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The Cost Of Polluted Air Could Run To Trillions Of Dollars

The EPA calculates the value of the medical procedures and loss of life that can come from breathing pollution. The conclusion: clean air is an incredible investment in the economy.

If someone offered you an investment that would pay out $25 for every $1 you paid you would probably take it.

It turns out that investing in clean air generates exactly those returns in health benefits to the American public. The rules that keep our air safe to breathe raked in annual benefits of $1.3 trillion compared to costs of only $53 billion in 2010. Things like avoided doctors’ visits, increased property values, and pollution-related deaths postponed add up to major money in the pockets of families around the country.

At a time when the Clean Air Act is under attack in Congress, these figures make you wonder what legislators mean when they say the rules are too expensive. Threats to gut the government’s ability to implement the law come from anti-regulatory interests that complain of compliance costs but make no mention of the price pollution imposes on the public.

EPA recently released a study evaluating the costs and benefits of amendments to the Clean Air Act between 1990 and 2020. The report scours the gritty details of how much pollution is reduced and what that means for human health and the economy. No surprise: the cleaner our air, the more economic benefits we get.

The majority of benefits come from reductions in mortality, or early deaths, quantified using what’s known as the Value of a Statistical Life (VSL). The VSL measures how much people are willing to pay for small reductions in the risk of mortality. It is typically estimated by looking at how much you have to pay someone to take a more dangerous job. For example, one study found that after carefully controlling for occupational differences, the average employee would require an extra $12,200 (in 2006 dollars) a year in wages to take a job with a 0.2% higher chance of an on the workplace fatality. That works out to a value of a statistical life of $6 million.

To calculate the benefits of clean air regulations, the EPA uses a value of $7.6 million for the VSL per early death avoided. The agency estimates that the amendments to the Clean Air Act will prevent 230,000 deaths a year by 2020, for a benefit of $1.7 trillion–nearly 80% of the total projected benefits of the rules for that year.

In some cases EPA uses direct measures of the costs of health care to monetize the benefits of reduced exposure to air pollution. When valuing nonfatal heart attacks, EPA averages the value of lost earnings for  patients aged 25 to 45, 45 to 54, and the estimated costs of treating the heart attack. It works out that the estimated benefits of avoiding pulmonary disease is about $84,121 for young employees and $166,222 for those in their earnings prime.

Valuing lost work and school days are somewhat harder to monetize, but EPA does it in the most rigorous way possible. Using census data, they take annual median income estimates and divide by the number of work days in the year. This produces a value of $149 per lost work day. Apply that to every instance employees have to stay home to see a doctor for bronchitis or keep a child home school for an asthma flare up and the dollars start to accumulate.

The Clean Air Act Amendments help reduce the costs of treating asthma and other symptoms of pollution exposure. Without these environmental regulations the power plants, manufacturing facilities, and cars would produce more pollution. Emitters are largely off the hook for paying for these damages, so the costs would have to be borne by the patients, employers, and families of people affected by this pollution. If the Clean Air Act Amendments are rolled back, this is exactly what we should expect to happen.

The EPA acknowledges that there are many costs of pollution that are too difficult to monetize. Things like the effect of pollution on machinery prove too difficult to assign a dollar value. But that doesn’t mean they don’t have one, it just means that overall numbers reported in their benefits estimates are floors–only the beginning of what Americans gain from cleaner air.

What the EPA is able to value, it does in the most rigorous, academically defensible manner. The results show, in dollars and cents, that the Clean Air Amendments are a good investment.

[Image: Flickr user akeg]

About the author

J. Scott Holladay is an economics fellow at Policy Integrity. He has studied the economics of government policy for the past eight years.