JOURNAL OF ENVIRONMENTAL ECONOMICS A N D MANAGEMENT
2, 247-254 (1976)
Air Pollution and Urban Land-Use Policy ~ GEORGE S. TOLLEY Department of Economics, The University of Chicago, Chicago, lllhtois
AND ALaN S. COItEN Argomte National Laboratory
Received August 28, 1974; revised September 8, 1975 This paper examines the dependence of physical and economic effects of air pollution on urban spatial arrangements, and it suggests some guidelines for employing land-use policy in air pollution control. First, through an experiment in urban form, the paper quantifies the potential impacts of land-use policy on air pollution. Second, via an experiment in air pollution spillovcr effects, it investigates economic costs of air pollution dispersed into a eommt,nity from outside. Together, these two experiments indicate both the potential benefits and limitations of controlling air pollution through land-use policy actions. TIlE SETTING Concern with pollution has been accompanied in recent years by revitalized interest in land-use planning as an instrument for environmental control I-I-I. However, enthusiasm in this regard is justified only to the extent that land-use policies with significant expected environmental benefits can be identified. This paper reports on a study of the impacts of some land-use plans on air quality in the urban setting of Chicago. Air pollution and land use are related because both have spatial dimensions. Most man-made air pollution occurs within or close to urban areas, where it affects major concentrations of people and property. Emissions originate from factories, utility plants, residences, stores and offices, and motor vehicles, whose locations are related to one another. The extent of environmental damage depends on the manner in which pollutants disperse from these emission sources. Evaluating these relationships is an important part of the land-use planning task. This paper examines the dependence of physical and economic effects of air pollution on urban spatial arrangements, and it suggests some guidelines for employing land-use policy in air pollution control. First, through an experiment in urban form, the paper quantifies the potential impacts of land use policy on air pollution. Second, via an experinaent in air pollution spillovcr effccts, it investigates economic costs of air pollution dispersed into a community from outside. Together, these two experit This work was prepared with the support of National Science Foundation Grants AG-352 and GI 32989A2. However, any opinions, findings, conclusions, or recommendations expressed herein are those of the authors and do not necessarily reflect the views of the NSF. 247 Copyright O 1976 by Academic Press, Inc. All rights o f reproduction in any form reserved.
TOLLEY AND COHEN TABLE I Downtown Air Quality Estimates under Two Urban Forms Federal standards ~
Chicago Aurora Elgin
Centercityform Sulfur dioxide (annual arithmetic mean, tag/m'~) Particulate matter (annual geometric mean, ~g/m 3) Carbon monoxide (8-hour average, ppm) Carbon monoxide (l-hour average, ppm)
Cluster city form Sulfur dioxide (annual arithmetic mean, tag/m~) Particulate matter (annual geometric mean, t~g/m~) Carbon monoxide (8-hour average, ppm) Carbon monoxide (I-hour average, ppm)
a These are the Federal secondary standards. ments indicate both the potential benefits and limitations of controlling air pollution through land-use policy actions. AN EXPERIMENT IN URBAN FORM To gain insights into the effects of urban design on air pollution, emissions and associated air quality levels were estimated for two alternative land-use patterns for the Chicago area and the resulting air quality maps were compared. These patterns will be referred to as the center city and the cluster city forms. The first is based on a centralized metropolitan layout with Chicago as the economic hub as at present, while the second postulates large-scale relocation of industry from Chicago to its satellite cities. Most of the change in air quality with urban form is the result of industrial relocation. Accordingly, to specify the cluster city plan, half of the large industrial polluters in Chicago were selected at random and designated for transplantation to the satellite cities of Elgin, Aurora, Waukegan, and Joliet. Because residential and commercial pollution sources primarily use natural gas, the locations of these sources have very little impact on SO2 and particulate levels and could therefore be ignored. Because it is unlikely that primary steel production would occur other than at its present locations in the region, steel mills were also not designated for relocation, nor were utility power plants, which are already scattered throughout the metropolitan area. The pollutants analyzed were suspended particulates, sulfur dioxide, and carbon monoxide3 For the first two of these, the A Q D M 1-2] atmospheric dispersion model 2 Because of analytical difficulties, the interrelationship between urban form and photochemical oxidants is not evaluated. Therefore, the results of this analysis should not be generalized for reactive pollutants.
AIR. POLLUTION AND LAND-USE POLICY
was used to estinaate annual average air quality levels under the two urban forms. The carbon monoxide analysis did not involve the use of a dispersion model because levels of this pollutant decrease rapidly with distance from the source. Therefore, it was sufficient to base the CO projections on a linear relationship between emissions and air quality in the adjacent area. In estimating CO levels under the cluster city layout, it was assumed that half of the CO emission in Chicago's Central Business District (CBD) would be transferred to the CBD's of the satellite cities. Numerical results for SO,, particulates, and CO are presented in Table I showing estimated 1968 air quality levels in Downtown Chicago and in selected outlying cities under the two urban forms. The Federal sulfur dioxide standard was violated in Chicago under the center city form and also would have been violated under the cluster city form in 1968. While a shift to the cluster city form would cause some increases in the levels of sulfur dioxide in the outlying cities, these levels would remain well within the Federal standard. For both urban forms a violation of the particulate standard occured in each of the five cities. The largest difference in the estimated par-
FIG. 1. SO,. levels with center city plan.
TOLLEY AND COHEN
FIG. 2. SO2 levels with cluster city plan. ticulate levels between the two plans is only 12%. Figures I and 2 show SO., levels throughout the metropolitan region for the two urban forms. As might be expected, the effects of changing urban form on air quality are even less at locations between the downtown points than in the downtowns themselves. Maps not reproduced here indicate similar findings for particulates. For carbon monoxide, tile benefits ill Chicago of shifting to tile cluster city form are more pronounced, but a violation of the Federal 8-hour standard still occurs. Carbon monoxide levels in outlying cities are higher, but Federal standards would still be met there. The above results suggest that minimal effects on air quality can be expected from regulating urban form. While urban form has some impact, it appears that localized clustering of a limited number of heavily polluting industries is a more serious cause of high pollution concentrations. Much of the challenge of integrating hind-use policy and air pollution control, therefore, lies in regulating the locations of these activities.
AIR POLLUTION A N D LAND-USE POLICY
COOKCOU~ITY L~E t~',CI~IGAN
/,2% 3% 6% 6%
Fx6. 3. "Estimatedeffects of air pollution originating in Indiana on residential property values. AN EXPERIMENT 1N AIR POLLUTION SPILLOVER In spite of the dramatic increase in Federal involvement in environmental control, much of the initiative for environmental action remains at local levels. This is true especially for decisions which determine the locations of pollution sources. Because pollutants disperse through the atmosphere and spill over from one community to another, region-wide impacts should be considered in making land-use decisions. Only organizations having jurisdiction over all affected parties will have the incentive to consider important impacts of their decisions at all locations. To shed light on the magnitude of the problems, an analysis of air pollution spillovers between political jurisdictions within the Chicago region was conducted. The region was divided into three subareas: (1) Chicago proper, (2) suburbs of Chicago in Illinois, and (3) the contiguous industrialized counties in Indiana. A dispersion model was used to estimate air quality levels throughout the Chicago region resulting from SO., emissions from each of the subareas separately. Coefficients from a regression analysis indicating the change in residential property values per unit change in SO2 were then applied to estimate the effects of emissions from any one subarea on residential property values in the other subareas? Sulfur dioxide emissions from the City of Chicago were estimated to cause decreases of property values within its own boundaries of up to 5%. Land values in nearby parts of Cook County are lowered by as much as 2% and minor effects occur in the rest of the region. The results are similar for the emissions originating in the Illinois suburbs of Chicago. Effects within the suburbs range up to 4%. Property values in the nearby northwest part of Chicago proper are depressed 2%, with no effects greater than 1% elsewhere in the region. The suburbs consist of many different jurisdictions, among which there are undoubtedly important spillovers not investigated in the study. Although there are problems associated with inferring economic damage of pollution from crosssectional regression analyses (see [-3-]), the jurisdictional issues raised by this analysis are still valid.
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The greatest spillovers found among the subareas studied are from Indiana into Illinois. The estimates suggest that property values in a large suburban area south of Chicago are decreased by 2 to 3%; and in a few suburbs close to Indiana and in the southern part of Chicago, property values are depressed by over 4%. contours of land value effects of Indiana pollution are shown in Fig. 3. The results suggest that the jurisdictional problem for air pollution is far from resolved. The finding of large interstate spillovers is particularly significant because programs tend to operate along traditional Federal to state to local lines of authority, which have often been ineffective in dealing with interstate problems. THE STATE OF ECONOMIC T I I l N K I N G In addition to the idea that the jurisdiction needs to be as great as an area of effect, what concepts can help in devising measures to influence the location of polluting activities ? A tradition among many economists has been to think of taxing the emittant of pollutants [4-], an approach which has never been widely applied. The basic idea is to make the tax per pound of pollutant equal to the damage caused by emitting an extra pound, leading the individual emitter to take into account the externality caused by him, and inducing him to take steps to control emissions to the point where the extra costs of doing so equal the damage reduction achieved. If the tax approach were ever implemented, a number of problems of design would have to be faced. One problem concerns degree of uniformity. Because the damage caused by a pound of pollutant varies from place to place, the ideal tax per pound would also vary. Thus the same argument often made against uniform emissions standards applies against uniform pollution taxes. Proposals for varying allowable emissions by zoning are another way of trying to avoid uniformity costs. Aside from having to work to avoid appearing to treat equals unequally, under any of these schemes, some compromise would have to be made as to how much to tune controls among locations within a city. The problems of pollution taxes extend to proposals for salable emission rights. An advantage of salable emission rights is supposed to be that a restricted amount of allowed emissions can be used by those who can make best use of the emissions. However, if damages vary by location, there is the problem that a transfer of emission rights from one firm to another may greatly change the damage from emissions. One way around this problem would be to have transfer taxes and payment from the government to adjust for the change in external effects when emission rights change hands. Another advantage sometimes claimed for salable emission rights is that they would enable those damaged to buy out the rights from emitters and thus reduce pollution. However, emission rights do not solve the "free rider" problem any better than other market solutions. As long as there are a number of people affected by damages, there will be incentives to hold back in private negotiations to reduce damages, with any one individual hoping that others being damaged will pick up the bill. Thus there would still be a necd for an entity such as a public authority to decide on the amount of pollution to allow. From the point of view of land use, the key question is how to devise pollution controis to give desirable location incentives. Pollution taxes, geared to amount of damages varying by location, would give incentives to firms to compare the alternatives as between controlling emissions in a location or choosing a location with a lower pollution tax. There would thus be incentives for spatial adaptation to pollution, making a comparison of trade offs between emission control and spatial adaptation an integral part of the decision-making process. A proviso is that in comparing loca-
AIR POLLUTION AND LAND-USE POLICY
tions, account should be taken of total damages and not just marginal damages times amount of pollutant. If the tax per pound of pollutant times the number of pounds emitted did not add up to total damages caused by a firm producing in a location, a lump sum rebate or tax would be necessary to give the firm incentives to compare the full consequences of producing in one location rather than another. A widely discussed issue concerns whether to take measures to control the location of those damaged by pollution I-5]. The position is sometimes argued that households moving near to a polluting factory cause increased damages and should be given incentives through taxation or other sanctions not to move so close. However, those damaged through the very suffering of damages are weighing the damages against the benefits of different locations. As long as those damaged are kept from moving as close as they would choose, a net gain always can be made by letting them move closer at the same level of pollution. Once they have moved closer, further gains may be made by raising taxes on emitters, thus reducing pollution back to where marginal damages equal marginal costs of controlling emissions. An important proviso in this case is that those damaged neither be compensated nor expect to be compensated for any additional damages they may suffer by moving closer. Another proviso is that those damagcd do not collude to influence the taxes on emitters. Given these provisos, it would appear that a series of net gains can be expected to ensue from letting those damaged make voluntary choices as to where to live. Explaining the resistance to taxation approaches in actual decision-making remains an interesting puzzle in itself to be explained. Among other impediments, taxing and subsidizing in amounts involving large sums, on the basis of damage estimates for which standard errors are large, may smack of taxation without adequate representation. At any rate, given the poor prospects for the taxation approach, there is a clear and overdue need to consider conceptual foundations for other approaches. Ideas out of the reasoning about taxes can be helpful, even essential, in devising other approaches. In particular, the desirability of giving incentives to choose locations in view of tradeoffs between spatial adaptation and emission control in place, applies to any approach. The idea that spatial policies will be most effective if applied to those causing damages and not those suffering damages is a potentially powerful guiding principle, particularly for the land-use control approach. A PRACTICAL SUGGESTION If theoretical economics has been concerned too narrowly with the taxation approach, there has been another problem of at least equal importance resulting from the separation between the main thrust of environmental policy, which has been to control pollution in place, and the land-use approach, which provides the major current focus on spatial adaptation to pollution. The main thrust of environmental policy has teeth. It is controlling pollution, and almost amazingly, seems to be designed to prevent spatial adaptation. Examples of the prevention of spatial adjustment are ihe more stringent standards for new than existing sources, giving incentives for industry to remain in place, and nondegradation policies which if strictly enforced could prevent virtually all industry movement to areas where damages from pollution would be small. Meanwhile, notwithstanding machinations, land-use policy has been relatively slow in changing, and there is uncertainty about how effcctive various laws being proposed would actually be in influencing land use. The consideration of spatial effects of air pollution in this paper has suggested several criteria for land use in measures to deal with the environment. These include having large enough jurisdictions to avoid spillovers, vesting public decision-making
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powers that will give effective incentives to polluters to evaluate the trade off between spatial adaptation and control in place, and limiting controls to polluters, leaving those damaged free to make voluntary spatial choices. A modification of a permit system, with pollution variances if necessary, provides one way of implementing these criteria. The major modification would be to require an environmental appraisal of alternative locations in economic terms, the appraisal to include a comparison of estimated environmental damages with the plant costs that would be incurred in the locations including both normal production costs and the costs of polhttion-control devices. The procedure would allow scope for avoiding control costs if a location was chosen where environmental damages were lower. The first step would be to re-do the requirements for siting studies for power plants to incorporate this feature. The procedure might then be extended to other major industrial polluters. Since there are only a few industries which are major air polluters, most activities and land uses would not be subject to this control. The permit control might be at the state level if all significant effects were within one state with provision for escalation to the federal level if there were important interstate spillovers. The suggestion though modest could have important effects because it is aimed at the heaviest polluters. It would establish the important precedent of making spatial adaptation an integral part o f environmental control. S U M M A R Y AND CONCLUSIONS This study suggests that urban form has only a limited impact on regional air quality levels. If so, air quality need not be a major factor in shaping overall regional land-use proposals. However, the locations of certain heavy polluters should be chosen carefully because these pollution sources tend to affect nearby air quality substantially. Such techniques as performance zoning, emission density zoning, or other land-use regulating schemes can be used effectively in conjunction with new source performance standards for heavy polluters. One possibility with promise is to extend siting requirements to all major pollution sources, following a benefit-cost approach which recognizes the tradeoff between direct costs of production in various locations and necessary external emission control costs between locations. Emission control requirements for any given plant and location would be based on estimates of environmental damages. This approach would involve both a refinement of siting requirements already proved practical for utilities and their extension to all major polluters and would lead to economically efficient land-use planning decisions. Air pollution spillovers across the boundaries of local governments can be substantial. This suggests that larger jurisdictions are needed if land-use schemes designed to reduce the damages caused by air pollution are going to be effective. REFERENCF_S 1. "Guidelines for Air Quality Maintenance Planning and Analysis, Volume 3: Control Strategies," Guideline Series OAQI'S No. 1.2-022, U. S. El'A, Research Triangle Park, N. C. (July 1974)J D. M. McAllister (Ed.), "Environment: A New Focus for Land-Use Planning," National Science Foundation, NSF/RA/E-74-001, Washington, D. C. (October 1973). 2. TRW Systems Group, "Air Quality Display Model," Washington, D. C. (1969). 3. A. M. Freeman, Ill, On estimating air pollution control benefits from land value studies,& Enriron. Econ. 3tanagement 1, No. 1 (1974). 4. T. H. Tietenberg, Specifictaxes and the control of pollution : A general equilibrium analysis, Quart. J. Econ. 87, 503-522 (1973). 5. W. J. Baumol and W. E. Oates, "The Theory of Environmental Policy," Prentice Hall, Inc.. Englewood Cliffs, N. J. (1975).