I just finished reading (9:15 am) the "fresh look" benefit-cost analysis of the acid rain program paper that we referred to in a post last week. My environmental economics class meets at 10 am and we're starting benefit-cost analysis. So, this post is a clear example of how blogging improves teaching!
First of all, great paper! It is recommended reading as an example of benefit-cost analysis, and especially as an example of how nonmarket valuation (e.g., TCM, CVM) fits into benefit-cost analysis (presented at a non-technical level). There is lots of the non-econ science stuff that some of you may like (my brain goes numb) too.
Now, just the facts:
Table 1 shows estimates from a simulation model of the SO2, NOx and mercury emissions from power plants with and without the US EPA's acid rain program (i.e., Title IV of the Clean Air Act Amendments of 1990). Reductions due to Title IV in 2010 are 8 million tons of SO2, 2.7 million tons of NOx and 10 tons of mercury.
The annual benefits of Title IV in 2010 are $122 billion (click on the thumbnail to the right). 91% of the benefits are in the lives saved category (i.e., mortality) when lives are valued at $6 million. Using alternative, more conservative, estimates of lives saved would reduce this benefit by about half. Other important benefits are for reductions in illnesses (i.e., morbidity) and visibility.
The annual costs of Title IV in 2010 are $3 billion, $2 billion for SO2 and $1 billion for NOx. The average cost of each ton reduction is about $250 for SO2 and and $125 for NOx.
The annual net benefits are $119 billion, which is a big number. And this is for just one year. Aggregating the net benefits into perpetuity at a 10% discount rate gives us $1.19 trillion in net benefits (about 10% of annual GDP). If you prefer benefit-cost ratios, the ratio is 40.67, another outrageously big number.
The conclusions note that the same emissions reductions could have been reached under other provisions, "primarily NSR" (i.e., New Source Review), the Clean Air Act without Title IV. But, the costs would have been much larger than $3 billion. I'm not sure how much larger this would have been, but it would have been "much."
