For the first time ever last month, the International Energy Agency (IEA) released a major study on the role of energy in air pollution. It showed that air pollution leads to about 6.5 million deaths each year, making it the world’s fourth-largest threat to human health. Most of those deaths are occurring in emerging economies like China and India where air pollution is the worst. And, IEA cautions that, unless changes are made to the way the world uses and produces energy, the deaths from air pollution will only increase with time.
While the numbers are staggering, none of this is entirely surprising given that study after study has shown the immensity of the air pollution problem. The challenge is balancing continued economic growth with regulations to reduce air pollution. Nowhere is that challenge greater than in emerging economies that experience the worst pollution, but also want to use more cheap energy to further grow their economies.
Despite this challenge, lawmakers in places like China are ramping up efforts to reduce pollution. The trick for them is figuring out not just how strongly their citizens prioritize economic growth, but also which specific policy changes strike the right balance. For that, there is a strong barometer: knowing people’s “willingness to pay” for clean air. That figure—rooted in deep economics—is exactly what my coauthor, Shuang Zhang from the University of Colorado, and I sought to discover in a new study. In the study, we lay out one of the first estimates for how much people are willing to pay for clean air in emerging economies. The answer? A lot. But, it also depends on a person’s income. (Check out our infographic)
To figure out people’s willingness to pay, we studied China’s market for air purifiers—the main way households can take reducing air pollution into their own hands. From studying that market, we found that on average people are willing to pay $5.46 to remove one microgram per cubic meter of pollution from the air they breathe for five years . But, people’s willingness also varied widely from zero, for a low-income person, to as much as $15 per microgram per cubic meter over five years for someone with a higher income.
Let’s break down a bit how we got to those numbers. First, we were fortunate to have a natural experiment created for us in China, where the Huai River policy provided free coal-based heat only to those living north of the river. This policy caused pollution in the north to be substantially worse than in the south—30% worse in fact. On top of that, another policy banned or discouraged mobility from one city to another, so the people living in these highly-polluted cities were forcibly exposed to it for decades. While certainly unfortunate, these factors provided a set of people exposed to pollution and a set (a control group) not exposed. In virtually every other way, these sets of people are identical.
Our assumption going into this was that if people value clean air, then they would buy air purifiers that would effectively reduce indoor air pollution. And, those experiencing the worst pollution would buy more of them. To prove this, we collected data on monthly air purifier sales, monthly average prices paid and detailed product attributes such as effectiveness in reducing pollution for purifiers sold in retail stores in 81 Chinese cities—both north and south—from January 2006 through December 2012. We also collected pollution data from monitors and demographic information from the Chinese census.
From this data, our assumptions were proved correct. We saw a substantial increase in the purchase of air purifiers in northern cities compared to the south, with the market share increasing 20%. From there, we were able to calculate the per unit cost that people were willing to pay (the $5.46 figure).