Pricing Fresh Air: Relating Smoking to Carbon Emission
PPPA 6014
Professor Anil Nathan
Final Policy Brief
Carl Mackensen
12/15/2023
Pricing Fresh Air: Relating Smoking to Carbon Emission
Abstract
Clean air is vital to not just human civilization, but the entire world’s biome and continued existence. The climate crisis is real, and we can already see its effects in raging forest fires, higher sea levels and flooding, and increased temperatures with records being broken every year, with nothing to say of the anthropogenic global mass extinction event. As such, it is of paramount importance to attempt to deal with this problem in every way that we can. The air is polluted because it is a global commons. It is non rivalrous and non excludable. As such, people feel free to emit as much pollution, particularly carbon for energy, as they see fit. This is also due to the fact that pollution is an externality, in which a third party is impacted by the economic activity of two others. There is also a free rider effect in which many are tempted to skimp on cutting carbon emissions after others have committed to. One such proposed solution is to put a price on carbon. This would be highly helpful. Another method, examined here, would be to attempt to put a dollar figure on the price of breathing fresh air.
In this paper, this is done via looking at a case study; the economics of smoking, and its cessation, and as a result, the cost of smoking as a proxy for putting a price on the shadow price of clean air. Through this, we can look at the figures and facts for damage, and make a first approximation of the social cost of breathing polluted air. As such, we can then conclude that the best method for dealing with this would be to make it more difficult to pollute. One of the best ways to do this is to make polluting more costly. This will subsequently affect every aspect of society, and the economy, on both a local and global scale. How this is done, whether through a tax or market mechanism, is mainly academic. The real results of this would be extremely beneficial to those who have already been and will continue to be, adversely affected. Climate change is caused by one group of people and affects another group of people, despite being different in time and space. The results of the actions of the former group are that they damage the latter. This being the case, we can attempt to define the damage of polluted air more systematically and econometrically. This is done through the separate act of putting dollar amounts on breathing unclean air, or smoking. This is a nuanced difference in procedure from looking at a price in carbon. In truth, the two go hand in hand. But it is important to note at the outset that they employ different means. A price on carbon, which will be touched on here, is separate from the cost of breathing dirty air. Pricing air, as a global commons, is a different sort of economic solution to the problem. Doing so would take us a long way towards dealing with this vital and serious issue.
I: Introduction
Pollution is a systems level problem. It has pervaded every aspect of global economies since the dawn of the first Industrial Revolution. This can best be combatted through systems-level thinking, and systems-level solutions. After examining the broader issues in the climate justice movement, and subsequently a case study on attempting to put figures on the damages of breathing unclean air through the examination of the social costs and cessation benefits of smoking, this paper endeavors to do this. Why smoking? Because, as will be detailed, what we are essentially dealing with is an externality where one group of people, though removed in time and geography from another, does damage to them, through the pollution of the air. In essence, the environmental economist attempts to put cost figures on these things so that it can best be determined how to help people. Therefore, looking at something related to breathing pollution that has been clearly documented and has a long-standing history of literature, such as smoking, is eminently helpful in this pursuit.
The people who put the carbon in the air may be temporally removed by generations, or geographically removed by thousands of miles, but this matters very little. It is still one group of people doing active harm to another group of marginalized people. This is at the heart of the growing climate justice movement, an outgrowth of environmental justice, which is itself the intersection between social justice and environmental issues.
Many of the solutions that are being proposed to deal with air pollution, specifically that of carbon, circulate around attempting to put a price on its emission. If we can calculate the social cost of carbon, and consider this in our subsequent analyses of how much to pollute, then we can maximize the cost-benefit relationship. Prices ranging from 40 dollars per ton of CO2 emitted to as high as 800 dollars per ton, with the most likely estimate being approximately 417 dollars per ton. (Nuccitelli, 2018) Looking purely at the damages to the USA, the social cost of carbon estimates are roughly 40 to 50 dollars per ton, while the value of the reduction in line with what this would result in would be on the order of seven times this, or 280 to 350 dollars per ton. (Nuccitelli, 2018)
Whether this would come in the form of a tax or through a market mechanism such as a cap-and-trade marketable permit scheme is somewhat irrelevant for our purposes, as long as firms internalize their costs of production and what was once an externality becomes simply part of the cost of doing business. There are pros and cons for both a flat tax per ton emitted, and a cap-and-trade scheme. However this is accomplished, according to the calls of benign scientists and statisticians, we could truly come to estimate the effect of carbon emissions.
But is this the best way? Or, alternatively, is it the only way? It does address some of the core issues around carbon emissions, namely putting a price on them. Is it possible to attempt to put a price on the value of a breath of fresh air? To find its shadow price? After all, carbon emissions are, at least seemingly at the outset, a global commons problem. No one owns the air, and as a result, everyone is incentivized to pollute it.
There are numerous solutions available for dealing with a commons issue. Privatization of the commons is possible. But it would seem somewhat draconian to suggest forcing making people pay for the air they breathe. You can regulate emissions, as the social cost of carbon attempts to do through pricing and market mechanisms. But this too is one method open to a lot of different interpretations. How much should a ton of carbon emitted into the air cost? And how is it best to enforce this? Going forward, in this paper, then, I will now focus on looking at the cost of smoking as a proxy for putting a price on clean air. It is an interesting attempt at dealing with this commons issue and features a dynamic, and substantive, body of literature.
II: Literature Review
The Social Cost of Smoking
For many years, the public health community has put forth that smoking causes great societal costs, and that smokers should carry the burden of these costs. There are three primary types of costs which include the direct medical costs of preventing, diagnosing, and treating smoking-related diseases, the indirect morbidity costs associated with lost earnings from work due to smoking, and the indirect mortality costs related to the loss of future earnings due to premature smoking-caused deaths. (Chaloupka and Warner, 2000, page 1575). Primarily, this research has been done in The United States, but other countries such as Canada, Great Britain, China, and others have conducted analyses as well. Furthermore, many state-specific analyses have been conducted within the US, based on the Smoking-Attributable Morbidity, Mortality, and Economic Costs (SAMMEC) model. (Shultz et al., 1991)
These analyses, which attempt to get at the cost of smoking, use a great variety of methods of estimating the different cost components. These studies leave much to be desired. They omit or ignore certain types of smoking related health care, such as the treatment of burn victims from smoking caused fires and perinatal care for low-birth-weight babies of smoking mothers. (Chaloupka and Warner, 2000, page 1576) There are a few studies that have dealt with the costs of treatment of diseases caused by tobacco smoking. None have attempted to value intangible costs, such as the pain and suffering of smoking-related disease victims and their families. These intangible costs may well exceed those that are already quantifiable.
These studies considerably underestimate smoking’s burden on the health care system due to its failure to consider how smoking complicates the effects of many illnesses that are not directly associated with smoking. For example, diabetics who smoke often have more complications of their diabetes compared to those who do not smoke. Smokers recover more slowly from surgeries of all types than nonsmokers do, extending post-surgical hospital stays. Smokers with HIV may be more likely to develop near-term AIDS than nonsmokers with HIV. The inclusion of similar costs in these cost-of-smoking-analyses could result in an increase of 50% or more. (Chaloupka and Warner, 2000, page 1576) These studies also neglect to consider a great many direct costs in addition to medical costs, such as the time and transportation costs associated with getting patients to and through health care services, the direct costs of home modifications to deal with smoking-related disabilities, damage to buildings due to smoking-induced fires, smoking-related maintenance costs in industrial and home settings, and the increased frequency of laundering necessitated by smoking. Leaving out these nonmedical costs is routine for nearly all of the broader cost of illness studies and papers. Sometimes, these omissions are acknowledged, with authors saying they seemed too negligible to warrant further investigation.
The indirect morbidity and mortality costs have been critiqued frequently as being an insufficient means of valuing the avoidable premature loss of life. They place no value on life per se. These studies also calculate some of the economic ‘benefits’ of smoking, such as the reduction in Social Security payments for smokers who die prematurely, and medical expenditures avoided due to the premature death of smokers. (Shoven et al., 1989) There is, as a result, a great oversupply of studies that attempts to discern whether the overall impact of smoking is positive or negative. The debate of whether these ‘negative costs’, or cost offsets, should be incorporated in the calculation of the social cost of smoking has become a large issue in the academic battle over the initial definition of the social costs of smoking. The importance of this debate is potentially substantial. At the heart of the public health community’s putting forth the need for a higher cigarette tax is the social cost argument that smokers (or the industry that feeds their addiction) are imposing an enormous economic burden on the society and should pay for it through higher taxes. Using the public health construction of social cost, some analysts have concluded that in the United States, the cigarette excise tax should be roughly on the order of three to four dollars, or more, to cover these costs. Economists of many different political persuasions have rejoined that to discern an optimal cigarette excise tax, the ideal notion of social cost is the traditional economist’s measure of externalities, or the costs imposed by smokers on others, which excludes their own family members.
Economics of Smoking Cessation
It is clear from above that smoking imposes a huge economic burden on society, currently up to 15% of total healthcare costs in developed countries. (Parrott et. Al, 2004) Smoking cessation can save years of life , at a very low cost compared with alternative interventions. The most straightforward benefits of smoking cessation are increased gains in life expectancy and the prevention of disease. Cessation also improves peoples’ quality of life, as smokers tend to have a lower self-reported health status than non-smokers, and this effect improves after stopping smoking. There are also wider economic benefits to people and society, coming from reductions in the effects of passive smoking on non-smokers, and savings to the health service and the employer. These larger benefits are usually omitted from the economic evaluations of cessation interventions and as a result, underestimate the true value for money caused by such programs.
There have been many estimates of the economic cost of smoking in terms of health resources. In the United States, they typically range from roughly 0.6% to 0.85% of gross domestic product. (Parrott et. Al, 2004). In absolute terms, the United States public health service estimates a total cost of $50 billion a year for the treatment of smoking related diseases, in addition to an annual $47 billion in lost earnings and productivity. (Parrott et. Al, 2004). When considered as a percentage of gross domestic product, the economic burden of smoking seems to be increasing. However, in truth, the burden may not be increasing, but rather, as more diseases are known to be caused by smoking, the share attributed to smoking increases. Earlier estimates may simply have underestimated the true cost.
In the United States, passive smoking has been estimated to cause roughly 19 percent of total expenditure on childhood respiratory conditions, and maternal smoking has been shown to increase healthcare expenditure by $120 a year for children under age five and $175 for children under age two. (Parrott et. Al, 2004) Absenteeism as a result of smoking related diseases is also a large cause of lost productivity, a cost incurred by employers. An annual estimated 34 million days are lost in England and Wales through sickness absence resulting from smoking related illnesses, and in Scotland, the cost of this productivity loss is about 400 million pounds, (Parrott et. At, 2004)
There is clear evidence that smoking cessation interventions are effective. However, to show value for money, the costs, as well as the effectiveness of such programs, have to be examined. Overwhelmingly, the evidence is that face to face cessation interventions result in great monetary value for money compared with the large majority of other medical interventions. There are some complex factors that influence cost-effectiveness. The cost-effectiveness of putting the US Agency for Healthcare Research and Quality’s clinical guidelines on smoking cessation into practice has been estimated, for combined interventions based on smokers’ preferences for different types of the five basic recommended interventions. The cost of implementation was estimated at $6.3 billion in the first year, as a result of which society would gain 1.7 million new quitters at an average cost of $3,779 per quitter, $2,587 per life saves, and $1,915 per quality-adjusted year of life. (Parrott et. Al, 2004) In this study, the most intensive interventions were calculated to be more cost effective than briefer therapies. With these results, however, we must be careful when extrapolating from them, as cost effectiveness estimates are more than likely to be time and country-specific, and dependent highly on the healthcare system in question.
III: Discussion and Extrapolations
So what can be concluded from this concomitance of data, analyses, and extrapolations? Firstly, smoking is damaging, not only to the individual, which has been well documented for quite some time, but to larger society generally, which hasn’t always been included in the cost and calculus of previous analyses. We can, therefore, attempt to incorporate these social costs into our understanding of the damage that smoking does, and come to a better understanding of how much it actually costs us to smoke a cigarette or, as I would put forward, breathe polluted air.
If we treat the negative externalities of carbon emissions in a similar vein as these analyses, as a public health issue, we can perhaps come to a better understanding of the true cost of polluting carbon. That is precisely what this paper aims to do, through pricing fresh air and health, with the recommendation being that we must make it more difficult to emit carbon through principled, evidence-based policies, nonviolent activism, and advocacy. As a result, both people and the planet will benefit greatly.
A price on carbon will filter through every facet of the economy, and resultantly, society, around the world. Food that travels far distances will go up in price because of the cost of fuel associated with transporting it, and as a result, local food would be cheaper, all else held constant. Travel by car will also become more expensive, and more people would turn to public transportation. Investment in research and development into alternative forms of energy production for consumer use will flourish as the oil and gas industries still receive substantial subsidies. With a price on carbon, renewables would become even more productive and beneficial, from a societal and economic perspective, than they currently are. Innovation would be spurred towards storage in conceptual solutions which we can’t fully conceive of yet and distributed generation, such as rooftop solar as opposed to traditional centralized power plants, would flourish. A price on carbon is truly the silver bullet that would benefit all of us.
The understated irony of comparing smoking to carbon emissions is that both of these activities feature an addictive component. For better or worse, smokers are addicted to smoking cigarettes, and emitters are addicted to emitting carbon. Smokers have are very rigid elasticity of demand regarding cigarettes; people who argue for taxing cigarettes often say that the price will deter would-be smokers. That may be true to a certain degree, however it is essentially taxing an addicted population for being addicted. Similarly, at the systems level, we seem unable to be able to move past carbon emissions when it comes to energy production. As the negative externality is not incurred by the economic agents making the decision, it doesn’t factor in at all. Even if it were to be considered, as is proposed in certain areas like RGGI in the US or the social cost of carbon for the EU, perhaps we won’t see such dramatic changes in energy use as a result of a higher price. Perhaps this will simply be an additional cost that the public will have to bear, because we are locked into this framework. However, I like to think about this topic differently.
By bringing our emissions in line with the projections of scientists to limit warming to a manageable level of 1.5 degrees Celsius, countless lives would be spared from death, destruction, relocation, economic hardship, and forced migration. Droughts and wildfires would be mitigated, and rural farmers in low-income countries wouldn’t have to abandon their ancestral farming territories. Island nations wouldn’t be demolished. This is merely the benefits to humankind, which does not include the saving of literally millions of species and vulnerable ecosystems. Such measures would have a far-reaching impact.
All of this is contingent on a price on carbon being universally adopted. There is incentive to all to free ride on others taking serious action, while the free rider pursues a low-cost approach, when there is no price on carbon. The above sections of the literature review attempt to flesh out a different, though related, topic. Namely, what is the shadow price of breathing fresh air? While it is not so simple as to be able to come up with a figure per breath, we can use the information summarized above to inform how we approach the topic of breathing clean air. As we have seen, smoking is costly, and cessation has real economic benefits. It is not far off from the introduction of a price on carbon to similarly have a price on breathing fresh air.
IV: Conclusion
This paper looks at the economics of smoking cessation and the damages of smoking because it is one of the few areas of the literature where there are established facts, studies, and analyses on what I described earlier, namely, the cost of breathing polluted air. This is an attempt to get at the social cost, for humans, of dealing with air pollution, from an environmental economic standpoint. This analysis is a proxy for a further discussion and examination of the social cost of carbon, which itself has a growing base of literature, and of which I hope this is a helpful addition, if ever so slightly. Putting a ‘price’ on a breath of clean air may seem odd to the general public and layperson, but as I have attempted to detail, it would be priceless in terms of promoting the prevention and mitigation of damages to people, and the environment. It is one group of people, though removed in time and space, indirectly harming another group of people through their actions, either whether initially unknowingly or, more recently, simply through lack of education or apathy. In order to combat this, we must first and foremost educate, and subsequently advocate, for change at a systemic level. This can begin to be done by putting a price on carbon, and/or pricing fresh air.
Another concept of restorative justice that could be incorporated into the framework I have proposed would be to earmark the funds developed from the taxation of carbon emissions, and redistributing them to those who have already, and will continue to be, most affected. If we were to do this, both people and the planet would benefit. While this would not be the only method needed to abate the dramatic consequences of the climate crisis, nor work best for every and all situations, it would be a good first step towards the long path of structural oppression detailed above.
How this would actually be done is up for debate and falls outside the realm of this paper. I mention it here to firmly ground the discussion of restorative climate justice to theorist Galtung, and his notion of positive peacebuilding, which has been adopted by the UN, and other international organizations. Further work could also be done on different avenues for similar research, such as the social cost of smog in cities, or the decreased value in real estate close to pollution emitting sources. This, while interesting and certainly within the purview of environmental economics, falls outside the realm of this paper. I leave it for future analysis.
V: References
[1] Chaloupka, Frank J and Warner, Kenneth E. (2000), “Handbook of Health Economics: Chapter 29 The Economics of Smoking”, Elsevier B.V. Pages 1539-1627
[2] Parrott, Steve and Godfrey, Christine (2004), “Economics of Smoking Cessation”, BMJ 2004 Apr 17; 328(7445):947-949
[3] Nuccitelli, Dana, (October 21st, 2018), “New study finds incredibly high carbon pollution costs”, CCL Economics Policy Network Team, Citizens Climate Lobby, citizensclimatelobby.org, https://citizensclimatelobby.org/new-study-finds-incredibly-high-carbon-pollution-costs/
[4] Shoven, J.B., Sundberg, J.O., and Bunker, J.{. (1989), “The social security cost of smoking”, in: D.A. Wise, ed., The Economics of Aging (University of Chicago Press, Chicago) 231-254.
[5] Shultz, J.K., Novotny, T.E., and Rice, D.P. (1991), “Quantifying the disease impact of cigarette smoking with SAMMEC II software”, Public Health Reports 106:326-333.