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Bulletin of Indonesian Economic Studies

ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20

Indonesia's Clean Air Program

Budy P. Resosudarmo

To cite this article: Budy P. Resosudarmo (2002) Indonesia's Clean Air Program, Bulletin of Indonesian Economic Studies, 38:3, 343-365

To link to this article: http://dx.doi.org/10.1080/00074910215538

Published online: 17 Jun 2010.

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INDONESIA’S

CLEAN

AIR

PROGRAM

BudyP.Resosudarmo

AustralianNationalUniversity

Unprecedentedindustrialdevelopmentduringthelasttwodecades,accompanied

byagrowing population,hasincreased theamountofenvironmentaldamagein

Indonesia. Acriticalenvironmental problemisthe rising levelofairpollutionin

severallargecities.Thishasstimulatedthegovernmenttodevelopanationalpro

-gramdesignedtocontrolthequantityofpollutantsintheair.However,theprogram’s

impactoneconomicperformanceandincomeshasnotyetbeenstudiedsystemati

-cally.Thispaperanalysestheexpectedimpactofthecleanairprogramonnational

economicperformanceandhouseholdincomesforvarioussocio-economicgroups.

INTRODUCTION

Industrialdevelopment,coupledwithan expandingpopulation,hasincreasedthe amount of environmental damage in Indonesia. One of the mostimportant environmentalproblemsisthatairpol -lutionlevelsinseverallargecitieshave becomealarming,particularlyinthelast few years (World Bank 1994; Reso -sudarmoandThorbecke1996;Soedomo,

TABLE1 Air Pollution Levels in Large Citiesa

(micrograms per cubic metre)

SPM NO₂ Lead

Jakarta 290 250 2.9

Surabaya 190 120 2.7

Bandung 110 100 2.5

WHOstandard 60 40 0.5

a_Levels_shown_are_maximum_levels_occurring_in_each_city._Levels_for_Jakarta_are_for_1998,

anddataforSurabayaandBandungarefor1990.

Sources: Jakarta: BiroPengendalian Lingungan Hidup,Jakarta; Surabaya andBandung:

Soedomoet al.(1991).

Usman and Irsyad 1991). In parts of Jakarta, Surabaya and Bandung, for example, the air pollution concentra -tion levels for suspended particulate matter (SPM), nitrogen dioxide (NO₂) and lead are far above the allowable WorldHealthOrganization(WHO)stan -dardsfor airquality (table 1).1 _Indeed,

Jakartaisreportedashavingoneofthe

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BudyP.Resosudarmo 344

worsturban airpollutionlevels in the world(WorldBank1998).

These disturbingair pollutionlevels inlargeurbanareaspromptedthegov -ernmenttodevelopanationalcleanair program,theBlueSkyProgram(BSP),to controltheambientlevelofairpollutants inurbanareas.Thegovernmentplansto beginimplementingthisprograminthe nearfuture(Sutamihardja1994).2

Studies analysingthepotentialben -efitsof thenational clean air program are very limited. Ostro (1994) argued that reducing the ambient level of air pollutantsinJakartatotheWHOstan -dardforallowableairpollutantscould substantiallyreducecertainhealthprob -lems. The Indonesian Environmental ImpactManagementAgency(Bapedal) iscurrentlyanalysingthebenefitsofim -provementinairqualityandthecosts ofimposinganationalcleanairprogram throughoutlargecities.

Both these studies havelimitations. Theyexaminethepartialimpactofana -tionalcleanairprogramontheeconomy withouttakingintoaccounttheoverall or general equilibrium impact ofthe program. Furthermore, neither study analyses theimpact of air quality im -provementonnationaleconomicperfor -manceandonthehouseholdincomesof different socio-economic classes. For Indonesia,especiallyduringthecurrent period of economic crisis, strongeco -nomicperformance andprotectingthe incomesofpoorhouseholdsaremajor goals.Thegovernmentwantstoimple -ment onlyenvironmental policies that arecompatiblewithsolideconomicper -formanceandmaintainingorincreasing the incomes of poor households; it would bereluctant tosacrificegrowth and equity objectives in order to im -provetheenvironment.

This paper aims to determine the overall impact of airquality improve -ment thatmight be expected from the

implementationofthecleanairprogram on national economic performance, measured by Gross DomesticProduct and by household income for various socio-economicgroups.Italsosuggests strategiesthatwouldallowIndonesiato improveairqualitywhilemaintaining relativelystrongeconomicperformance andraisingtheincomesoflowincome households.

THE BLUE SKY PROGRAM

Atthebeginningofthe1980sitwasfelt that airpollutants in urban areas had becomeintolerable.Asaresult,several government agencies undertooksepa -rate activities to monitorairpollution and toobserveitsimpact onhealth in large cities. Asof 1991, the Bureau of Meteorology and Geophysicshad ap -proximately20airpollutantmonitoring stations in large cities throughoutthe country. Other agencies, such as the Health EcologyDivisionof theMinis -tryofHealth,theJakartamunicipalgov -ernment,andtheJakartaResearchand Development Centre for Urban Areas andtheEnvironment, alsooperatedair pollutantmonitoringstations.Thema -jorityofthemonitoringstationsinlarge citiesshowedthattheambientlevelof air pollutantssuchas SPM,NO₂,lead, carbonmonoxide(CO)andsulphurdi -oxide (SO₂) had increased during the 1980s (Sutamihardja 1994). They also indicated that the concentrations of SPM,lead,COandNO₂incertainareas oflargecitiesexceededtheWHOstan -dardsforairquality.

In1991theBandungInstituteofTech -nology(ITB)producedmapsoflevelsof airpollutantssuchasSPM,NO₂,COand SO₂fortheJavacitiesofJakarta,Bandung andSurabayafor1989(Soedomo,Usman andIrsyad1991).Thesemapsshowthe annualaverageambientlevelsofairpol -lutants indifferent neighbourhoods in eachcity.In1993theAgencyfortheAs

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sessmentandApplicationofTechnology (BPPT),workingtogetherwiththeGer -manMinistryofTechnology,published average 1991ambient levelsof airpol -lutantsfortheentireislandofJava(BPPT andKFA1993).

Following theseairpollution moni -toring activities, researchers in the Health EcologyDivisionof theMinis -tryofHealthandintheDepartmentof PublicHealthattheUniversityofIndo -nesia studiedthe impact of airpollut -ants on human health in large cities, particularlyJakarta.Tri-Tugaswatietal. (1987) showedthatthelevelofleadin thebloodandurineofpublictransport driverswastwiceashighasitslevelin farmerslivingintheenvironsofJakarta. Inastudyanalysingtheimpact ofCO and lead on human health, Achmadi (1989)foundthatpublictransportdriv -ers,streetvendors,andpeoplewholive in high traffic areas have a 12.8 times greaterriskofdevelopinghealthprob -lemsassociatedwithCOandleadthan peoplewholiveinsuburbanareas.

Theresultsofairpollutionmonitor -ingactivitiesandofstudyingthehealth impactof airpollutantsin large cities stimulatedgovernmentagenciestocre -ateprogramstocontrolurban airpol -lutants. In 199 2 Bapedal began to developtheBlueSkyProgram.TheBSP hastwocomponents:theBSP—AirPol -lutants from Mobile Sources and the BSP—Air Pollutants from Stationary Sources.TheBSPisdesignedtoserveas an umbrella for various government programs and activities to control air pollution.

BSP—Air Pollutants from Mobile Sources

Themainfocusofthefirstcomponent of theBSPis thecontrolofair pollut -ants from motor vehicles. Policies under consideration include the following.3

ReducingtheLeadContentofGasoline.

Theleadcontentofgasolineispresently about0.40g/l(gramsperlitre).Thegov -ernment wants toreduce this to 0.04 g/l (‘unleaded’ gasoline). Since mid 1997unleadedgasolinehasbeenavail -ableonthemarket,butannualsalesare only0.025%oftotaloil-basedfuelcon -sumption in the transportsector, be -causethepriceofunleadedgasolineis stillapproximately30%higherthanthat ofleadedgasoline.

Increasing the Prices of Gasoline and

HSDO. Byreducingsubsidies,thegov

-ernmenthasgraduallybeenraising the priceofgasolineandhigh-speeddiesel oil(HSDO)towardsworldparity.Prices were increased several times between 1998 and 2002, andby the endof 2002 thepriceofgasolinewasveryclosetothe worldmarketprice,whilethatforHSDO wasstillapproximately25%lower.

PromotingtheRecoveryofVapourEmis

-sions. Thegoal of this policy isto re

-duce the amount of gasoline vapour4

emittedintotheatmospherewhengaso -line tanks are filled. The government willrequiregasstationownerstoadopt technologies toachievethisend.

Introducing an Emission Standard for

NewVehicles. Thegovernmentplansto

implement avery strictemissionstan -dardfornewvehicles.Withthenewstan -dard,newvehicleswillprobablyneedto be fittedwithcatalyticconverters.This policy aims tolimitthe increase inair pollutionlevelsasvehiclenumbersrise.

EstablishingaRoadsideInspectionPro

-gram. Thispolicyisdesignedtocontrol

airpollutantsfromvehiclesinuse.Itis suspectedthattheworst10%ofpollut -ingvehiclesgenerateabouthalfoftotal pollution(WorldBank1993).Toimple -mentthispolicy,thegovernmentplans tobuildvehicleemissiontestingcentres inseverallargecities.Anemissionstan -dardforexistingvehicleswillalsobein -troduced.

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Phasing Out Two-Stroke Engines. A

two-stroke engine generates approxi -mately40%morepollutionthanafour -strokeengine of thesame size (World Bank 1993). Currently, approximately 50% of motorcycles in Indonesia have two-strokeengines, and thesecontrib -uteapproximately20%oftheSPM,NO₂, andleadpollutantsintheair.5

Substituting CompressedNatural Gas

(CNG) for Other Fuels. Substituting

CNG for gasoline could reduce SPM and CO emissions by up to 90%.The reduction will be even greater when CNGissubstituted forHSDO.Several types of public transport will be re -quired toundertake this substitution. Vehicleownerswillbegivenanincen -tiveto install conversionkits that en -able their vehicles to switch from gasolineandHSDOtoCNG.

BSP—Air Pollutants from Stationary Sources

ThesecondcomponentoftheBSPwill attempttocontrolairpollutionfromsta -tionary sources such as factories and open burning municipal wastes.This programisstillinitsverypreliminary planning stages,andnodetailed stud -ieshaveyetbeenconductedtoestimate the investment costs ofthe different componentsoftheprogram.

Tocontrolairpollutantsfromfacto -ries,thegovernmentplanstointroduce industrialemissionstandards;promote energy-efficient technologies; require everyfactorytoconductadetailed en -vironmental impact analysis; and in -creasepublicpressurebyannouncingto the general public the environmental performance ofcompaniesinreducing pollution.Toreducepollutionfromthe openburningofmunicipalwastes,gov -ernment plans include thebuilding of incineratorstoimprovemunicipalwaste management.

THE MODEL

ThispaperusesaComputableGeneral Equilibrium (CGE) model to study linksbetweenairpollutionandtheeco -nomy.6_The_model_focuses_on_the_rela

-tionships between urban production activities, urbanairquality,andhealth problems inurbanareas,asshown in figure 1.The use of oil-based fuels in productionactivitiescontributes toair pollution inurban areas.A high level ofambientairpollutantsintheseareas causesacorrespondinglyhighnumber ofairpollutantrelatedillnesses.These illnesses cause urban households to spendmoneyonmedicalcare,andalso reduce the productivity of labour in urban production activities. It is as -sumedthaturbanproductionactivities arenon-agricultural.

Factsandrelationships importantto understandingtheimpactofimplement -inga nationalcleanairprogramonair qualityandtheeconomy,assimulated inthispaper,areasfollows.First,ana -tionalclean airprogrammightrequire thegovernmentand theprivatesector tospendmoneyontheadoptionofdif -ferenttechnologies andtheimplemen -tationofservicestoreducethequantity ofpollutantsreleasedintheair.Inthis model,thegovernmentandtheprivate sectorusetheirsavingstofinancethese technologies andservices.Thesavings also provide the budgets for all new capitalinvestmentsthroughouttheeco -nomy. To finance air pollution abate -menttechnologies,thegovernmentand theprivatesectormustthereforereallo -cate these capital budgets. Second, implementation ofacleanairprogram reduces thequantity of pollutants re -leasedintotheairbyvariouseconomic activitiesandthusimprovesambientair quality in urban areas. The improve -ment in urban air quality reduces the numberofairpollutantrelatedillnesses.

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FIGURE1 Links between the Economy and Air Pollutants

Third, reductionin the number of air pollutantrelatedillnessesimprovesthe productivityoflabourinurbanproduc -tion activities. This improvement in labourproductivityultimatelyincreases theoveralleffectivenessofallotherfac -torinputsinurbanproductionactivities. Fourth,reductionsinthenumberofair pollutantrelatedillnessesalsolowerthe amountspentbyurbanhouseholdson health treatments. These lower health costsenableurban householdsto con -sumemoreofothergoodsandservices.

NATIONAL ECONOMIC AND

AIR POLLUTANT HEALTH

PROBLEM DATA

Themaindata sourceusedinthispa -peristhe1990Social AccountingMa -trix(SAM) fromthe Central Statistics Agency(BPS).7_The_paper_modifies_the

SAMsothatthecommodityclassifica -tionincludesfivedifferenttypesofoil -basedfuel:gasoline,HSDO,industrial diesel oil,kerosene and fuel oil.8 _Fur

-thermore,inthemodifiedclassification, theAirPollutant–HealthServicesector (health service activities associated

with airpollutants) is separatedfrom thePublicServicesector.

The procedure for estimating the number ofoccurrences ofhealthprob -lemsassociatedwithairpollutantsuses dose–_response _functions _collected_by Ostro (1994) fromepidemiological lit -erature. Dose–_response _functions _esti -matethenumberofpeoplewhocontract certain kinds of air pollutant health problemsgiventhenumberexposedto a pollutionlevelabove theWHOstan -dard. The same approach can alsobe used todetermine the number of re -stricted activity days (i.e. days away from work)associatedwithairpollut -ants.

Thispaperlimitsitselftoestimating the health problems associated with SPM,NO₂andlead,forwhichrelevant dataareavailable;dataforotherairpol -lutantsareinadequate.

ThemapspublishedbyBPPTfocus on Java, and indicate that three cities have air pollution levels above the WHOstandardforairquality:Jakarta, BandungandSurabaya.Toestimatethe healtheffectsofairpollutantsinthese

ECONOMY

Ambient-level

ofairpollutants

Healthproblems

associatedwith

airpollutants

Production activities

Health–_air

pollutant sector

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threecitiesthedetailedcitymapsofair pollution developed by ITB are used. Onthebasisofthesemaps,population distribution data and dose–response functions, the total number of health cases associated with air pollution in Jakarta,BandungandSurabayacanbe estimated.9_In_1990,_these_health_prob

-lemsincluded 40millioncasesof res -piratory symptoms, 560,000 cases of asthma attacks, and 190,000 cases of hypertension.

Since noair pollution map isavail -able forregions outside Java, an ap -proximation mustsuffice.Notethatall cities outside Java other than Medan have populations much lower than Jakarta, Bandung and Surabaya. Since thepopulationofMedanisclosetothat ofBandung,Medanisassumedtohave asmanycasesasBandungdoesofhealth problemsassociatedwithairpollution. OthercitiesoutsideJavaareassumedto havenoserioushealthproblemsassoci -atedwithairpollution.

Information on thecostsofmedical treatment (including information on governmentsubsidies)isderivedfrom interviewswithmedicaldoctorswork -inginpublichospitalsandpublichealth centres in Jakarta. The total treatment costforhealthproblemsassociatedwith airpollutantsin1990isestimatedtobe approximately Rp45.5billion.

SIMULATION SCENARIOS

Thissectiondescribesthesimulationsce -nariosthatshowtheimpactofselected BSPairpollutionabatementpolicieson thenationaleconomy.Thepoliciessimu -lated beloware those thatthegovern -mentwillprobablyimplementinthenear futureandforwhichdataareavailable onimplementation costand onthe air pollution reductions that they would achieve.AllarefromtheAirPollutants fromMobileSourcesprogram.

Becausethemaindatasourceforthe CGEinthispaperisthe1990SAM,be -forethesimulationscenariosarerunthe modeliscalibratedsoastomimicper -formanceoftheeconomyfrom1990to 2000.Themodelisthenruntosimulate the following scenarios for a 20-year timehorizon,from2001to2020.10

BaseCase. Thisscenarioassumesthat

thegovernmentdoesnotintroduceany airpollutionabatementpoliciesduring theperiod2001–20.

Unleaded GasolinePolicy. While un

-leaded gasolineis already available, its priceishigherthanthatofleadedgaso -line.Thisscenarioassumesthatthegov -ernmentequatesthepricesofleadedand unleadedgasoline,andrequiresthena -tionaloilcompanytoreducethesupply ofleaded gasolinewhileincreasing the supplyofunleadedgasoline.Inthefirst year,only25%ofthetotalgasolinecon -sumedisunleaded.Inthesecond,third andfourthyears,thepercentagesbecome 50,75and100,respectively,oftotalgaso -lineconsumed.Thenationaloilcompany needstoinvestRp60billionin1990prices tobeabletoproduceunleadedgasoline forthewholecountry.11_Because_it_is_com

-monfortheswitchtounleadedgasoline tobefollowedbyarequirementtoinstall catalyticconvertersinnewvehicles,12_this

paper adopts two variants of the un -leadedgasolinepolicy.

1. With Catalytic Converters: Along

with the unleaded gasoline policy, from 2001 thegovernment requires newvehiclestobefittedwithcatalytic converters. Using private sector funds, automotivefactories modify theirassemblylinessothattheycan produce catalyticconvertersandin -stalltheminnewvehicles.13

2. Without CatalyticConverters: Dur

-ingthesimulationperiodthereisno requirement to installcatalytic con -verters.

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Policyof PhasingOut Two-Stroke En

-gines. Thisscenarioassumesthat,from

2001, the government bans the useof two-strokeengines in large cities and requiresfactoriestostopproducingtwo -strokeengines.Existingtwo-strokeen -ginesareassumedtobesoldtousersin ruralareas.Usingprivatesectorfunds, automotive factoriesmodify their as -semblylinessothattheydonotproduce two-strokevehiclesafter2003.Itisesti -matedthatthetotalinvestmentrequired is approximately Rp 15 billion. This policyisexpectedtoreduceSPM,NO₂ and lead emissions from gasoline by approximately 8%.

VehicleEmissionStandardPolicy. This

scenario assumesthat, from2001, the governmentrequiresvehicleownersto comply with the Indonesian Vehicle EmissionStandard fornew and exist -ingvehicles.Itisfurtherassumedthat in 2001 the government builds eight emission testing stations—five in Jakarta and one each in the cities of Bandung,SurabayaandMedan.Then, everyyearbeginningin2002,thegov -ernmentbuildstwomoreemissiontest -ingstationsandlocatestheminvarious largecities.14_Vehicle_owners_must_test

their vehicles’ emissions once every yearatthesetestingstations.Roadside inspection on a random basis is also conductedtohelpensurethatallfunc -tioningvehiclesinthesecitiescomply with the emissionstandard. This sce -nario assumes that no significant in -vestmentisneededforvehiclefactories to improve the performance of new vehicles. Another assumption is that ownersof existingvehicles either im -provevehiclemaintenance sothatthe vehicle complies with the emission standard,ormovethevehicletoaru -ralarea.15_Well_maintained_vehicles_are

assumed to be 5% more efficient in gasoline and HSDO use than poorly

maintained vehicles. Air pollutant emissionsfromvehiclesareexpectedto decreasebyapproximately 15%.

Gasoline and HSDO Pricing Policy.

Governmentsubsidiesongasolineand HSDO were approximately 40% and 70% of totalproductioncosts, respec -tively, in 2000. This scenarioassumes that in 2001 the government reduces subsidiesongasolinetoapproximately 35% of the total productioncost,and onHSDOtoapproximately 60%ofthe totalproductioncost.In2003,thegov -ernmentagainreducesthesubsidieson gasoline an d HSDO by the same amounts, to approximately 30% and 50%oftheirtotal productioncosts.In 2005, the government once more re -duces these subsidies by the same amounts. Itisbelievedthatwhensub -sidies are reduced and the prices of these fuels increase, people will im -provetheirefficiencyinusinggasoline and HSDO. Itisnot clear,though,by howmuchtheywilldo so.Hencethis paper focuses on two extreme out -comes,withtheactualoutcomefalling somewhereinbetween.Theseextremes areasfollows:

1. Pessimistic:Thisscenarioassumes

thatpeoplearenotable to improve theirgasolineandHSDO efficiency, eventhoughpricesincrease.

2. Optimistic:Thisscenario assumes

thatpeoplearecapableofincreasing theirefficiencyinusinggasolineand HSDObyasmuchasthepercentage increasesin prices, so thattheir net costoffuelisunchanged.

CombinedPolicy. Thisscenariosimu

-lates a situation in which thegovern -ment implements all of the above policiestogether,beginningin2001.This combinedpolicywillhavetwopossible outcomes,reflectingthepessimisticand optimisticoutcomesofthegasolineand HSDOpricingpolicy.

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Bu

dy

P

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Resosudarmo

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TABLE2 UrbanAirPollutantLevelsunderVariousAbatementPoliciesa

BaseCase: EstimatedAirPollutionIndicatorsin2020underEachPolicy (BaseCasein2000=1.0) NoAirPollutionProgram (andPercentageChangesComparedtotheBaseCasein2020)

2000 2020 UnleadedGasoline BanTwo- Emission Gasoline&HSDOPricing CombinedPolicies

NoCatalytic Catalytic Strokes Standard Pessimistic Optimistic Pessimistic Optimistic Converter Converter

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

SPM 1.00 2.91 2.91 2.05 2.88 2.72 2.90 2.62 2.03 1.96 0.0% –29.4% –1.1% –6.5% –0.4% –9.8% –30.3% –32.5% NO₂ 1.00 2.88 2.88 2.16 2.86 2.55 2.87 2.13 2.11 1.61 0.0% –24.8% –0.5% –11.5% –0.2% –26.1% –26.8% –44.0% Lead 1.00 3.02 0.00 0.00 2.78 2.44 3.01 2.59 0.00 0.00

–100.0% –100.0% –8.0% –19.1% –0.5% –14.5% –100.0% –100.0%

a_Column₍₂₎_indicates_how_many_times_higher_average_ambient_levels_of_SPM,_NO

2andleadareexpectedtobein2020thanin2000. Columns(3–10)

showexpectedlevelsofurbanairpollutantsin2020undervariousabatementpolicyscenarios,comparedwiththeirlevelsin2000,andpercentage reductionsinpollutionlevelsundervariousabatementpoliciesrelativetothebasecasein2020.

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RESULTS AND DISCUSSION In this section the simulation results fromthevariousairpollutionabatement policyscenariosarecomparedwiththe base case, in which no air pollution abatement program is implemented. Note that all policies are assumed to beginimplementationin2001,withthe initialconditionsestablishedin2000.

Table2 sets outindicators ofurban airpollutionlevelsunderallscenarios, includingthebasecase,in2020.Table3 showsthe number of casesof various healthproblemscausedbyairpollutants inurbanareas,theestimatedtotalcost associatedwiththesehealthproblems, andtheexpectedimpactofairpollution abatementpoliciesonthesehealthprob -lemsandtheircosts.Table4presentsthe estimated impact of various airpollu -tion abatement policies on the total present value of GDP,and household income gains during the 20-year time

horizon for implementation ofthese policies(asdepictedinfigure2).

Impact on Ambient Levels of Air Pollutants

Columns(3)and(4)intable2showthat theintroductionoftheunleadedgasoline policy,withorwithoutcatalyticconvert -ers,willeffectivelyreducethe ambient concentration of lead in urban air to approximatelyzero,thusmorethanful -fillingtheWHOairqualitystandardfor lead.Theunleadedgasolinepolicywith catalyticconvertersisalsothe mostef -fectivesingle policy for counteringthe increasingtrendofSPMandNO₂airpol -lution,16_although_it_is_not_able_to_reduce

thesepollutantstobelowtheir2000lev -els,forthefollowingreasons.

First,the transportsectoronly con -tributesabout30%ofSPMpollutionin urbanareas. Hence,althoughcatalytic convertersreduceSPMemittedbycars

FIGURE2 GDP Gains under an Air Pollution Abatement Policya

a_The_shaded_area_is_the_gain_in_present_value_of_GDP_for_each_year_shown_(which_may_be

negative).Hence,thetotalgaininpresentvalueofGDPfor20yearsisareaAminusareaB.

-15 -10 -5 0 5 10 15 20

2000 2005 2010 2015 2020

Pollutionabatementpolicy

Basecase

GDPgain

(Rpbillion)

A

B

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TABLE3 ImpactofPollutionAbatementPoliciesonPollutantRelatedIllnessesandHealthCostsa

AnnualCasesof TotalReductioninHealthCasesandCostsfrom2001to2020 HealthProblems:

BaseCase UnleadedGasoline BanTwo- Emission Gasoline&HSDOPricing CombinedPolicies Strokes Standard

2000 2020 NoCatalytic Catalytic Pessimistic Optimistic Pessimistic Optimistic Converter Converter

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

Healthproblems

Hospitaladmission 4,963 30,358 51 67,761 3,103 19,574 1,226 27,638 75,980 84,499 (no.ofcases) 512% 0.02% 21.83% 1.00% 6.31% 0.40% 8.91% 24.48% 27.23% Non-fatalheartattack 591 3,754 35,750 35,749 2,897 7,071 195 5,034 35,814 35,820 (no.ofcases) 536% 94.85% 94.85% 7.69% 18.76% 0.52% 13.36% 95.02% 95.03%

Emergencyroom 97 594 1 1,327 61 383 24 541 1,487 1,654 visit(‘000cases) 512% 0.02% 21.83% 1.00% 6.31% 0.40% 8.91% 24.48% 27.23% Lowerrespiratory 249 1,526 3 3,406 156 984 62 1,389 3,819 4,247 illness(‘000cases) 512% 0.02% 21.83% 1.00% 6.31% 0.40% 8.91% 24.48% 27.23% Asthmaattack 1,111 6,794 11 15,166 694 4,381 275 6,186 17,005 18,912 (‘000cases) 512% 0.02% 21.83% 1.00% 6.31% 0.40% 8.91% 24.48% 27.23% Respiratory 79,530 486,175 877 1,101,733 48,490 324,966 19,383 479,477 1,229,916 1,396,298 symptoms (‘000 cases) 511% 0.02% 22.17% 0.98% 6.54% 0.39% 9.65% 24.75% 28.09% Chronicbronchitis

(‘000cases) 24 151 0.3 338 15 98 6 138 379 422 512% 0.02% 21.83% 1.00% 6.31% 0.40% 8.91% 24.48% 27.23%

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Indonesia

’s

C

lean

Air

P

rogram

35

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TABLE3(continued) ImpactofPollutionAbatementPoliciesonPollutantRelatedIllnessesandHealthCostsa

AnnualCasesof TotalReductioninHealthCasesandCostsfrom2001to2020 HealthProblems:

BaseCase UnleadedGasoline BanTwo- Emission Gasoline&HSDOPricing CombinedPolicies Strokes Standard

2000 2020 NoCatalytic Catalytic Pessimistic Optimistic Pessimistic Optimistic Converter Converter

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

Hypertension 438 2,786 26,528 26,528 2,150 5,247 144 3,736 26,576 26,581 (‘000cases) 536% 94.85% 94.85% 7.69% 18.76% 0.52% 13.36% 95.02% 95.03% Restrictedactivity

days(‘000cases) 15,279 93,453 158 208,593 9,551 60,255 3,776 85,078 233,893 260,115 512% 0.02% 21.83% 1.00% 6.31% 0.40% 8.91% 24.48% 27.23%

Healthcosts

Airpollutant-health 90 551 223 788 45 225 12 287 874 965 costs(Rpbillion) 513% 7.27% 25.68% 1.47% 7.34% 0.39% 9.35% 28.49% 31.45%

a_Percentages_in_column₍₂₎_are_increases_in_the_number_of_health_problems_and_in_air_pollution_related_health_costs_from₂₀₀₀_{to 2020.}_Columns₍₃_–

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byupto90%(Nurrohim,Boedoyoand Malik1994), thispolicyisonlyable to reducetotalSPMsuchthatin2020itis still2.05timesitslevelin2000.Second, the transport sector contributes only about 60% of NO₂ pollution in urban areas,andcatalyticconvertersareonly abletoreduceNO₂emittedfromcarsby approximately 40%. Therefore, this policyfails to reducethe2020 levelof NO₂inurbanairbelowitslevelin2000. Indeed, columns(9) and (10) show that, evenafterimplementing allfour pollutionabatement policiestogether, concentrations ofSPMandNO₂in2020 remainsignificantly higherthanthose in 2000. Recall that the 2000 ambient levels ofSPM and NO₂in manyparts ofJakarta,BandungandSurabayawere higher than the WHO air quality standard.

Onecanconclude, then,thatimple -mentingairpollutionabatementpolicies inthetransportsector(i.e.focusingon mobilesources)canreduceleadconcen -trationinurbanareastomeettheWHO airqualitystandardforlead,butitcan -notreduceSPMandNO₂concentrations sufficientlytomeettheWHOstandards forthesepollutants.Todothis,airpol -lutionabatementpolicieswillalsoneed to focuson stationarysources suchas manufacturing, burning of waste, and construction activities.

Impact on Air Pollution Health Problems and Costs

Fromtable3 itcanbe seenthatby far themosteffectivesinglepolicyinreduc -inghealthproblemsandcostsassociated withairpollutionistheshifttounleaded gasoline with catalytic converters. Clearly thispolicy is importantto air pollutionabatement.

Itisinterestingtoobservethesimu -latedresultsofthegasolineandHSDO pricing policy. Table 3 shows that its

impact onair pollutionhealth costsis quitedifferentunderthepessimisticand optimisticassumptions.Underthepes -simisticassumption,thispolicyisonly abletoreducethetotalpresentvalueof healthcostsbyaboutRp12billion.With the optimistic outcome, however, the reduction isRp287 billion—almost24 times higher—making it the second most effective pollution abatement policy for reducing totalair pollution healthcosts.Inimplementingthispolicy itisthuscrucial toensurethattheopti -misticoutcomewillobtain.

To bring about this outcome, the government needs to socialise the pricingpolicy,conductinganeffective educationalcampaignabouthowtoim -provethe efficiency of fuel consump -tionby,forexample,moreregularand effectivetuning,betterplanningofve -hicle use,and morecarefuland effec -tivedriving.Anotherstrategythatthe government needs to consider is a gradualapproachtoincreasingprices, so that vehicle owners have enough time tokeep improvingtheefficiency oftheirfuelconsumption.17

Column(2)intable2showsthatur -banairqualityin2020willbeapproxi -matelythreetimesworsethanin2000, whilecolumn(2)intable3showsthat thenumberofairpollutionhealthprob -lemsin2020willbemorethansixtimes higherthanin2000.Thereasonthein -creaseinhealthproblemsismuchmore rapidthantheworseningofurbanair quality isthat more and morepeople eachyearwillbelivinginurbanareas. Thus the numberof people whocon -tractairpollutantrelatedillnesseswill growfasterthanthelevelofairpollut -antsinurbanareas.Hence,inorderto avoid more air pollutant related ill -nessesinurbanareas,theimplementa -tionofairpollutionabatementpolicies shouldbeginassoonaspossible.

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Impact on GDP

Table4showsthattheimpactofallthe pollutionabatementpoliciesonGDPis small.18_Among_the_policies_considered

here,theonlyonethatcausesareduc -tionintotalpresentvalueofGDPdur -ingthe20-yearsimulationperiodisthe unleadedgasolinepolicywithoutcata -lytic converters. The explanation is as follows.From2001to2004,thegovern -ment mustinvest relatively heavilyin thenationaloilcompanysothatit can increasethe supply ofunleaded gaso -line.19_Such_investment_involves_forgo

-ing opportunities to invest in other sectors.Thishas a negative impact on theeconomy,whichcanbe thoughtof as the societal cost of shifting to un -leadedgasoline.

During this investment period (2001–04)thereare,nevertheless, some benefitsfromtheimplementationofthis policy.Usingunleadedgasolinesignifi -cantlyreduces the level of lead in the air,andhencethenumberofurbanresi -dents who contract air pollution ill -nesses,inparticular, hypertension and non-fatal heart attacks. With fewer healthproblems,urbanworkers—most of whom belong to the urbanlow in -come household group—are able to workmoreproductively and to enjoy additionalincomenetofhealthexpen -ditures by virtueof spending lesson health treatments. More productive workersandhigherincomesforurban lowincome householdsaffect the eco -nomypositively.Thiscanbethoughtof asthesocietalbenefitofshiftingtoun -leadedgasoline.

Duringtheinvestmentphaseitturns out that the benefit from having un -leaded gasoline is smaller than the cost.Figure3showsthatGDPunderthis policyislowerthanunderthebasecase duringthe2001–05period,withthegap increasingsteadily.From2006 thegap

decreases,becausethereisvirtuallyno further societalcost fromswitchingto unleaded gasoline, while the societal benefitremains;GDPthusbeginstoin -crease fasterthanunderthebasecase. Nevertheless it increases relatively slowly,suchthatupuntil2020itisstill lowerthanunderthebasecase.Onthe otherhand,iftheshifttounleadedgaso -lineisaccompaniedbyarequirementto installcatalyticconverters,itcanbeseen thatthesocietalbenefitisgreater,since this policyalso reduces SPMandNO₂ pollutants. The total present value changeinGDPoverthe20-yearperiod becomespositiveifcatalyticconverters arerequired(table4).Thusitisappar -ent that the implementation of the unleadedgasolinepolicyshouldbeac -companied bya requirement toinstall catalyticconvertersincars,inorderfor thispolicytohaveapositiveimpacton GDP.

Impact on Household Incomes

Table 4 showsthatthe impact of each pollutionabatementpolicyonhousehold incomeforeachsocio-economicgroupis small.20_Even_so,_it_is_important_to_ensure

thattheimplementationofsuchpolicies doesnotnegativelyaffecttheincomesof households, particularly poor house -holds.These are typically foundin the agricultural employee, small and me -dium farmer, rural low income, rural non-labourandurbanlowincomehouse -hold categories.Agriculturalemployee householdsare,onaverage,thepoorest in the country(Thorbecke 1992; Reso -sudarmo1996).

Two policies need to be observed carefully.Thefirstistheunleadedgaso -linepolicywithoutcatalyticconverters. Under this policy most households, other than those in the rural non -labour, urban low income and urban non-labourhouseholdgroups,experi

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Bu

dy

P

.

Resosudarmo

356

TABLE4 ImpactofPollutionAbatementPoliciesonGDPandHouseholdIncomesa

(Rpbillionandpercentagechange)

Base Case: No Air Cumulative Changes in Present Value of GDP and Household Incomes Pollution Program Resulting from Abatement Policies from 2001 to 2020

2000 2020 Unleaded Gasoline Ban Two- Emission Gasoline & HSDO Pricing Combined Policiesa No Catalytic Catalytic Strokes Standard Pessimistic Optimistic Pessimistic Optimistic

Converter Converter

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

GDP 313,304 969,627 –1,853 128 123 1,169 7,837 27,839 9,671 28,533

209% –0.03% 0.002% 0.002% 0.02% 0.12% 0.42% 0.14% 0.43%

Householdincomes

Agriculture employee 10,123 32,796 –44 57 6 49 –181 607 –74 666

224% –_0.02% _0.03% _0.003% _0.02% –_0.08% _0.27% –_0.03% _0.30% Small-scale farmer 53,784 190,555 –380 201 38 289 –795 4,275 –259 4,518 254% –0.03% 0.02% 0.003% 0.02% –0.06% 0.34% –0.02% 0.36%

Medium-scale _farmer _12,567 _45,199 –₉₀ ₄₉ ₉ ₆₉ –₅₉₈ ₆₅₇ –₄₈₀ ₇₀₄

260% –0.03% 0.02% 0.003% 0.02% –0.20% 0.22% –0.16% 0.24%

Large-scale _farmer _16,653 _59,141 –₁₁₆ ₆₅ ₁₂ ₉₀ –₇₉₉ ₈₃₉ –₆₄₄ ₉₀₁

255% –0.03% 0.02% 0.003% 0.02% –0.21% 0.22% –0.17% 0.23%

Rural low income 14,801 46,102 –45 32 6 50 –437 580 –344 621

211% –_0.01% _0.01% _0.002% _0.02% –_0.14% _0.18% –_0.11% _0.20%

Rural non-labour 3,853 9,926 38 57 1 6 424 344 490 407

158% 0.05% 0.08% 0.001% 0.01% 0.57% 0.46% 0.66% 0.55%

Rural high income 44,625 144,692 –249 –34 17 159 368 3,869 600 3,936

224% –0.03% –0.004% 0.002% 0.02% 0.04% 0.40% 0.06% 0.41%

Urban low income 32,801 94,320 145 587 35 213 –₃₆₈ _1,287 ₃₆₃ _1,831

188% 0.02% 0.09% 0.005% 0.03% –0.06% 0.19% 0.05% 0.28%

Urban non-_labour _10,152 _31,568 ₄₇ ₁₃₈ ₆ ₄₂ –₇₂₁ –₂₇₁ –₅₇₁ –₁₆₁

211% 0.02% 0.06% 0.003% 0.02% –0.33% –0.13% –0.26% –0.07% Urban high income 67,759 201,478 –5 124 11 146 –2,164 1,387 –1,850 1,546 197% 0.00% 0.01% 0.001% 0.01% –_0.15% _0.10% –_0.13% _0.11%

a_GDP_and_household_incomes_in_this_table_are_calculated_net_of_the_costs_of_treating_health_problems_caused_by_air_pollution._Columns₍₃_–₁₀₎_show_cumulative_gains_(and

percentagegains)inpresentvalueofGDPandofincomeforeachhouseholdgroup(calculatedusinga5%discountrate)between2000and2020,relativetothebasecase

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FIGURE3 Change in Present Value of GDP Relative to the Base Case under the Unleaded Gasoline Policy

(Rp billion)

-200

-100 0 100 200

2000 2005 2010 2015 2020

Withcatalyticconverter Withoutcatalyticconverter

ence reductions in the total present value of their incomerelative to the basecase.Ontheotherhand,underthe unleadedgasolinepolicywithcatalytic converters, only rural high income householdssuffersuchareduction.The secondpolicyneedingcarefulobserva -tionisthegasolineand HSDOpricing policy under the pessimistic assump -tion,underwhichallhouseholdsother than rural non-_labour _and _rural _high income households experience a de -clineinthepresentvalueofincome.By contrast,iftheoptimisticoutcomeob -tains, only urban non-_labour _house -holdsarenegativelyaffected.

Impacts on Sectoral Value Added Switchingto unleaded gasoline with -out catalytic converters lowers the valueadded ofmany productionsec -torscomparedtothebasecase(table5). Hencetheincomeofmosthouseholds underthispolicyislowerthan under

the base case. Switching tounleaded gasoline with catalytic convertersre -sultsinamuchgreaterreductioninthe number of mostair pollution related illnesses than occurs under the un -leadedgasolinepolicywithoutcatalytic converters. Thus urban low income households will have more income withwhichtopurchasegoodsandser -vices other than air pollution health services. In particular, they will con -sumemorefood,21_increasing_the_value

addedofthefoodprocessingandfood crop sectors relative to the base case. Theseincreasesleadtohigherincomes forallhouseholds,particularlyagricul -tural andruralhouseholds, compared tothebasecase.Thusmosthouseholds benefit from the introduction of un -leaded gasoline along with catalytic converters, although only to a very smallextent.

Under the pessimistic assumption, theimplementation ofthegasolineand

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HSDO pricing policy lowers value addedinmanyproductionsectorscom -pared to the base case. On the other hand,iftheoptimisticoutcomeobtains, the value added of most production sectorsis higher (table 6). Therefore, mosthouseholdincomesarelowerun -derthispolicywiththepessimistic as -sumption than under the base case, whilemostarehigherunder theopti -misticassumption.

Itisimportanttonotethat,underthe policyofswitchingtounleadedgasoline withoutcatalyticconverters,andunder thepessimistic assumptionofthegaso -line and HSDO pricing policy, most poor households suffer lower income compared to the base case. Hence, it would seemadvisableto requirecata -lyticconvertersandtofindwaystoen -surethattheimpactofimplementingthe gasolineandHSDOpricingpolicyisas closetotheoptimisticoutcomeaspos -sible,e.g.publiceducationprogramson efficientcareanduseofvehicles.Over -all,thesimulationresultswouldappear tosupportintroducingunleadedgaso -linealongwithcatalyticconverters,ban -ning two-stroke engines, imposing vehicleemissionstandards,andadjust -inggasolineandHSDOpricestoworld paritylevels.

CONCLUSION

Bearing in mind the relatively small sizeofchangesinmanyofthevariables discussedabove,theseresultsneedto bequalified.Sincedataarelimited,the CGEmodel in thispaper cannot cap -tureperfectly all relationships within theeconomy,withintheenvironment, andbetweentheeconomyandtheen -vironment. The underlying assump -tions andstructureof theCGEmodel and thesimulation scenarios should also be carefully examined, and be borne in mind when interpreting the results(Resosudarmo 1996).

Given these caveats, several impor -tantconclusionscanbedrawnfromthe simulationsdescribedabove.First,tobe abletoreduceallairpollutionlevelsin urban areastobelowWHOstandards, abatement policies should be applied notonlytomobilesources,butalsoto stationarysourcesofairpollution.

Second, to reducetheoccurrence of air pollutionillnesses, abatementpoli -ciesshouldbeimplemented assoonas possible.Fromthesimulationonelearns that,eveniftheconcentrationofairpol -lutantsinurbanareasisrelativelycon -stant,moreairpollutantrelatedhealth problemswilloccurovertimebecause the rate of urbanisation is relatively rapid. The soonertheconcentration of airpollutantscanbelowered,themore health problems that mightotherwise occurcanbeavoided.

Third, the decisionto produce un -leadedgasolineshouldbeaccompanied byarequirementthatcatalyticconvert -ersbeinstalledonnewcars.Theresults ofthesimulationshowthatintroducing unleaded gasoline alone lowers total GDP and incomesofpoorhouseholds comparedwiththebasecaseduringthe 20-yearsimulationperiod.Ontheother hand,ifunleadedgasolineisaccompa -nied bycatalyticconverters,totalGDP and incomes of all households other thanruralhighincomehouseholdscan beincreased.

Fourth, phasingouttwo-strokeen -ginesandimplementing vehicleemis -sion standards are good for the economy and forhousehold incomes, althoughtheirimpactsontheeconomy and onair pollutionaresmall.Imple -mentationofthesepolicies,whosecosts arerelativelysmall,bringsabouthigher GDP and household incomes for all groups than would obtain under the basecase.

Fifth, when adjusting gasoline and HSDOpriceupwards,itwillbeimpor

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TABLE6 Impact on Sectoral Value Added of Gasoline and HSDO Pricing Policya

PessimisticOutcome OptimisticOutcome

Negative Positive Negative Positive

Foodcrops HSDO Othermining Foodcrops

Estatecrops Industrialdieseloil Gasoline Estatecrops

Othercrops Kerosene HSDO Othercrops

Coal Fueloil Othermanufactures Coal

Naturalgas Electricity&gas Airpollutionhealth Naturalgas

Othermining Landtransport Foodprocessing

Foodprocessing Services Industrialdieseloil

Gasoline Kerosene

Othermanufactures Fueloil

Trade&storage Electricity&gas

Airpollutionhealth Trade&storage

Landtransport

Services

a_The_{‘negative’}_and_{’positive’}_columns_indicate_sectors_in_which_value_added_falls_or_rises

relativetothebasecase,underthepessimisticandoptimisticassumptions.

TABLE5 Impact on Sectoral Value Added of Switching to Unleaded Gasolinea

WithoutCatalyticConverter WithCatalyticConverter

Negative Positive Negative Positive

Foodcrops Othermining Estatecrops Foodcrops

Estatecrops Gasoline Othercrops Othermining

Othercrops HSDO Coal Foodprocessing

Coal Electricity&gas Naturalgas Gasoline

Naturalgas Services Industrialdieseloil HSDO

Foodprocessing Kerosene Electricity&gas

Industrialdieseloil Fueloil Services

Kerosene Othermanufactures

Fueloil Trade&storage

Othermanufactures Landtransport

Trade&storage Airpollutionhealth

Landtransport

Airpollutionhealth

a_The_{‘negative’}_and_{‘positive’}_columns_indicate_sectors_in_which_value_added_falls_or_rises

relativetothebasecase,dependingonwhethercatalyticconvertersareintroducedalong

withunleadedgasoline.

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tantfor policymakers tofind ways to ensurethattheactualoutcomeiscloser totheassumedoptimisticoutcomethan tothepessimistic one.Iftheoptimistic outcomeisachieved,totalpresentvalue ofGDPandincomesofmosthousehold groupswillbehigherthanthoseunder thebasecaseduringthe20-_year_simu -lationperiod.Ifthepessimisticoutcome occurs,thetotalpresentvalue of GDP duringthe simulationperiod willstill behigherthanunderthebasecase,but notthat of theincomeof mosthouse -holdgroups.Inparticular,poorhouse -holds will have lower totalincomes underthisoutcome.

Theseresultssuggestthatthegovern -ment should consider producing only unleadedgasoline,requiringcarstohave catalyticconvertersinstalled,phasingout two-strokeenginesfromurbanareas,and imposingvehicleemissionstandards,as soon aspossible. Gasoline and HSDO prices should be allowed to increase gradually butin significant steps,and public education activities should be steppeduptopromotemoreefficientfuel consumption.22 _By _implementing _these

policies, thegovernmentcan expectto achieve an improvement in urban air quality,aswellashigherGDPandhigher incomesforpoorhouseholds.

NOTES

1 Belowthisstandardundesirablehuman

healtheffectsdonotoccur.

2 The economiccrisis thatbeganin 1997

hasdelayedtheimplementation ofthis

program.

3 Informationonair pollutantabatement

policiesbeingconsideredbytheIndone

-sian governmen t was provided by

Bapedal, unless otherwise stated.This

paperincludesasmuchinformation as

iscurrentlyavailableoneachofthepoli

-cies.Onlylimitedinformationexistsfor

certain policiesandthis isreflectedin

correspondinglybriefdescriptions.

4 Gasolinevapourcontainsnitrogenmon

-oxide,nitrogendioxideandvolatileor

-ganiccompounds(VOC).

5 Motorcycles include the bajajand the

bemo(three-wheeled vehicles used for

publictransport).

6 SeeResosudarmo(1996)forthefullCGE

programusedinthispaper.

7 A morerecentSAM cannotbeused in

thispaper,sincenomorerecentmapof

airpollutionisavailable.

8 SeeLewis(1993)onhowtodisaggregate

theoilrefinerysectorintothesefivesub

-sectors.

9 See Resosudarmo (1996)foradetailed

methodologyforestimatingthenumber

ofhealthproblemsrelatedtoairpollu

-tion.

10 Pricesinany yearofthesimulationare

inrealterms.

11 Thiscostisbasedoninformationfroma

consultantfirmhiredbyBapedal.

12 Catalytic converters work effectively

withunleadedgasoline.

13 To avoid any vehicle price increase

causedbythisrequirement,thegovern

-mentsubsidises the costofproducing

newcarswithcatalyticconvertersforthe

firstthreeyears.Itisestimatedthatthe

subsidyneededisapproximately0.5%of

thetotalcostofproducingnewcars.

14 Furtheremissiontestingstationswillbe

builtinJakarta,Surabaya,Bandungand

Medan,andwhenthereareenoughsta

-tionsinthesefourcities,stationswillalso

be built in other large cities, suchas

Semarang,SoloandYogyakarta.Vehicles

fromotherareasmustcomplywiththe

emissionstandardiftheyenterthesecit

-ies.Thecostofonemonitoringstationis

assumedtobeapproximatelyRp1billion.

15 Improvingmaintenance ofexisting ve

-hiclesinthisscenarioisassumednotto

be costly.Existing vehicles should be

tuneduptwoorthreetimesayear.Ifthis

regulartune-updoesnotproduceaccept

-ableemissionlevels,thenowners must

selltheirvehiclestoruralareas.

16 ThegasolineandHDOpricingpolicyhas

asimilarimpactonNO₂levels,butonly

assumingahighlyoptimisticoutcome.

17 Ifprice increases comeinsmallsteps,

peoplemaybecomeusedtoeachincrease

withoutchangingtheirbehaviour.Ifthe

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pricesare adjusted in large steps,the

impactwillbegreater and people will

haveastrongincentivetobecomemore

efficien t. Hence, the gradu al price

changesshouldbelargeenoughtopro

-videan incentiveforpeopletochange

theirbehaviour.

18 GDPas discussed hereisGDPexclud

-ingairpollutionhealthtreatment.This

enablesustoseeclearlytheimpactofair

pollutionpolicies oneconomicoutput

other thanair pollutionrelated health

serviceprovision.

sia’,DevelopmentDiscussionPaperNo.

455, HarvardInstitute for International

Development,CambridgeMA.

Nurrohim, A.,M.S.BoedoyoandC.Malik

(1994),TechnologicalOptionsofAirPol

-lution Abatement, Cost, and Benefits,

AgencyfortheAssessmentandApplica

-tionofTechnology (BPPT)Internal Re

-port,Jakarta.

Ostro,B.(1994),‘Estimatingthe HealthEf

-fectsofAirPollutants:AMethodwithan

Application toJakarta’, PolicyResearch

Working PaperNo. 1301, WorldBank,

WashingtonDC.

Resosudarmo, B.P.(1996), ‘TheImpactof

EnvironmentalPoliciesonaDeveloping

Economy:AnApplicationtoIndonesia’,

Unpublished PhD dissertation, Cornell

University,IthacaNY.

Resosudarmo,B.P.,andE.Thorbecke(1996),

‘TheImpactofEnvironmentalPolicieson

HouseholdIncomesforDifferent Socio

-EconomicClasses:The Case ofAirPol

-lutantsinIndonesia’,Ecological Economics

17:83–94.

Soedomo, M., K. Usman and M.Irsyad

(1991),‘Analisis danPrediksi Pengaruh

StrategiPengendalianEmisiTransportasi

terhadapKonsentrasiPencemaranUdara

diIndonesia:StudiKasusdiJakarta,Ban

-dungdanSurabaya[AnalysisandPredic

-tions of theInfluence of a Transpor t

EmissionReductionStrategyontheCon

-centrationofAirPollutioninIndonesia:

ACase StudyofJakarta, Bandung and

Surabaya]’,InstitutTeknologi Bandung,

Bandung.

Sutamihardja, R.T.M. (1994), Air Quality

Managemen t, Paperpresented at the

19 Theimpactofthisinvestmentoccursaf

-teraone-yearlag.

20 Note that household ‘incomes’ asdis

-cussedinthispaperareincomesnetof

airpollutionhealthcosts.Thisenablesus

to see clearly the impact ofpollution

abatementpoliciesonhouseholds’com

-mandoverconsumptionotherthantreat

-mentforpollutionrelatedillnesses.

21 Lowincomehouseholds’incomeelastici

-tiesaretypicallylargerforfoodthanfor

othergoodsandservices.

22 Seenote17.

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APPENDIX

Thisappendix explains thefeaturesof theCGEmodelforanalysingtheimpact of air pollutionabatement policies on pollution related health problemsand theeconomy.

The modelconsistsof six equation blocks,asfollows.

Production Block: represents the

structureofproductionactivitiesand producers’behaviour.

Consumption Block: represents the

behaviourofhouseholdsandgovern -ment.

Export–ImportBlock:modelsexports

and imports of goods and services (Armington1969).

Investment Block: simulates deci

-sionstoinvestaswellasthedemand for goods and services used in the construction ofnewcapital.

MarketClearingBlock:containsmar

-ket clearing conditions for labour, goods and services, andforeign ex -change.

Intertemporal Block:consistsof dy

-namicequationsthatlinkfutureeco -nomic conditions to economic activitiesinthecurrentyear(Dervis, deMeloandRobinson1982). In the production block, a nested Constant Elasticity of Substitution (CES)functionrepresentstheproduc -tiontechnology. Attheupper levelof thisproductionfunction,outputisde -fined as a CESfunction of composite intermediateinputandvalueadded.At thelowerlevel,intermediate inputisa Leontieffunctionofseveralmaterialin -puts (see also Devarajan and Lewis 1991; Lewis 1991; and Resosudarmo 1996). Valueaddedisafunctionofair pollution related illnesses and factor inputs, in whichfactor inputs areex -pressed in a CES function.The value addedfunctionis:

i istheproductionsectorindex; f isthefactorofproductionindex (agriculturallabourers,manual–_cleri -calworkers, professional personnel, landandcapital);

VA iscompositevalueadded; HE istheimpact ofhumanairpol -lutant related illnesses on value added;and

FD isfactorinput.

Theimpactofairpollutantrelatedill -nesses onthe valueadded production activity (HE) isassumed tobe afunc -tionofthenumberofrestrictedactivity dayscausedbyillness.Itdeservesmen -tionagainthatthispaperlimitsitsanaly -sis toair pollutant related illnesses in urbanareasandtheimpactoftheseill -nessesonurban(non-_{agricultural)}_pro -duction sectors. The impact of air pollutantrelatedillnessesonthevalue addedfunctionisthenasfollows:

=

HE "iÎagricultural sector(A3)

where:

RAD isthenumber ofrestrictedac -tivity days caused by air pollutant relatedillnesses;and

DA isthenumberofworkdaysthat areavailableifnoairpollutantrelated illnessesoccur.

Fromrelationships(A2)and(A3),one canseethatanincreaseinthenumberof restrictedactivitydayscausedbyairpol

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lutantrelatedillnessesreducesthepro -ductivityofallfactorinputs.

Production activities are linked to ambientairqualityviathefixedpropor -tion coefficients (input–output coeffi -cients) ofoil-based fuels. Ambient air qualityisthusafunctionoftheamount ofoil-based fuels used in production activities.Theinput–outputcoefficients are a function of government and/or privatesectorspendingontechnologies andservicesthatleadtomoreefficient useofoil-basedfuels;i.e.thehighersuch spending,thelowerthecoefficients.For example,ifvehicleownersspendmore to maketheuseof gasolinemoreeffi -cient,thegasolineinput–outputcoeffi -cient in the transportation sector decreases.

Inthe consumption block,10differ -enttypesofhouseholdgroupsaredis -tinguished. The expenditures of each householdgroupongoodsandservices, except fornecessary health treatments forairpollutantrelated illnesses,area function of prices and income.Each householdgroupdeterminesitsexpen -dituresbymaximisingutilityaccording toasimplifiedversionoftheLinearEx -penditureSystem,subjecttothegroup’s budget constraint (Lewis 1991). The budget constraint of each household groupequalshouseholdincomeminus taxes,savings,necessaryhealthexpen -dituresassociatedwithairpollutantre -latedillnesses,andnettransfersamong households.Thefollowingequationrep -resents the budget constraint of each householdgroup:

h isthehouseholdgroupindex; m isthe index forhealth services consumedby householdsthatexpe -rienceairpollutantrelatedillnesses;

P isthepriceofcommodities; C is household consumption of commodities;

Y ishouseholdincome; T isincometaxes; S ishouseholdsavings;

CH ishouseholdhealth costsasso -ciated withair pollutantrelated ill -nesses;and

TR isnethouseholdtransfers. Sincethispaperlimitsitsanalysisto air pollutant related illnessesinurban areas, the health costsassociatedwith theseillnesses(CH)inrelationship(A4) onlyappearinthebudgetconstraintsof urbanhouseholdgroups;i.e.foranon -urbanhousehold,CHisassumedtobe zero.Fromtherelationship(A4),onecan seethatareductioninhealthcostsasso -ciatedwithairpollutantrelatedillnesses effectively creates extraincomeforur -banhouseholdstospendongoodsand servicesotherthanairpollutionrelated healthtreatment.

Householdspendingonhealthtreat -ment associated with air pollutant re -lated illnessesdependsonthenumber oftheseillnessesthatoccur.Thequan -tityofairpollutantrelatedillnessesisa functionoftheambientlevelofairpol -lutants.Theambientlevelofairpollut -ants is a function of the quantity of oil-basedfuelsusedineconomicactivi -ties.Thefollowingequationrepresents thenumber ofairpollutantrelated ill -nesses(seealsoGarbaccioetal.1999):

POP

p istheairpollutantindex(forlev -elsofSPM,NO₂andlead);

k is the air pollutant related ill -nessesindex(forlevelsoflowerres -piratory illnesses, asthma attacks, respiratorysymptoms,chronicbron

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chitis, hypertension and non-fatal heartattacks);

l istheoil-basedfuels index(for levels of coal, naturalgas, gasoline, HSDO,industrialdieseloil,kerosene andfueloil);

an istheindexfornon-agricultural sectors;

N is the number ofpeople who contracthealthproblems;

d is the air pollutant dose– responsecoefficient;

m istheairpollutantemissionco -efficient;

g istheinput–outputcoefficient; IN is the compositeintermediate input;and

POPisthetotalpopulationatriskof airpollutantrelatedillnesses,i.e.the numberofpeopleinurbanareasex -posedtotheairpollutantsundercon -sideration.

Equation(A5)isknownasthedose– responsefunction.Itdefinesthenumber of people whocontract healtheffect k, giventhatatotalpopulationPOPisex -posedtoacertainlevelofairpollutantp. (Thesameform ofequation asinrela -tionship(A5)isalsousedtodetermine the number of restrictedactivity days (RAD) associated withair pollutants.) Theexpression ml,p,an×gl,an×INan inre

-lationship(A5)determinestheamount ofairpollutantpemittedfrom theoil -based fuel lused inproduction sector an.Theexpression

definestheambientlevelofairpollut -antp.Theairpollutantemissioncoeffi -cient(m_l,p,an)isafunctionofgovernment andprivatesectorinvestmentinairpol -lutantabatementtechnologies andser -vices. For example, if the national oil company decides to reduce the lead level ingasoline,theleademissionco -efficient from gasoline (m_{GASOLINE,LEAD,an}) declines.

Finally,theclosurerulesofthisCGE modelareasfollows.

_The_current_account_balance_is_fixed exogenouslyandtheexchangerateis the equilibrating variable (see also Thorbecke1992).

_Real _government _expenditure _is fixed exogenously and government savingisdeterminedresidually. _Land _and _capital _are_determined exogenously.Themarketsforagricul -tural, manual–_clerical, _and _profes -sional labour are assumed to be alwaysinafull-_employment_equilib -rium(Lewis1991).