Abstract
Air pollution has huge economic consequences for society, including reduced work hours, increased healthcare costs, and lost household income. Quantifying the environmental and health costs of air pollution is conducive to improve the quality and efficiency of environmental regulations and understanding the real costs of economic development. This chapter provides an overview of all the costs associated with air pollution, the pros and cons of the traditional and new methods of air pollution cost accounting, and valuable insights into how future air pollution-related cost accounting should be. Another objective of this chapter is to carry out the economic valuation of air pollution. For this reason, environmental economic valuation and valuation methods are considered within the theoretical framework. It is proposed to carry out a public policy strategy to internalize the costs of pollution.
TopIntroduction
Air pollution is, in the words of the World Health Organization (WHO), “the world’s largest single environmental health risk”. It is a major risk factor in several diseases leading to disabilities and deaths, including cancer, lower respiratory infections, and cardiovascular and cerebrovascular diseases – in short, heart disease and strokes – with the two last-named accounting for the greater share of the deaths attributable to air pollution (Lelieveld et al., 2020). Air pollution is especially severe in some of the world’s fastest-growing urban regions, where greater economic activity is contributing to higher levels of pollution and to greater exposure. Environmental economists have performed numerous studies to quantify the impacts of air pollution on health and monetize these as social costs. In theory, air pollution can affect economic production through four channels (Dechezleprêtre et al., 2019):
- 1.
Affecting the size of the workforce (through deaths and migration);
- 2.
Reducing the number of hours worked per worker, if they are sick and cannot work (or have to take care of a sick family member);
- 3.
Reducing the productivity of workers, and;
- 4.
By affecting the quality of natural capital, which is an input to production, particularly in the agricultural sector.
This simple conceptual framework illustrates the mechanisms through which pollution can affect economic production. It is used to show how the impacts of pollution on total economic output can be measured. A synthetic review of the literature on these four channels previously identified is provided below.
Key Terms in this Chapter
Monetize: Process of turning a non-revenue-generating item into cash.
Externality: Cost or benefit caused by a producer that is not financially incurred or received by that producer.
PM2.5: Particulate matter less than 2.5 microns in diameter.
Public Goods: That good which belongs to or is provided by the State at any level through all those organizations that are part of the public sector.
Hedonic Pricing: Model that identifies price factors according to the premise that price is determined both by internal characteristics of the good being sold and external factors affecting it.
Gross Domestic Product (GDP): Total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
Value of Statistical Life (VSL): Marginal rate of substitution between income (or wealth) and mortality risk.