Reduced damage to health and environment from energy saving: A methodology for integrated assessment applied to a case study in Hungary
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- CICERO Working Papers 
Environmental problems have different characteristics in terms of space and time. Noise, for instance, affects only those being close to the source, and the problem is instantly solved for these if the source is removed. Health effects resulting from local sources of air pollutants may disappear very soon after the sources are controlled, but for some diseases an enhanced frequency may be seen in the affected population for years and even decades. Acidification of soil and water resources and increased level of tropospheric ozone are the accumulated results of long-range transboundary pollution taking place over several years, and if abatement measures are implemented today the systems affected may not restore their original state in a long time. At the end of the temporal and spatial scales are the issues of stratospheric ozone layer depletion and climate change, problems that have not been realised until rather recently, but which are results of human activities taking place over a long period of time. Typically, the complexity and unpredictability increase along the axes, making both the science behind the problem identification and the abatement planning heavily burdened with uncertainty. The spatial and temporal characteristics of the problem in question imply that widely different policy response strategies may seem required. To a large extent, the main environmental problems that cause concern today are due to the same emission sources. This fact, together with an increasing focus on cost-effectiveness in abatement planning, has created a rapidly increasing interest in methodologies for undertaking "integrated assessments" (IA) over the past decade. The term, however, is used for very different analyses, depending on what are being integrated. As pollution of the environment may be caused by economic activities, as well as the pollution causes some socio-economic damage, the term IA may be used for studies of these vertical inter-linkages for one specific environmental problem. For instance, several attempts have been made to model the mutual impacts of economic activities and various climate change effects (as for instance sea level rise) on a global level or for large regions of the world (see e.g. Dowlatabadi (1995) for an overview of some major policy motivated models and Shlyakhter et al. (1995) for a discussion of some main factors to be considered in integrated analyses of global climate change). The RAINS model for Europe (Alcamo et al., 1990) and the RAINS-Asia model (Downing et al., 1997) have been developed to analyse trends in emissions, estimate regional impacts of resulting acid deposition levels, and to evaluate costs and effectiveness of alternative mitigation options. These models thus integrate the cause-effect chain and the policy response issues related to acidification for two large regions of the world. Recently, work has been initiated to design a methodology for integrated assessment of mitigation policies concerning NOx and VOC and their effect on acidification and ozone levels in Europe (see Simpson and Eliassen, 1997). The climate change issue is one of the most important environmental problems today. According to the International Panel on Climate Change (IPCC) the "balance of evidence suggests that there is already a discernible human influence on global climate" (Houghton et al., 1996). A further increase in the atmospheric CO2 concentration seems inevitable in view of the present dependency on fossil fuels in the western countries and the rapid economic growth in China and some other developing countries. It is therefore of great importance to find strategies in dealing with the climate change problem. However, the advice given in a large part of the economic literature, based on integrated assessment models as mentioned above, is that only moderate actions are recommended at present (see e.g. Nordhaus, 1993). There are, at least, two major reasons why this may be a poor advice. Firstly, until now most assessments of the costs and benefits of curbing greenhouse gas (GHG) emissions have not taken into account the secondary benefits of mitigation measures (also called ancillary benefits in the literature). These includes i.a. the benefits that are gained due to the fact that many of the relevant measures also curb the emissions of air pollutants. This issue has got surprisingly little attention in the literature and in the public debate. However, there is an increasing interest in the area, as shown by works by for instance Ayres and Walter (1991), Barker (1993), Alfsen and coworkers (1992; 1995; 1997), Munn (1995), and Burtraw and Toman (1997). It is also pointed at as an important element by the Intergovernmental Panel on Climate Change (Bruce et al., 1996). Secondly, the choice of discount rate in the analyses has a profound effect on the present value of environmental effects and mitigation costs. The traditional economic tools and approaches for cost benefit analyses may simply be inadequate for analysing effects that appear decades after the investments in abatement measures were made. The questions of discounting far-future environmental benefits and dealing with values that might change over time have become subject to extensive discussions within the field of environmental economics the last years (see e.g. Nordhaus, 1997; EC, 1995a). The aim of the work described in the following is to contribute to methodologies that may be useful in promoting a comprehensive environmental decision making, by within a limited geographic area integrating the damage assessment across some major environmental problems. The methodology is applied to a case study in Hungary (the CAPE project – ‘Climate, Air Pollution and Energy: Cost-Effective Strategies for Reduction of Emissions’), where the benefits of implementing an energy saving program are assessed in terms of reduced physical damage and the entailed economic benefits for the society. The work is closely linked to other work at CICERO concerning the issues of discount rate and macroeconomic modelling of secondary benefits of GHG reductions (see e.g. Aaheim et al., 1997). The study is basically a bottom-up cost benefit analysis, as described in paper 1 and 3. Figure 1 in Paper 1 outlines the steps in the analysis. The approach resembles what has been called the impact pathway or the damage function approach for instance in the joint CEC/US fuel cycle cost study, ExternE (EC, 1995a) and in the Norwegian project LEVE (see e.g. Haagenrud and Henriksen, 1995). At the outset the project intended also to integrate those political science issues regarded as important for what kind of abatement policy that was worthwhile looking at in an Hungarian case study. In the first report from the project policy implications of the Hungarian situation being a country in economic and political transition are discussed (Seip et al., 1995). However, this part has not been followed up, and the fact that we analysed an energy saving program that was already elaborated and proposed by the Hungarian authorities, to some extent reduced the relevance of an explicit political analysis.