Academic journal article Contemporary Economic Policy

Costs and Benefits of Reducing Air Pollutants Related to Acid Rain

Academic journal article Contemporary Economic Policy

Costs and Benefits of Reducing Air Pollutants Related to Acid Rain

Article excerpt


Control of S[O.sub.2] emissions under the 1990 Clean Air Act Amendments instituted two important innovations in U.S. environmental policy. The more widely acknowledged is the S[O.sub.2] emissions trading program. Firms are allowed to transfer allowances among facilities or to bank them for use in future years. Less widely acknowledged is the average annual cap on aggregate emissions by electric utilities, set at about one-half of the amount emitted in 1980. The cap represents a guarantee that emissions will not increase with economic growth. Title IV used a traditional approach in setting N[O.sub.x] emission rates for coal-fired electric utility units. Hence, there is no cap on emissions, but Title IV is expected to result in a 27% reduction from 1990 levels by the next decade.

This paper presents the first contemporary integrated analysis of the prospective costs and benefits of Title IV's Allowance Trading System for reducing sulfur dioxide (S[O.sub.2]) emissions and mandated reductions in emissions of nitrogen oxides (N[O.sub.x]). Previous studies, some of which are described below, have analyzed benefits and costs independently. Rubin (1991) provides an overview of the benefit-cost implications of the policy. This is the first analysis to compare benefits and costs under uniform assumptions.


The Tracking and Analysis Framework (TAF) is used to conduct the benefit-cost assessment.(1) TAF is a nonproprietary model constructed with the Analytica modeling software (Bloyd et al., 1996). TAF integrates models of electric utility emissions and costs, pollutant transport and deposition (including formation of secondary particulates but excluding ozone), visibility effects, effects on recreational lake fishing through changes in soil and aquatic chemistry, human health effects, and valuation of benefits. Each module of TAF was constructed and refined by a group of experts and draws primarily on peer reviewed literature to construct the integrated model. Thus, TAF is the work of a team of over 30 modelers and scientists from institutions around the country. As the framework integrating these literatures, TAF itself was subject to an extensive peer review in December 1995, which concluded that "TAF represent(s) a major advancement in our ability to perform integrated assessments" and that the model was ready for use by NAPAP (ORNL, 1995).

TAF characterizes emissions, emission transport, atmospheric concentrations of pollutants, and health effects at the state level. Changes outside the United States are not evaluated. The estimation of effects is amenable to modeling at a less centralized level, and the model uses probabilistic methods to represent variations in sources of emissions, geography, and population density within states. Recreational lake effects are characterized for a distribution of lakes in the Adirondacks. Recreational visibility effects are characterized at two parks and valued nationally. Residential visibility effects are characterized and valued for five metropolitan areas. These results are considered on a per capita basis. Regional issues are assessed through the regional pattern of health benefits. The considerable uncertainty in parameters in each of the modeled domains and in the underlying scientific and economic literature is at least partly captured through Monte Carlo simulation. Table I presents an overview of the model components described below.

A. The Benefits Valuation Module

From an economic perspective, values are measured by how much of one asset or service individuals are willing to sacrifice in order to obtain or preserve another. This is referred to as an "opportunity cost approach." Values are expressed in monetary terms even though in principle they can be expressed in other metrics. The value or opportunity cost of goods and services that are readily traded in markets is reflected in their prices. …

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