Acid deposition control A benejit-cost analysis: Its prospects and limits
Thomas D. Cracker Deparmtent of Economics University of Wyoming Laramie, wo. 82071 James L. Regens Institute of Natural Resources University of Georgia Athens, Ga. 30602 Because of its ability to deal with aggregate efficiency, benefit-cost analysis is a potentially useful component of policy evaluation. Its utility, however, is constrained by the availability of reliable data. Even economic feasibility can be difficult to establish empirically, particularly if control benefits appear to be highly subtle and intangible while compliance costs appear to be concrete. As a result, a requirement that decisions about each significant environmental regulation, unless prohibited by statute, be made on the basis of such formal analyses creates a major analyticalchallenge. The objective of generating estimates of net control benefits, the gross benefits less costs, may be impossible without reliance on limited scientific data and allowance for large margins of error.
The policy issue The acid rain controversy provides an excellent example of the assets and liabilities of using benefit-cost analyses to guide policy choice. Unfortunately, as Olson points out (I), the large temporal and spatial scales for acid deposition make experimentation and observation extremely difficult. Nevertheless, based on existing information, strong qualitative justification can be offered for some willingness to override strict scientific canons against speculation about the harmful effects of acid deposition. Precipitation chemistry data indicate that the geographic scope of acid dew sition covers most of eastern North America. More limited data suggest that high4evation ( >2900 m), rural areas in the western U.S.are also experiencing low pH bulk precipitation (2). 112 Envimn. Sci. Technol., MI. 19,NO.2. 1985
W13-936X/85/0919.0112$01.~/0 @ 1985 American Chemical Society
Although the effects hypothesized to be associated with acid deposition include those on soils, forests, crops, and materials, conclusive evidence exists only for injury to aquatic ecosystems. A large body of evidence indicates that chemical and biological alterations can take place in lakes and streams. The most visible of these alterations is in the loss of fish populations. Studies of mature forests also indicate reduced growth patterns as well as increased mortality in recent decades for primarily coniferous species in localized areas of the northeastern US. (3). However, because responses tend to be subtle and causal linkages complex, terrestrial ecosystem findings on materials, forests, crops, and soil are equivocal. Finally, although the direct risk to human health from acid deposition (as opposed to respirable sulfates) is presumed to be relatively low. it has been postulated that certain health risks may be associated with acid fog, including the leaching of merals into drinking-water supplies and those events documented in the Los Angeles Basin. (See ESdiT, Vol. 17, No. 3, 1983, p. 117A.) Given current scientific knowledge about the phenomenon of acid deposition, it is clear that policy makers confront a dilemma. Reasons exist to take mitigative actions. First, although its extent as well as the rate at which damage is induced remains uncertain, the mere existence of the perception of a problem compels a response. Second, manmade sources generally are the overwhelming contributors to acid d e p osition in eastern North America. Although expensive, control technology to significantly reduce in emissions from those sources is available. Thus, it is reasonable to assume that reducing SO2 emissions over a broad area for several years will produce an essentially proportionate reduction in sulfate deposition (4). Moreover, other aspects of air quality in eastern North America-regional visibility, particulate matter loadings, and ambient SO2 levels-are affected strongly by the precursors to acid deposition, and they are likely to be improved if atmospheric loadings of precursor emissions are reduced. But unlike the proportionality between long-term average emissions and deposition, the site-specific changes in d e p osition patterns and pH that would occur within sensitive receptor areas are not clear.
Benefit*&
perspectives Because the choices of emitters and receptors differ according to whether or not a market exists in property rights to emit precursors and because of the lack
TABLE 1
Estimates of 1978 maximum economic losses caused by acid
deposition in t h e eastern third of t h e U.S.’ Elfscts ategory
Materials Forest ecosystems Direct agricultural Aquatic ecosystems
OthersC
Maxlmum IosseZ (in billions)
$2.00 1.75
1.00 0.25 0.10
.Estimates are for the potentialtotal benefits due to the complete elimination 01 acid deposition etfecto. 01” ,978 dollnn . .. . .. clnciudeshealth,water supply systems. etc. source: Reference5
of proxy markets, it may be impossible to trace economically efficient outcomes (those that would occur if all potential voluntary exchanges were to be realized) for the acid deposition problem. The economic criterion is then reduced to whether those who gain from a change in precursor control could, in principle, compensate the losers and still have some residual gain. This simply restates the fact that efforts to assess the benefits and costs of acid deposition control must necessarily presume that acceptable resolutions have already been found for a variety of natural science, social, and ethical problems, such as who “owns” the waste assimilative capacity of the atmosphere. A benefit-cost analysis of acid deposition thus requires three kinds of information: the differential changes across space and time that acid deposition control causes in people’s alternative opportunities to produce and consume, the responses of prices to these changes, and the adaptations emitters and recep tors can make to these changes in opportunities and prices. Accounting for the results of the last two facets is the economic analysis portion of benefit-cost analysis. If accurate information on economic consequences is desired, some formal analysis of the last two issues is inescapable. For example, the effects of acid deposition in a given region may not be great enough to affect the relative prices of different crops. However, unless the effects on crop yield are equal across the spectrum of crops grown in the region, the relative rewards of growing one crop rather than another will change, and producers will substitute the relatively less affected crop. Similarly, if differential yield effects are small, the price responses across crops are likely to differ, provid-
ing another source of changes in relative rewards across alternative crops.
The benefits of contml Crocker reported estimates by impact category of the maximum economic values for eliminating all acid deposition effects on current annual yields for existing economic activities in the eastern third of the U.S. (5)(Table l). No other comprehensive value estimates or rank-orderings at the national level have appeared since, and we believe that no new information justifies changing the original ordering. However, because the calculations were based on assumptions about effects the magniNdes of which are still being defined, they should be treated as highly tentative. The effects on materials were assigned the highest monetary value, even though only Haagenrude’s and Atteraas’s study of zinc and steel corrcsion rates provides a separate measure of acid deposition effects (6). Many economic studies of the effects of SO2and total suspended particulates on materials are available, but without exception they neglect price responses and a d a p tations. Most even fail to consider the technology or activity of which the affected material is a pan. Numerous inexpensive adaptation opportunities are generally available for production and consumption involving metals, ceramics, textiles, paint, and paper. But for buildings already in place, fewer opportunities exist. Moreover, the unit value of buildings is high, and the fraction of the nation’s wealth that they constitute is large. The heterogeneity of these buildings and structures is equally important. For example, there is rather strong indirect evidence that acid deposition is linked to severe economic damage to public and private structures that fall into the category of cultural heritage. One exEnviron. Sci. Technol.. MI. 19. No. 2. 1985 l l a
treme example is the Statue of Liberty. Of all the effects of acid deposition, those on forest ecosystems seem the least understood, although there is increasing evidence that substantial effects exist. Qualitative statements, without probability statements attached, abound. Acid deposition may increase the fertility of sulfur-poor or nitrogen-poor soils, leach plant nutrients from soils in which these elements are plentiful, remove soil-binding agents, increase heavy metals in soils to toxic levels, or harm forest plant foliage. Given this array of possibilities, one might adopt Johnsson’s position that sufficient reason exists to attribute some fraction of the observed reductions in forest growth rates to acid deposition (7). For example, the National Academy of Sciences Panel on on Nitrates ascribed a 5 % reduction in the annual growth rates of eastern U.S. forests to acid deposition (8). A simple multiplication of this reduction by a weighted average of 1977 standing timber prices (9) provides an estimate of nearly $600 million annually in lost timber production alone. Losses in forest outdoor recreation, water storage, wildlife habitats, and other forest services must be added to this. Agricultural damage has been demonstrated at lower than current ambient pH levels (between 2.0 and 3 . 0 ) . Most crops studied, however, have demonstrated no consistent sensitivity to acid deposition. From an economic perspective, it is difficult to rationalize the large amount of research and the attention from the news media caused by acid deposition’s effects on aquatic ecosystems. The current economic consequences of these effects are small relative both to the economic value of all freshwater sport fishing in North America, and estimates (even with order-of-magnitude errors) of the value of current effects on other categories. Too many substitute lakes and too many alternative outdoor recreational opportunities exist. In fact, in a study that does account for the substitutions that fishermen make, Menz and Mullen estimate that the 1982 value of the Adirondack lake and pond sport fishery losses to currently licensed fishermen was between $1.7 and $3.2 million (10). Acid deposition also has caused concern about increased corrosion of household, commercial, and industrial water supply systems and about the indirect effects of this corrosion on human health. Most drinking water supply systems nevertheless already have treatment facilities for liming. The eco114 Environ. Sci. Technol., Vol. 19,No. 2, 1985
nomic damage caused by corrosion is thus offset by the relatively small costs of acquiring and applying the additional lime necessary to overcome it.
The costs of control There are a number of policy options available for achieving emissions reductions in the major precursors of acid deposition-S02, NO,, and volatile organic carbons (V0Cs)-all of which are anthropogenic in origin. Absolute SOz and VOC emissions and the rate of growth in NO, emissions have declined markedly since 1970. Future declines, however, will depend on the strictness of environmental regulations and on economic activity, energy prices, and technology. Although uncertainty surrounds each of those factors, trends must be estimated to project the costs of control. Over the long term, perhaps 40 years or more, a significant reduction in emissions may result as existing sources are displaced by facilities subject to new source performance standards (NSPS). It is debatable, however, whether the replacement of existing sources with new ones will result in emissions levels low enough to reduce acid deposition loadings to environmentally acceptable targets. Such an assertion rests on several fundamental assumptions. First, growth rates in utilities and other major industries must remain relatively low compared with historical rates. Second, technological advances must permit more stringent NSPS, or innovative incentives for control must be developed, thereby reducing aggregate emissions. Finally, no irreversible damage must be allowed to occur within the next three to four decades. If these assumptions are valid, then the opportunity costs of achieving additional reductions now are substantial, relative to known as opposed to plausible damage (11). Proposals for imposing controls on acid deposition now focus on reducing SO2 emissions because of the greater difficulty in achieving significant reductions in NO, emissions and the uncertainty about whether nitrate acidity is as harmful as sulfate acidity. As a result, it is important to consider the costs of such an abatement program. As Table 2 indicates, it is generally more cost effective to switch to lower sulfur coals or residual oil than it is to employ flue gas desulfurization (FGD). However, such switching poses potential equity and adjustment problems relating to the regional losses of miners’ jobs that would result from shifts in the coal market. Although the economics of the limestone injection multistage burner (LIMB) seem promising, LIMB
commercialization does not appear likely prior to the mid-l990s, even if its expenses are substantially underwritten by the federal government. Moreover, because of economies of scale for pollution control efforts differ between the utility sector and the industrial sectorincluding fuel purchase, control technology, and transportation-capturing SO2 reductions from utilities instead of industrial sources appears to be relatively more cost effective. Any attempt to quantify the actual costs of an emissions reduction program in terms of control costs, coal market shifts, or electricity rates, however, requires the analyst to specify a number of prior conditions. Both the size of the rollback-for example, four, eight, or 12 million tons per year-and the geographical area in which the emissions reductions are required must be specified. The timing of additional controls is also a major determinant of costs. The imposition of further controls now, for example, implies the use of currently available technology, such as FGD, whereas a delay will allow consideration of possible new technologies, such as LIMB. The advantages of delay must be weighed against interim damage to the environment. There are numerous reviews available that detail the amount of money emitters will be required to spend for controlling acid deposition precursors (12).Empirical results for reductions in SO2 by utilities generally have been uniform across studies. Annual cost estimates range from $1 billion to $2 billion for a 40% reduction, and from $2 billion to $4 billion for a 50% reduction. A cost of $5 billion to $6 billion is estimated for a 66-75 % reduction. Predicted average increases in electricity rates have ranged from 1.4% for a fourmillion-ton rollback, to 8% for a rollback of twelve million tons. It is surprising, at least to the community of economists, that this recent work suggests the costs of alternative strategies for SO2 control have only minor differences. For example, systems based on state implementation plans for controlling at least one acid deposition precursor tend to be as cost effective as economic incentive systems (13-15). Atkinson attributes this mainly to the greater aggregate quantity of emissions that localized economic incentive strategies allow in order to meet local ambient standards (15). Emissions are distributed spatially such that the dispersal properties of the local atmosphere are used more effectively. These greater emissions provide more material for long-range transport, and when the material is removed to meet ambient standards that account for long-range
TABLE 2
Incremental costs of SO2 emissions reduction strategies
CQ”trnl strateg1Ss
Coal cleaning North Appalachia and east Midwest coal South Appalachia coal
costs
(In dollars per ton SO,)
$50-600 700-1000
Utlllly strategies'
Fuel Switching 250-350 Shift from high- to low-sulfurcoal 350-400 Shift from high- to medium-sulfur coal 400-500 Shift from medium- to low-sulfurcoal 300-400 Shift from high- to low-sulfur residual oil Flue gas desulfurization Shin from unscrubbed to scrubbed high400-600 sulfur coal Shin from unscrubbed to scrubbed medium600-1500 sulfur coal Shin from unscrubbed to scrubbed low1800-3000 sulfur coal Limestone injection multistaged burnersb 250-500 200-350 High-sulfur coal 300- 1100 250-700 Medium-sulfur coal 600-2000 500-1200 Low-sulfur coal Industrial strateglee Fuel Switching 250-350 Shin from high- to low-sulfurcoal 350-400 Shin from high- to medium-sulfur coal 400-500 Shin from medium- to low-sulfur coal 300-400 Shin from high- IO low-Sulfur residual oil Flue gas desulfurization Shin from unscrubbed to scrubbed high400-600 sulfur coal Shin from unscrubbed to scrubbed medium. 600-1500 sulfur coal Shift from unscrubbed to scrubbed low1800-3000 sulfur coal aRepreSentativecosts for a 5W-MW power plant. Costs will vary for each region and year.
nRRemoval 01 SO, lor relrofits BXDeCted to be between 50% llirsl column1 and 60% lsecond ~. calm”). rRepreSentatiVe costs for a l7C-million-Btdhour industrial boiler. Costs will vary for each regton and year.
Source: Reference 18
transport, the advantage of the economic incentive strategies is drastically reduced.
Conclusion Partly because of the fuzzy state of existing scientific information and partly because of their intrinsic failings, benefit-cost measurements of acid deposition control may well involve major errors of commission and omission. Indeed, the methods used to assess price responses and people’s adaptations are valid only when a projected change is so small that an evaluation of states proximate to the status quo is sufficient, and when a projected change does not significantly alter the sets of technical and economic options available in other markets, locations, and times. The literature on acid deposition is replete with conjecture about the mining of ecosystem nutrients and the ac-
cumulation of ecosystem toxins. These speculations imply long-term damage. The irreversibility of many of these effects, should they occur, means that efforts to attach values to them must account for the possible loss of future opportunities to enjoy ecosystem amenities and life support services. Although the relevant abstract principles are well understood ( I @ , economic practice is much weaker in empirically establishing the quantitative impact of option foreclosures upon future price StNCNRS. The value of benefit-cost analysis of acid deposition control resides more in its potential contributions to clearer statements of the problem than in its provision of accounts for social and ecological bookkeeping. Benefit-cost analysis as an accounting exercise will emphasize those aspects that can be readily quantified and priced, such as the decay of materials. Rather than en-
couraging the exploration of ways to live with scientific and economic ambiguities, benefit-cost analyses will tend to avoid them. Because most ambiguities arise from long-term depletion of ecosystem nutrients and the effects of toxin accumulation, a myopic perspective is encouraged. The long-term effects suggest that the conditions and value of future natural ecosystems might depend on current management choices, implying that the management problem has dynamic and sequential features. Tesfatsion has shown that if the workings of the natural system are well understood, and if the net gains of any particular action are highly correlated over the long term, the outcomes of myopic decision le^ closely approximate those that embody sequential features (17). Yet few currently characterize the scientific or economic aspects of acid deposition transport and control as being well understood on less than a broad spatial and temporal scale (4). In addition, differing damage thresholds across materials and ecosystem components imply that net gains are not highly correlated over time. The dominant dynamic and stochastic features of acid deposition control advise caution in using the valuation numbers a conventional benefit-cost analysis provides. The methods are better viewed as a set of tools that illustrate the natural system consequences of market responses and people’s adaptations to variations in acid deposition levels. Whatever the policy objectives and criteria, benefit-cost studies force policy makers to face the inherent tradeoffs of the acid deposition problem and the influences that individuals and institutions choose to exercise on the structure of these tradeoffs.
Acknowledgment Before publication, this article was reviewed for suitability as an ES&T feaNre by Lester Lave, Carnegie-Mellon University, Pittsburgh, Pa. 15213; Richard N. L. Andrews. Institute for Environmental Studies, University of North Carolina, Chapel Hill, N.C. 27514; and Richard Liroff, Conservation Foundation, Washington, D.C. 20036.
References (I)Olson, M. Americon Economic Review 1982, 72.262-66. (2) Lewis. W.M.. Ib: Grant, M.C. Science 1980.207, 176-77.
(3) Vogelmann. H.M. Norurol Hisrory. November
1982.
(4) “Acid Deposition Atmospheric Processes in Eastern North America: A Review of Currenl Scientific Understanding”: Na-
tional Research Council; National Academy Press: Washineton. D.C. 1983. ( 5 ) Crccker, T. 6. Statement before the Select Committee on Small Business and Commit-
Enuimn. Scl. Technol.. Vol. 19, NO. 2. 1985 115
p on
Environmental and Public Works, Economic Impact of Acid Rain,” US. Senate Rcpon. 96th Congress, 2nd Session. Sept. 23. 1980;pp. 100-111. (6) Haagenrude, S. E.; Aneraas, L. Presented at the 158th Meetinn of the Electrochemical Society. Hollyuwd~Fla..Ckt. 5-10. 1980. (7) lonrron. B I n “Proceedings of the First International Svmwrium on Acid Precinmtion and the F% Ecosystem,” Tech&? Report NE-23; Northeastern Forest Experimental Station: Upper Oarby. Pa., 1976. (8) “Nitrates: An Environmental Assessment”: Panel On Nitrates: National Aeademy of Sciences, Nationai Research Couicil: Washington, D.C.. 1978; p. 577. (9) “Forest Statistics of the U.S., 1977-Review Draft”: US. Forest Service: U.S. Government ‘Printing Office- washingt ton, D.C., 1978. (IO) Menz. F. C.; Mullen, J. K.In “Economic Perspectives on Acid Deposition Control”; Crocker, T.D., Ed.; Butterworth Publishers: Boston, Mass.. 1984, pp. 135-56. (11) Regens, 1. L. In “Economic Perspectives On Acid Deposition Control”; Crocker, T. D., Ed.; Butterworth Publishers: Boston, Mass.. 1984; pp. 5-20. (12) Rubin. E. S.Environ. Sci. 72chnol. 1983. 17. 366-77A. (13) “The Regional Implications of lhnsported Air Pollutants: An Assessment of Acidic Deposition and Ozone,“ Interim Draft. Office of Technology Assessment, U.S. Congress: Washington, D.C.. July 1982. (14) Silverman. B. G. 1. Air Pollut. Control ,issoc. iw,jz,1031-42. (IS) AIkinson, S. E. Canadiam Journnl of Ec~~
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onomics 1983.16.704-22. ~~
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(16) Oasgupta, P. S.; Heal,0. M. "Economic Theory and Exhaustible Resources”; Cambridge University Press: New York, N.Y., 1979. (17) Tesfauion. L. JourMf of Economic Dynamics ond Control1981,3, 31-38. (18) “Acid Deposition.” unpublished briefing document: US. EPA Washington, D.C., 1983.
You couldn’t sign on a more valuable ally than Chemical & EngineeringNews. For 535 a year (just 67Cper weekly issue). well help you spot trends that are going to impact your company‘ssales, production,
Thonm D. C m k e r (I.) is a professor of economics at the University of Woming. He has sewed on the faculties of the Universities of California and Wisconsin and was a member of the EPA Science Advisory Board. me development of mans to value environmental goods and the properties of alternative allocation system for these goods have dominated his research.
James L Regens ( E ) is an assaciare professor of political science and a research fellow in the Institute of Natural Resources at the University of Georgia. He received his B.S. and M A . from the Universiry of A I ~ Z Oand M a Ph.D. from the University of Oklahoma. From 1980 IO 1983. Regens sewed with the EPA: he was joint chair of the fedeml Interagency Tark Force on Acid Precipitation (1981-1982) and chairman of the Energy and Environment Group of the Organization for Economic Cooperation and Development (1981-1983). 116 Envlmn. Sci.Techml., MI. 19. NO.2.1985
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