The economic costs of air pollution: Evidence from Europe - Executive Summary brochure

The Economic Cost of Air Pollution: Evidence from Europe Executive Summary December 2019

2 . THE ECONOMIC COST OF AIR POLLUTION: EVIDENCE FROM EUROPE – EXECUTIVE SUMMARY

Reducing air pollution could yield large economic dividends in addition to the wellestablished health benefits Air pollution represents a major threat to human health in the 21st century. The World Health Organisation estimates that only 1 in 10 people globally live in areas where air pollution is below recommended levels and that air pollution is responsible for 7 million deaths a year – one in eight deaths globally. Air pollution dominates all other major avoidable causes of death including tobacco smoking, alcohol use, road accidents and transmissible diseases such as AIDS, malaria, and tuberculosis. Since air pollution continues to rise at an alarming rate worldwide, especially in low- and middle-income countries, these numbers may grow much larger in the years to come (OECD, 2016).

The consequences of air pollution on human health have led to the introduction of increasingly stringent environmental regulations around the world (Botta and Koźluk, 2014), but controversy remains over their appropriate stringency level. Imposing environmental regulations is typically seen as a trade-off between

generating benefits to health and imposing costs on the economy. Therefore, this debate is often framed in terms of “jobs versus the environment” (Morgenstern, Pizer, and Shih, 2002). However, this ignores that health benefits can lead to improved productivity, which can itself translate into greater economic output. Indeed, a series of recent empirical studies at the micro-level suggest that air pollution also has large negative impacts on labour productivity because it induces absenteeism at work and reduces individuals’ cognitive and physical capabilities.

The results of this OECD study, based on data from all 1 342 NUTS-3 regions across the European Union from 2000 to 2015, show that higher levels of air pollution, as measured by PM2.5 concentration (the pollutant with by far the largest estimated impacts on mortality and health outcomes), exert a substantial direct burden on the economy by reducing output per worker. A 1µg/m3 increase in fine particulates concentration causes a 0.8% reduction in real GDP per capita that same year (Figure 1).

Figure 1. The impact of air pollution on GDP growth in Europe

Note: . Source: OECD (2019), “xxxxx”.

THE ECONOMIC COST OF AIR POLLUTION: EVIDENCE FROM EUROPE – EXECUTIVE SUMMARY . 3

Air pollution control policies may contribute positively to economic growth There are two major policy implications from these findings.

The first is that more stringent air quality regulations could be warranted based solely on economic grounds. This is because the large economic benefits from pollution reduction are greater than previously thought and compare with relatively small abatement costs: for example, reducing emissions of fine particulates by 25% across Europe would cost EUR 1.2 billion annually according to the European Commission, but the economic benefits from such emissions reductions would be at least two orders of magnitude greater. Consequently, such a reduction in pollution would easily pass a cost-benefit test, even ignoring the large benefits in terms of avoided mortality.

Secondly, air pollution control policies may contribute positively to economic growth, reinforcing the case for integrating green considerations into mainstream economic policy-making. Simulations suggest that reaching the air quality targets required by the European Commission Ambient Air Quality Directives for the period 2010-20 would increase European GDP by 1.25%, with the most polluted countries experiencing GDP growth of up to 3% (Figure 2). Since Eastern European countries face higher pollution levels on average, air pollution control policies could significantly contribute to economic convergence between Eastern and Western Europe, and could be seen as useful complements to structural policies aiming at fostering economic growth.

Figure 2 . Predicted impact of EC Directive 2008/50 on country-level GDP

Note: Source: OECD (2019), “xxxxx”.

More info: www.oecd.org/economy/economic-costs-air-pollution-evidence-fromeurope

https://oe.cd/pollution-air-economic-cost

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