Phase II: Estimating Health and Economic Damages (ILLNESS COSTS OF AIR POLLUTION) pdf

ICAP provides forecasts ofhealth and economic damages for expected or desired future air quality conditions in Ontario.The main body of this report outlines the technical foundations for

Phase II:

Estimating Health and Economic Damages

Illness Costs

of Air Pollution

DSS Management Consultants Inc.

Designers of Decision Support Systems

July 26, 2000

Dr Ted Boadway

Executive Director, Health Policy Department

Ontario Medical Association

525 University Avenue

Suite 300

Toronto, ON M5G 2K7

Dear Dr Boadway:

Illness Costs of Air PollutionOur File No 257a.20

Following is our final report for the above project

This report contains complete technical documentation for ICAP and the derivation of all of the

data used in that model As well, the results of applying ICAP to analyze the Ontario Anti-Smog

Action Plan are included

For several decades, the Ontario Medical Association has played a leadership role promotingimprovements in air quality to prevent illness and premature death This report builds on theseinitiatives and develops a quantitative foundation for estimating the health and economic damagescaused by air pollution Accompanying this report is a computer model (ICAP – Illness Costs ofAir Pollution) which is based on the data presented in this report ICAP provides forecasts ofhealth and economic damages for expected or desired future air quality conditions in Ontario.

The main body of this report outlines the technical foundations for ICAP Informationrequirements and uncertainties are reviewed The results of an analysis of the Ontario Anti-SmogAction Plan are discussed Eleven technical appendices deal in detail with various aspects ofICAP and the forecasting of health and economic damages due to air pollution

The impacts of two pollutants (i.e., ozone and particulate matter) on human health are analyzed.Human health impacts are grouped into five broad categories, namely, premature mortality,hospital admissions, emergency room visits, doctor’s office visits and minor illnesses Eachbroad illness category is further broken down into specific illness types for a total of 19 specificcardio-respiratory illnesses For each illness type, the illness rate is forecast by age group (i.e., 0-

This information has been used to analyze the health and economic benefits of Ontario’s Smog Action Plan (ASAP) The benefits of the ASAP are compared to the expected damages if

Anti-current air quality conditions remained the same (i.e., the status quo) As well, the benefits of

advancing the date for the ASAP reduction targets from 2015 to 2010 are forecast Health andeconomic damages associated with background levels of ozone have been deducted from theseforecasts

hospital admissions, 13,000 emergency room visits and 46 million illnesses as a result of airpollution (Forecasts of doctor’s office visits are not included due to the absence of supportingepidemiological studies.) If air quality conditions remain constant for the next 20 years (i.e., tothe year 2020), these illnesses and deaths will increase substantially This increase is due to anexpanding population as well as an aging population which is at higher risk to air pollutionimpacts.

These health impacts involve about $10 billion in annual economic damages Loss of life andpain and suffering account for about $4.1 and $4.8 billion of this total Annual health care costs

of air pollution are in the order of $600 million; lost productivity accounts for an additional $560million in annual damages These economic damages are expected to increase substantially overthe next 20 years

The ASAP will reduce health and economic damages by about 11% overall, compared to the

status quo The residual damages (i.e., those damages expected even with full implementation of

the ASAP) in 2015 are substantial and in total are forecast to be in the order of $10.7 billionannually

Advancing the target date for the ASAP from 2015 to 2010 will reduce somewhat the expecteddamages for the intervening years Nonetheless, substantial residual damages are forecast Thebenefits of the ASAP are largely attributable to emissions reduction measures in the U.S., not toinitiatives in Ontario If Ontario-only impacts of the ASAP are included, the avoided damagesamount to about 4% of the total

The potential for over- or underestimates is discussed at appropriate locations throughout thereport It is concluded that these estimates of health and economic damages are underestimates.Recommendations are included in the report with respect to future initiatives to use and improveICAP for policy analysis

This report was prepared for Dr Ted Boadway, Director of Environmental Health Policy at the

Ontario Medical Association Dr Boadway provided ongoing encouragement, support, direction

and input to the study from its inception to completion Michael Perley, Director of the Ontario

Campaign for Action on Tobacco, and a consultant to the OMA, also provided ongoing and

helpful input over the entire course of the study Patricia Graham, Assistant to Dr Boadway,

played an invaluable role in facilitating and coordinating the flow of e-mails, reports, phone calls,meetings, etc relating to the project

This project was funded by the Walter and Gordon Duncan Foundation Ms Christine Lee,

Executive Director of the Foundation maintained a keen and positive interest from start to finish.The DSS project team involved a number of people with diverse backgrounds Following is a list

of the individuals involved and their responsibilities

Dr David Bates – Illness risk factors

Mrs Soile Hämäläinen – Administration, report production and graphics

Mr Ed Hanna – Project direction

Dr Robin Hanvelt – Health economics

Dr Kapil Khatter – Environmental health

Ms Dianna Kopansky – Researcher

Dr David McKeown – Environmental health

Mr David Schneider – Health data analyst

Mr Steve Spencer – Computer model design and programming

Dr Peter Victor – Economic valuation

The project draws on data from diverse sources Many people and organizations assisted inproviding access to data This list of sources is long but several sources deserve special mention

Dean Stinson-O’Gorman at Environment Canada is responsible for their Air Quality Valuation Model He made available documentation and data related to their model Dr David Stieb at Health Canada provided helpful comments on some of the inputs included in ICAP Jack Donnan at the Ontario Ministry of the Energy was helpful in identifying critical relevant

information for Ontario

Despite the many individuals and organizations who provided key inputs to this study, DSSaccepts responsibility for the contents of this report

Notice:

A final draft of this report was circulated to the federal government for comment Their comments could not be provided before the deadline for issuing this final report These comments may be incorporated in later version of this report Any revised versions will be posted

on the OMA web-site.

Executive Summary ii

Acknowledgements iv

Table of Contents v

List of Tables ix

List of Figures x

List of Acronyms xii

1 INTRODUCTION 1

1.1 B ACKGROUND 1

1.2 P URPOSE AND S COPE 2

1.2.1 Project 2

1.2.2 ICAP 3

1.2.3 Technical Report 4

1.3 M ETHODOLOGY 4

2 CONCEPTUAL FOUNDATION 5

2.1 O VERVIEW 5

2.2 R ESOLUTION 7

2.2.1 Spatial Resolution 9

2.2.2 Temporal Resolution 9

2.3 E XPOSED P OPULATION 10

2.4 A IR Q UALITY C ONDITIONS 11

2.5 E XPOSURE /R ESPONSE F UNCTIONS 11

2.6 E CONOMIC V ALUATION 12

2.6.1 Health Care Resource Utilization 13

2.6.2 Lost Productivity 14

2.6.3 Quality of Life 15

2.6.4 Risk of Death 15

2.7 T REATMENT OF U NCERTAINTY 16

3 INFORMATION BASE 18

3.1 P OPULATION 18

3.1.1 Ontario 1996 Population 18

3.1.2 Population Forecasts 18

3.2 A IR Q UALITY 19

3.2.1 Baseline Data 19

3.2.2 Air Quality Forecasts 19

3.3 I LLNESS R ISKS 19

3.4 H EALTH C ARE R ESOURCE U TILIZATION 20

3.4.1 Hospital Admission Costs 20

3.4.2 Emergency Room Visit Costs 20

3.4.3 Doctor’s Office Visit Costs 21

3.4.4 Medication Costs 21

3.5 L OST P RODUCTIVITY 21

3.6 Q UALITY OF L IFE 21

3.7 P REMATURE D EATH 22

3.8 S UMMARY 22

4 UNCERTAINTIES AND GAPS 24

4.1 S OURCES OF U NCERTAINTY 24

4.2 S CIENTIFIC I GNORANCE 25

4.3 S TOCHASTICITY 25

4.4 I MPRECISION 26

4.5 M ETHODOLOGICAL W EAKNESSES 27

5 HEALTH DAMAGE FORECASTS FOR ONTARIO 28

5.1 S CENARIO 1 - N ATURAL B ACKGROUND C ONCENTRATIONS 28

5.1.1 Rationale 28

5.1.2 Health Effects 29

5.2.1 Rationale 31

5.2.2 Health Effects 32

5.2.3 Economic Damages 38

5.3 S CENARIO 3 – I MPLEMENTATION OF A NTI -S MOG A CTION P LAN IN 2015 39

5.3.1 Rationale 39

5.3.2 Health Effects 39

5.3.3 Economic Damages 41

5.4 R EGIONAL D ISTRIBUTION OF D AMAGES 42

5.5 N EW 2010 T ARGET FOR ASAP 43

5.5.1 Health Damages 43

5.5.2 Economic Damages 43

5.6 U.S C ONTRIBUTION 44

5.7 C OMPARISON OF R ESULTS 45

5.7.1 Premature Mortality 45

5.7.2 Hospital Admissions 45

5.7.3 Interpretation 46

5.8 S UMMARY 46

6 CONCLUSIONS AND RECOMMENDATIONS 47

6.1 A IR Q UALITY 47

6.1.1 Need for Improved Air Quality Monitoring Data 47

6.1.2 Impacts of Air Quality Initiatives on Ambient Concentrations of Key Pollutants 47

6.1.3 Net Air Quality Effects of Multiple Government Policies 48

6.2 H EALTH E FFECTS 48

6.2.1 Supporting Clinical Studies 48

6.2.2 Multi-Pollutant Exposure/Response Functions 49

6.2.3 Less Acute Air Pollution Induced Illnesses 49

6.2.4 Illness Prevalence 50

6.3 E CONOMIC D AMAGES 50

6.3.1 Improved Estimates of Pain and Suffering Damages 50

6.3.2 Improved Estimates of Medication Costs 51

6.3.3 Doctor’s Office Costs 51

6.4 ICAP 51

6.4.1 Improved Public Awareness 52

6.4.2 Local Analysis of Air Quality Impacts 52

6.4.3 Need for Regular Updating 52

6.5 E NVIRONMENTAL AND H EALTH C ARE P OLICY 52

6.5.1 Significant Residual Damages 53

6.5.2 Cost of Delay 53

6.5.3 Absence of Comprehensive Economic Evaluations 53

Bibliography 54

Appendix A ICAP Model Description

Appendix B Population Forecasting

Appendix C Air Quality

Appendix D Estimation of Morbidity and Mortality Frequencies

Appendix E In-patient and Emergency Room Treatment Costs

Appendix F Doctor’s Office Treatment Costs

Appendix G Medication Costs

Appendix H Economic Losses Due to Premature Mortality

Appendix J Lost Productivity Damages

Appendix K ICAP Results

Table 5.1 Comparative Human Health Damages With Changes in Air Quality p 30

Table E.4 Correspondence Among ICD-9 Codes and Major Case Mix Groups p E-13

Figure 1 Overview of Health Effects Analysis Procedure p 6

AQVM Air Quality Valuation Model

-2

1 See the Centre for Disease Control website for more information:

http://www.cdc.gov/nchswww/about/otheract/icd9/icd9hp2.htm

industry and vehicular traffic (15) Shortly thereafter, the government enacted the Air Pollution

Control Act encompassing a number of the recommendations from the OMA This initiative

established the principle of preventative health care through improvements in environmentalquality The OMA has continued in these early footsteps and in 1998, a position paper entitled

OMA Ground Level Ozone Position Paper was released This position paper identified the public

health significance of poor air quality The paper drew on an extensive scientific literaturedemonstrating the direct connection between certain air pollutants and human health impacts(15)

The OMA recognized the need to explore not only the direct health effects of air pollution butalso the need to understand the associated economic ramifications for the provincial health caresystem as well as for Ontario more generally To this end, a feasibility study was undertaken, thepurpose of which was to determine how best to develop appropriate estimates of the economicdamages relating to air pollution-induced illnesses (42) A methodology was designed fordeveloping an integrated analytical system which would bring together the best knowledge anddata on air quality, human health and economics and which would produce forecasts of expecteddamages (and avoided damages) relating to changes in air quality

In 1999, the OMA embarked on implementing this methodology This report, and theaccompanying Illness Cost of Air Pollution (ICAP) model are the products of this latestendeavour

Public awareness of the subtle, yet pernicious, impacts of poor air quality is gradually increasingwith political action following close behind Recent announcements by the federal Minister ofthe Environment dedicating increased resources to air quality monitoring is a case in point (50).Recently, the Canadian Council of Ministers of the Environment approved new Canada-wide airquality standards (27) Ontario has committed to move its Anti-Smog Action Plan deadlineforward by five years to 2010 if comparable reductions can be negotiated with the U.S (51).Canada is engaged in international discussions with the U.S about reducing smog-relatedpollutants which drift across the border into Canada (26) Awareness at the local municipal level

is increasing as well (13)

Despite the flurry of media and political attention to air quality-induced illnesses and deaths, thequestion still remains as to what will be the future air quality in Ontario and what are the healthconsequences Are more aggressive measures required to reduce the risk of poor air quality forhuman health? What benefits would be realized now and in the future from improved air quality?These are examples of pertinent environmental policy questions for which sound answers areneeded This need has been recognized for many years by the OMA This report and theaccompanying ICAP model are designed to assist in focusing this key public policy discussion.This discussion needs to move past considering the need for air quality initiatives to confrontingtheir extent and the timing of implementation

This project was undertaken to provide technically sound and helpful information to health careprofessionals, public policy decision-makers and the general public in considering thesesignificant public health questions Understanding the complex interactions involving humanactivities, air pollutant emissions, atmospheric transport and chemical transformation ofpollutants, human exposure, risk factors and health responses and economic damages is adaunting challenge While understanding these interactions is difficult, it is much more complex

to forecast the combined effects of seemingly unrelated trends like population growth, aging babyboomers, economic growth, reductions in air pollutant emissions, new epidemiological researchresults, etc in terms of provincial health damages Yet, these are the complexities being faced on

virtually a daily basis when considering the question of air quality A systematic means to distillthis complexity to a reasonable level of simplicity relevant to the central issues at hand is critical.

A primary purpose of this study is to bring together this complexity and to provide an efficientmeans for people of all sorts to gain improved understanding of air quality and relatedgovernment policies in terms of the future health and well-being of Ontarians

This study has focused on cardio-respiratory illnesses caused by the principal components of

pollutants, some of which may cause human health problems directly and others which may beprecursors to causal contaminants or which are closely correlated with causal contaminants andhence act as “markers” for human health risks The complexities associated with the cause/effectrelationships between this soup of pollutants and human health are explored in this report

The focus of this analysis is Ontario The basic concept and structure of the methodology andanalyses are applicable to any jurisdiction concerned about air quality impacts on human health.The underlying scientific foundations for this study have wide application far beyond theboundaries of Ontario

ICAP (Illness Costs of Air Pollution) is a computer model developed as part of this project Thepurpose of ICAP is to provide an analytical tool to assist people in understanding the complexinteractions determining the impacts of air quality on human health and related economicdamages

ICAP includes all of the elements included in the scope of this project ICAP was designedspecifically to make the results of this project readily available, and in a useful form, to thoseconcerned about the health impacts of air pollution

2 Of particular concern is the fine fraction of air-borne particulates (i.e., particulates <10 µ aerodynamic diameter) originating from anthropogenic sources, in particular from internal combustion engines and industrial and utility emissions.

1.2.3 Technical Report

The purpose of this technical report is to document the data and methodology underlying theforecasts of health and economic damages attributable to air pollution This report also provides

a more indepth understanding of the technical underpinnings of ICAP

Estimates of health damages are included in this report No analysis is included as to what airquality policy actions are, or are not, warranted given the magnitude of damages being, andexpected to be, incurred This step is vital but is outside the scope of this report and this project

Two major methodological hurdles needed to be cleared as part of this study The first involvedidentifying and assembling all of the data required to develop reliable forecasts of human healthand related economic damages The second hurdle was to convert data and scientific results fromdiverse sources into a technically sound, internally consistent and fully integrated database usefulfor policy analysis This latter task required ingenuity and diligence to maintain the integrity ofthe data yet to express the data and knowledge in a useful form

This report describes the data compiled and the calculations used to derive the damage forecastsincluded in this report

Two parallel aspects of this project were undertaken coincidentally One involved compiling andanalyzing the diverse array of data required to generate estimates of health and economicdamages associated with air pollution The second task involved the building of a computermodel with which to analyze the data compiled The main body of this report deals withanalytical results and their interpretation The details concerning the underlying data areaddressed in the accompanying technical appendices

3 Digital copies of ICAP can be obtained from the OMA web-site (www.oma.org.ca)

illness frequencies are attributed to air pollution As levels of air pollution are reduced, illnessfrequencies approach baseline frequencies The benefits of improving air quality are the reducedfrequencies of these illnesses in the general population The shift in illness frequencies with airquality is expressed as the illness risk of air pollution.

This analytical approach adheres to the general requirements of cost/benefit analysis Benefits of

commonly referred to as an avoided damages methodology (30) Developing comprehensive andsound estimates of potentially avoided health damages is essential for reaching informed andresponsible environmental policy decisions

Figure 1 – Overview of Epidemiological Analysis Procedure

Exposed Population

Risk Factors Age Place of Health Other Factors

Residence

Air Quality

Particulate Ozone Matter (PM) (O3)

Exposed Population

Air Quality

Baseline Illness Frequencies

Hospital Emergency Doctors’ Minor Deaths Admissions Room Office Illnesses

Attributable Illness Frequencies

Hospital Emergency Doctors’ Minor

Deaths Admissions Room Office Illnesses

Visits Visits

Elevated Illness Frequencies

Hospital Emergency Doctors’ Minor Deaths Admissions Room Office Illnesses Visits Visits

Benefits are estimated first in physical terms (i.e., the number of cases of a particular illness

basic economic measures, namely:

Figure 2 illustrates the procedure for calculating physical and economic damages which anexposed population is expected to experience as a result of air pollution

Developing estimates of air pollution damages requires certain specific information relating to theexposed population and environmental factors Key information requirements are:

This report describes the information which has been compiled for Ontario for estimatingphysical and economic human health damages attributable to air pollution

Air pollution is not uniform across Ontario nor are air pollution levels constant from day to day,week to week or month to month Likewise, the population is not evenly distributed throughoutthe province Instead, people tend to be concentrated in southern Ontario and more particularly,

in urban areas Capturing these variations in time and space requires dividing the province intodiscrete areas and examining air pollution over discrete intervals of time In other words, spatialand temporal resolution is essential to reflect this variation Following is an overview of thespatial and temporal resolution used in this analysis

7 All economic data and results are reported in 1998 Canadian dollars.

Figure 2 – Overview of Health Damages Estimation Procedure

Exposed Population

Risk Factors Age Place of Health Other Factors

Residence

Air Quality

Particulate Ozone Matter (PM) (O3)

(Exposure/Response Functions)

Unit Value of Avoided Illnesses

Hospital Emergency Doctors’ Minor Deaths Admissions Room Office Illnesses

Air Pollution Economic Damages

Health Quality of Lost

Death Care Life Productivity

Number of Illnesses by Population Segment

Hospital Emergency Doctors’ Minor Deaths Admissions Room Office Illnesses Visits Visits

2.2.1 Spatial Resolution

Statistics Canada has divided Canada into a hierarchy of spatial units as a convenient means toorganize their data collection and analysis programs, in particular, the collection of census data.The finest level of spatial resolution is the census tract Groups of census tracts are lumped intoprogressively larger units, two of which are census divisions (CDs) and census metropolitan areas(CMAs) The CDs correspond to regional municipalities (in more urban areas), counties (in morerural areas) and districts (in northern areas) A total of 49 CDs comprise all of Ontario TableB.1a in Appendix B contains a list of CDs for Ontario which have been used in this analysis

The CMAs are centered on urban areas Not all of Ontario is included A total of 48 CMAs havebeen defined for Ontario Table B.2a in Appendix B contains a list of CMAs for Ontario whichhave been used in this analysis

Choosing an appropriate level of spatial resolution requires trading off detail for efficiency andpracticality As the level of detail increases, so too do information requirements, computerprocessing capacity demands and the time required to interpret results Perhaps most importantly,the complexity of the inputs and results can exceed the needs of decision-makers and may notcontribute to better public policy decisions Reaching an appropriate level of detail is critical.For this study, the CD and CMA level of spatial resolution has been chosen to represent areasonable balance between detail and efficiency

The baseline and forecast pollutant concentrations used in this analysis are annual averages.These averages include allowance for periodic evaluated pollution episodes For example, if thedaily summertime average 1 hour peak concentration of ozone in Toronto decreases from 45 ppb

to 40 ppb, a range in ozone concentrations from day to day will still occur Some days, the peak1-hour concentration will be much more than 40 ppb and, other days, much less The frequencyand/or the peak concentrations, however, will be higher overall with a daily average of 45 ppbthan with 40 ppb

Health effects are forecast to occur in direct proportion to the level of air pollution These effectsoccur at low and high concentrations, although the risk (i.e., expected illness frequency) increases

as the concentration increases As a result, using estimates of annual average daily air pollutantconcentrations will yield the same annual estimate of illnesses as estimates based on cumulativedaily illnesses caused by daily air pollutant concentrations The level of temporal resolution (i.e.,

on an annual basis) in this analysis is common in the air pollution/health effects epidemiologicalliterature and is appropriate for public health and environmental policy analysis

Estimating health effects attributable to air pollution requires identifying the number ofindividuals exposed to air pollution in different parts of the province Some segments of thepopulation are more susceptible to certain air pollution induced-illnesses than others Forexample, young children and the elderly are high risk segments of a population (11, 22, 38, 40,

39, 60, 99, 100, 139) Such risk factors need also be considered

This study is designed to assist public policy decisions regarding air pollution control Policyanalysis requires prospective evaluations (i.e., evaluation of potential future conditions) TheOntario population is dynamic and its make-up is constantly changing These population changesneed to be considered in forecasting potential future health damages

The composition and geographic distribution of the Ontario population in 1996 is used as thestarting point for all future projections The population is forecast to expand at different rates indifferent geographic areas As well, the composition of the population in terms of age and gender

is forecast to change Future illness frequencies will change, not only as air quality conditions

change, but as the composition and distribution of the population changes For this reason, apopulation forecasting component is an integral part of ICAP.

Cardio-respiratory illnesses are well known to increase as air quality declines (see Appendix Dfor discussion of supporting scientific evidence) Government initiatives are periodicallyintroduced which are designed to control air pollution On the other hand, economies continue togrow The result often may be that increases in total air emissions outstrip initiatives to controlindividual emissions

Evaluating the potential benefits of air quality policies requires knowledge of current air qualityconditions and also estimates of how air quality is likely to change in the future given alternativecourses of action and outcomes Forecasting future air quality involves determining futurepollutant emission rates, atmospheric transport/dispersion and chemical transformations Various

The analytical approach used in this study relies on forecasts of future air quality conditions Anobjective of this study was not to develop such forecasts but to analyze the future health damagesassociated with existing forecasts of future air quality in Ontario

Various illnesses are induced by different air pollutants Table D.1 in Appendix D sets out all ofthe different categories of illnesses considered in this analysis These range from minor illnesses

to death

The illness risk varies by pollutant as well as by the age and health status of exposed individuals

By combining these E/RFs with current or forecast air quality and the number and type of people

8

For example, as part of the development of Ontario’s smog plan, Environment Canada’s Air Deposition and Oxidant Model (ADOM) was refined for the Windsor/Quebec Corridor by combining ADOM with GESIMA (a mesoscale meteorological model) to project future ambient air quality conditions with varying levels of pollutant emissions (82).

exposed, estimates of the expected annual number of air pollution-attributable cases9 for eachillness category can be generated The total number of cases over a period of years can beestimated by summing these annual estimates A significant benefit of improving air quality isthe avoidance of these illnesses each year in the future.

Improving air quality can be costly Benefit/cost analysis is based on the concept of determiningthe optimum balance of benefits and costs to advance the public interest Emission control costsare measured in economic terms (e.g., the costs of improved vehicle emission control systems or

commensurate units For this reason, avoided health damages need to be expressed not only inphysical terms, but in economic terms as well

Estimates of damages are estimated for each of the four economic components listed in Section2.1 Two of these components (i.e., health care resource utilization and lost productivity) involvedirect out-of-pocket costs Economic coefficients for these damage components are derived frommarket-based information (e.g., expenditure and wage data) Economic coefficients for the othertwo components (i.e., risk of premature mortality and pain and suffering) are derived fromestimates of the willingness of people to pay (WTP) to reduce the risk of premature mortality andpain and suffering

While out-of-pocket losses involve financial transactions, this is not so with the latter two types

of economic damages No financial transactions routinely occur in Ontario with prematuremortality and pain and suffering induced by air pollution Several reasons account for theabsence of any direct financial compensation for these damages

9 The term “case” refers to an individual illness incident or episode For example, an asthmatic may suffer

an asthma attack Each attack is considered to be a case or episode A subsequent attack at a later time by the same person is considered to be a separate episode This study does not address chronic cardio- respiratory illnesses which may be suffered by an individual person.

10 From a strict economic perspective, the objective of air pollution policies should be to achieve the level

of air quality that will yield the greatest long-term net benefit to the people of Ontario Net benefit is the difference between the total benefits of improved air quality and the costs of achieving this level The phrase “balancing benefits and costs” is used in this report to mean the need to evaluate benefits and costs such that the greatest net benefit from air quality improvement will be achieved.

The courts routinely make awards for loss of life or pain and suffering where clear liability can beestablished In these cases, financial transactions regularly occur to compensate for loss of lifeand pain and suffering These awards are often quite substantial With air pollution, significantbarriers to establishing clear liability exist First, people are exposed to pollutants emitted frommultiple sources Determining which emissions affected which people is difficult to establish.Secondly, air pollution is a contributory factor to many cardio-respiratory illnesses Cases ofthese illnesses cannot be totally attributed to air pollution (except perhaps under extremecircumstances like the 1952 London smog episode) Air pollution is a contributory factor, andoften a relatively subtle contributing factor, to a large number of cardio-respiratory illness cases.Finally, environmental laws permit pollutants to be emitted to the air, making the activity legal.

In doing so, the financial liability of polluters is reduced significantly

While all of these factors create significant barriers to financial transactions for prematuremortality and pain and suffering, the fact remains that real economic damages are suffered bythose afflicted with air pollution-induced illnesses These damages are significant Furthermorefrom an economic analysis perspective, damages from premature mortality and pain and sufferingcan be, and should be, added to estimates of out-of-pocket economic losses in deciding on thebest environmental policy Damage estimates in this report are presented for individual economiccomponents as well as for the combined total Doing so allows separation of these different types

of damages When comparing damages to the costs of pollutant emissions reductions, the totaldamages is the correct measure to use

The rationales for selecting these four economic components are set out following

When people are ill, many require some type of health care service (e.g., doctor’s office visit,emergency room treatment, hospitalization, medication) These demands on these health careservices increase health care resource utilization and the economic burden on society Providinghealth care services is a major cost in our modern society An objective of this study is toestimate the amount of these costs which are attributable to air pollution

Appendices E, F and G provide detailed descriptions of the methodologies used to estimate these

for each type of service is estimated These average costs attempt to capture all direct and

office visit) However, the level of service required to treat different illnesses can varysignificantly among different types of illnesses Accordingly, the average costs for each serviceare adjusted for each type of illness The more resource-intensive illnesses are assigned highercosts than less resource-intensive illnesses These adjusted health care costs are multiplied by thenumber of cases of the corresponding illness attributable to air pollution to estimate economicdamages

2.6.2 Lost Productivity

Absenteeism due to illness is a significant factor affecting overall productivity within theeconomy While some individuals may receive sick pay, Ontario as a whole (through lostproduction) still incurs a cost as a result of lost work time

Appendix J sets out the detailed methodology used to estimate lost productivity costs Estimateshave been developed for the average number of lost days associated with a case of each illness

lost time is estimated by multiplying the number of cases of each illness per year due to airpollution by the lost time per case The value of this lost time is estimated on the basis of theaverage wage rate

11 Technically, the marginal, not the average, costs of health care services should be used in cost/benefit analyses Using average costs in this case is warranted The impacts of air pollution are being forecast over an extended period of time Improvements in air quality will lead to reduced demand for certain health care services Over the long term, the health care system will adjust to this change in demand such that the marginal costs are equal to average costs.

12 All of the economic results presented in this report are based an accounting stance reflecting the interests

of Ontario as a whole For example, OHIP may cover all or most health care service costs for a particular patient for a particular illness From the patient’s perspective, the service is essentially free Nonetheless, the people of Ontario collectively do incur all of the costs These are the costs which are considered in this analysis.

13

As noted in Appendix J, page J-4, footnote 71, the methodology assigns no value to lost time for housework and volunteer activities As such, ICAP underestimates the full cost of lost productivity.

2.6.3 Quality of Life

Most people do not enjoy being ill Being healthy is valued The quality of life economiccomponent captures the value people assign to avoiding the pain and suffering associated withbeing ill

The methodology used to derive these estimates measures WTP An alternate economic measure

of the value people assign to avoiding pain and suffering is their willingness to accept (WTA)payment for incurring increased pain and suffering Estimates based on WTA measures tend to

be significantly higher than WTP measures (65) Given the public ownership of clean air, WTA

measures comparable to the WTP measures for Ontario were not available Accordingly, thedamage forecasts in this report are based on WTP measures

Appendix I describes the methodology used to develop estimates of the value of avoidingdifferent types of air pollution-induced illnesses These estimates are based on economicmethodologies developed specifically to determine the value people assign to avoiding pain andsuffering

Most people value minimizing the risk of death, particularly where the risk is outside the control

this risk is captured by this economic component

14

WTP measures the amount people are willing to pay to avoid a risk WTP measures have been used primarily to value loss of life and pain and suffering risks Economic estimates based on WTP measures likely underestimate the true value people assign to these involuntary risks WTA measures, if available, would provide more appropriate and higher estimates of damages WTA is the appropriate measure to use

if Ontario’s air quality is a public resource (i.e., owned by the public) If so, polluters should have to pay to use this resource WTA measures for how much the public is willing to sell this resource to polluters WTP, in essence, assume that polluters own the air and the public must pay polluters to secure cleaner air.

15 An extensive literature on risk avoidance behaviour and preferences exists (52) Individuals respond much differently to voluntary risks (e.g., car racing and parachuting) than to involuntary risks (e.g., environmental pollution) This analysis deals exclusively with the value of involuntary risks.

Appendix H provides a detailed description as to how the economic value of reducing the risk ofdeath has been estimated and used in this analysis.

Uncertainty about the future is a fact of life From a public policy perspective, one needs todecide how best to reduce and manage uncertainty Estimating health effects and economicdamages attributable to air pollution involves a considerable level of uncertainty Thisuncertainty can lead to paralysis (i.e., inaction) in the absence of an efficient and reasonableuncertainty management strategy

The analytical methodology on which this report and ICAP is based provides an effective means

to manage uncertainty Rather than developing single-point best estimates for key variables andrelationships, the potential range over which the true value is expected to lie is specified.Similarly, the probability of the true value being closest to one end or the other of the range isestimated (either statistically or by using judgement) Combining these ranges and probabilitiesthrough a comprehensive systematic sampling strategy (i.e., a Monte Carlo simulation routine)produces estimates of the overall effect of uncertainty (see Appendix A for further elaboration).Knowledge of the combined effect of the uncertainty associated with each of the factorsunderlying a result provides a valuable basis for deciding on the best strategy to manageuncertainty

A central objective of this study is to capture the inherent uncertainty in the relationshipsunderlying air pollution and health damages This uncertainty is reported in terms that are helpful

recommended Instead, these results allow decision-makers to arrive at reasonable public policydecisions consistent with the risk management stance they feel is in the best interests of Ontario.

The basic approach for managing uncertainty used in this study is as follows Where uncertaintyexists, values are expressed in terms of ranges (e.g., low, central and high) These ranges may bederived statistically or may reflect the results of different studies reporting different estimates forthe same variable As well, the likelihood of the “real” number (i.e., that which represents theactual condition, either now or in the future) being close to the low, central and high values isestimated This likelihood may be derived statistically or through judgement

For example, population forecasts for Ontario extend to the year 2026 in ICAP Depending on avariety of economic and demographic factors, the actual population size and composition mayvary from the forecast Accordingly, low, central and high population growth rates have beendeveloped As well, likelihoods (i.e., probabilities of the forecast growth rate being close to theactual population growth rate) for the low, central and high rates have been estimated Thisuncertainty in terms of the future size, composition and geographic distribution of Ontario’spopulation and its implications in terms of estimates of future illnesses and economic damagesattributable to air pollution are captured in this analysis Further details on the methodology used

to integrate in damage forecasts the uncertainty associated with environmental and economicvariables are presented in Appendix A

3.1.2 Population Forecasts

Three population forecasts for Ontario were obtained from Statistics Canada These forecastscover the period of 1996 to 2026 Each forecast is based on different assumptions regardingsignificant factors influencing population growth such as economic growth and provincialemigration and immigration The underlying assumptions for each forecast are explained inAppendix B

3.2 Air Quality

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of the required data had been compiled for Environment Canada’s Air Quality Valuation Model(AQVM) The AQVM data have been used in this analysis with some modifications Appendix

C presents the baseline air quality data used in ICAP and describes the adjustments which weremade

ICAP is designed to analyze comprehensive change-over-time air quality forecasts The concept

is that as forecasts for new air quality policy and/or regulatory initiatives are generated, the resultscan be entered in ICAP and the expected economic benefits (i.e., avoided damages) can be

for Ontario’s Anti-Smog Action Plan (ASAP) As noted in this appendix, a major gap wasencountered No comprehensive change-over-time air quality forecasts for different areas ofOntario were available Accordingly, initial approximations of future air quality were developed

as a second-best alternative The methodology for developing these projections is explained inAppendix C

A large scientific literature exists presenting the results of epidemiological and clinical studiesrelating to illnesses induced by air pollution Much of this literature is reviewed extensively intwo recent reports, namely National Ambient Air Quality Objectives for Particulate Matter (141)

and National Ambient Air Quality Objectives for Ground-level Ozone (63) Appendix Dprovides an overview of this literature and explains how these scientific results have been applied

in this study Tables D.5 and D.6 contain the illness risk coefficients which are the default valuesused in ICAP These default values can be overridden by ICAP users

Following is a brief description of the health care data which have been used to develop estimates

of the health care costs of air pollution

An extensive hospital cost database and cost estimating procedure have been developed by theCanadian Institute of Hospital Information (CIHI) to apportion the costs of hospital treatment tovarious types of illnesses (29) These data and methodology are routinely used for hospitalbudgeting and costing purposes Appendix E describes the expenditure data which were obtainedfrom over 130 hospitals and provides further explanation about how these data were combinedwith the CIHI expenditure allocation methodology The results of these calculations areestimated costs for treating patients in local hospitals for certain cardio-respiratory illnesses

Each hospital in Ontario is required to submit an annual operating plan in which hospitalexpenditures are broken down according to in-patient and ambulatory care services Ambulatorycare services are further broken down into emergency room services and scheduled outpatientservices Appendix E outlines the specific data extracted from these hospital expenditure reportsand explains how these data were used to arrive at local estimates of average emergency roomvisit costs

3.4.3 Doctor’s Office Visit Costs

Physician billings for Ontario are organized by the type of service provided and by illness type(i.e., diagnostic categories) Appendix F describes how these data have been analyzed to arrive atestimates of the cost per doctor’s office visit for cardio-respiratory illnesses

Medication costs comprise on average about 14% of total health care expenditures (93).Medication costs vary considerably by illness type with respiratory and cardiovascular illnessesaccounting for about 13% and 22% of total annual medication expenditures respectively.Appendix G outlines the data compiled on medication use and costs and explains how averagemedication costs per illness have been derived

Illness results in lost working time Appendix J outlines the data and methodology used toestimate the lost time, and value of that lost time, attributable to air pollution Statistics Canadalabour force and wage rate data were obtained Lost time per illness was estimated based onexpected length of stay statistics and estimated post-treatment recovery times Allowance is alsoincluded for the lost time attributable to non-paid caregivers (e.g., family, friends) The lost time

of non-paid caregivers is estimated to be directly proportional to the lost time incurred by illnesssufferers This allowance and its method of calculation are described in Appendix J

A comprehensive analysis of the value of avoiding pain and suffering of the type attributable toair pollution has recently been prepared based on data primarily from Toronto (62) This studyestimated the value of avoiding symptoms such as breathing difficulties, heart flutters, pain andaches Appendix I explains how these results were tied to the illness categories included in thisanalysis Estimates of the pain and suffering damages for cardio-respiratory illness are presented

in Table I.1

3.7 Premature Death

Air pollution increases the risk of premature death The value of avoiding deaths attributable toair pollution is estimated from various sources Appendix H reviews this literature and describeshow the reported range in estimates used in this analysis was derived

The value of avoiding the risk of mortality is age-sensitive The highest value is typicallyassociated with middle-aged individuals The assigned value of risk avoidance declines for bothyounger and older individuals The methodology and rationale for estimating this trend isdescribed in Appendix H

Some have argued for inclusion of an economic “advantage” due to premature mortality andsubsequently, reduced consumption of health care services (65) In other words, demands on thehealth care system may be reduced by having air pollution kill the weak and the sick The ethicalfoundation for this “advantage” is highly questionable Nonetheless, an allowance has beendeducted from the value of loss of life to account for the reduced health care demands of those

Forecasting human health damages attributable to air pollution is a data-intensive exercise.Demographic, environmental, epidemiological, health care utilization and economic data are allrequired This section outlines the data which are used to produce the forecasts of damagespresented in this report and which are used to operate ICAP These data represent the bestinformation available to us

20 The methodology used to calculate this “advantage” makes no adjustment for the significant increase in health care resource consumption typically seen immediately preceding the time of death Accordingly, this health care saving “advantage” is overestimated Those individuals who die prematurely will consume more health care resources compared to the average for their respective age group, partially negating any future savings.

Generic limitations in these data are discussed in the next chapter Sources of uncertainty specific

to each data category are discussed in the respective technical appendices Over time, significantadvances in knowledge and data will likely continue to occur Economic analyses ofenvironmental policies need to be repeated frequently The results of air quality forecasts mayrequire reconsideration of earlier policy decisions ICAP has been designed expressly for thispurpose The data described in this section and accompanying appendices are included in ICAP

as default values As better information becomes available, it should be incorporated, analyzedand its implications considered

ICAP is designed to promote the development and synthesis of better information and knowledgeand to facilitate the best use of this information and knowledge in making important public policydecisions Learning and improvement are never-ending ICAP provides a means to benefit fromlearning and improvement, and in so doing, advance learning and improvement themselves As aresult, the data and analytical methodologies set out in this section and accompanying appendicesshould be seen as a starting point, not the final word Better information will result in betterforecasts of the benefits of air quality improvement

4 UNCERTAINTIES AND GAPS

Analyzing large-scale environmental health problems (such as air pollution) invariably involvesuncertainties and weaknesses or gaps in information and knowledge Uncertainty comes frommultiple sources A brief overview of the generic types of uncertainty associated with forecastingair pollution-induced health impacts is presented in this section, as well as how each source ofuncertainty is managed in ICAP

Efforts to anticipate and plan for the future consume much time and resources These efforts aredesigned to reduce (but never eliminate) uncertainty The methodology and results presented inthis report have been designed to reduce uncertainty and to assist in making wise decisions thatwill lead to improved air quality and increase the well-being of Ontarians

Not only is it important to know which alternative course of action is expected to yield thegreatest net benefit, the uncertainty of the expected outcome is essential to understand as well.Understanding underlying sources of uncertainty is the first step The second step is to combinesystematically all of the uncertainties to determine their potential net effect on expectedoutcomes This section deals with the first step ICAP and its Monte Carlo simulation routine aredesigned to deal with the second (see Appendix A for further explanation of this aspect of ICAP)

Potential sources of uncertainty in the results contained in this report include:

4.2 Scientific Ignorance

Scientific ignorance (i.e., ignorance within the scientific community generally) is reduced byacquiring new information and knowledge (i.e., through research and learning) Reducingignorance is a key role of research by the scientific community However, when something isunknown (and perhaps even unsuspected), little can be done directly to overcome such ignorancethrough a study of this sort Instead, the challenge is to identify (where possible) the presence ofgaps in knowledge Once identified, the potential consequences of these gaps can be explored

assumptions about these gaps) Identifying potential ramifications of known or suspected gaps onfuture outcomes is a first step toward prudently managing these risks

A central purpose of ICAP is to facilitate such explorations As well, as new knowledge comesavailable (e.g., the results of new scientific studies are published), new insights can beimmediately and efficiently used to improve forecasts of the future As our level of knowledge ofair pollution/human health interactions improve in the future, so too will we be able to improveforecasts of future damages and the effectiveness of related environmental protection regulationsand policies

Stochasticity refers to the unpredictability of natural systems Predicting the weather a weekahead is a challenge, let alone attempting to predict smog levels on July 13, 2020 This inherentstochasticity of natural environments is inescapable Many stochastic events in aggregate,however, can be well represented by probabilities and uncertainty ranges For example, thetemperature on January 1, 2020 will likely be much less than the temperature on July 1, 2020.This forecast is based on knowledge of the average temperatures at this time of year

21 The term “scenario” is used throughout this report Scenarios are designed to represent expected or desired future outcomes or conditions Designing a scenario with ICAP requires specifying future air quality conditions and illness risks of air pollution Insight into the potential consequences of alternate courses of action can be gained by designing and analyzing appropriate scenarios.

ICAP provides a means to deal systematically with this natural variability, as well as thestochasticity present within human populations and the behaviour of individual people From apolicy analysis perspective, broad trends and annual averages provide a helpful basis for arriving

at responsible public health and environmental quality decisions

Imprecision relates to limits in measurement For example, measuring ambient air qualityinvolves approximating true (i.e., actual) values As the precision of monitoring instrumentsimproves, so too will measurements of air quality Where measurement precision is expressedstatistically, these quantitative measures can be reflected in the probability ranges for key factors(e.g ambient pollutant concentrations) Where statistically derived estimates of imprecision inmeasurements are available, the potential effects of this uncertainty has been incorporated in theestimates of human health damages included in this report

Forecasting the health effects of air pollution on the population of Ontario is challenging A keydecision is the level of spatial and temporal resolution to be used Should the activity levels ofevery individual be forecast? Daily? Hourly? Aggregation involves averaging and summation

As the level of aggregation increases, so too does the imprecision, at least as measured at adisaggregate level (e.g., at the level of the individual or for a specific hour of the day) Reaching

a balance between resolution and precision must be done most carefully

Practical limitations rapidly come into play when the health of millions of people spread over alarge geographic area (i.e., the province of Ontario) need to be forecast over long periods of time(e.g., 20 years) These practical limitations relate to both the volume of data required as well asthe computational time required to analyze these data ICAP is designed to provide macro-estimates of human health and related economic damages These estimates are appropriate formaking public policy decisions regarding air quality

4.5 Methodological Weaknesses

Methodological weaknesses are the final potential source of uncertainty (or error in forecasts).

This source of uncertainty is the most tractable and preventable Methodological uncertainty isreduced by relying on the most technically sound scientific authorities and critically examiningthe underlying data and science behind reported results Much effort has been taken to minimizethis potential, with one exception

A certain level of systematic bias has been introduced consciously into this analysis Efforts havebeen made to reduce the risk of over-estimating damages This bias has been introduced forstrategic reasons Much effort can be expended fruitlessly debating one number versus another.Also, some individuals at first may reject the economic damage forecasts due to their magnitude

By having chosen, when in doubt, values which are more likely to lead to an underestimate ofdamages, hopefully less time will be consumed determining whether these damage forecasts areinflated and more will be spent on developing effective means to improve air quality

5 HEALTH DAMAGE FORECASTS FOR ONTARIO

This section presents the results of four scenarios designed to gain an understanding of Ontario’s

air pollution in Ontario The four scenarios examined are:

These four scenario have been chosen to demonstrate how ICAP can be used to evaluate thephysical and economic benefits of air quality policies The detailed results for these scenarios arepresented in Appendix K

If Ontario was able to eliminate all anthropogenic ozone and particulate matter throughout the

22 This policy is one of several which relate to reducing ozone and particulate matter The smog plan was, however, the only recent air quality initiative for which any forecast of future ambient air quality were available Ideally, the cumulative effect of all air quality policies on ambient concentrations of air pollutants should be examined The information required for such an analysis is not available.

23 The majority of the analyses presented in this report were conducted prior to the ASAP announcement

by Ontario following the Canadian Council of Ministers of the Environment meeting in Quebec City At that time, Ontario agreed to move the target date forward to 2010 if negotiations with the U.S were successful in arriving at equivalent reductions below the border (51).

24 Total elimination of anthropogenic air pollutants is practically not possible in the foreseeable future This extreme assumption is included only to estimate those health damages which can be clearly reduced through air quality improvements.