Social Costs of Air Pollution and Fossil Fuel Use – A Macroeconomic Approach

Abstract

Economic activity and environmental conditions are related to each other in several ways. Production and consumption may pollute the environment, and at the same time the state of the environment may affect the production capacity of the economy. Thus, it follows that studying social costs of air pollution should be handled within an integrated model. Moreover, air pollution mostly stems from the use of fossil fuels, which also brings about other non-environmental externalities, particularly in the transport sector. It is therefore topical to include these externalities in a full social costs evaluation. In this book we are concerned with social costs on a national level, although the environmental effects are evaluated on a more local level. We apply a general equilibrium model of the Norwegian economy, which is extended to integrate environmental and nonenvironmental effects of fossil fuel use. Moreover, the model includes feedback effects from the environment to the economy. In four independent studies, selected environmental and non-environmental externalities are analysed within this model. These are material damages, crop damages and health damages from air pollution, and finally health damages from traffic accidents.