ECONOMIC EVALUATION OF ENERGY'S ENVIRONMENTAL COSTS WITH SPECIAL REFERENCE TO AIR POLLUTION.

The authors develop the welfare foundations of benefit-cost analysis for the control of energy-related environmental disruption, with special reference to air pollution. Optimal control is seen to require knowledge of a transfer function that relates discharges to ambient air quality, as well as knowledge of the (marginal) benefits of control. The authors then describe methods of estimating benefits and present some findings. Perhaps the most widely known method, measurement and (sometimes) evaluation of individually identified effects of pollution (on crops, on materials, etc), is found wanting from the point of view of economic theory because it essentially ignores the potential for adjustment by households and firms to changes in their physical or economic environment. The ″economic″ methods do tend to take account of this, and also directly evaluate changes in environmental quality. These methods include those based on observed, market behavior and those based on surveys. All of these methods however suffer from the drawback that they require restrictive assumptions of one sort or another. Despite the limitations, several efforts have been made to piece together existing empirical estimates to come up with a national aggregate estimate of the benefits of improved air quality. Perhaps the most clearly defined are those that estimate the benefits of a particular set of secondary standards (standards that call for an improvement in air quality beyond that needed to protect human health). Based on findings of one such study, the authors calculate the present value of secondary standards for two pollutants, total suspended particulates and oxides of sulfur.