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Environmental Economics Research at EPA

Some of the benefits of pollution control accrue directly affected firms, through downward shifts in supply curves for their outputs. Such shifts may increase producer surplus to the affected firms. The industries most likely to be affected by such productivity-enhancing environmental improvements are fisheries, agriculture and forestry, through all industries and households benefit from reduced soiling and materials damage.

Two approaches can be used to capture the productivity-enhancing effects of environmental improvements. The damage function method involves three steps: (1) estimate a physical change in yield attributable to the environmental improvement; (2) describe the resulting shift in supply for the product; and (3) calculate the resulting changes in consumer and producer surpluses. This approach is used in a number of the studies of agricultural productivity, forests and commercial fisheries.

The alternative approach would look at averting behavior and try to measure how farmers, timber companies and fishers adjust their profit-maximizing mix of inputs to adjust to the changed environmental conditions. The value of the change in environmental conditions would then be derived from the profit calculation. This section focuses solely on the damage function studies. You can see the full list of reports corresponding to this section in the benefits analysis - valuation - cost of damages avoided - resource/environmental harms subview of the subject view of the Environmental Economics Report Manager (EERM) database. Those based on averting behavior are reviewedelsewhere.

An Economic Assessment of Air Pollution Damages to Selected Annual Crops in Southern California (EE0040) (undated) by Adams, Crocker, and Thanavibulchai evaluated the impacts of oxidants on 14 vegetable and field crops on Southern California using 1976 oxidant and yield data. In 1979 the same authors issued an expanded and revised version of that study, A Preliminary Assessment of Air Pollution Damages for Selected Crops Within Southern California, Volume III of Methods Development for Assessing Air Pollution Control Benefits (EE-0271C). The authors estimated that oxidant air pollution in 1976 caused losses to consumers of these crops of $14.8 million. In 1985 the same authors and Horst issued an updated and expanded version of the same study The Value of Air Pollution Damages to Agricultural Activities in Southern California (EE0278F) in which the 1976 losses to consumers of the 14 crops were estimated to be $46 million. A second essay in this volume describes losses in earnings that workers in citrus groves experience due to lost work days due to oxidant exposure in their work environments. On average their earnings were reduced by two percent.

The 1972 Survey and Assessment of Air Pollution Damage to Vegetation in New Jersey (EE0377) by Pell reports on the second year of a study of air pollution damage to New Jersey crops, 1972-73. Both agronomic crops and ornamental plantings were considered, the latter being of growing importance in New Jersey agriculture. Second year losses were $128 thousand, only 11% of the first year’s losses. The author attributes the steep decline to altered environmental conditions rather than improved environmental conditions. Heavy rains in the later year may have afforded some protection to crops. The paper also allocates crop damage by pollutant: 47% to oxidants, 18% to hydrogen fluoride, 16% to ethylene, 4% to sulfur dioxide and 1% to anhydrous ammonia. Counties sustaining the greatest losses were Cumberland, Warren, Atlantic and Salem.

Liu and Eden (EE0061) in their 1976 report Physical and Economic Damage Functions for Air Pollutants by Receptors generate physical and economic damage functions by receptor (health, household soiling, vegetation, and materials), for sulfur dioxide and particulate matter. Mendelsohn and Shea (EE0160) offer A Case Study of Effects of Acidic Air Pollutants on Crop Yields. The 1981 study found that after controlling for farm size, fertilizer applications, herbicide and pesticide use, and lime use, sulfur dioxide and acid rain were a statistically significant determinant of soybean yields in Iowa in just one of three study years. Horst et al. (EE0142) estimate the costs to households of diesel combustion emissions in their 1983 report Health, Soiling and Visibility Benefits of Alternative Mobile Source Diesel Particulate Standards. The study was undertaken to provide benefits information to EPA for inclusion in the decision process regarding a planned revision of the national ambient air quality standard for particulate matter. The study is derivative; no new analyses are conducted but many existing studies are combined into a synthesis document. Soiling costs and most of the health effects are analyzed using the damage function approach.

Several reports are concerned with pollution of water and groundwater. Tihansky (EE0093) uses a damage function approach to estimate the economic losses to households from deterioration of appliances and other household items that come into contact with chemicals and other constituents of domestic water supplies in his 1973 report Economic Damages to Household Items from Water Supply Use in the United States. Crocker, Tschirhart and Adams late 1979 report Valuing Ecosystem Functions: The Effects of Acidification (EE0043) uses a damage function perspective to describe how one might go about valuing the damages to ecosystems from acid rain. Chapter 11 of Mills and Feenburg’s 1981 report Measuring the Benefits of Water Pollution Abatement (EE0178) concerns withdrawals of instream flow for use by industry and municipal supply systems. A damage function approach is used to calculate the benefits from potential improvements in water quality. Boyle et al.(EE0259) develop A Framework for Measuring the Economic Benefits of Groundwater based largely on the damage function approach. The loss in use value caused by pollution to groundwater is the lesser of the cost of treating it or of providing alternative drinking water supplies. The study is an extension of the 1993 report issued by the EPA Office of Water entitled: A Guide for Cost-Effectiveness and Cost-Benefit Analysis of State and Local Groundwater Programs and an earlier study by Boyle and coauthors (EE0115) entitled Assessing the Economic Benefits of Groundwater for Environmental Policy Decisions.

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