Wednesday, June 15, 2016

Canary in a Coal Mine: Infant Mortality, Property Values, and Tradeoffs Associated with Mid-20th Century Air Pollution

Pollution is a common byproduct of economic activity. Although policymakers should account for both the benefits and the negative externalities of polluting activities, it is difficult to identify those who are harmed and those who benefit from them. To overcome this challenge, our paper uses a novel dataset on the mid-20th century expansion of the U.S. power grid to study the costs and the benefits of coal-fired electricity generation. The empirical analysis exploits the timing of coal-fired power plant openings and annual variation in plant-level coal consumption from 1938 to 1962, when emissions were virtually unregulated. Pollution from the burning of coal for electricity generation is shown to have quantitatively important and nonlinear effects on county-level infant mortality rates. By 1962, it was responsible for 3,500 infant deaths per year, over one death per thousand live births. These effects are even larger at lower levels of coal consumption. We also find evidence of clear tradeoffs associated with coal-fired electricity generation. For counties with low access to electricity in the baseline, increases in local power plant coal consumption reduced infant mortality and increased housing values and rental prices. For counties with near universal access to electricity in the baseline, increases in coal consumption by power plants led to higher infant mortality rates, and lower housing values and rental prices. These results highlight the importance of considering both the costs and benefits of polluting activities, and suggest that demand for policy intervention may emerge only when the negative externalities are significantly larger than the perceived benefits. 
At low levels of electricity access, coal-fired generation has positive effects on housing values. At high levels of baseline access, the effects become negative. The results are stronger for rental values than for housing values. One explanation is that rental values are more likely to reflect contemporaneous conditions rather than the anticipated future discounted flow of benefits and costs (Banzhaf and Farooque, 2013).34 The housing market response to coal-fired electricity was substantial: at low levels of baseline electricity access, a one standard deviation increase in coal consumption led to a 4.8 percent increase in local housing values, whereas at high levels of access it led to a decrease of 10.4 percent.

We rely on historical industry calculations of baghouse fabric filtration system costs to assss the cost-effectiveness of this pollution abatement technology. There were two primary costs: First, the upfront costs included both the purchase price of abatement equipment and installation costs, which ranged from 75 to 100 percent of the purchase price. For a typical large power plant, these annualized costs could range from $110,000 to $750,000 (1990 USD) (U.S. Department of Health, Education, and Welfare, 1969).41 Second, the costs associated with fly ash disposal. Each ton of coal burned produces between 250 and 300 kg of fly ash, so the average large plant in our sample would have produced between 208,000 and 250,000 tons of fly ash per year. Historically, the cost of ash disposal for electric utilities was $3.70 cents per ton, resulting in an average annual cost of $770,000 -$925,000. Together, these calculations imply a total annual cost of pollution abatement ranging from $880,000 to $1.675 million per plant.

Combined with the previous calculations, these results imply a cost per infant life saved of $73,000 to $140,000 (1990 USD). These costs fall well below the estimated $1 million (1990 USD) value of a statistical life (VSL) for this period (Costa and Kahn, 2004). Given that the pollution externality extended beyond infants, these cost estimates understate the true benefits of pollution abatement. Thus, it appears that the social benefits of pollution abatement dramatically exceeded the direct costs to electric utilities. Prior to the passage of the 1970 Clean Air Act Amendments (CAAA), however, private companies were not required to internalize these health costs, and electric utilities were unwilling to undertake the large capital investments associated with abatement technology. It appears that federal intervention under the 1970 CAAA was necessary to mitigate the externality imposed on the local population.

A second feasible intervention was the re-siting of power plants to less populous areas. We consider a scenario in which each of the 213 large power plants was relocated to the centroid of the least densely populated county within a 60-mile radius of its initial placement. This intervention would have reduced the total number of exposed infants – within 30 miles of a power plant – by two-thirds, and resulted in 14,961 fewer infant deaths over the sample period.

In order for electricity access to remain unchanged under this policy, transmission lines would need to be built back to the original power plant site. This involves two primary costs. First, the direct cost of constructing 8,542 miles of high voltage transmission lines at large power plant. Capital costs are annualized over the expected 15 year lifespan of the equipment and are added to standard recurring maintenance and operational costs.  A typical construction cost that ranged from $300,000 to $500,000 per mile depending on line voltage, topography and input costs (Brown and Sedano, 2004). Second, the annual transmission losses associated with shipping electricity over a longer distance. Assuming an additional loss of 2 to 3 percent, we calculate annual cost of transmission loss to range from $500,000 to $800,000 per plant.  Annualizing the upfront transmission line capital costs over a 20-year time horizon, we calculate that the annual cost to range from $1.4 to $2.4 million per plant. These calculations imply a cost per infant life saved ranging from $117,000 to $200,000 (1990 USD). Although somewhat less cost effective than the baghouse abatement technology, the social savings associated with relocating plants to less densely populated areas far exceeded the direct infrastructure costs to electric utilities.

Karen Clay, Joshua Lewis, Edson Severnini
National Bureau of Economic Research (NBER)
NBER Working Paper No. 22155
Issued in April 2016

No comments:

Post a Comment