The damage costs approach is a simplification of the impact pathway approach, to be used when air quality impacts are thought to be relatively minor (ie less than £20 million or 20 years). In such cases, the cost and complexity of impact pathway modelling are unnecessarily high.

The damage costs approach differs in that it assumes a single marginal cost for each additional tonne of pollutant, unlike the impact pathway approach, which varies the cost per tonne based on geographical location and population exposure. The marginal “damage costs” is based on an average cost per tonne; it is this simplification which significantly reduces the time and resource required to evaluate air quality impacts.

The damage cost is therefore the cost that society will incur when an additional tonne of pollutant is emitted, or conversely, the benefit that will be made when an additional tonne is abated.

These damage costs are based on values for a range of health impacts, including mortality and morbidity effects, and non-health impacts, such as damage to buildings and effects on crop yields, and also take account of both primary and secondary air pollution changes. The values of these were agreed following recommendation by the IGCB in 2006.

The damage cost approach is intended for use across government, such as for project appraisals (project cost-benefit analysis) and Impact Assessments (policy cost-benefit analysis).

A list of current key damage costs is shown in the table below.

IGCB: Air quality damage costs per tonne, 2010 prices

(1) The central damage cost is derived from the lag probability distribution developed for Monte Carlo analysis to reflect the fact that, although evidence is limited, COMEAP tend towards a greater proportion of the health effect occurring in the years sooner after the pollution rather than later. This estimate is intended for use only where a single point estimate is necessary and should always be accompanied by the central range.

(2) Variation between the central values reflect uncertainty about the lag between exposure and the associated health impact. The presented figures show the range between a 0 and 40 year lag. This sensitivity should be reported as the central sensitivity.

(3) In addition to the lag range this sensitivity also applies the recommended COMEAP typical high (12%) and typical low (1%) hazard rate sensitivity. This sensitivity is intended for use only as a second round sensitivity.

Air quality damage costs

For further information on the background to the damage cost approach and what damage costs include see the full Air Quality Damage Cost Methodology.

The separate Air Quality Damage Cost Guidance provides the values to use in appraisal and a standalone step-by-step worked example of the methodology to allow users to apply damage costs to their own policies.

Also provided is a short document providing answers to Air Quality Damage Costs frequently asked questions about the background to and use of damage costs.

• Air Quality Damage Cost Methodology (PDF 230 KB)
• Air Quality Damage Cost Guidance (PDF 130 KB)

The damage costs are calculated over a range due to uncertainty in the length of the lag between emissions and health impacts. There is also a central estimate based on Monte Carlo analysis undertaken as part of the Air Quality Strategy. However it is recommended that the range should also be included in policy appraisal.

More information on how these values have been derived is available in the Air Quality Strategy 3rd report (PDF 2.5 MB)

Activity costs

Activities costs are an extension of the damage costs approach. The evaluation process builds on the damage cost approach and links an activity or policy measure directly to the cost of the emissions it generates. In practice this means that in order to estimate damage costs the only information required is the change in activity. Previously the change in emissions from this change in activity was required, now this is calculated automatically in the spreadsheet.

Where policymakers are unsure of the volume of emissions their policy will impact on, the Activities Cost Calculator should be used. The activities costs approach is designed to link specific activities or policy measures in several emissions-generating sectors (e.g. electricity generation, industry, transport, domestic buildings, non-domestic buildings) to the volume of pollution they emit. The Activities Cost Calculator therefore is able to link activities directly to the damage costs they generate.

All the information contained in the damage cost calculator is contained within the activity cost calculator. The ACC is an extension of the DCC so users do not need to calculate the change in emissions from a given activity.

To simplify the application of damage costs IGCB(A) provide two key tools for policy makers:

• The damage cost calculator (DCC), which allows the valuation of impacts on air quality where the volume of the pollutants is known; and
• The activity cost calculator (ACC), this tool looks to provide marginal costs associated with different specific activities, such as from transportation and industry.

Contact

Inter-Departmental Group on the Costs and Benefits of Air Quality (IGCB(A))
Natural Environment Economics
Department for Environment, Food and Rural Affairs (Defra)
Area 3D, Ergon House
C/O 17 Smith Square
London SW1P 3JR

Email: igcb@defra.gsi.gov.uk