The Economic Implications of Air Pollution: A Case of Two Cities

Abstract

Many cities in urban India, particularly the metros, are major hotspots of air pollution with a PM2.5 concentration level ranging above the permissible limits defined by the World Health Organisation for most of the year. Since the transport sector is a main source of air pollution in urban India, the Government of India adopted BS-VI emission standards in 2016 for all major on-road vehicle categories. The rollout of clean fuel (BS-VI) in India began in the capital city of Delhi, one of the most polluted cities of India. In this context, the primary objective of the article is to analyse the economic cost of air pollution in Delhi/Haryana through a primary survey of occupational groups exposed to ambient air pollution. The secondary objective is to provide suggestive evidences of the implications of the roll-out of cleaner fuel in Delhi while the same was not yet implemented in the neighbouring city of Narnaul in Haryana. We measure the economic cost of air pollution using three approaches, namely, the cost of illness approach, the productivity loss approach and also by undertaking a contingent valuation (CV) exercise. Through a first-of-its-kind CV survey administered in India, the welfare analysis uses the Indian estimates of the value of life years (VOLYs) to arrive at the welfare loss figures. We found that the economic costs in terms of health expenditure and productivity loss were ₹4.08 billion and ₹31.28 billion, respectively, for New Delhi, which remained higher than Narnaul. Although the cost of pollution decreased during the second phase of the survey towards the end of 2019, we argue that a longer time period analysis is needed to understand the true impact of introduction of the cleaner BS-VI fuel in reducing the impact of air pollution within the city. However, if one considers the value of LYs for Narnaul as a proxy for Haryana, we find that the welfare loss is higher in Haryana than in New Delhi. JEL Codes: I18, Q51, Q52, Q53, Q58