Assessing Air Pollutant-Induced, Health-Related External Costs in the Context of Nonmarginal System Changes: A Review

Marginal analysis is the usual approach to environmental economic assessment, for instance, of health-related external costs due to energy-associated air pollutant emissions. However, nonlinearity exists in all steps of their assessment, i.e., atmospheric dispersion, impact assessment, and monetary valuation. Dedicated assessments thus appear necessary when evaluating large systems or their changes such as in green accounting or the implications of economy-wide energy transitions. Corresponding approaches are reviewed. Tools already exist that allow assessing a marginal change (e.g., one power plant's emissions) for different background emission scenarios that merely need to be defined and implemented. When assessing nonmarginal changes, the top-down approach is considered obsolete, and four variants of the bottom-up approach with different application domains were identified. Variants 1 and 2 use precalculated external cost factors with different levels of sophistication, suitable for energy systems modeling, optimizing for social (i.e., private and external) costs. Providing more reliable results due to more detailed modeling, emission sources are assessed individually or jointly in variants 3 and 4, respectively. Aiming at considering nonlinearity more fully and simultaneously following marginal analysis principles, I propose a variant 3-based approach, subdividing an aggregate (i.e., a nonmarginal change) into several smaller changes. Its strengths and drawbacks, notably the associated effort, are discussed.