Agricultural & Applied Economics Association

Balancing Environmental Quality, Energy Use, and Growth: Difficult Decisions

Author(s): Fred H. Abel
Source: American Journal of Agricultural Economics, Vol. 57, No. 5, Proceedings Issue
(Dec., 1975), pp. 815-818
Published by: Oxford University Press on behalf of the Agricultural & Applied Economics
Association
Stable URL: https://www.jstor.org/stable/1239085
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 Balancing Environmental Quality,
Energy Use, and Growth:
Difficult Decisions

Fred H. Abel

Society's decision makers are concerned cial

with welfare or quality of life objective func-
providing the maximum quality of life for tion,itsincluding quantification of all major vari-
members. A major task is determining the ables
fac-(preferably in economic terms) and es-
tors that contribute to improved quality oftimates
life. of their correct weights (coefficients).
Since there are many factors, a second task If is
the major factors affecting net welfare
determining the correct balance of thesecannot
fac- be quantified in a single function,
tors. Society seems to change the factors analysis
or must deal with subobjective func-
their relative importance rapidly; witness tions.
the For example, environmental quality or
shift from civil rights to poverty to peaceenergy
to self-sufficiency become independent
environment and now to energy self- objective functions. Comprehensive analysis
sufficiency. Currently, three major issuesthus must show the level of each subobjective
seem to be environmental quality, economicwhich are then compared in some kind of
growth, and energy self-sufficiency. The prob-trade-off analysis. The degree of quantifica-
lem of the correct framework for balancing tion of any of the factors depends upon the
state of the art of quantification techniques
these factors, results of quantifying some of
them, and present methods for trade-offand the needs of the decision maker. The sec-
analysis are briefly examined. ond part is important, as I have discovered
Historically, most societies have chosen tothat even though we can value both prema-
maximize economic growth under the assump- ture death and ill health in economic terms,
tion that this leads to increases in the quality decision makers reject them preferring only
of life. This assumption is being challenged by the number of adverse health effects.
some who argue that economic growth is not For our purposes, it is clear that today the
necessarily good and others (Daly) who argue subobjectives of becoming energy self-
that it is necessarily bad because it uses too sufficient, continuing economic growth, pre-
many scarce resources (that are presumablyserving or improving the environment, and the
underpriced in the market) and damages the trade-offs involved are among those of princi-
environment (which is generally not priced pal at concern. It appears that if we try to obtain
all). Thus, we seem to have a new set of objec- any one, our ability to obtain the others is
tives: to maximize economic growth subject reduced to so real trade-offs are involved. But
the constraints of not using too many scarce what is really being traded, that is, how are
resources and not doing too much damage to environmental quality, economic growth, and
the environment. The problem is deciding how energy self-sufficiency quantified?
many resources are too many and how much I will restrict my comments on quantifica-
environmental damage is too much. tion to environmental quality as quantification
As analysts and economists, we would likeof energy and gross national product is better
to solve this problem for the decision maker understood. Concern for environment quality
by developing empirical estimates of a net so- is really a concern about how poor or de-
teriorating environmental quality affects the
Fred H. Abel is a senior economic analyst on the planning staff of
quality of life. It affects the quality of life by
the Office of Fossil Energy, Energy Research and Development
Administration. causing ill health, premature death, and re-
duced property values, as well as by increas-
The views presented are those of the author and are not neces-
sarily those of the Energy Research and Development Administra-
ing the costs of avoiding
tion or the Environmental Protection Agency. Any mistakes in the
the pollution, the cost
of good recreation, and
paper are the author's, but special thanks go to Michael Hay and the psychic costs (i.e.,
Dennis Tihansky who assisted with this paper. the mental discomfort occasioned by the real-

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 816 December 1975 Amer. J. Agr. Econ.

ization that nature is $11

is billion with recreation
being accounting for th
violated,
is increased risk of environmental catas- 60% of the total. The annual pollution costs of
trophies, and that some environmental $31 billion
use op- give us some idea of the magnitude
of the pollution problem. These are not ben-
tions are lost to us and to future generations).
While environmental quality as a whole efits of
is pollution control expenditures to date
not directly quantifiable, some attempts but rather
have are the benefits to be obtained by
been made to derive indexes of environmental completely cleaning up the remaining air and
quality (CEQ 1972). However, for the most water pollution. Current benefits would be the
part these indexes have not been accepted as difference between the above pollution costs
measures of environmental quality. Instead, and what the pollution costs would be in the
measures of either ambient quality of air and absence of any control program. This value
water or residuals discharged to the environ-has not been estimated.
ment are used as measures. Neither relate di- It has been estimated that annual cost of air
rectly to pollution costs (damages) and that andis water pollution control in 1973 was $5.7
what really matters. A better alternative billion
is to and if standards are met, it will be $26.3
estimate environmental damages causedbillion by in 1982 (CEQ 1974). A single cost-
pollution. benefit analysis of the above numbers suggest
The magnitude of these costs (damages) are that if all of the potential benefits were
difficult to quantify as they vary with geo- realized by accomplishing the standards, then
graphic location, peoples' perceptions of what by the 1980s the annual benefits would exceed
ought to be, and economic conditions to the the annual control costs. If we accept these
extent that it changes the value of these items values and ignore the distribution effects, we
and peoples' willingness to pay to avoid them. still cannot conclude that the environmental
Nevertheless, the best economic measure of program is worthwhile. What has not been
changes in environmental quality is the value included in the benefit-cost analysis are the
of all these costs. effects of the program on energy self-
Estimates of national costs (damages) of sufficiency
air and economic growth.
and water pollution in 1973 are presented in An analysis of the impact of the environ-
table 1. Damage from air pollution is $20mental bil- program on economic growth was per-
lion with aesthetics and health the major formeddam- by the Council on Environmental
aged categories. Damage from water pollution Quality (1975). The Council, using the Chase
econometric model, estimated that the impact
Table 1. National Costs of Air and Water of environmental control expenditures through
Pollution, 1973 1976 will increase economic growth above
what it would be otherwise. In 1975, GNP
Range would be 1.6% higher. Then during the late
Best Estimate Low High 1970s economic growth would be depressed.
Damage Category ($ billion) ($ billion) The real GNP was projected to be depressed
Air by 2.0% in 1979 but by 1982 real GNP moves
Health 5.7 2.0 9.4 back to the baseline. In other words, accord-
Aesthetic 9.7 5.7 13.7 ing to the model, the impact of pollution con-
Vegetation 2.9 1.0 9.6 trol expenditures on economic growth is to
Materials 1.9 0.8 2.7
increase it for a few years, then depress it, and
20.2 9.5 35.4
then to have no affect after about 1982.
I don't believe the Chase model is accu-
Water
Human health 0.64 0.32 0.97 rately projecting the adverse impacts of th
Psychic 1.49 0.65 2.76 environmental programs on GNP. What is
Outdoor recreation 6.32 2.51 12.60
missed is the loss of goods and services be-
Materials damage 0.77 0.35 1.11
Productions costs 0.72 0.14 1.40
cause new economic activity, particularly the
Property value 0.08a 0.03a 0.18a construction of new energy facilities, did not
10.66 5.45 15.52 take place or has been delayed. According to
the Chase model, by 1982 an improved envi-
Total air and water 30.86 14.95 50.92 ronment would be a free lunch. I would like to
believe that, but I don't.
Sources: Abel, Tihansky, and Walsh. Water Pollution; U.S.
The Chase model did not include the im-
EPA, Costs of Clean Air.
a Not included in total. pacts on energy self-sufficiency nor did it de-

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Abel Choices between Growth and Quality 817
termine what environmental benefits are ob- Although this and all simulation models ca
tained. Although there is a large number show
of the effect of selected changes on k
models estimating or simulating economic factors, they do not determine if such chang
growth, evironmental costs, and impacts areof good or bad. For example, is the grea
energy use, none simultaneously analyzesreduction
the in emissions worth the use of so
trade-offs among the three. much additional energy? Of course models
can never determine if these trade-offs are
One model that has promise for predicting
worthwhile; only decision makers can. How-
the trade-off is the Strategic Environmental
Assessment System (SEAS) developed by the ever, models can be very useful in estimating
Environmental Protection Agency. The sys- the magnitude of the trade-offs.
tem combines fourteen computer models. The In summary, there does not exist an
principal one is the Almond interindustry adequate framework for analyzing the trade-
model. This is augmented by adding about 300 off between energy self-sufficiency, environ-
subsectors for the Almond sectors that have mental quality, and economic growth. A single
strong environmental problems. Economic quality of life or net social welfare function
growth rates, productivity, aggregate demand,cannot be estimated. Even if it could, it would
and rates of substitution of new cleaner have to be re-estimated frequently as the rela-
technology for old are inputs, and outputs tive importance
are of the factors change. Trade-
energy consumption, emissions of forty pol- where the level of all major factors
off analysis
lutants, GNP, unemployment, output, trans- for each policy option is the only
are estimated
portation, and investment in plant and realistic
equip-method of analysis. In this analysis
ment. The estimates are for each year major factors can be quantified in different
through
1985 and can be obtained for counties, units and even important factors that cannot
states,
and regions. With many runs, one can be quantified
deter- can be included. Unfortunately,
mine for different growth and productivity this leaves the decision maker with the job of
rates and with or without abatement comparing
activitynoncommensurables. For factors
the impact on pollution and energy like use.energy self-sufficiency, environmental
Some selected preliminary results quality, are pre- and economic growth, this is a major
sented in table 2. The preliminarytask.
results
Progress
suggest that abatement activity decreases un- has been made in quantifying en-
vironmental
employment, increases energy demanded, and damages and control costs. How-
greatly reduces some pollutants. Theever,low
only very imprecise national cost-benefit
economic growth rate greatly reducesanalysis can be performed. The improved
the de-
mand for energy. techniques can lead to estimates of marginal

Table 2. Selected 1985 Results of Preliminary Runs of the Strategic Environmental Assessmen
System (SEAS)

Scenariob
Outputsa 1 2 3 4 5

GNP (T 1971$) 1.80 1.80 1.59 1.59 1.81

Unemployment (%) 4.4 4.1 4.3 4.1 4.3
Output (T 1971$) 3.10 3.11 2.74 2.76 3.10
Equipment investment (B 1971$) 161 161 139 140 159
Construction (B 1971$) 130 130 113 113 129
Passenger transportation (T miles) 3.62 3.60 3.02 3.01 3.62
Freight transport (T miles) 3.52 3.57 3.19 3.24 3.69
Recycled aluminum (M tons) 2.22 2.22 2.06 2.06 2.16
Btu. (quads) 109 113 95 106 103
Air particulates (M tons) 35.7 3.67 32.3 3.27 35.6
Nitrogen oxides (M tons) 29.9 27.3 26.4 24.4 28.9
Sulphur oxides (M tons) 52.9 20.3 47.8 18.4 51.1
Biochemical oxygen demand (M tons) 4.90 1.23 4.41 1.14 4.86
Total suspended solids (M tons) 18.4 1.21 16.6 1.14 18.27

a T = trillion, M = million, B = billion, quads = quadrillion.

b Scenarios: 1-High growth rate, high productivity, no additional abatem
growth, low productivity, no additional abatement; 4-low growth, low produc
and energy conservation (gross savings of 15 quads).

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 818 December 1975 Amer. J. Agr. Econ.

costs and marginal mixbenefits

of environmental degradation
which which are
they r
in trade-off analysis. would be willing to live with and some in-
A promising method crease in product
forprices because of pollution
complex trad
analysis is a simulation model
control. Second, economists like SE
must develop
though there are tools and quantification techniques
currently no models that allow t
do this. Even so, econometric models can systematic comprehensive trade-off analysis.
handle trade-off among economic factors likeEven with this, these difficult decisions will
pollution control expenditures and GNP, but remain difficult but perhaps less so.
cannot handle nonquantifiable factors like en-
vironmental quality, energy self-sufficiency,
or quality of life. Although quality of life is the
References
ultimate objective function, it will never be
quantified. The major factors in quality of life
are love and friendship and they will never Abel,
be F. H., D. Tihansky, and R. Walsh. National Ben-
efits of Water Pollution Control. U.S. Environmen-
captured for quantitative analysis.
tal Protection Agency. Washington, forthcoming.
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of energy self-sufficiency, economic growth, vironmental Protection Agency. Washington, forth-
and environmental quality cannot depend coming.
upon the econometric or simulation models inDaly, Herman. "In Defense of a Steady-State Economy."
the near future; the framework, techniques of Amer. J. Agr. Econ. 54 (1972):945-54.
quantification, and method of analysis simplyCouncil on Environmental Quality. The Fifth Annual Re-
aren't available. Economists must concentrate port of the Council on Environmental Quality. Dec.
1974.
first on developing an integrated analytic
framework that recognizes that many of the. The Macroeconomic Impacts of Federal Pollu-
tion Control Programs. Washington, Jan. 1975.
factors important to quality of life are not in-
-- . The Third Annual Report of the Council on En-
cluded in GNP. For example, economic effi-vironmental Quality. Aug. 1972.
ciency requires that all pollution be controlled
U.S., Environmental Protection Agency. The Costs of
and the costs included in product prices; then Clean Air and Water, 1975. Washington, forthcom-
consumers will determine the optimum in the ing.
market place. But, consumers could obtain a . Strategic Environmental Assessment System:
higher quality of life if they could select some Phase III Design Report. Washington, forthcoming.

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