other  grounds.   Some have used relatively aggregate data.   Some
have been criticized for the pollution monitoring used.   All of the studies
have incomplete statistical controls,  which is also  true  of the studies
included in Procedures A through C.

     Particular  attention  in  the benefit  analysis  is focused on  the
mortality studies by Lave and Seskin and more recent studies which have
attempted to  address  the criticisms of their work.  Two  studies by Lipfert
are important in this regard.   In one study, Lipfert used SMSA mortality
data and air  pollution data, as done earlier by Lave and Seskin.  He  found
results comparable  to those of Lave and Seskin and comparable  to  those
obtained  in  his parallel analysis using less aggregate data at  the city
level.   In a  second study,  Lipfert did a reanalysis of the Lave  and  Seskin
work and  added an approximate control  for smoking.  This study also  found
results  consistent with Lave and Seskin's original  results.   Based  on  these
findings,  the benefit analysis  uses  results which are  on  the low end of the
range observed by Lipfert  and Lave and Seskin.  These results  are also
considerably lower than those  found  in two of the three other studies
finding positive effects.  Thus, the point estimate of chronic exposure
mortality benefits  included  in Procedure D is  based on the low side  of  the
evidence available among studies finding  chronic exposure effects.

     With the addition of the  chronic exposure studies,  the acute  exposure
study by Hazumdar et al.  is dropped  from  this  procedure.  This  is because
of the possibility for overlap  between these estimates.   In particular,  the
chronic  exposure studies are based on  annual mortality rates.   Annual
mortality rates will  include  all  deaths during the year,  including  those
deaths  that  may be due to acute exposures.  Thus, it  is possible for the
chronic  exposure studies to be capturing the mortality effects of both
acute and chronic exposure.   The extent  to which  this  may happen is
                                   1-49

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unknown,  however.   It depends  on  a  variety  of  factors  such as  the
functional  forms  for the acute and chronic  dose-response relationships,  the
statistical  correlation between the measures  of  acute and chronic exposure,
and so on.   To be conservative in the estimate of benefits,  the  acute
exposure  study  is eliminated from this procedure.

Procedures  E and F —•

     Procedures E and  F are most easily considered together.  Procedure E
addresses the incomplete coverage  of the chronic morbidity category and  the
underestimation of soiling effects.   In Procedures A through D, chronic
morbidity estimates  are based on the study by Ferris  et  al.  which includes
only respiratory diseases.  In Procedure E,  the Ferris .e_t .§_!.  study is
replaced  by the Crocker et al. study which  includes more chronic  illnesses.

     In Procedure E,  the Hathtech  study of soiling and materials  damage in
parts of the manufacturing sector is  included.   The  coverage  of  household
sector  soiling  is  also expanded.   The latter  is  done by  taking into
consideration the results of  studies by Watson and Jaksch and by  Cummings
et al.  The  sum of these two studies is  used  in Procedure F,  in view  of  the
possibility that  together they may overestimate  benefits.  In contrast,  the
Mathtech household study  probably underestimates  benefits.  Procedure E
thus uses a compromise estimate for household soiling:   the  geometric mean
of the Mathtech estimate and  the sum of the estimates based  on Cummings .e_t
.§_!. and Watson and Jaksch.  The geometric mean is used as a conservative
measure of  the  average of the two estimates.

     The remainder  of the estimates used  in  Procedure F  also seek to
provide more complete  coverage  of benefits, with the possible  risk of some
double counting.  In  particular,  the benefits for the acute and chronic
exposure studies for  mortality are added  together;  the same is  also done
with the estimates  from the  acute and  chronic exposure studies  of  acute
morbidity.   As  a  result, Procedure F provides the most complete estimate of
benefits  possible with the available studies.   However,  it  may involve some
                                   1-50

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double counting.  The possibility of double counting  is less  likely to
arise  with  any of the procedures  A through E.

Results of  the Aggregation Procedures

    Applying the procedures outlined in Table 1-9  leads to  the results
shown in  Table 1-10.   The benefit estimates  shown in the table  are  for the
PH10 (70, 250) Scenario B standard.  The estimates  for Subtotal 2  range
from a low of $1.24 billion for Procedure A  to $52.4 billion for Procedure
F.   Host of  the  variation is due to the differing  estimates  of health
benefits.   Benefits of reduced mortality risk  are  estimated  to range  from
$1.1 billion to $13.8 billion.   For acute morbidity,  the range is  $0 to
$12.0  billion.  For chronic  morbidity, the  estimates range from  $0.12
billion  to $11.4  billion.

    The  range of values between Procedures A and  F  results from  the
alternative ways  to combine the various  studies and benefit  categories.  It
does not  reflect  the  uncertainty present in the estimates for the  indivi-
dual studies.  That is,  all entries  in  the table are based on  the  point
estimate  for  each study or benefit category.   If the additional uncertainty
about  each study  were incorporated,  as reported previously  in Tables  1-5
and 1-7,  the  full range of variation in Subtotal 2 would be $160 million to
$146 billion.  These  broader estimates of the range of  uncertainty for each
standard  are  reported in  the  tables contained in Section  11.

     Note that the table makes a distinction between Subtotals 1 and 2.
Subtotal  2 includes  both manufacturing  sector benefits  and benefits
accruing to  individuals and households (Subtotal  1).   The  distinction
between the two subtotals enables comparisons to be made  with the estimates
from the  property value and hedonic  wage  studies.

     The  benefit estimates based on  the property value and hedonic  wage
studies are shown at the bottom of Table 1-10.  These  estimates are the
same  as reported previously in Table 1-8.  They are not included  in the
subtotals because they are  believed  to  have substantial overlap with the
                                   1-51

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                                    Table 1-10

          INCREMENTAL BENEFITS FOR THE PM10 (70,  250) SCENARIO B STANDARD*
Benefit Category
Mortality
Acute Morbidity
Chronic Morbidity
Household Sector
Soiling & Materials
Subtotal 1
Manufacturing Sector
Soiling & Materials
Subtotal 2

Property Value Studies
Hedonic Wage Studies
A B C D E F
1.12 1.12 1.12 12.72 12.72 13.
0.0 1.32 10.65 10.65 10.65 11.
0.12 0.12 0.12 0.12 11.40 11.
0.0 0.0 0.73 0.73 3.14 13.
1.24 2.56 12.63 24.24 37.92 51.
t
0.0 0.0 0.0 0.0 1.30 1.
1.24 2.56 12.63 24.24 39.22 52.
Minimum Midpoint Maximum
3.43 6.85 11.42
9.81 19.81 37.21
84
97
40
85
07
30
36



* 1982 discounted present values  in billions of 1980 dollars for a 7-year  time
  horizon (1989-95) and a 10 percent discount rate.   Individual  entries may not sum
  to subtotals  due to independent rounding.

-------
benefit  categories included in Subtotal  1 (health,  household soiling,  and
visibility benefits).  Rather, they are reported here  to  serve  as a  cross-
check on the benefit numbers estimated from  the health and welfare  effects
studies.  Note  that the range of  property  value estimates  falls  between the
totals for Procedures 8 and C.  The range of wage estimates encompasses
Procedures C and D.

     Unfortunately, the exact relationship between benefits  included in
Subtotal 1,  and benefits estimated from property value and wage  (PV&W)
studies  is  unknown.  However, several  general points  can be  made.   First,
PV&W studies are behavioral studies.  That is, they record how  individuals
respond  to  external factors  such as  market prices,  housing (or job)
characteristics, and amenities such  as air quality.  This  implies that
benefit  estimates from PV&W studies will  depend on:   1)  individuals'
perception of air quality; 2) individuals' perception of how air quality
affects  health,  household soiling,  etc.;   and 3) how individuals respond to
these perceptions.  This means  that PV&W  studies  can  account  for  indivi-
duals' efforts to avert  or  mitigate the effects of air  pollution.

     In  contrast to PV&W studies,  most of the health  studies used  in this
report do not account for  averting or mitigating behavior.   Rather, the
central  issue is one of identifying the technical relationship between
health  status and air quality.  If averting or  mitigating  behavior has
occurred prior to conducting a  health study, then health effects will be
reduced  and  the  study's  estimate of effects will be understated.

     At  the  same time,  the dependence of PV&W studies on perception and
behavioral  adjustments can lead  PV&W studies  to underestimate the benefits
of air pollution  reductions.   For example, if  there are air pollution
health effects which individuals  do not perceive, PV&W studies will not
identify these  effects.

     The possibility of unperceived health effects  suggests that PV&W
studies  should be viewed as lower-bound estimates of aggregate benefits.
In  this  view,   the  property value estimates suggest  that  aggregation
                                   1-53

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procedures  A,  B,  and possibly C provide underestimates.   The  wage studies
suggest that A. B, C, and possibly D are too low.  The PV&W results  are
thus consistent with the earlier observations that  Procedures  A through D
probably provide incomplete coverage  of  benefits.

     The relationship between the  estimates from PV&W  studies  is  also  not
well understood.  The wage studies used  for  the  benefit  estimates  are both
specified  in  terms of the "real" wage.  The real  wage is calculated by
dividing the nominal  (actual)  wage by a  cost-of-living index,  one component
of which is the cost  of housing.   Thus, benefit estimates based on the real
wage models may reflect  adjustments to air pollution in both  the labor  and
property markets.   This  suggests that the benefit estimates from real wage
models may be  inclusive  of benefits  estimated from  property  value models.
It also may explain why the  benefit estimates are larger with the wage
models than the property value models  ($19.81 billion vs. $6.85 billion).

            lenefits for Other

Alternative Standards —

     The previous  discussion has focused entirely on  the PM10 (70, 250)
Scenario B standard.  Incremental benefits for a variety of alternative
standards  considered  in this  analysis are shown in Table  1-11.   The
alternatives  include  all  of the  standards defined previously  in Table  1-3.
They include six PM10 standards with 1989 implementation dates, two  TSP
standards with 1989 implementation dates, and two TSP  standards with 1987
implementation dates.  All  standards  extend through 1995.   All estimates
are displayed  to two significant digits.

     As noted  previously, health studies  available for the benefit analysis
do not incorporate  particle size information.  Benefits  shown  in the table
for the PM10 standards  are based on  the  TSP change  that results.   Compari-
sons  across  PM10  and  TSP standards  thus reflect only differences  in
relative  stringency in terms of  the TSP reduction;  they do not reflect
differences in  particle size.  If PM10 standards lead  to  proportionately
                                   1-54

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                                                    Table  1-11

                            INCREMENTAL BENEFITS FOR ALTERNATIVE PM10 AND TSP STANDARDS*
                                                   (B Scenarios)
i
ui
Ui

Alternative standard
PM10 70 AAM/250 24-hr. 7 yr.
PM10 55 AAM/- 7 yr.
PM10 55 AAM/250 24-hr. 7 yr.
PM10 55 AAM/200 24-hr. 7 yr.
PM10 55 AAM/150 24-hr. 7 yr.
PM10 48 AAM/183 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 7 yr.
TSP -/150 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 9 yr.
TSP -/150 24-hr. 9 yr.
Aggregation Procedure
A
1.2
1.8
1.8
1.8
2.0
2.1
2.1
2.4
2.9
3.3
B
2.6
4.1
4.2
4.3
5.0
5.2
5.2
6.4
7.2
8.9
C
13
22
22
23
27
29
29
36
41
50
D
24
43
43
44
52
56
57
71
81
100
E
39
74
74
76
90
98
100
120
140
170
F
52
98
98
100
120
130
130
160
190
230
               *  1982 discounted present values in billions of 1980  dollars  at  a 10 percent discount
                 rate.   The  7-year  time horizon is 1989-95  and  the  9-year horizon is  1987-95.
                 Comparisons between PM10 and TSP standards are  in terms of TSP stringency, not particle
                 size.

-------
larger reductions  in  PM10 relative  to TSP, benefits for the PM10 standards
may be underestimated.  Data from the cost and air  quality analysis suggest
that proportionately larger  reductions do not generally occur.  However,
approximations in  that analysis are such that the comparisons should still
be interpreted with  caution.   This is  signified by the line in the table
separating the two groups  of standards.

     The standards  are listed in approximate  order  of  increasing stringency
with the PM10 (70, 250)  as the least stringent and the TSP (-, 150) as the
most stringent.  The  ordering  is ,only approximate  for two  reasons.  First,
the ordering is  different  depending  on  whether the annual  or 24-hour con-
centration is used.   Second,  the  PM10 and TSP standards use different
statistical measures.  The PM10 standards  are stated in terms of arithmetic
means, expected second maximum values,  and particles  less than or equal to
10 |im  in  diameter; the TSP standards use  geometric means,  observed second
highest values and total  suspended particles.  This means  that relative
stringency will  vary  from county to county, depending on the particle size
distribution and  the  temporal  distribution of air quality in  each county.*

     An examination of Table 1-11 reveals several  general patterns.  First,
incremental benefits  increase  as the stringency of the  standard  increases.
This results because  more stringent  standards  lead to larger improvements
in air quality,  and also increase  the number  of counties where air quality
improvements  occur.  Second,  the ordering of  standards  in  terms  of incre-
mental benefits is insensitive  to  the  choice  of a particular aggregation
procedure.   That  is, the ordering  is  the same  for all six  procedures.
Third,  standards with earlier  implementation  dates  produce  larger incre-
mental benefits.   This is  also to be expected since earlier implementation
leads  to  improvements  in air quality which  are earlier  and of  longer
duration.
* As an example,  it  is possible for air quality  in  one  county to have a
  larger annual  geometric mean and a smaller annual arithmetic mean  than  in
  another county.   In this  case,  it would be possible for a geometric mean
  standard to be binding in the  first county but not binding in the  second
  and vice versa  for an arithmetic mean standard.   The  same is true for
  comparisons between different  monitors.
                                   1-56

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     It should be noted that  large benefits  for a'particular standard do
not necessarily  imply that the standard is economically  preferable to some
other standard with lower benefits.   The costs of attaining  the  standard
must also be  considered.  This is done in Section 2 of this report.

A Scenarios —

     Table 1-12  contains  estimates of the same ten alternative  standards
for  the  "A"  scenario  case.   Recall that  the  A  scenarios include  some
counties where  available  control options  are  insufficient to attain the
standards.  In the B scenarios,  these counties  are forced into attainment.
The  degree of air quality improvement is  thus lower in the A scenarios
relative to  the  corresponding standards  in  the B scenarios.   Hence,
benefits (and costs) are also  lower with the A scenarios.

     The A scenario results exhibit the same  general  patterns as the B
scenarios.   Benefits  are  larger with more stringent standards and with
earlier  implementation dates, and these patterns  exist  for  all  six
aggregation  procedures.   As with  the  B scenarios,  costs  of  control
associated with each standard must also  be considered before  drawing
conclusions about  the economic attractiveness  of a particular  standard.

Sensitivity to Staff Paper Lower Bounds —

     As discussed previously,  it is of interest  to calculate benefits under
the  assumption that  no health benefits are produced by  reducing  PM below
the Staff Paper  lower bounds of 55 (ig/m3  annual  PM10 (110 fig/m3 annual TSP)
and 150 ug/m   for 24-hour PM10.  As also discussed previously, there are
several  practical problems  with doing the calculation, ranging  from
probable statistical  bias to lack of daily data on PM concentrations.
Subject  to these previously discussed limitations, Tables 1-13 and 1-14
contain  the  benefit  estimates that  result when  all health  benefits
associated with reducing PM  concentrations  below  110  (ig/m annual  average
TSP are excluded. Table 1-13 provides results for the  B scenarios while
Table 1-14 incorporates the A scenarios.
                                  1-57

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                                                    Table 1-12

                             INCREMENTAL BENEFITS FOR ALTERNATIVE PM10 AND TSP STANDARDS*
                                                   (A Scenarios)
i
ui
00

Alternative Standard

PM10 70 AAM/250 24-hr. 7 yr.
PM10 55 AAM/- 7 yr.
PM10 55 AAM/250 24-hr. 7 yr.
PM10 55 AAM/200 24-hr. 7 yr.
PM10 55 AAM/150 24-hr. 7 yr.
PM10 48 AAM/183 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 7 yr.
TSP -7150 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 9 yr.
TSP -/150 24-hr. 9 yr.
Aggregation Procedure


A
0.88
1.1
1.1
1.1
1.2
1.2
1.2
1.4
1.7
1.9

B
1.7
2.3
2.3
2.4
2.7
2.8
2.8
3.4
3.9
4.7

C
8.2
11
11
12
14
14
14
18
20
25

D
16
22
22
23
26
27
27
34
38
48

E
24
35
35
36
43
43
44
56
62
78

F
32
47
47
49
58
59
60
76
84
110
               * 1982 discounted present values  in billions of 1980 dollars at a 10 percent discount
                 rate.   The  7-year  time horizon is  1989-95 and  the 9-year  horizon  is 1987-95.
                 Comparisons  between  PM10 and TSP standards  are in terms of  TSP stringency,  not particle
                 size.

-------
                                                       Table  1-13

                 INCREMENTAL  BENEFITS  FOR ALTERNATIVE PM10  AND TSP STANDARDS, WITH  LOWER BOUND  APPLIED*
                                                      (B Scenarios)
i
Ul

Alternative Standard

PM10 70 AAM/250 24-hr. 7 yr.
PM10 55 AAM/- 7 yr.
PM10 55 AAM/250 24-hr. 7 yr.
PM10 55 AAM/200 24-hr. 7 yr.
PM10 55 AAM/150 24-hr. 7 yr.
PM10 48 AAM/183 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 7 yr.
TSP -/150 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 9 yr.
TSP -/150 24-hr. 9 yr.
Aggregation Procedure


A
0.44
0.46
0.46
0.46
0.46
0.46
0.46
0.46
0.57
0.58

B
0.62
0.66
0.66
0.66
0.66
0.66
0.66
0.66
0.82
0.82

C
2.6
3.3
3.3
3.4
3.7
3.8
3.8
4.3
5.0
5.7

D
14
19
19
19
19
19
19
19
26
27

E
28
41
41
41
42
43
43
47
60
64

F
40
61
61
62
69
71
71
84
100
120
                  With TSPAAM  lower bound of 110  ug/in  applied to all  health  studies.   1982  discounted
                  present  values  in  billions of 1980 dollars.  Comparisons between  PM10 and TSP standards
                  are  in terms  of TSP stringency,  not  particle  size.

-------
                                                     Table 1-14


                 INCREMENTAL BENEFITS FOR ALTERNATIVE PM10 AND TSP STANDARDS. WITH LOWER BOUND APPLIED*

                                                    (A Scenarios)
i
o^
o

Alternative Standard

PM10 70 AAM/250 24-hr. 7 yr.
PM10 55 AAM/- 7 yr.
PM10 55 AAM/250 24-hr. 7 yr.
PM10 55 AAM/200 24-hr. 7 yr.
PM10 55 AAM/150 24-hr. 7 yr.
PM10 48 AAM/183 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 7 yr.
TSP -/150 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 9 yr.
TSP -/150 24-hr. 9 yr.
Aggregation Procedure


A
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.34
0.44
0.44

B
0.47
0.47
0.47
0.47
0.47
0.47
0.47
0.47
0.60
0.60

C
1.8
2.0
2.0
2.0
2.1
2.1
2.1
2.4
2.9
3.2

D
9.4
11
11
11
11
11
11
11
15
16

E
17
20
20
21
22
21
21
23
30
33

F
24
31
31
31
35
35
35
41
49
58
                With TSPAAH lower bound of 110 ug/md applied to all health studies.   1982 discounted

                present values in billions  of  1980 dollars.  Comparisons between PM10 and TSP standards

                are in terms of TSP stringency, not particle size.

-------
     The effect of imposing the Staff Paper lower bound is to reduce the
benefits  associated with  all  of the  standards.   It reduces  the  more
stringent  standards proportionately more than the less  stringent standards.
This results because  the  more stringent standards produce air quality
improvements which are increasingly  below the lower bound  concentration.
Hence, benefits show little increase since no credit  is taken for below-
lower bound air quality improvements.

Geographic Distribution of  Benefits

     Benefits of reduced PH concentrations vary considerably among the
different regions of the country.  This is the result of several factors
such as differences in baseline  air quality,  differences in population, and
differences  in population growth rates.  As  an illustration,  regional
benefits for the PH10 (70, 250) Scenario B standard are  shown in Table 1-
15.  The benefits are in discounted present value terms and the regions
shown  are the standard Federal administrative regions.   As can be seen,
nine of the ten regions receive benefits  (the  exception is  New England).
Particularly large shares of the benefits arise in Regions V (East North
Central),  VI  (South Central),  and  IX  (South Pacific).   These  shares change
depending  on the  particular aggregation procedure used (A through F).  For
example. Procedure  A  suggests that 54 percent of  the benefits would occur
in Region IX.  Under  Procedure E, the  estimate for Region IX falls to 32
percent and is  exceeded by  the 35 percent share in Region V.

     Analysis of  the other standards indicates that regional shares also
change depending on the standard under consideration.  For example, the
PM10 (70, 250)  Scenario B  standard is  the only one in which Region I (New
England)  receives no benefits.   For all other B scenario  standards, Region
I receives  positive benefits under all aggregation procedures, and the same
pattern occurs  with the A scenarios (assuming no lower  bound constraint is
imposed).   A general  observation  is  that  benefits  are more  widely shared
with the more stringent standards.   This results in  large  part because more
counties would  be in  non-attainment with the more  stringent standards and
thus more  counties would  experience an air  quality improvement over
                                  1-61

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                                            Table 1-15

            INCREMENTAL BENEFITS BY REGION FOR THE PM10 (70,  250)  SCENARIO B  STANDARD*

Ul> A n _ .» j .._
ErA Keg ion

I New England
II New York-New Jersey
III Middle Atlantic
IV South Atlantic
V East North Central
VI South Central
VII Midwest
VIII Mountain
IX South Pacific
X North Pacific
U.S.



A
0.0
0.0
0.08
0.05
0.23
0.08
0.02
0.04
0.67
0.07-
1.24



B
0.0
0.00
0.14
0.13
0.63
0.24
0.04
0.10
1.16
0.14
2.56
Aggregation


C
0.0
0.02
0.64
0.70
3.69
1.38
0.20
0.45
4.86
0.70
12.63
Procedure


D
0.0
0.04
1.08
1.34
8.36
2.89
0.40
0.87
8.01
1.25
24.24



E
0.0
0.06
1.88
2.20
13.68
4.60
0.64
1.44
12.71
2.00
39.22



F
0.0
0.08
2.51
2.94
17.57
6.15
0.86
1.98
17.55
2.72
52.36
* 1982 discounted present  values  in billions of 1980  dollars  for a 7-year time horizon  (1989-95)
  and a 10 percent discount  rate.   Individual entries  may not sum  to  U.S. totals  due  to indepen-
  dent roundoffs.

-------
baseline.   For example,  the  PH10 (70,  250) standard would produce air
quality improvements in approximately  90 to 100 counties;  the TSP (-/ISO)
standard would result  in benefits for approximately  500 counties.

FINDINGS AND CONCLUSIONS

     This study estimates  the incremental benefits  of  alternative ambient
air quality  standards for PH.  The  principal conclusion of the study  is
that the benefits are  economically  significant but that the  estimates  of
benefits are highly  uncertain.  That is,   the study provides  a considerable
amount of new information but care must be exercised in the use of the
results.  These conclusions are developed further below.
     Limitations  in available data,  methods and  scientific evidence  make  it
difficult to estimate  the  benefits  of  alternative PM  NAAQS.  Each  limita-
tion introduces uncertainty and requires an assumption or  an  exercise  of
judgment to fill  the gap.  The approach taken in this  study is  to  evaluate
the consequences  of alternative  assumptions  and judgments.   This  provides
the most  complete information possible and reduces the  possibility  of
biased results.

     As an example, under  the most extreme assumptions,  the discounted
present value of benefits of the PM10 (70, 250) Scenario B standard range
from as low as $160 million to as high as $146 billion.  The lower  estimate
arises when the  most restrictive assumptions are  used  throughout the
analysis; the higher estimate results from use of much less restrictive
assumptions.*
* The stated range  does  not  reflect two  additional sources of uncertainty:
  1)  the air  quality data  approximations required  in the  absence  of
  detailed  dispersion modeling; and 2)  the possible existence  and magnitude
  of  benefits  below the  Staff  Paper lower bounds.   Incorporating the  first
  of  these  could  potentially reduce both  ends of the range by a factor of 2
  to  4.   Imposing the  Staff  Paper  lower  bound  of  110 (ig/m  annual  average
  TSP on the health studies makes the range  $140 million  to $99 billion.
                                   1-63

-------
     Using  a  somewhat less extreme set of assumptions leads to a narrower
range of  estimates.  For example,  with the standard mentioned above,  a more
realistic estimate of the  range  is  $1 billion  to  $50  billion.  This is the
range identified  previously in Tables 1-10 and 1-11.  The  range in this
case is  due to the use of  alternative aggregation procedures.  As noted in
the discussion of the tables and Table 1-9,  the lower end of the range is
still likely to be an underestimate because  of  incomplete  coverage of
benefits.  The upper end is also  possibly  an overestimate due to  some
double counting of benefits.   An  alternative method for estimating benefits
(property value and wage studies) is consistent with  this  assessment and
suggests  a still  narrower range of about $3 billion to $40 billion.   This
range would be most  consistent with aggregation procedures B  through E.  It
is difficult  to narrow the range  further without making more controversial
judgments.

     Another  finding of the study is  that  incremental benefits generally
increase  as standards become more stringent and  as implementation dates are
advanced.   This is  true  for both A  and B scenarios and for all aggregation
procedures.   (The  few  exceptions arise when lower  bounds  are  applied.)  For
example,  with the  B scenarios, benefits increase by a  factor  of 3 to 4 when
moving  from  the  least restrictive  standard to  the most restrictive
standard.   The increase  results  from two changes:  1) the larger improve-
ment in air quality  in each geographic area,  and 2) the addition of more
areas that will experience an improvement.   However,  this does not neces-
sarily imply that  the  most restrictive standard  is  the  economically
preferred standard because  the  offsetting  costs of  pollution control must
also be  taken into account.  A comparison  of benefits with costs is done in
Section 2.
            of the
     The sources of uncertainty in the benefit analysis are identified in
the basic report sections.  They have also been summarized in this  section.
They include  such problems  as:  conflicting evidence  among available scien-
tific studies; uncertainty about the concentration ranges  over which health
                                   1-64

-------
effects occur;  incomplete coverage  of  benefit categories; alternative

methods for valuing health improvements;  alternative  methods  of aggrega-
tion; and  approximations introduced by the methods for estimating air
quality improvements.   All of these  problems have  been addressed in the
study.  Where possible,  the magnitude  of the uncertainty has been estimated

directly.  These estimates of uncertainty are reflected in the range of

benefit estimates discussed previously.  Where quantitative estimates of
the uncertainty are not  possible,  conservative assumptions are  used

instead,  and the sources of uncertainty are  described qualitatively.


REFERENCES


 1.  Executive  Order 12291 of February 17,  1981:   Federal Regulation.
     Federal  Register 46:13193-13198.   February 19, 1981.

 2.  Smith, A. E. and K. L. Bmbater.  Costs and Air Quality  Impacts of
     Alternative National Ambient  Air Quality Standards for Particulate
     Matter.  Technical Support Document.  Argonne National Laboratory,
     Argonne,  IL, October 1982.

 3.  U.S. Environmental Protection Agency,  Office  of Air Quality Planning
     and Standards.  Review of the  National Ambient Air  Quality Standards
     for Particulate Matter:   Assessment  of  Scientific and Technical
     Information.   OAQPS Staff Paper  (EPA-450/5-82-001),   Research Triangle
     Park,  NC, January  1982.

 4.  U.S. Environmental Protection Agency,  Office  of Research and Develop-
     ment.   Air  Quality  Criteria for Particulate Matter  and Sulfur Oxides:
     External  Review  Draft No. 4.  Research  Triangle Park, NC, Dec. 1981.

 5.  Pace,  T. G.  and N.  H. Frank.   Procedures  for Estimating Probability of
     Non-Attainment  of  a PM10 NAAQS  Using Total  Suspended Particulate or
     Inhalable Particulate Data.   Draft Guideline.  U.S.  Environmental
     Protection Agency, Office  of Air  Quality Planning and  Standards,
     Monitoring  and Data Analysis Division, November  1982.

 6.  EPA/OAQPS Staff Paper, op. cit.. Appendix E, p. E-4.  (Appendix E is
     the letter  from the chairman of  CASAC to the EPA Administrator con-
     cerning  CASAC  review and closure  of  the EPA Staff Paper cited above.)

 7.  Ibid.,  p. xiii and p.  88.

 8.  Bouhuys, A.,  G.  J.  Beck  and J. B. Schoenberg.  Do Present Levels of
     Air Pollution Outdoors Affect Respiratory Health?   Nature,  276:466-
     471,  1978.

 9.  EPA/OAQPS Staff Paper,  o£. cit..  p.  62.
                                   1-65

-------
10.   Ibid., p. xvi.

11.   Ferris,  B.  G.,  Jr., H.  Chen, S. Puleo and  R.  L.  H. Murphy, Jr.
     Chronic Nonspecific Respiratory Disease in Berlin, New Hampshire,
     1967-1973:  A Further Follow-Up Study.  American Review  of Respiratory
     Disease,  113:475-485, 1976.

12.   Ferris,   B.  G.,  Jr.,  I.  Higgins,  M. W. Higgins and  J.  M. Peters.
     Chronic Non-Specific Respiratory Disease  in Berlin, New Hampshire,
     1961-1967:   A  Follow-Up Study.  American Review  of  Respiratory
     Disease,  107:110-122, 1973.

13.   Lunn, J., J.  Knowelden and A. J. Handyside.  Patterns of Respiratory
     Illness  in  Sheffield  Infant  School Children.  British Journal of
     Preventive Social Medicine,  21:7-16,  1967.

14.   Ostro, Bart D.   A Search for a Threshold in the Relationship of Air
     Pollution to Mortality in London:   A  Reanalysis of Martin and Bradley.
     Working  Paper dated September 21,  1982.

15.   Mazumdar, S., H.  Schimmel, and I. Higgins.   Relation  of  Air  Pollution
     to Mortality:  An Exploration Using Daily Data  for 14 London Winters,
     1958-1972.  Electric Power Research Institute,  Palo Alto, 1980.

16.   Samet, J. M., F. E. Speizer,  Y.  Bishop, J. D. Spengler,  and  B. 6.
     Ferris, Jr.   The  Relationship Between Air Pollution and Emergency Room
     Visits in an Industrial Community.  Journal  of the  Air Pollution
     Control  Association, 31:236-240,  1981.

17.   Saric, M., M. Fugas, and 0. Hrustic.  Effects of Urban  Air Pollution
     on School Age Children.   Archives  of  Environmental Health, 36:101-108,
     1981.

18.   Ferris,  et al..  op. cit.. 1976.

19.   Ferris,  et. ±1.,  op. cit.. 1973.

20.   Ferris,  B. G., Jr. and D.  0. Anderson.   Prevalence of Chronic Respira-
     tory Disease in  a New Hampshire Town.  American Review  of Respiratory
     Diseases,  86:165-177, 1962.

21.   Lave, L.  B. and E. P. Seskin.   Air Pollution and Human Health.  Johns
     Hopkins  University Press, Baltimore,  1977.

22.   Lipfert, F.  W.   Sulfur  Oxides,  Particulates,  and Human Mortality:
     Synopsis of Statistical Correlations.  Journal of the Air Pollution
     Control  Association, 30:366-371.   April  1980.

23.   Lipfert, F.  W.   On the Evaluation of Air Pollution Control Benefits.
     Prepared  for the National Commission on Air  Quality,  November 1979.
                                   1-66

-------
24.  Lipfert,  F.  W.  The Association of Air Pollution with Human Mortality:
     Multiple Regression Results  for 136 Cities,  1969.  Paper presented at
     70th Annual  Meeting of the Air  Pollution Control Association, June 20-
     24, 1977.

25.  Ostro, B. D.  Morbidity,  Air Pollution and Health Statistics.  Paper
     presented at the  Joint Statistical  Meetings  of the American Statisti-
     cal Association  and Biometric  Society, Detroit,  MI, August 12,  1981.
     The benefit  analysis also uses  later results supplied  by the author.

26.  Crocker, T.  D., e_t .§_!.   Methods Development for Assessing Air Pollu-
     tion Control Benefits  - Vol. 1:   Experiments in the  Economics of Air
     Pollution Epidemiology.  Prepared for the U.S. Environmental Protec-
     tion Agency,  Laramie,  University of Wyoming, February 1979.

27-  Ibid.

28.  Cummings, R.,  H. Burness  and R. Norton.   Methods  Development for
     Environmental Control Benefits Assessment -  Volume V:   Measuring
     Household Soiling Damages from Suspended  Air Particulates,  A Methodo-
     logical Inquiry.   Draft Report, January 1981.

29.  Watson,  W.  and  J. Jaksch.  Air Pollution:  Household  Soiling and
     Consumer Welfare Losses.   Journal of Environmental Economics and
     Management,  9:248-262.  1982.

30.  Manuel,  E.  H., Jr., R. L. Horst, Jr., K.  M. Brennan,  W. N. Lanen, M.
     C.  Duff and  J. K. Tapiero.  Benefits Analysis of Alternative  Secondary
     National Ambient Air Quality Standards  for Sulfur Dioxide and Total
     Suspended Particulates - Volume II.  Contract No. 68-02-3392, Final
     Report to the U.S.  Environmental  Protection Agency by  Mathtech,  Inc.,
     Princeton, NJ,  August  1982.

31.  Ibid.. Volume  III.

32.  EPA/OAQPS Staff Paper,  op., cit.. p. 125.

33.  Smith, V. K.  The Role of Site  and Job Characteristics in Hedonic Wage
     Models.  Forthcoming  in Journal of  Urban Economics.

34.  Rosen,  S.  Wage-Based  Indices  of Urban Quality  of  Life.   In:  Current
     Issues in Urban  Economics,  P.  Mieszkowski and M. Straszheim (eds.).
     Johns  Hopkins University Press, Baltimore,  1979.

35.  EPA Criteria Document,  op. cit.. pp. 14-49 to 14-54.

36.  Ibid., p. 10-73.

37.  EPA/OAQPS Staff Paper,  op_. cit.. pp.48-63.
                                    1-67

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      SECTION 2
NET BENEFIT ANALYSIS

-------
                                SECTION 2
                           NET BENEFIT ANALYSIS
INTRODUCTION

     This  section of the report provides comparisons of  the  estimated
benefits and costs of the several alternative  National Ambient Air  Quality
Standards for particulate matter (PM NAAQS).  These comparisons of benefits
and costs are referred to as benefit-cost analyses.  They provide a  frame-
work for evaluating the economic effects  of alternative regulatory policies
and are presented  as  a  response  to Executive Order 12291  which requires  the
identification of  the regulatory alternative which will produce the maximum
net benefits to society.

     The implementation  of a particular air quality standard,  for example,
may lead to favorable  health and other welfare effects that represent  a
clear  improvement  in  the economic well-being of  some members  of  society.
At the  same  time,  however,  costs may be  incurred as  additional resources
are committed  to  reduce  emissions to permissable  levels defined by these
air quality standards.  These costs cause  a reduction in  the  economic well-
being  of some members of society.  Given that  these costs are  generally
incurred as air quality is improved,  an evaluation of the net impact of  the
standards on society's  economic well-being requires an  assessment  of both
the benefits and costs  associated  with each of the  alternative PM NAAQS.

     Some  necessary background concepts are developed  immediately below.
In particular,  the economic criteria employed to  evaluate  the  alternative
PM NAAQS are described.   Proper  methods of conducting benefit-cost  analyses
are reviewed next.  Following this,  the estimates of  both benefits  and
costs are described;  comments  on the appropriateness of these estimates  for
                                    2-1

-------
use in the benefit-cost analysis are provided.  Next, the limitations of
benefit-cost  analysis are discussed.  The results  of  the benefit-cost
analyses  are  then presented.   Finally,  summary  remarks,  conclusions,  and
qualifications are offered.

BENEFIT-COST ANALYSIS:  EVALUATION CRITERIA

     Air quality  regulations affect  society's  economic  well-being  by
causing a reallocation of productive  resources within the economy.  Speci-
fically,  resources are allocated  towards  the production of cleaner air and
away  from other goods  and  services that would  otherwise be  produced.
Benefit-cost analysis  provides a  method for assessing the desirability  of
the alternative PM NAAQS  in terms of their impacts  on the allocation of
economic resources.  These air quality  standards are evaluated  in terms  of
two established criteria:  cost-effectiveness and efficiency.

     Incremental  Benefits and Costs;  An analysis  of  the  incremental
benefits  and  costs associated with each of  the alternative PM NAAQS  is
required for an evaluation of both the cost-effectiveness and the relative
efficiency  of the alternative ambient air quality standards.   These are
defined as follows:
          The  incremental benefits associated  with a given PM NAAQS
          are  defined as  the  additional benefits resulting  from
          improvements  in air quality  over  baseline air  quality
          levels.
          The  incremental costs associated with  a  given PM NAAQS are
          defined as  the  additional  costs that  are  incurred  to
          achieve  and  maintain  improvements in  air  quality over the
          baseline levels.
Note that both incremental benefits and incremental costs are computed
relative  to baseline air  quality  levels.*  The term  "incremental  net
* Recall that "baseline"  air  quality levels are intended to reflect those
  air quality levels  that would prevail in the absence  of  the  implementa-
  tion  of  any of the  alternative PM  NAAQS  (see Section 1  for  a  more
  detailed  description).
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benefits"  refers  to  the difference between incremental  benefits  and incre-
mental costs.

Cost-Effectiveness

     An analysis of the  cost-effectiveness  of PH NAAQS is employed to
reduce the set of alternatives that are evaluated in terms of economic
efficiency.  Inferior standards are those which require higher costs to
achieve the  same or smaller benefits  than  dominant alternatives.   An
inferior  standard is not  "cost-effective" since the same or higher incre-
mental benefits  can  be  achieved  by adopting a less costly standard.  Those
alternative  PH  NAAQS identified as being inferior need not be further
evaluated  in  terms of economic efficiency.

Efficiency Criterion

     The  efficiency  criterion is used to  evaluate the economic desirability
of the reallocation  of resources that occurs as  the  result of the adoption
of an alternative PM NAAQS.   A given air quality standard is efficient in
the economic  sense  if, as  a result  of its implementation,  at  least  one
individual's well-being is improved without reducing the  well-being of any
other member of  society.   The allocation of resources  associated with an
efficient  standard is economically preferred to the  allocation that exists
prior to  its  implementation.

     It  should be recognized, however, that those individuals enjoying the
benefits of improved air quality are not generally the same as  those  who
bear  the  cost of controlling  pollution emissions.   As  a result,  the
economic  well-being of some members of society may be reduced and  the
strict criterion  stated above will be violated.  This need not be the case,
however,  if those individuals benefiting from  improved air quality are
required  to  compensate  those  who bear the costs  of  pollution control.
Under such a compensation scheme,  a  given pollution standard would be
judged efficient  if  those  individuals receiving benefits  could potentially
compensate exactly those individuals  bearing the  costs of the  standard, and
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still realize  a net gain in economic  well-being.  As  is  typically the case
with applied benefit-cost analysis,  this is the efficiency criterion that
is adopted in  this analysis.

     The exact compensation arrangement  described above will not be imple-
mented.  Tax credits on investments  in  pollution control equipment will
redistribute  some of the costs of emissions control, but these and other
provisions will not completely resolve all  equity issues.  Consequently,
the distribution of estimated benefits and costs among various sectors of
the economy is described for the  alternative  PM  NAAQS  later in this section
of the  report.

     In addition  to determining whether a given air quality standard is
efficient,  it  is also possible to  rank the alternative PM NAAQS in terms of
relative efficiency.  The PM NAAQS  that  is most efficient, relative to the
alternatives considered,  is  the one which provides the largest incremental
net benefits.   An  analysis of the relative  efficiency of the alternative PM
NAAQS considered is described later in this section.
                                                                  »

Scope of Analysis

     Efficiency is  only a  necessary but  not a sufficient condition for
establishing the economic desirability of  an air quality standard.   Since
there are generally both benefits and costs associated with achieving and
maintaining baseline air  quality  levels,  it is possible that  the  total
costs could exceed the total benefits associated with a  PM NAAQS,  even if
incremental net benefits are positive.*  This could occur if the cost of
baseline controls  exceeds the benefits associated with baseline air quality
levels.   If this  were the  case, society might be  better off  if no air
quality standards  are  adopted, including those  already in place to achieve
baseline levels of air  quality.
* Total benefits  include  the  benefits  associated with baseline  controls as
  well as the incremental benefits realized as a result of the  adoption of
  a PM NAAQS.  Similarly, total  costs  include both baseline  control costs
  and incremental  costs.
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     A standard  for which total benefits exceed total  costs  is termed
"feasible".  As this  definition indicates,  estimates of both baseline and
incremental benefits and costs are required to  assess  the  feasibility of
the alternative PM  NAAQS.  Estimates of the benefits  associated with base-
line controls, however,  are  unavailable.   The alternative PM NAAQS were
evaluated by a sufficient test  for  feasibility which compared total costs
with  incremental  benefits  under  the assumption that  no  benefits are
associated with baseline controls.   These  tests, however,  often produced
inconclusive results  in  that  the feasibility of many alternative  standards
could not be determined.  Consequently, the results of  these  tests are not
reported.*

     Ideally,  all feasible and cost-effective PM NAAQS  should be  evaluated
in order to identify the one which maximizes society's  well-being as a
result of  improvements  in ambient air quality.  Within the  context of
applied benefit-cost  analysis, however, it  is  usually possible to  consider
only a limited set of discrete alternatives.   Such  is the case with this
analysis.   Consequently, the focus  is on the relative  efficiency of a
limited  selection of alternatives  and not the  identification of the most
efficient of all possible feasible  and  cost-effective PM NAAQS.

BENEFIT-COST ANALYSIS:  METHODOLOGY

     Appropriate methods of  testing  for both  the cost-effectiveness and
efficiency conditions are  described  immediately below.  As was stated
previously,  the  tests  for  cost-effectiveness and efficiency  require
analyses  of the incremental benefits and  costs  associated  with each of the
alternative PM NAAQS.  These benefit-cost analyses are limited in  that they
are not  employed to evaluate the distributional  impacts  of  these  air
quality standards;  consequently, a  brief discussion of  this  issue is also
provided.
* Estimates  of  baseline control costs,  which are necessary to replicate the
  sufficient  tests for feasibility,  are  reported later in this  section.
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     An analysis  of  the  incremental benefits and costs associated  with the
alternative  PM NAAQS can be conducted  in the following manner:
          Compute  the  estimated  incremental benefits associated  with
          each  alternative PM NAAQS.
          Similarly,  compute  the  estimated incremental costs
          associated with each alternative  standard.
          Compute  the estimated  net  incremental  benefits (i.e.,
          incremental  benefits minus incremental costs)  generated  by
          each  alternative standard.
          Compare  the  estimated  net incremental benefits for each  of
          the  several  alternative standards.
Any alternative  PH NAAQS  that  is associated with higher incremental  costs,
but the same or smaller incremental  benefits than some  other  standard,  is
inferior or cost-ineffective and need not be further  evaluated in terms  of
efficiency.  Any alternative PM NAAQS that produces positive net incre-
mental benefits  will provide  a more  efficient allocation of  resources  than
what would occur  under the baseline air quality scenario.   The PM NAAQS
that produces  the largest positive  net benefits will  produce the most
efficient  allocation of resources among the  standards considered.  When the
net incremental benefits associated with a standard  are  negative,  the
baseline  air quality  scenario  yields  a  more  efficient  allocation  of
resources.

           nal Effects
     There  are  two reasons  why the  distributional impacts associated with
the alternative PM NAAQS are an important  issue.  These reasons are:

     •    The benefits and costs associated with  the  alternative
         standards are not likely  to be  distributed evenly across
         various sectors  of the  economy,  thus  raising equity issues.
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          The  distribution of adverse impacts may affect  the measure-
          ments of costs that are  appropriate for use  in  the benefit-
          cost analyses.
Both of these  points are discussed  below in greater detail.

     It has already been noted  that those  individuals  who enjoy  the
benefits of improved air quality are not generally the same as those  who
bear the cost  of controlling emissions.   Absent any arrangement whereby
beneficiaries compensate those  incurring costs, it is likely  that  the
implementation of an air quality standard  will  increase the economic well-
being of some  individuals and reduce  the well-being of others,  thus raising
an equity  issue.   The  distribution of costs  among those incurring  the
expenses of emissions controls raises an additional potential equity issue.

     These distributional or equity effects are not typically evaluated
within the framework of applied benefit-cost analysis.   In  order to do so,
it would be necessary to obtain  estimates of the values  that society places
on the distributions of economic  well-being associated with each of  the
alternative PM NAAQS.  Estimates of these values are  unavailable.  As a
result, a  separate analysis of these distributional impacts is provided.
The results of this analysis are  summarized  later  in  this  section.   It
should be  stressed,  however,  that  no judgments regarding the desirability
of these distributional effects are offered;  instead, these  impacts  are
only described.

     The potential distribution of  adverse economic impacts associated with
the alternative PM NAAQS should  also be considered in  measuring  appropriate
costs for use  in  the benefit-cost  analysis.  The cost  estimates  provided by
the emissions control  phase  of the study,  for example,  are  based on  the
assumption that no plants close or reduce production under the burden of
additional  emissions  control  costs.  Plant  closures are likely to produce
an upward bias in these cost  estimates.  If a significant number of plants
would,  in  fact, cease  operation when  faced  with  additional control costs,
downward adjustments  to these earlier  cost estimates may be necessary
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before they can be used appropriately in the benefit-cost analyses.*  This
issue is discussed  in more  detail later in this section.

MEASUREMENT OF BENEFITS AND COSTS

     A clear understanding  of  several  conceptual  issues  is necessary for  a
proper interpretation of the estimated benefits  and  costs  that  are  compared
in  the  benefit-cost  analysis.  These  conceptual issues  are  discussed
immediately below.   Following this,  the  estimates of both the incremental
benefits and incremental costs associated with each of the  alternative PM
NAAQS are discussed.  The  scope  of benefits and costs  included  in these
estimates are also described and the estimation techniques employed are
reviewed briefly.   Finally,  a discussion  of  the  consistency between these
benefit and cost estimates  is  provided.

Measurement of Benefits and Costs:  Conceptual Issues

     The beneficial effects of improved ambient  air  quality can be  measured
as  the value that  individuals place  on the opportunity to consume cleaner
air.  The conceptually correct valuation  of  this opportunity  requires the
identification of  individuals' willingness to pay for cleaner air (or to be
compensated for deterioration of  air  quality).**  Where possible,
willingness to pay is the measure  of benefits that  is adopted in  this
analysis.   Estimates of society's  willingness  to pay for cleaner  air  do not
exist for all benefit  categories,  however.   Alternative measures  are  used
for those benefit  categories  included  in  the  analyses  for which estimates
of willingness to pay  are unavailable.
 * Descriptions  of  several potentially adverse impacts  associated with the
   alternative  PM  NAAQS are described in a separate report by another
   contractor (1).
** The appropriateness of willingness  to pay versus willingness  to be com-
   pensated  depends on the property right  endowments of receptors.  Because
   of income constraint  considerations,  willingness to be compensated may
   be greater than willingness to pay.
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     Similarly,  an appropriate measure of the cost of pollution emissions
control can be measured as the value that  society places on those goods and
services not  produced as  a result of resources being diverted to the pro-
duction of improved air quality.  Again,  the  conceptually correct valuation
of these costs requires  the  identification of  society's willingness to pay
for these  foregone consumption opportunities  that would  otherwise  be
available.

     As the preceding  discussion  suggests, only impacts that  result from a
reallocation of economic resources are  included  in  the benefit and cost
estimates.  The  implementation of a PH NAAQS,  however,  may be accompanied
by price adjustments  and  subsequent short-run income  transfer  effects.  For
example,  a sudden demand for emissions control devices resulting from a
more stringent air quality standard  may initially  result  in  higher prices
for these devices.  Increased income in the form of excess profits will
then accrue to the  manufacturers of these devices;  however,  this favorable
effect occurs at  the  expense  of those  who must pay the higher prices.   The
total effect is merely pecuniary.*  These  pecuniary effects  are  not  and
should not be included in  the benefit estimates that follow.

     It is also  possible  that air quality standards  may generate indirect
economic impacts.  One  example of an indirect effect  is the  transfer of
income to owners  of recreational  facilities  as individuals  whose health is
improved as a direct  result of  better air quality  increase their use of the
recreational  facilities.    Indirect costs and benefits  which represent real
(as opposed to pecuniary) effects  should be  included in benefit and cost
estimates.  As a  practical matter,  however,  it is  often very difficult  to
measure all  indirect effects  and  to  determine whether  they are real or
pecuniary  in nature.  Consequently, the benefits  and costs considered in
this analysis include  only the direct  effects  of the  alternative PM NAAQS.
The exclusion of  possible indirect  effects  may mean  that  these estimated
* "Income  transfers" refer to redistributions of income that do not result
  directly  from production  of  goods or services.   These transfers  are
  referred to  as  "pecuniary".
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benefits  and costs understate  the  total effects of the alternative air
quality standards.

Estimates of Benefits

     The benefit-cost analyses described later in this section represent
relatively straightforward  comparisons of the estimated benefits and costs
associated with alternative PM NAAQS.   Because of this, the uncertainty
that surrounds both estimated benefits  and costs may be obscurred.  None-
theless,  the validity of  the benefit-cost analyses depends critically on
the accuracy of estimated benefits and costs.  Any uncertainty embedded in
these estimates will carry  over  to the benefit-cost analyses.

     The sources of  uncertainty in the benefits  estimates have already been
described in detail earlier in Section 1.  These sources of uncertainty
fall into the following  three general categories:

     •    Scope and magnitude of air quality improvements.
     •    Valuation of health and welfare improvements.
     •    Evidence  of  health and welfare  effects.
     •    Coverage  of  effects/benefit categories.

Some of  the  degree  of uncertainty can be estimated quantitatively.  Ranges
of estimated benefits have already been reported in Section 1.  Benefit-
cost analyses, however, are  conducted  only for the point estimates of
benefits.   Nonetheless,  the results of these analyses should be interpreted
in view  of  the  uncertainty that does exist in  the benefit estimates.  Each
of the major sources of  uncertainty  listed above is reviewed briefly below
for the convenience of the  reader.

Scope and Magnitude of Air  Quality Improvements —

     Benefits are estimated based  on projected  improvements  in air quality
associated with the alternative  PM NAAQS.  The  projections of air quality
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improvements are also subject to uncertainty.  This, in turn, creates an
additional  source  of uncertainty to  the benefit estimates.

     The uncertainty surrounding the estimates of  air quality improvements
has already been  described earlier in Section 1.  The major  sources of
uncertainty include the following:
          Use  of  county-wide rollback to predict air quality  changes
          at the  worst-case monitor.
          Use  of proportionality to predict air  quality changes
          elsewhere.
          The  failure  to account  for  potential  air  quality improve-
          ments  resulting  from  emissions  controls  in  adjacent
          counties.
          Approximations  required in converting among different PM
          measures  (TSP, PM10,  BS).
          Use  of  1977-78 as a base year for predicting air quality.
The implications of these uncertainties  associated  with estimates  of air
quality improvements have already been discussed in detail in  Section 1.
The results of plausibility checks on some of the assumptions  embedded in
the air quality estimates have also been reported there.

Valuation of Health and Welfare Improvements —

     Two general categories of benefits attributable  to improvements in
ambient  air quality are included in the benefit-cost analyses.*   These
benefit categories  are:
* Studies  based on property value  models and wage models were also included
  in the benefit analysis as plausibility checks.   However,  since it is not
  possible  to  disentangle  the  health and  soiling benefits from  other
  benefits estimated by these models, they are not included in the  esti-
  mates reported in this  section  in order  to  avoid possible  double-
  counting.  The property value and wage models are described in Sections 5
  and 6 of this report.
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     •    Health effects
     •    Soiling and material damage.

Estimates of benefits derived from these two categories were developed from
previously conducted  studies  which  examine  the  health and welfare  effects
of ambient particulate matter.   These studies were  selected  after a
thorough review of the  literature and  a  careful evaluation of their suita-
bility for use  in estimating  the benefits of the alternative PM  NAAQS.

     Health  effects are  further  classified  in terms of  the  risk  of
mortality, acute morbidity,  and chronic morbidity.  Measures of increased
risk of mortality and morbidity as a result of physical  effects caused by
deteriorations in air quality are  developed.  The value placed on reduc-
tions in mortality rates attributable  to  alternative PM NAAQS reflects
individuals'  willingness  to pay  to  reduce  the risk of death and thus con-
stitutes a theoretically correct measure of benefits.   Nonetheless, there
are large variations in  the  estimates  of  the value  assigned  to mortality
risk reductions.

     Benefits associated with reduced morbidity are based on:   reductions
in medical  expenditures, the value  of  improved labor productivity due  to
reduced work days lost, and the value placed on increased opportunities to
engage  in non-labor  activities.*  These benefit estimates are likely to
underestimate willingness  to pay for  improved  air quality,  since   they do
not include the value that  individuals place on reductions in residual pain
and suffering.**
 * In addition to lost time in the  workplace,  individuals may be  forced to
   curtail non-labor activities  as  a result  of morbidity caused by pollu-
   tion emissions.   The  lost  opportunity  to  engage  in  these  activities are
   estimated at one-half of the  wage-rate of affected individuals.
** Some medical expenditures  are made to reduce pain and suffering  induced
   by pollution emissions.   However, prior  to  receipt of medical care
   services,  and in  some cases during  and after provision of such services,
   pain and suffering occur.  The  reduction in this "residual pain and
   suffering"  is  not included  in the benefit estimate.
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     Benefits  attributable to reduced  soiling and materials damage in both
the household and industrial sectors rely primarily on economic models
which  identify  associations between air quality and goods exchanged  in
private markets.  By observing how consumption expenditure patterns  of
typical households vary  in  response to different  levels of pollution
emissions,  it  is possible  to  estimate the value these households  place  on
various improvements in ambient air quality.   In the industrial sector,
benefits are  estimated for two 2-digit SICs  by employing  econometric
techniques  which relate  soiling or contamination to production costs.   In
general,  these  benefits  reflect  willingness to  pay  for improved air
quality.

Evidence of Health and Welfare Effects —

     Additional  uncertainty is introduced to the benefit  estimates because
of uncertain  evidence  of the magnitudes of health  and welfare effects
associated  with  cleaner air.   These sources of uncertainty include:

     •     Conflicting evidence across studies.
     •     Incomplete control  for confounding  factors.
     •    Use  of study  results  from one time  and area  to estimate
          effects in another  time and area.
     •    No  information on the  size distribution of particles
          present during the  studies.
     •    Alternative functional forms possible.
     •    Sampling variation  in coefficient estimates.
     •    Degree of risk at lower-level PM concentrations.

The degree of  uncertainty introduced by some of the  above  sources can  be
estimated  quantitatively.  In these  cases, the degree  of uncertainty  is
reflected  in  the ranges  of the  incremental  benefit estimates  reported  in
Section 1.
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Coverage  of Effects/Benefit Categories —

     The  benefit estimates used  in this analysis do not  include a number of
areas where  benefits  may arise.   Limitations  in the  definition of  certain
data transformations,  control strategy designs,  and  methodological  issues
precluded the inclusion of potential benefits attributable to  improved
visibility, possible climatic  effects, and reductions in acidic deposi-
tions.  In addition to these omitted benefit categories,  potential benefits
accruing  to  some sectors of the economy  are  also excluded from estimates
used in  the benefit-cost analysis.   These omissions include potential
benefits due to reduced soiling and  materials  damages to commercial,
governmental,  and institutional structures  as well as some  industrial
structures.  Furthermore,  the estimates that are included  focus exclusively
on user value benefits and exclude potential non-user benefit categories
such as existence, bequest, and option  values.*  The omission  of these
plausible benefit  categories may cause the estimates  used in  this analysis
to understate  the  true  level of benefits  associated  with a particular PM
NAAQS. **

         of Costs
     The  costs  of  achieving  and  maintaining  air  quality  levels  associated
with the  alternative PM NAAQS were estimated by another contractor (2).  As
is the case with the benefit estimates, emissions control costs are not
estimated with certainty.   Consequently,  a  proper interpretation of the
benefit-cost analyses requires an understanding of how  emissions control
 * See Sections  1  and  8 for  further  discussion  of  non-user  benefit
   categories.
** Benefits  may also be understated even  in those categories  where  benefits
   are measured if economic decision-makers have made  prior behavioral
   adjustments  in  response to  air  quality  changes.  For  example,  observed
   pollution-induced morbidity may  be  reduced if  individuals  curtail out-
   door activities because of perceived health risks associated with poor
   air quality.  There is,  however,  a  cost  associated with this  behavioral
   adjustment — namely, the cost of the  opportunity to engage in the fore-
   gone outdoor activities.
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costs are estimated so  that uncertainties and potential biases introduced
by methodological  compromises  and data quality can be  assessed.

Control Cost Estimation  Procedure —

     A fully detailed description of the procedures  employed  to  estimate
emissions control costs is beyond the scope of this report.  The abbre-
viated description offered below is intended to serve  as  a  basis  for a
later discussion of uncertainty  and potential  biases  surrounding  the  cost
estimates.

     The approach employed to estimate emissions  control costs can be
viewed  as a six-step procedure as  illustrated  in  Figure 2-1.   First,
estimates of both  emissions (ISP and PM10) and air quality levels nominally
representative of 1978  conditions  were developed, by county areas (and
subcounty areas in selected cases).   Estimates of TSP emissions were  based
on data from EPA's National Emissions Data  Systems (NEDS);  PM10 emissions
were estimated from the TSP data by using  a  conversion process.   TSP'air
quality data were  obtained from EPA's Storage  and Retrieval  of Aerometric
Data System  (SARDAD).  Since no PH10  data were available,  PM10 air quality
levels were  derived from TSP data by  using a 0.55  conversion  factor.

     In Step 2, a  linear rollback approach  was employed to project future
air quality  levels.  Future emissions rates  were projected  by accounting
for both the growth of new  sources and the replacement of existing  sources.
Future air quality levels were  then projected based on the presumption that
all sources  within an area contribute to air quality levels directly pro-
portional to their emissions rates.   Based on  these estimates of future air
quality  levels,  areas  (counties  or subcounty areas) projected  to  be in
nonattainment with the alternative PM NAAQS  were  identified.

     An inventory of control  options and associated emissions was  then
developed for sources  within areas projected  to  be in  nonattainment  with
the alternative air quality standards.  Only a  single control strategy
could be identified for  many sources, however,  and  no control strategies
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STEP 1
   Develop estimates of emissions and air
   quality levels nominally representative
             of 1978 conditions
STEP 2
STEP 3
     Project future emissions growth to
       predict areas in nonattainment
                                    i
  Develop inventory of control options for
  emissions sources in nonattainment areas
STEP 4
  Establish relationship between emissions
and air quality levels in nonattainment areas
STEP 5
Select control options for each area based on
   "least-cost" approximation to estimate
   emissions control costs (some areas in
           residual nonattainment)
STEP 6
   Estimate additional costs of achieving
               full attainment
      Figure 2-1.   Basic Steps in Estimating Emissions Control Costs
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could be identified for some other sources.   In addition,  control options
were eliminated if the  cost of emissions reductions was  extraordinarily
high based  on current experience or if they cost more but reduced emissions
less than another  option.  As a  result  of these combined factors,  more than
SO percent  of all  sources  were  not considered  as candidates for control in
some scenarios analyzed.

     Relationships between source emissions rates and area air quality
levels  were established  next  in Step 4.  A modified  linear  rollback
technique was employed.  That is, it was assumed that all sources within an
area contribute to air quality directly proportional to their emissions
rates and inversely proportional to their effective  stack height.

     The cost of emissions control  was then estimated  (Step 5) by selecting
control strategies that minimized  costs  (in terms of dollars  per  microgram
of air quality improvement) for each area in  nonattainment.  Additional
control options were applied incrementally until attainment with a  given
air  quality standard  was  achieved  or  available  control  options  were
exhausted.   This resulted  in  some  areas  being  in "residual" nonattainment.

     It should be  noted that when  the  "least-cost"  control  strategies were
selected  in Step 5, it was assumed  that controls put  in  place at  the
beginning of the implementation  period were sufficient  to  reduce  emissions
to required  levels  for  the  entire  implementation  period.  This  typically
results in greater than necessary controls of emissions during  the  early
phases of the  implementation period  since baseline ambient  PM  concentra-
tions typically  increase over  time  because  of growth in the  number of
emissions sources.

     In Step 6,   the   cost  of  eliminating  residual  nonattainment  was
estimated based on the cost of achieving partial attainment (Step 5)  and
the degree  of residual  nonattainment.   In particular,  the  additional  cost
was estimated by multiplying the national cost  of partial attainment by  the
national average ratio  of  the additional  air quality improvement needed in
each residual nonattainment  county  to  the  air  quality  improvement already
                                   2-17

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achieved in each such county.   This additional cost was then added to the
cost of partial  attainment  in order to estimate the full cost of bringing
all areas into full  attainment.

     As was noted earlier,  uncertainty  and potential biases are  introduced
to the control cost estimates from both methodological compromises and data
quality.  In addition,  there is  a  third issue — the difference between
emissions control costs  and economic costs  — that should be addressed in
assessing the  appropriateness of the cost estimates for  use  in the benefit-
cost analyses.   These  issues  are  discussed briefly below.  Where possible,
the directions of potential biases  are examined.

Methodological Compromises —

     Because  of  the  scope of the nationwide emissions  control cost study,
and time phasing and  resource considerations,  it was necessary to  make
several  methodological  compromises.  Those  compromises that  introduce
uncertainty and  potential biases to the cost  estimates  include:

     •    Use  of design monitors.
     •    Use  of the modified linear rollback procedure.
     •    Consideration  of a limited set of  control options.
     •    The  use of  a national  average measure of residual  non-
          attainment in  estimating the cost of eliminating residual
          nonattainment.
     •    Placing some areas  under  controls  greater than necessary to
          achieve attainment.

Each of these  potential problems is discussed immediately below.

     Design Monitors — In order to simplify the  analysis, the design value
was  obtained  as the  reading of  the  monitor  showing  the highest  PM
                                   2-18

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concentration  level  in an area.*  This  may be  a  poor  measure of actual air
quality on an  area-vide basis since the highest  monitor  naturally reflects
PM concentration levels that are higher than at other  points within the
area.  Other things being the same,  the use of the  highest reading as the
design value  will tend to cause an upward bias in the cost estimates since
the overall level of required control within an area will be  overstated.
The magnitude of this bias,  however, is not predictable  in  a straight-
forward fashion,  given  the  use of the modified  linear rollback procedure.
This problem  is discussed immediately below.

     Modified Rollback—The modified  linear rollback assumption  was
employed  as   an  alternative  to  detailed dispersion modeling.   As  was
explained  earlier,  this procedure  assumes  that all  sources in an area con-
tribute to the PM concentration levels  recorded  at the design monitor
directly proportional to  their  emissions  rates  and inversely proportional
to effective  stack heights.  Unfortunately,  the  direction  of  the bias
introduced to  the control cost estimates because of  this factor cannot be
predicted  .a priori.

     All emissions sources  within an area may not contribute to concentra-
tion levels at the design monitor.  Consequently,  it  may not be necessary
to control all sources;  as  a  result,  estimated  control costs may be over-
stated.  It may be  the case, however,  that sources  proximate to the design
monitor with high control  costs  contribute  heavily to the  reading.
Estimated control costs could be understated  if  these sources were  not
controlled (or not  controlled enough)  under the  optimal control  strategy.

     It is also noted that the rollback procedure  employed to project
future ambient air quality and the approach used to estimate emissions
control  costs  are inconsistent.   In  establishing the  relationship  between
* It should be noted that this  is  not necessarily indicative  of the highest
  concentration  in an area.  Limitations on the number of monitors and
  their placement (e.g.,  highly  elevated  to  avoid vandalism)  can mean that
  the design value is not indicative of  the highest concentration.   How-
  ever,  such values are  presumed to be good indicators  of higher concentra-
  tions.
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emissions  control strategies  and improvements in air quality,  it was
assumed that sources contribute  to  air quality inversely proportional to
their effective stack heights.   Stack heights were not  considered, however,
in projecting  future air quality levels  from the base  year.  The direction
of the bias to estimated control costs because of this  inconsistency is not
known.

     Li«ited  Set  of  Control Options — Two or three emissions  control
options could be  identified for some sources  (e.g., boilers).  For  many
emissions  sources,  however,  only one or no  emissions control options could
be identified.  If, indeed,  other  control options  less  costly than those
selected by the "least-cost" algorithm actually exist, estimated control
costs will  be  overstated.

     Residual Nonattainaent — After all  "cost-effective" control strate-
gies were adopted, some counties were still found to  be in residual  non-
attainment  with the alternative PH NAAQS.   In these cases, the additional
cost  of achieving full attainment  was estimated based on  the  cost of
achieving partial  attainment and the  degree of residual nonattainment.  The
estimate was  developed by  multiplying the  national  cost of achieving
partial attainment by the national average  ratio  of the  additional air
quality improvements  needed  in each residual  nonattainment county  to the
air quality improvement already achieved in  each such county.   This addi-
tional cost was then added to the  cost of partial  attainment in order to
estimate the full  national cost of  bringing all areas into  full attainment.
Since this  additional  cost is a national estimate,  no  regional breakdowns
of control  costs were  available for the type B scenarios (complete attain-
ment scenarios).

     An alternative procedure for estimating the additional  cost would have
been to assume that the additional air quality improvement needed in each
county would have a cost per microgram equal to the average  or marginal
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cost* per microgram for the air quality improvement already achieved in
that county.   This  approach would  have  provided a  more  accurate  estimate
and allowed a regional breakdown of costs.  It was not  undertaken due to
time constraints.  The relationship between the two approaches will depend
on whether counties with high partial  attainment costs are in about the
same degree  of  residual nonattainment  as counties with low partial attain-
ment costs.  If high cost  counties generally  experience more  residual
nonattainment,  then  the procedure  actually  used may  lead to a lower
estimate compared  to using  average cost.  If high  cost counties generally
experience less residual nonattainment, then  the  procedure used may lead to
an estimate above what would have been predicted by using average cost.
The estimates  of the  additional cost of  achieving full attainment are  thus
highly uncertain.

     Control Strategies Below the Standard — Emissions  were  projected  to
1995 and the resulting  air quality level was  estimated accordingly.**
Then, controls necessary to achieve required  air  quality levels for the
entire implementation period (to 1995) were put  in  place  in the  initial
implementation year  (1987 or  1989).  In many cases, this resulted in  more
control  than necessary to achieve air. quality  levels sufficient to meet the
alternative  standards.  This approach  is likely to  produce  an upward  bias
in the cost estimates used  in the benefit-cost analyses.   In fact,  the
source of the bias is twofold:  1) capital  equipment might  be installed
earlier  than necessary  (and depreciated  more  quickly  than need  be)
resulting  in  an increase in  the  present value of estimated costs;  2)  some
unnecessary operating and maintenance costs might be incurred  in those
 * Strictly  speaking, marginal cost is the conceptually correct measure  to
   use  in estimating the cost  of eliminating residual nonattainment.   Since
   marginal cost usually exceeds average cost, use of the latter measure
   would have biased estimated costs  downward.   It is noted,  however,  that
   use  of  average  cost might be justified based  on  reasoned judgment:
   first, one reason that cost-effective  control options  were exhausted  is
   that many sources were not considered  as candidates  for  control; second,
   it is possible that  new  technologies may produce less costly control
   options  in the  future.
** See  Section 9 for a more  detailed discussion.
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years during which the controls resulted in air quality levels  lower than
those required by  the alternative PM NAAQS.

Data Availability  and Quality —

     A number of problems involving both the availability and  quality of
data surfaced during attempts  to estimate the emissions control  costs
associated with alternative PM NAAQS.  These  data problems include  the
following:

     •    The NEDS emissions data base may not reflect  actual  1978
          conditions.
     •    The point  source  data employed is both incomplete and
          occasionally inaccurate.
     •    Secondarily formed aerosols are not  accounted for in the
          emissions control analysis.
     •    Air quality data is incomplete.

Each of these data problems is discussed briefly below.

     The 1978 NEDS  Data Base  May  Not Represent Actual Conditions — The
NEDS 1978  data base is not completely updated annually.   Because of  this,
the data may reflect both emissions rates  and control strategies that were
in place in some earlier year.   This particular  data problem  might produce
either a  downward or an  upward bias in  the cost  estimates used in  the
benefit-cost analyses.  Estimated control costs could be biased downward if
the least-cost  control algorithm selected low-cost sources for control that
actually had substantial  controls already  in  place  instead  of  higher-cost
sources which should have been controlled.  Alternatively, control  costs
could  be overestimated if the  1978 NEDS data base  overstates  emissions
rates  and  the overall degree of control necessary  to satisfy the require-
ments  of the alternative PM NAAQS.*
* This latter problem would also cause  estimated benefits to be overstated
  since necessary air quality improvements  would likewise be overstated.
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     Incomplete  and Inaccurate Point Source Data — Of a total of 5.72
million tons per year (TPY) of TSP emissions  included in the analysis for
purposes of projecting  future  air  quality, only 3.55  million TPY could be
accounted  for in the point source  emissions data base.  This discrepancy
was caused by both  incomplete and/or inaccurate  point source data.   It is
important  to note  that this  particular data problem is  likely to  cause
pollution  abatement costs to be overestimated, and the magnitude of the
bias is potentially  large.   This overestimate of emissions  control costs is
caused by  the fact  that roughly 40  percent  of all source candidates for
emissions control were  omitted from the feasible solution to  the  least-cost
algorithm.   If  any  of these omitted  point sources exhibit marginal control
costs less than those  actually selected for control,  estimated control
costs  are biased  upward.
     Secondarily—For »ed Aerosols A-re Not AccoTiTited for in the  A^al
The emissions  control cost analysis does not account for  secondarily-formed
aerosols which can account for a large percent  of total  ambient PM10 in
some areas.  The effect of not  including these  secondarily-formed emissions
is to overstate the degree of control possible  for ambient PM10 through
traditional  strategies,  thus causing an underestimation  of pollution
control costs.

     Air Quality  Data — As was noted previously, PM10 air quality data are
not currently available.   The PM10  air quality  data  used in the control
cost analysis  was  obtained by  applying a 0.55  conversion factor to TSP air
quality measures in the base year.   This  conversion factor  was estimated
through an analysis of data available from EPA's  inhalable particulate
(PH15)  network.  It should be  stressed,  however, that the conversion factor
is likely  to  vary across  geographic  areas.   Although the  direction of
potential bias due  to the use of the  conversion factor  cannot  be predicted,
its use does  introduce  uncertainty to the cost  estimates.

     In addition,  valid air quality  data for many counties  were  unavail-
able.   If  valid design values  were  unavailable for counties  designated as
being in attainment or unclassif iable,  they were  eliminated  from the cost
                                   2-23

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analysis.   If  counties were  classified as being in nonattainment, default
design values  were set at one |i>g/m  above the standard violated.  In other
cases,  valid  air quality  data for one  of the averaging periods  were
unavailable and default design values were  estimated through  regression
analysis which related one  averaging period  to another.  Again,  these data
deficiencies introduced additional uncertainty to the  cost  estimates.

     In some  areas,  valid air quality data  were unavailable for 1978,  but
observations  were available  for  earlier years  (e.g.,  1975-1977).   The
earlier observations were substituted as 1978 values in these  cases.  It is
noted that this approach  potentially causes   a mismatch  between emissions
sources and air quality.   The direction  of potential bias that  this factor
introduces to  the cost estimates, however, cannot be predicted ji priori.

Emissions Control Costs and Economic  Costs —

     The estimated emissions  control costs should  be  viewed as  approxima-
tions  of  the  conceptually correct measure  of costs.   Recall  that  the
conceptually correct measure .of costs is reflected by  society's willingness
to pay  for the  goods  and services not  produced as a result of  economic
resources being diverted to the production of improved air quality.  The.
estimated pollution control  costs, however,  are based on engineering
estimates of the costs of  equipment and labor required to control emissions
to permissible levels.

     These estimates  will correspond exactly to the conceptually correct
measure of costs only if two conditions are  satisfied.  First,  affected
polluters must be able  to pass forward all emissions control  costs to
consumers through price  mark-ups without  reducing the market  quantity
demanded  of goods or services they  sell.  Otherwise,  the estimated direct
pollution control costs will  overstate the true economic costs associated
with the  alternative PM  NAAQS.  Second, the prices of pollution control
resources (e.g., pollution  control equipment and  labor) used to  estimate
costs must correspond to the prices that would prevail if these factors
were sold in perfectly competitive markets.  For  example,  if excess profits
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are earned on pollution control equipment,  the estimated emissions control
costs will overstate  the conceptually correct  measure  of  costs.

     The  estimated pollution  control costs reported in this section do  not
account for possible long-run adjustments to the  PM  NAAQS.  Based on  the
findings of the Economic Impact Analysis (3). for example,  it is antici-
pated that  some  plants  will close under the burden  of  additional  emissions
control  costs.   Moreover, it  is  expected that some  of  the remaining plants
will expand production to compensate  at  least  partially for output lost  due
to the closures.   The failure  to  account for these adjustments is  likely to
produce  a  net upward bias in the cost estimates.*

     In  addition,  the cost estimates reported here  do  not include possible
transition  costs that some industries may experience as  adjustments  to  the
alternative PM NAAQS  occur.  For example, some temporary unemployment may
occur as some affected plants reduce  production or close.  This effect,
however,  is  expected  to be  mitigated  at  least partially  by  increased
employment in other plants.   The  results of  the  Economic  Impact  Analysis,
however, suggest  that  the  net impact of these  transition costs are not
likely to affect significantly the  cost estimates used  here in the benefit-
cost analyses.

Administrative,  Monitoring,  and Enforcement Costs —

     The  administrative, monitoring,  and enforcement (AME)  activities that
accompany an  air quality standard  are not fully reflected in  the  emissions
control  cost  estimates  provided  by the cost  contractor.   These  AME  costs
  Estimated costs  should be  reduced because of the closures since these
  plants will not implement pollution control  strategies.   At the same
  time, costs for the remaining plants should be adjusted upward as they
  expand production.  The  net  effect, however,  is  likely to  reduce  costs,
  since the additional cost of expanding  production for the  remaining
  plants presumably will be less  than  the extra  costs  that  would be
  incurred by plants which close.  Otherwise,  these latter plants would
  remain competitive  instead  of closing down operations.  See Reference (1)
  for further discussion of this  and  other related issues.
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may be borne both by directly affected firms and institutions and different
levels of  government.  It  is  the latter AME costs  that are not reflected in
the emissions control cost  estimates.*  The proper measure of  these  AME
costs should reflect the  incremental costs of implementing and  maintaining
a given alternative PM NAAQS.

     Estimates of the long-run annualized AME costs for state  and  local
agencies,  as well as for  EPA  Regional offices, indicate that the government
sector resource  requirements  should not exceed  $50 million annually (1981
dollars).**  Relative to the magnitudes reported for the benefits  and costs
of control, these additional expected AME expenditures are small.  As a
consequence,  these  costs are not likely to affect appreciably  the  outcome
of the benefit-cost analyses.  Nevertheless, if  a complete measure of costs
is to be  developed, an  adjustment to the cost  of control estimates is
required.  Based  on the annualized AME  costs reported above  and  on an
examination of historical data, an adjustment factor of 4  percent of  the
discounted present value  of engineering  and operation  costs appears
reasonable.  Thus, final estimates of control  costs used in the benefit-
cost analyses are increased by 4 percent over the  discounted present values
of the estimated costs obtained  from the cost contractor.

Control Cost Truncation. —

     The costs provided  by  the cost contractor are  based on  a 15-year
engineering life for the  emissions  control equipment beginning  at the 1987
(TSP) or 1989 (PM10) implementation dates.   In this section,  these  costs
are adjusted to reflect a shorter time horizon (i.e., to 1995)  by aggre-
gating the annualized stream of costs from the implementation date only
through 1995 and then applying the appropriate  discounting formula.   The
 * Some institutions  affected  by  the  alternative  PM  NAAQS  are  government
   agencies (e.g., utilities owned by local governments and government-
   maintained  roads).   Those AME costs  that  will  be incurred internally by
   these directly  affected government  institutions  have already  been
   included  in the cost estimates  provided by the cost contractor.
** See Reference  (3).
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benefit-cost analysis  is  truncated  at 1995 because of the uncertainty in
projections  of  emissions levels beyond this date.

Costs Associated With Alternative PM NAAQS  —

     Estimated costs for each alternative PM NAAQS for both the A and B
scenarios are  summarized in Table 2-1.*  As  is the case with the benefit
estimates,  these  costs  are "incremental" in the sense  that  they are calcu-
lated relative  to  the baseline controls.  Although direct  pollution control


                                Table 2-1
                  SUMMARY OF INCREMENTAL COST ESTIMATES
Standard
PM10 70 AAM/250 24-hr. , 7 yr.
PM10 55 AAM 7 yr.
PM10 55 AAM/250 24-hr. , 7 yr.
PM10 55 AAM/200 24-hr., 7 yr.
PM10 55 AAM/150 24-hr. , 7 yr.
PM10 48 AAM/183 24-hr., 7 yr.
TSP 75 AGM/260 24-hr. , 7 yr.
TSP 150 24-hr., 7 yr.
TSP 75 AGM/260 24-hr., 9 yr.
TSP 150 24-hr., 9 yr.
Point Estimate of Incremental Costs*
A Scenario
0.50
0.90
0.93
0.95
1.26
1.32
1.08
1.78
1.61
2.63
B Scenario
0.95
2.52
2.57
2.54
3.53
3.36
2.61
5.96
4.02
8.95
* Expressed  as  the 1982 discounted present value  in billions  of 1980
  dollars.  Figures include estimated AME costs.
Source:   Reference  (2).
* Recall that  some areas remain  in  residual nonattainment under the A
  scenario while  all areas  are  in full  attainment with  the alternative
  standards  under  the B  scenario.
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costs do exhibit some sensitivity to various assumptions and conditions
which underlie  their  derivation,  no attempt is made to develop  a range of
incremental  cost estimates which reflect  this uncertainty.*

     It is noted that  the  incremental  costs  associated with the  most
stringent  of the PM10 standards are greater than  those associated with the
TSP 75 AGM/260 standard, even though the latter is listed as being  more
stringent.   Two explanations  of this phenomenon are:

     •    The counties projected to be  in  nonattainment with the  PM10
          standards sometimes differ from those expected to violate
          the TSP standard.
     •    PM10  and TSP control options differ because of different
          emissions sources  and different  particle sizes.

     The  figures  displayed  in  Table 2-1 represent estimates  of  the
incremental or additional costs  of  achieving and maintaining the air
quality levels  associated with the alternative PH NAAQS.   These  estimates
do not include  the costs of  achieving  and maintaining baseline air quality
levels.   Estimates of baseline  control  costs  for  the 1987-1995
implementation  period range  from  $31.4 billion to  $40.4 billion annually,
expressed  as the present  discounted  value  of 1980  dollars in  1982.
Comparable cost estimates over  the 1989-1995  implementation  period  range
from $21.8 billion to $28.0 billion.**  The  total  costs associated with the
alternative PM NAAQS are estimated as the  sum of  appropriate estimated
baseline costs  and the estimated incremental costs reported in Table 2.1.+
 * The results of several sensitivity  analyses are documented in Reference
   (2).
** See Reference (4).
 + Sufficient tests for the  feasibility have been briefly described earlier
   in this section.  These  tests  can be replicated  by  subtracting  the
   estimated  total  costs associated with each alternative standard from the
   corresponding estimated incremental benefits reported in Tables  1-11
   through 1-14 in Section 1.  The midpoints of the  ranges were used as
   estimates of  baseline  control  costs (i.e.,  $35.9 billion  and  $24.9
   billion, respectively,  for  the  7- and 9-year implementation periods).
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Consistency of Benefits •««» Costs Estimates

     Although  the  incremental  benefit and cost estimates used in this
benefit-cost analysis are estimated using different methodologies,  they  are
consistent and  comparable in the following  respects:

     •    Each  is based on the same air  quality information.
     •    Each  reflects the same time horizons.*
     •    Each  uses similar assumptions  to project industry and popu-
          lation growth from the implementation date through 1995.
     •    Each  uses a discount rate of 10 percent to obtain a present
          discounted value and an estimate  of  annualized benefits and
          costs.
     •    Each  are valued as 1980 dollars in 1982.

     The air quality data used in  the benefit analysis were generated as
part of the procedure employed to estimate  the costs  associated with each
standard.   Thus,   estimates  of both  benefits  and  costs are  based  on
identical  assumptions  regarding  air quality levels.

     Both  benefits  and costs accrue over time.  When  appropriate, similar
growth factors are  projected  to  both  benefits and costs in order to  ensure
consistency between the two time streams.** For  convenience, they  are
expressed in terms of their present discounted values in 1980 dollars in
1982.

     For each alternative PM  standard  under  consideration, benefits  and
costs are measured from the implementation date  through 1995.   It  was
 * As noted earlier, an adjustment  factor is  applied to the incremental
   cost  estimates in order to make  them  consistent with  the  time—horizon
   used  in the benefit  analysis.
** Both  analyses  used projections of  future industry and population growth.
   Although the projections were obtained from different sources,  they  were
   very  similar  in  magnitude.   For  a  comparative  analysis,  see  Reference
   (5).
                                   2-29  -

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judged impractical  to  extend the  benefit-cost analysis past this date,

given the modeling  uncertainties which  arise  when growth factors are

incorporated  into the  analyses.   Fortunately,  the process of discounting

causes both benefits  and costs which may accrue in the distant future to be

small relative to the present.  Thus,  the truncation of benefit and cost

estimates in 1995  may not greatly  affect  the outcome of  the  benefit-cost

analyses.


     A constant real discount rate of 10 percent is used to discount the

time streams of benefits  and  costs back to 1982.  This  real  discount rate

is  prescribed by the  Office of  Management and  Budget.   Much  debate

surrounds the proper choice of the discount rate,  and there is no clear

concensus on this issue.*  It is likely, however,  that a real  discount rate

of 10 percent  is too high.


     It  is also important to recognize, however, that benefits and costs

compared in  the benefit-cost analyses are  inconsistent  in some respects.

These inconsistencies include  the following:
         The  costs of controlling emissions  in nonattainment  areas
         are  likely to improve air quality in adjacent  areas; how-
         ever, these  air quality improvements  are not estimated,  and
         thus the resulting benefits are omitted  from  the analysis.

         Because of the limited scope of the  benefit  analysis,  all
         possible  direct  benefits (e.g.,  visibility benefits,
         reduced  soiling,  and materials damages to the  commercial
         sector  and  some  manufacturing  industries)  associated with
         emissions controls  have  not been estimated,  while,   in
         principle,  all  potentially significant  direct costs
         associated with the  alternative standards  are  included  in
         the  estimates.

         Distinctions between particle sizes are  not  made in  the
         benefit analysis.  The emissions control options selected
         in the cost analysis, however, do depend on  particle size
         differences.
* For a discussion of this issue, see R. C.  Lind et al.  (6).
                                  2-30

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The first two of the inconsistencies listed above tend to cause an over-
statement of the incremental costs relative to the incremental benefits
associated with the alternative PM  NAAQS.   The  implications  of  the third
inconsistency, however, are less straightforward  and  deserve additional
comment.

     Host of the studies used to estimate health effects are  based on TSP
measures of air quality.  As  a  result, the benefit analysis cannot distin-
guish between  effects caused by different particle sizes.  The benefits
associated with the alternative  PH10 standards are  estimated  based on the
estimated TSP concentration levels associated with  PH10 controls.   Evidence
cited  in the EPA/OAQPS Staff  Paper,  however,  suggests  that  the PM10
fraction of TSP is  primarily  responsible for adverse health effects.

     It is expected that PM10 controls will  reduce  both TSP and PM10 con-
centration levels.   If  PM10 controls reduce  the  PM10 fraction of  TSP,  the
estimated benefits  associated with the alternative  PM10 standards  might be
understated relative  to those associated with  the TSP alternatives.  An
analysis was conducted of the  predicted air quality associated  with several
standards.   This analysis suggests  that the average fraction of PM10 in TSP
will remain  virtually unchanged after controls are implemented,   both  for
PM10 and TSP control strategies.*  This  result,  however,  should  be inter-
preted in view  of  the  limitations  of  the  methods  and data  employed to
select  emissions control options and to project future  air  quality  levels.

     Later in this  section,  comparisons  between the alternative  PM10  and
TSP standards  are  offered.   These comparisons  are based on approximate
differences in the stringency of standards (in  terms of TSP)  and  not
differences  in  particle  sizes.   It is also noted  that the estimated incre-
mental  net benefits associated with  PM10 standards might be  understated
relative  to those  for  the TSP standards,  if  PM10 control options  are more
effective than TSP  control options in reducing the PM10 fraction of TSP.
* See Section 1  for  a more detailed discussion.
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LIMITATIONS AND QUALIFICATIONS OF BENEFIT-COST ANALYSIS

     The preceding  discussion in this  section provides  the necessary
background  for  an  interpretation of the benefit-cost analyses that follow.
Before the results of these analyses are reported, however,  it is appro-
priate to review some of the limitations of  this approach as a means of
evaluating  the relative desirability of the  alternative PM NAAQS.

     Many of the shortcomings  of benefit-cost analysis  have  already been
described in  the preceding  text.  A more complete  list is as follows:

     •   The distributive or equity impacts of  the alternative PM
         NAAQS are  not  evaluated within  the  framework of the
         benefit-cost analyses.
     •   The benefit-cost  analyses rely on  the validity and scope  of
         estimates of benefits  and costs.
     •   The benefit-cost  analyses   are  limited in  scope to  an
         evaluation  of  a limited  set  of  ambient  air  quality
         standards.
     •   The feasibility  of the alternative PM NAAQS  has  not been
         determined.

Each of these points is discussed briefly below.

     It has already been noted  that the  air  quality  standards will have
different impacts  on members  of society; those who enjoy  the  benefits of
the standards will not always be the same as  those who bear  the costs.  The
benefit-cost analyses conducted  in   this  study do not  evaluate these
distributive or equity impacts.  These  impacts are  described through a
separate analysis.   However, no  judgment on  the  relative  desirability of
these distributive impacts  is offered.

     The results of the benefit-cost  analyses depend,  of  course, on the
validity and  scope  of ,the estimates of both benefits  and costs associated
with  the alternative ambient air quality standards.  The wide range of
variability  in the estimated benefits associated with each air quality
                                   2-32

-------
standard have already been described.  Similarly,  all  costs associated with
the alternative PM NAAQS cannot  be estimated  with certainty.   In some
cases,  the definitions  of both benefits and costs employed in  the estimates
do  not  correspond exactly to  the  conceptually  correct  definitions.
Finally,  the benefit and cost estimates are limited  in  scope in that they
do not inclnde  all possible benefits  and  costs  (e.g.,  indirect  costs) that
may result from the alternative  PH NAAQS.

     The benefit-cost  analyses described in this section are  limited in
scope in that they consider only a limited selection of  possible PM NAAQS.
As a result, the benefit-cost analysis will identify,  with  uncertainty,
only the most  efficient PM  NAAQS  among those  considered.  The  identifica-
tion of the most efficient  possible standard requires an evalnation of all
possible PM NAAQS.

     Even if a standard is efficient,  it  might  not  be associated with an
economically desirable  allocation  of resources if total  costs exceed total
benefits.  The feasibility of the alternative PM  NAAQS has not been compre-
hensively evaluated because estimates of the  benefits associated with
baseline controls are unavailable.   Sufficient  tests  for  feasibility, which
assume that  no  benefits  are associated with baseline emissions controls,
yield generally inconclusive results.

     The results of the benefit-cost analyses that follows should be  inter-
preted in light  of  these limitations.  Specifically,  these analyses provide
a qualified assessment of the cost-effectiveness and  relative economic
efficiency of the alternative PM NAAQS  considered.

BENEFIT-COST ANALYSIS OF ALTERNATIVE PM NAAQS

     The results of the benefit-cost analyses  of the alternative  PM NAAQS
are reported below in  this  subsection.  The cost-effectiveness and  relative
efficiency of each  standard  is determined through an  analysis  of the  incre-
mental benefits  and  incremental  costs associated with  the alternative PM
                                   2-33

-------
NAAQS.  Finally, the distributive or equity impacts of these air quality

standards  are  described.


Benefit-Cost Analysis:  Incremental Net Benefits


     The results of the analyses of the cost-effectiveness and relative

economic efficiency  of the alternative PM NAAQS  are  described below.  Both

analyses are conducted under each of the six benefit aggregation proce-

dures.   The six aggregation procedures and the studies  included in them are

described  in  Section 1.  Briefly,  these  aggregation procedures are:


     •    Procedure A.   Only quantitative studies  approved by CASAC
          (Mazumdar et al. and Ferris et al.) are used  to estimate
          benefits under this aggregation procedure.  Estimates of
          nonhealth benefits are not included.   Double  counting of
          benefits  is  unlikely.

     •    Procedure B.   This  aggregation procedure  includes  estimates
          of benefits  due  to reduced acute morbidity  (Samet et  al.)
          in  addition  to  benefit  estimates  included in  Procedure  A.
          Consequently, estimates of  nonhealth benefits are  not
          included  and double counting  of benefits is unlikely.

     •    Procedure C.  The Samet et al. study is  replaced by the
          Ostro  study  for  use in estimating benefits attributable to
          reduced acute morbidity.  This aggregation procedure also
          includes benefits estimated by the Mathtech study of house-
          hold  soiling  effects.  Coverage of  all  benefit  categories
          is  still  incomplete.   Double counting  of  benefits is
          unlikely.

     •    Procedure D.   Studies  by Lave  and Seskin and  by Lipfert are
          used to estimate benefits associated with reduced  mortality
          instead of the Hazumdar et al.  study.  Otherwise,  this pro-
          cedure  is  identical to Procedure  C.

     •    Procedure E.  The Ferris et al. study is  replaced by the
          Crocker et al. study for use  in estimating benefits in the
          chronic morbidity  category.   Expanded  coverage is given to
          household soiling and  materials damage effects.   A Mathtech
          study of  soiling  and materials  damage  in parts of the
          manufacturing sector is  also included.  Otherwise, this
          procedure  is the same as Procedure  D.

     •    Procedure F.  This  aggregation  procedure includes  the
          Mazumdar  et al. study in addition to the studies by Lave
          and Seskin and by Lipfert for use in estimating benefits  in
                                   2-34

-------
          the mortality category.'  Both the Ostro and the Samet e_t
          al.  studies  are used  in the acute morbidity category and
          the Crocker et al. study is used in the chronic  morbidity
          category.  Studies by Watson and Jaksch,  and Cummings et
          al.  are used for  household soiling and damage effects.  The
          Mathtech study is used to estimate  benefits  due  to reduced
          soiling and  materials damage for part of the manufacturing
          sector.  Some double  counting  of benefits  among  the  subset
          for which estimates are provided is likely under this
          aggregation procedure.
Results  are  also reported for analyses conducted with and without  the
imposition of the Staff Paper* lower bound and for full (B Scenario)  and
partial (A Scenario) attainment states.

     Comparisons of the alternative PH10  and TSP  standards are provided
below.   Recall  that  these  comparisons are based on TSP stringency  and  not
particle  sizes.   Because of issues related  to particle size differences,  a
second evaluation of only alternative PM10 standards is also provided.

Cost Effectiveness:  Dominant and Inferior Options —

     It is convenient  to  identify  inferior air quality standards  prior to
conducting the  efficiency tests.   Recall that an inferior standard requires
higher costs to achieve  the same  or  smaller benefits  than a dominant
alternative.   Once inferior alternatives  are identified,  only those
standards that are cost effective  need be evaluated in terms  of  efficiency.
The inferior  options are identified in  Tables 2-2  through 2-5.   Of the  240
(i.e., 10 z 6  x 2  x 2) combinations of standards, aggregation procedures,
attainment  states,  and Staff  Paper  lower-bound  conditions,  118  are
inferior.

Incremental Net Benefits —

     The  results of the incremental net benefit analysis are reported in
Tables 2-2 through 2-5 and interpreted below.  Any standard that yields
* The Staff Paper lower bound refers to the TSP annual arithmetic mean
  (AAM)  110 |ig/m  constraint applied  to health studies.
                                  2-35

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                                                     Table 2-2

                           INCREMENTAL NET BENEFITS  FOR ALTERNATIVE PM10  AND TSP STANDARDS*
                                                    (B Scenarios)

A 1 * 4- -5 C* 4- A J
AI terna t ive ocanciara

PM10 70 AAM/250 24-hr. 7 yr.
PM10 55 AAM 7 yr.
PM10 55 AAM/250 24-hr. 7 yr.
PM10 55 AAM/200 24-hr. 7 yr.
PM10 55 AAM/150 24-hr. 7 yr.
PM10 48 AAM/183 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 7 yr.
TSP -7150 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 9 yr.
TSP -/150 24-hr. 9 yr.



A
0.29
-0.71
-0.75**
-0.69**
-1.5**
-1.3**
-0.48
-3.5**
-1.1
-5.6
)


B
1.6
1.6
1.6**
1.7
1.4**
1.8**
2.6
0.45**
3.2
-0.09
Iggregatioi


C
12
20
20**
20
24**
25**
27
30**
37
41
i Procedure


D
23
40
41**
42
49**
53**
54
65**
77
91



E
38
72
72**
74
87**
95**
98
120**
140
160



F
51
95
96**
98
120**
130**
130
160**
180
220
OJ
          * 1982 discounted present  values  in billions  of  1980  dollars  at  a  10 percent  discount  rate.  Time
            horizons for 7- and 9-year standards are, respectively. 1989-1995 and 1987-1995.   Comparisons
            between PM10 and TSP standards are in terms  of TSP stringency,  not  particle sizes.
         ** These options are inferior.  Other options provide the same  or larger  incremental benefits  at
            lower incremental cost.

-------
                                                     Table 2-3

                          INCREMENTAL NET BENEFITS FOR ALTERNATIVE PM10  AND TSP STANDARDS*
                                                    (A Scenarios)

A 1 *• 4-« C *• A A


PM10 70 AAM/250 24-hr. 7 yr.
PM10 55 AAM 7 yr.
PM10 55 AAM/250 24-hr. 7 yr.
PM10 55 AAM/200 24-hr. 7 yr.
PM10 55 AAM/150 24-hr. 7 yr.
PM10 48 AAM/183 24-hr. 7 yr.
TSP 75 AGM/260 24~hr. 7 yr.
TSP -/150 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 9 yr.
TSP -/150 24-hr. 9 yr.



A
0.38
0.20
0.18**
0.18**
-0.03**
-0.08**
0.16
-0.38**
0.11
-0.69



B
1.2
1.4
1.4**
1.5
1.5**
1.4**
1.7
1.6**
2.2
2.1
Aggregatioi


C
7.7
11
11**
11
13**
13**
13
16**
18
22
i Procedure


D
15
21
21**
22
25**
25**
26
32**
37
45



E
23
34
34**
35
41**
42**
43
54**
60
76



F
32
46
46**
48
57**
57**
59
74**
83
100
OJ
-J
          * 1982 discounted  present  values  in  billions  of  1980  dollars at  a  10  percent  discount rate.  Time
            horizons for 7~ and 9-year standards are, respectively, 1989-1995  and 1987-1995.  Comparisons
            between PM10 and TSP  standards are in terms of  TSP stringency, not particle sizes.
         ** These options are inferior.  Other options provide the same or larger incremental benefits at
            lower incremental cost.

-------
                                                     Table 2-4
               INCREMENTAL NET BENEFITS FOR ALTERNATIVE PM10 AND TSP STANDARDS WITH LOWER BOUND APPLIED*
                                                   (B Scenarios)
ro
i
00

A 1 4- * * O A- A J
Ai terna t ive otanuara

PM10 70 AAM/250 24-hr. 7 yr.
PM10 55 AAM 7 yr.
PM10 55 AAM/250 24-hr. 7 yr.
PM10 55 AAM/200 24-hr. 7 yr.
PM10 55 AAM/150 24-hr. 7 yr.
PM10 48 AAM/ 183 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 7 yr.
TSP -/150 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 9 yr.
TSP -/150 24-hr. 9 yr.
-


A
-0.51
-2.1
-2.1**
-2.1**
-3.1**
-2.9**
-2.2**
-5.5**
-3.5
-8.4



B
-0.33
-1.9
-1.9**
-1.9**
-2.9**
-2.7**
-2.0**
-5.3**
-3.2
-8.1**
Aggregation


C
1.7
0.8
0.76**
0.83
0.12**
0.39**
1.2
-1.7**
0.97
-3.2
Procedure


D
13
16
16**
16**
15**
16**
16**
14**
22
18



E
28
38
38**
38**
39**
40**
41
41**
56
55



F
39
58
59**
59
65**
68**
69
78**
95
110
          * 1982 discounted  present values in billions of 1980 dollars  at  a  10 percent  discount rate.  Time
            horizons for 7- and 9-year standards are. respectively, 1989-1995 and 1987-1995.  The TSP AAM
            lower bound of 110 jig/m   is  applied to all health studies.  Comparisons between PM10 and TSP
            standards are in terms of TSP stringency,  not particle  sizes.

         ** These options are inferior.  Other options provide the same or larger incremental benefits at
            lower incremental  cost.

-------
                                                    Table 2-5

              INCREMENTAL NET BENEFITS FOR ALTERNATIVE PM10 AND TSP STANDARDS WITH LOWER BOUND APPLIED*
                                                   (A Scenarios)

A 1 4- 4-* O 4- A J
AI ic run iivo atano&ra

PM10 70 AAM/250 24-hr. 7 yr.
PM10 55 AAM 7 yr.
PM10 55 AAM/250 24-hr. 7 yr.
PM10 55 AAM/200 24-hr. 7 yr.
PM10 55 AAM/150 24-hr. 7 yr.
PM10 48 AAM/183 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 7 yr.
TSP -/150 24-hr. 7 yr.
TSP 75 AGM/260 24-hr. 9 yr.
TSP -/150 24-hr. 9 yr.



A
-0.16
-0.56**
-0.59**
-0.61**
-0.92**
-0.98**
-0.74**
-1.4**
-1.2
-2.2**
1


B
-0.03
-0.43**
-0.46**
-0.48**
-0.79**
-0.85**
-0.61**
-1.3**
-1.0
-2.0** '
Aggregation


C
1.3
1.1
1.0**
1.1**
0.87**
0.80**
1.1
0.60**
1.3
0.60
Procedure


D
8.8
9.7
9.6**
9.6**
9.5**
9.4**
9.6**
9.3**
13
13



E
17
20
20**
20
20
20**
20**
22**
28
30



F
24
30
30**
31**
33**
34**
34
39**
47
55
(NJ
I
          * 1982  discounted present values in billions  of  1980  dollars  at  a  10  percent  discount rate.   Time
            horizons for 7- and 9-year standards are,  respectively, 1989-1995 and 1987-1995.  The TSP AAM
            lower bound of 110 ug/m   is  applied to all health studies.  Comparisons between PM10 and TSP
            standards are in terms of  TSP  stringency,  not particle  sizes.
         ** These options are inferior.   Other options provide the same or larger incremental benefits at
            lower incremental cost.

-------
positive  incremental net  benefits will  produce an improvement in the
efficiency  of resource  allocation  relative  to  baseline  controls.
Alternatively,  a  standard associated with negative incremental net benefits
will produce an inefficient allocation  of resources relative to baseline
controls.  The standard generating the  largest  incremental  net  benefits  is
the most efficient  of the alternative standards  evaluated.

     The figures presented in Tables  2-2  and 2-3 represent estimates  of
incremental  net benefits  corresponding to  the full and partial  attainment
scenarios  (scenarios B and A),  respectively,  when no  lower bounds are
applied to the health studies.*   Comparable estimates when  the  Staff Paper
lower bounds are  applied are reported in  Tables 2-4 and 2-5  for each of the
two  attainment scenarios.**  The  results reported in  these  latter two
tables should be  interpreted in view of the comments offered in Sections 1
and 10 regarding the application  of  the lower-bound concentration levels  to
health studies.  Similarly,  estimates of  incremental net benefits for the B
scenarios  should be interpreted in view of  the uncertainty in the  estimated
costs of achieving  full attainment.

     The results of  the  incremental net  benefit analysis shed light  on
three important issues regarding the alternative PM NAAQS.  These issues
are:
 * The figures  reported in Table 2-2  are computed as the difference between
   the incremental  benefits  reported earlier in Table 1-11 and the  incre-
   mental  costs for the B  scenario reported in Table 2-1.   Comparable
   figures  in Table 2-3  are  computed as the difference between estimated
   incremental  benefits  in Table  1-12  and  the  incremental  costs for the A
   scenario in  Table  2-1.  The estimated incremental  net benefits  reported
   in Tables 2-2 and  2-3 have been rounded  to two  significant digits.
** Net incremental benefits reported in  Table 2-4 are computed as the
   difference between the  incremental  benefits  reported in Table  1-13 and
   the B scenario costs reported in Table 2-1.  The figures in Table 2-5
   are computed in the  same fashion,  except that incremental  benefits
   reported in Table 1-14 and A scenario costs reported in Table 2-1 are
   used.  The estimated incremental net benefits reported in Tables 2-4 and
   2-5 have been rounded to two significant digits.
                                   2-40

-------
     •    The  relative  economic  efficiency  of the  alternative
          standards.
     •    The economic  efficiency of complete versus partial attain-
          ment.
     •    The  economic efficiency  of  the  implementation periods  for
          the  TSP  options.
Some  conclusions regarding each of  these  issues  are provided immediately
below.  These  findings, however,  should be interpreted  in view of the
previously mentioned caveats regarding benefit-cost  analyses.

Economic Efficiency  of Alternative Standards  —

     The estimated  incremental net benefits associated with the alternative
PM NAAQS are sensitive to  the aggregation procedures employed,  the  attain-
ment  status considered,  and the application  of  lower bounds  to  the health
studies.  A general understanding of how these  three  conditions affect
estimated incremental net. benefits  is helpful  in evaluating  the economic
efficiency of  specific alternative standards.

     Other  things  being  the same,  the  estimated  incremental benefits
associated with a given standard increase  as more comprehensive aggregation
procedures  are applied.  The  estimated costs associated  with a given
standard,  however,   remain constant across aggregation  procedures.  Conse-
quently,  the  estimated incremental  net benefits associated  with all
standards  increase  as  more comprehensive aggregation procedures are
employed.   It  is  also noteworthy that,  ceteris paribus.  the  estimated
incremental net benefits associated with more stringent  standards typically
increase relative to those associated with less  stringent standards  as more
comprehensive  aggregation  procedures are  applied.

     The estimated  incremental net benefits under the full attainment
scenario  (B) are usually  higher  than those  estimated  under the partial
attainment scenario  (A),  other things being the  same.   This  general obser-
vation, however, consistently  does  not hold for aggregation procedure  A.
                                   2-41

-------
This occurs because the functional forms used in the studies included in
aggregation procedure A predict diminishing  marginal benefits  to  incre-
mental air quality  improvements over certain  concentration ranges.

     The application of the Staff Paper lower bound TSP annual arithmetic
mean  (AAM) concentration  to  health studies has  the general  effect  of
reducing the  estimated  incremental benefits associated with  all  standards,
other things being the same.  Since estimated costs do not depend on the
lower bound,  estimated net incremental benefits naturally decrease when the
lower bound  is applied.  Moreover, for a given aggregation procedure and
attainment status, the application of the  lower bound has  the typical
effect of  increasing the estimated economic  efficiency  of less stringent
standards relative  to more stringent standards.

     Given the  general effects  of aggregation procedures,  attainment
status,  and the application of the lower bound on estimated incremental net
benefits,  the evaluations of the  relative economic efficiency of specific
standards  are  more straightforward.   Specifically,  three  alternative
standards — the  two TSP 9-year  standards and the PM10 70 AAM/250 24-hour
standard —  stand out as being  most  efficient when the standards  are
compared based  on TSP stringency.   Typically,   the TSP standards  are
preferred (based on the comparison of TSP stringency)  when more comprehen-
sive aggregation  procedures are applied, while the  PM10 70 AAM/250 24-hour
standard is generally preferred when less comprehensive aggregation proce-
dures are employed,  the lower bound is  applied, and only partial attainment
is achieved.

     The domain of economically preferred air quality  standards is dis-
played  in  Table  2-6.   The most  efficient  standard  (i.e.,  the  standard
associated with the largest positive estimated incremental net benefits) is
indicated for each of  the several conditions under which incremental  net
benefits are  estimated.

     As  Table 2-6  indicates,  none  of the alternative PM NAAQS  considered is
efficient  when incremental net benefits are estimated with the TSP AAM
                                   2-42

-------
                                              Table 2-6

                              DOMAIN OF  ECONOMICALLY PREFERRED STANDARDS*
Conditions
WITH LOWER BOUND:
Partial Attainment
(Scenario A)
WITO LOWER BODND:
Complete Attainment
(Scenario B)
WITHOUT LOWER BOUND:
Partial Attainment
(Scenario A)
WITHOUT LOWER BOUND:
Complete Attainment
(Scenario B)
Aggregation Procedure
A

No Standard
Efficient

No Standard
Efficient

PM10 70/250

PM10 70/250
B

No Standard
Efficient

No Standard
Efficient

TSP 75/260

TSP 75/260
C

PM10 70/250
or TSP 75/260

PM10 70/250

TSP 150

TSP 150
D

TSP 75/260
or TSP 150

TSP 75/260

TSP 150

TSP 150
E

TSP 150

TSP 75/260

TSP 150

TSP 150
F

TSP 150

TSP 150

TSP 150

TSP 150
* All  preferred  TSP standards  identified  are  9-year  standards  with  the  1987-1995  time horizon.   Condi-
  tions  "with  lower bound" refer to cases  in which  the TSP AAM  lower bound of 110 ug/m  is applied to all
  health studies.  Comparisons between  PM10 and TSP standards are in terms  of TSP stringency,  not
  particle sizes.

-------
lower bound  applied and under aggregation procedures A  and B, regardless  of
attainment status.  In these  cases, estimated incremental net benefits  are
negative for all standards  evaluated.   A literal interpretation  of the
estimates  indicates  that  all  considered standards  are  less  efficient  than
baseline controls.

     When  estimated  incremental  net  benefits are  computed  under the same
conditions, except  without applying the  lower bound, the  PM10 70/250
standard is the most efficient  standard under aggregation procedure  A,
while the TSP 75/260 9-year  standard  is  most  efficient in terms  of TSP
stringency under aggregation  procedure B.   Both  conclusions hold regardless
of attainment  status.

     Under aggregation procedure C,  the PM10 70/250 standard is the most
efficient  of  all  considered  standards  for  the  complete  attainment
scenario,  and is tied with the 9-year TSP 75/260 standard under partial
attainment  if  benefits are computed while applying the  lowet  bound  to all
health studies.  The TSP 150  9-year standard, however,  is the  economically
preferred option under aggregation procedure C  when benefits are  estimated
without the  lower bound.

     The two TSP standards are preferred under aggregation procedures D
through F, regardless of attainment status  and the  application of  the lower
bound.   The  TSP 150 standard  is the most efficient  of standards considered,
except in procedure D when incremental net benefits are  estimated with the
lower bound applied, and in procedure  E with the  lower bound  applied and
under  the complete attainment scenario.  The  TSP 75/260  standard  is
preferred or equally efficient in these exceptions.

     All of  the  comparisons between alternative  PM10 and TSP standards
described above are based on TSP stringency and not particle sizes.  The
estimated  incremental net benefits associated with the alternative PM10
standards  might  be understated  relative  to  those  associated with the TSP
standards if PM10 control options are more effective than TSP control
options  in reducing the  PM10  fraction of TSP. If only the alternative PM10
                                  2-44

-------
standards  are  evaluated for  efficiency,  the PM10  48  AAM/183 24-hour
standard usually replaces  the  two TSP standards as being economically
preferred.*  The following cases are exceptions:

     •   Either the PM10 55 AAM/200 or the PM10 55  AAM/150  standard
         is preferred when incremental net benefits are computed
         under partial  attainment  (A scenario)  without applying the
         Staff Paper lower  bound for aggregation procedure B.
     •   The PH10 55 AAM standard  is preferred when incremental net
         benefits  are computed  under  partial attainment and
         with  the  application of  the  lower bound for aggregation
         procedure D.

There are also some cases in which other less  stringent PM10  standards have
the  same estimated  incremental  net benefits  as the PM10  48 AAM/183
standard.  The benefit-cost analysis cannot  generally make distinctions
between the economic efficiency of alternative  standards with the  same
estimated incremental net benefits.

     It is  noteworthy that  the intermediate  (in terms of stringency) air
quality standards are generally not preferred, based on the  analysis of
incremental  net  benefits.   The least  stringent standard,  the PM10  70
AAM/250 24-hour standard, is usually preferred when relatively restrictive
assumptions  are  imposed on the estimated benefits.  However, the  most
stringent  standards  are usually most  efficient when less restrictive
assumptions are imposed on estimated benefits.  These two  results typically
hold,  regardless of whether  all  alternatives or only PH10  alternatives are
considered.

     Then the standards  which yield the highest net incremental benefit are
the least or  most restrictive considered, it is desirable to evaluate a
wider range of  alternative  standards.   Specifically,  in  cases  where  PM10
70/250 is  preferred, more  lenient alternatives should be examined to
* Tables 2-2 through 2-5 indicate that the PM10 48 AAM/183  standard is
  inferior.  The  results of the cost-effectiveness  analyses  reported in
  these  tables, however,  include the alternative TSP standards.
                                  2-45

-------
determine if incremental net benefits  peak at 70/250,  or whether they would
be larger with a less  stringent standard.   In cases where TSP 150 (or the
PM10  48 AAM/183)  standard  is preferred,  more  stringent alternative
standards should be examined to  see if incremental net benefits peak,  or if
some more stringent  standard is economically preferred.

     The identification of the  most  efficient option is far more sensitive
to the application of  aggregation procedures than to  either the attainment
status or the application of the Staff Paper lower bound.   Under aggrega-
tion procedure A (the  least comprehensive  aggregation  procedure),  the  PM10
70 AAM/250  24-hour standard  is always  preferred  among  the standards
evaluated.   In  contrast,  the  two 9-year TSP standards  are always most
efficient when alternative PM10 and  TSP  standards are compared in terms of
TSP stringency under aggregation procedures  0 through F.

     As noted  earlier in this  section,  applied  benefit-cost analysis
typically can provide  only a qualified  economic assessment  of regulatory
alternatives.  The previously noted  caveats  regarding benefit, cost,  and
air quality estimates as  inputs to the analysis should be considered in
using  the  estimated  incremental net  benefits to  assess  the relative
efficiency of the  alternative PM NAAQS.   First,  in  order to determine  if a
given standard is efficient  (i.e.. relative  to the  baseline scenario),  the
positive difference between estimated  incremental benefits and costs should
be statistically significant.  Second,  in order to identify the most
efficient  standard  (among those  evaluated),   the  difference  between
estimated incremental  net benefits for the preferred and next best standard
should  also be statistically significant.  However, because some of the
uncertainty in the  estimated incremental  benefits and costs cannot be
measured,  no statistical  tests have been conducted.  It is noted  that
differences  in estimated  incremental net benefits become  greater,  both in
absolute and relative  terms, as more comprehensive  aggregation schemes are
employed.  These differences,  however, do  not  imply the presence or the
absence of statistical  significance.
                                   2-46

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Economic Efficiency:   Attainment Status and TSP Implementation Periods —

     Based on the results of the benefit-cost  analysis, complete attainment
is generally  preferred  to  partial  attainment because,  other  things being
equal,  estimated incremental net benefits are larger under the B  scenario.
Partial  attainment is  preferred for all efficient  standards evaluated,
however,   if  aggregation procedure A  is  adopted.  These  conclusions  depend
on the accuracy of the  estimates  of  the  differential cost associated with
complete attainment.   As noted  previously,  these cost estimates are  highly
uncertain.

     The results of the analyses also suggest that the 9-year implementa-
tion period  for the TSP standards  are  associated  with higher incremental
net benefits than  the 7-year implementation period. Although there are
some conditions under which the estimated incremental net benefits are
larger for the 7-year  standards than  the 9-year standards,  the  issue  of the
implementation period is moot in these  cases  because  the TSP  standards are
not efficient relative  to  the PM10 standards. That is, in those cases in
which the TSP standards are ranked as being  more efficient than the PM10
standards,  the 9-year implementation period  is always more  efficient than
the shorter  period.

     These conclusions imply the  ability to measure statistically signifi-
cant differences in benefits and  costs.   As was the case for  the analysis
of the relative efficiency  of specific  standards, differences  in estimated
incremental benefits  and costs become greater  as more comprehensive  aggre-
gation procedures are  applied.  However,  the earlier caveat  applies here as
well:  relatively large  differences  do not  imply  statistically significant
differences;   smaller  differences  do  not necessarily imply the absence of
statistical significance.

Distribution of Incremental Net Benefits

     As  was  discussed earlier,  the benefit-cost  analyses are employed to
assess the economic effects of a  given PM NAAQS on resource allocation
                                    2-47

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within  the'economy.  For purposes  of  this analysis, it is assumed that
those who benefit from  a  given  PM NAAQS can potentially compensate those
who  incur the costs of  this PM NAAQS,  and  still retain  some welfare  gain.
However, full compensation is not actually paid,  so that some  individuals
will be worse off.  In  order to evaluate the full effect of a particular
standard on  economic welfare, judgments must  be made  regarding  the desira-
bility of the distribution of benefits and costs associated with the imple-
mentation of a  given PM NAAQS.  These  judgments are not made within the
context of the benefit-cost analyses; rather,  they  are described below.  In
particular,  the  following distributional issues are considered:

     •    Net benefits across regions.
     •    The sectoral distribution  of  impacts — i.e., the distribu-
          tions  across and within  industries.

Regional Distribution —

     It is not  likely  that  net benefits associated with  any given PM NAAQS
are  distributed  equally  over the entire United States.   Thus,  data on the
distribution of benefits and costs can provide  additional information
regarding the impacts of the alternative PM NAAQS.

     The method  employed to estimate the incremental  control costs did not
permit a consistent  estimation of  costs by  region for the complete attain-
ment scenario (i.e., the B scenario).   However,  incremental  control costs
by region are available  when residual nonattainment is permitted (i.e.,  for
the A scenario).   Estimates of  the  incremental net benefits associated with
this scenario are calculated for the  PM10  70 AAM/250 24-hour  standard
across each  of  several  regions for each of the six aggregation procedures.
The  regional distribution for this standard is  presented  in Table 2-7,
where  the incremental  net  benefits are  reported by EPA administrative
region.   The comparable  distribution when  the TSP AAM  lower bound of 110
     q
(ig/m  is applied to all  health studies  is  reported in Table  2-8.
                                   2-48

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t\)
I
                                                       Table  2-7

                    INCREMENTAL NET BENEFITS BY REGION FOR THE  PM10  (70,  250)  SCENARIO A STANDARD*
EPA Region
I New England
II New York-New Jersey
III Middle Atlantic
IV South Atlantic
V East North Central
VI South Central
VII Midwest
VIII Mountain
IX South Pacific
X North Pacific
U.S.
Aggregation Procedure
A
0.0
0.0
0.07
0.0
-0.05
0.01
0.01
0.0
0.33
0.01
0.38
B
0.0
0.0
0.13
0.06
0.24
0.11
0.03
0.05
0.59
0.03
1.2
C
0.0
0.02
0.60
0.52
2.5
0.83
0.17
0.39
2.5
0.21
7.7
D
0.0
0.04
1.0
1.0
5.7
1.8
0.35
0.74
4.2
0.38
15
E
0.0
0.06
1.8
1.7
8.6
2.7
0.55
1.3
6.3
0.58
23
F
0.0
0.08
2.4
2.2
11
3.7
0.74
1.8
8.9
0.81
32
        *  1982  discounted  present  values in billions of 1980  dollars  at  a 7-year time horizon (1989-95)  and  a  10
          percent  discount  rate.  Regional  incremental  net  benefits may not sum  to U.S.  totals due to independent
          rounding.

        Sources:   Regional  incremental benefits, Section 11,  Table 11-22; regional  incremental  costs,  Reference
                  (5).   Costs have  been adjusted to reflect the 9-year implementation horizon,  and AME costs  at 4
                  percent  have  been added.

-------
                                               Table 2-8

 INCREMENTAL NET BENEFITS BY REGION FOR THE PM10 (70, 250) SCENARIO A STANDARD WITH LOWER BOUND APPLIED*
EPA Region
I New England
II New York-New Jersey
III Middle Atlantic
IV South Atlantic
V East North Central
VI South Central
VII Midwest
VIII Mountain
IX South Pacific
X North Pacific
U.S.
Aggregation Procedure
A
0.0
0.0
-0.01
-0.05
-0.24
-0.05
-0.01
-0.02
0.22
-0.01
-0.16
B
0.0
0.0
-0.01
-0.05
-0.24
-0.05
-0.01
0.0
0.33
-0.01
-0.03
C
0.0
0.0
0.03
0.0
-0.05
0.0
0.0
0.13
1.2
0.02
1.3
D
0.0
0.0
0.53
0.51
3.3
0.95
0.18
0.35
3.0
0.16
8.9
E
0.0
0.01
1.3
1.1
6.1
1.8
0.37
0.72
5.0
0.30
17
F
0.0
0.03
1.8
1.6
8.4
2.6
0.53
1.2
7.4
0.48
24
* 1982 discounted present  values  in  billions of 1980 dollars at a 7-year time horizon (
  percent discount rate.   The TSP  AAM lower bound of 110  ug/m3 is  applied to all
                                                                                   (1989-95)  and a 10
percent  discount rate.  The  TSP AAM lower bound of 110 ug/m3  is  applied to all  health  studies.
Regional  incremental net benefits may not  sum to U.S.  totals due  to independent rounding.
Sources:   Regional  incremental  benefits.  Section 11, Table 11-62; regional incremental costs. Reference
          (5).  Costs have been  adjusted to reflect the 9-year implementation  horizon,  and AME costs at 4
          percent have  been  added.

-------
     The regional  distribution of estimated incremental  net  benefits does
vary somewhat across aggregation procedures, but generally, the largest
shares of incremental  net  benefits are realized by East  North  Central and
South Pacific regions. For example, the estimates reported in Table 2-7
indicate that about 65  percent of the incremental  net benefits for the PM10
standard accrue  to  these  two regions when aggregation  procedure E is
applied. The figure is also about 65 percent under procedure  E. when the
lower bound  is  applied as in Table 2-8.   As  noted above,  this  result
assumes  that not all counties  are in complete attainment  with the standard.
Consequently, this  distribution cannot be used to make  any inferences
regarding the distribution  of  net benefits when the condition of full
attainment  is applied.

     The behavior of the regional distribution of incremental net benefits
associated with more stringent  air  quality  standards may  also  be of
interest.  Regional distributions of  estimated incremental net benefits for
the TSP 75 AGM/260 9-year standard are reported in Tables 2-9 and 2-10,
respectively, when incremental net benefits are  computed without and'with
the TSP AAM  lower-bound.  The  results indicate  a  slightly more even
regional distribution of  incremental net benefits  compared to the distribu-
tion associated with the more lenient PM10  standard.   For  example, the East
North Central and South Pacific regions  receive  only about 52  percent  or 63
percent of total estimated incremental net benefits under aggregation
procedure E,  depending on  whether incremental net benefits are computed
without  or with  the Staff Paper  lower-bound concentration level.

Sectoral Distribution —

     Incremental net benefits  associated with alternative PH NAAQS are also
distributed over various economic sectors.   For example, benefits  and/or
costs may accrue in the household,  manufacturing, commercial,  institu-
tional,  and  government sectors.   In this  analysis,  benefit  estimates are
limited to the household sector and a  small subset of the manufacturing
sector,  while estimates of control costs  include costs borne by private
industrial sources  and  government-owned  utilities  and roads.   Thus,  a
                                  2-51

-------
I
(Jl
                                                       Table 2-9

                  INCREMENTAL NET BENEFITS BY REGION FOR THE TSP (75, 260) 9-YEAR SCENARIO A STANDARD*
EPA Region
I New England
II New York-New Jersey
III Middle Atlantic
IV South Atlantic
V East North Central
VI South Central
VII Midwest
VIII Mountain
IX South Pacific
X North Pacific
U.S.
Aggregation Procedure
A
0.0
-0.01
-0.03
-0.09
-0.24
0.02
-0.01
-0.02
0.48
0.01
0.11
B
0.05
0.03
0.20
0.10
0.44
0.22
0.10
0.09
0.92
0.09
2.2
C
0.41
0.37
1.9
1.6
5,6
1.6
0.92
0.92
4.2
0.75
18
D
0.80
0.85
3.7
3.1
12
3.5
1.8
1.7
7.2
1.5
37
E
1.4
1.6
6.6
5.4
20
5.6
3.0
2.9
11
2.5
60
F
2.0
2.1
9.1
7.4
27
7.7
4.2
4.1
16
3.4
83
        * 1982  discounted present values in billions of 1980 dollars at a 9-year  time horizon (1989-95)  and  a 10
         percent  discount  rate.  Regional  incremental  net benefits  may not  sum to U.S. totals due to  independent
         rounding.

        Sources:   Regional  incremental benefits. Section 11, Table  11-38;  regional incremental costs. Reference
                  (5).   Costs have been adjusted to reflect  the  9-year implementation horizon, and AME costs  at  4
                  percent have  been added.

-------
Ul
                                                     Table 2-10

        INCREMENTAL NET BENEFITS BY REGION FOR THE TSP  (75, 260) SCENARIO A STANDARD WITH LOWER BOUND APPLIED*
EPA Region
I New England
II New York-New Jersey
III Middle Atlantic
IV South Atlantic
V East North Central
VI South Central
VII Midwest
VIII Mountain
IX South Pacific
X North Pacific
U.S.
Aggregation Procedure
A
-0.02
-0.03
-0.23
-0.21
-0.65
-0.07
-0.08
-0.08
0.24
-0.04
-1.2
B
-0.02
-0.03
-0.23
-0.20
-0.65
-0.07
-0.08
'-0.06
0.39
-0.04
-1.0
C
0.0
0.0
-0.11
-0.11
-0.24
0.03
-0.03
0.11
1.6
0.03
1.3
D
0.04
0.13
0.91
0.72
4.8
1.4
0.27
0.45
4.3
0.27
13
E
0.22
0.49
2.7
1.9
9.9
2.9
0.79
1.1
7.6
0.64
28
F
0.68
0.95
4.7
3.7
16
4.6
1.8
2.1
12
1.4
47
        * 1982 discounted present values in billions of 1980 dollars  at  a  9-year  time horizon (1989-95) and a 10
         percent discount  rate.   The TSP AAM lower  bound of  110 (ig/m   is applied  to all health studies.
         Regional incremental net  benefits may not sum to U.S.  totals due  to independent rounding.

        Sources:  Regional incremental benefits, Section 11, Table  11-78;  regional  incremental costs,  Reference
                 (5).  Costs have been adjusted to reflect the 9-year implementation horizon, and AME costs at 4
                 percent have been added.

-------
complete analysis of the distribution of  net  incremental benefits by sector
is not possible.  However, the results  of the Economic Impact Analysis
(EIA)  do provide some information on the distribution of  estimated control
costs  by economic  sector  (1).

    Estimated  direct  emissions  control  costs  are summarized by  2-  and 4-
digit  SIC  codes  in Table 2-11 for the 9-year  TSP 75/260 standard  under the
partial attainment scenario (estimated costs by industry are  unavailable
for the complete attainment scenario).  For most  industries, the  estimated
control costs associated with less stringent  standards are lower than those
associated with  the 9-year TSP 75/260 standard under  the partial attainment
scenario.   The estimated control costs  for the  complete  attainment
scenario,  however,  are  highly  uncertain  and much  larger  than those
associated with partial  attainment.  Consequently,  the adverse impacts on
some industries  could be more  severe under complete attainment.

    A high percentage of emissions control costs will be shared by the
manufacturing  (SIC 20-39)  and utility (SIC 49)  sectors.  The manufacturing
sector,  for example,  accounts for  about  50 percent of all capital expendi-
tures  under the  TSP  75/260  standard.  The utility sector  will  incur  about
44 percent of estimated capital  costs under this standard.   Electric  utili-
ties (SIC 4911) are expected to bear  about 40 percent  of  total capital
costs.

    The EIA uses the estimates of control costs  to assess  the adverse
impacts of the most restrictive standard (i.e., the  current TSP combined
primary and secondary standards)  on production,  prices,  plant closures, and
employment.   The  analysis includes  16  industries judged  to  be  most
seriously  affected by the current TSP standards.  Each industry  is analyzed
separately.  Consequently,  the effects in factor and  output markets between
and among these industries are ignored.  In  addition,  the EIA does not
consider possible positive economic  impacts such as  employment  gains  in the
pollution control  equipment industry or gains due to innovation-inducing
effects of the  regulations.  However, the EIA does provide  information
which is useful  in  describing the  distribution of several  economic effects
                                   2-54

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                               Table 2-11

         CAPITAL AND AFTER-TAX ANNUALIZED COSTS (ATAC)  OF CONTROL,
            BY INDUSTRY, FOR THE TSP (75, 260) 9-YEAR STANDARD*
                              (Scenario A)
SIC**
02
07
08
10
14
1422
1429
1442
16
20
2041
21
22
24
25
26
27
28
29
2951
30
32
3241
3274
3281
3295
33
3312
3321
3331
3332
3334
Capital
Cost
1.91
0.400
0.008
10.7
61.2
20.2
5.2
5.68

103
45.6
2.11
5.51
1.67
0.816
67.0
2.30
71.4
73.2
36.6
0.764
186
74.5
21.2
4.95
51.4
623
444
67.2
2.96

0.340
ATAC
0.193
0.042
0.001
1.37
9.92
3.66
0.870
1.40
0.125
11.1
4.64
0.220
0.632
0.424
0.091
7.87
0.250
8.11
11.9
7.27
0.090
23.6
8.73
2.58
0.562
6.87
72.4
53.4
6.77
0.623
0.067
0.166

































SIC**
34
35
36
37
38
39
40
42
44
49
4911
4961
50
51
52
53
65
80
82
91
92
93
94
95
96
97
99




Total
Capital
Cost
27.2
8.65
8.16
39.4
6.84
6.29
1.41
6.40
0.214
1,130
1,020
65.5
1.06
42.7
0.414
0.230
1.14
11.2
10.4
2.65
0.727
1.43
1.52
0.391
14.2
2.64
45.5




2,580
ATAC
3.19
0.999
0.888
4.20
0.755
0.787
1.28
0.892
0.022
120
108
7.60
0.313
5.11
0.071
0.024
0.149
1.31
1.10
0.325
0.080
0.150
0.166
0.046
1.62
0.301
8.86




301
 * Millions of 1980 dollars.   Individual  entries may  not  sum  to  totals  due
   to independent rounding.

** Sectors  by  SIC  are:   Agriculture  (01-09);  Mining  (10-14);  Construction
   (15-19); Manufacturing (20-39);  Service Utilities  (40-49);  Wholesale
   Goods (50-59); Service Industries  (80-89); Government Operations (90-
   99).

Source:   Reference  (1).
                                   2-55

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attributable  to the current TSP  standards.  These  effects  are  summarized
below.

     For each industry,  the  type  and  magnitude  of  economic  effect depends,
to a large extent, on the ability of firms  within that industry to pass
control costs through to other economic agents.   In some instances,  these
agents  may be firms in other industries.  However,  it is also possible that
agents  in the household, commercial,  institutional,  and governmental
sectors may  bear  the  costs  that  are  passed through.   On the basis of the
El A, it appears  that most  affected firms will absorb at least some of these
costs.   Hence,  the effect  of the  current TSP standards  on prices or output
in the  product markets of these firms  will be mitigated.  However,  for some
of the  controlled  firms,  the cost increase they must absorb  may  force them
to consider  terminating operations.*  While there will be some employee
displacement effects associated with these closures, the EIA concludes that
no net  impact on industry  employment  or  output is anticipated.

     No significant foreign  trade effects are anticipated for any of the 16
industries.   The impact  of current  TSP standards on investment,  producti-
vity, and  innovation within  any of these industries  is  likely to be adverse
but  small.   Finally,  it should be noted that the economic  impacts of less
stringent  PH NAAQS generally will be less severe, but those  associated with
full attainment could  be  much more severe.

CONCLUSIONS AND QUALIFICATIONS

     The benefit-cost  analyses reported  earlier  in  this  section were con-
ducted to assess  the  cost-effectiveness  and  economic efficiency of the
alternative standards.   The  economic  efficiency  of  attainment  states,  and
* Emissions control costs may force some establishments to close in the
  following industries:  cement; crushed and broken stone; construction
  sand  and gravel;  paving  mixtures  and  blocks;  cut  stone and  stone
  products;  crushed  minerals  and earths; grain and flour milling;  and iron
  foundry.  The number  of expected closures in each of these  industries,
  however,  is  a  relatively small percent of  total  industry establishments.
                                   2-56

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the implementation periods for the TSP standards,  were  also  evaluated.  In
addition,  the distributional impacts  associated  with the alternative
standards were described.   The conclusions offered from  the  interpretation

of these analyses,  however,  are subject to qualifications.


Conclusions


     The major conclusions that emerge from the benefit-cost analyses are
described briefly below  for  each of  the several aspects  of the alternative
PM NAAQS that  were  evaluated.


Cost Effectiveness —


     The analysis  of  cost  effectiveness indicates that 118 of  the 240

combinations are inferior (i.e., cost more to  achieve the  same  or  smaller
benefits than other options).


Economic Efficiency of Alternative Standards  —


     The major  conclusions regarding economic efficiency  of alternative
standards are  as follows:
          The  ranking of standards in terms of economic  efficiency is
          especially sensitive to the  different benefit aggregation
          procedures employed.

          Given  the  use of only  CASAC-approved quantitative studies
          that are amenable to benefit analysis  and the imposition of
          the  Staff paper lower bound,  none of  the alternative
          standards  is  efficient.  Given a  literal interpretation of
          this result,   an alternative less  restrictive than  the least
          restrictive considered alternative (PM10 70 AAM/250 24-hour
          expected  value)  is  warranted  in terms of  economic
          efficiency.

          Given the use  of the  same CASAC-approved studies,  but
          without  imposing the lower-bound concentration  level,  the
          PM10 70  AAM/250 24-hour expected value  alternative is pre-
          ferred in  terms  of economic  efficiency.
                                   2-57

-------
          Given  the  adoption of  more  comprehensive  benefit
          aggregation  procedures,  the two 9-year TSP alternatives of
          75  AGM/260 24-hour  (second high) and 150 24-hour (second
          high) are  preferred  when  all  alternatives are  compared in
          terms of TSP stringency.

          When only  PM10 standards  are  evaluated for efficiency,  the
          PM10 48 AAM/183 24-hour  standard  is usually preferred.
Economic Efficiency of Partial Versus Complete Attainment —•


     Two major conclusions  result  from the analysis of  the  economic
efficiency  of  attainment status.   These  conclusions are:
          Given  the  use  of only CASAC-approved quantitative  studies
          which  are  amenable  to the benefit analysis, partial attain-
          ment is  preferred to full attainment.

          Given the use of more comprehensive benefit aggregation
          procedures,  complete  attainment  is  generally  preferred  to
          partial  attainment.
However,  these conclusions depend importantly  on the  method  and  data  used

to estimate the cost  differential associated  with complete  attainment.   As

noted  previously,  these  cost estimates are  subject to  considerable

uncertainty.


Economic  Efficiency of TSP Implementation Periods —


     Alternative  TSP  standards  were  evaluated  for both 7-year (1989-1995)

and 9-year (1987-1995) implementation periods.  The 9-year TSP  implementa-

tion period  is preferred  in  all cases in  which either of  the two TSP

standards  were ranked  as  most efficient of  the alternative standards

evaluated.
                                   2-58

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Distributional Impacts —


     The distributional  impacts of  the alternative  PM  NAAQS are  not
evaluated by the benefit-cost  analyses.  These distributional  impacts  were
described.   Briefly summarizing, the  following conclusions are offered:


     •   Based  on  the findings of the  economic  impact  analysis,  no
         major adverse  impacts  associated with the alternative
         standards are expected.   This  conclusion, however,  is based
         on an  analysis of estimated control costs under partial
         attainment.  Estimates  of  costs under  full  attainment are
         much larger and highly uncertain.  As a result, adverse
         impacts could be more severe  under  complete  attainment.

     •   Under  the less restrictive  standards, much of the estimated
         incremental net benefits will be realized in the East North
         Central and  South  Pacific  EPA administrative  regions.
         Under  the more  stringent standards,   these  two regions
         receive a smaller  but  still considerable share  of  the
         estimated  incremental net benefits.  The regional distribu-
         tion of incremental net benefits  is based  on the partial
         attainment scenario.  The  results  of  this  analysis  cannot
         be used to project regional  distributions under  complete
         attainment.
Qualifications


     The general  limitations  of  applied benefit-cost analysis and specific

qualifications to this  analysis have  already  been described in  this
section.   The  conclusions  summarized  immediately above should be assessed
in full  view of these limitations and  qualifications.  Some of the specific
qualifications  to  this analysis are summarized briefly below.


     The validity  of  the benefit-cost  analyses  depends  on  the estimates  of

benefits,  costs,  and air  quality.   Sources  of  potential  biases and
uncertainty in  each of these  estimates have  already been described.   It  is

noted that these  biases and uncertainties  do bear directly on the conclu-

sions summarized  above.  These conclusions depend on the ability to  detect
meaningful differences between benefits  and costs,  and differences  in net
benefits across the alternative standards.  As was stated previously,  tests
for  statistically significant differences  have  not  been conducted because
                                   2-59

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not all  of  the uncertainty associated with the estimated benefits and costs

is known.


     In  most cases,  the alternative PM NAAQS ranked as most efficient are

either the  least  or  most  stringent of the standards  evaluated.  Because of

this,  additional  information on efficiency  could  have been obtained  if a

wider range of standards had been evaluated.  However, the analysis was

limited to  options that were no less  restrictive than the middle of the EPA

Staff Paper range (i.e., PM  70 AAM/250 24-hour expected value)  and  no  more

restrictive than the current TSP secondary  standard (150  24-hour second

high).


REFERENCES
 1.  Viola, J., R.  Silverman,  S.  Schechter,  J. Wagner,  E. Hurley,  J.
     HcGovern  and G. Scarborough.   Technical Appendices,  Economic Impact
     Analyses of Alternative National Ambient Air Quality Standards for
     Particulate Matter.  Final Report to the U.S. Environmental Protection
     Agency by Energy  and Environmental Analysis,  Inc.,  Arlington, VA,
     December  1982.

 2.  Smith, A. E.  and K.  L.  Brubaker.   Costs and Air Quality Impacts of
     Alternative National Ambient Air Quality Standards for Particulate
     Matter.   Technical Support Document.   Final  Report  to  the U.S.
     Environmental Protection Agency  by Argonne National  Laboratory,
     Argonne,  IL, January 1983.

 3.  Vatavuk,   W.   Development  of AME Estimates.   U.S.  Environmental
     Protection Agency Memorandum  dated April 13,  1981.

 4.  Walton, T.  Baseline Costs.  U.S.  Environmental Protection Agency,
     Memorandum dated August  2, 1982.

 5.  Laarman,  J.  Comparison  of Mathtech with BEA Data on SIC Growth Rates.
     Memorandum to T. Walton of U.S. Environmental Protection Agency dated
     February  17, 1982.

 6.  Lind, R.   C.,  K. J. Arrow,  G.  R.  Corey,  P. Dasgupta, A.  K.  Sen. T.
     Stauffer, J.  E.  Stiglitz,  J.   A.  Stockfisch,  and R.  Wilson.
     Discounting for Time and Risk in Energy Policy.  Baltimore:  Johns
     Hopkins University Press, 1982.
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