PB-202 353
A MODEL FOR REGIONAL AIR POLLUTION COST/BENE
FIT ANALYSIS
Kenneth R. Woodcock
TRW Systems Group
McLean, Virginia
May 1Q?1
NATIONAL 'ECHNICAL INFORMATION SERVICE
Distributed ... 'to foster, serve
and promote the nation's
economic development
and technological
advancement.'
•
• •
U.S. DEPARTMENT OF COMMERCE
This document has been approved lor public release and sale.
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• •_ • ',4. '.''I' ' -'.W '•'.*
Environmental Protection Agency
rAir Pollution Control Office
'Washington, D.C.
•
Contract Mo. PH 22-68-60
•ft
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NOTICE
This document has been reproduced from the best copy
furnished us by the sponsoring agency. Although it is
recognized that certain portions are illegible, it is
being released in the.interest of making available as
much information as possible.
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STANDARD TITLE PAGE
FOR TECHNICAL REPORTS
I. Report No.
APTD-0708
3. Recipient's Catalog No.
4. Title and SuotltM
.A Model for Regional Air Pollution Cost/Benefit
Ann lys is
S. Report Date
May 1971
6. Performing Organization Code
'. Authons)
Kenneth R. Woodcock
8. Performing Organization Kept. No.
9. Performing Organization N«M and Address
TRW Systems Group
7600 Colshire Drive
McLean, Virginia 22101
TJVsponsoflng Agency Nan* and Addiwu"
Environmental Protection Agency
Air Pollution Control Office
Research Triangle Park, North Carolina 27711
10. ProJect/TasH/Work Unit No.
TT. Cbmra57ffranrHeT
PH 22-68-60
13. Type of Report & Period Covered
14. Sponsoring A~ge~ncy~C3de
13. supplementary note*
16. Abstracts
A description of a cost/Benefit model is presented. This model is an ex-
tension of the Implementation planning Program, a coat-effectiveness model
which has been utilized in evaluating regional emission control strategies
for the development of implementation plans. The specifications for the
model for sulfur dioxide and particulate pollutants have been developed
and are presented. The report also focuses on: -L. the need for
analytical procedures to evaluate the economic consequences of air pol-
lution control strategies; 2-^ the identification of additional research
areas which need consideration; $..» a theoretical discussion of economic
efficiency and equity considerations of air pollution control strategies;
and 4. model utilization in the air pollution control decision-making
process.
17. Key Words and Document Analytli. (a). Descriptor*
Atmosphere contamination control
Economic analysis
Economic models
Cost Benefit analysis
Decision theory
Dus ts
Aerosols
Sulfur dioxide
17t>. identlflers/Open-Cnded Tpnw
Implementation Planning
Air Resource Management
Air pollution control
Particulates
17c. COSATI Field/Group 13 B , 5C
Program
IB. Distribution Statement
Unlimited
19. Security Class (This Report)
UNCLASSIFIED
/O.Securlty Class. (This Page)
UNCLASSIFIED
21. No. of Pages
22. Price
PONM NM-M741-70)
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11130-W001-RO-00
A MODEL FOR REGIONAL AIR POLLUTION
COST/BENEFIT ANALYSIS
Kenneth R. Woodcock
May 1971
Prepared for
Environmental Protection Agency
Air Pollution Control Office
Contract No. PH 22-68-60
TRW SYSTEMS GROUP
7600 Colshire Drive,
McLean, Virginia 22101
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This report was furnished to the Offi.ce
of Air Programs by
TRW Systems Group
7600 Colshire Drive
McLean, Virginia 22101
in fulfillment of Contract No. PH 22-68-60
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TABLE OF CONTENTS
Page
1.0 EXECUTIVE SUMMARY ........... '. ........... 1
2.0 ECONOMIC ANALYSIS AND AIR RESOURCE PLANNING- ........ H
2.1 AIR RESOURCE PLANNING—ECONOMIC DECISIONS ....... 15
2.2 APPLICATION OF ECONOMIC THEORY AND
COST/BENEFIT ANALYSIS .............. • • • • *-6
2.3 USE OF THE REGIONAL AIR RESOURCE PLANNING MODEL ....
3.0 CURRENT AIR RESOURCE PLANNING PRACTICES ........... 19
3.1 PHILOSOPHY OF AIR RESOURCE PLANNING. .. ........ 20
3.2 ESTABLISHED AIR RESOURCE DECISION-MAKING PROCEDURES . . 22
3.2.1 Nashville Metropolitan Area Air Resource
Management Plan ..... . • .......... 23
3.2.2 Implementation Planning Under The
Clean Air Amendments of 1970 ..... ..... 24
4.0 CONCEPTUAL FRAMEWORK FOR REGIONAL AIR RESOURCE
DECISION-MAKING. ........ ........... ......... 31
4.1 OVERVIEW ............ ............ 31
4.2 PROBLEMS IN AIR RESOURCE PLANNING ..... ........ 34
4.3 DECISION-MAKING OBJECTIVES. ...'.' ..... ' ..... 37
4.4 EVALUATION CRITERIA ....... . .......... 38
4.5 APPLICATION OF COST/BENEFIT ANALYSIS TO AIR RESOURCE
DECISION-MAKING .......... . ......... 39
5.0 OVERVIEW OF THE COST/BENEFIT MODEL' ..... . ....... 43
5.1 VALUE OF THE COST/BENEFIT MODEL ............ 45
5'. 2 ALTERNATIVE TYPES OF MODELS . '. ........ .... 46
5.3 COST/BENEFIT MODEL UTILIZATION ...... ....... 49
6.0 CONTROL COST ESTIMATING PROCEDURES ........... . . 55
6.1 IMPLEMENTATION PLANNING PROGRAM ...... ....... 55
6.2 POINT SOURCE CONTROL . COSTS . .... .......... 62
6.3 AREA SOURCE CONTROL COSTS . . ............. 62
6.4 CONTROL AGENCY COSTS- ... ....... , ...... 63
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TABLE OF CONTENTS (Continued)
Page
7.0 BENEFIT MODEL ......... '. . , ............. 67
7.1 RECEPTOR DATA. ..................... 67
7.2 DAMAGE FUNCTIONS ......... ..... ...... 71
7.2.1 Description of a Damage Function. ........ 75
7.2.2 Identification of Air Pollution Effects ..... 78
7.2.3 Assessment of Air Pollution Effects ....... 82
7.2.4 Evaluation of Air Pollution Effects ....... 83
7.2.5 Types of Air Pollution Damage Functions ...... 86
7.2.6 Application of Air Pollution Damage Functions . . 88
7.2.7 Development of Damage Functions ......... 95
8.0 SOME APPLICATIONS OF THE COST/BENEFIT MODEL ......... 99
.8.1 EMISSION CONTROL REGULATION DEVELOPMENT . . ...... 999
8.2 ANALYSIS OF THE DISTRIBUTION . .... .......... 105
8.3 PRACTICAL MODEL APPLICATION IN AQCRs .......... 109
8.4 CRITERIA FOR EVALUATING STRATEGIES ........... HO
8.5 OTHER USES OF THE C/B MODEL . . ............ 115
9.0 BIBLIOGRAPHY ........... . . ...... ..... 117
9.1 REGIONAL AIR QUALITY MANAGEMENT. ............ 117
9.2 GENERAL COST/BENEFIT LITERATURE .......... . . H7
9.3 THEORY AND APPLICATION OF COST/BENEFIT ANALYSIS. .... 118
9.4 RELEVANT AIR POLLUTION AND RELATED LITERATURE ..... 119
9.5 SOCIAL INDICATORS ...................
APPENDICES
A THEORETICAL CONSIDERATIONS OF AIR POLLUTION
COST/BENEFIT ANALYSIS 123
B PRACTICAL MEASURES FOR OBSERVATIONS OF COSTS
AND BENEFITS 141
C EFFICIENCY EVALUATIONS OF COSTS AND BENEFITS 149
D CONTROL SUPPLIER FUNCTIONS 159
iv
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ILLUSTRATIONS
Figure
1-1 Regional Air Pollution Cost/Benefit Model ..........
1-2 Direct Application of C/B Model in Strategy Analysis .... 6
1-3 Use of C/B Model with Economic Model System ....... • 8
2-1 The Air Resource Loop ..... .... .......... 13
2-2 Air Pollution Efficiency Analysis ....... • ..... 14
3-1 Scope of Air Quality Management .............. 21
3-2 Roll-Back Technique ........ " ............ 25
3-3 The Testing of Emission Control Strategies ......... 27
3-4 Annual Arithmetic Mean Concentrations of Suspended
Particulate Pollutants as Estimated by Diffusion Model
for Existing Conditions ..... ............. 28
3-5 Predicted Ground-Level Concentrations Following
Application of Proposed Control Strategy • • • •. ...... 29
4-1 Air Resource Decision-Making Process ........ ..... 32
4-2 The Path to Clean Air .......... • ........ 35
•
4-3 Flow of Costs and Benefits Over Time ............ 36
4-4 The Concept of Air Pollution Cost/Benefit Analysis ..... 41
5-1 Regional Air Pollution Cost/ Benefit Model ......... '• 44
5-2 Form of Regional Cross-Sectional Analysis .......... 47
5-3 Longitudinal Cost/Benefit Study of Air Quality ....... 48
5-4 Direct Application of C/B Model in Strategy Analysis .... 50
5-5 Use of C/B Model with Economic Model System- • • ...... 52
5-6 Major Component of the Model ................ 53
6-1 Implementation Planning Program ............... 56
6-2 Existing Ground Level Particulate Concentrations in
the NCIAQCR as Computed by the Verified Diffusion Model ... 59
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ILLUSTRATIONS (Continued)
Figure Page
6-3 Predicted Particulate Concentrations after
the Enactment of the Proposed Emission
Control Strategy in all Political Jurisdictions • • 61
6-4 Accounting for Control Agency Costs 64
7-1 Benefit Model Design 68
7-2 Crdss-Sectional Cost/Benefit Model for Given
Pollutant and Damage Function 69
7-3 a Receptor Points Superimposed on Census Tracts
of the NCIAQCR (Macroscopic view) 72
7-3b Receptor Points Superimposed on Census Tracts
of the NCIAQCR (Microscopic view) 73
7-4 Receptor'Point - Census Tract Interface 74
7-5 Supply-Demand Relationship for Air Quality 76
7-6 What is a Damage Function? 77
7-7 Damage Function - A Rate 79
7-8 Structuring the Economic Effects of Air Pollution 80
7-9 Social Benefits Resulting from Air Pollution Control. .... 81
7-10 How to Value Air Pollution Effects? 85
7-11 Example Damage Function for Direct Effects 87
7-12 Example Damage Function for Market Effect 89
7-13 Application of Damage Functions 91
7-14 Historical Trends in Pollution Concentration 93
7-15 Monthly Average Sulfur Dioxide Concentrations
in the District of Columbia . . 94
7-16 Comprehensive Damage Function for an AQCR • • 96
8-1 Existing Ground Level Particulate Concentrations
in the NCIAQCR as Computed by the Verified Diffusion Model- . 101
vi
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ILLUSTRATIONS (Continued)
Figure Page
8-2 Predicted Particulate Concentrations after
Enactment of the Proposed Emission Control
Strategy in all Polutical Jurisdictions (Strategy 18).... 102
8-3 Predicted Air Quality Improvement in the NCIAQCR 103
8-4 Source Equity vs. Receptor Equity 104
•
8-5 Source Equity (Position A) 104
8-6 Source Equity (Position B) 106
8-7 An Emission Standard Based on Geographical Location 107
8-8 Use of the Cost/Benefit Model in an AQCR Ill
A-l Classification of Direct Effects 125
A-2 Identification of Adjustments 126
A-3 Structuring the Economic Effects of Air Pollution 127
A-4 Cost of Control and Cost of Pollution 132
A-5 Cost of Control and Benefits 133
A-6 Pareto-Relevant and Pareto-Irrelevant Externalities 135
A-7 Internalization of the Cost of Pollution 136.
A-8 Relevant Costs of Air Pollution Disposal . ' 137
A-9 Reduction of the Relevant Costs of Air
Pollutant Disposal 139
B-l Point Source Control Cost vs. Total Regiq^al
Particulate Emission Rate for NCIAQCR for
Selected Strategies 143
B-2 Point Source Marginal Control Cost vs. Total
Regional Particulate Emission Rate for NCIAQCR
for Selected Strategies 145
B-3 Point Source Control Costs vs. Total Regional
Sulfur Oxide Emission Rate for NCIAQCR for
Selected Strategies 146
B-4 Point Source Marginal Control Cost vs. Total Regional
Sulfur Dioxide Emission Rate for NCIAQCR for
Selected Strategies. . 147
vii
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TABLES
Page
6-1 Implementation Planning Program. ...... ........... 60
7-1 Regression Results of Anderson-Crocker
Study for the Washington, D. C., SMSA ............ 90
7-2 Example Data for the Development of
Damage Functions for Heal Effects* • ............ 97
B-l Selected Control Strategies for the NCIAQCR- • ....... 144
viii
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1.0 EXECUTIVE SUMMARY
The Cost/Benefit Model described in this report is an extension of
the Implementation Planning Program (IPP), a cost-effectiveness model
which has been utilized in evaluating regional emission control strategies
for the development of implementation plans. The specifications for the
Model for sulfur dioxide and particulate pollutants have been developed
over the past six months and are presented in this report. As a follow-on
to this effort, the Cost/Benefit Model is now being developed and demon-
strated in the National Capital Interstate Air Quality Control Region.
The users' manual and demonstration results o'f the Model will be available
by June 1971.
This report goes beyond the presentation of the Model specifications
and also focuses on: (1) the need for analytical procedures to evaluate
the economic consequences of air pollution control strategies; (2) the
identification of additional research areas which need consideration; (3)
a theoretical discussion of economic efficiency and equity considerations
of air pollution control strategies; and (A) Model utilization in the air
pollution control decision-making process.
The air pollution problem in the United States is now approached
through a complex series of policies. The Nation is attempting to repair
the damages caused by negative externalities from our expanding economy.
Public pressures are forcing the development of rapid solutions. Air
quality standards have been established on the basis of the best available
information in the world. Nonetheless, the standard setting procedure is
not based on comprehensive studies or complete data. It is possible that
today's standards will be modified and improved as better decision-making
information becomes available..
Unfortunately, regional air resource policies are being established
without the required sensitivity to economic conditions. Since economic
considerations are not included, the potential impact of these policies
on the regional and national economy has not been evaluated. Analytical
tools are needed to inform decision-makers of the economic consequences
of air resource policies. Tools are needed to evaluate the economic
efficiency and equity aspects of the impact of air pollution control
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policies on sources and receptors. Tools for evaluating strategies must
be designed which will be compatible with the regional decision-making
process and with regional environmental and urban-planning goals and
objectives. There is clearly a need for a broader analytical approach,
which includes the examination of long-term land-use plans and plans for
regional economic growth.
At the present, the only analytical tools available for the develop-
ment of regional emission control strategies are the "rollback technique"
and the cost-effectiveness analysis approach of IPP. The "rollback tech-
nique" is used to estimate the required regional emission reduction but
does not examine the spatial distribution of pollution concentrations
within an air quality control region (AQCR). IPP predicts pollution con-
centrations at numerous geographical locations in an AQCR and predicts
control costs for the major point sources. Yet, the procedure for deter-
mining the effectiveness of control strategies merely evaluates the
difference between the predicted pollution concentration and the air
quality standard. Considerations of regional and national economic impact
are not directly included in the analysis..
This report outlines a basic framework for analytical procedures that
may assist the air quality and emission standard-setting process, which
has been used as a guide in the development of the Cost/Benefit Model.
The Model represents an initial attempt to integrate economic, cost/benefit,
and systems analysis into air pollution control decision-making.
The Cost/Benefit Model and it's relationship to IPP is illustrated in
Figure 1-1. The major outputs of IPP used in the Cost/Benefit Model are
the point source-control costs and the air quality display. The point
source control costs are currently the only available measure of the social
cost of air pollution control in the Model. Procedures for predicting area
source control costs and control agency costs are described in this report
but have, thus far, not been included in the Model.
The major portion of this study is devoted to the development of the
I
Benefit Model (see Figure 1-1) which relates the predicted pollution con-
centration (i.e., air quality display) to receptor data and damage func-
tions. The exposure of receptors to pollutants (a measure of dosage) is
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n
INPUTS
IMPLEMENTATION PLANNING PROGRAM
• AIR QUALITY
DATA
METEOROLOG-
ICAL DATA
• EMISSION
INVENTORY—I
• CONTROL
TECHNIQUES
AND COSTS
ATMOSPHERIC
DIFFUSION
MODEL
CALIBRATION
PROCEDURE
I
IES
rs
1
-+
CONTROL
COST FILE
-k rr
EXISTING
AIR
QUALITY
DISPLAY
CONTROL
STRATEGY
MODEL
AJR
QUALITY
DISPLAY
I v uri./-* i
• RECEPTOR
DATA
DAMAGE
FUNCTIONS
BENEFIT
MODEL
1
POINT
SOURCE
CONTROL
COSTS
AREA
SOURCE
CONTROL
COSTS
CONTROL
STRATEGIES
I
CONTROL
AGENCY
COSTS
Figure 1-1. Regional Air Pollution Cost/Benefit Model
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determined by the air quality-receptor relationship. The damage function
(which relates the annual cost of air pollution damage to pollution con-
centration) when applied to the dosage estimate, determines the damage
cost estimate desired. Estimates of benefits (i.e., a reduction in damages)
are calculated by subtracting damage estimates for alternative strategies
from the damages caused by existing atmospheric conditions.
Three categores of economic effects from air pollution can be evalua-
ted with the Benefit Model. These are: (1) direct effects; (2) adjust-
ments (or indirect effects); and (3) induced effects. Direct effects are
immediate negative externalities borne by the receptor. 'Indirect effects
are those which induce persons or firms to make certain adjustments in
order to reduce the direct impact of pollutants. Induced effects are
realized through the marketplace as a result of adjustments made.
The greatest deficiencies in the proposed analytical procedures are
caused by the lack of acceptable damage functions. Damage functions relate
one's "willingness-to-pay" to avoid air pollution (i.e., the social value
of cleaning up the atmosphere) to the pollution concentration to which a
person or thing is exposed. Such relationships are extremely difficult to
develop. Documented results are just now appearing on the Horizon.
Even without damage functions, the Cost/Benefit Model can be used for
"exposure" studies since knowledge of the relationship between pollution
concentration and receptors (for alternative emission control strategies)
is by itself valuable for decision-making. As damage functions are de-
veloped, they will play a greater role in the analysis. This report
includes a discussion about the problems of damage function development
and the application. The steps involved in developing damage functions
include the identification, assessment, and evaluation of air pollution
•
damages. The evaluation procedure is based on the economic concept of
"shadow pricing."
Comprehensive evaluations of all costs and benefits of air pollution
control strategies are not possible with the Cost/Benefit Model. The
Model merely accounts for a part of the control costs and a part of the
benefits. It should be understood that the results to be obtained from
the Model demonstration will be considered tentative.
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Such a model is possible at this time because economic research on
air pollution is beginning to provide control cost estimates for individ-
ual plants, industries, and the nation. Such control cost estimates are
annually reported in the Economics of Clean Air Report. Also, there is
increased awareness of the economic effects of air pollution on health,
materials, vegetation, soiling, esthetics, and residential property values.
A major task for the future is the transformation of the economic data in-
to the damage function form.
This report proposes that the Cost/Benefit Model be used in two sepa-
rate ways. First, the Model can be used in intensive welfare economic
studies of regional air pollution control strategies to provide a measure
of the cost and benefits of control strategies and changes in the well-
being of receptors in the region. Control costs and benefits are used
directly in evaluating the economic efficiency and equity consideration
of control strategies. Actual changes in well-being (i.e., welfare) can
be compared with the desired changes (that is, compared to the goals or
objectives of the regional decision-makers). The Model can be used to
evaluate air quality standards, land-use plans, industrial development
siting, and other regional plans. In this use, the Cost/Benefit Model is
especially valuable in considering the impacts of control strategies on
sources and receptors in different locations in the region. Figure 1-2
illustrates the use of the Model for this purpose.
This type of analysis, however, is limited in scope. The second
proposed application of the Model is to provide data which can be used to
estimate impacts of control costs and benefits on the economic activity
of the region or the nation. Air pollution control policies stimulate a
reallocation of resources which are reflected as changes in economic indi-
cators. The Cost/Benefit Model does not include an analysis of such eco-
nomic indicators. Policy analysis should include the identification of
changes in employment, capital investment, regional income, value added,
and other measures of economic activity.
To measure changes in regional and national economic activity, control
costs and benefit estimates from the Cost/Benefit Model will serve as in-
puts to an economic model system developed as part of this contract by
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AIR QUALITY.
DATA
METEOROLOG-
ICAL DATA
i.
-k
*-
ATMOSPHERIC
DIFFUSION
MODEL
CALIBRATION
PROCEDURE
1
STATEMENT OF
AN ALTERNATIVE
SOLUTION, (IE,
EMISSION CON-
TROL STRATEGY)
INVtNIUKT. | ^
• TECHNIQUES
AND COSTS
CONTROL
COST FILE
i
CONTROL
STRATEGY
MODEL .
AIRQU
DISPLA1
, 1
1
POINT
SOURCE
CONTROL
COSTS
DECISION
MAKER
KNOWLEDGE OF
IDENTIFIABLE EFFECTS (IE, COSTS AND BENEFITS) NOT
AIR QUALITY
DISPLAY
ADEQUATELY MEASUREA8LE FOR THE FUNCTIONAL FORM
AREA
SOURCE
CONTROL
COSTS
TANGIBLE
EFFECTS
PLAN OBJECTIVES
REGIONAL
CONTROL
COSTS
DIRECT EFFECTS
ADJUSTMENTS
MARKET EFFECTS
SHADOW PRICES
f REGIONAL}
I BENEFITS I
ANALYSIS
OF GOALS
BROAD
BASED
OBJECTIVES
INTERMEDIATE
OBJECTIVES
NARROW
OBJECTIVES
Figure 1-2. Direct Application of C/B Model in StVategy Analysis
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CONSAD Research Corporation. The economic model system currently consists
of two major components, namely, a regional economic model (which has been
applied to 100 air quality control regions) and a national input/output
mode. The regional economic model determines the economic effects of air
pollution control costs and benefits flowing from the control strategies
pursued in a region. The national input/output model system is introduced
to provide external markets (i.e., provide feedback effects between that
region and all other regions) for the regional economy, and also to mea-
sure the structural changes in the national economy following the applica-
tion of air pollution control regulations to the 100 AQCRs. An illustra-
tion of the Cost/Benefit Model as used with the economic model system is
presented in Figure 1-3.
The Cost/Benefit Model is a cross-sectional model, i.e., air pollution
control policies can be evaluated at one point in time. Conventional cost/
benefit analyses require that costs and benefits be traced over a predeter-
mined period of time. Costs and benefits are then discounted back to the
current year before the marginal costs and benefits of policies are evalua-
ted. The current CONSAD economic model system is also cross-sectional.
Longitudinal cost/benefit and other economic studies will be possible if
and when a time series national economic model is incorporated into the
CONSAD economic model system.
The overall objectives of this study have been accomplished through
the following:
1. Investigating the theoretical literature on
cost/benefit, analysis and research reports
on the application of cost/benefit analysis
to public investment projects and social
programs.
2. Examining the need for more advanced analytical
procedures to support the air resource decision-
making process.
3. Developing a conceptual design for incorporating
analytical procedures into the decision-making
process, including the techniques of systems
analysis, cost/benefit analysis, and economic
analysis.
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• AIR QUALITY
DATA "
• METEOROLOG-
ICAL DATA
i EMISSION
INVENTORY*
i CONTROL
TECHNIQUES
AND COSTS
IMPLEMENTATION PLANNING PROGRAM
(TRW SYSTEMS)
ATMOSPHERIC
DIFFUSION
MODEL
CALIBRATION
PROCEDURE
1
CONTROL
COST FILE
EXISTING
AIR QUALITY
DISPLAY
CONTROL
STRATEGY
MODU
« 1
00
-
• DAMAGE
FUNCTIONS
. DIRECT EFFECTS
• ADJUSTMENTS
• MARKET EFFECTS
COST/BENEFIT MODEL
(PARTIALLY UNDER DEVELOPMENT)
POINT
SOURCE
CONTROL
V \ COST
AREA
SOURCE
CONTROL
COSTS
• CONTROL
AGENCY
COSTS
fREGIONALt
BENEFITS
ECONOMIC MODEL SYSTEM
(CONSAD RESEARCH CORP)
REGIONAL VARIABLES
AT PREVIOUS YEAR:
VALUE ADDED
CAPITAL STOCK
CONSUMPTION
REGIONAL INCOME
POPULATION AND
MIGRATION
GOVERNMENT
EXPENDITURE
REGIONAL INDUSTRIAL
INVESTMENT RE-
QUIRED BY AIR
POLLUTION ABATEMENT
STRATEGY
NATIONAL
INPUT/OUTPUT
MODEL
ECONOMIC GAINS
OF AIR POLLUTION
CONTROL
REGIONAL
ECONOMETRIC
MODEL
REGIONAL INCOME
AND CONSUMPTION
I NOUS I RIAL
OUTPUT
INVESTMENT
EMPLOYMENT
CAPITAL STOCK
REGIONAL
UNEMPLOYMENT
LABOR FORCE
CHANGES Of REGIONAL
INCOME. CONSUMP-
TION, VALUE ADDED.
INVESTMENT AND EM-
PLOYMENT 8Y INDUS-
TRY, REGIONAL UNEM-
PLOYMENI GENIRAICD
»Y DIRECT COSTS AND
BENEFITS OF EACH
ABATEMENT STRATEGY
Figure 1-3. Use of C/B Model with Economic Model System
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A. Preparing specifications for the development
of a Benefit Model and other procedures which
facilitate comprehensive evaluations of air
resource policies.
5. Collecting data (i.e., census data, damage
functions, etc.) and preparing a "pilot"
Benefit Model for examining the feasibility
of the approach.
6. Testing the use of census data in the present
IPP design.
1. Identifying the types of analyses which will
best utilize the capabilities of the Cost/
Benefit Model. This includes;
«.
- examining economic efficiency and
equity considerations of emission
control strategies, and
- examining new ways of developing
regional emission standards.
Much additional work is required before a comprehensive, reliable
model can be developed. This report identifies many of the gaps and
deficiencies in the current version of the Model. Potential research
areas have been identified to facilitate the evolution of analytical
procedures for rational regional air pollution analyses. Some of the
•
gap areas (and location in this text where the subject is treated) are:
• Damage functions (Section 7.2)
• Control supplier functions (Appendix D)
• Area source control cost functions (Section 6.3)
• Upgraded point source control costs (Section 6.2)
• Control agency costs (Section 6.4)
• Economic, social and impact indicators (Section 8.4)
• Regional decision-making framework,
including,
- evaluation criteria (Section 4.4)
- regional objectives (Section 4.3)
-------
Modeling and comprehensive analyses are likely to play an increasingly
significant role in APCO activities. As the framework for comprehensive
analyses is developed, it will serve as a guide for identification of the
types of research and monitoring data that should be provided by Federal,
State, and local air pollution control activities. The full value of re-
search and surveillance data can only be realized through integrated ana-
lytical procedures designed to serve the "decision-making process. Such
procedures must be sensitive to quantitative and qualitative inputs from
all professional disciplines which contribute to the problem solving pro-
cess. The procedures must allbw use1of available data for current
decision-making, and should also help in identifying data needed for the
evaluation of policies aimed at meeting long-range goals.
This report leaves many gaps and unanswered questions. Hopefully,
• other researchers will evaluate this work and develop further procedures •
w •
for analyzing the problem.
10
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2.0 ECONOMIC ANALYSIS AND AIR RESOURCE PLANNING
The U. S. economy is now undergoing a shift in orientation, from an
approach in which emphasis was placed upon the satisfaction of human wants
without regard to environmental effects toward a sensitivity to the preser-
vation of natural resources. Laws enacted to stimulate and protect the
economic institutions which supply goods and services to our citizens have
proved inadequate to maintain the quality of life, and externalities from
our productive economy have begun to infringe upon the utility of the
economy output itself. Legislation is now being rapidly enacted in an
attempt to repair past damage. If rational Judgments are made, a state
of equilibrium will some day be reached in which the undesirable side
effects of production and consumption will be minimal. In this connection,
the present report examines the air resource decision-making process and
provides an introduction to the development of a tool which will aid
policy-makers in better determining the condition for the air resource.
The Air Quality Act of 1967 laid a framework for air resource deci-
*
sions at the regional level. The Act provided for the establishment of
air quality control regions, utilization of air quality criteria and con-
trol technology documents to set standards, and preparation of implementa-
tion plans for attaining these standards.
The Clean Air Amendments of 1970 modified the procedures by, among
other things, establishing primary and secondary air quality standards.
The entire nation was divided into a number of air quality control regions.
A time schedule was determined for the development of implementation plans
by the regions. Also, procedures were proposed for determining the ade-
quacy of implementation plans in attaining air quality standards.
Additional tools and procedures are needed, however, if the air
quality control regions are to properly evaluate their air resource prob-
lems and the regional impact which will result from alternative policies.
Since knowledge of the total effects of atmospheric pollution and the
precise economic relevancy of air resource policies to sources within a
region is inadequate, decisions are being based primarily upon political
considerations and limited amounts of scientific evidence and economic
data. Improved decisions will be possible as more scientific evidence
11
-------
becomes available. Kor now, decisions must press forward toward advance-
ment in pollution control.
Unfortunately, regional air resource policies are now being estab-
lished without the required sensitivity to .economic conditions. The air
resource and the regional economy are interconnected, as shown in Figure
2-1. Regional policies are being established on the basis of an examina-
tion of pollution sources and related control technologies, specific
pollutants and emission rates, ambient air quality in the region, and
effects of air quality on the receptors. Since economic considerations are
not included, potential impact on the regional and national economy has not
been evaluated. Nonetheless, such effects as changes in fuel prices,
added production costs, and increased cost of electrical power may influence
such areas as unemployment, inflation, and the balance of payments. These
factors must be examined.
From the standpoint of economics, efficiency considerations in rela-
tion to the air pollution problem may be portrayed as shown in Figure 2-2.
After all relevant tangible and intangible effects are considered, primary
concern is directed to the marginal cost of control and the marginal bene-
fits (that is, the marginal reduction in air pollution damages), which are
functions of regional pollution concentration. The goal of the decision-
maker is to attain a level of pollution concentration where society's
welfare is maximized. This conditions exists at the intersection of the
marginal cost and marginal benefit curves in Figure 2-2.
In the political debate over desirable levels of air quality, it was
argued that a moralistic approach to the problem does not lend itself to
rational solutions.1 Decision-makers have likewise been cautioned against
proposing overly strict (i.e. , uneconomical) solutions to the regional
problem: "Recently air pollution control has become a major field for the
practice of this art of one-upmanship by many of our political leaders."2
Overly strict control may be uneconomical.
1
Henry Ford II, Washington Post, p. A16, November 23, 1970,
2
D. A. Jenson, APCA Journal, p. 643, October 1970.
12
-------
AIR RESOURCE
POLLUTANTS
CURRENT POLICY
BASED ON KNOWLEDGE
OF THESE CRITERIA
AIR QUALITY
SOURCES
1
RECEPTORS
REGIONAL
ECONOMY
AN ECONOMIC EVALUATION DEFINES
OBJECTIVES AND MEASURES IMPACT
IN TERMS OF REGIONAL WELFARE
NATIONAL
ECONOMY
Figure 2-1. The Air Resource Loop
-------
E
en
IS)
1/1
o
a:
CO
g
»—I
C£
MARGINAL
CONTROL
COST
MARGINAL
BENEFITS
POLLUTION
CONCENTRATION
Figure 2-2. Air Pollution Efficiency Analysis
-------
On the other hand, the use of effects criteria for setting standards
may result in a plan which is not sufficiently stringent. If effects data
are not integrated into the decision-making process, proposed emission
standards will not adequately prevent the observed negative externalities
and new standards will soon be required. Such changes in standards repre-
sent a costly process. Analytical tools are needed which will inform the
decision-maker of the economic consequences of air resource policies. Such
tools, will be useful now and of even greater value in the future, when air
resources reach essentially steady-state conditions. At that time, changes
within the regional economy (e.g., a major new pollution source, new pro-
ducts, or other innovations) will require intensive evaluation to determine
their environmental impact. More formal and rigorous economic evaluations
•.
of air resource policies are necessary, for both present and future
applications.
2.1 AIR RESOURCE PLANNING—ECONOMIC DECISIONS
Air resource management decisions can be made without the aid of
"economics." Air quality improvements have been justified on the basis
of such criteria as the satisfaction or dissatisfaction of those affected,
scientific analysis of air pollution damage, etc. Economics merely at-
tempts to place a value (i.e., a price) on the phenomena which cause or
are affected by a polluted air resource. As the "science of choice,"
economics can be used in the decision-making process to reduce all effects
of a policy to a common denominator (a common monetary unit). Even where
all relevant values cannot be quantified, the "economic approach often
provides a useful way of thinking about the problems and a useful way of
organizing data for decision-makers."1
To analyze the economic aspects of the problem appropriate economic
tools are required. In this report, welfare economics is applied in the
form of a cost/benefit (C/B) a'nalysis as a means of evaluating social
well-being within a region. The procedures for air pollution C/B analysis
are not unlike those used in other public investment decision, including
l
A. V. Kneese, and B. T. Bower, Managing Water Quality: Economics,
Technology, Institutions, John Hopkins Press, Baltimore, Md., p. 8, 1968.
15
-------
water resource analysis, although measurement of the extremely subtle
effects of air pollution greatly complicates the analysis. The material
presented here represents a step toward a comprehensive, systematic,
and logical approach to the quantitative and qualitative evaluation of
air resource plans.
2.2 APPLICATION OF ECONOMIC THEORY AND COST/BENEFIT ANALYSIS
Cost/Benefit analysis may be effectively applied in determining the
optimum allocation of resources for a public project or program. Such an .
application is analogous to the use of financial or investment analysis by
the private sector to evaluate corporate or private ownership investment
projects. The analytical problem in the private sector is much less com-
plex since market prices are available by which to measure the flow of
costs and benefits over time. In the public sector, governments invest
funds and make decisions where the forces of supply and demand break down
(that is, where the economy alone does not provide the degree of well-being
desired by the society). There is no marketplace where the externalities
created by emission sources are corrected by the inherent demand of the
receptors for clean air. When regional governments attempt to solve the
t
problem, they are forced to consider causes and effects outside the market-
place and are left with no means for readily evaluating the costs and bene-
fits of an investment decision or public program. C/B analysis of public
programs is thus complicated by problems associated with both the measure-
ment and the evaluation of effects.
Cost/Benefit analysis has long been used to evaluate public programs.
Prest and Turvey1 trace the development of C/B analysis from 1844, the year
in which Dupuit's classic study on the utility of public works appeared in
France. Dupuit's treatise represented a highly significant breakthrough in
economics. Cost/Benefit analysis first achieved prominence in the United
States, however, where it was found to be particuaarly applicable to naviga-
tion problems. The River and Harbor Act of 1902 required a board of engi-
neers to report on the desirability of river and harbor projects under
A, R. Prest, and R. Turvey, "Cost-Benefit Analysis: A Survey, "The
Economic Journal, vol. 75, No. 300, p. 683, December 1965.
16
-------
consideration by the Army Corps of Engineers, taking into account the
benefits to commerce and the cost. Under the New Deal in the 1930's, the
idea of a broader social justification for projects developed. The Flood
Control Act of 1936 authorized Federal participation in flood control
schemes "if the benefits to whomsoever they may accrue are in excess of
the estimated cost." Other agencies soon accepted the concept of C/B
analysis, and in 1950 an interagency committee produced the "Green Book,"
which attempted to codify and agree on general analytical principles. • C/B
analysis flourished in the 1960's, initially through Department of Defense
acceptance of the planning-programming-budgeting (PPB) system and later as
a result of President Johnson's desire that this tool be utilized through-
out the government. It is now being applied to numerous socially oriented
programs in such areas as urban renewal, transportation, and health.
2.3 USE OF THE REGIONAL AIR RESOURCE PLANNING MODEL
The analytical structure presented in this report combines systems
analysis and C/B analysis to provide a formal structuring of causes and
i
effects associated with the air pollution control problem. Such a frame-
work provides a means for maximizing the utility of research findings and
drawing attention to parameters not previously considered in the decision-
making process. The approach can be used to identify future research
needs and to prevent misallocation of resources. Finally, a computerized
tool for C/B analysis offers opportunities to gain further knowledge by
examining the interrelationships between relevant factors through trial
and error or through sensitivity analysis.
In defining present and future environmental requirements, the
Council on Environmental Quality (CEQ) recently stated: "The pressing
need for tomorrow is to know much more than we do today. We lack scienti--
fic data about how natural forces work on our environment and how pollutants
alter our natural world. We lack experience in innovating solutions. We
lack tools to tell us whether our environment is improving or deteriorating.
And most of all, we lack an agreed-upon basic concept from which to look at
environmental problems and then to solve them"1
II. S. Council on Environmental Quality, Environmental Quality (First Annual
Report), U. S. Government Printing Office, Washington, D. C.,p. 231, 1970.
17
-------
Specifically, Che need was expressed for: (1) a conceptual framework,
(2) stronger institutions, (3) financial reform, (4) pollution control
curb, (5) monitoring and research, (6) a system of priorities, and (7)
comprehensive policies.*
A system directed toward the systematic evaluation of air pollution
control strategies is proposed here. The proposed system can be used in
the structuring and planning of such programs to ensure that the results
of monitoring and research efforts are utilized to the maximum extent in
the decision-making process.
1
Ibid., pp. 232-239.
18
-------
3.0 CURRENT AIR RESOURCE PLANNING PRACTICES
In this chapter, existing air resource planning practices are briefly
reviewed in order to place the proposed air resource decision-making and
simulation tools in proper perspective. The proposed decision-making
process builds upon air resource management procedures which have evolved
over the past 20 years. Topics covered in this review include the need
•
for regulations, the philosophy of air resource management, and air re-
source planning practices.
The need for air pollution regulations is vividly expressed in the
following passage by Otto A. Davis and Morton I. Kamien:
•
Imagine for the sake of argument that the -auto industry had
developed an effective smog control device which it offered
as optional equipment for all new cars. A person who was
considering whether or not to order this optional for his new
car might reason as follows: Suppose I purchase the smog con-
trol devices for my new car. If I purchase and everyone else
also purchases, then we will have less smog in the city. On
the other hand, my individual car can add only a negligible
amount to the smog problem so that if everyone else purchases
a device and I do not do so, then the smog will be diminished
by almost exactly the same amount and I will have saved the
cost of the device. Hence, if everyone else purchases a
device, I will be better off if I do not get one installed on
my car. Now presume that no one, with the possible exception
of myself, purchases a device. Obviously, there will be a
6mog problem. However, if I purchase a device the problem
will not be noticeably different, since my individual car con-
tributes only negligibly to the situation and I will be out of
the money which I paid for the smog control device. Hence,
if no one else purchases, I should not purchase either. Ob-
viously, the analysis is the same if some of the other people
purchase and some do not. Conclusion: I will be better off,
no matter what other people do, if I do not purchase a smog
control device.
Since all potential new car buyers will reason roughly as the
representative individual above, the result is that there will
be a zero demand for smog control devices. Hence, in the
absence of some kind of regulation or collective decision,
the automobile manufacturers will have no motivation to develop
and market smog control devices. This conclusion holds even
if—and it is an if—everyone would be better off if all cars
were equipped with smog control devices. The point is that
for each prospective purchaser of a device, the benefits from
19
-------
his purchase are widely dispersed while the costs accrue to
him. Thus the technological externality associated with the
exhaust of a car prevent the unregulated market from
leading the system to a Pareto optimum.1
3.1 PHILOSOPHY OF AIR RESOURCE PLANNING
A distinction is made in this report between air resource planning
and air quality management in order to differentiate between the analyti-
cal studies which evaluate the desired characteristics of an air resource,
including impact on the economy, and the broader responsibilities in the
field of air quality management, which include development of dn.air re-
source policy as well as operation of a pollution control agency (see
Figure 3-1). Air resource planning involves the development and analysis
of air resource policies. Air qualtiy management involves the implementa-
tion and critical review of such a policy. The present report focuses on
the problem of developing air resource policies and omits consideration of
administrative procedures.
In discussing the air resource management concept, Schueneman notes
that ' little or no consideration has been given to long-range planning,
or how proposed community or regional master plans might influence future
2
ambient air quality." He states that an air resource management program
"must provide for the assimilation of information into goals and policies,
and the subsequent enunciation of a public policy on the management of the
o
community's air resource." Essential elements of an air resource manage-
ment program are as follows:
1. Development of a public policy on air conservation.
2. An organizational framework and staff capable of operating
along functional lines (e.g., engineering, technical
services, field services) and the funding support.
U, S. Congress, Joint Economic Committee, The Analysis and Evaluation of
Public Expenditures: The PPB System, U. S. Government Printing Office,
Washington, D. C., Vol. I, p. 76, 1969.
J. Schueneman, "Air Pollution Control Administration," in Air Pollution,
A, Stem, ed., (2nd Ed.), Vol. Ill, p. 721, 1968.
3Ibid., p. 722.
20
-------
AIR
RESOURCE
PLANNING
AIR RESOURCE
DECISION-MAKER
AIR
RESOURCE
POLICY
TECHNICAL
•ENGINEERING
STUDIES
ENFORCEMENT
•REGULATIONS (I.E.
SURVEILLANCE
, «AIR MONITORING
ADMINISTRATIVE
•PERSONNEL
EPISODE
PREVENTION
PLANNING
•EPISODE CRITERI
INDUCEMENTS)
•METEOROLOGICAL
• EFFECTS STUDIES
• ANALYSIS
•LEGAL AUTHORITY
.•COMPLIANCE
• RESOURCES
MONITORING
• FIELD INSPECTION
•COMMUNITY
RAPPORT
•EMERGENCY ACTIO
PLAN
• EPISODE
nDfcANT7ATinN
•DATA HANDLING
••SOURCE TESTING
Figure 3-1. Scope of Air Quality Management
-------
3. Delineation of realistic short-range goals that can be
effectively met in a reasonable time period, say 5 years.
4. Continual assessment of existing air quality and prepara-
tion of estimates of the.future situation.
5. Assessment in depth, on a continuing basis, of the emissions
from all existing pollution sources and those expected to
exist in the future.
6. Development of the necessary information about factors
that influence the transport of air pollutants.
7. Assessment of the effects of ambient air quality of a
community or region on man and his environment.
8. Establishment of ambient air quality goals (referred to
by some as objectives or standards).
9. Design of remedial measures and programs calculated to
bring about the air quality desired.
10. Development of long-range air use plans, fully integrated
with other community plans for energy supplies, land use,
• transportation, recreation, refuse disposal, etc., to
cope effectively with changes projected for the community.
11. Development of an understanding of the broad 'impact of
changing science and technology on air resources and the
potential effect on the social and economic character of
modern society.
12. Development of an effective information and educational
program to inform the community of the need to solve air
pollution problems promptly and effectively.
3.2 ESTABLISHED AIR RESOURCE DECISION-MAKING PROCEDURES
Ten years ago, before computer simulation had been applied to air
pollution analyses, regional studies of pollutant concentrations, air
pollution effects, emission sources, and other data were used in regional
air resource planning. The "roll-back technique" developed by Dr. Ralph
I. Larsen was used to calculate reduction in source emissions needed to
meet air quality goals.
1Ibid., pp. 721-722.
22
-------
With the development of the Implementation Planning Program (IPP),
a mathematical simulation model is now available for evaluating the ef-
fectiveness of the emission control regulations contained in implementation
plans. The model measures the effectiveness of emission regulations and
compares predicted air quality to the air quality standards of a region.
3.2.1 Nashville Metropolitan Area Air Resource Management Plan
A major air .pollution study was undertaken in the Nashville Metro-
politan Area by the U. S. Public Health Service, in cooperation with
Vanderbilt University and state and local agencies, between 1957 and 1959.
The primary purpose of the study was to "assist the citizens and govern-
ment of the Nashville Metropolitan Area in understanding the nature of
air pollution problems and in developing a course of action to improve
air quality and assure clean air in the future by establishing an air re-
source management program." An extensive study was conducted of pollu-
tant concentrations, pollution effects, community perception, sources of
emissions, etc., ambient air quality goals were developed, and procedures
for the development of an air resource management program were suggested.
In the report of the Nashville project, the state-of-the-art of air
resource planning is defined as follows:
The information presented in this report, although among the
most complete for any community in the world, does not describe
all aspects of the air pollution situation in absolute terms.
This deficiency cannfct be avoided because the resources of
that basic data in the air pollution field are still limited,
although they are expanding as a result of extensive, current
research programs. In some matters, conclusions must be
based on the best judgments possible in view of the factual
information available. To delay action until all the deci-
sions could be based on complete and exhaustive investigation ~
would permit air pollution problems to become even more acute.
J. D. Williams and N. G. Edmisten, An Air Resource Management Plan for
Che Nashville Metropolitan Area. U.S. P.H.S. Publication, No. 999-AP-18,
p. 1, September 1965.
Ibid., p. 9.
23
-------
To calculate the percent of source reduction needed to meet the air
quality goals, the Nashville study employed the Larsen roll-back technique,
a method which is not necessarily sensitive to the geographical distribu-
tion of air pollutants within the region but focuses instead upon major
emission reductions needed to lower regionwide air pollutant concentration.
The technique is used to compare the actual percent reduction in emissions
with the desired percent reduction (a level somewhere between the exist-
ing pollutant concentration and the background concentration). A somewhat
simplified illustration of the procedure is shown in Figure 3-2. For
more detailed information, the Nashville report cited previously and
Larsen's paper in the APCA Journal may be consulted.
3.2.2 Implementation Planning Under The Clean Air Amendments of 1970
Since the Nashville study, air pollution simulation modeling has
reached a level of sophistication such that it can effectively assist the
air resource planner in evaluating the distribution of pollutant concentra-
tions within a region. The most important contribution of the model is its
ability to predict the pollutant concentrations both before and after emis-
sion control.
Under the Clean Air Amendments of 1970, implementation plan guide-
lines recommend the use of either the rollback technique or diffusion
modeling in evaluating the ability of emission control regulations to meet
primary or secondary regional air quality standards. The rollback techni-
que is still desirable in some AQCRs because of emission and air quality
data limitations, the nature of the air pollution problem and the resources
required to conduct the analysis. The Implementation Planning Program
(IPP) is the most commonly used model for strategy analysis. In IPP, a
Control Strategy Model analyzes the effectiveness of control strategies
on sources by calculating the reduction in emissions from point sources,
computing the annual costs for controlling point sources, and printing
a visual display of predicted air pollution concentrations following
application of a proposed control strategy.
R. I. Larsen, "A Method for Determining Source Reduction Required to Meet
Air Quality Standards," Journal of the Air Pollution Control Association,
Vol. II, No. 2, pp. 71-76, February 1961.
24
-------
— EXISTING CONCENTRATION
DESIRED AIR QUALITY
GOAL CONCENTRATION
BACKGROUND
CONCENTRATION
GEOGRAPHICAL DISTRIBUTION
OF POLLUTANT CONCENTRATION
IN REGION
CROSS-SECTION OF REGION
(PERCENT OF SOURCE ,nft (A-C) - (B - C)
REDUCTION NEEDED) " IUU . A-C
WHERE:
A = EXISTING CONCENTRATION
B = DESIRED AIR QUALITY GOAL CONCENTRATION
C = BACKGROUND CONCENTRATION
Figure 3-2. Roll-Back Technique
-------
Figure 3-3 illustrates the use of the Control Strategy Model in
cross-sectional analyses. Alternative strategies are tested within the
model, beginning with the most lenient control regulations (strategy 1)
and progressing to the most stringent (strategy 5). Strategy 5, defined
as "maximum technology," requires maximum feasible control technology for
..all sources, disregarding, economic factors and availability of control
hardware and fuels.
Figure 3-4 shows pollutant concentrations in the Metropolitan
Cincinnati Interstate Air Quality Control Region as estimated by the IPP
diffusion model before application of control strategies. Figure 3-5
shows the IPP-predicted pollutant concentrations resulting from the control
strategy that was selected as a basis for preparing emission control regu-
lations for the Cincinnati Region.*
The IPP model- represents a significant improvement over earlier
methods, in that regulations of greater or lesser stringency can now be
compared for various political jurisdictions in an AQCR and the resulting
distributions .of pollutant concentrations analyzed. Acceptance of a
control strategy is at present based only on the predicted pollutant
concentration relative to the air quality standard', however, without
regard to regional and national economic impact. The economic distribu-
tion of impact on sources and benefits to receptors are-likewise not
considered. Moreover^ the strategies are not, in general, related to
regional environmental and urban-planning goals and objectives. There
is a need for a broader analytical approach which includes examination
of long-term land use plans as well as plans for regional economic
development.
*A detailed description of IPP is presented in Chapter 6.0'of this report.
26
-------
t
NJ
LU
CJ
O
O
O
D-
STRATEGY 1
STRATEGY 2
>l
STRATEGY 3
STRATEGY ^
STRATEGY 5
TIME
Figure 3-3. The Testing of Emission Control Strategies
-------
KENTON CAMPBELL
« 1969 NASN, CAMP
o 1968/1959 Northern Kentucky Network
Concentration in
Figure 3-4. Annual Arithmetic Mean Concentrations of
Suspended Particulate Pollutants as Estimated
by Diffusion Model for Existing Conditions.
28
-------
Note: Annual Average Concentrations in
Figure 3-5. Predicted Ground-Level Concentrations Following
Application of Proposed Control Strategy
29
-------
. 4.0 CONCEPTUAL FRAMEWORK FOR REGIONAL AIR RESOURCE DECISION-MAKING
In the sections which follow, the decision-making structure of
regional air pollution cost-benefit analysis is examined as a basis for
the development of a cost-benefit model. The air resource problem, region-
al decision-making objectives, and types of criteria for evaluating
changes in regional welfare are discussed. Relevant aspects of cost/
benefit analysis theory are not discusse'd here but presented in Appendix A.
4.1 OVERVIEW
Deficiencies in the current air resource planning approach were noted
in the preceding chapters. Particular emphasis was placed upon the need
for evaluating the impacts of air resource plads as they directly and in-
directly affect the welfare of society. The approach suggested in this
section is designed to provide a framework for such an evaluation.
Two types of economic effects can be distinguished, those that in-
crease the overall level of economic activity by reducing costs and/or
increasing productivity (positive income effects), and those that redis-
tribute resources without increasing the net economic level (redistribution
effects).
Through a consideration of these effects, changes in the well-being
of the individuals affected, the metropolitan.area, and the society in
general may be defined. In a cost/benefit evaluation, actual changes in
well-being (i.e., welfare) are compared with desired changes (the goals
or objectives of the region). These goals provide a useful framework for
discussing cost/benefit analysis of air resource planning.
Figure 4-1 illustrates the air resource decision-making process and
the role of economic analysis in evaluating the ability of alternative
solutions to satisfy planning objectives.1 The combined procedures of
economic, cost/benefit, and systems analysis (such as the procedures
This report treats the "decision-making process" in a very general sense.
U docs not investigate the alternative levels of decision-making within
public and private sectors.
31
PRECEDING PAGE BLANK
-------
KNOWLEDGE
OF GOALS
"KNOWLEDGE OF
PROBLEM AND
ALTERNATIVE
SOLUTIONS
r
STATEMENT OF AN
ALTERNATIVE
SOLUTION
(I.E., EMISSION
CONTROL STRATEGY)
1
STATEMENT OF
AIR RESOURCE
PLAN OBJECTIVES
INDICATORS
OF WELFARE
ECONOMIC
ANALYSIS
Figure 4-1. Air Resource Decision-Making Process
32
-------
presented in this report and others) are directed toward the development
of social and economic indicators (evaluation criteria). These indicators
form a basis for evaluating goals in the following categories:
• Economic efficiency—Increased welfare for the
region, i.e., increased aggregate income and
productivity.
• Economic redistribution—The desirable distri-
bution of benefits among income classes.
• Economic growth and stabilization—Stability of
employment and regional product, as well as
growth in regional income, employment, and
other economic indicators.
Within the analytical framework, the constraints on an air resource
program must be identified in order to ensure the development of correct
assumptions and analytical techniques. Seven categories of constraints
have been identified by one author.* The categories, followed by examples
relevant to air pollution, are:
1. Physical—Fuel availability, control hardware,
technological developments, etc.
2. Legal—Promulgation of proposed regulations.
•
3. Administrative—Staffing and enforcement of.
regulations once they have been promulgated;
purchase and operation of surveillance
equipment.
4. Distributional—Prevention of severe economic
impact to small sources or the desirable allo-
cation of clean burning fuels to certain source
categories.
5. Political—Opposition to controls by sources,
fuel suppliers, and other institutions.
6. Financial or Budget—Resource limitations of
control agencies and emission sources which
prevent instantaneous compliance.
7. Traditional, Social, and Religious—Opposition.
to certain control regulations (such as a ban
on burning leaves) because of social custom.
*Categories applicable to all public programs; presented in 0. Eckstein,
"A Survey of the Theory of Public Expenditure Criteria," Public Finances
Needs, Sources and Utilization, National Bureau of Economic Research,
Princeton University Press, Princeton, N. J., pp. 43-9-494, 1961.
33
-------
Political and other constraints which prevent immediate solution to air
pollution problems should be identified. Such factors as the need for
additional effects information, time of enforcement of regulations, and
installation of control hardware must be taken into consideration.
The welfare indicators which are used in the evaluation of goals may
be consistent with certain regional planning objectives and detrimental to
others. The role of the decision-maker is to determine which of the
regional objectives are most important in relation to both short-term and
long-term goals.
The number of alternative solutions proposed by the analyst must be
sufficient to permit marginal evaluations, that is, evaluations which con-
sider the additional benefits (or increments, of welfare)' resulting from
marginal reallocations of funds of marginal increases in the stringency of
emission control regulations. Policy decisions will ultimately be based
upon the evaluation of these objectives and welfare indicators.
4.2 PROBLEMS IN AIR RESOURCE PLANNING
The schedule of events specified in the air pollution control
legislation for regions is shown in Figure 4-2. Air resource policy
decisions are being based on guidelines established by the Air Pollution
Control Office. A "crystal ball" forecast of future conditions in a
hypothetical Air Quality Control Region (AQCR) is illustrated in Figure
4-3. To meet the primary and secondary air quality standards, the air
resource planner must establish policies in the following areas:
1. General Stringency of Control—How efficient must
emission control He in order to optimize the welfare
of the region relative to the air resource and other
urban goals?
2. Compliance Schedule—How quickly can the region move
toward the optimum-welfare condition, taking into
account the welfare of the regional'economy?
3. Inducement Approach—What combination of emission
regulations, emission taxes, land-use planning,
product laws, etc., represents the most efficient
and equitable approach in reaching the desired
objectives?
4. Locational Aspects—What is the most efficient
and equitable manner in which emission limitations
can be applied relative to geographical location
in the AQCR?
34
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SCHEDULE
OF —
EVENTS
h
CLEAN
AIR
ACT
ESTABLISH
REGIONS
CRITERIA
AND
CONTROL
TECHNIQUES
AIR
QUALITY
STANDARDS
IMPLEMENTATION
PLAN
•
ENFORCE
PLAN
ATTAIN
DESIRED
AIR
QUALITY
<•->
REGIONAL
POLLUTANT
CONCENTRATION
EXISTING
AIR
QUALITY
AIR
QUALITY
GOAL
(AQ)
TIME
Figure 4-2. The Path to Clean Air
-------
REGIONAL AIR
1'OI.LUTANT
CONCENTRATION
NET
AGGREGATE
COSTS ($)
NET
AGGREGATE
BENEFITS ($)
TIME
Figure 4-3. Flow of Costs and Benefits Over Time
36
-------
Effective air resource planning will require more sophisticated tools to
answer these questions than have thus far been available.
4.3 DECISION-MAKING OBJECTIVES
Once regional goals have been defined, the air resource decision-maker
will decide upon essential planning objectives. Different levels of objec-
tives will be identified, perhaps as follows:
• Air resource planning objectives.
• Environmental planning objectives
• Urban planning objectives
The objectives of the air resource planner may or may not be consistent
with those of other government planners. Total regional welfare which is
difficult, if not impossible, to determine should be the deciding factor
when conflicts in objectives arise.
The formal procedure currently recommended for the development of
implementation plans fails to provide for sufficient consideration of the
various regional planning objectives. Although outside the scope of the
present project, the development of more sophisticated guidelines for
regional objectives by APCO is encouraged. Some objectives which might
be considered in the AQCR decision-making process include:
• Regional economic growth.
• Increased public and private investment.
• Creation of new job opportunities.
• Net inducement of private investment in
labor into the region.
• Decrease in social cost of living in region.
• Increase in fiscal capacity of central-city
tax base.
• Enticement of moderate-income households
into central city.
• Revitalization of commercial core (Central
Business District).
• Expansion and support of central-city institutions.
• Increased aesthetic appeal of central-city and
region as a whole for residents'and tourists.
37
-------
4.4 EVALUATION CRITERIA
Regional planning objectives and evaluation criteria will influence
the selection of air resource analytical procedures. Welfare criteria
may be used to reflect the changes in community well-being that result from
air resource planning activities. These welfare indicators must be de-
signed to detect and, in some cases, measure advances toward the various
goals of the air resource program.
Procedures for identifying specific criteria for analyses of govern-
ment programs are outlined by H.T. Hatry,* as part of an attempt to clarify
the basic concepts of governmental program planning analysis. Hatry also
identifies specific criteria for use in evaluating alternative program
proposals for carrying out major state and local governmental functions.
It^ is important that each criterion be relevant to the specific
problem under consideration. Criteria applied in the solution of a specific
problem should cover all major effects relative to the objectives. Ideally,
each of the criteria should be capable of meaningful quantification, although
for air resource programs it may be necessary to utilize purely qualitative
measures. The criteria selected must relate to governmental objectives.
In the study cited above*, criteria are grouped into seven major
program areas:
• Personal safety
• Health
• Intellectual development, personal enrichment
• Satisfactory home and community environment
• Economic satisfaction and satisfactory work opportunities
• Satisfactory leisure time opportunities
• Transportation - communication - location
*H.T. Hatry, "Criteria for Evaluation in"Planning State and Local Programs,
"In H. H. Hinrichs and G. M. Taylor, eds., Program Budgeting and Benefit -
Cost Analysis, Goodyear Publishing Co., Pacific Palisades, Calif., pp. 94-
119, 1969
38
-------
Most governmental programs can be evaluated by criteria that fall within one
or two of these categories. For air pollution problems, however, relevant
criteria may be found in all seven categories.
Monetary criteria are essential in the evaluation of air pollution
programs, but the problems encountered in developing such criteria are
quite complex since most air pollution effects are intangible (i.e., not
readily measured). Monetary criteria which can be used to evaluate changes
in gross income and economic activity in a region include:
• Manufacturing value added
• Retail and wholesale sales
• Amount of bank deposits
• Industrial capital expenditures
Due to the complexities associated with identification, assessment,
and evaluation of air pollution effects, it is assumed that air resource
decision-making in the near future will be based primarily on qualitative
criteria and non-monetary quantitative criteria (such as documented effects
as listed in the pollutant "criteria documents"). Evaluation criteria must
be developed which are based on the criteria documents and other pertinent
literature.
4.5 APPLICATION OF COST/BENEFIT ANALYSIS TO AIR RESOURCE DECISION-MAKING
The aim of cost/benefit analysis is to maximize the present value
of all benefits less that of all costs incurred, subject to specified
constraints. .Cost/benefit analysis has been considered for use in the
evaluation of transportation systems, criminal rehabilitation programs,
urban renewal projects, and other social programs. Economists Prest and
Turvey have stated that "cost/benefit analysis can also be applied to
proposed changes in laws or regulations, to new pricing schemes and the
like."1
In air pollution control, C/B analysis can be employed to compare
the social costs and benefits resulting from a potential air resource
op. Cit. P. 686.
39
-------
policy with those to be expected from a continuation of the existing level
of effort (the "base alternative"), as shown in Figure 4-4. After defining
the project life (the period of time over which costs and benefits will be
measured), the costs and benefits of alternative air resource policies are
computed and discounted back to the base year for purposes of comparative
analysis. The resulting data may then be used in the evaluation of
alternative policies.
Determination of the project life is an important factor in the
design of a cost/benefit analysis study, since various costs and benefits
are frequently realized at substantially different points in time. Project
life is estimated rather subjectively, on the basis of an assessment of
such factors as physical lifespan, technological change, shifts in demand,
and emergence of competing products. For water resource projects involving
the construction'of dams, project life may be defined as 50 or 100 years
for dams that are expected to perform for 150 years. In air pollution
planning, a shorter project life is desirable because of the following
factors:
• Frequent changes, in air resource requirements
• Rapid depreciation of control equipment (15 years or so)
• Obsolesence of current control equipment because of
technological innovations
• Rapid technological and conceptual changes throughout
the relatively new field of air resource management.
In conclusion, there are numerous other characteristics of the
cost/benefit analysis framework which have been studied elsewhere in the
application of C/B to other public programs. An investigation of such
other factors is not within the scope of this report but is recommended
for future research. Hopefully, this chapter has served to identify a
few of the more important aspects which must be considered In the develop-
ment of cost/benefit procedures for the analysis of air pollution control
strategies.
40
-------
(AQ),
_
§
o
(X
O
*—r
o
UJ
QC
(AQ)g
AIR QUALITY RESULTING FROM CURRENT
CONTROL AGENCY "LEVEL OF EFFORT"
BASE
YEAR
AIR QUALITY
RESULTING FROM
REGIONAL AIR
RESOURCE POLICY
1970
4-
1971
1972 1973 1974
TIME (YEARS)
PROJECT LIFE
1975
1976
197?
->
Figure 4-4. The Concept of- Air Pollution Cost/Benefit Analysis
-------
5.0 OVERVIEW OF THE COST/BENEFIT MODEL
The preceding chapters have focused on the need for improved
analytical procedures to support air resource planning. The conceptual
framework of the decision-making process has been identified, and the use
of cost/benefit analysis in this process has been discussed.
The cost/benefit model is introduced in this chapter and alternative
methods of model utilization are identified. The introductory material
provided here serves as a transition from the previously cited needs for
a conceptual framework for analytical studies to the practical procedures
presented in Chapter 7.0 (Control Cost Estimating Procedures) and Chapter
8.0 (Benefit Model). Some applications of the C/B Model are presented in
Chapter 9.0.
The C/B Model is an outgrowth of the Implementation Planning Program
(IPP). The C/B Model is the last module of the Regional Air Pollution
Analysis (RAPA) system as it was initially envisioned in 1968. A simple
flow diagram of the C/B Model and its relation to IPP is shown in Figure
5-1. A general description of the model will serve as an introduction to
the C/B system.
Two outputs of IPP now being used in regional air quality decision-
making are: (1) point source control costs, and, (2) air quality display
(as previously cited in Chapter 2.0). Point source control costs are
estimated for each identified pollution source with particulate or sulfur
dioxide emission rates greater than 24 tons per year (the commonly
accepted cut-off point). The control costs are calculated on a source-by-
source basts by hypothetically applying to each source the control system
needed to comply with the emission strategy under investigation. The air
quality display is a two dimensional plot of pollution concentration (in
the form of isopleths) within an AQCR. The outputs of IPP serve as inputs
to the C/B Model, as shown in Figure 5-1.
The efforts of this study (and the follow-on demonstration of the
C/B Model) have been directed at the development of the Benefit Model.
Procedures for estimating control agency and area source control costs are
identified in Chapter 7.0 but have not. been developed as part of this pro-
ject. Thus, point source control costs (which are generally a significant
PRECEDING PAGE BLANIf
-------
IMPLEMENTATION PLANNING PROGRAM (IPP)
INPUTS
• AIR QUALITY DATA
» METEOROLOGICAL DATA
• EMISSION INVENTORY
• CONTROL TECHNIQUES
AND COSTS
CONTROL
STRATEGIES
CONTROL SUPPLIER
FUNCTION
• RECEPTOR DATA
DAMAGE
FUNCTIONS
• CONTROL AGENCY
COSTS
ATMOSPHERIC
DIFFUSION
MODEL
CALIBRATION
PROCEDURE
EXISTING
AIR QUALITY
DISPLAY
CONTROL
COST
FILE
CONTROL
STRATEGY
MODEL
POINT SOURCE
CONTROL COSTS
AIR QUALITY
DISPLAY
AREA SOURCE
CONTROL COSTS
BENEFIT
MODEL
REGIONAL
BENEFITS
REGIONAL
CONTROL
COST
Figure 5-1. Regional Air Pollution Cost/Benefit Model
44
-------
portion of the total regional control cost) are the only estimates of tlie
cost of air pollution control available at this time.
The Benefit Model relates predicted control strategy pollutant
concentrations to receptors and damage functions. The air pollutant-
receptor relationship is an estimate of receptor exposure (i.e., dosage).
The damage function, which relates the annual cost of air pollution damage
to pollution concentrations, applied to the exposure estimate determines
the damage cost estimate.
The Control Supplier Function, drawn in Figure 5-1, is a procedure
for estimating the type and quantity of resources demanded for the control
of air pollution for each strategy. Such an estimate of resources demanded
is important for economic modeling. The need for this procedure has been
identified and an elementary method of developing such data is presented
in Appendix U.
5.1 VALUE OF THE COST/BENEFIT MODEL
The design philosophy of the Cost/Benefit Model has been based on
the use of data which are either readily available or which are identifiable
and capable of being collected within a reasonable period of time. The
models are thus practical devices which use the best decision-making
information available.
As a simulation tool, the Cost/Benefit Model will be useful for
analysis of economic efficiency and economic redistribution of factors
associated with alternative emission control strategies for an Air Quality
Control Region (AQCR). The model may be used in sensitivity analyses to
test various inputs such as damage functions. The effectiveness of alter-
native land use policies may also be determined for individual political
jurisdictions within a region. Finally, the model can be used in simula-
tion tests of research data on air quality and pollution effects.
As the design of the system progresses, problems concerning the
sensitivity of data and other related considerations will arise. Analysis
of these problems will improve the accuracy of regional air resource
derision-making. The simulation model will make a significant contribu-
t ion to the understanding of the decision-making process and of the total
("•.pact of air pollution control policies.
-------
'>.:'. AI.TKRNATLVK TYL-KS or MODKI.S
Two typi-:; oL" :; imulation models can be applied In i-valuat i n>', alLrrna-
tivo control strategies, cross-sectional models and longitudinal models.
Cross-sectional models of which the IPP and regional econometric models
arc examples are somewhat simpler than longitudinal models.
The concept of a cross-sectional model is illustrated in Figure 5-2.
As is shown, the conditions resulting from a control strategy are analyzed
nt one given point in time. Existing conditions (i.e., the base alterna-
tive) are first analyzed, and the effects of alternative policies are then
evaluated, with the sssumption that all responses will occur instantaneous-
ly. This method of evaluation, however, is not consistent with the theo-
retical framework of C/B analysis, which requires that the costs and
benefits of a proposed policy be evaluated over the defined project life
and measured relative to the base alternative. There is, nonetheless, a
great deal to be .gained by- cross-sectional analysis. The effort and cost
involved in forecasting conditions and the uncertainty of these forecasts,
especially in such areas as fuel availability, process and control tech-
nologies, etc., can make the use of longitudinal models impractical.
Finally, the IPP model has the capability of analyzing future conditions
and, in fact, has been used to evaluate 1980 conditions in the development
of implementation plans for AQCRs.
Longitudinal C/B analysis traces costs and benefits to some future
time and discounts cost estimates back to a base year (see Figure 5-3).
The analysis may, for example, estimate costs and benefits annually from
1970 through 1975, assuming a project life of 5 years. The analysis should
be sensitive to progress (in the form of improved air quality, thus, bene-
fits which will occur during specified increments during the project life),
as well as to variations in control costs.
Such an analysis is more realistic than the cross-sectional analysis,
since costs and benefits do not occur instantaneously in real situations.
Sources initially spend large sums for the analysis of emissions control
problems, research, and equipment installation. The benefits from a con-
trol strategy are not immediately evident, since control systems must be
designed, installed, and put into operation before benefits to receptors
will be noted. The procedure of analyzing costs and benefits over time
46
-------
(AQ)
REGIONAL
POLLUTANT
CONCENTRATION
(AQ),
1970
1971
XX
(///////
ANALYSIS OF EXISTING CONDITIONS
ANALYSIS OF CONDITIONS UNDER A
REGIONAL CONTROL STRATEGY
1972 1973
TIME (YEARS)
1974
1975
Figure 5-2. Form of Regional Cross-Sectional Analysis
-------
(AQ)
(AQ)
72
REGIONAL
POLLUTANT
CONCENTRATION
(AQ)
73
oo
(AQ)
(AQ),
74
1970
1971
1972
1973
1974
1975
TIME (YEARS) •* (AQ) = EXISTING AIR QUALITY
(AQ)6 = AIR QUALITY GOAL
g
Figure 5-3. Longitudinal Cost/Benefit Study of Air Quality
-------
and discounting these values back to a base year is utilized because of
the time discrepancy in the flow of costs and benefits.
In addition to the data needed for a cross-sectional analysis, a
longitudinal model will require forecasts of (1) population, (2) control
technology, (3) control hardware and fuel prices, (4) sources, and, (5)
emissions. A method must also be developed whereby the schedule for
source compliance may be estimated. This method must evaluate the con-
straints which prevent instantaneous compliance by sources, including
availability of control hardware and alternative fuels, political lobbying,
enforcement procedure, and other factors. Longitudinal analysis thus in-
volves repeated use of the cross-sectional model in combination with
additional technical and economic forecasts'.
The decision was made during this effort to concentrate on initial
development of a cross-sectional C/B Model, due to limitations in the
availability and accuracy of data on sources, emissions, damage functions,
etc. On the basis of an evaluation of this cross-sectional model, a
decision will be made concerning the additional development of a longitu-
dinal C/B Model.
5.3 COST/BENEFIT MODEL UTILIZATION
The Cost/Benefit Model was designed with two immediate end-uses in
•
mind. The first end-use is in welfare economic studies of air pollution
control strategies in an AQCR. Control cost and benefit estimates, which
are the outputs of the model, can be used directly for evaluating effi-
ciency and equity considerations of .control strategies. In this applica-
tion, the cost/benefit ratios of alternative strategies may be weighed.
The distribution of benefits and costs among certain groups of receptors
within the AQCR can also be examined. The model can be used in this
manner to evaluate air quality standards, land-use plans, industrial
development siting and other regional plans.
A flow diagram of the C/B Model as used directly in decision-making
is illustrated in Figure 5-4. The model, as shown in the Figure, has been
integrated into the decision-making process cited earlier' in this report.
The direct application of C/B analysis represents one type of economic
evaluation for alternative strategies.
49
-------
i AIR QUALITY.
DATA
. METEOROLOG-
ICAL DATA
i EMISSION
. k
ATMOSPHt r ;C
DIFFUSION
WCDEL
^
CAUi'.A'lCN
PKCCFDuSE
1
r
STATEMENT OF
AN ALTERNATIVE
SOLUTION, (IE,
EMISSION CON-
TROL STRATEGY)
TECHNIQUES
AND COSTS
CONTROL
COST FILE
—k.
i
CONTROL
MODEL
AIR C J
DISPiA
« 1
1
IDENTIFIABLE EFFECTS (IE, COSTS AND BENEFITS) NOT
ADEQUATELY ME-ASUREABLt FOR THE FUNCTIONAL FORM
PCII.I
SOURCE
CONTSCL
COST;
CONTROL
SUPPLIER
FUNCTIONS
• DIRECT EFFECTS
• ADJUSTMENTS
• MARKET EFFECTS
/REGIONAL^
I BENEFITS I
Figure 5-4. Direct Application of C/B Model in Strategy Analysis
-------
But, this type of economic evaluation is limited in scope. The
resulting estimates of control costs and benefits derived from the direct
utilization of the model are not reflected as impacts on the economic
activitiy of the region or the nation. The reallocation of resources in
the economy, which is expected from an air pollution control policy, is
not reflected in the C/B Model. Impacts on such economic indicators as
employment, capital investment, regional income, value added, and others
are not measured. Air pollution policies have an effect on such indicators
on the region and the nation and should be evaluated.
To measure the impacts of control policies on the economy, the con-
trol cost and benefit estimates from the C/B Model must be evaluated in a
series of economic models. CONSAD Research Corporation has developed an
economic model system for this purpose (see Figure 5-5). The CONSAD mode]
system has been designed to determine the economic effects of air pollution
policies on regions and the nation. The economic model system currently
consists of two major components, namely, a regional economic model
(applied to 100 of the Nation's AQCRs) and a national input/output (I/O)
model (see Figure 5-6). The regional economic model determines the effects
of air pollution control costs and benefits on an open regional economy.
The nationa] I/O system is introduced to serve the role of the external
markets (provide inter-regional feedback) for the regional economy, and
also to measure the structural change of the national economy upon air
pollution control to the 100 AQCRs. The economic model system measures
effects of air pollution strategies in terms of changes in unemployment,
value added, income, and other measures of economic activity.
This report focuses on the utilization of the C/B Model by itself.
In this manner, the costs and benefits are used directly in decision-making.
When the economic model system is utilized, the benefits must be converted
into a form which reflects changes in disposable income and productivity of
labor and capital. This report does not focus on such economic evaluations,
See referenced document for ;
of the economic model system.
See referenced document for a discussion of the principles and procedures
Tor a complete description of the economic model system, see An Kcpiiomjc
.''!. - '"I Svi-.tcn. for t':v:- Asru^a-rnt of 1: ffects of Air Pollution Abaf oiiien c ,
(Vi:;::AI> Kcs<.-ai:cii Co:-po:.;.it..ion, 1'it t.sburgh , Pa., April 13 , 1971.
r.
'.i
-------
> AIRQUA.'.ITY
DAT.'. "
. METEOROLOG
ICAL DATA
• EMISSION
INVENTORY'
• CONTROL
TECHNIQUES
AND COSTS
IMPLEMENTATION PLANNING PROGRAM
(TRW SYSTEMS!
ATMOSPHERIC
DIFFUSION
MODEL
CALIBRATION
PROCEDU8E
1
CONTROL
COST FILE
EXISTING
AIR QUALITY
DISPLAY
CONTROL
STRATEGY
MODEL
* 1
1
to
POINT
SOURCE
CONTROL
COST
. CONTROL
SUPPLIER
FUNCTIONS
• RECEPTOR
DATA
• DAMAGE
FUNCTIONS
• DIRECT EFFECTS
• ADJUSTMENTS
• MARKET EFFECTS
COST/BENEf IT MODEL
(PARTIALLY UNDER DEVELOPMENT)
I ICAKIIA
ECONOMIC MODEL SYSTEM
(CONSAD RESEARCH CORP)
REGIONAL VARIABLES
AT PREVIOUS YEAR:
VALUE ADDED
CAPITAL STOCK
CONSUMPTION
REGIONAL INCOME
POPULATION AND
MIGRATION
GOVERNMENT
EXPENDITURE
REGIONAL INDUSTRIAL
INVESTMENT RE-
QUIRED BY AIR
POLLUTION ABATEMENT
STRATEGY
NATIONAL
INPUT/OUTPUT
MODEL
ECONOMIC GAINS
OF AIR POLLUTION
CONTROL
REGIONAL
ECONOMETRIC
MODEL
R[GIONAL INCOME
AND CONSUMPTION
INDUSTRIAL
OUTPUT
INVESTMENT
EMPLOYMENT
CAPITAL SIOCK
REGIONAL
UNEMPLOYMENT
LABOR FORCE
CHANGES OF REGIONAL
INCOME, CONSUMP-
TION, VALUE ADDtO,
INVESTMENT AND EM-
PLOYMENT BY INDUS-
TRY, REGIONAL UNEM-
PLOYMENT GENERATED
BY DIRECT COSTS AND
BENEFITS OF EACH
ABATEMENT STRATEGY
Figure 5-5. Use of C/B Model with Economic Model System
-------
-O MODEL AND INTER-
REGIONAL FEEDBACK
~l
r
NATIONAL
I-O MODEL
REGIONAL
MARKET
SHARE
MATRIX
REGIONAL MODEL
MANUFAC-
TURING
INDUSTRIES
I
REGIONAL
ECONOMY
• INCOME
• CONSUMPTION
• GOVERNMENT
I
ELECTRICITY
AND FUEL
DEMAND
REGIONAL
LABOR
MARKET
_J L_
Figure 5-6. Major Components of the Model
-------
6.0 CONTROL COST ESTIMATING PROCEDURES
The IPP model currently predicts only control costs for point sources
(see Section 5.0 for a discussion on this limitation). Since the social
cost of controlling air pollution includes more than point source control
costs, this chapter focuses on the development of other cost estimating
procedures which may, in the future, supplement the point source control
costs. The major cost categories recommended for inclusion in the model
are identified as "area source control costs" and "control agency costs."
In addition, this chapter presents a detailed description of the
Implementation Planning Program (IPP) and its uses. This presentation is
important because IPP provides the control cost estimates and the air
quality display which are the inputs to the Benefit Model (Chapter 7.0).
6.1 IMPLEMENTATION PLANNING PROGRAM
The Implementation Planning Program is illustrated in Figure 6-1.
The heart of the IPP is the Atmospheric Diffusion Model, which predicts
ambient concentrations of pollutants in an AQCR by mathematically determin-
ing the dispersion of pollutants from sources. Input to the model is in
the form of an emission inventory which lists the major sources of pollutants
and gives detailed engineering parameters for the sources of pollution and
the emissions generated. Emission contributions from sources that cannot
be identified individually are aggregated to form "area' sources."
Meteorological data are included on wind speed, wind direction, mixing
depth, and other phenomena characterizing the transport mechanism whereby
pollutants are transmitted from sources to receptors.
To improve the accuracy of the diffusion model, a calibration proce-
dure is-used to compare predicted pollutant concentrations with measured
air quality values. The procedure adjusts for errors in the diffusion
model which result from inaccuracies in the mathematical diffusion equa-
tion, inaccurate source-emission and meteorological data, irregularities
in the topography of the region (which the model assumes to be a flat
plain), and other deviations. The Atmospheric Diffusion Model thus pre-
dicts the concentration and distribution of pollutants for the AQCR with
reasonable accuracy.
55
PRECEDING PAGE BLANK
-------
INPUTS
AIR QUALITY
DATA
METEOROLOGICAL
DATA
EMISSION
INVENTORY
CONTROL
TECHNIQUES
AND COSTS
CONTROL
STRATEGIES
ATMOSPHERIC
DIFFUSION
MODEL
CALIBRATION
PROCEDURE
EXISTING
AIR QUALITY
DISPLAY
CONTROL
COST
FILE
CONTROL
STRATEGY
MODEL
POINT
SOURCE CONTROL
COSTS
REGIONAL
AIR QUALITY
DISPLAY
I
I _«_._____ ___—_.
Figure 6-1. Implementation Planning Program
56
-------
Before regional emission control strategies are tested, a Control
Cost File is prepared by the computer. Each major source (i.e., point
source) is assigned all control devices which may reasonably be used for
reducing emissions from that source. For particulate emissions, control
devices generally take the form of emission control equipment applied
externally to the polluting process. For sulfur dioxide emission, either
low sulfur fuel substitutions or flue gas desulfurization techniques
are entered into the file. The Control Cost File thus takes the form of
a list of all point sources and the appropriate control devices for each
source, with each alternative device representing a different level of
control efficiency for a given source.
The IPP model is used to evaluate the'effectiveness of alternative
control strategies for a region. A control strategy is a combination of
emission control standards for specific categories of emission sources.
Different emission standards are normally applied to three major source
categories: solid waste disposal, industrial processes, and fuel com-
bustion. An additional emission standard uniformly reduces the emissions
from area sources by a specified amount.
When-the effectiveness of a control strategy is analyzed, the Control
Strategy Model applies the designated emission standards to each of the
point sources in the AQCR. The reduction in emissions from point sources
•
generally lowers the pollutant concentrations within the region. The Con-
trol Strategy Model recomputes the pollution concentration distribution
and calculates the emission control costs for sources affected by the
emission standards. The most significant output of the Control Strategy
Model is 'a regional display of pollutant concentrations and an estimate of
the annual control cost for all sources in the region which mus-t comply
with the control strategy.
The IPP model is now be.ing used by APCO to evaluate emission control
strategies in implementation plans. TRW has utilized the IPP model in
evaluating emission standards for the District of Columbia portion of the
National Capital Interstate Air Quality Control Region (NCIAQCR) and the
model implementation plan for the Metropolitan Cincinnati Interstate Air
57
-------
Quality Control Region (MCIAQCR). The use of the IPP model in evaluating
the effectiveness of alternative particulate control strategies in the
NCIAQCR is briefly described in the following paragraphs.
Figure 6-2 illustrates the existing ground-level particulate concen-
trations in the NCIAQCR as predicted by the calibrated Atmospheric
Diffusion Model. In this region, the goal_ of the implementation plan
was to attain an annual arithmetic average of particulate concentrations
f o
of 86.6 yg/m-* as an interim standard and 65.2 yg/m as a long-term standard.
In testing the acceptability of a strategy, the IPP model is used to
ascertain the annual average concentration does not exceed the"long-term
air quality standard at any point in the AQCR.
To meet the above standards, a control strategy for reduction of the
particulate concentration was required. The isopleths in Figure 6-2
3
indicate that annual average concentrations above 90 yg/m were observed
o
in the NCIAQCR. Concentrations of up to 107.7 yg/m could be expected
3 3
within this 90 yg/m isopleth (the 100 yg/m isopleth was too small to be
drawn on the map). Analytical results for 10 control strategies are
presented in Table 6-1. The reduction in emissions from point and area
sources is indicated, as well as the control cost expected and the pollutant
concentrations at the maximum receptor in the region. Strategy 18 was
selected for the District of Columbia, on the basis of (1) control costs,
(2) expected air quality (which, within experimental error, approximated
the air quality standard), and (3) the assumption that the emission control
technologies required to meet the strategy were technically feasible and
economically reasonable. Particulate levels expected after the application
of the proposed control strategy are illustrated in Figure 6-3.
In summary, the IPP model is a tool which measures the effectiveness
of alternative control strategies. The display of expected air quality
is the most valuable evaluation criterion available for resource decision-
making. The calculated control costs represent only an estimate of the
direct cost of emission control to the major point sources, however, and
have not been utilized in economic analyses. Costs have thus had only a
general effect on air resource decision-making.
58
-------
NOTE: Annual Concentration In vg/"»
Figure 6-2. Existing Ground Level Particulate Concentrations in the
NCIAQCR as Computed by the Verified Diffusion Model
59
-------
0\
o
TABLE 6-1
PARTICULATE CONTROL STRATEGIES - NATIONAL CAPITAL INTERSTATE AIR QUALITY CONTROL REGION
POINT SOURCES ^AREA SOURCES CONTROL COST
Strategy
Number
1
2
3
4
5
6
7
8
9
10
18
**
Percent
Reduction
36.3
87. A
62.2
52.7
86.4
78.2
76.0
36.3
41.0
77.0
70.4
New Emission Rate
(tons/day)
(84.7)**
54.0
10.7
32.0
40.1
11.6
18.4
19.9
54.0
50.0
19.5
25.0
Percent
Reduction
18.0
51.4
47.5
48.6
51.4
51.4
51.4
36.3
18.6
51.4
51.4
New Emission Rate
(tons/day)
(75.6)**
62. .0
36.7
39.7
38.9
36.7
36.7
36.7
48.2
61.6
36.7
36.7
$ x 106
0.5
13.9
4.0
4.4
11.8
11.6
11.6
0.5
0.6
11.6
10.8
$/ton removed
47
514
210
267
471
489
489
47
44
489
498
Maximum
Receptor
(pg/m3)
107.7
92.2
90.0
76.0
69.4
69.7
69.7
89.8
81.8
70.0
68.2
Existing conditions based on the 1969 inventory collected for the NCIAQCR and the validated
diffusion model.
-------
v
x
y • v
\
Note: Annual Concentrations In
Figure 6-3.
Predicted Particulate Concentrations After the Enactment
of the Proposed Emission Control Strategy in all
Political Jurisdictions
61
-------
6.2 POINT SOURCE CONTROL COSTS
The IPP modal computes the expected emission control costs for both
public and private point sources. Control technologies are hypothetically
applied to point sources as a basis for the cost-estimating procedures.
These costs are generally acceptable for cross-sectional C/B analyses.
For greater accuracy, some fuel prices and control technique assumptions
should be upgraded, since the costs are based on 1967 data.
6.3 AREA SOURCE CONTROL COSTS
Emission sources in an AQCR that are not considered point sources
are represented in the IPP model as area sources. The area source cate-
gory includes residential and small commercial fuel combustion, residential
and commercial solid waste', automobiles, and process sources not large
enough to be identified as a point source. Area sources are not identified
individually in.the IPP model, and emission control cost estimates are not
prepared for these sources.
The task of identifying control techniques and control costs for
area sources has not been a high-priority item under the present RAPA con-
tract because of other priorities. As cost/benefit analysis techniques
are developed, however, greater emphasis must be placed on determining
rigorous cost estimates for all important sources. The resources invested
in such cost estimates must, of course, be weighed against the benefits
derived. Since cost estimates for point sources alone are inadequate for
regional C/B evaluations, it appears the expenditure of resources in
developing a cost-estimating procedure for area sources is justifiable.
No set procedure was developed during this study for determining
area source control costs. The following guidelines were defined, however,
as a basis for future research:
• A uniform reduction in area source emissions
throughout a region will affect individual
jurisdictions differently because of differences
in density and the mix of sources. Area source
cost functions should thus be developed on a
For a full description of the control cost estimating procedure, see TRW
Systems Group, Air Quality Implementation Planning Program - Volume I,
Operators Manual, Contract No. PH 22-68-60, November 1970.
62
-------
census tract or grid basis so that cost
functions can be related to characteristics
of the local community or neighborhood.
• Crude linear approximations of area source
control cost functions may be sufficiently
sensitive for the model (the function being
determined by only one or two cost-effectiveness
data points and the origin). The functions may
be based on census tract or other data and
economic data from the Economics of Clean Air
Report.1 The following relationships may be
developed:
• Residual heating control costs, based on
number and size of households per census
tract.
• Auto exhaust control costs, based on number
of automobile miles travelled.
• Solid waste disposal control costs, based
on population per census tract.
6.4 CONTROL AGENCY COSTS
Another cost category which must be evaluated in a C/B analysis is
the cost associated with implementation of the control program by the
public sector. For purposes of the analysis, control agency costs can be
taken as an allocation of the control agency budget for all jurisdictions
in an AQCR for control of the specific pollutants under analysis. In
evaluating the cost of a specific control strategy, the relevant control
agency costs are the incremental costs determined from the budget required
for the current level of effort and the budget required to support the
agency under the proposed control strategy. Figure 6-4 shows the format
used for reporting control agency costs in the NCIAQCR.
Most of the current air pollution control legislation is based on the
concept of controlling pollutant emissions th-rough direct regulation (in
the form of an emission standard). The Tax Reform Act of 1969, on the
other hand, includes inducements in the form of a provision for a 5-year
1
U. S. Senate, The Economics of Clean Air, Third Report of the Administrator
of the Environmental Protection Agency to the Congress of the United States,
U. S. Government Printing Office, Washington, D. C., January 1971
63
-------
JURISDICTION
POLLUTANTS
MARYLAND
• MONTGOMERY CTY.
• P. GEORGES CTY.
STATE OF VIRGINIA
• ARLINGTON CTY.
• FAIRFAX CTY.
• LOUDOUN CTY.
• PRINCE WILLIAM CTY.
• ALEXANDRIA CITY
• FAIRFAX CITY
• FALLS CHURCH
DISTRICT OF COLUMBIA
TOTAL '
1970 BUDGET*
(S)
TOTAL
sox &
PART.
BUDGET FOR
COMPLIANCE**
(S)
TOTAL
SOX &
PART.
**
CURRENT "LEVEL OF EFFORT."
'BUDGET NEEDED TO SUPPORT AIR RESOURCE PROGRAM FOR AN IDENTIFIED
CONTROL STRATEGY.
Figure 6-4 . Accounting for Control Agency Costs
64
-------
write-off on pollution control equipment installed in industrial plants
which were in operation on December 31, 1968. Some states have likewise
recognized the need for and desirability of some form of mechanism to help
companies absorb the heavy initial control costs. - Such relief generally
takes one of three forms. The purchaser of control equipment may be allowed
to accelerate the depreciation write-off (over a period of 1 to 5 years)
for income tax or franchise tax purposes. Purchases of pollution abate-
ment equipment may be exempted from sales and use taxes, or pollution
abatement installations may be exempted from property taxes.
In cost/benefit analysis, it is important to include the social
costs to the public sector which result from financial incentives, credit
subsidies, and other inducements for private sector emission control.
When air pollution control strategies in a region are based on direct
regulation, the social cost of the inducement is not substantial (but
should nonetheless be evaluated). When tax write-offs, direct payments,
and other forms of financial inducements are utilized, the social cost to
the public sector is substantial. More intensive study of such schemes
is recommended.
65
-------
7.0 BENEFIT MODEL
The social costs of air pollution control include all economic
effects resulting from the allocation of resources to administration,
research, enforcement, measurement, and implementation in connection
with the control of pollutant emissions. Social benefits, on the other
hand, are those increases in welfare which result from improved air
quality. To measure the benefits resulting from the application of control
strategies, a Benefit Model has been developed (see Figure 7-1). The
Benefit Model determines damage costs by relating air quality data to
receptor data and to damage functions which express the social value of
air quality data to receptor data and to damage functions which express
the social value of air quality effects on receptors. The difference in
air pollution damage cost between existing air quality and the control
strategy air quality is the value of the strategy "benefit."
The control supplier function, also shown in Figure 7-1, is a
relationship (not yet developed) which predicts the stimulus to the
*
regional economy resulting from the demand for air pollution control
equipment and services. Benefits to control equipment suppliers are an
important input in regional econometric modeling and, although not part
of the present contract, have definite economic significant and are
i
briefly discussed in Appendix D.
To put the Benefit Model in perspective, a flow diagram of a cross-
sectional C/B model (without the Control Supplier Function) is presented
in Figure 7-2. As illustrated, control strategy air quality is first re-
lated to receptor information (census tract data). Damage is determined
for each Census tract by means of a damage function which expresses damage
cost as a function of air quality and census data. The regional damage
cost is computed by summing overall census tracts in the AQCR.
The design of the Benefit Model is described in the following
sections.
7.1 RECEPTOR DATA
In cost/benefit analysis, the consequences of government policies
are traced back to the fulfillment of individual (or household) wants.
PRECEDING PAGE BLANK
-------
IMPLEMENTATION
PLANNING
PROGRAM
STRATEGY AIR QUALITY AT
250"RECEPTOR POINTS
RECEPTOR
DATA'
CONTROL
SUPPLIER
FUNCTION
1
BENEFIT
MODEL
T
BENEFITS
PER CAPITA,
PER CENSUS TRACT,
OR FOR THE AIR
QUALITY CONTROL
REGION
DAMAGE
FUNCTIONS
Figure 7-1. Benefit Model Design
68
-------
AREA
SOURCE
CONTROL
COSTS
IPP
CONTROL
STRATEGY
MODEL
STRATEGY AIR QUALITY
POINT
SOURCE
CONTROL
COSTS
CONTROL
AGENCY
COSTS
REGIONAL
CONTROL
COSTS
CENSUS TRACT INTERFACE
(CTAQ).
DAMAGE FUNCTION RELATIONSHIP
•(CTDC). = [o+b(CTAQ)J (CTP).
REGIONAL^
DAMAGE COST'
RDC •=» 2 (CTDC).
ALL CENSUS
TRACTS
o = DAMAGE FUNCTION INTERCEPT ($/CAPITA)
b =• DAMAGE FUNCTION SLOPE ($/Mg/m3/CAPITA)
WHERE:'
(CTAQ). = CENSUS TRACT AIR QUALITY
= AIR QUALITY FOR RECEPTOR NUMBER, j
DAMAGE COST FOR CENSUS TRACT, t ($)
(AQ.)
(CTDC).
(CTP). = POPULATION FOR CENSUS TRACT, i
RDC = DAMAGE COST FOR REGION ($)
•EXAMPLE OF SIMPLE LINEAR DAMAGE FUNCTION
Figure 7-2. Cross-Sectional Cost-Benefit Model for Given Pollutant and Damage Function
-------
Tliis rule of cost/benefit analysis was the determining factor in the
selection of census tract information to describe air pollutant receptors
at this time (additional data descriptive of receptors may be added at
some later time). In addition to obtaining extensive information on the
population of a region, the Bureau of the Census tabulates significant
information on individual and household characteristics. The Department
of Commerce defines census tracts as follows:
"Census tracts are small, permanently established,
geographical areas into which large cities and their
environs have been divided for statistical purposes.
Tract boundaries are selected by local committee and .
approved by the Bureau of the Census. They remain the
same for a long time so that statistical comparisons
can be made from year to year and from census to census,
The average tract has over 4,000 people and is originally
laid out with attention to achieving some uniformity of
of population characteristics, economic status, and living
conditions. In each decennial census, the Bureau of the
Census tabulates population and housing information for
each tract—hence, the name "census tract".."1
It is important to know the criteria used in defining census tracts.
The Census Bureau has found that certain definitive criteria should be
applied in order to make the tract statistics useful to as many interests
as possible and to facilitate enumeration. These standards limit the
populations, specify the best types of boundaries, and indicate the type
of homogeniety needed. The criteria* are as follows:
• Population Size -i Census tract should contain between
2500 and 8000 inhabitants, but may contain somewhat more.
Tracts covering a large population are desirable if
the population is homogeneous. The average size for all
tracts should not be less than 4000.
• Boundaries - Census tract boundaries should follow
permanent and easily recognized lines (state lines,
U.S. Department of Commerce, Census Tract Manual, Washington, D.C.,
U.S. Government Printing Office, p. 1, January 1966.
*
These descriptions have been condensed from the Census Tract Manual
(Ibid) pp. 32-38.
70
-------
highways, railroads, rivers, streams, channels, and the
like). Alleys are normally not used and should not be
unless named.
• Homogeniety - Census tracts should contain, insofar as is
practicable, persons of similar racial or nationality
characteristics, of similar economic status, and of
similar housing. If a tract includes both expensive homes
and slum dwellings, for example, average statistics for
the tract as a whole will not reflect the condition of
either group.
• Geographic Shape and Size - In general, a census tract
should be compact. It is desirable to avoid panhandles,
L's, dumbbells, and other elongated shapes. Irregular
boundaries should be avoided wherever possible.
As part of this effort, a procedure was developed for relating
air quality data (as calculated by the Atmospheric Diffusion Model) to
census tracts. The Atmospheric Diffusion Model is currently designed to
compute air pollutant concentrations at approximately 250 receptor points
(located on a grid) within an AQCR. Figure 7-3 shows the relationship
between receptor points and census tracts for the Washington, D. C.
Standard Metropolitan Statistical Area (SMSA). The procedure uses the
existing receptor grid and census tract data, since reorienting the
receptor grid to the centroid of each census tract would have been
costly initially and would have likewise led to increases in operational
computer time. Instead, an analytical procedure was developed to form the
interface. This procedure will be described in detail in the follow-on
report. Briefly, the procedure involves the selection of specific receptor
points to represent each census tract. This operation is conducted once
for each AQCR by a researcher before the regional analysis, is begun. Each
census tract is identified by one or more receptor points which represent
that tract (see Figure 7-4). The computer then calculates a simple arith-
metic average of the pollutant concentrations at the receptor points.
This average is referred to as the "census tract air quality" (CTAQ).
7.2 DAMAGE FUNCTIONS
Damage functions are the most complicated and least clearly defined
inputs to the Benefit Model, owing to the lack of knowledge of the cause-
and-effect relationship between air pollutants and receptors and the
current inability to place a value on the effects.
71
-------
CFNSI'S TK-vns is •nre vwsitiNr.
.XX
Location of receptor point and receptor point number, XX.
Figure 7-3a. Receptor Points Superimposed on Census Tracts
of the NCIAQCR (Macroscopic view)
72
-------
Figure 7-3b. Receptor Points Superimposed on Census Tracts
of the NC1AQCR (Microscopic view)
:-' <
-------
INPUTS
RECEPTOR
NUMBER
045
067
163
AIR QUALITY (ng/m3)
PART.
73.6
72.5
70.1
S0x
52.1
54.3
50.5
CENSUS
TRACT
NUMBER
C109502
RECEPTOR POINTS
REPRESENTING
CENSUS TRACT
045, 067, 163
OUTPUTS
CENSUS
TRACT
NUMBER
0109502
AIR QUALITY (wg/nr)
PART.
72.1
SO
52.3
Figure 7-4 . Receptor Point - Census Tract Interface
-------
In the following subsections, some of the characteristics of damage
functions, are described and problems associated with their measurement
are noted. The literature contains little information on the development
of air pollution damage functions, but references are cited whenever
possible.
7.2.1 Description of a Damage Function
In an economic sense, supply and demand exist for air quality just
as they do for goods and services in the private sector. In the privat.e
sector, price is a function of the effects of supply and demand for goods
and services in the marketplace. Since there is no marketplace for the
air resource, the price of clean air will depend upon society's willingness
to pay for improved air quality. Figure 7-5 illustrates a conceptual
supply-demand relationship for air quality.
In Figure 7-6, a parallel is drawn between the demand for goods
and services in the private sector and that for 'a,ir quality in the public
sector. An air pollution damage function is in essence a demand function
for air quality, an aggregation of the citizens' willingness to pay for a
collective good. Willingness to pay for air quality' is the damage func-
tion expression that is applicable to cost/benefit modeling. Individuals
may pay to avoid such damages as corrosion of materials and soiling of
property for example. Many people likewise prefer to avoid intangible
air pollution effects which are detrimental to aesthetic pleasure or which
produce general sluggishness.
In cost/benefit analysis, the consequences of government actions
are all traced back to the.fulfillment of wants of individuals. Indivi-
duals feel the effects of air pollution directly and indirectly in the
form of:
• Actual outlays,
• Reduction in his income, health or satisfaction, or
• Complete foreclosure of some opportunities.
In practical terms, a damage function represents a dose-response
relationship in which the damage cost is the price an individual (or
individuals) will pay to avoid the response. Damage functions are
-------
a:
O.
AIR QUALITY
SUPPLY = MARGINAL CONTROL COST
DEMAND = MARGINAL BENEFITS
Figure 7-5 . Supply - Demand Relationship for Air Quality
76
-------
'DEMAND FUNCTIONS CAN BE DETERMINED FOR GOODS AND SERVICES IN
THE MARKETPLACE, THAT IS ...
t
PRICE
QUANTITY
'A DAMAGE FUNCTION MAY BE CONSIDERED AN AIR QUALITY DEMAND FUNCTION,
THAT IS, A "WILLINGNESS TO PAY" FOR QUALITY OF THE AIR'RESOURCE
(AS COMPARED TO QUANTITY OF PRODUCT) ...
t
PRICE*
AIR QUALITY
*THE PRICE ONE IS WILLING TO PAY TO HAVE IMPROVED AIR QUALITY
Figure 7-6. What is a Damage Function?
-------
expressed in the form of a rate (i.e., value of damage allocated over a
fixed period of time). Figure 7-7 shows the variables used in measuring
the rate of damage. The valuation of damage is expressed as the cost
factor K.
7.2.2 Identification of Air Pollution Effects
The social benefits associated with improved air quality and the
economic concepts used to describe these effects are discussed in
Appendix A. in this section, attention is focused on the identification
and classification of effects for the practical purpose of developing
benefit estimates. It is hoped that the material presented here'will
stimulate the development of methods of classifying air pollution effects
and will aid in the structuring of research on effects and damage functions.
Air pollution effects may be categorized as follows:
• Direct Effects - The direct and immediate externalities
borne by the receptor.
• Adjustments (Indirect Effects) - Effects which induce
persons and firms to make certain adjustments in order
to reduce the direct impact of the pollutant.
• Market Effects - Effects realized through the marketplace
as a result of adjustments made to reduce the direct
impact of pollutant concentrations. 1
Air pollution effects are felt by the individual, the corporate
sector, and the public sector. (See Figure 7-8). As may be seen from
the figure, effects realized by the corporate sector are passed along to
the consumer in the form of price increases. The effects of air pollution
on the public sector are likewise usually passed along to the taxpayer in
the form of increased taxes. Figure 7-9 gives examples of effects on the
individual, the private sector, and the public sector. -Benefits to the indivi-
dual are divided as follows:
Ridker, Ronald G., Economic Costs of Air Pollution - Studies in Measure-
ment , Frederick A. Praeger, New York, p. 14, 1967.
78
-------
A
DAMAGE
COST PER
YEAR ($/YR)
POLLUTION CONCENTRATION
(AIR QUALITY -)
RATE OF DAMAGE
where:
where:
D = f[ a, t, AQ, RC, PP ]
D = Damage per period of exposure.
a = Concomitant conditions, such as temperature, pressure, humidity, etc,
t = Exposure duration(ie, 1 year)
AQ = Pollutant concentration
RC =•Receptor characteristics
PP = Properties of pollutant
ANNUAL DAMAGE COST
•
C = (K)(D) = g [ K, a, t, AQ, RC, PP ]
K = Cost per unit damage
C - Damage cost per period of exposure
Figure 7-7. Damage Function - A Rate
-------
ECONOMIC EFFECTS OF AIR POLLUTION
COST OF POLLUTION
COST OF POLLUTION CONTROL
[WNERSHIP
EFFECTS
INDIVIDUAL
CORPORATE
PUBLIC
INDIVIDUAL
CORPORATE
PUBLIC
DIRECT
ADJUSTMENTS
MARKET
oo
O
INDIVIDUAL
OR
HOUSEHOLD
WELFARE
MARKET
PRICES
TAXES
INDIVIDUAL
OR
HOUSEHOLD
WELFARE
MARKET
PRICES
TAXES
Figure 7-8. Structuring the Economic Effects of Air Pollution
-------
SOCIAL BENEFITS = Bt = Bh + B + B. + BU
WHERE:
Bh = INDIVIDUAL HEALTH BENEFITS
n • INCREASED NET AGGREGATE PRODUCTIVITY BENEFITS FROM ENHANCED:
•JOB PERFORMANCE
•PRODUCTIVE LIFE SPAN
•ALERTNESS, PSYCHOLOGICAL SATISFACTION, ETC.
• INCREASED NET AGGREGATE CONSUMPTION BENEFITS FROM REDUCED:
•MEDICAL CARE
• PREVENTIVE MEDICINE, ETC.
B = INDIVIDUAL PROPERTY BENEFITS
p • INCREASED NET AGGREGATE PRODUCTIVITY BENEFITS FROM PROPERTY, I.E.,
• MATERIALS
• ANIMALS
• VEGETATION
• LAND, ETC.
• INCREASED NET AGGREGATE CONSUMPTION BENEFITS FROM REDUCED
PROPERTY MAINTENANCE, I.E.,
. • LAUNDRY
• AUTO WASHING
• WINDOW CLEANING, ETC.
B. = PRIVATE SECTOR BENEFITS
1 • NET AGGREGATE PRODUCTIVITY BENEFITS OF GOODS AND SERVICES
PURCHASED FROM THE PRIVATE SECTOR RESULTING FROM PRICES
WHICH DO NOT INCLUDE THE COST (TO THE FIRM) OF:
• CLEANLINESS
• PROPERTY DISUTILITY
'• INCREASED WORKER PRODUCTIVITY, ETC.
B = PUBLIC SECTOR BENEFITS
u • NET AGGREGATE PRODUCTIVITY BENEFITS OF PUBLIC SECTOR SERVICES
DUE TO COSTS TO THE GOVERNMENTS FOR:
• CLEANLINESS
• PROPERTY DISUTILITY
• INCREASED WORKER PRODUCTIVITY, ETC.
Figure 7-9. Social Benefits Resulting from Air Pollution Control
81
-------
9 Effects relating to'the individual's person (i.e., health,
welfare, productivity etc.).
• Effects relating to property owned by the individual.
Information on air pollution effects can be found in APCO's criteria
documents for specific pollutants,* which contain comprehensive reviews
of specific pollutant effects as well as extensive bibliographies.
7.2.3 Assessment of Air Pollution Effects
Once the effects have been identified, the next step in developing
damage functions is to assess the magnitude of. these effects. This proce-
dure will require an analysis of the chemical reactions between pollutants
and receptors, as well as a determination of the physiological, pathological,
psychological, and other effects of the pollutants on living organisms.
The dose-response relationship between pollutant and receptor must also
be examined. As is indicated in the criteria documents, the analyst must
be concerned with the following factors:
• Concentration
• Chemical composition
• Mineralogical structure
• Absorbed gases
• Co-existing pollutants
• Physical state of pollutant
• Solid
• Liquid
• Gaseous
In addition, the characteristics of the receptor must be evaluated.
Relevant characteristics include:
1 RAPA model evaluates particulate and sulfur dioxide emission. Criteria
documents for these pollutants are: Air Quality Criteria for Particulate
Matter (AP-49) and Air Quality Criteria for Sulfur Oxides (AP-50). U.S.
DREW, NAPCA, Washington, D. C., January 1969.
2 Ibid. p. XIV.
82
-------
• Physical characteristics
• Individual susceptibility
• State of health
• Rate and sight of transfer of receptor
The measurement of pollution effects is greatly complicated by the
fact that such effects are quite subtle and vary according to both pollutant
concentration and duration of exposure. Degree of exposure is expressed
in terms of dosage (duration of exposure times pollution concentration).
Because of changing atmospheric conditions the pollutant concentration to
which an Individual is exposed varies significantly over a relatively short
period of time. In addition, there are numerous pollutants which affect
receptors, and the aggregate mix of pollutants at any one location is
constantly changing. As human beings move from place to place in the course
of a day, they are exposed to an even greater variety of combinations of
pollutants. Finally, the effects of pollutants on health and property re-
main unclear owing to the lack of a full understanding of synergistic
phenomena. Much additional research is needed if the total effects of air
pollution are to be determined.
7.2.4 Evaluation of Air Pollution Effects
The third and final task in the process of producing a damage
function is an evaluation of the effects which have been identified and
assessed. Problems arise, of course, in placing a price on effects such
as those outlined above. Welfare economists consider the value of social
benefits to be a function of the individual's personal preference for the
benefits (i.e., the individual's.willingness to pay). In preparing damage
functions, the analyst is faced with such complex problems as determining
society's willingness to pay when society itself is unable to clearly
identify the effects of air pollution, or attempting to determine the value
which society places on one of a number of synergistic effects resulting
from air pollution, cigarette smoking, natural oxidation, etc. The need to
evaluate the aesthetic consequences of air pollution further complicates
matters, since such effects are perceived by the individual, on both the
conscious and subconscious levels.
-------
The. task of evaluating public undertakings involves working in the
absence of market prices for most analytical inputs and outputs. The
job of the analyst is to develop values for inputs and outputs which are
consistent with those found in the marketplace.
The pries placed on a public good is referred to as a "shadow price."
Shadow pricing has been discussed in some detail by Margolis* and McKean.**
Margolis states that "the process of forming the shadow values is made
difficult not only because of market limitations, but also because there
is no widespread agreement on the basis for generating social values.
Should one try to aggregate the preference of people in a society or
should one attempt to rely on the preferences of program planners or
adminstrators?"*** Margolis also argues that it is the willingness to
pay for government outputs which signifies their values.
The purpose of evaluating air pollution costs and benefits is to
assist the decision-maker in determining a policy. Shadow prices are
utilized so that the effects of a public program (as it affects society)
can be evaluated in monetary terms (i.e., on the basis of a common unit
for comparing effects). Shadow prices are useful means of expressing
utility, but unless the decision-maker is confident of the monetary values
assigned to the effects, little is gained through the analytical process.
The question of how shadow prices are determined is, of course,
highly relevant. Margolis discusses techniques for estimating "willingness
to pay."*** Figure 7-10 summarizes the shadow pricing program and identi-
fies three methods of determining shadow prices. The various literature on
the analysis of public expenditures contains theoretical discussions of
this topic.
J. Margolis, "Shadow Prices for Incorrect or Nonexistent Market Values,"
in Joint Economic Committee, U.S. Congress, The Analysis and Evaluation
of Public Expenditure; The PPB System, Vol. I, U.S. Government Printing
Office, pp. 533-546, 1969.
**R. N. McKean, "The Use of Shadow Prices," in S. B. Chase, Jr. ed.,
Problems in Public Expenditure Analysis, The Brookings Institution,
Washington, D. C. pp 33-77, 1968.
***J. Margolis, op. cit., pp. 541-546.
84
-------
• WHY IS THERE A VALUATION PROBLEM? BECAUSE THERE IS NO
MARKET WHERE SUPPLY AND DEMAND FOR THIS PRODUCT (THAT IS,
QUALITY AIR) DETERMINES A PRICE
HOW THEN IS A PRICE PLACED ON SUCH A PUBLIC GOOD?
MEASUREMENT RULE USED IS AS FOLLOWS:
THE
ESTIMATE WHAT THE USERS OF THE PUBLIC PRODUCT ARE WILLING
TO PAY SUCH A MEASUREMENT IS CALLED A "SHADOW PRICE"
• HOW ARE SHADOW PRICES DETERMINED?
METHOD #1 CONSIDER THE PRODUCT AS AN INTERMEDIATE GOOD AND THEN
ESTIMATE THE VALUE OF THE MARGINAL PRODUCT OF THE GOOD
IN FURTHER PRODUCTION, THAT IS, ASSUME THE USER IS A
PRODUCER AND THEN ASK: BY HOW MUCH DOES THE PUBLIC
OUTPUT INCREASE HIS INCOME?
METHOD n MEASURE THE COST SAVINGS OF THE PUBLIC SERVICE, THAT
IS, THE REDUCTION IN THE COSTS THAT THE INDIVIDUAL
WOULD HAVE INCURRED IF THE PUBLIC SERVICE WERE NOT
SUPPLIED.
METHOD #3 ESTIMATE DIRECTLY THE USERS PRICES BY APPEAL TO MARKET
INFORMATION, THAT IS, LOOK FOR NEAR SUBSTITUTES FOR
COLLECTIVE CONSUMPTION.
Figure 7-10. How to Value Air Pollution Effects?
85
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7.2.5 Types of Air Pollution Damage Functions
Although there have been various attempts at determining air pollu-
tion damage functions, this section will concentrate upon two examples,
a damage function which valuates the direct effect of particulate soiling,
and an analysis in which residential property values are estimated as a
function of sulfur dioxide and particulate concentrations.
The damage function developed by Wilson and Minnottee* for the
Washington, D. C., metropolitan area is presented in Figure 7-11. The
damage function relates per capita annual soiling cost to concentrations
of suspended particulates. The authors utilized the results of air pollu-
tion statistical studies in the Washington, D. C., area conducted by
Irving Michelson. Michelson's study used responses to a questionnaire to
determine the frequency of certain household cleaning chores Ln areas of high
and low air pollution within the metropolitan area.** Wilson and Minnottee
applied shadow prices to the "frequency of cleaning" function determined
by Michelson. Method //3 (Figure 7-10) Wfls utilized, that is the prices of
cleaning services in the private sector were determined and then applied
to the specific chores identified by Michelson. The soili'ng damage func-
tion was'utilized to estimate savings (benefits) from reduced soiling for
residential households.' Studies of a similar nature have been conducted
in Kansas City, and the Ironton-Ashland-Huntington metropolitan area. The
procedures used in developing the damage functions were those previously
outlined in this section (identification, assessment, and evaluation).
In the basis of a statistical analysis, economists Robert J. Anderson,
Jr., and Thomas D. Crocker have determined a negative correlation between
particulate and sulfur dioxide concentrations and residential property
values.*** The authors evaluated the combined effects of suspended
R. D. Wilson and D. W. Minnottee, "A cost-Benefit Approach to Air
Pollution Control", Journal of the Air Pollution Control Association,
Vol. 19, No.5, p. 306, May 1969.
** I. Michelson, "The Household Cost of Living in Polluted Air in the .
Washington, D. C. Metropolitan Area", A Report to the U.S. Public Health
Service.
***R. J. Anderson, Jr., and T. D. Crocker, "Air Pollution and Housing:
Some Findings" Paper No. 264, Institute for Research in the Behavioral,
Economics, and Management Sciences, Purdue University, Lafayette,
Indiana, January 1970.
86
-------
160 -
O.
5
QC
UJ
O.
.
O »-
o •-<
0.
CD
O
S*
II
>-
120
80
40 '
Y = 1.85 X - 42
20 40 60 80 100
X = SUSPENDED PARTICULATE CONCENTRATION '(ug/m3)
Source: Wilson and Minnotte
Figure 7-11. Example Damage Function for Direct Effects
-------
^articulates and sulfur dioxide (as measured by sulfation) on residential
property in the following Census Bureau classifications: (1) owner-
oci-.upiecl; (2) renter-occupied, gross rent; and (3) renter-occupied, con-
tract rent. The most significant independent variables which affect
property values were identified and are shown in Figure 7-12. It should
be noted that sulfaction rate and suspended particulate concentration are
included as significant variables. The statistical results of the Anderson
and Crocker work for the Washington, D. C., SMSA are presented in Table 7-1.
The benefits measured by the Wilson/Minnotte and the Anderson/Crocker
damage functions represent only a small portion of the "benefits" that are
desired by society. The Wilson/Minnotte function measures only the direct
effects of soiling resulting from suspended particulates. Numerous other
direct effects have been identified for particulates as well as other pollu-
tants. The Anderson/Crocker functions estimate only the market effects re-
sulting from society's preference to reside in cleaner rather than dirtier
air. The market effects result from the conscious and subconscious per-
ception of direct effects. The impact of the effects and adjustments are
reflected in the values of properties as established in the marketplace.
During this study, the Anderson/Crocker results for the Washington,
D. C., SMSA were examined to determine their potential as a damage function
for estimating air pollution market effects. The analytical results of the
Washington study will be tested as a predictive function in the demonstra-
tion of the C/B Model.
7.2.6 Application of Air Pollution Damage Functions
Damage functions are generally expressed in relation to number of
households (or population) and pollution concentration. In the Cost/Benefit
Model, damage functions are applied to each census tract in an AQCR to
determine the census tract damage cost. The sum of the damage costs for all
census tracts in an AQCR determines the AQCR damage cost.
The damage estimates of the direct effects of pollution are estimated
as a function of particulate and/or sulfur dioxide concentrations for the
base alternative (i.e., the existing condition) as well as for predicted
concentrations under a given emission control strategy. Social benefit is
considered to be the difference between the damages from the base alterna-
tive and damages after application of the control strategy (see Figure 7-13.)
88
-------
PROPERTY VALUE FUNCTION:
PV = f(a, PSN, PPT, MFI, DLP, OLD, NWT, DIS, MRM)
WHERE PROPERTY .VALUE IS QUANTIFIED FOR EACH CENSUS TRACT AS:
• TYPE I: MEDIAN PROPERTY VALUE - OWNER-OCCUPIED
• TYPE II: MEDIAN PROPERTY VALUE - OWNER-OCCUPIED - 75% OR MORE SINGLE FAMILY DWELLINGS
• TYPE III: MEDIAN GROSS RENT - RENTER-OCCUPIED
• TYPE IV: MEDIAN CONTRACT RENT - RENTER-OCCUPIED
CO
THE INDEPENDENT VARIABLES OF SIGNIFICANCE ARE AS FOLLOWS:
a = CONSTANT
PSN = ANNUAL ARITHMETIC MEAN SULFATION
PPT = ANNUAL ARITHMETIC MEAN SUSPENDED PARTICULATES
MFI = MEDIAN FAMILY INCOME
DLP = PERCENT OF LIVING UNITS DILAPIDATED
OLD = PERCENT OF HOUSES OVER TWENTY YEARS OLD IN 1959
NWT = PERCENT OF HOUSING OCCUPIED BY NONWHITES
DIS = DISTANCE OF CENSUS TRACT FROM CENTRAL BUSINESS DISTRICT
MRM = MEDIAN NUMBER OF ROOMS IN HOUSING UNIT
*SEE TABLE 4-2 FOR QUANTITATIVE RESULTS
SOURCE: ANDERSON AND CROCKER
Figure 7-12. Example Damage Function for Market Effect*
-------
Table 7-1
REGRESSION RESULTS OF ANDERSON-CROCKER STUDY FOR THE WASHINGTON, D. C., SMSA
DEPENDENT
Regression Coefficients
INDEPENDENT
Const.
In
In
In
In
In
In
In
In
R2
S2
T
(PSN)
(PPT)
(MFI)
(DLP)
(OLD)
(NWT)
(DIS)
(MRM)
"""""*——«. Type I
3.3901
-.0712 i
-.0610 i
.7677 i
.0044 i
-.016 l
.0251 i
-.0582 i
.6966
.0222
275
(.4012)
(.0222)
(.0318**)
(.0447)
(.0059**)
(.0103)
(.0064)
(.0158)
Type
1.1617
.0010
-.1698
.9970
.0113
-.0213
.0321
-.0312
.9064
.7897
.0179
121
(
(
(
(
(
(
(
(
(
II
.5622*)
.0270**)
.0509)
.0587)
.0079**)
.0107*)
.0080)
.0097)
.1948)
Type III
.2428
-.0905
.0049
.5109
.0121
-.0606
-.0043
-.0216
.6963
.0181
218
(.4441**)
(.0239)
(.0316**)
(.0492)
(.0055*)
(.0125)
(.0066**)
(.0152**)
Type
.4705
-.0727
-.0302
.4650
-.0054
• -.0408
-.0124
-.0111
.7549
.0136
218
(
(
(
(
(
(
(
(
IV
.3859**)
.0207)
.0275**)
.0431)
.0048**)
.0108)
.0058*)
.0132**)
* Not significantly different from zero at the .01 level.
** .Not significantly different from zero at the .05 level.
-------
to C
s
3 C
z
<
a:
o
LlJ
I/)
Q
UJ
tvl
DIRECT EFFECTS
POLLUTION CONCENTRATION (yg/ni )
C] = (DAMAGE COSTjPj; C? = (DAMAGE COST)P2
SOCIAL BENEFIT = C] -
MARKET EFFECTS
POLLUTION CONCENTRATION (u
SOCIAL BENEFIT = PV2 - PV1
Figui-e 7-13. Application of Damage Functions
91
-------
T!K: social benefits from market efi'.ects are die differences between the
annualized household property values under the two strategies (also shown
in Figure 7-13).
In cross-sectional cost/benefit studies, problems arise when air
quality measurements for the current year are not representative of air
quality in previous years (see Figure 7-14). Air quality may have improved
as a result of the implementation of emission regulations, as is the case
for sulfur dioxide concentrations in the District of Columbia (Figure 7-15).
On the other hand, conditions may have deteriorated. Analytical problems
arise because air pollution effects are not short-term phenomena, but are
rather a function of historical air pollutant concentrations. Air pollu-
tion effects such as soiling are immediate effects and cleaning costs are
a function of particulate concentrations for the base year. Other effects,
(such as those on health), result from long-term exposure to pollutants
and damage functions in these cases must theoretically be determined on
the basis of pollutant concentrations calculated over a number of years.
Also, the reduction in damage cannot generally be assumed to be effective'
instantaneously,, that is, an instantaneous reduction in pollutant concen-
tration does not bring about an instantaneous improvement in human health
or productivity. Although beyond the scope of the present study, such
problems must be examined in future cost/benefit research.
92
-------
o
t—«
1—
cc.
o
o.
o
>—1
o
LU
a:
(AQ)
el
(AQ)
(AQ)
e2
(AQ),
1967
1968
1969
1970 1971
TIME (YEARS)
1972
1973
1974
1975
Figure 7-14. Historical Trends in Pollution Concentration
-------
GOVERNMENT OF THE DISTRICT OF COLUMBIA 'AIR POLLUTION DIVISION1
286
SULFUR REDUCED TO 1.0%
SULFUR REDUCED TO I.I
INTERIM AIR QUALITY COAL
I I I I
AIR QUALITY COAI
MAMJ JASO NO
JFMAMJJASONO
JFUAMJ JASOND
JFMAMJ JASOND
JFMAMJ J ASONO
J F U A U J J
DATE
Figure 7-15. Monthly Average Sulfur .Dioxide Concentrations in the District of Columbia
-------
7.2.7 Development of Damage Functions
There is a dire need for additional research on the effects of air
pollution. As an interim measure, however, the development of methods
which transform available data into useful damage functions can be tested.
One of the advantages of a cost/benefit simulation tool is that it may be
used in sensitivity analyses to determine the reasonableness of proposed
damage functions. Brain-storming sessions can be useful in determining
how the damage functions are to be created. A modification of the Delphi
procedure may also be applicable as a means of estimating "personal
preferences."
Many different approaches can be taken in the development of damage
functions. The analyst may look at damages to individual classes of
receptors (pinto beans, electrical contacts, guinea pigs, etc.) and then
aggregate these damages by means of statistical techniques in order to
project total damage costs. Another approach is to use analytical tech-
niques in the development of "comprehensive damage functions" based on
the best available data (see Figure 7-16).
Many questions arise in evaluating methodologies for the development
of damage functions. Must all effects be identified and evaluated, or
can knowledge of specific effects be the basis for decision-making? Can
a comprehensive damage function be developed as a function of personal
income, residential location, occupation, health status, or other vari-
ables? Can health data such as those obtained by Lave and Seskin (see
Table 7-2) be used in the development of broad-based health functions?1
Can "personal preference" be defined on the basis of intensive surveys and
congressional polls (i.e., do such polls indicate willingness to pay for
solutions to society's problems)? How can sociologists, psychologists,
economists, and statisticians contribute to a comprehensive study of
damage functions?
Such questions must be examined in relation to the air resource
decision-making process and the needs of the decision-maker.
Lave, Lester B., and Seskin, Eugene P., "Air Pollution and Human Health,"
jcience, 21 August 1970, Volume 169, Number 3947, pp. 724-734.
95
-------
VO
PER
CAPITA
COST
($)
BACKGROUND LEVEL
(THRESHOLD)
• INDIVIDUAL'S PROPERTY
• INDIVIDUAL'S PERSON
• PRIVATE SECTOR (REGIONAL)
• PUBLIC SECTOR (REGIONAL)
• PRIVATE SECTOR (OUTSIDE REGION)
t PUBLIC SECTOR (OUTSIDE REGION)
POLLUTION CONCENTRATION
Figure 7-16. Comprehensive Damage Function for an AQCR
-------
Table 7-2
EXAMPLE DATA FOR THE DEVELOPMENT OF
DAMAGE FUNCTIONS FOR HEALTH EFFECTS
POLLUTION EXPECTED ANNUAL-
DISEASE REDUCTION SAVING ($ MILLIONS)
• All Respiratory Diseases 50% 1,222
• Cardiovascular Diseases 50% 468
• Cancer 50% 390
TOTAL 2,080
Source: Lave and Seskin
97
-------
8.0 SOME APPLICATIONS OF THE COST/BENEFIT MODEL
The Cost/Benefit Model will be service tested during the followon
efforts of this study. The capabilities of the model will be tested
through numerous evaluations. The present section reviews a few of the
model's capabilities.
Economic evaluations of regional air pollution control strategies
should focus on the efficiency and distribution of costs and benefits to
society. Measures of economic efficiency indicate the effectiveness of a
policy which requires a reallocation of resources. Equity studies evaluate
the distribution of effects relative to various income groups. The desired
goal relative to the equity criteria in the fair distribution of benefits
and costs to all sectors of a given population (e.g., an AQCR).
To illustrate the flexibility and capabilities of the C/B Model,
this chapter presents a discussion on a collection of alternative uses,
which include:
1. Emission Control Regulation Development
2. Analysis of the Distribution of Benefits
3. Practical Model Application in AQCRs
A. Criteria for Evaluating Strategies
5. Other Uses of the C/B Model
8.1 EMISSION CONTROL REGULATION DEVELOPMENT
Theoretical discussions of air pollution cost/benefit applications
generally concentrate on measurements of economic efficiency, that is, the
determination of the strategy under which the total cost of air pollution
disposal is minimized. There has been no discussion in this report of
procedures which may be used to evaluate the geographical distribution of
air pollution costs and benefits within an AQCR.
If cost/benefit analysis can be used to evaluate the impact of the
effects of an emission control strategy in AQCR, it is reasonable to assume
that it can be applied in the development of emission control standards
(or regulations). Emission standards have thus far been based on engineer-
ing analyses of sources and available control technology. The allowable
emission rate is frequently expressed as a function of process or boiler
99 PRECEDING
-------
size. So chat no firms will be placed in an advantageous or disadvanta-
geous economic position relative to other competitive firms, emission
standards are generally applied uniformly to all sources in a region
(i.e., all firms bear the same burden).
Such emission standards are generally promulgated and applied without
regard to the planning objectives of the AQCR, however. Emission standards
currently tend to be economically ineffici'ent because they are uniformly
applied to all sources in the AQCR. For critically located sources, such
emission standards are needed to satisfy air quality standards. For sources
in other locations, such emission standards may be too stringent, as will
be seen in the following example.
Particulate concentration distributions in the NCIAQCR before and
after application of emission standards are shown in Figure 8-1 and 8-2.
A cross-sectional view of pollution concentration relative to geographical
location is presented in Figure 8-3. The upper and lower curves in Figure
8-3 represent pollutant concentrations before and after enactment of an
emission control strategy respectively. The criterion for determining the. .
acceptability of an emission control, strategy is that air quality at any
point in the region must meet or surpass the proposed air quality standard.
Due to the uniform application of emission standards, the same level
of control is required for sources affecting the pollution concentration
in areas outside the center city as is required for sources affecting the
center city. Since the long-term standard is based on the removal of all
identifiable effects which-lower the welfare of society, it may be asked
whether there is a need for further reduction in pollutant concentrations
at the perimeter of the region (that is, whether "non-degradation" Is
essential when existing pollutant concentrations are far below levels at
which effects are observed or welfare decreased). The sources are being
treated equitably, but the receptors are not. An economically inefficient
solution thus exists.
This situation can be illustrated as in Figure 8-4, where source
equity (i.e., uniform application of emission standards for all sources
in an AQCR) is plotted as a function of receptor equity (i.e., equal
pollution concentration exposure for all receptors). The curve shows
situations in which the condition of source equity is matched by receptor
100
-------
>>• Vs' -^.
~ Note: Annual Concentrations in yg/ro
Figure 8-1. Existing Ground Level Particulate Concentrations in
the NCIAQCR as Computed by the Verified Diffusion Model
101
-------
Note: Annual Concentrations in
Figure 8-2 .
Predicted Particulate Concentrations after Enactment
of the Proposed Emission Control Strategy'in all
Political Jurisdictions (Strategy 18)
102
-------
EXISTING PARTICULATE
CONCENTRATION
HEALTH CRITERIA FOR PARTICIPATES**
INTERIM STANDARD FOR THE DISTRICT OF COLUMBIA**
j t _ ^CRITERIA FOR MATERIAL EFFECTS*
TERM AIR QUALITY STANDARD FOR THE
DISTRICT OF COLUMBIA ****
- PARTICIPATE BACKGROUND LEVEL
PREDICTED PARTICULATE
20-
10-
n-
CENTER J
CITY *|
CONCE
ENACT1
^ REGUL
270
340
350
360
?80 .290 300. 310 .. 320.. .330
UNITS OF THE UNIVERSAL TRANSVERSE MERCATQR. SCALE*
*Measurements taken along the"plane 5305 or tne Universal Transverse
Mercator Scale,
**Annual Geometric Mean = 80 yg/m3.
***Annua^- Arithmetic Annual Mean =,86.8 ug/m3.
a***^"1^1 9eometric Mean = 60 ug/m3. Annual Arithmetic Mean = 65.2 yg/m3.
****Standards proposed under procedures established by the Air Quality Act
"
Figure 8-3. Predicted Air Quality Improvement in the NCIAQCR
-------
SOURCE
EQUITY
RECEPTOR EQUITY
Figure 8-4. Source Equity vs. Receptor Equity.
POLLUTANT
CONCENTRATION
AIR QUALITY
STANDARD
AIR QUALITY DIS-
TRIBUTION BEFORE
AIR QUALITY DIS-
TRIBUTION AFTER
GEOGRAPHICAL DIVISIONS OF AN AQCR
Figure 8-5. Source Equity (Position A)
104
-------
inequity and vice versa (souce inequity and receptor equity). Position A
on the curve corresponds to a situation involving source equity and receptor
inequity. Such a situation is further shown in Figure 8-5. A hypothetical
situation for Position B is shown in figure 8-6.
The current application of emission standards is represented by Posi-
tion A. Position B is typical of an emission standard based on geographical
location in the AQCR. Figure 8-7 illustrates such an emission standard,
with control being more stringent in Zone W than in Zone X and so on (an
example of such a regulation would be the prohibition of automobile traffic
in the center city). An emission standard which varies with geographical
location within an AQCR is likely to be more economically efficient for
society since, relative to a uniform standard, there is a control cost
saving with a negligible reduction in benefits. The practicality of emis-
sion standards such as the one illustrated in Figure 8-7 should be deter-
mined. There is likewise the need to re-examine the basis for developing
emission standards. If an urban growth objective is to enhance the quality
of the downtown area through commercial development and construction of
middle-income residences, and at the same time to relocate industry outside
the center city, then emission standards based on a policy oriented toward
Position B would be compatible with regional goals.
The above presentation has been designed to indicate ways in which
cost/benefit analysis can be used to examine new policy alternatives. The
model is likewise useful as a means of evaluating existing policies. The
important contribution made by the development of the C/B Model is the
ability to look at benefits (and damages) relative to specific geographical
areas in an AQCR.
8.2 ANALYSIS OF THE DISTRIBUTION
The Cost/Benefit Model is capable of evaluating the distribution of
effects on the sources and receptors. Equity evaluation of air pollution
control costs to firms affected is important in a competitive economy. The
distribution of benefits resulting from cleaner air must likewino bft evalua-
ted for purposes of urban planning, land use, etc. Some equity evaluations
which are possible with the Cost/Benefit Model are:
1. Compare the absolute pollutant concentration to
income. Although benefits (measured in dollars)
105
-------
t.
POLLUTANT
CONCENTRATION
AIR QUALITY
—- STANDARD
AIR QUALITY
DISTRIBUTION
AFTER
AIR QUALITY DIS-
TRIBUTION BEFORE
GEOGRAPHICAL DIVISIONS OF AN AQCR
Figure 8-6. Source Equity (Position B)
106
-------
ZONE Z
AQCR
EMISSION STANDARD IN ZONE W MORE
STRINGENT THAN IN ZONE X; ZONE X
STANDARD MORE STRINGENT THAN ZONE Y;
AND SO FORTH
Figure 8-7. An Emission Standard Based on Geographical Location
307
-------
are not being considered here, the relation-
ship between actual air quality and income
class will be valuable to a regional
decision-maker who evaluates long-terra air
quality trends and is cognizant of air pollu-
tion interim. Essentially the relationship
in question is:
I = f(AQ) where: I = Income
This relationship can be measured for existing
conditions as well as under alternative regional
control strategies.
2. Compare the change in air quality resulting from
a regional control strategy to income class.
This comparison answers the question: What
improvement in air quality was obtained for
each income class? The relationship is as
follows:
AQ = g(I)
The change in air quality can be measured in two ways:
a. Absolute improvement in air quality (e.g., wg/m3) where:
(AQ)A = (AQ)b - (AQ)a
(AQ) = absolute change in air quality
(AQ), = air quality before strategy
(AQ) = air quality after strategy.
£L
b. Relative improvement in air quality (e.g., %) where:
(AQ) - (AQ)
(AQ)R (AQ)b
(AQ) = relative change in air quality.
R
3. Comparison of benefits (in dollars) resulting from a re-
gional control strategy to each income class, i.e.,
B = f(I)
4. Comparison of benefits per income (i.e., B/I) resulting
from a regional control strategy for each income class,
i.e.,
(B/I) = 8(1)
108
-------
This procedure will measure the improvement in aggregate
consumption and productivity benefits resulting from a
given strategy for each income class. This is the most
significant measure for e.quity analyses, since it relates
the importance of benefits to individual consumption
levels (i.e., an additional dollars worth of well-being
for an individual earning $10 per year is far more signifi-
cant than an additional dollars worth of well-being for an
individual earning $10,000). These data may be presented
as follows:
(Benefit)
Income ($)_ Benefit ($) \Incoroe /(%)
2,000 80 4
4,000 120 3
25,000+ 500 2
5. Analysis of benefits and benefit/income ratios for non-
white (NWT) and white (WT) sectors of a regional population.
The procedure used could be as follows:
• Divide census tracts into WT and NWT, where a NWT tract
is defined as one having 50% or more non-white residents.
• Develop comparative data on these tracts, as follows:
•
I($) WT(B) ($) NWT(B) ($) WT(B/I) (%) NWT(B/I) (%)
2,000
4,000
90
110
70
130
4.5
5.5
3.5
6.5
25,000 600 400 400 1.6
6. Analyses for an entire region as well as by individual
political jurisdiction.
8.3 PRACTICAL MODEL APPLICATION IN AQCRs
The Cost/Benefit Model will be initially applied as a research tool.
It is possible that the products of future research on damage functions and
in other -related areas may strengthen the capabilities of the Model to rhc>
extent that it will greatly enhance the sophistication of decision-making
109'
-------
by regional control officers. Development of the Model capabilities should
be in line with potential practical applications in the field.
Once the Model becomes operational, it is necessary to determine how
it may be used most advantageously as part of a specific decision-making
process. Figure 8-8 identifies possible points of Model application rela-
tive to various stages in air resource planning. Initially, the Model
*
could be.used for developing desirable air resource strategies consistent
with existing and projected economic activity and technology. As air re-
source plans are implemented, it could be used to monitor the effectiveness
of the program and identify needed policy alterations. After attainment of
a desirable air resource, the Model could be used in evaluating the steady-*-
state conditions and in establishing policies for future industrial growth,
land-use plans, etc. Issues such as power plant siting and. solid waste
disposal techniques could be examined with the aid of the Model and appro-
•
priate policies developed.
The quality of the Model outputs will improve as the quality of the
input data improves. Administrative programs such as source permit systems"
and air quality monitoring networks should provide more accurate input data
than are now available. The future role of modeling should be examined in
light of the significant increase in data resources that will be available.
Any air resource program should have as an objective the optimum utilization
of all data collected. An analytical model such as proposed represents one
method of extracting maximum value from data developed in the.field. Addi-
tional research on the capabilities and practical uses of such a model would
be of considerable value.
8.4 CRITERIA FOR EVALUATING STRATEGIES
In Chapter 3.0, the use of impact indicators (or, evaluation criteria)
in the decision-making process was discussed. Currently, regional control
officers use a few quantitatively determined criteria in control strategy
decision-making (such as estimates of the probability of success in com-
plying with air quality standards and rough estimates of control costs) but
rely greatly on qualitative factors. The field of air resource management
will improve as more reliable criteria are developed and used.-in the
decision-making process. This section briefly identifies some criteria
and discusses the need for additional criteria development.
110
-------
AVERAGE
REGIONAL
POLLUTION
CONCENTRATION
PLANNING
STABILIZATION
TIME
ARE ; = AIR RESOURCE EVALUATION
Figure 8-8. Use of the Cost/Benefit Model in an AOCR
-------
The Cost/Benefit Model produces indicators wiiich, by themselves, arc
useful in evaluating control strategies. Such indicators may be developed
from the model's control cost and benefit estimates and can be referred to
as "control impact indicators" and "effects impact indicators." When an
economic model system is used to determine the effects of control costs
and benefits on regional economic activity, indicators on unemployment,
regional output, investment and consumption are produced. These are the
traditional economic indicators. Finally, there has been developing in
this country an interest in creating and utilizing "social indicators" in
the evaluation of public programs. The state-of-the-art in devising social
indicators to measure the well-being of society is still very rudimentary.
*•
This section briefly discusses the different types of indicators.
Control impact indicators are useful tools for evaluating efficiency
and equity aspects of air resource policies as they affect sources in an
AQCR. Woodcock and Barrett have discussed the development of impact indi-
cators and their application in the gray iron foundry industry. Such
indicators make it possible to compare impacts for various emitters and
can be used in judging the efficiency of an air resource management program
and determining whether emission control regulations distribute air pollu-
tion control expenditures equitably among the firms affected.
Effects impact indicators are developed by converting social benefits
to incremental changes in labor and capital productivity. Examples of such
indicators are:
• The change in productivity of an industrial
activity resulting from the social benefit
derived from reduced plant maintenance, reduced
absenteeism of labor, more productive labor
(because of improved health and mental attitude),
less corrosion.of facilities exposed to the
atmosphere, increased value of plant property
(which could be rented or put to other economic
uses), etc., and,
Woodcock, K. R., and Barrett, L. B., "Economic Indicators of the Impact
of Air Pollution Control; Gray Iron Foundries: A Case Study," Journal
of the Air Pollution Control Association, Vol. 20, No. 2, pp. 72-77,
February 1970.
112
-------
• The change in productivity of an agricultural
activity because of reduced plant damage,
livestock illness, etc.
Such indicators are useful in evaluations of relative benefits received
by sectors of a region from air resource policies (e.g. , rich vs. poor,
whites vs. non-whites, inner city vs. suburbia).
Economic modeling is required to develop economic indicators for the
air resource decision-making process. Economic indicators reflect the
impacts from control costs, the demand for air pollution control equipment,
the resulting increase in regional welfare (from benefits), etc. Such
effects create a shift in the economic structure of the region. Air pollu-
tion control policies lead to changes in economic output, labor markets,
availability of capital, and distribution of capital within the economy.
The economics model system developed by CONSAD is capable of estimating
such impacts in the economy. The model system was designed to provide the
following types of information for use in public-policy analyses:
1. Regional economic changes expected to result
from application of various emission standards
to major polluters.
2, Regional economic effects expected to result
from reduction of industrial damage and growth
in air pollution equipment industries.
3. Changes in regional output, investment, employ-
ment, income, and consumption associated with
various emission standards.
4. Fiscal effects of regional implementation of
air quality control programs. Such effects
include the tax base impacts of economic change
and the rate of achievement of emission standards
specified in the implementation plan.
5. Statistical indicators, including industry-specific
ratios of air pollution control costs to total in-
vestment and to value added in production.1
1
A Cross-Sectional Regional Economics Model for RAPA-II Air Pollution
Control Analysis, CONSAD Research Corporation, Pittsburgh, Pennsylvania,
pp. 3, June 1970.
113
-------
The system produces some of the following economic indicators:
• Gross regional product
• Employment change by industry
• Investment change and capital stock by industry
• Industry value added.
Raymond A. Bauer1 has defined social indicators as "yardsticks by
which to know if the social condition" is getting better or worse." Such
indicators are recommended for the air resource decision-making process.
They should not merely reflect measures of air quality, but must represent
social welfare resulting from the costs and benefits of pollution control
policies. The President's Task Force on Economic Growth has stated that,
in order to improve the environment and facilitate economic growth and
progress, "the appropriate Federal agency should develop indicators of
social and economic well-being to guide long-term public policy."2 The
report of the National Goals Research Staff states:
"While we have come to appreciate the complexity of
social and environmental processes, our present know-
ledge of those complex processes is extraordinarily
incomplete. From this, it follows that for the long
range we must vigorously pursue the extension of our
knowledge in these processes. And, for the short.
range, since our ability to anticipate exactly what
will happen is so limited, we must sharpen our ability
to detect as rapidly as possible that which has al-
ready happened. This requires the development of new
improved methods for the measurement of social change."3
A list of readings on social indicators is included in the
Bibliography.
1 . .. ..-T._-Tf.«*er .-.XC
Bauer, R. A., Social Indicators, MIT Press, Cambridge, Mass. 1966.
2
Policies for American Economic Progress in the Seventies, Report of the
President's Task Force on Economic Growth, May 1970, p. 2.
3
Toward Balanced Growth; Quantity with Quality, Report of the National
Goals Research Staff, Washington, D. C., 4 July 1970.
114
-------
8.5 OTHER USES OF THE
-------
• Control system evaluations - Evaluations of the results
of control by
fuel switching only
fuel switching with specific fuels only
maximum feasible technology on certain sources
only, etc.
The role of the analyst will be to develop situations which are
relevant to more efficient and equitable policies and, by testing the
situations, to gain"further knowledge for decision-making purposes.
v KV
IP' £'
/ *• ,^-L ifi*
I <. ^ >O
>>.'-'
•AV'*:-
.-j
•S
i
116
"/ .? '
"j.'
-------
9.0 BIBLIOGRAPHY
9.1 REGIONAL.AIR QUALITY MANAGEMENT
Atkisson, Arthur, and Richard S. Gaines, Development of Air Quality
Standards. Columbus, Ohio: Charles E. Merrill Publishing Co., 1969.
Schueneman, Jean J., "Air Pollution Control Administration,"
Chapter 52 in Arthur Stern, Air Pollution (Second Edition), New
York: Academic Press, 1968, pp. 719-796.
Williams, James D., and Normal G. Edmisten, An Air Resource Manage-
ment Plan for the Nashville Metropolitan Area, U, S. Department of
Health, Education and Welfare, Public Health Service, Cincinnati,
Ohio, 1965.
9.2 GENERAL COST/BENEFIT LITERATURE
Alchian, Armen A., "The Rate of Interest, Fisher's Rate of Return
over Costs and Keyes' Internal Rate of Return," The American
Economic Review. Vol. 45, No. 5, 1955, pp. 938-943.
Buchanan, James M., "Positive Economics, Welfare Economics, and
Political Economy," Journal of Law and Economics, Vol. 3, October
1960, pp. 124-138.
Buchanan, James M., and William Craig Stubblebine, "Externality,"
Economica, Vol. 29, November 1962, pp. 371-384.
Chase, Samuel B. Jr., ed., Problems in Public Expenditure Analysis,
Washington, D. C.: The Brookings Institution, 1968.
Coase, R.H., "The Problem of Social Cost," Journal of Law and
Economics. Vol. 3, October 1960, pp. 1-44.
Davis, Otto A., and Andrew Whinston, "Externalities, Welfare, and
the. Theory of Games," Journal of Political Economy, Vol. 30, June
1962, pp. 241-262.
Dolbear, F.T., Jr., "On the Theory of Optimum Externality," American
Economic Review, March 1967, pp.
Dorfman, Robert, ed., Measuring Benefits of Government Investments,
Washington, D. C. : The Brookings Institution, 1965.
Dorfman, R. , P.A. Samuelson., and R.M. Solow, Linear Programming
and Economic Analysis, New York: McGraw Hill, 1968.
Foley, Duncan K., "Resource Allocation and the Public Sector,"
Yale Economic Essays, Vol. 7, Spring 1967, pp. 45-98.
117
-------
Hinrichs, Harley H., and Graeme M. Taylor, Program Budgeting and
Benefit/Cost Analysis, Pacific Palisades, California: Goodyear
Publishing Co. Inc., 1969.
Krutilla, John V., "Welfare Aspects of Benefit/Cost Analysis,"
Journal of Political Economy, Vol. 69, No. 3, June 1961, pp. 226-
235.
Maass, Arthur, "Benefit/Cost Analysis: Its Relevance to Public
Investment Decisions," Quarterly Journal of Economics, Vol.
May 1966, pp. 208-226.
Marglin, Stephen A., Public Investment Criteria, Cambridge: MIT
Press, 1967.
McCullough, J.D., Cost Analysis for Pla'nnihg-Programming-Budgeting
Cost Benefit Studies, Santa Monica, California: The Rand Corpora-
tion, November 1966.
Margolis, Julius, "Secondary Benefits, External Economies, and the
Justification of Public Investment," Review of Economics and Sta-
tistics. Vol. 39, No. 3, August 1957, pp. 284-291.
Miller, William L., "The Magnitude of the Discount Rate for Govern-
ment Projects," Southern Economic Journal, Vol. 28, No. 4, 1962,
pp. 348-356.
Prest, A.R., and R. Turvey, "Cost/Benefit Analysis:* A Survey,"
The Economic Journal, Vol. 75, No. 300, pp. 683-735.
Rothenberg, Jerome, Economic Evaluation of Urban Renewal, Washington,
D. C.: The Brookings Institution, 1967.
Schaller, Howard G., ed., Public Expenditure Decision in the Urban
Community, Washington, D. C.: Resources for the Future, Inc., 1963.
Turvey, Ralph, "On Divergences between Social Cost and Private Costs,"
Economica, Vol. 30, August 1963, pp. 309-313.
U.S. 91st Congress, 1st Session, The Analysis and Evaluation of
Public Expenditures; The PPB System, Joint Economic Committee,
Congress of the United States, Volumes 1, 2, and 3, Washington,
D. C.: U.S. Government Printing Office, 1969.
9.3 THEORY AND APPLICATION OF COST/BENEFIT ANALYSIS IN WATER RESOURCES
Bain, Joe S., "Criteria for Undertaking Water-Resource Developments,"
American Economic Review, No. 50, May 1960, pp. 310-320.
Brown, Gardner, and C.B. McGuire, "A Socially Optimum Pricing Policy
for a Public Water Agency," Water Resources Research, First Quarter,
1967, No. 3, pp. 33-43.
118
-------
Ciriacy-Wantrup, S.V., "Water Policy and Economic Optimizing:
Some Conceptual Problems in Water Research," American Economic
Review, Vol. 57, No. 2, 1967, pp. 179-196.
Freeman, A. Myrick, III, "Adjusted Benefit/Cost Ratios for Six
Recent Reclamation Projects," Journal of Farm Economics, Vol. 48,
No. 4. 1966, pp. 1002-1012.
Freeman, A. Myrick, III, "Income Distribution and Planning for
Public Investment," American Economic Review, Vol. 57, No. 3, 1967,
pp. 495-508.
Hirshleifer, Jack, and J.W. Milliman, "Urban Water Supply: A
Second Look," American Economic Review, Vol. 57, No. 2, 1967,
pp. 169-178.
Kneese, Allen V., and Blair T. Bower, Managing Water Quality:
Economics, Technology, Institutions, Baltimore; Johns Hopkins
Press, 1968.
Schmid, A. Allan, "Economic Analysis of Water Resource Problems-
Nonmarket Values and Efficiency of Public Investments in Water
Resources," American Economic Review, Vol, 57, No. 2, 1967, pp.
158-168.
9.4 RELEVANT AIR POLLUTION AND RELATED LITERATURE
Anderson, Robert J., Jr., and Thomas D. Crocker, "Air Pollution and
Housing: Some Findings," Paper No. 264, Institute for.Research in
the Behavioral, Economic, and Management Sciences, Purdue University,
Lafayette, Indiana, January 1970.
Barrett, Larry B., and Thomas E. Waddell, "The Cost of Air Pollution
Damages: A Status Report," U.S.D.H.E.W., National Air Pollution Con-
trol Administration, Raleigh, North Carolina, June 1970 (unpublished).
\
\
Burton, E.S., and William Sanjour, "A Simulation Approach to Air
Pollution Abatement Program Planning," Socio-Economic Planning
Science, Vol. 4, Pergaraon Press, 1970, pp. 147-150.
Cost Effectiveness of Air Pollution Control Strategies (Course Man-
ual, Institute for Air Pollution Training), U.S. Department of
Health, Education, and Welfare, Public Health Service, Consumer
Protection and Environmental Health Service.
Duke University School of Law, L^aw and Contemporary Problems,
Vol. 33, Spring 1968, pp. 195-426.
Economic Benefits from Public Health^Services - Objectives, Methods,
and_Kxamples of Measurement, U.S. Department of,-Health, Education,
and Welfare, Public Health Service, Washington, D. C., 1967.
119
-------
Krnst and Ernst, A Cost-Ef f ecciveness Study of Air Pollution Ab_ate-
inent in the Greater Kansas City Area, Summary Statement to the Kansas
City, Kansas-Kansas City, Missouri Air Pollution Abatement Conference,
May .L968.
Ernst and Ernst, National Capital Area, A Cost-Effectiveness Study
of Air Pollution Abatement, Submitted by Ernst and Ernst as an
Exhibit for the Record to the Washington, D. C. Air Pollution
Abatement Conference, 1969.
Frankel, M.L. , and D.H. Lewis, "Regional Air Pollution Analysis,"
Paper presented at the Fourth Conference on Application of Simulation,
December 9-11, 1970, New York, pp. 82-93.
Klarman, Herbert E. , "Present Status-, o-jE Cost/Benefit Analysis in
the Health Field," American Journaj. 'pjCtf^lic Health, No. 57, Novem-
ber 1967, pp. 1948-1953.
Klarman, Herbert E. , The Economics f.v^lth, New York: Columbia
University Press, 196^! ""
' /
Klarman, Herbert E. , ed. , Empirical gtudies in Health Economics,
Baltimore: . Johns Hopkins Press,
Lave, Lester B. , and Eugene P. Seskinf, '&Jr' pollution and Human
Health," Science, Vol. 169, No. 3547, LjOtst- 1970, pp. 723-733.
. ' 'iffif
Lind, Robert C. , "Land Market Equilifc''J«£i> and the Measurement of
Benefits from Urban Programs," Paper ( ''^9tited at the CUE Conference,
September 11-12, 1970. . . .; ;
Michelson, I., and B. Tourin, "Comp-aa'at^v ^Method for Studying Costs
of Air Pollution," Public Health Reptfrft ;.]Vol. 81, No. 6, June 1966,
pp. 505-511.
Nourse, Hugh 0., "The Effect of Airf'l>l|: jfon on House Values,"
Land Economics. Vol. 43, No. 2, MayJ /6V.' &o. 181-189.
Rice, Dorothy P., Estimating the Co£ _ f ?.Jlhess , Health Economics
Series, No. 6, U.S. Department of H& -,,, .cUJucation and Welfare,
Public Health Service, Washington, EJL '.'. "^ 1966.
"W ' . • »
Ridker, Ronald G. , Economic Costs of m? dilution, Studj.es in
Measurement, New York: Frederick A. ^ ,«• t-p. 1967.
. 6 *' * • .-'
W
Ridker, Ronald G. , and John A. Henniu-g, "The Determinants of Resi-
dential Property Values with Special Steference to Air Pollution,"
The Review of Economics and Statistics, Vol. 49, May 1967, pp. 246-
257. :
120
-------
U.S. 92nd Congress, 1st Session, Senate, Economics of Clean Air,
Third Report of the Administrator of the Environmental Protection
Agency to the Congress of the United States in Compliance with
Public Law 90-148, The Clean Air Act, as Amended, Washington, D. C.:
U. S. Government Printing Office, January 1971.
U. S. 91st Congress, 2nd Session, Senate, National Emission Standards
Study, Report of the Secretary of Health, Education, and Welfare
to the United States Congress in Compliance with Public Law 90-148,
The Clean Air Act, as Amended, Washington, D. C.: U. S. Government
Printing Office, March 1970.
Weisbrod, Burton A., Economics of Public Health - Measuring the
Economic Impact of Diseases, Philadelphia: University of Pennsyl-
vania Press, 1961.
Wilson, Richard D., and David W. Minnotte, "A Cost/Benefit Approach
to Air Pollution Control," Journal o£ the Air Pollution Control
Association. Vol. 19, No. 5, May 1969, pp. 303-308.
Wolozin, Harold, ed., The Economics of Air Pollution, New York:
W.W. Norton and Company, Inc., 1966.
Woodcock, Kenneth R. , and Larry B,, Barrett, "Economic Indicators
of the Impact of Air Pollution Control, Gray Iron Foundries: A
Case Study," Journal of the Air Pollution Control Association,
Vol. 20, No. 2, February 1970, pp. 72-77.
9.5 SOCIAL INDICATORS
Bauer, Raymond A. ed., Social Indicators, Cambridge: MIT Press,
1966.
Bell, Daniel, "The Idea of a Social Report," The Public Interes^,
No. 16, Spring 1969.
Policies for American Economic Progress in the Seventies, The
Report of the President's Task Force on Economic Growth, May 1970.
Sheldon, Eleanor B. and Wilbert Moore, eds. , Indicators of Social
Change, New York: Russell Sage Foundation, 1968.
Toward A Social Report, U.S. Department'of Health, Education, and
Welfare, Washington, D. C., 1969.
Toward Balanced Growth; Quantity with Quality, Report of the
National Coals Research Staff, Washington, D. C., July 1970.
121
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APPENDIX A
THEORETICAL CONSIDERATIONS OF AIR POLLUTION COST/BENEFIT ANALYSIS
This section briefly reviews some theoretical considerations of air
pollution cost/benefit analysis. Various sources in the"welfare economics
literature have been reviewed to better understand the manner in which
cost/benefit analysis is applied in other public programs. The discussion
here attempts to relate the principles of cost/benefit analysis to air
pollution.
The social costs of air pollution control affect the individual, the
corporate sector, and the public sector. Individual costs represent an
incremental portion of the consumption benefits. Such costs might take the
form of annual incremental costs of products that are altered for air qua-
lity purposes (i.e., fuels for home heating, gasoline for automobiles, etc.)
or annual incremental costs of activities which' replace activities that are
outlawed by air pollution control regulations (e.g., the cost of solid
waste removal"and disposal when backyard burning is prohibited).
The corporate sector feels the impact of air pollution control costs
through emission reduction activities, air quality monitoring and research
and development on process innovations or pollution controls. The impact
of these costs may be passed on to the individual in the form of an increase
in the price of the goods and services marketed. Without emission control,
the cost of air pollution is transferred to the community in the form of
damages in this case referred to as external diseconomies or negative ex-
ternalities, since the costs are negative benefits and are external to the
firm. The justification for air pollution control is based on the premise
that it is socially cheaper to control emissions at the source (i.e., to
increase the internalities) than it is to bear the cost of a polluted air
resource (i.e., to live with the externalities).
Public expenditures for pollution control are associated with (1) en-
forcement of individual and corporate control activities, (2) reduction of
emissions from public facilities, (3) regional and nation-wide monitoring
of pollution concentrations, (4) research and development on new control
techniques and instruments, and (5) research on air pollution effects.
PRECEDING PAffi BLANK
-------
Wlien evaluating the cost of air pollution control to the public sector,
allocation of annual revenues at the federal, state, and local levels of
government must be measured. The impact of these costs is felt by the
individual in the form of increased taxes.
Social benefits, like social costs, have an impact on the individual,
the corporate sector, and the public sector. The social benefits to be
measured in cost/benefit analysis are the technological or "real" effects
which alter the total production possibilities and total welfare opportuni-
ties for consumers in the economy. The economic effects of air pollution
have been grouped as follows: •
• Direct effects - the di-reg^-^nd immediate
externalities borne by 'jfty /"V.ceptor
'/'H '
9 Adjustments (Indirect e£ l^ffi) - effects which
induce persons and firm*/'to make certain ad-
justments in order to reduce ^the direct impact
of the pollutants. {.
• Market effects - effects/jtealiwd through the
marketplace as a result, os Jfya*'adjustments made.
One classification of the direct eftefcts of air pollution is shown in
* • 'v>-
Figure A-l.* The concept of the social •«;/ .V'^of adjustment is illustrated
• "- ''•' ;- •
in Figure A-2. Adjustments result fro^tf•;._'jirect effects of air pollution
on property and the individual. Socie\$ &• yilling to pay a price to avoid
the inconvenience or dissatisfaction r<&uV Jg from these effects. Figure
'x 1 .i
A-3 illustrates the manner in which ttwS in Sidual feels the effects of air
""A I
pollution. A structure of the type s^i-8n •< 7 Figure A-3 is required as a
I, ;|| ! ' t 1
starting point for classification of t?*3lt£ »i> costs and benefits of emis-
i wBli .1 -i
sion control strategies.
In discussing the effects of publV"?'xc.grams, a major economic dis-
v:>
tinction is drawn between pecuniary effejrrsr «nd technological effects.
Pecuniary effects are the result of ch«\e!»-.yi relative prices in the
economy. They involve a redistribution of goods and services among people,
"Technological effects" (also called "real" effects) alter the total pro-
duction possibilities or total welfare possibilities for consumers in the
*Barrett, L. B. and T. E. Waddell, "The Cost^of Air Pollution Damages: A
Statur Report," (unpublished paper). >_ f£.:
124 |
ir*
r- n
-------
HUMAN
HEALTH EFFECTS
EFFECTS
ON ANIMALS
DETERIORATION
OF
MATERIALS
PSYCHOLOGICAL
AND ESTHETIC
EFFECTS
VEGETATION
EFFECTS
Figure A-l. Classification of Direct Effects
125
-------
EFFECTS
-ON
ANIMALS
VEGETATION
EFFECTS
MATERIALS
DETERIORATION
. THE "WILLINGNESS TO PAY"
TO AVOID THE EFFECTS
RESULTING FROM
Figure A-2. Identification of Adjustments
126
-------
10
-J
IWNERSHIP
KFKKCTS
DIRECT
ADJUSTMENTS
MARKET
ECONOMIC EFFECTS OF AIR,POLLUTION
COST OF POLLUTION
INDIVIDUAL
CORPORATE
PUBLIC
MARKET
PRICES
INDIVIDUAL
OR
HOUSEHOLD
WELFARE
COST OF POLLUTION CONTROL
INDIVIDUAL
TAXES
CORPORATE
MARKET
PRICES
INDIVIDUAL
OR
HOUSEHOLD
WELFARE
PUBLIC
TAXES
Figure A-3. Structuring the Economic Effects of Air Pollution
-------
economy. These effects are termed "economies" when they are favorable and
"diseconomies" when they are unfavorable. Thus, manpower training programs
produce real benefits for trainees insofar as they increase the workers'
productive capabilities. Once the trainee is part of the training program,
the benefits are classified as internal real benefits or economies ("inter-
nal" because the effects are borne by the firm that does the training).
Classic examples of external real economies a*re air and water pollution.
These effects are classified as "external" because they are borne by per-
sons other than those who caused the pollution. They are considered "real"
because production or consumption opportunities elsewhere in the economy
t
are reduced, since polluted water is a detriment to other uses of water
(i.e., commercial, drinking, swimming, etc/"
/$»•
The concepts of pecuniary and real greets would be applicable, for
example, to a shift in output from firms which'liquidate because of exces-
sive costs of air pollution control (as well as other firms) to firms which
supply control equipment. The resulting ire*rea&e'.in revenues to the sup-
pliers of control equipment is a pecuniary e^wfeft {i.e., a redistribution).
The important consideration is that only a 3^ft within the economy exists,
>
without an increase or decrease in the prodr.. tfuity of the economy as a
whole.* Technological effects are felt b£v.$Vj£.}3 which must purchase hard-
vf 7?" '?
ware, switch fuels, install monitoring- deyicef '' or perform research. When
the responsibility for pollution control i§ pi . :' >d upon the pollutant
emitter, costs are internalized and measured o. the balance sheet of the
'^ \ I
firm, instead of being passed along as an,'/>te' slity to the community.
Such costs are felt as a net decrease in p 'ddf ^lyity for the total economy,
? A* v/
since the same quantity of product is beini.v^' Aiced at an increased cost.
.
This decrease in net productivity is a relt V ji' Asocial cost for cost/benefit
v^i* •
analysis.
As was the case with social costs, eff£ '7s •'&*-& identified as either
'. j
pecuniary or technological in the evaluation of social benefits. For ex-
ample, air pollution control may reduce demand for certain products and
*This discussion assumes a market economy without .serious imperfections.
128
-------
services in some sectors of the economy (e.g., window-washing, house-
painting), thus causing a shift in output from these sectors to the rest
of the economy. The reduction in revenues for the sector in which demand
is reduced and the corresponding increase in demand and in revenues for
the rest of the economy are pecuniary effects. The net increase in aggre-
gate consumption or aggregate production benefits which the society realizes
from improved air quality represents a technological effect and a social
benefit. For example, as an individual becomes more productive (because
of improved health or enhanced psychological attitude) or as he derives
more satisfaction from a given income (i.e., through increased welfare or
income utility), social benefits for society increase accordingly.
Another concept employed in cost/benefit analysis is that of the so-
called "secondary effect" of a project.— As the term is generally used,
such effects represent the external pecuniary effects of the project.
They include the results of changes in demand for particular resource input;
used by the project and the accompanying changes in income of the resource
owners. The results of changes in the demand pattern for particular output:
as well as the accompanying changes in incomes of their sellers, as the
initial beneficiaries spend their added income and the initial cost-bearers
reduce their spending, are likewise considered to be secondary effects.
Such "re-spending" is essentially a byproduct or side-effect of a project
and does not reflect any increase in the economy's total productive capa-
bility, since such increases are already counted in the real benefits.
Secondary effects, reflect shifts in relative demand patterns which produce
increased income for some persons and decreased incomes for others.
Secondary benefits thus represent the values added by incurring
secondary costs in activities stemming from or induced by the project
(i.e., indirect contributions of public investment to aggregate consump-
tion). The principle sources of secondary benefits are:
4 The discussion here on secondary effects and intangible effects is based
on B. A. Weisbrod's, "Concepts of Costs and Benefits," in S. B. Chase,
Jr., ed., Problems in Public Expenditure Analysis, Brookings Institution,
Washington, D. C., pp. 257-262, 1968.
129
-------
o Departures from competition in the further processing of
goods and services produced by means of public project
outputs.
• Changes in consumption sufficient to produce changes in the
price of consumer goods.
• External economies associated with public projects.
• Private investment induced by public projects.
It is common in cost/benefit analyses to distinguish between costs
and benefits that are "tangible" and those that are "intangible." Tangible
effects can be measured and priced for decision-making purposes, intangi-
ble effects cannot. In other words, tangible effects include those for
which, at a particular point in time, data are available whereby the
effects may be assessed a value placed on them (in the form of shadow
prices). In this connection, Weisbrod comments as follows: "In short,
what is tangible or intangible, measurable or non-measurable, is less a
matter of what is abstractly possible than it is of what is pragmatically,
and at reasonable costs, feasible."1 He emphasizes the point that what is
intangible today because of data limitations may be tangible tomorrow as a
»
result of research efforts aimed at quantification of effects, citing the
following analogy: "In the Middle Ages and earlier it must surely have
been argued by some that one's feeling of warmth or cold was intangible,
unmeasurable, and so on. Fortunately, Gabriel Fahrenheit did not agree."2
The concept of intangible and tangible effects is of great importance
in air pollution control. Since most of the effects of a polluted atmos-
phere are now considered intangible, qualitative considerations will In-
fluence decisions concerning the development of a regional air resource
plan. For decision-making purposes, such intangible effects must be iden-
tified and ranked according to their importance. As planned research
efforts are implemented, more data will become available-and additional
air pollution effects may be quantified.
1
Ibid. pg. 261
2
Ibid. pg. 261
130
-------
The distinction between tangible and intangible effects has been
made. It should be noted that intangible effects can and do affect the
decision-making process. As research progresses, there should be a
trend toward more complete identification and evaluation of effects,
with a corresponding decline in the influence of intangible effects
upon policy decisions.
Having identified the relevant costs and benefits and some of the
essential terminology of cost/benefit analysis, additional aspects of
economic efficiency are now reviewed. This material should serve as a
guide for some of the analyses that are possible with the Cost/Benefit
Model.
The use of cost/benefit analysis to determine the economic efficiency
of alternative control strategies is illustrated in Figure A-A. The upper
graph shows one way of plotting pollution and control cost curves for a
hypothetical AQCR. These theoretical curves are based on the control costs
and pollution damage costs for five increasingly stringent emission control
strategies (S through S ). As the stringency of the control strategies
increases, there is a corresponding reduction in the regional pollution
concentration.
Costs of pollution damage and control are determined for each
strategy^ (e.g., CC, , and CP, * for strategy S ). Above the two. cost
curves is a "total cost to society" curve which is a summation of control
and damage costs. The marginal cost of control increases as control
efficiency increases, and the marginal cost of pollution increases as
pollution concentration increases, as shown in the lower, graph. The
minimum cost to society thus corresponds to the intersection of the control
cost and cost of pollution curves.
Control costs, and benefits are illustrated in Figure A-5. The
control cost curve in this illustration is identical to that in Figure A-4.
The benefits curve represents the differences, in pollution costs under
existing conditions (S ) and under various emission control strategies.
The benefit, B, for strategy S for example is the difference between
pollution costs under strategies SQ and S . The optimum welfare condi-
tion for society is represented by strategy S., where the absolute differ-
ence between benefits and costs reaches its maximum value. From the lower
131
-------
COST OF
CONTROL
N
O
u
TOTAL COST
TO SOCIETY
COST OF
'OLLUTION
DAMAGE
POLLUTION CONCENTRATION (yg/ra )
MARGINAL COST
OF CONTROL
z
o
M
jj
s
CJ
z
§
M
H
O
Ou.
O
u
MARGINAL COST
OF POLLUTION
DAMAGE
POLLUTION CONCENTRATION (yg/o )
Figure A-4. Cost of Control and Cost of Pollution
132
-------
CO
H
CO
8
1
H
SB
8
CO
H
CO
8
Ul
u
CO
BENEFITS
AVERAGE REGIONAL^FaiLOTION CONCENTRATION (wg/m )
e
60
H
CO
8
§
H
3
55
12
O
MARGINAL
COST OF
CON
. MARGINAL
'. BENEFITS
''*<£
AVERAGE REGIONAL POLLUTION CONCENTRATION (ug/m )
Figure A-5. Cost of Control and Benefits
i ">'
.L-j.
-------
graph it is evident that for strategy S., marginal benefits equal marginal
costs. This condition of maximum welfare, referred to in economics as
the Pareto optimum, exists when one more dollar spent on'improving the
welfare of one individual necessarily detracts from the welfare of another.
Thus under strategy S if one dollar more is spent on the control of
emissions, benefits valued at less than a dollar will be gained. On the
other hand, if one dollar less is spent on control, more than a dollar's
worth of benefits will be lost.
This concept is further illustrated in Figure A-6, where the
abscissa represents "tons of emissions -removed" (under various emission
if. *>>.
control strategies) rather than "regional /^flution concentration" (this
change reverses the location of the margi/&A&ost and marginal benefit
curves - see Appendix B for 'a discussionf&f a iterative "measures of
*
pollution" for plotting costs and benefits. AS in Figure A-5, the Pareto
optimility condition exists where welfare is maximized.
f & i •'V'••
As Figure A-6 indicates, the goal of th*x«p.r ^resource decision-maker
>" t 'i ^-
is to remove the Pareto-relevant damages. Nb^jlans will be included for
.<••> •
elimination of Pareto-irrelevant damages, -si^ce for these, the benefits
' . " '>
derived from pollution control will be less*r>:V<5 the costs of controlling
-V'iSjM
the pollutants. For maximum efficiency, ££-, £UT -^nportant that a pollution
•"? Bw» • . •-,.
control policy provide for removal of Parefco-t -evant damages only.
Benefits under the Pareto-optimura strategy are represented by quadrangle
AECB and the cost of pollution control, by \rii.gle BEC. The net benefit
) f $
to society is thus represented by triangle 4EB/"LAs shown in Figure A-7,
it is desirable to internalize the Pareto-) »*# ljt externalities (i.e.,
f V>>,' % ' •
by making the polluting sources pay the coft'Ai^ ^ost) without infringing
upon the Pareto-irrelevant externalities. \£Jrjt'her words, it is desirable
to control pollution at the source up to a pq%?t where the next dollar
fff
spent on pollution control is equal to the -Insulting incremental social
benefits obtained by the community.
The shaded area under the marginal control cost and marginal benefit
functions in Figure A-8 represents total air pollutant disposal cost to
society at the maximum welfare condition. This total cost may be reduced
13A u <*
£U---
)lf
-------
w
03
H
to
8
PARETO-OPTIMALITY
MC - MB
MARGINAL
.BENEFITS
IRRELEVAN
iSDAMAGES
MARGINAL
CONTROL
COSTS
REGIONAL TONS REMOVED
Figure A-6. Pareto-Relevant and Pareto-Irrelevant Externalities
135
-------
PARETO - IRRELEVANT
EXTERNALITIES
PARETO - RELEVANT
EXTERNALITIES
INTERNALIZES
Figure A-7. Internalization of the Cost of Pollution
136
-------
to
H
I-C
U.
W
CQ
Q
H
CO
8
§
M
O
MARGINAL
CONTROL
COST
MARGINAL
BENEFITS
TONS REMOVED
Figure A-8. Relevant Costs of Air Pollution Disposal
137
-------
once the maximum welfare condition has been obtained (see Figure A-9).
Through technological advances in air pollution control systems, society
will experience an effect that may be portrayed as a shift of the
marginal control cost curve to the right. Such advancement is a classical
case of a technological effect. Society benefits by a more efficient mode
of operatic^ that is, a net increase in productivity.
138
-------
CO
o
I/)
8'
B
A
a:
(MCC).
(MCC),
-MARGINAL CONTROL COST
F G
TONS REMOVED
Figure A-9.
Reduction of the Relevant Costs of Air
Pollutant Disposal
139
-------
APPENDIX B
PRACTICAL MEASURES FOR OBSERVATIONS OF COSTS AND BENEFITS
In the analysis of emission control strategies costs and benefits are
plotted on rectangular coordinates for purposes of clarity (see Appendix C
for illustrative plots of costs and benefits for alternative strategies).
Control costs and benefits are normally plotted against some measure of
pollution, with costs on the ordinate and the measure of pollution on the
abscissa, as in the sketch below.
COST($)
MEASURE OF POLLUTION(?)
The measures of pollution which are most meaningful for the analysis
must be identified. Some pollution measures which indicate the effective-
ness of control strategies are:
• Maximum concentration anywhere in the AQCR,
• Regional emission rate from point and area sources,
• Average concentration for all census tracts in the AQCR,
and
• Average concentration for the center city portion of the
AQCR.
Various other measures may also be used, but these four are adequate
as a beginning.
The "maximum concentration" in an AQCR is now used by APCO to deter-
mine the acceptability of an emission control strategy. Although this
measure is valuable as a means of ensuring that air quality is acceptable
at all points in an AQCR, it is not a good indicator of overall air quality,
Certain high-concentration points may remain unchanged, for example, while
overall regional air quality is improving. Maximum concentration is thus
an inadequate measure for purposes of cost/benefit analysis.
PRECEDING mi BLANK
-------
The "emission rate" from sources in a region is a measure of the
total pollutant contribution and indicates the degree of emissions control.
Emission rate is not as closely related to benefits as is a measure of
region-wide air quality, but it does represent the effectiveness of source
control. Typical emission rate data are shown in Figures B-l through B-4,
which plot tha costs and marginal control cost of strategies tested in the
NCIAQCR.
Average "regional pollution concentration" (ARPC) is an excellent
indicator for cost/benefit analyses purposes, since pollution concentra-
tion is the independent variable in damage functions. ARPC is the
arithmetic average of predicted pollutant concentrations for all census
tracts in an AQCR. Essentially, the measure is a weighted average rela-
tive to regional population. In other words, since the average census
tract contains approximately 4000 people, pollutant concentrations in
the area of greatest population density will be most heavily weighted.
"Average center city pollution concentration" represents a compromise
between the "point of maximum concentration" and measures "regionwide aver-
age." It is valuable as a measure of improvement in the zone of poorest
air quality.
In summary, various "measures of pollution" are available for use as
the abscissa in C/B presentations, and a comparative analysis of the advan-
tages of these measures would be highly desirable.
142
-------
14 -
X
10
o
" 4 H
o
a.
2 r
NOTE: TOTAL EMISSIONS = POINT AND
AREA SOURCE EMISSIONS
EXISTING CONDITIONS
50 100 150 200
TOTAL PARTICULATE EMISSION RATE (TONS/DAY)
*SEE TABLE B-l FOR DESCRIPTION OF PARTICULATE AND SULFUR DIOXIDE CONTROL STRATEGIES.
Figure B-l. Point Source Control Cost vs.. Total Regional Particulate Emission Rate for
NCIAQCR for Selected Strategies
-------
Table B-l.
SELECTED CONTROL STRATEGIES FOR THE NCIAQCR
Particulate Strategies
1. Existing Control Regulations Throughout the Region. This
strategy displays the air quality resulting from complete
compliance with existing control-regulations in the Region.
2. Maximum Control Technology. Under this strategy the best
available control device or measure (as defined in the Control
Cost Model) is applied to each pollution source. This
strategy may be neither economically nor technically.feasible
but does give a potential lower limit on pollutant emissions.
3. Existing Regulations in the District and Virginia - No
Emissions in Maryland. Area source emissions were eliminated
and point sources were substantially reduced by the applica-
tion of maximum control technology.
•
18. Proposed Particulate Control Strategy. District of Columbia
sources were controlled to 0.03 grains/scf for industrial'
process sources, 0.06 grains/scf fuel combustion and 0.20
grains/scf for incineration. Maryland and Virginia sources
were controlled to.the levels specified by their respective
implementation plans.
Sulfur Dioxide Strategies
11. Existing Regulations. Complete application of existing regu-
lations affecting sulfur oxide emissions throughout the
region.
12. Maximum Control Technology. The strategy requires the applica-
tion of the best available control technology to all sources;
in most cases, this requires fuel burning sources to switch
to natural gas.
15. Maximum of 0.7 Percent Sulfur Content Fuel in Region. This
gives a small reduction from the current 1.0 percent sulfur
restriction now in effect in most of the Region. (Major
exceptions are the Dickerson and Chalk Point power plants.)
19. Proposed Sulfur Oxide Control Strategy. A fuel sulfur content
limitation of 0.5% was imposed on District of Columbia sources.
Maryland and Virginia sources were controlled in accordance
with their implementation plans."
144
-------
I 500 -
z
o
^ 450 -
o
~ 400
350
1/1
o
S 300
ut
o
or
ra
o
t/i
250
200
5 150
on
100
50
Figure B-2.
50 100 150 200
TOTAL REGIONAL PARTICULATE EMISSION RATE (TONS/DAY)
Point Source Marginal Control Cost vs. Total Regional Particulate
Emission Rate for NCIAQCR for Selected Strategies
-------
110 -,
NOTE: TOTAL EMISSIONS = POINT AND
AREA SOURCE EMISSIONS
500
600
EXISTING
CONDITIONS
700
TOTAL SULFUR OXIDE EMISSION RATE (TONS/DAY)
*SEE TABLE B-l FOR DESCRIPTION OF PARTICULATE AND SULFUR DIOXIDE CONTROL STRATEGY.
Figure B-3. Point Source Control Costs Vs. Total Regional Sulfur Oxide Emission Rate
for NCIAQCR for Selected Strategies
-------
700 -
n
§600
o 500
o
400 -
300 -
o
0.
200 -
100 -
TOO
I
300
I
400
200 300 400 500 600
TOTAL REGIONAL SULFUR OXIDE EMISSION RATE (TONS/DAY)
700
Figure B-4. Point Source Marginal Control Cost vs. Total Regional Sulfur
Dioxide Emission Rate for NCIAQCR for Selected Strategies
-------
APPENDIX C
EFFICIENCY EVALUATIONS OF COSTS AND BENEFITS
To illustrate the type of analysis which will be employed in economic
efficiency evaluations, some sample calculations and plots were prepared.
This exercise is presented here as an aid to understanding the relation-
ships that will be-encountered and as a stimulus to further analysis. A
model region is used to illustrate efficiency evaluation procedures for
control costs and benefits.
EFFICIENCY EVALUATION EXERCISE
AIR
Given: QUALITY
CONTROL
RESIGN
PLANT A ~
PLANT B
(1) An air quality control region with two point sources, Plant "A"
and Plant "B"
(2) Control cost functions for a pollutant for each source
(3) Benefits for a pollutant for each source. It is assumed that
benefits have been determined by the use of a damage .function,
where:. ' ' • • . • •
• the function is linear (i.e., constant elasticity)
for all concentrations.of the pollutant, i.e.,
DAMAGE
COST
a + bx
POLLUTION CONCENTRATION
PRECEDING PAKE BUNK
-------
• the function is curvilinear, i.e.,
DAMAGE
COST
POLLUTION CONCENTRATION
and specific air quality conditions for the pollutant are given.
(4) Specific control strategies defined as follows: '
• Equi-Control Costs - all sources spend the 'same absolute
.amount to control.
• Equi-Marginal Contrdl Costs - all sources spend the same
absolute cost per ton removed to control.
• Equi-Tons Removed - all sources control the same absolute
quantity of pollutant.
• Equi-Benefit - all sources control to a level where the
benefits (on receptors) per source are identical.
• Equi-Marginal Benefit - all sources control to a level
where the benefits (on receptors) per ton removed are
identical for each source.
OBJECTIVES
(a) To examine the following relationships for each source:
• Control costs per ton removed
• Benefits per ton removed
• Marginal control costs per ton removed
• Marginal benefits per ton removed
• Benefit cost per ton removed
• (Marginal benefit/marginal cost) per ton removed
(b) To examine these same relationships for the air quality control
region for each control strategy specified.
150
-------
DISCUSSION
Figure C-l illustrates control cost functions and benefit functions
for the two autonomous plants (A and B). These functions have been plotted
against a "tons-removed" variable; an "efficiency" variable could be used
instead without changing the significance of the analysis. It may be noted
that the elasticity of the control cost function increases as a higher
. §
level of control is attained. This observation is consistent with actual
practice, where more money m^.sr.be spent.for each additional increment of
emission control. The elast .cit;- of the benefit function on the other hand
decreases as emission cont-. L .increases, a fact which indicates that as
ambient concentrations are aduced benefits increase at a declining rate.
Figure C-2 relates m^.ginal control costs and marginal benefits as
a function of the quantity. . : p9llutants removed. These functions illus-
trate the rate of change i^ -.ost for each incremental change of pollution
control. A point of Paret'.rCptiniality has been reached when one additional
f «, •
dollar spent in improving pbmeone's welfare detracts proportionately from
the welfare of another. At'this point marginal costs equal marginal bene-
fits. In Figure C-2 , the rvtelfare".optimum for each source is reached at
. *< ,'*•
the intersection of the marginal control cost curve and the marginal bene-
fit curve. This optimal position corresponds -to a level of just under 11
tons removed per day for Plant A and 5.5 tons for Plant B.
i*
The upper-graph in Figure G$3 shows the benefit/cost relationships
JJ^V*
as plotted against tons remo^S^while the lower-graph portrays marginal
.. benefits versus marginal costs^s ..p function of tons removed. As in Figure
C-2 , the point of Pareto-optimality is located at approximately 11 tons
removed for Plant A and 5.5 tons removed for Plant B. It should be noted
the lesser the slope of the marginal benefit versus marginal cost function,
the less significant it is for the source to be at the exact point of
Pareto-optimality. As the slope of the function approaches the horizontal,
the source will deviate less from the optimum as the controls slightly more
or slightly less. As the slope of the function approaches the vertical,
deviation from the optimum welfare position will be more significant as
more or less pollution is controlled.
Table C-l illustrates the results of cost-benefit calculations at one
level of control for alternative control strategies in an AQCR with cwo
151
-------
15-
10'
to
8
PLANT A
BENEFITS
15'
10
8
PLANT B
BENEFIT:
10
TONS REMOVED |,
15
10
TONS REMOVED
IS
CONTROL
COSTS
20
20
Figure C-l. Control Cost and Benefit Functions for Two Plants
152
-------
3.001
10
TONS REMOVED
MARGINAL
CONTROL
COST
PLANT B
2.00-
oo
O
O
1.001
MARGINAL
CONTROL
COSTS
Figure C-2.
10
TONS REMOVED
Marginal Control Cost and Marginal Benefit Functions
for Two Plants
153
-------
MB/MC
10
15
TONS REMOVED
20
Figure C-3..
Benefit/Cose and Marginal Benefit/Cost
Plots for Two Plants
154
-------
Table C-l
COST-BENEFIT STRATEGY EVALUATIONS EXAMPLES
Ul
STRAT.
Equi-
Control
Costs '
Equi-
Marginal
Control
Costs
Equi-
Tons
Removed
Equi- .
Benefits
Equi-
Marginal
Benefits
PLANT
A
B
TOTAL
A
B
TOTAL
A
B
TOTAL
A
B
TOTAL
. A
B
TOTAL
($)
CONTROL
COST
10.00
10.00
20.00
7.6
6.8
14.4
5.1
7.6
12.7
1.5
3.5
5.0
1.8
1.4
3.2
($/TON
MARGINAL
CONTROL COST
1.50
1.25
2.75
1.00
1.00
2.00
0.66
1.09
1.75
0.42
0.71
1.13
0.45
0.50
0.95
(TON)
REMOVED
17.5
13.7
31.2
15.5
11.0
26.5
12.00
12.00
24.00
5.0
6.5
11.5
6.0
3.3
9.3
$
BENEFITS
14.00
9.40
23.40
13.8
9.0
22.8
12.7
9.2
21.9
7.00
7.00
14.00
8.0
4.6
12.6
($/TON)
MARGINAL
BENEFITS
0.01
0.12
0.22
0.20
0.37
0.47
0.48
0.20
0.68
1.10
0.55
1.65
1.00
1.00
2.00
B/C
1.40
0.94
1.17
1.82
1.32
1.58
2.49
1.21
1.72
4.65
2.00
2.80
4.45
3.28
3.94
MB
MC
0.07
0.10
0.08
0.20
0.27
0.24
0.73
0.18
0.30
2.62
0.72
1.46
0.45
0.50
0.48
(MB)
(MC)
(MC)
(MC),
-------
sources. The cost curves in Figure .C-l have been used in calculating
these results. As may be seen, these control efficiencies vary from one
.strategy to another, and the relative efficiencies of the strategies cannot
be compared on the basis of these examples.
The optimum level of control is illustrated in Figure C-4 for one
of the six strategies evaluated (the "equi-tons removed" strategy). The
optimum reduction in emissions for the AQCR under this strategy is 13 tons
(each plant must thus remove 6-1/2 tons of emissions). It should be noted
that the optimum situation occurs where:
• marginal costs equal marginal benefits, or, expressed in
another way,
marginal benefits/marginal cdgts equal unity.
156
-------
tO
3
3 -
to
o^
<_) CO
1 -
3 '
to
t—
•-i tO
U- h-
UJ tO
z: O
UJ O
CO
* i r -
*-«/>!. 5
U. tO
UJ O
Z O
REGIONAL TONS REMOVED
MARGINAL
CONTROL
COSTS
MARGINAL BENEFITS
20 30 40
REGIONAL TONS REMOVED
REGIONAL TONS REMOVED
10
20 30
REGIONAL TONS REMOVED
40
00
0)
4J
(0
10
T)
SI
I
-------
APPENDIX D
CONTROL SUPPLIER FUNCTIONS
Regional Air Pollution Analysis should include a provision for
examination of the additional economic activity experienced by suppliers
of equipment, services, and utilities to firms which are required to
control pollutant emissions. The need for a control supplier function
became apparent in connection with the use of regional econometric
models to evaluate the impact of air pollution control measures on the
regional economy. Economic impact is over-predicted for a region when
the activity needed to provide control devices and services is not taken
into consideration.
Some of the investment in control systems will come from suppliers
in the region. Services obtained from within a region may' include engi-
neering services for system design and installation, labor for construction
of foundations, metal .work, etc. On the other hand, much of the hardware
(pumps, drives, etc.) will be imported from other locations, in which case
the firms that inventory and distribute the equipment within the region
will benefit.
Most of the annual cost of controlling emissions will be spent on
services from the regional economy, These will include water, electricity,
labor, hauling, and other services required to operate emission control
systems and dispose of the collected materials.
Economic research is needed to determine the sectors which will
benefit from the demand for emission control equipment: and services in and
outside the region. The following procedure might be used in identifying
the value added for a region:
Step 1. Identify the categories of material and labor
inputs to emission control systems according
to:
• Pollutant
• Control system type
• Process-type
. PRECEDING PAGE BLANK
-------
.Step 2. Identify the categories of emission control systems within
a region, which will Include:
• Turn-key
• Self-made
• Locally contracted, etc.
Estimate the categories for the systems described in Step 1 on the
basis of current Installations. Also, project future installations.
Step 3. Categorize the elements of emission control systems.
such as:
• .Process takeoff
• Gas preconditioner
• Emission removal
• Gas postconditioner
• Gas moving
• Stack
• Emission disposal, etc.
Step A. identify for each system elements,-fdentified in Step 3 the
investment categories, suotr as:
• Direct labor for Installation
• Hardware
• Sheet metal
• Concrete, etc.
Step 5. Identify for each system element^ listed in Step 3 the
annual cost categories such as:
• Water
• Electricity
• Disposal charge
• Maintenance labor
•
• Repair labor
• Parts, etc.
Step 6. Determine whether the value added for control system invest-
ment and annual costs is based inside or outside the AQCR.
Step 7. Prepare a matrix such as that shown in Figure D-l , which is
similar to the control device matrix in the IPP program,1
Air Quality Implementation Planning Programming Vol. I, Operations
Manual, TRW Systems Group, McLean, Virginia, pp. 5-14 through 5-16,
1971.
160
-------
REGION:
SOURCE
CATEGORY
SIC.
2040
SIC
2819
nnn 1
<
i /
SIC
2800
CONTROL
DEVICE
NO.
LOCATION
j**
A**
I
A
• Lfci
A
«
I
A
"VALUE ADDED" MIX
01
IN***
'•'
*
OUT
• i» it
IN
72*
OUT
28*
• / iii
IN
•
.OUT
45
IN
OUT
1
'
*REPORTED IN PERCENT
**T = INVESTMENT
A = ANNUAL COST
***IN = "VALUE ADDED" CONTRIBUTION FROM INSIDE'THE AQCR
OUT = "VALUE ADDED" CONTRIBUTION OUTSIDE THE AQCR
Figure D-l. Control Supplier Input to Cost/Benefit Model
161
-------
Control supply functions for .9our.ce .categories and control system
types may be input to the C/R Model, so that^very ttme a point source
> S* •' . (.i J(i'..,.
is assigned a specific conjCffjJ^ defcice, the ,'VBlue added mix for the AQCR
(a ratio of.-internal to- ex
1 value ad
for investment and annual
costs) can be computed 'and appl'ied in a econometric modeling.
•V *"• ^^
5 6 J
CO ^
3
-
162
------- |