Example 3.5: NO2 Control in Chicago: An Example of Cost-Effectiveness Analysis In order to compare compliance costs of meeting a predetermined ambient air quality standard in Chicago, Seskin, Anderson, and Reid (1983) gathered information on the cost of control for each of 797 stationary sources of nitrogen oxide emissions in the city of Chicago, along with measured air quality at 100 different locations within the city. The relationship between ambient air quality at those receptors and emissions from the 797 sources was then modeled using mathematical equations. Once these equations were estimated, the model was calibrated to ensure that it was capable of re-creating the actual situation in Chicago. Following successful calibration, this model was used to simulate what would happen if EPA were to take various regulatory actions. The results indicated that a cost-effective strategy would cost less than one-tenth as much as the traditional approach to control and less than one seventh as much as a more sophisticated version of the traditional approach. In absolute terms, moving to a more cost-effective policy was estimated to save more than $100 million annually in the Chicago area alone. 3.11 Impact Analysis What can be done when the information needed to perform a benefit – cost analysis or a cost- effectiveness analysis is not available? The analytical technique designed to deal with this problem is called impact analysis. An impact analysis, regardless of whether it focuses on economic impact or environmental impact or both, attempts to quantify the consequences of various actions. In contrast to benefit – cost analysis, a pure impact analysis makes no attempt to convert all these consequences into a one-dimensional measure, such as dollars, to ensure comparability. In contrast to cost-effectiveness analysis, impact analysis does not necessarily attempt to optimize. Impact analysis places a large amount of relatively undigested information at the disposal of the policy-maker. It is up to the policymaker to assess the importance of the various consequences and act accordingly.
45 Nowadays, environmental impact statement is a familiar, part of environmental policy- making. Current environmental impact statements are sophisticated and may contain a benefit – cost analysis or a cost-effectiveness analysis in addition to other more traditional impact measurements. 3.12 Summary Finding a balance in the relationship between humanity and the environment requires many choices. Some basis for making rational choices is absolutely necessary. If not made by design, decisions will be made by default. Normative economics uses benefit – cost analysis for judging the desirability of the level and composition of provided services. Cost- effectiveness analysis and impact analysis offer alternatives to benefit – cost analysis. All of these techniques offer valuable information for decision making and all have shortcomings.