Issue Date: February 7, 2011
Valuing Lives Saved
Whenever the Environmental Protection Agency proposes a major environmental regulation—such as requiring cuts in emissions of toxic air pollutants—agency economists pore over the details. Part of their work is calculating costs for industry to comply with the rule. For example, they estimate expenses to include installing emissions controls and maintaining that technology.
Another part of their work is to estimate the human health benefits from lower exposure to pollutants targeted in a regulation. As required by presidential directives, EPA and other federal agencies must then demonstrate that the benefits of a proposed rule outweigh its cost.
Now, EPA wants to make changes in its process to analyze the economic benefits from health-protective rules. In a white paper released in December 2010, the agency says it will change terminology—specifically a phrase that’s been described as setting a dollar value on a human life—that has generated much controversy over the past decade.
Along with this alteration of terminology, the agency wants to add a new calculation to its analyses to boost the estimated monetary benefits of regulations that control exposure to cancer-causing substances. If instituted, this move could lead to tougher regulations for the chemical and petroleum industries.
The controversial terminology EPA wants to get rid of is “value of a statistical life.” This carries a current estimated dollar value of roughly $8 million.
The Administration of President George W. Bush faced a public outcry when it tried to lower this value for people over 70. It eventually reduced this number to $7 million for all Americans—which in turn lowered the benefits estimated for EPA’s health-protecting rules, making those regulations less stringent on polluters. In 2009, President Barack Obama’s Administration reset this number to $7.9 million.
Calculating the value of a statistical life involves aggregating small reductions in risks to many individuals until it adds up to a single “statistical life.” But this term “has often been misunderstood as a measure of the value of individual lives,” according to the EPA white paper.
“We’re not putting a value on a human life,” Al McGartland, director of EPA’s National Center for Environmental Economics, told reporters recently.
In place of the term value of a statistical life, EPA’s white paper suggests a new measure with an appellation that could befuddle anyone without a doctorate in environmental economics: “value of mortality risk reductions.” This term reflects the amount of money in dollars associated with lowering a person’s risk of adverse health effects over time.
This change, the agency says, would not affect the bottom-line results of its benefit calculations for proposed environmental regulations. The modification would provide a new way of explaining how reductions in risk are reported and described.
A panel of economists on EPA’s Science Advisory Board (SAB) at a two-day meeting last month endorsed the agency’s plan for dropping the concept of the value of a statistical life.
“There is massive enthusiasm for a change in terminology,” said Catherine Kling, chairwoman of the SAB Environmental Economics Advisory Committee and an economics professor at Iowa State University. Value of a statistical life, she said, “is an inaccurate term.”
The SAB committee generally agreed about the definition and use of EPA’s proposed new term.
Emphasizing risk reduction is “a huge step forward” over the value of a statistical life, said committee member Peter Wilcoxen, associate professor of economics and public administration at Syracuse University.
The new term, value of mortality risk reductions, would communicate that people are trading money—the cost of environmental regulation—for reducing health risks, said panelist Madhu Khanna, a professor in the agricultural and consumer economics department at the University of Illinois, Urbana-Champaign.
The SAB panel was less enthusiastic about EPA’s plan to add a “cancer differential” to its calculations of regulatory benefits. Under this strategy, the agency would take into account how much people would be willing to pay to cut their risk of dying from cancer, compared with other causes, when estimating the benefits of regulations to reduce human exposure to carcinogenic substances.
This “cancer premium” could lead to tighter controls on toxic air pollutants and production of commercial chemicals but would have less effect on other agency actions, such as the stringency of hazardous waste cleanups, EPA’s McGartland said. Both air toxic rules and regulations under the federal chemical control law heavily affect chemical manufacturers and the petroleum industry.
But SAB panelists were skeptical of this proposed premium to avoid cancer, saying the public wants to avert other debilitating diseases in addition to malignancies.
“A lingering death from emphysema is no fun either,” said SAB member F. Reed Johnson, senior fellow and principal economist at Research Triangle Institute, a nonprofit research organization.
Putting a premium on cutting the risk of cancer versus other potentially fatal health effects such as heart attacks raises “thorny, uncomfortable questions,” according to McGartland.
Yet there is little difference in people’s desire to avoid breast or prostate cancer versus heart disease or heart attacks, said committee member Trudy Ann Cameron. More important in the public’s mind are how long a person would be sick and suffering, the latency period before symptoms of the disease manifest, and how long it takes for the person to die, said Cameron, professor of environmental and resource economics at the University of Oregon.
EPA’s white paper also suggests that the agency take into account how much people are willing to pay to reduce the public’s risk from pollution versus reducing just their personal risk. For example, the agency says, economists would compare how much a person would be willing to pay for cleaner drinking water piped to an entire community versus how much the person would be willing to pay for a home water filter. The agency wants to integrate this factor, called altruism, into its benefit calculations for regulations, McGartland said.
The SAB panel was unenthusiastic about this idea. “I think it’s too early to include it right now,” Khanna said.
The committee is preparing a critique of the agency’s white paper. That report is expected later this year.
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