Pollution: costs of inaction

When it comes to air and water pollution, the health costs of policy inaction can be considerable.

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Did you know that over three quarters of a million people die prematurely around the world every year because of outdoor air pollution? Many of these deaths and their related costs may be avoided with appropriate environmental policies.

In fact, improving environmental conditions upstream to prevent environment-related health problems from developing can be far more effective than trying to treat health problems when they arise further downstream. That means significant cost savings for healthcare as well.

Polluted air, water and soil can cause acute illnesses, such as respiratory and cardiovascular disease, or cancers and neuro-developmental and hormonal disorders, and can also lead to death.

Although air and water pollutants are generally highly regulated, OECD countries are still significantly affected by these environmental health risks. Three quarters (75.9%) of all deaths attributable to diarrhoeal disease in OECD countries are reported to have occurred in Mexico and Turkey, for instance. Health impacts from bacterial water pollution are also a particular concern for developing countries. Indeed, inadequate water supply and sanitation may be responsible for as many as 1.7 million deaths per year, of which 90% are children under 5 years old.

Exposure to fine suspended particles in the air, or PM10, caused approximately 960,000 premature deaths worldwide in 2000, with the overwhelming majority being from cardiopulmonary diseases. Without new policies to tackle air pollution, by 2030 total premature deaths are projected to reach 3.1 million annually, while those associated with lung cancer would be multiplied by four, with developing countries being more affected than OECD countries (see OECD Environmental Outlook to 2030, forthcoming, 2008).

It is not surprising that health impacts in terms of illness and mortality represent such a large proportion of the total estimated costs of air and water pollution–often in excess of 90% of those costs, recent studies show (see table).

A 2007 study by Nicolas Muller and Robert Mendelsohn estimated the total damage costs associated with emissions of some air pollutants (particulate matter, nitrogen oxides, ammonia, sulphur dioxide, volatile organic compounds) in the US at between US$71 billion and $277 billion per year (0.7-2.8% of GDP). Premature deaths associated with these air pollutants correspond to 71% of global annual damages. In the case of China, the estimated health costs of air pollution are even higher, representing about 3.8% of that country’s GDP, says the World Bank.

Many of these costs are reflected directly in market prices and national accounts. For instance, household expenditures on medicines and preventive behaviour, such as buying bottled water or air purifiers, tend to rise as pollution increases. Some costs also show up in public finances, in hospital costs, primary care expenditures and so on. Moreover, pollution can affect the economy through losses in productivity, e.g. by preventing adults from working or children from going to school. Also, importantly, there are “intangible” aspects of morbidity and mortality which should not be neglected in assessing the health costs of inaction with respect to air and water pollution. Pain and suffering should be factored in, for instance; otherwise the true costs of inaction would be greatly underestimated, particularly for serious health impacts such as cancer.

Reviews of the literature on the efficiency of different policy interventions to reduce air and water pollution suggest that policies which improve air and water quality are often cost-efficient: the benefits outweigh the costs. When environmental benefits are included, the efficiency of policies targeting air and water pollution may be even larger. In short, the benefits accrue not just to human health, but also to the economy. RJC

References

Muller, Nicolas. Z., and Robert Mendelsohn (2007), “Measuring the Damages of Air Pollution in the United States”, Journal of Environmental Economics and Management, Vol. 54, July.

World Bank (2007), Costs of Pollution in China: Economic Estimates of Physical Damages, see http://go.worldbank.org/FFCJVBTP40

Scapecchi, Pascale (2007), “The Health Costs of Inaction with Respect to Air Pollution”, background report for Costs of Policy Inaction, forthcoming, 2008, OECD.

Gagnon, Nicolas (2007), “Unsafe Water, Sanitation and Hygiene: Associated Health Impacts and the Costs and Benefits of Policy Interventions at the Global Level” , background report for Costs of Policy Inaction, forthcoming, 2008, OECD.

The OECD reports can be downloaded at: www.oecd.org/env/costofinaction

For more on the OECD’s work on the costs of policy inaction with respect to key environmental challenges, please contact Nick.Johnstone@oecd.org

©OECD Observer No. 263, October 2007



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