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Linking Policy to Statistical Uncertainty in Air Pollution Damages


  • Muller Nicholas Z

    () (Middlebury College)


This study uses Monte Carlo analysis to characterize the uncertainty associated with per-ton damage estimates for 565 electric generating units (EGUs) in the contiguous United States (U.S.) This analysis focuses on damage estimates produced by an Integrated Assessment Model (IAM) for emissions of five local air pollutants: sulfur dioxide (SO2), nitrogen oxides (NOx), volatile organic compounds (VOCs), ammonia (NH3), and fine particulate matter (PM2.5). For each power plant and pollutant, the Monte Carlo procedure yields an empirical distribution for the damage per ton, or marginal damage. The paper links uncertainty in marginal damages to air pollution policy in two ways. First, the paper characterizes uncertainty in the magnitude of the marginal damages which is relevant to policymakers in determining the stringency of pollution controls. Second, the paper explores uncertainty in the relative damages across power plants. Relative damages are important if policymakers elect to design efficient regulations that vary in stringency according to where emissions are released. The empirical section of the paper finds that the marginal damage distributions are positively skewed and they are more variable for sources in urban areas than rural locations. The paper finds that uncertainty in three input parameters has the greatest impact on uncertainty in the magnitude of damages: the adult mortality dose-response parameter, the mortality valuation parameter, and air quality modeling. The analysis also finds that for each pollutant except for NOx only uncertainty in air quality modeling impacts efficient trading ratios calibrated to each firm's marginal damages.

Suggested Citation

  • Muller Nicholas Z, 2011. "Linking Policy to Statistical Uncertainty in Air Pollution Damages," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-29, June.
  • Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:32

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    References listed on IDEAS

    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
    2. Dallas Burtraw & Alan Krupnick & Erin Mansur & David Austin & Deirdre Farrell, 1998. "Costs And Benefits Of Reducing Air Pollutants Related To Acid Rain," Contemporary Economic Policy, Western Economic Association International, vol. 16(4), pages 379-400, October.
    3. Mendelsohn, Robert, 1980. "An economic analysis of air pollution from coal-fired power plants," Journal of Environmental Economics and Management, Elsevier, vol. 7(1), pages 30-43, March.
    4. Muller, Nicholas Z. & Mendelsohn, Robert, 2007. "Measuring the damages of air pollution in the United States," Journal of Environmental Economics and Management, Elsevier, vol. 54(1), pages 1-14, July.
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    Cited by:

    1. Nicholas Z. Muller, 2014. "Air Pollution Damages from Offshore Energy Production," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    2. Chan, H. Ron & Chupp, B. Andrew & Cropper, Maureen & Muller, Nicholas Z., 2015. "The Net Benefits of the Acid Rain Program: What Can We Learn from the Grand Policy Experiment?," Discussion Papers dp-15-25, Resources For the Future.
    3. Nicholas Z. Muller & Robert Mendelsohn, 2012. "Efficient Pollution Regulation: Getting the Prices Right: Reply," American Economic Review, American Economic Association, vol. 102(1), pages 608-612, February.
    4. Muller, Nicholas Z., 2012. "The design of optimal climate policy with air pollution co-benefits," Resource and Energy Economics, Elsevier, vol. 34(4), pages 696-722.
    5. repec:eee:jeeman:v:88:y:2018:i:c:p:180-209 is not listed on IDEAS
    6. Wichmann, Bruno, 2013. "Environmental regulation of technically inefficient firms," Economics Letters, Elsevier, vol. 121(2), pages 143-147.
    7. repec:eee:agiwat:v:194:y:2017:i:c:p:192-203 is not listed on IDEAS
    8. Meredith Fowlie & Nicholas Muller, 2013. "Market-based Emissions Regulation When Damages Vary Across Sources: What Are the Gains from Differentiation?," NBER Working Papers 18801, National Bureau of Economic Research, Inc.
    9. Karen Clay & Akshaya Jha & Nicholas Muller & Randall Walsh, 2017. "The External Costs of Transporting Petroleum Products by Pipelines and Rail: Evidence From Shipments of Crude Oil from North Dakota," NBER Working Papers 23852, National Bureau of Economic Research, Inc.
    10. Jaramillo, Paulina & Muller, Nicholas Z., 2016. "Air pollution emissions and damages from energy production in the U.S.: 2002–2011," Energy Policy, Elsevier, vol. 90(C), pages 202-211.
    11. Stephen P. Holland & Erin T. Mansur & Nicholas Z. Muller & Andrew J. Yates, 2016. "Distributional Effects of Air Pollution from Electric Vehicle Adoption," NBER Working Papers 22862, National Bureau of Economic Research, Inc.

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