# Presentation: 110465

## The Benefits and Costs of the Clean Air Act 1990 to 2010: Ecological Benefits Valuation Approach

*Jim DeMocker*
*EPA Office of Air and Radiation*
*April 14, 2004*

## Presentation Overview

- § 812 Prospective I assessment of ecological effects
- Requirements & goals
- Three step approach
- Results: esp. two monetized endpoints
- Uncertainty
- Implications for future analyses
- Upcoming § 812 Prospective II
- Analytical plan for ecological assessment: case study
- Council response

## CAA Section 812 Statutory Language

- “ ... provide a report to the Congress on the incremental human health and environmental benefits, and incremental costs beyond current clean air requirements of the new control strategies and technologies required by this Act. The report shall include, for such strategies and technologies, an analysis of the actual emissions reductions beyond existing practice, the effects on human life, human health and the environment (including both positive impacts and those that may be detrimental to jobs and communities resulting from loss of employers and employment, etc.), the energy security impacts, and the effect on United States products and industrial competitiveness in national and international markets.”

## Quantified Ecological Effects vs Mortality 2010 CAAA90 Benefits

## Goals of the §812 Ecological Assessment

- Provide a broad overall characterization of the range of effects of air pollutants on ecosystem structure, function, and health
- Extend existing data to estimate the magnitude of economic benefits from the 1990 Clean Air Act Amendments (CAAA)
- Apply and expand the growing body of information available to assess the impacts of air pollutants on ecosystems

## Overview of 3-Step Approach

- Identify and characterize ecological effects from air pollution
- Develop and implement selection criteria for more in-depth assessment and quantification of ecological impacts
- Conduct quantitative and qualitative analyses to characterize a portion of the benefits of the 1990 Clean Air Act Amendments

## 1.  Identifying Ecological Effects

- Conduct comprehensive literature review of both the ecological and economic literature to identify an exhaustive list of Clean Air Act-related pollutant-ecosystem interactions
- For the identified pollutant-ecosystem interactions, organize in terms of major pollutant class and level of biological organization

## Identifying Ecological Effects con’t

## 2. Selecting Endpoints for Qualitative and Quantitative Evaluation

- Evaluate list of effects to identify endpoints with defensible link between changes in air emissions and ecological service flow
- Criterion 1 = identifiable service flow: materials, life support, recreation, waste treatment
- Criterion 2 = defensible link to CAAA-relevant air emissions
- Identify available economic models to value these changes
- Criterion 1 = ecological services with human economic value
- Criterion 2 = available economic model for service flow
- Quantitative if data and methods available for full chain:
- Emissions -> trans & dep -> exposure -> dose-response -> value

## Summary of Identified Ecological Impacts

## 3. Ecological Benefits Assessment

- The quantitative analysis followed basic principles of economics - an observable human response was needed to quantify
- Limited by available data and methods to:
- service flows that are sources of material inputs
- service flows associated with natural amenities that attract recreation

## Description of Quantitative Endpoints

## Two Examples of Analyses of Quantitative Endpoints

- Nitrogen deposition impacts on estuarine systems
- Ultimately, Council did not endorse this quantification of benefits for inclusion in the primary benefits estimate
- Reductions in commercial timber growth from ozone exposure
- Council did endorse this quantified endpoint for inclusion in the primary benefits estimate

## Example 1: Nitrogen Deposition Impacts on Estuarine Systems

- FIRST ALTERNATIVE:
- Derive dose-response relationships and valuation strategies for each of the key service flows affected (e.g., recreational fishing)
- LIMITATIONS AND CAVEATS:
- Complicated by dynamic nature of systems (i.e., non-linear “threshold” responses to nutrient loading) and relative lack of comprehensive data

## Nitrogen Deposition Impacts cont’d

- SECOND ALTERNATIVE (ultimately selected):
- Apply a displaced cost approach to valuation (i.e., quantify reduced expenditures on N loading control programs that would no longer be necessary due to the implementation of the CAAA)
- METHODOLOGY:

- RADM

**Models NOx flux in target estuaries**

**GIS model of **
**N “pass-through”in estuaries**

- GIS

- NOx
- LOADINGS

- $
- AVOIDED
- COSTS

**Output is ecological stress indication (i.e., N loadings by estuary)**

**Estimate marginal costs of alternative abatement actions for each of the estuaries**

## Nitrogen Deposition Impacts cont’d

- LIMITATIONS AND CAVEATS:
- This method requires that enforceable nitrogen reduction goals be identified for each estuary (information was available for three: Chesapeake Bay, Long Island Sound, and Tampa Bay)
- Nutrient loading control programs may be required for multiple reasons (including N reduction) and therefore it is possible that these costs may not be avoided in the presence of the CAAA

## Nitrogen Deposition Impacts cont’d

- Results of displaced cost method were omitted from the primary benefits estimation because of
- the uncertainties in the methodology
- Council concerns about appropriateness of avoided cost
- Results of this analysis were presented, but only used for sensitivity analysis

## Example 2: Reduced Timber Growth due to Ozone Exposure

- APPROACH:
- Calculate the cumulative value of annual benefits based on annual differences in consumer and producer surplus from commercial timber harvest under the Post-CAAA and Pre-CAAA ozone scenarios
- LIMITATIONS AND CAVEATS:
- Increases in timber growth rates do not substantially affect timber harvest volume in the short run; increased timber yield in 2010 therefore reflects increased growth rates over the previous decade

## Commercial Timber Impacts cont’d

- METHODOLOGY:

- PnET II

**Net Photosynthesis and Evapo-Transpiration model II: provides estimates of timber stand responses to ozone exposure according to a number of scenarios**

**Timber Assessment Market Model: Applies Aggregate Timber Land Assessment System (ATLAS) to generate estimate of forest inventories by region, and estimates future harvests and market responses**

- TAMM

**OUTPUT: Discounted stream of annual differences in consumer and producer surplus from 1990 to 2010 (5% discount rate) = $1.9 billion **

- $

## Other Ecological Impacts Considered for Quantification

- Accumulation of toxics in freshwater fisheries associated with airborne toxics deposition
- Limited by lack of toxics deposition and exposure data
- Aesthetic degradation of forests associated with ozone and airborne toxics exposure
- Planned a benefits transfer of contingent valuation studies of individual WTP to avoid foliar damage
- Link between aesthetic degradation and specific air quality scenarios was uncertain

## § 812 Ecological Benefits Uncertainty

- § 812 Ecological Benefits Uncertainty

## Implications for Future Prospective

- Perspective of 812 Project Team
- Research aimed at credible estimates of economic value of avoided ecological damage, particularly characterizing subtle and long-term effects of air pollution on ecosystem structure and function
- Perspective of 812 Council  [review of 2001 Analytical Blueprint]
- Some members support continued use of established methods of neoclassical valuation; noting 812 studies will continue to underestimate ecological benefits until we have data on environmental effects of marginal changes in air pollution
- Other members assert valuing the piecemeal marginal social benefits of certain ecosystem services is inadequate to achieve the growth of knowledge that is necessary for policy-making; prefer a more comprehensive benefits measure be applied, including consideration of applying placeholder values

## Planned Improvements for Second Prospective Analysis

- Update literature review:
- Thorough qualitative assessment of the impacts of relevant air pollutants
- Both non-market and marketable service flows
- Example: OAR/CAMD-sponsored research on non-use values of avoided acidification
- Track the evolution of ecological valuation literature and provide a basis for advising the agency on research needs in general
- Evaluate whether the literature provides a basis for estimating marginal ecosystem service benefits relevant to the context of the 812 analysis

## Planned Improvements cont’d

- Illustrative Case Study
- Quantitative approach in Prospective I will be supplemented with illustrative case study
- demonstrate the potential magnitude of ecological benefits for a particular, well-understood ecosystem
- describing the type and level of data necessary to carry an ecological impact assessment through to economic valuation
- Current plan = Nitrogen deposition in a coastal estuary
- Chesapeake Bay, MD
- Or –
- Waquoit Bay, MA

## Planned Improvements cont’d

- New Elements Under Consideration
- Section reviewing conceptual literature linking ecological service flows and overall ecological health with economic measures
- Example: household welfare and economic productivity
- Goal is to reinforce the multiple linkages between ecology and economics despite deficiencies in the data and methods necessary to quantify these relationships.
- Incorporate estimates of ecological benefits in Computable General Equilibrium analyses as dynamic factor in household choices and benefit to natural resource based economic sectors
- Recreation, timber, agriculture

## SAB Council’s Response to 2003 Analytical Plan*

- “Ecological effects to be valued must be limited to those effects for which there is a defensible, rather than just speculative, link between air emissions and service flows.  The Council strongly objects to using inappropriate or unsupported placeholder values in the absence of better information.”
- “The greater heterogeneity in ecosystems services makes it even more difficult to produce estimates of the benefits from their protection than for the protection of human health.  The input of the new CVPESS and the Council’s new EES may be able to stimulate the development of greater expertise on this issue than is presently available.”

- *Review of the Revised Analytical Plan for EPA’s Second Prospective Analysis - Benefits and Costs of the Clean Air Act 1990-2020, February 23, 2004 Draft.

## Council’s Response (cont’d)

- “There is a clear need for a better conceptual basis for valuation of ecological effects, which would also permit the proposed case studies to be integrated as components of a larger model.  Ongoing attention to new literature will be important.”