Today’s post, marking World Environment Day, is from OECD Secretary-General Angel Gurría
Air pollution has become the biggest environmental cause of premature death, overtaking poor sanitation and a lack of clean drinking water. According to the WHO, more than 3.5 million people are being killed each year by the air that they breathe in urban areas, and the number is rising. Air pollution now kills twice as many people as HIV/AIDS. That’s the stark message from the latest OECD report, The Cost of Air Pollution: Health Impacts of Road Transport.
There is an economic price to pay too. One of the tools used to quantify the costs associated with air pollution is the Value of Statistical Life (VSL), which estimates the value people attach to avoiding premature death from pollution. VSL can thus illustrate relative benefits of different policy options in terms of their effects on people’s wellbeing. On the basis of this methodology, the report shows that the cost of deaths and illness from air pollution increased by about 10% between 2005 and 2010, reaching USD 1.7 trillion in OECD countries alone.
To put such a huge number into perspective, let’s take the case of Germany, where our report was launched. Here, the economic costs of deaths from air pollution were about USD 150 billion in 2010. That’s the equivalent of half of Germany’s general government health expenditure.
Two of the most prevalent and dangerous forms of air pollution are particulates and ozone. Fine particulate matter (PM) can enter the lungs and help to spread harmful substances through the body. Nitrogen oxides (NOx) react with sunlight to produce ozone and contribute to the formation of particulates. These air pollutants may have various health impacts including asthma, lung cancer, respiratory problems and heart disease. Older people are especially vulnerable, so population ageing increases the number of people at risk.
Road transport is responsible for roughly half the air pollution in OECD countries, and up to 90% of that is from diesels. Almost all OECD countries tax diesel less than gasoline, except the UK, US and Switzerland. There is no environmental justification for this. Diesel is responsible for more local air pollutants such as NOx and PM than gasoline, although volatile organic compound (VOC) emissions from gasoline-driven vehicles can also contribute to smog. Diesel also causes higher CO2 emissions per litre of fuel than gasoline.
True, you can drive farther on a litre of diesel than a litre of gasoline, but the benefits of the greater fuel efficiency are entirely captured by the private driver. And to the extent that higher fuel efficiency makes driving cheaper, there is an incentive to drive farther, as the evidence tends to show.
In many countries, the majority of new cars coming onto the market are diesels – which, in spite of gradually stricter vehicle emission standards, contribute to aggravate local air pollution. The data provided by car manufacturers tends to underestimate real-world emissions, especially diesel vehicles. There are important differences between the test-cycle emissions of air pollutants that vehicle emission standards regulate and real-world emissions of the same substances from the vehicles in question.
In China, India and many other countries, a shift to diesel is compounding an upward trend in emissions as vehicle growth outpaces the adoption of tighter emission limits. Some of the worst air pollution is taking place in fast-growing cities like Beijing and New Delhi. China has one fifth of the world’s population but accounts for nearly two-fifths of the global death toll linked to outdoor air pollution. India has far fewer air pollution-related mortalities, but deaths from ambient air pollution are rising quickly – around 12% from 2005 to 2010.
What can be done? The OECD has used the VSL methodology to estimate what people in different countries would be willing to pay to avoid deaths caused by air pollution. Governments can use this information to determine the stringency of the measures that should be applied to reduce pollution. The new estimates indicate that people are willing to pay more for clean air than previously thought.
Currently, drivers pay to enjoy personal mobility, but not for the damage they do to other peoples’ health. People want governments to do something about this because they are powerless to solve the problem by acting individually. Governments on the other hand know that if they take action, they will impose costs on car manufacturers and drivers. But if they do not, the “cost” of illness and premature death falls on the general population. The VSL allows governments to weigh up both sets of costs.
Estimates of VSL vary among countries: generally the richer the country, the more people will be willing to pay to avoid death, simply because they have more disposable income they can use to reduce their risk of death from air pollution. As a result, the VSL in countries like China or India is lower than in OECD countries. This does not mean that life is worth less in those countries, but rather that people are not able to pay more to reduce the risk of death.
The benefits of well-designed measures to reduce air emissions should easily outweigh the costs. One very obvious measure would be to remove any incentives that favour the purchase of diesel over gasoline cars. A further tightening of vehicle emission standards should also be considered, combined with measures that make test-cycle emissions more similar to emissions under normal use. Measures should also be identified to help mitigate the impact of air pollution on vulnerable groups, such as the young and the old.
Our report provides us all with a “wake-up call”. We have important evidence of the scale of the problem. We now need to work together to tackle it. We literally need to design better policies for better, and longer, healthier lives.
Managing our natural resources: can we do more with less? (OECD Insights blog)
If I proposed the building of a large industrial enterprise that would lead to the early death of around 40,000 people, I strongly doubt that the idea would survive the evening news. Yet air pollution from diesel-fuelled road transport kills an estimated 40,000 people a year in France – that’s roughly ten times the number of people who die in road accidents. Unlike a large, easy-to-target industrial plant, the culprits are millions of mobile combustion sites that whiz around carrying the very people who would oppose my large plant.
At global, regional and national levels, air pollution poses a major challenge to public health. The OECD’s Environmental Outlook to 2050 projects that between now and 2050, the number of people who die globally from exposure to particulates will more than double from 1.5 million to 3.5 million. Not all of that can be attributed to road transport emissions. But it is a very significant contributor and is getting worse in emerging economies too as rising affluence brings with it increased personal mobility.
Increased mortality also carries a heavy economic cost. That’s obvious just from anecdotes. It cannot be good for Beijing’s economy that significant numbers of highly skilled people want to leave or not come there in the first place because of the risk air pollution poses, particularly to their children who are growing up in a soup of particulate and noxious gases. But these economic costs are quantifiable and they are serious in most developed economies.
One of the tools used to quantify costs is the Valuation of Statistical Life (VSL) which puts a cash value on a human life. Many people don’t like politicians quantifying life or death trade-offs in monetary terms. However, not making such judgments doesn’t avoid the trade-offs – it just hides them from view. An OECD meta-analysis of VSL estimates suggests a figure of €3.5 million per statistical life in the EU27 for example. This is higher than the €1 or €2 million used by the EU Commission in analyses of policies to limit air pollution, and implies that some policies excluded by the EU may in fact be cost-effective.
How could policy interventions be improved so as to reduce air pollution from road transport and improve human health?
First, apply the policy instruments as close as possible to the problem you are trying to tackle. For CO2 emissions, the policy instrument of choice is a tax related to the carbon content of the fuel since CO2 emissions are directly linked with that carbon content. For NOx and other exhaust pipe pollutants, the link with the amount of fuel used is not so direct. The way the vehicle is driven and the type of engine technology is determinant. Similarly, noise and congestion are not directly linked to fuel-use. For all these social costs, the ideal policy instrument is road user charges that vary with the place and time of driving, and with the environmental characteristics of the vehicles.
For local air pollutants, any charging or taxing regime should use real world emissions measures, not artificially optimistic test scenarios. There is a large and widening gap between the emissions standards that countries are imposing and emissions under normal driving conditions. There may have been no real improvement in NOx emissions from diesel vehicles in European countries since the mid-1990s and while there has been some reduction in particulates emissions, there has been an increase in the amount of NO2 from diesel vehicles.
Almost all OECD countries apply much lower tax rates on diesel fuel than on petrol. There is no conceivable environmental justification for this. Diesel is responsible for more local air pollutants such as NOx and PM than gasoline – although volatile organic compound (VOC) emissions from petrol-driven vehicles also can contribute to smog problems in some places. On the CO2 score, diesel is also more polluting, causing higher emissions per litre fuel than petrol. The fact that you can drive further on a litre of diesel than a litre of gasoline means the benefits of the greater fuel efficiency are entirely captured by the private driver. And to the extent that high fuel efficiency makes driving cheaper, there is an incentive to drive further – and there is evidence that this tends to be the case with the result that CO2 emissions are not reduced.
An increasing number of cities apply congestion charges, but nationwide road-charging systems are only used in Switzerland, and only for heavy goods vehicles. Some countries have motorway charging systems for heavy goods vehicles that include environmental components, and France and Italy for instance have infrastructure funding systems for all vehicles on their motorways. Given that coverage is partial, traffic can simply divert to non-charged routes, thus redistributing the environmental load.
If the current patchwork quilt of measures is far from ideal, how in a pragmatic way might it be improved? If a road pricing system is deemed unfeasible for the present, the best approach would be to maintain the current system of fuel taxes but announce the gradual phase-in of a significant increase in tax rates on diesel fuel. After, say, 7-10 years, there would be a significantly higher tax on diesel than on petrol. Such a timeframe would give both car owners and manufacturers time for the stock of vehicles to turn over to reflect the new pollution priorities.
In principle this could meet the bulk of the pollution reduction objectives that worry people. If taxes on motor vehicles were maintained – say for fiscal reasons – then it would make sense to take account of local air pollutants in the calculation of tax rates, as Israel has done.
Finally, any package of measures should involve a revision of emission standards to better reflect real-world driving.
Simon Upton was one of the key speakers at the EU’s Green Week conference held in Brussels on 4-7 June