Wednesday, February 20, 2013

MIT Report: Public Willing to Pay Big $$ to Reduce Smog

D.C. is buzzing with reports that President Obama will soon name prominent MIT nuclear physicist Ernest Monitz to head the Department of Energy.

The news prompted us to take a closer look at a recent MIT report, which concluded that the public is quite willing to pay for a reduction in smog, or ozone. This could be significant as the Obama Administration looks to update the national health standard for ozone. EPA by law is required to set the standard based on health science alone, but this report might help dampen some of the incendiary criticisms by the oil industry and other opponents of tougher standards.



The report (an abstract is available on MIT's web site  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2109861 and the entire report can be downloaded) looked at the program designed to reduce smog-season power plant emissions of smog-causing nitrogen oxides, or NOx.

As the report's abstract notes, this program:

greatly reduced NOx emissions since its initiation in 2003...we find that the reductions in NOx emissions decreased the number of summer days with high ozone levels by about 25%. [It] also led to reductions in expenditures on prescription pharmaceutical expenditures of about 1.9%.  Additionally, the summer mortality rate declined by approximately 0.5%, indicating there were about 2,200 fewer premature deaths per summer, mainly among individuals 75 and older.  The monetized value of the reductions in pharmaceutical purchases and mortality rates are each roughly $900 million annually, suggesting that defensive investments are a significant portion of the willingness to pay for air quality. Finally, we cautiously conclude that the reductions in ozone are the primary channel for these reductions in defensive investments and mortality rates, which indicated that willingness to pay for ozone reductions is larger than previously understood.



Looking forward, the report authors note that



estimates of willingness to pay for a reduction in ozone would be of tremendous practical importance as the EPA is currently considering revising the ozone standard with an expected announcement of an updated standard in 2013. Noting that they must be interpreted cautiously due to uncertainty about the validity of the exclusion restriction, the IV ozone results suggest that each 1 ppb decrease in the mean summer ozone concentration in the Eastern U.S. is worth approximately $1.3 billion in social benefits. Similarly, one fewer day per summer nationally with an ozone concentration exceeding 65 ppb would yield roughly $500 million of benefits.

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