* "Defensive Investments and the Demand for Air Quality: Evidence from the N[O.sub.x] Budget Program and Ozone Reductions," by Olivier Dechenes, Michael Greenstone, and Joseph S. Shapiro. July 2012. SSRN #2109861.
Estimates of the health benefits from air pollution reduction are difficult to obtain because of the lack of natural experiments. Most evaluations of emissions markets combine engineering models of emissions with atmospheric chemistry and transport models and epidemiological models of dose and health response. The epidemiological models, in turn, are grounded in cross-sectional statistical relationships in which differences in aggregate pollution exposures are compared to differences in health outcomes across metropolitan areas.
For six years, from 2003 through 2008, the summer cap-and-trade system for nitrogen-oxygen molecules (N[O.sub.x]) was in operation in the Eastern and Midwestern United States. On May 1 of those years, emission levels dropped 35 percent and then rose again on October 1 when the summer season ended. This created a natural experiment that the authors of this paper used to create estimates of changes in exposure and health effects. Their work also examined asthma drug expenditures in order to estimate people's willingness to pay to avoid negative respiratory health outcomes.
The authors used a triple-difference estimator that compares winter vs. summer, participating vs. nonparticipating states, and before- and after-2003 pollution and health outcomes. In the participating states in the summer, ozone average concentration dropped 6 percent while peak ozone levels dropped 23 percent. In that time period, asthma drug expenditures decreased 1.9 percent, or $900 million. That cost exceeded the cost of abatement, which was less than $761 million per year (365,750 tons per summer multiplied by the average permit cost of $2,080 per ton). Summer mortality decreased 0.5 percent, or 1,800 fewer deaths per summer among people age 75 and over, but those benefits may simply be the result of short-term displacement from the summer to the winter.
The authors argue their results stem from ozone reductions rather than other plausible channels. They find no effects on plausibly unrelated health conditions such as those that require gastrointestinal medications. They also find no effects on other pollutant concentrations such as carbon monoxide or sulfur dioxide.
PETER VAN DOREN is editor of Regulation and senior fellow at the Cato Institute.