metadata: authors: 0: author: Margulis,Sergio
count: Mexico
docna: 0: docna: Back of the envelope estimates of
            environmental damage costs in Mexico
docty: Policy Research Working Paper
subtopic: Health Care Services Industry,Pollution Management & Control,Air Quality & Clean Air,Disease Control & Prevention,Brown Issues and Health,Global Environment,Natural Disasters
teratopic: Water Resources
abstracts: cdata!: For developing countries, budget
            constraints help set the agenda on mitigating environmental
            damage, one of the indelible marks of our era. Political
            considerations often dictate the measures taken.  There are
            no firm analytical formulas to help even environmentally
            conscious policymakers rank needs and remedies.  A
            developing country such as Mexico - the focus of this paper
            - cannot afford an in-depth study of every environmental
            issue. Policymakers need to be provided with rough,
            "back-of-the envelope" estimates of the economic
            costs of various environmental problems.  This allows them
            to rank the issues and act.  In this paper the author
            applied existing methods to estimate the costs stemming from
            different environmental problems in Mexico. Although the
            examples are from Mexico, the method can be useful in other
            developing countries as well.  The author how creative use
            of U.S. and other data can help provide simple estimates of
            the likely costs of soil erosion, air pollution, mining of
            underground waters, and estimates of the health effects of
            water and solid waste pollution, lack of sanitation, and the
            ingestion of food contaminated by polluted irrigation.  The
            assumptions underlying all calculations are conservative.
            Some environmental damage issues, such as loss of
            biodiversity, were too complex to permit quantification.
geo_reg_key: 119228,517191
repnme: repnme: Back of the envelope estimates of
            environmental damage costs in Mexico
display_title: Back of the envelope estimates of
            environmental damage costs in Mexico
listing_relative_url: /research/1992/01/699798/back-envelope-estimates-environmental-damage-costs-mexico
topicv3: Air Pollution m1327122 1791,Hypertension m1327277 1432,Environment, Natural Resources and Blue
            Economy m1327391 566,Erosion m1503662 3202,Health m1504661 3480
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Water Resources
origu: Latin America and Caribbean: Country
            Department II
no_of_pages: 34
author_keys: 0: author_key: 94614
model_extractions: <!-- Start of picture text --> Country Operations<br><!-- End of picture text --> WPS 824 This paper-a product of the Agriculture Operations Division, Country Department 11, Latin America and - the Caribbean Regional Office is part of a larger effort in the Bank to define a strategy for the environment in Mexico. Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact Josie Arevalo, room 1'7-100, extension 30745 (29 pages). January 1992.

For developing countries, budget constraints help set the agenda on mitigating environmental dimage, one of the indelible marks of our era. And political considerations often dictate the measures taken. There are no firm analytical formulas to help even environmentally conscious policymakers rank needs and remedies.

A developing country such as Mexico - the - focus of this paper cannot afford an in-depth study of every environmental issue. Policymakers need to be provided with rough, "back-ofthe-envelope" estimates of the economic costs of various environmental problems. This allows them to rank the issues and act.

different environmental problems in Mexico. Although the examples are from Mexico, the method can be useful in other developing countries as well.

Margulis shows how creative use of U.S. and other data can help provide simple estimates of the likely costs of soil erosion, air pollution, mining of underground waters, and estimates of the health effects of water and solid waste polluton, lack of sanitation, and the ingestion of food contaminated by polluted irrigation. The assumptions underlying all calculations are conservative. Some environmental damage issues, such as loss of biodiversity, were too complex to permit quantification.

In this paper Margulis applied existing methods to estimate the costs stemming from The Policy Research Working Plaper Series disseminates the findings of work under way in the Bank. An objective of the series is to **get** these findings out quickly, cven if presentations are less than fully polished. The findings, interpretations, and conclusions in these papers do not necessarily represent official Bank policy.

Produced by the Policy Rcscarch Dissemination Center
# CONTENTS

I. Introduction and Conclusions

- H. Mathod and Limitations

- m. Cost Estimates of Major Problems

Soil Erosion Uir Pollution in Mexico City Metropolitan Area Suspended Particulate Matter Ozone Lead Mining of Underground Waters and Pricing Water Supply to Mexico City Metropolitan Area rrigation Waters Health Effects from Water and Solid Waste Pollution, from Lack of Sanitation, and from Ingestion of Foodstuff Contaminated by Untreated Wastewaters Used for Irrigation References Annex - Dose-Response Relations Not Estimated in the Mex.can Case I am grateful to Sweder van Wijnbergen, Antonio Estache, Gunnar Eskeland, and Hans Binswanger for their help in preliminary discussions and later comments. Special thanks to Allan Krupnick for his extensive comments and suggestions. John Dixon, Robert Anderson, Nancy Birdsall, Jan Bojo and Ronaldo Seroa da Motta also provided helpful comments. Any views expressed or errors made are my responsibility. John Mclntire provided parameters for the estimates on soil erosion, and Jose Simas for those on irrigation waters. Many thanks to Rebecca Hall who helped me with the calculations and a number of parameters.
# L. INTRODUCTION AND CONCLUSIONS

For developing countries budget constraints<sup>help set the agenda on mitigating</sup> environmental damage, one of the indelible marks<sup>of our era. Political considerations often dictate</sup> the measures taken. There are no frm analytical formulae to help even<sup>environment-conscious</sup> policy makers to rank needs and remedies.

A developing country like Mexico-the focus<sup>if this paper-cannot afford an in-depth</sup> study of every environmental issue. Policy makers need<sup>to be provided with rough, "back-of-the-</sup> envelope" estimates of the economic costs of various environmental<sup>problems. This will allow them</sup> to tank the issues-and to act.

In this paper, the outcome of an exercise in LA2AG,<sup>I applied existing metiod to</sup> estimate the costs stemming from different environmental<sup>problems in Mexico. Although the</sup> examples are Mexican, the method can be relevant<sup>in other developing countries as well. The paper</sup> shows how creative use of U.S. and other data can<sup>help provide simple estimates of likely costs of</sup> soil erosion, air pollution, mining of underground waters,<sup>and estimates of the health effects of water</sup> and solid waste pollution, lack of sanitatic n, and ingestion of feod<sup>contaminated by polluted irrigation.</sup> The assumptions in all calculations are conservative.

Table 1 summarizes the major problems analyzed,<sup>their potential effects, the costs</sup> involved, and a summary of the equations and<sup>calculations. Chapter II describes the method and its</sup> limitations. Chapter Im gives details on the cost estimates.<sup>(Some environmental damage issues, such</sup> as loss of biodiversity, were too complex to permit quantification).

1
TABLE **1**

# SUMMARY OF MAJOR ENVIRONMENTAL COSTS IN **MEXICO ()**

|Probles<br>-|Potentialeffects<br>production/health|Method/formula|Annual costs<br>(tUSS billions)|Suitt-in<br>assumptfons|
|---|---|---|---|---|
|SOIL<br>EROSION|Loss of agricultural<br>output|Average productivity<br>lossAoutput<br>(soybeans, maize,<br>sorghunmandwheat)|1.00|Application<br>of<br>projected tendenicy<br>losses in U.S. to<br>perpetuity.|
||Particulates:<br>Morbid-<br>ity (respiratory<br>restricted<br>activity<br>days- RRAD)|ARRAD<br>*****0.0114 x<br>baseline RRAD x (conc.<br>fine particulates<br>-<br>legislationstandard)|0.36|Day Lost=USS32.<br>Conc.FP=119pg/m3.<br>FP Standardx5OAg/m3.<br>Baseline RRAD=3.|
||Particulates:<br>Mortality<br>(MR)|_AXR_**=**1.69/million<br>x<br>concent. suspended<br>particles|0.48|Conc.sa298gg/m3.<br>1 StatisticaL<br>lifez<br>US$75,000.|
||Ozone: Morbidity|ARRAD<br>abaseline x<br>adult population x exp<br>_(6.88<br>x Aozone) - 11|0.10|50% productivity<br>loss<br>other assumptionsas<br>above.|
|HEALTH<br>EFFECTS<br>FROM<br>AIR POLLUTION<br>(MEXICO CITY ONLY)|Lead: Children's<br>treatment for high<br>blood lead levels<br>(BLL)|Population affected x<br>average estimated<br>treatment costs|0.06<br>_|Screening if>251Lg/dl.<br>EDTA test if>35g&g/dL.<br>1X require chelation.<br>Hospital cost = 1/15<br>_ _ _ _ _ _ofU.S. cost.|
||Lead: Children's<br>compensatory education|Population affected x<br>education costs|0.02|20% of those>40gg/dl.<br>Average education<br>expenditureper<br>child|
||Lead: Hypertension in<br>aduLts|Population affected x<br>average estimated<br>treatment costs|0.01|A11tg/m3 lead in aira<br>A3Ag/dl in blood.<br>1%BLLaAO.8%prob.<br>of hypertension.<br>Lead conc.air**=**1.4<br>jLg/m3.<br>Average BLL 15Ag/dl.|
||Lead: Myocardial<br>infarctions|As above|0.04|60% occur in<br>hypertense.<br>Costs=1/2 as in U.S.|
|EXCESS<br>USE OF<br>UNDERGROUND<br>WATEP<br>DUE TOPOOR<br>PRIC *|Subsidies to supply<br>water to Mexico City|(Marg.cost - charge) x<br>consumption|1.00|Average price PS2900.<br>Marginal Cost PS4500.<br>Average consumption -<br>1.8 billion<br>m3.|
|(not social costs)|Subsidies to<br>irrigation<br>_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _<br>_ _<br>_ _ _ _ _<br>_ _ _ _<br>_ _ _ _ _|Asabove<br>_ _ _ _<br>_ _ _ _ _<br>_ _ _ _ _<br>_ _|0.16<br>_<br>_ _ _ _ _<br>_ _ _ _|Implicit<br>subsidy of<br>US$82/ha/year<br>to 2<br>m illion<br>_h<br>a.|
||Morbidity|Incidence x average<br>treatment costs|0.03|Children and elderly<br>require treatment,<br>50%ORT,20%lab<br>analysis|
|DIARRHEAL<br>DISEASES<br>FROM<br>WATER<br>AND SOLID<br> <br>||||.<br>Adults require treat-<br>ment and 20% ORT.|
|WASTE<br>POLLUTION,<br>LACK<br>OF SANITATION<br>AND<br>FOODSTUFF<br>POISONING|Mortality:<br>Scenario 1<br>- current situation|No.of lives x life<br>expectancy x value|3.60|1 Statistical<br>lifex<br>USS75,000.|
|l_______________________|Mortality:<br>Scenario 2<br>- with oral rehydrat.<br>therapy(ORT)|Incidence x average<br>treatment costs|0.00<br>(USs450,000)|Treatment *US$3,<br> ORTaUSS1 + 12<br>adninistration.|

(*) - In all cases, the rate of discount is 5%.

2
The estimates presented here are conservative estimates of the likely environmental costs of the problems analyzed. Policy recommendations based on these estimates have to be made with extreme caution. A much more detailed analysis of the data provided, as well as of the applicability of the U.S. experience to the Mexican conditions, would have to be made. From the calculations, we draw the following conclusions.

(1) Where human lives are at risk, the costs of environmental problems rise sharply, even attributing the most conservative values to them.

(2) Water- and solid-vwaste related health problems are significant only if one assumes current diarrheal disease mortality rates, without reference to the potential benefits of oral rehydration therapy (ORT). Guaranteeing water supply, sewage supply, water treatment, and solid and toxic waste disposal are all vital. But given the potential benefits of ORT, the government should urgently promote campaigns to advertise ORT, its proper administration, and its benefits, and attempt to guarantee access of all those at risk to serum ingredients or laboratory compounds.

'3) If diarrheal infant mortality were controlled or significantly reduced, air pollution in Mexico City would be the country's major environmental problem. This would reflect both the large urban population and the incredibly high pollution level.

(4) Particulate matter is Mexico's most damaging pollutant, more dangerous than ozone and lead. Lead should soon cease to be a major health hazard-although the issue of use of leaded and unleaded gasoline in MCMA, their prices and effects on the use of catalytic converters are still critical issues for government.

_(5)_ Water supply to both Mexico City and to irrigation in agriculture are rarely mentioned as major Mexican environrmental problems. But underpricing water has led to overuse. We calcul- ad only the subsidies implicit in the charging systems. Massive pumping underground waters is also causing the terrain to sink, threatening infrastructure. Although the effects of subsidence in Mexico City were not even calculated, the cost estimates here suggest that adjustment of p.i^ing is urgent.

(6) Soil erosion is often considered the major environmental problem in Mexico and some Central American countries. The calculations suggest that after water pollution and related problems this could well be the case. We only considered on-farm costs (impaired crop yields), but off-farm costs (siltation of dams, for example) must eventually be taken into account. We also could not estimate the costs from increased fertilizer applications. Estimation based on applying U.S. parameters to Mexican soil data may be particularly invalid because the effects of soil erosion are very site specific. Such issues deserve much further analysis.

3
# 11. METHOD AND IlMITATIONS

# Ranking Environmental Problems

No unambiguous criterion ranks one environmental problem over another-for instance, making urban water pollution more critical than air pollution, loss of biodiversity, or soil erosion. The issue is complicated by the different nature and effects of the problems. One criterion would be to consider more severe the prcblem that implies the highest costs-but this would not necessarily indicate which problem must be addressed first. Given the budgetary constraint, even though the costs of water pollution may be higher than those caused by air pollution, it may be more cost effective to control air pollution first, if the control costs are lower.

On a practical level, the above limitation may not be so serious. There is a significant lack of information on the extent of physical problems, on the damages, and on the costs of control. Thuis, it would be too grand a goal to make a full benefit/cost analysis of every majo; environmental problem in a country such as Mexico. This is probably true in most nations. Making rough estimates of damages may be a realistic, less ambitious way to indicate to environmental authorities the relative severity of national environmental problems. This is a necessary first ster to defining priorities. The exercise here demonstrates to policy makers that benefits can be estimated with currently available information, so that when full cost-benefit analyses are performed, they already have a place to start, i.e., a very practical (back-of-the-envelope) guide for first cut benefit estimation.

An impo.Iant additional benefit derives from the quantification of the enviromnental costs of different problems. Under the laws of most =ountries, and under the Bank's lending conditionalities, environmental impact assessments (EIA) are now required for different t,pes of investment projects. But economic decisions on the viability of projects are usually independent of EIA; since a number of environmental costs are direct costs, there is clear scope for estimates ^f such costs to be made based on EIA and then incorporated in the economic evaluation of projects. This would allow for EIA to become a more integral part of project preparation. The economic evaluation would give a more rational ranking of alternatives.

# Method

Three basic steps help estimate the costs associated with environmental degradation. The first is to measure the level of environmental quality (or degradation). The second is to relate such level of quality to damages--health, productivity, materials. This depends on knowledge of the "dose-response" function, the relationship that associates the incidence of health problems (or other 4
effects) to different levels of environmental qudlity.' The last step then assigns costs to the predicted in.Adence of health problems (or loss of agricultural production, or damage to materials). In the case of the health effects, we tried to assess both direct costs (hospital and treatment costs, for example) and indirect costs (a mother's time).

This paper does not discuss the pros and cons of assigning monetary values to physical or to health effects from environmental degradation. There is a fairly vast literature on this issue. What is missing are applications of theory, particularly in the context of developing countries. The existing applications have been made almost exclusively for the U.S. and some European countries. Some methodologies used in the U.S. studies are not readily applicable elsewhere, because of geographic and socioeconomic differences. Even so, in some situations, simple first order estimates of the damage costs can be made by "direct" application of the U.S. experience; that procedure is not new here.

# Limitations

This study is limited in several respects. As indicated, dose-response curves are not necessarily applicable to all populations and all regions. In addition, (1) quantification methodologies are still subject to much debate. (2) Not all major problems have been considered in this study, and for those probiems analyzed, not all the effects have been estimated and a great deal of uncertainty is involved. (3) In the case of Mexico, there is a paucity of information on parameters. We have additionally opted for a conservative approach, so that estin-iates tend to be underestimates of the true costs of each problem.

(1) Estimating the economic effect of environmental improvement (or degradation) has been controversial. In some environmental problems, society incurs in "direct" costs-matetial damage, loss of agricultural production, and so on. It is necessary to incorporate these costs into decisions on investment projects. The costs associated to the health effects of pollution involve subjective pain, which cannot be readily quantified, as well as direct costs (hospital and treatment cost, loss of productivity). "Much research has been devoted to the area and several health benefit studies on the acute effects and the mortality effects [of air pollution] are now available" (Krupnick and Alicbusan 1990).

Cost studies on the mortality effects of environmental degradation involve estimating the "value of life" (premature death). This cannot be thought of in terms of willingness to pay by any _1. In the case of health effects, the incidence of problems is related to the exposure rather than to ambient concentration of pollutants. Models that attempt to determine exposure of individuals to pollutants require a considerably larger volume of information. For the population at large, it is questionable w.'.ether the results differ significantly._ _5_
particular indivilual; instead, it mu:st be measurt i in statistical terms-as the costs incurred by society to avoid a greater probability of a deadly accidenw or as an individual's willingness to accept a risky activity at a higher payment. Tne human capital approach, which values an individual's life according to the net present value of his/her productivity, is subject to wider technical and ethical criticism but requires substantially less data.

(2) Though the conceptual framework exists to evaluate in money terms the consequences of loss of biodiversity, this aspect is not included in the analyses. The main reason is lack of knowledge on the effects of loss of biodiversity (oss of known and unknown pharmaceutical products, soil erosion and so on). Economic valuations thus involve many subjective considerations and great uncertainty. The information available is extremely limited, even for developed countries.

As to uncertainties, °they range from questions about the existence of an effect, to statistical uncertainties about the values of coefficients, to issues about what dolar values should be assigned to various benefit categories" (NERA, 1990). 'Currently, the usual techiique for dealing with uncertainty is sensitivity testing" (Bojo et al., 1990). We think that addressing uncertainties more rigorously would be beyond the purpose here. Most references present sensitivity analyses for major parameters and assumptions. We make a few sensitivity exercises for the discount rate.

(3) Because it is not possible to make an assessment of environmental costs without information on th- levels of environmental degradation, the estimates hiere are restricted to those problems where data are known or reasonably estimated. Coastal management and deforestationmajor environmental problems in Mexico-are not included. And because the effects are largely the same, the environmental costs of water pollution and of solid and toxic waste disposal are not analyzed individually, but together.

We describe in some detail the steps taken in applying the U.S. methodology to the Mexican data. Because data are limited, a few assumptions and simplifications had to be made, and they are explicitly mentioned. We are convinced that the exercise provides a guide for prioritization and could be replicated elsewhere.

6
# III. COST ESTIMATES OF MAJOR PROB<sup>T</sup> ,EMS

Damage and Control Costs. In estimating the benefits<sup>of improving the level of</sup> environmental quality, it is important to distinguish between damage<sup>and control costs. In the case</sup> of pollution, control costs are located at the source (typically a filter);<sup>in the case of erosion, they are</sup> the costs of soil conservation practices. Damage includes both<sup>mitigation (preventive) costs and costs</sup> from the impacts remaining after mitigation and control (typically,<sup>the costs from pollution after filters</sup> have been installed and medication has been used to treat pollution-related<sup>diseases; in the case of</sup> erosion, the yield losses after both boil conservation measures<sup>have been implemented and</sup> compensatory fertilizers have been applied). As discussed previously,<sup>we concentrate on damage costs</sup> in this exercise.

The estimation of such costs, however, presents complications.<sup>For instance, how to</sup> estimate the benefits associated with the control of air pollution--which<sup>will avoid some cases of</sup> asthma? The benefits measured in terms of danages avoided are<sup>large, say US$50 per case per day</sup> (suffering and pain, work loss days, and loss of productivity); however, if measured<sup>in terms of control</sup> costs they may be extremely low, say US$1 per case (as low as medication<sup>costs). So in this case,</sup> what is the economic benefit associated with the elimination of pollution<sup>and reduction in the</sup> incidence of asthma?

The damage should be given by the opportunity cost of controlling pollution<sup>by the</sup> least cost altertative, in this case medication. However, in measuring<sup>such opportunity cost, both</sup> direct and indirect costs must be taken into account. Thus, along with medication,<sup>the opportunity</sup> cost of time (work loss days) is also included. Indirect costs more difficult to<sup>assess, such as suffering</sup> and pain, are not estimated. The same argument applies to control of<sup>water pollution. The</sup> procedure adopted for soil erosion is discussed below.

# Soil Erosion

Soil degradation and its negative impact on water retention, runoff,<sup>and aquifer</sup> recharge is one of the most serious environmental problems confronting Mexico.<sup>A 1988 Bank study</sup> stated that 66 percent of the national area (112.8 million hectares) had moderate<sup>erosion and 13</sup> percent (22.4 million hectares) severe erosion. Comparisons with limited<sup>but more detailed aerial</sup> photographic coverage indicate that the situation may well be even<sup>worse, with s(.me 42 percent of</sup> land totally or severely eroded. At "moderate" levels (in Mexico), losses may<sup>be as much as 10 tons</sup> of soil per hectare per year; at "severe" levels, such losses are from 10<sup>to 15 tons.</sup> 7
On-farm erosion costs are impaired crop yields, land removed<sup>from crop production</sup> or used in less productive enterprises, and additional production<sup>costs, notably fertilizers to replace</sup> lost nutrients. Non-farm losses to erosion are siltation of wzterways,<sup>dams, and other collection sites.</sup> No good evidence exists on these effects in Mexico.<sup>Estimates of r'n-farm costs from research done</sup> in other countries are subject to uncertainty because of<sup>the local specific interactions between erosion</sup> and land use. There is disagreement on the magnitudes of<sup>these costs relative to on-faim costs. IhI</sup> estimates here of the total costs of erosion are based<sup>exclusively on reduced yields. thus are clear</sup> u,ndergtimahn In order to estimate the change in yield in the U.S.<sup>due to erosion, a regression of</sup> yield trend values on annual erosion rates was made<sup>(Crosson & Stout 1983, using county level data).</sup> For the U.S. yield losses to erosion estimated this way range<sup>from 1% to 18% of maize yield, with</sup> an average loss of 4 **%;** from 2 % to 22 % of soybean yields, with an<sup>average of 4%; and 1% of wheat2.</sup> These crops represent roughly 65 percent of the area<sup>of annual agricultural crops in Mexico.</sup> Application to the Mexican case was made by estimating<sup>the 1965-85 Mexican yield</sup> trends and then applyiiig the average U.S. erosion<sup>effects above; the resulting estimated</sup><sup>**yi.**ds (with</sup> and without erosion) were then compared.<sup>3</sup> The results were the following: losses in wheat on the order of 1 % of the value of 1990 output, or US$4.6 million at international<sup>prices; average losses to</sup> maize 2.9%,or US$38 million, and 0.4 % to soybean, or US$0.5<sup>million in 1990. Sorghum, beans, and</sup> cotton would be the other annual crops where erosion is<sup>intense (the area occupied by these crops</sup> is roughly 25% of the total agricultural area), but no<sup>studies are available relating erosion rates to</sup> yield losses. Only sorghum has shown a decrease in<sup>productivity in the last five years; for this crop</sup> we assumed that the effects of erosion on yields are the<sup>same as for wheat -only 1% -which lead</sup> to an estimated loss of US$6 million in 1990.

Total annual estimated losses to erosion were US$50<sup>million. "However, erosion-</sup> induced productivity losses are no. confined to a terminal year,<sup>but accumulate over much or all of</sup> the intervening period. Consequently, knowledge of the effect<sup>of erosion on costs in a terminal year</sup> is incomplete. ... The way to compensate (for these deficiencies)<sup>is to calculate the present value of</sup> the annuai productivity loss" (Crosson and Stout, op.cit.).<sup>To illustrate this aspect, suppose we have</sup> _2. fli gression coefficient for maize was -0. 0091, with the rate of_<sup>_erosion of 8.48 ton/acre;_</sup> _this lead to an average yield loss of 0.077bushels/ acre, which_<sup>_represented 4% of the average yield of_</sup> _1.97bushels/acre/year. The same procedure was applied to the other_<sup>_crops._</sup> _3. The trend yield growth (with erosion), which is observable,_<sup>_was 3.45% for maize, .0.52% for_</sup> _soybeans, and 10.95% for wheat. The trend yield growth_<sup>_without erosion is equal to (f + loss from_</sup> _trend yield growth) x (trend !eld growth with erosion), where_<sup>_the losses from trend yield growth are_</sup> _the percenta.ges observed in .ne U.S. As acknowledged,_<sup>_the figures of the Mexican case were provided_</sup> _by John McIntire, personal communication, and Mclntire_<sup>_and Shaw 1991)._</sup> 8
a .op yield of 10 tons/ha without erosion,<sup>at.d that with erosion there will be a yield loss of 1 ton/ha.</sup> This means that yield in year 2 wil be 9 ton/ha.<sup>If, again, on year 3 no preventive measures are taken,</sup> productivity will further decline to 8 ton/ha.<sup>This could be repeated for 10 years, when productivity</sup> would eventually drop to zero. Whichever<sup>the decision on year 2, the productivity loss of 1 ton/ha</sup> in the first year is perpetual, assuming it is irreversible.<sup>Therefore, irrespective of actions taken on</sup> subsequent years, the loss per hectare due to<sup>erosion on the first year alone is the discounted value</sup> of 1 ton of the crop to perpetuity.

The procedure above assumes that losses to<sup>erosion are irreversible. Applying the</sup> procedure using a 5 percent value for the<sup>discount rate, the estimated net present value of yield</sup> losses caused by one year of erosion in Mexico<sup>is roughly US$1 billion.4Such cost, however, does</sup> not include the increased application of fertilizers<sup>to compensate for the loss of nutrients caused by</sup> erosion. Such "compensatory" use of fertilizers<sup>represents a mitigation cost of the environmental</sup> problem ( quivalent to the medication costs<sup>in the case of pollution previously discussed). It is,</sup> however, very difficult to assess which percentage<sup>of fertilizer applications are used to compensate</sup> for erosion, and no works are known estimating<sup>such parameter. We do not pursue the issue further</sup> here, assuming that such costs are not significant<sup>in comparison to the present value of yield losses.</sup>

# Air Pollution in MCMA

Several studies have analyzed air pollution health<sup>effects on humans. The costs of</sup> such health effects are of three types: medical<sup>expenses (prevention and treatment), lost wages, and</sup> individual disutility (discomfort, suffering and<sup>the opportunity cost of time). Monetary estimates of</sup> the first two types of costs are fairly straightforward<sup>and are the only costs estimated here. While</sup> information on willingness to pay or willingness to<sup>accept changes in healt: status could identify the</sup> **third** type of costs, such data are beyond<sup>the scope of this exercise. For the U.S.,;it has been</sup> estimated that the ratio between willingness<sup>to pay and the costs of illness (in medical expenses and</sup> lost wages) is roughly two (Chestnut and Rowe<sup>1988). Additionally, damage costs to material and</sup> loss of (agricultural) productivity are not<sup>considered here due to lack of information. In the U.S.,</sup> these two types of costs have been estimated<sup>to represent up to 40 percent of total damage costs.</sup> The numbers presented here are underestimates<sup>of the total costs of air pollution.</sup> Exposure to different air pollutants causes different<sup>health effects. This means that</sup> the dose-response curves differ between pollutants<sup>and that analyses must be made for each pollutant.</sup> Moreover, the combined effects of two or more<sup>pollutants are usually greater than the "sum"of their</sup> contributions. This synergistic effect is complicated<sup>and not well understood, mainly because so many</sup> _4. US$500 million if the discount rate were 10 percent._ 9
factors of atmosphere's chemistry are involved. Such effects are not considered here, again giving conservative estimates.

The three basic procedures in quantifying the health effects of a pollutaat are: (1) to determine the ambient concentrations; (2) given the concentration levels and the population age distribution, to use a specified dose-response curve te, letermine the (incremental5) incidence of diseases in the population; and (3) based on the costs associated with each disease (treatment, lost wages or life), to determine the overall costs.

# Two brief qualifications

Data on air pollution in MCMA. All data on air quality was provided by the Departamento del Distrito Federal and by the air pollution unit of Mexico's environmental agency SEDUE. Since October 1989 SEDUE has been monitoring every major pollutant daily in different areas of the city, providing results grouped into five regions. For most stations, there is available the annual number of readings, the daily average, and the daily maximum. Scattered more specific data are also available for specific regions and periods (maximum-maximorum readings, number of days above standard, and so on).

Dose-response curves. Relations between concentration of pollutants and effects on health are based on both laboratory experiments and epidemiological studies. The references used here usually balanee the results obtained by the two approaches.

Two aspects are more difficult to address, however. One aspect is the possibility of threshold levels below which some health effects cease to occur; this would directly affect the benefits (or costs) associated with a change in pollution. There is insufficient evidence for the pollutants analyzed here, except for lead. Thus, the procedure adopted was to consider the legislation standard as the level of air quality associated to 'no" deleterious health effects, and zezo concentration level in the case of lead. The second aspect relates to potential differences in pollution-related health effects due to the high altitude of Mexico City, in contrast to the sea-level cities where dose-response studies are typically made. Again, there is little evidence on such differences. Similar estimates for _5. The benefits (or costs) associated with different levels of pollution-typically, the incidence of diseases-are a function of the desired change in the level of pollution. To estimate the costs stemming from a certain level of pollution, it is th;erefore necessary to consider the difference between that level and the one that causes no health effects. Such level of air quality may be zer vollutant concentration level tin the case of lead) or the legislation environmental standard (all other pollutants)._ 10
Denver, Colorado (Chestnut and Rowe 1988), whose conditions resemble Mexico City's, did not incorporate any factors to account for the altitude effect. This is also the procedure here.

In the case of MCMA, the major health impacts originate from three major pollutants, namely suspended particulate matter (SPM), ozone, and lead. The effects of carbon monoxide and sulphur dioxide are not analyzed here. Oxides of nitrogen and hydrocarbons are precursors in the formation of ozone, so their effects are "captured" in the analysis of the latter.

# Suspended Particulate Matter

Mlorbidity. The major health effects from exposure to particulates are restricted activity and increase in overall mortality rates. Restricted activity means acute morbidity that, in the case of particulates, can be measured in terms of restricted activity days (RAD days when a respondent was forced to alter his/her normal activity), work loss d3ys (WLD), visits to emergency rooms, minor respiratory disease, and children's chronic cough.

The most relevant (highest cost) morbidity effect from suspended particles relates to respiratory related restricted activity days (RRAD). The dose-response equation used is the following (based in Ostro, 1987, and Chestnut and Rowe, 1988):6 (1) **(A** RRAD)/person/year = 0.0114 x baseline RRAD x **(A** Annual FP)V, where **(A** RRAD) is change in respiratory related restricted activity days, baseline RRAD is the average current level of restricted activity days due to respiratory diseases per person per year, and **(A** Annual FP) stands for a change in annttal average arithmetic mean concentration of fine particulates<sup>8</sup> ; fine particulates are the smaller suspended particles that penetrate deeper into the respiratory tract and cause harm. In Mexico this fraction is estimated at between 40 and 65 percent (Secretaria de Salud _6. Controlled variables used in the reference are sex, age, education, chronic health condition, race, marital status, income, annual mean temperature, occupational status, and number of sick paid days. Coefficients for WLD is 0. 004 and for RAD is 0.009 (average of six years of observations)._ _7. A more recent result by Ostro has been used in NERA (1990), where a I ILgIm3 change in FP yields a 0.028 change in RRADs per person, irrespectiveof baseline RRAD. In the Mexican case, this would lead to a 0.034 change in RRAD (3 x 0.0114), which is NERA 's high range estinate. We attain to the original work, even though it produces a 20% higher estimate._ _8. Change in relation to the point where there are no health effects. As discussed earlier, this is the concentration legislation standard forfine particles._ 11
1991); in Denver between 30 and 45 percent (Chestnut and Rowe 1988)<sup>and in California 61 percent</sup> (Kleinman et al. 1989).9 The two parameters needed to apply equation (1) to the Mexican<sup>conditions are</sup> baseline RRAD, which is 3 (Secretaria de Salud 1991, and personal information),<sup>and the change in</sup> the annual concentration of FP. If the purpose is to achieve the<sup>legislation standard, we have to</sup> substitute (& Annual FP) for the difference between the current average<sup>levels of FP (119 ,ug/m3)</sup> and the legislation standard (50 jg/m3). Substitution of these values<sup>in equation (1) leads to a</sup> change in RRAD of 2.4. This is almost the baseline value of RRAD (3<sup>in Mexico), suggesting that</sup> most RRAD would disappear if FP were controlled in Mexico<sup>City.'0</sup> The population in the metropolitan area of Mexico City is not precisely known. We used the<sup>round estimate of 17 million</sup> in 1990, of which _55_ percent were adults."' In estimating the monetary value<sup>of saving 2.4 restricted</sup> activity days per person per year, we assumed that half the cases of RRAD<sup>implied a work loss day</sup> (this is based on the fact that the elasticity of WLD to pollution was<sup>roughly half of that for</sup> RAD).'<sup>2</sup> The total number of work loss days saved by bringing the current levels of<sup>FP pollution</sup> to the legislation standards is thus 11.2 million (17 million x 0.55 x<sup>0.50 x 2.4).</sup> We took the average wage in industry in Mexico City-- US$4 per hour- to<sup>value each</sup> day lost. Excluding all suffering and eventual medication to treat minor<sup>RRAD, the morbidity</sup> benefits associated with the reduction of the current levels of PP pollution<sup>to the legislation standard</sup> are estimated at US$358 million.

_9. If the data available is concentration of total suspended particles (ISP - the_<sup>_most common_</sup> _measure of particulate matter pollution) rather than FP, the same equation_<sup>_should be used, with the_</sup> _right hand term being multiplied by the percentage of FP in TSP; in the case_<sup>_of Mexico, this fraction_</sup> _would be from 0.4 to 0.65._ _10. If instead of attaining legislation levels the purpose were to eliminate_<sup>_completely FP(f_</sup> _possible), the reduction in RRAD would be greaterthan 3, the current_<sup>_levels of RRAD. This may_</sup> _strengthen the argument that there are indeed threshold levels below which_<sup>_further reduction in the_</sup> _concentration of FP leads to no extra health benefits._ _11. Demographic estimates were based on Sistema Nacional de Salud (1988)_<sup>_and on the_</sup> _Encuesta Nacional de Salud (Secretaria de Salud 1988)._ _12. An alternative approach would be to use the data presented in the Encuesta_<sup>_Nacional de_</sup> _Salud, which indicates that 76 percent of the cases of acute diseases did_<sup>_not imply WI)D (diasde_</sup> _incapacidad), while the remaining 24 percent implied one or more days. The_<sup>_expected number of_</sup> _dias de incapacidad was 1.13, meaning that on average all cases of RAD_<sup>_implied a WLD (in fact_</sup> _1.1 WID); we used the more conservative approach._ 12
Dose-r'sponse curves for other effects from concentrations total suspended particles or TSP (chila,en's cough, emergency room visits, and changes in the number of chronic respiratory disease incidents) are provided in the annex. In the case of Mexico the first two effects did not account for significant costs compared with RADs, while there was no data to evaluate the third effect.

Mortality. Several studies suggest that there is a significant relation between TSP and mortality rates. The regression estimates of changes in mortality rates (aMR) as a function of changes in the concentration of TSP (ATSP) are all linear (AMR = b x ATSP), with coefficient b varying from 2 to 4.46 per 1 million people (Oskaynak 1985 [apud USAID 19901 and Schwartz and Marcus 1986). We used the value 1.69 per I million people (NERA, 1990 and Evans et al. 1984). Based on the current levels of TSP pollution in Mexico City (annual average concentration of 297.8 yg/m3 in 1990, while the standard is 75 ig/rm3; &TSP is thus 222.8 1g/m3), the estimated total number of (statistical) lives saved would be 6,400--equivalent to 3.8 lives per 10,000 people.

Since older people and those who already have respiratory diseases are more likely to die from pollution-related problems, we assumed an expected life of those who die prematurely from TSP of only 12.5 years (NERA 1990). As discussed previously, in order to place a value on human life we should use willingness to pay. This is impossible to be performed in the case of Mexico dun to lack of data. An alternative would be to multiply U.S. figures by the two countries GDP ratio. We use the human capital approach which provides a first cut estimate, which is the purpose here. Based on the hourly wage, the annual salary is US$7,700. Discounting at 5 percent per year gives a value of US$75,000.'<sup>3</sup> Multiplying the 6,400 lives saved by the value of each gives an estimated saving of US$480 million.

The total annual estimated cost related to particulate matter pollution in Mexico City is US$850 million.

Ozone _13. American estimates based on willingness to pay place such values between US$500 thousand and US$10 million; using the ratio between the two countries 'per capita GNPs -- roughly 10 -- to compare U.S. and Mexico figures, our estimate appears conservative. We can also compare our estimates for Mexico with equivalent U.S. figures by applying the same human capital approach to the U.S., and this can be simplv obtained by dividing wages in the two countries. Since the typical hourly wage in metropolitan areas in the U.S. is roughly US$100 and in Mexico US$20, we see again that our estimates are on the conservative side._ 13
Ozone is a pollutant formed in the atmosphere in the presence of hydrocarbons, nitrogen oxides, and sunlight. It is the primary component of photochemical smog and is believed to be irritating to the human respiratory system (Chestnut and Rowe 1988). The major health cost from ozone pollution in Mexico City relates to RRAD. Specific effects such as asthma attacks, eye irritation, mild cough, sore throat, headache, and chest discomfort have been examined in the literature. Because the values obtained were too small compared to those for RRAD-and also due to lack of data-such effects were not considered individually here. The relationship between these effects and RRAD is not clear. Dose-response curves are provided in the annex, with the results of some applications to the Mexican case.

The major study relating RRAD and ozone levels is Portney and Mullahy (1986). It provides a number of alternative specifications that have been adopted throughout the literature. The general specification is the following:

# (2) No.RRAD/adult = exp (Az + b(ozoneg)! ,

where Z stands for other independent variables, ozone stands for the maximum daily hour concentration of ozone, measured in PPM, a and b are estimated parameters, and c varies from 0.5 to 2. Variables are measured over a period of two weeks, so that the annual estimate is obtained by summing up 26 parcels, corresponding to the 26 two-week periods in the year.

The annual baseline RRAD is 3 in MCMA, or an average of 0.115 every two-week period. Data were only available for 7.5 months in 1990, so we multiplied the estimates obtained for this period by (12/7.5). Concentration levels were provided by SEDUE (the observed average was 0.14 **14,** while the maximum one-hour standard is 0.11 PPM). Using the specification of equation (2) assuming c = 1, b equals 6.883 so that the expected annual change in the number of RRAD is ARRAD = 3 x (exp [6.883 x 0.03] - 1} x 0.55 x 17 million = 6.4 million, or 0.69 per adult, which corresponds to 23 percent of the present level of RRAD.

In equation (2) RRAD is measured in terms of bed-disability days, school loss days, and just restriction of activity that does not fully impair the two above. Since it is not possible to determine the percentage of each of these in the regression analyses, we assume that there is a _14. We had data for the June/90 - February/91 period, thus 15 2-week periods. For every period, we took the difference between the average concentration (measured in daily 1-hour maximum) and the standard to evaluate the expected number of RRAD lost. Additionally, if the average were below the standard there would be a decrease in the number of RRAD, so that in such cases we considered the observed average equal to the standard, leading to no change in RRAD._ 14
productivity loss of _50_ percent. Excluding suffering and medication to treat minor RRAD, e estimated annual benefits associated with reduction of current average levels of ozone pollution to the legislation standard in MCMA are US$102 million.

# Load

Lead in air has been shown to have a strong correlation with blood lead levels associated with neurological damage in children and with high blood pressure in adults (see figure 1). In infants and children, absorption of lead can be via mouthing, air inhalation, and ingestion of food. Almost all the lead deposited in the respiratory tract is absorbed. Because children inhale a proportionally higher daily volume of air per weight measure than adults, they are more susceptible to lead in ambient air. In a population sample of children in Mexico City, the main determinant of blood lead level (BLL) was the place of residency, suggesting that lead absorption through air inhaladon is the major source of poisoning (Secretaria de Salud 1991). Nearly 95 percent of the gasoline in MCMA still contains lead.

Figure 1. Total Lead Used in Gasoline, per Six Month Period, and Blood Levels (`U.S.NHANES II Survey), After EPA (1985) <!-- Start of picture text --> b ~~~~~~~~~~~~~~~~~~~~t s<br>-so L I1 4d<br>7z. \\t ' W ~~~~~~~~~~~~~~~~~12<br>IC-,t.e^7. 17. s*1ss ,tO<br>40<br>a 1 i* GOmolUl (cia; t) + Blood Ld (o iM) d<br><!-- End of picture text --> _15. This may be a large estimate, but it partly compensates for the benefits arisingfor asthmatics, which are not included here (see appendix for estimates on asthma effects)._ 15
One difficulty in studying the effects<sup>of lead on health is that progress has in fact been</sup> made. Even though lead is still<sup>one of the six criteria pollutants in the U.S., it is no longer a real</sup> major problem; in most metropolitan<sup>areas gasoline is lead-free. The estimates here thus had to be</sup> almost entirely based on EPA (1985),<sup>considered the major publication on the issue, but with some</sup> estimates and parameters out of date. Additionally, dose-response relations between<sup>lead</sup> concentration in air and health<sup>effects are not straightforward with simple econometric</sup> representations. They often involve<sup>thresholds and have not been quantified in a rigorous manner.</sup> Children's treatment. We assumed<sup>that all children with BLL above 25 jtg/dl require</sup> a screening test. Those with BLL<sup>above 35 ug/dl have to undertake an EDTA testing, which requires</sup> a day in hospital plus follow-up<sup>tests and physicians' visits. According to EPA (1985), the most</sup> serious cases require an expensive<sup>treatment -chelation. The estimated population of children</sup> (under 18 years old) in MCMA is<sup>7.65 million. According to Secretaria de Salud (1991), 29 percent</sup> of children have BLL above 25 sg/dl,<sup>and 3 percent above 35 Ag/dl. Thus 2.25 million screening tests</sup> and 230,OOOEDTA tests are required. Chelation therapy<sup>is only required for approximately 1 percent</sup> of all children (also based on EPA 1985).

Data on hospital, medication, and<sup>treatment costs are unavailable in Mexico. We had</sup> to adjust the information of these<sup>costs in the U.S. to Mexican conditions. The only survey</sup> comparing treatment costs in the two<sup>countries was made for AIDS and indicated that they were 30</sup> times higher in the U.S. (Secretaria<sup>de Salud, personal communication). Because AIDS treatment</sup> is so technology intensive, and also<sup>because treatment conditions in the two countries are very</sup> different, we assumed that for other<sup>diseases the ratio between treatment costs would be half as high</sup> as for AIDS, thus 15 times higher<sup>in the U.S. We adjusted the cost estimates presented in EPA</sup> (1985) from 1985 US$ to 1990 US$<sup>using CPIs. The estimated costs are as follows: (a) each</sup> screening test costs US$131 in the<sup>U.S.,thus US$8.7 in Mexico; since 2.5 million tests are required,</sup> total costs are US$19.6 million;'<sup>6</sup> (b)<sup>each EDTA is estimated to cost US$655 in the U.S., thus</sup> US$44 in Mexico, including one day<sup>in hospital; since 230,000 tests are required, total costs are</sup> US$10 million; (c) three follow-up<sup>visits are required for those children subjected to EDTA test. For</sup> this item there are some data suggesting<sup>a lower bound for doctor's visit around US$20, so that the</sup> total costs would be US$13.8 million;<sup>(d) finally, the chelation therapy is supposed to cost US$3,250</sup> in the U.S.,or US$220 in Mexico. Since<sup>76,500cases require chelation, total costs are US$17 million.</sup> Total estimated costs for children's treatment<sup>is US$60 million."</sup> 7 _16. It is unlikely that so many children_<sup>_call in hospitals to make such tests. This certainly does_</sup> _not mean that there are no costs involved._<sup>_We thus assume other children to have the same or higher_</sup> _costs._ _17. As noted earlier, since there is indication_<sup>_that even minimal concentrations cause harmfid_</sup> _health effects, the estimates do not relate_<sup>_to legislation standards, but to zero concentration levels._</sup> 16
CoMnsatory education. Studies show that 20<sup>percent of children with BLL above</sup> 25 tg/dl have lower cognitive development and<sup>require supplemental education for an average period</sup> of three years. This applies particularly to those<sup>children with BLL above 40 jug/dl. There is also</sup> evidence suggesting that, 'on average, BLL<sup>of 30 to 50 lAg/dl result in a 4 point decrement in IQ, and</sup> that lead levels of 50 to 70 jg/dl would reduce<sup>IQ by roughly</sup><sup>_5_points" (EPA 1985 u De la Burde</sup> and Choate 1975 and Rummo et al. 1979). Figures<sup>2, 3, and 4 show, respectively, the relationships</sup> between mean cell hemoglobin (MCH) and BLL<sup>after being adjusted for a number of significant</sup> variables,"<sup>3</sup> and the correlations between BLL,<sup>(full) IQ, and agility, the latter two having been made</sup> in Mexico City. All relationships apply only to children.

Figure 2. Relationship between MCH **and** BLL (after<sup>EPA</sup> 1985) Figure 3. Correlation of BLL and (Full) I.Q. in<sup>109 Childrea</sup> in Mexico City (after Secreuuia de Salud 1991) <!-- Start of picture text --> A 30~~~~~~~~3<br><!-- End of picture text --> <!-- Start of picture text --> 1e *o s 30 so<br>Ila" Laa4 Level (m141<br><!-- End of picture text --> For ease of display, each point zepresents<sup>an average</sup> of about 100 children with consecutive BLL.

We made the conservative assumption that a three<sup>year supplemental education would</sup> be required for those children with BLL above 40 _Agldl_<sup>(140,365 children in Mexico City fall in this</sup> group). Using the average annual cost of education<sup>per child in Mexico City of US$153 produces</sup> a total cost in compensatory education of US$21.5 million.'9 _18. The variables were age (under 2, 2-4, and 4-6),_<sup>_race, sex, degree of urbanization, farnily_</sup> _income, serum albumin, dietary calciwn, dietary calories,_<sup>_serum copper, dietary carbohydrates,_</sup> _dietary fat, serwn iron, blood lead, dietary phosphorous,_<sup>_dietary protein, transferrin saturation,_</sup> _dietary vitamin C, and serum zinc. Samiple size was_<sup>_1,967 children._</sup> _19. The total expenditure in education for children in_<sup>_Mexico was USS5.5 billion in 1990._</sup> _Assuming that expenditures were uniformly distributed_<sup>_throughout the country, the estimated_</sup> _expenditure in Mexico City was US$5.5 billion multiplied_<sup>_by the population of Mexico City in relation_</sup> _to the rest of the country, which is roughly 17 million_<sup>_over 80 million, or 21 percent. Thus the_</sup> _estimated ctmnual COSt of education per child in Me-xico_<sup>_City iS USS153. Multiplying by three years_</sup> _(discounting at S5percent p.a.) and multiplying by the_<sup>_140,365 cases gives the figure presented in the_</sup> _text - USS21.5 million._ _17_
Figure 4. Correlation<sup>of BLL and Agility in 109 Children in Mexico City (after Secretaria de</sup> Salud 1990) <!-- Start of picture text --> 140<br>130<br>I _<br>tr 120<br>'-4 0<br>*14<br>> o b~, , *,. S<br>.0 10 20 30 40 so<br>Blood Lead Level (pdl)<br><!-- End of picture text --> H aertens **i** on n adults. A relationship<sup>that a 1 pg/m3 increase in the concentration</sup> of lead in the air<sup>will result in an average increase of 2 ug/dl in BLL of adults (and between 3 and</sup> _5_ ug/dl in children)<sup>has been proposed in USAID (1990) a_ud EPA (1986). In a study recently made</sup> in Mexico (Rothenberg<sup>et al. 1990), estimates of such elasticity are not explicitly provided, but</sup> running a regression<sup>on the data presented lead to an estimated relation coefficient of over 6. We</sup> assumed that a<sup>change of 1 ug/m3 in lead concentration in the air leads to a 3 ;g/dl change in BLL.</sup> It has also been<sup>proposed that a 1 percent change in BLL leads to a 0.8 percent change in the</sup> probabDity of blood<sup>pressure being greater than 90 mm Hg (above which the person is considered</sup> to be hypertense)<sup>(EPA 1985). This means that the elasticity of the probability of being hypertense</sup> to the lead concentration<sup>in air can be deternined if the average BLL in the population is known.</sup> Between 1989 and<sup>1990 there has been a significant decrease from 1.98to 1.37 g/m3</sup> in the average concentra.ion<sup>of lead in the air of Mexico City (the legislation standard is 1.5 ,ug/m3).</sup> Because the harmful<sup>effects from lead on blood appear not to present threshold levels (that is, even</sup> below legislation<sup>standards there are negative health effects), in order to compute the costs associated</sup> to lead levels in<sup>the air we considered the effects of 1.37 ag/m3 (the 1990 average concentration).</sup> This corresponds<sup>to a 4.11 Ag/dl decrease in average BLL of the population. The average BLL of</sup> the population of<sup>Mexico City is not known, but there are scattered samples (Secretaria de Salud</sup> 1991 and Rothenberg<sup>et al. 1990). We made the conservative assumption (in this case by increasing</sup> it) that the average<sup>male adult population BLL was 15 ,g/dl. This means that eliminating the 1.37</sup> jsg/m3 of lead concentration<sup>in the air would mean a 27.4 percent change in BLL (4.11 divided by</sup> 15). Using the<sup>0.8 elasticity, there would be a 21.9 perce</sup><sup>**At**reduction in the probability of blood</sup> pressure being greater<sup>than 90 (that is, of hypertension). Finally, according to the Encuesta Nacional</sup> 18
de Staud, there were 1,460,700cases of hypertension<sup>in the country in 1988. Assuming that all cases</sup> were uniformly distributed in the country<sup>(this is conservative since urban areas, and specially Mexico</sup> City, tend to have a higher incidence<sup>of the disease), there should have been 321,270 cases of</sup> hypertension in Mexico City in 1990.<sup>The elimination of lead in MeKico City's air (from 1,37 pg/m3</sup> to zero) would thus lead to a reduction of 70,422<sup>cases of hypertension in MCMA.</sup> According to EPA (1985), people with<sup>hypertension see a physician because of high</sup> blood pressure an average of 3.27 times<sup>per year. Using the estimate of US$20 per visit gives a total</sup> annual cost in Mexico City of US$4.6<sup>million. The same population is forced to remain in bed an</sup> average of 0.41 days per year; considering<sup>the daily wage of US$32 gives a total cost of US$925,000.</sup> Additionally, 30 percent of the hypertense<sup>population needs medication; assuming an annual cost of</sup> US$100 (half that in the U.S.) gives a total<sup>cost of US$2.1 million. Finally, for the U.S. there was</sup> a relation between the number of hospital bed-days<sup>of 0.058per person per year due to hypertension</sup> alone. Using this same statistic to the Mexican<sup>case would give 4,084 hospital bed-days per year in</sup> Mexico City which, for a daily cost of US$50,<sup>gives a total value of only US$205,000. Adding up all</sup> components, the total estimated costs<sup>due tc hypertension morbidity in Mexico City is US$7.85</sup> million.

Myocardial infarctions (MI). The reduction<sup>of hypertension is less important than the</sup> indirect benefits in the form of reduced cardiovascular<sup>disease associated with elevated blood pressure</sup> levels. It is estimated that 60 percent of MI<sup>occur in people with blood pressure greater than 90</sup> (based on Framingham Study, McGee el al. 1976<sup>apud EPA 1985, plus some simple adjustments and</sup> estimates). Since the elimination of lead<sup>from air would lead to a 21.9 percent reduction in the</sup> probability of blood pressure being greater<sup>than 90, there would be an expected reduction of 13.1</sup> percent in the number of MI (0.219 x 0.6).<sup>According to the Anuario Estadistico (Secretaria de</sup> Salud 1988) there were 3,794 MI in Mexico<sup>City in 1990. Thus an estimated 498 cases of MI would</sup> be eliminated.

The co-ts associated with treatment of MI are also<sup>based on EPA (1985). In the U.S.,</sup> they amount to US$18,000 per case. Assuming<sup>that the costs of treatment of MI are half those</sup> observed in the U.S. (rather than 1/15,because<sup>of intense technology requirements), the overall costs</sup> would be US$4.5 million. Additionally,<sup>there are lost earnings because of reduced workdays. Using</sup> the same values and procedures as with<sup>particulates and applying such foregone earnings to all 498</sup> cases gives an additional cost of US$31.1<sup>million. The treatment costs of MI would be US$36.5</sup> million. However, still based on EPA 1985,<sup>of all cases of Ml, 22.5 percent are sudden deaths, while</sup> the remaining 77.5 percent were fatal or<sup>nonfatal MIs. We assume that 50 percent were nonfatal Ml.</sup> Therefore, the costs of treatment are only<sup>US$18.25 million (36.5 million x 50%). The fatal cases</sup> (498 x 27.5% = 137 cases) cost US$1.25<sup>million (treatment cost = US$9,000 x 137) plus US$10</sup> million (value of lives = 137 x US$75,000).<sup>And the sudden death cases cost US$8.4 million (112</sup> cases xUS$75,000). The total estimated<sup>costs associated to myocardial infarctions isthus US$40 million.</sup> 19
The total nnual estimated health costs<sup>associated to lead atmospheric pollution in</sup> Mexico City are US$125 million.

Adding up the costs associated to the three maior<sup>air pollutants. the total estimated</sup> health costs from atmospheric pollution<sup>in MCMA is roughly US$1.1 billion.</sup>

# Minine of Underground Waters and Pricing

Water Supply to Mexico City Metropolitan Area<sup>(MCMA'. Since the middle of the</sup> past century, water supply to MCMA has<sup>partly relied on pumping underground waters. In the 1960s,</sup> in order to reduce the effects of mining of these waters,<sup>alternative sources were sought, particularly</sup> surface waters outside the valley. The most<sup>important source was the waters from the Rio Lerma</sup> basin, which is 200 meters below MCMA. Attempts<sup>to prohibit the opening of new wells failed, and</sup> the city's water supply could not match the massive<sup>growth of the city's population. In the 1980s, the</sup> formidable amount of 4 m3/sec began to be pumped<sup>from the Cutzaman region, 1,000 meters below</sup> MCMA. The pumping requirements are 86 GWh<sup>per year; Tecoluca, the next site, will demand 120</sup> Gwh.

The current total demand for water in MCMA<sup>is 56 m3/sec. About 15 percent of</sup> consump:.on comes from surface waters, with<sup>the remaining 85 percent from underground waters.</sup> The current deficit is 20 to 27 m3/sec, which corresponds<sup>to roughly 500 million cubic meters per</sup> year. These 500 million m3 correspond approximately<sup>to an additional average height of 0.5 meter</sup> per year. The average pumping height today is 80<sup>meters.</sup> One of the most dramatic effects from lowering<sup>the water table is the potential</sup> subsidence of terrain, which has been eight meters<sup>or more in the historical part of town. The costs</sup> implied by harm to infrastructure (pipes, building<sup>structures, sewage, electricity cabies), as well as the</sup> preventive costs of potential future subsidence,<sup>particularly aggravated by earthquakes, are formidable.</sup> They may well be the largest component of the<sup>costs associated to the mining of underground waters</sup> in MCMA. However, the information available<sup>on these effects is limited and not well catalogued</sup> and published. These costs are not accounted<sup>for in this exercise.</sup> Ihe other type of cost is the long-run opportunity<sup>cost of water in MCMA. Rather</sup> than attempting to estimate these costs, however,<sup>a more elementary calculation is necessary, and that</sup> is the difference between the marginal social<sup>and private costs of supplying water in MCMA. "This</sup> is a typical developing country phenomenon where<sup>many prices are administered for social and</sup> _20. Mining the resource here means exploiting it in an_<sup>_unsustainable basis, so that the amount_</sup> _pumped out is largerthan the recharge._ 20
economic purposes. Conspicuous examples are the pricing of energy and extractive water below market prices. Underpricing tends also to increase the scale of the externality, e.g.excessive irrigation water use can cause waterlogging and salinization of soils"(Pearce 1990). The estimates here are not social cost estimates.

In the Valley of Mexico, marginal cost of water supply is Mex$4,500 (all costs on a per cubic meter basis). On a volume basis, 82 percent of water goes to households for domestic consumption, 10 percent to industry, and the remaining 8 percent to agriculture for irrigation. Average prices are Mex$2,850 for households, Mex$4,000 for industry, and zero for agriculture. Sixty percent of households pay according to their consumption (that is, have a meter); the remaining 40 percent pay on average a little more (15-20 percent; CNA, personal information). Thc average price is thus Mex$2,900, so that the difference between marginal social cost and price is Mex$1,600/m3. Multiplying by the annual consumption of 1.8 billion m3 gives an annual subsidy of Mex$2.88 trillion or US$1 billion.

Irrigation Waters. The subsidies to water consumption in MCMA can be compared to those given to farmers for irrigation in agriculture. There are three major potential environmental effects from such subsidies, all applying to the case of groundwaters. The first is when the amount pumped is greater than the average recharge of the aquifer. This leads to an irreversible reduction of reservoirs, since water mines cannot be "refilled". Bajio, Central, and North-Central Mexico present this problem. The second is the intrusion of salty waters in the interface of the coastal aquifers, due to a lowering water table. This implies an irreversible lack of sweet water in the coastal aquifer. This may be the case in both North and South Baja California. Finally, excessive irrigation water use can cause waterlogging and salinization of soils: subsidies clearly provide an incentive to such excessive use. This applies to all regions in Mexico. An estimated 100,000 hectares of agricultural land in Mexico are saline due to excessive use of irrigation waters (out of a total of 600,000 hectares of soils affected by some kind of salinity effects).

Information is scarce for most parameters. The irrigated area in Mexico is 6 million hectares; 2 million hectares are irrigated with underground waters. Based on a few standard parameters,<sup>2</sup> " the implicit subsidy of US$82/hectares/year multiplied by the 2 million hectares gives a total annual subsidy of US$164 million. These subsidies refer to provision of water; the costs of bringing water from alternative sites are not estimated here. For the purpose of illustration, we present estimates of the costs of reclamation of saline soils : 465,000 hectares need reclamation _21. Average water diversion 9,000 m3/hectare/year, average pwnping depth 50 meters, an energy cost to farmers of US$28 mills/kwh and a marginal cost of US$61 mills/kwh. Such estimated parameters lead to a power demand of 1 Kw per hecrare and of 2,500 kwh of energy per hectare per year. 7hus the marginal cost of irrigation is US$152/hectare4'ear, while the average cost to farmers is US$70/hectare/year._ 21
(Comision Nacional de Aguas, personal communication). The estimated cost of reclamation is US$1,333 per hectare. Assuming that only 100,000 hectares which correspond to the area affected by human activity, are reclaimed, the total estimated reclamation costs are US$133 million, roughly the same as the implicit subsidies in the charging system.

Health Impacts From Water and Solid Waste Pollution, from Lack of Sanitation. ana from Ingestion Qf Foodstuff Contaminated by Untreated Wastewaters Used for IrriTation.

Gastrointestinal diseases--namely enteric and diarrheal diseases--represent one of the most serious health problems in developing countries and still are the number one cause of infant mortality in many of them, including Mexico. Such health problems are essentially a consequence of interrelated environmental and socioeconomic problems, such as lack of sanitation, ingestion of contaminated foodstuff, and 'ack of education, which leads to poor hygienic practices.

The original intention here was to quantify the health costs associated to water pollution in both urban and rural areas and, independently, the health costs associated with the disposal of solid and toxic waste. To a large extent the two problems are linked because both surface and underground waters can be contaminated if rain waters percolate through residues. The fact that the major health effect from the two problems is the same--gastrointestinal diseases-makes it extremely difficult to determine the origin of a particular disease. It is impossible to attribute a child's case of diarrhea to either contact and mouthing of solid wastes or to drinking of contaminated waters. Thus the health effect, rather than the environmental problem, is analyzed here.

Water pollution. In the 1970s, 11 surface water basins classified as the most polluted served 59 percent of population, while the 164 least polluted served only 6 percent of the population. In 1985, the total flow rate of municipal and industrial effluent was approximately 160 m3/sec. Water treatment capacity covers 17.5 percent of total discharges from point sources (28 m31sec), in 60 industrial plants and 193 municipalities. However, only 15 m3/sec (9 percent) were actually treated. Out of 30 locations identified in the Plan Nacional Hidraulico, 19 had coliform contamination.

By 1986, 72 percent of the total population had access to water supply-82 percen in urban areas and 49 percent in rural areas. As to sewage system, 65 percent had access to these facilities in urban areas and only 11 percent in rural areas. In total, 22.5 million people had no access to safe water and about 40.7 million lacked sewerage services. Even for those who have access to piped water, the quality is not always satisfactory: only 20 percent of the municipal systems (for medium and large cities) have a reliable chlorination system.

Solid waste disposal. In 1986, total municipal wastes amounted to 32.5 million tons; one third of this amount were not properly disposed of. Production of waste in MCMA is around 22
11 million tons/day of which 80 percent was collected (60 percent in other urban areas). Industrial wastes total 133 million tons, of which 5 million tons are hazardous and 15 million tons require special disposal. Most are mining residues. Toxic wastes are indiscriminately mixed with municipal wastes, and operation of solid waste disposal systems is deficient in most municipalities.

Contamination of irrigation waters. The large-scale reuse of untreated domestic sewage waters for irrigation has been commonplace in Mexico since the early 1900s, and often occurs without effective sanitary controls. This practice may pose substantial health risks for farm workers and for the population consuming agricuitural products from such areas. Lago Texcoco and the irrigation districts surrounding Mexico City--Tula vall!;y, where wastewaters irrigate some 90,000 hectares, are the major areas with contamination (there are plans to extend such irrigated area to 250,000 hectares in the next few years). Edible crops from these reuse sites have been found to be contaminated with fecal coliform, and evidence from toxic contamination of groundwater has recently been identified. High rates of parasitosis tend to be associated with uncontrolled reuse, and outbreaks of enteritis, other diarrheal diseases, typhoid, and hepatitis are suspected to have been caused by raw sewage irrigation of vegetables.

Cost estimates: mortlity. According to Secretaria de Salud (1990), intestinal diseases (infeccion intestinal mal definida) are still the number one cause of mortality in Mexico, with a rate of 32.8 per 100,000 people in 1990 (total 28,000 deaths). The same rate for children under age 1 is roughly 500 (12,500 deaths), while for children between 1 and 4 it is 70 (5,600 deaths). Death rates for the other age groups were estimated proportionally to the number of cases of the disease in each group (the incidence of diarrheas is essentially the same for the other age groups-Secretaria de Salud 1990).

We considered two alternative scenarios. The first is based on current mortality rates: we applied the same criterion as for air pollution, namely an annual salary of US$7,700 and a 5 percent annual discount rate. As to life expectancy, we used 40 years for children below age 19, 30 years for people in age group 20-39, 20 years for those in age group 40-50, and 10 years for the others. Total estimated costs would be US$3.6 billion. This excludes all suffering and pain and any tentative treatment (mitigation) cost.

The other scenario assumes that oral rehydration therapy (ORT) will completely eliminate deaths from diarrhea. This scenario essentially estimates the mitigation costs associated to such deaths. However, it does not include the costs of ensuring such aniversal use of ORT, namely the educational effort: such costs are almost impossible to be estimated. It is also not possible to compare them with the costs of control (water treatment costs). Nevertheless, the estimate gives an indication of the benefits associated with the mitigation effort. Health costs associated to scenarios in which oral therapy produces intermediate effects can be evaluated based on the two scenarios presented here.

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The possibility that ORT could completely<sup>eliminate deaths from diarrhea does not</sup> appear unrealistic. Countries where<sup>conditions are likely to be worse than in Mexico have shown</sup> dramatic reductions in the rates of<sup>diarrhea-related child mortality. "An estimated 4 million</sup> youngsters under age 5 worldwide succumb<sup>to the disease each year, accounting for more than a</sup> quarter of the 14 million annual deaths<sup>in that age group. ORT now saves a million small children</sup> annually. No one, adult or child, would<sup>die of diarrhea if only every family in the world knew how</sup> to prepare and deliver some form of ORT.<sup>The ingredients needed for an adequate formulation can</sup> be found in virtually every household" (Hirschhorn<sup>and Greenough II 1991).</sup> In the case of Mexico, ORT has not<sup>proved so effective, probably because of</sup> inadequate administration coupled with<sup>lack of knowledge on the beneficial effects of the therapy,</sup> or even its own existence (Latorre et al.<sup>1990). The costs of the therapy are approximately US$1 '</sup> plus administration. "A child with diarrhea<sup>may need to be spoon fed more than half a liter of</sup> solution each day, in sessions spaced<sup>as little as three minutes apart, for five to seven days"</sup> (Hirschhorn and Greenough III op.cit.).<sup>Administration is estimated at US$12 (average of three daily</sup> wages of US$4, which is more than the minimum<sup>wage in Mexico, assuming thiat ORT administration</sup> does not require any qualification of the person<sup>administering the serum). Additionally, since ORT</sup> does not stop diarrhea, but only prevents dehydration,<sup>we added an estimated treatment cost of US$3</sup> per case. Applying the figures (US$16 per<sup>case) to all 28,000 annual lethal cases would lead to an</sup> estimated cost of US$448,000.

Morbidity. In 1990, the number of non-lethal<sup>cases of diarrhea in Mexico was 3.36</sup> million (Secretaria de Salud 1991). Sixty<sup>percent of these cases were children under age 14 and</sup> adults over age 65. For both these age groups<sup>we assumed: (a) the necessity to treat all cases and</sup> to (b) apply ORT to 50 percent of the total<sup>number of cases (both costs described above); and, (c)</sup> that 5 percent of all cases require laboratory<sup>analyses at an average cost of US$20 each. Total costs</sup> for those age groups are estimated at US$20<sup>million. For the other age groups we assumed the</sup> necessity to treat all cases and to apply ORT<sup>to 20 percent of the cases. We additionally assumed</sup> that productivity effects are not significant.<sup>Total treatment costs are estimated at US$8.5 million.</sup> Total morbidity costs associated to diarrheal<sup>diseases in Mexico are estimated at US$30 million.</sup> _22. Estimated costs -vary between US$0.17 to more_<sup>_than US$10. The USSI estimate used here_</sup> _may still be an overestimate (Martines et al._<sup>_1991)._</sup> 24
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