Suzi Tart, OECD Environment Directorate
The current Volkswagen diesel emissions scandal highlights the difficult reality of making the transition to a low-carbon economy. It also highlights the growing need for governments to make smart policies, based on actual costs.
One might think air pollution is not a big problem because in most cases we can’t see or smell it until it reaches a critical level. Data shows that we should be concerned. Health costs from outdoor air pollution in OECD countries in 2010 amounted to $1.7 trillion. Of that amount, road transport accounted for nearly $1 trillion. Outdoor air pollution not only takes away from the quality of one’s life, it also kills. The number of premature deaths due to outdoor air pollution is estimated to be around 3.3 million each year. The growth in vehicles being added to the streets in China and India mean that this figure is on an upward trend worldwide, although it has been declining in many OECD countries due to emissions controls on vehicles.
Car companies such as VW that are cheating the system therefore risk derailing the modest progress that has been made. Tighter emissions standards for vehicles in OECD countries were a step in the right direction; yet as we have learned, one step is not enough to get us to our destination. Policymakers had no doubt hoped to encourage innovation and investment in clean fuels with such measures. Rather than losing hope however, governments should maintain their strong regulatory regimes and emissions controls. They can also help unlock the potential market power for clean fuels by supporting more research and development in this field, as well as implementing wise tax structures.
Diesel is an example of an unwise tax. Diesel-fuelled engines are considered to be more damaging to both the environment and human health than gasoline-fuelled ones. Yet diesel has a lower tax rate than gasoline does in most OECD countries. Many people fear that diesel-fuelled cars outside of the US will also be found to have “defeat devices” installed on them. If that is indeed the case, at least some of the damage inflicted on our environment and health presumably could have been avoided. Had tax structures properly reflected the degree of environmental and social costs, the higher tax on diesel would have yielded a lower demand for diesel-fuelled cars, hence fewer consumers would be driving them today.
While the world waits to see just how many cars are cheating the system, citizens continue to suffocate and Earth continues to overheat. Transitioning to a low-carbon economy will not be easy, but with the right mix of policies, it can be achieved.
Avoiding death by diesel, Simon Upton, OECD Insights
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)