Including the Feedback of Local Health Improvement in Assessing Costs and Benefits of GHG Reduction

An ancillary benefit of a GHG mitigation policy refers to a benefit derived from GHG mitigation that is in addition to the benefit targeted by the policy, which is reduction in the adverse impacts of global climate change. One type of ancillary benefit of GHG mitigation is reduced local air toxics, which, according to epidemiologists, is associated with improved health. Middle-income countries like Thailand are in a position to obtain large ancillary health gains from reduced local air toxics when GHG is mitigated by curbing fossil fuel consumption. Fossil fuel burning has been integral in fueling the economic growth but also a major contributor of high local air pollution in these countries. The highest level of local air pollution is found in heavily populated cities where the labor is concentrated and where the labor health is believed to have been significantly impacted. The techniques employed thus far in studying the costs and benefits of addressing GHG emissions in such countries, however, have been inadequate. A review of existing literature shows that an important local air pollutant, PM-10, is often unincluded in ancillary benefit analyses for these countries. In addition, the feedback effect of improved health on the economy as a whole has been systematically missing in ancillary benefits studies in general. Previous literature therefore has understated the Social Welfare Benefits of GHG mitigation at least in middle-income countries such as Thailand. This incorrect understanding of the potential benefits of reducing GHG emissions (and through this, air toxics emissions) may have had the policy implication of leading to not enough curbing of GHGs, an inefficient outcome from the perspective of optimal pollution control. The objective of the current paper is to address these flaws. The author assesses whether by capturing the local health effects of reduced air toxics as an ancillary effect of GHG mitigation, and by allowing this benefit to feed back into the economy, the desirability of policies aimed at GHG mitigation will change, at least from the standpoint of Social Welfare Benefits. The author does so in a comprehensive cost/benefit framework - a Computable General Equilibrium (CGE) model - for the assessment. A submodel on health takes the local air emissions output from the CGE model and assesses the implications of the pollution emission levels on ambient air concentration levels, their effect on health, and ultimately their effect on labor supply and medical expenditures. This information is then fed back into the CGE model to find the economy-wide repercussions of the positive effects of the policy through elevated labor supply and reduced medical expenditures. To illustrate this methodology, a carbon tax policy is imposed onto a static CGE calibrated to a 1998 Thai Social Accounting Matrix. The findings, among others, are that (1) the aggregate social welfare with the carbon tax is higher when the feedback effect of health is captured, and (2) the welfare effect on individual household groups (three) and clean enterprises (two) improve under the scenario with health feedback compared to that without.