The Local Benefits of Global Air Pollution Control in Mexico City - Final Report of the Second Phase of the Integrated Environmental Strategies Program in Mexico ppt

by


Galen McKinley, Miriam Zuk, Morten Hojer,
Monserrat Avalos, Isabel González, Mauricio Hernández,
Rodolfo Iniestra, Israel Laguna, Miguel Ángel Martínez, Patri-
cia Osnaya,
Luz Miriam Reynales, Raydel Valdés and Julia Martínez
Instituto Nacional de Ecología, México
Instituto Nacional de Salud Publica, México

August 2003
Final Report of the Second Phase of the
Integrated Environmental Strategies
Program in Mexico
The Local Benefits of Global Air
Pollution Control in Mexico City

ii


Table of Contents

I. Executive Summary McKinley

II. Project Summary McKinley and Zuk

III. Emission Reductions and Costs
III.1. General Methodology McKinley
III.2. Renovation of the taxi fleet Hojer
III.3. Extension of the Metro Osnaya

III.4. Hybrid buses McKinley
III.5. Measures to reduce leaks of Liquefied Petroleum Gas McKinley
III.6. Co-generation Laguna


IV. Air quality modeling McKinley and Iniestra


V. Health impacts analysis Zuk with Avalos, Martínez, Hernández,
González, Reynales and Valdés

VI. Valuation Zuk with Avalos, Martínez, Hernández,
González, Reynales and Valdés

VII. Integration: The Co-Benefits model McKinley and Zuk


VIII. Results McKinley


IX. Conclusions McKinley


Appendix A. Air Quality Modeling McKinley and Iniestra

Appendix B. Capacity Building Zuk and McKinley

Appendix C. Basic User’s Guide for the Co-Benefits Model McKinley and Zuk

Acknowledgements:

We thank the U.S. Environmental Protection Agency (EPA) and the U.S Mexico
Foundation for Science (FUMEC) for their support of the project. We appreciate the input
of Dr. Adrián Fernandez of INE. We also thank Dr. Jason West of the US EPA for his
attention to the project.

iii
Contact Information:


Consultants to Instituto Nacional de Ecología:

Galen McKinley
Miriam Zuk
Morten Hojer


Instituto Nacional de Ecología:

Julia Martínez
Montserrat Avalos
Isabel González
Rodolfo Iniestra
Miguel Ángel Martínez
Israel Laguna
Patricia Osnaya


Instituto Nacional de Salud Publica:

Mauricio Hernández
Luz Miriam Reynales
Raydel Valdes



4
Chapter I. Executive Summary

From September 2002 to August 2003, the Second Phase of the Integrated Environmental
Strategies Program in Mexico was undertaken at the Instituto Nacional de Ecología (INE;
National Institute of Ecology) of Mexico. In this report, activities and findings are
summarized. During this project, the following goals have been achieved:

• Estimate cost savings due to health improvements related to air pollution reductions
occurring simultaneously with greenhouse gas (GHG) emissions reductions,
• Compare costs and benefits for the specific policy measures,
• Build capacity in the Mexican government for integrated, quantitative environmental
and economic assessment, and
• Provide results and tools with relevance to emission control decision-making process in
Mexico City.

We produce estimates of annualized reductions of emissions of local and global air
pollutants and program costs for three transportation measures (taxi fleet renovation, metro
expansion, and hybrid buses), one residential measure to reduce leaks of liquefied
petroleum gas (LPG) from stoves, and one industrial measure for cogeneration for the
periods 2003-2010 and 2003-2020 at several discount rates. Using reduced-form air quality
modeling techniques, the impacts of changed emissions on exposure are calculated. Then
using dose-response methodology, public health improvements due to reduced exposure are
estimated. Finally, various valuation metrics are applied to determine the monetized health

benefits to society of the control measure.

We find that the 5 measures considered in this study could reduce annualized exposure to
particulate air pollution by 1% and to maximum daily ozone by 3%, and also reduce
greenhouse gas emissions by 2% (more than 300,000 tons C equivalent per year) for both
the time periods. We estimate that for both time horizons, over 4400 quality-adjusted life-
years (QALYs) per year could be saved, with monetized public health benefits on the order
of $200 million USD per year. In contrast, total costs are under $70 million USD per year.
The mean cost per QALY is estimated to be under $40,000 for the 5 measures. Of the
measures considered, transportation measures are most promising for simultaneous
reductions of both local and global pollution in Mexico City.

This analysis has been integrated in to an user-friendly modeling tool using Analytica
software. The Co-Benefits Model has been made available to decision-makers and their
staffs in Mexico City. There is interest from these groups in applying the model to their
work and in modifying it for use in other regions of Mexico, particularly the City of Toluca
in the State of Mexico.

Capacity building has been a major part of this project. A large group of INE staff have
actively contributed to the research effort. Regular meetings and training sessions have
been held with members of the Metropolitan Environmental Commission (CAM) and other
environmental agencies in the Mexico City. These meetings have encouraged active

5
participation in this project and aided the integration of this work with other air pollution
control efforts in the region.


6

Chapter II. Project Summary


II.1. Introduction

Due to complex socio-political, economic and geographical realities, Mexico City suffers
from one of the worst air pollution problems in the world. Greenhouse gas emissions from
the City are also substantial. In this study, we compare the costs and benefits of a set of
politically-relevant air pollution control measures for the City and simultaneously consider
the greenhouse gas emission impacts of these measures. We find that with 5 control
measures, it would be possible to reduce annualized exposure to particulate air pollution by
1% and to peak ozone by 3%, and also to reduce greenhouse gas emissions by 2% (more
than 300,000 tons C equivalent per year) for the time periods 2003-2010 and 2003-2020.
We estimate that for both time horizons, over 4400 quality-adjusted life-years (QALYs) per
year could be saved, with monetized public health benefits on the order of $200 million
USD per year. In contrast, total costs are under $70 million USD per year. The mean cost
per QALY is estimated to be under $40,000 for the 5 measures. We find that transportation
measures are likely to be the most promising for simultaneous reductions of both local and
global pollution in Mexico City.

II.2. Motivation

With nearly 20 million inhabitants, 3.5 million vehicles, and 35,000 industries, Mexico City
consumes more than 40 million liters of fuel each day. It is also located in a closed basin
with a mean altitude of 2240m. The combination of these and other factors has led to a
serious air quality problem. In 2002, Mexico City air quality exceeded local standards for
ozone (110 ppb for 1 hour) on 80% of the days of the year. Particulate 24-hour standards
were exceeded on 5% of the days (SMA, 2002).

Greenhouse gas (GHG) emissions from Mexico City are also significant. In 1998, Mexico

ranked as the 13
th
largest GHG producing nation. Mexico City emits approximately 13% of
the national total (Sheinbaum et al., 2000). Using a 3.3% annual growth rate (West et al.,
2003) and a 1996 base year estimate of 45,585,000 tons of CO
2
(Sheinbaum et al., 2000),
we estimate that the annualized GHG emission of Mexico City for the period 2003-2010
and 2003-2020 will be 17 million tons of C equivalent per year and 20 million tons C
equivalent per year, respectively.

As emissions of GHG and local air pollutants are often generated from the same sources,
there may exist opportunities for their joint control. In this study, we have developed a
cost-benefit analysis framework to analyze the trade-offs between costs, public health
benefits, and GHG emission reductions for a select set of control measures. In an effort to
disseminate the knowledge collected in this work, we have also created a reduced-form
analysis tool for use by policy makers.

This study fits into an ongoing process of analysis and action regarding Mexico City air
quality. At present, Mexico City government is currently in the process of implementing

7
its third air quality management plan. The first plan, PICCA (Programa Integral para el
Control de la Contaminación Atmosférica) was initiated in 1990 and had several major
accomplishments, including the introduction of two way catalytic converters, the phase out
of leaded gasoline, and establishment of vehicle emissions standards. The second program,
PROAIRE (Programa para Mejorar la Calidad del Aire en el Valle de México 1995-2000)
achieved the introduction of MTBE, restrictions on the aromatic content of fuels and
reduction of sulfur content in industrial fuel. While significant improvements in ambient
air quality have improved, levels remain dangerously high, therefore the government has

recently initiated the third plan, PROAIRE 2002-2010, as an extension of previous plans.

PROAIRE 2002-2010 includes 89 control measures targeting emissions reductions from
mobile, point and area sources, as well as proposing education and institutional
strengthening measures to combat the air pollution that afflicts the city. While some of
these measures are slowly being implemented, little quantitative analysis has been done
prior to designing this plan. Decision makers are now faced with the difficulty in setting
priorities when presented with a such a large range of control options. Several studies are
currently quantitatively analyzing these issue (Molina et al., 2002). A recent study by West
et al. (2003) aimed to analyze a large number of PROAIRE and climate change control
measures to determine the least cost set of options for joint control. This study builds on
these works, by simplifying and integrating the analysis to provide real time answers to
policy makers.

II.3. Methodology

Emissions Reductions and Costs for Specific Control Measures

We estimate the time profiles of local pollutant (PM
10
, SO
2
, CO, NO
x
, and HC) and global
pollutant (CO
2
, CH
4
, and N

2
O) emission reductions, and costs for 5 control measures that
address transportation, residential and industrial emission sources. We estimate emissions
reductions and costs for each year from 2003 to 2020 such that the different time-profiles of
the programs’ costs and impacts can be studied. These two time horizons were chosen to
allow us to analyze the short term on the time frame of the plan itself, and a longer term
analysis on the scale of the project implementation. For incorporation into the cost – benefit
analysis, results are annualized using several discount rates. In this Project Summary, we
present results using a 5% discount rate only.

Below, key aspects of the control measures analyzed in this study are outlined. In Tables
II.1 and II.2, the estimated emissions reductions and costs of these measures are presented.

Taxi fleet renovation
• 80% of old taxis are replaced by 2010
• Fuel efficiency increases from 6.7 km/L to 9 km/L
• Tier I technology is assumed in 1999 and newer models
• Changes in emissions of primary particulate matter are not estimated



8

Metro expansion
• 76 km of new construction by 2020 (5 km between 2003 and 2010, 71 km
from 2011 to 2020)
• Riders assumed to come from microbuses and combis
• Recuperation value of capital is included, using a 30 year useful life

Hybrid buses

• 1029 hybrid buses are brought into circulation, replacing diesel buses, by
2006
• Emissions factors from detailed study for New York City (MJ Bradley and
Associates, 2000)

LPG leaks
• Stove maintenance is performed in 1 million households to eliminate leaks
• This is a combination of 4 measures that each address a specific part of LPG
stove systems (TUV, 2000)

Cogeneration
• Installation of 160 MW of capacity by 2010
• Recuperation value of capital is included, using a 20 year useful life


Table II.1. Annualized emissions reductions (tons / year)



Control Measure PM
10
SO
2
CO NO
x
HC CO
2
CH
4
N

2
O
Time horizon 2003-2010
Taxi Renovation 0 64 165,483 5,135 16,863 275,007 64 498
Metro Expansion
1 4 3,518 155 324 19,567 5
1
Hybrid Buses
73 14 566 -119 274 54,063 2
0
LPG Leaks
0 0 0 0 2,480 7,475 0
0
Cogeneration
0
0 9 75 0 590,080 10 1
Time horizon 2003-2020
Taxi Renovation 0 59 146,380 3,060 12,811 257,542 60 466
Metro Expansion
9 65 28,835 1,271 2,653 160,368 39 9
Hybrid Buses
82 16 635 -134 307 60,656 2 0
LPG Leaks
0 0 0 0 1,954 5,888 0 0
Cogeneration
0
0 13 110 0 856,031 15 1

9
Table II.2. Annualized abatement costs (2003 million US$ / year)

Control Measure Public Investment Private Investment
Fuel, Operations,
Maintenance
Total Cost
Time Horizon 2003-2010
Taxi Renovation 16.10 53.66 -61.16 8.59
Metro Expansion 5.37 0 -0.01 5.37
Hybrid Buses 54.33 0 -9.10 45.24
LPG Leaks 1.31 1.81 -1.39 1.74
Cogeneration 0 4.83 -4.33 0.49
Time Horizon 2003-2020
Taxi Renovation 8.90 29.67 -57.33 -18.76
Metro Expansion 44.05 0 -0.02 44.03
Hybrid Buses 30.04 0 -10.21 19.84
LPG Leaks 0.73 1.00 -0.84 0.89
Cogeneration 0 7.33 -6.40 0.92

Exposure Modeling

For the estimation of the impacts of emission reduction on ambient concentrations and
population exposures, we have developed a range of reduced-form modeling approaches.
Results from a source apportionment study are used to estimate changes in primary and
secondary PM
10
. Ozone isopleths from Salcido et al. (2001) are used to estimate peak O
3

changes occurring with changes in hydrocarbon and NO
x

emissions.

In order to account for the spatial relationship of population and pollution concentrations,
as well as to account for annual exposures, we use reduced form models to provide a
reduction fraction (RF) of pollutant concentration (Cesar et al., 2002; USEPA, 1999). This
reduction fraction is then multiplied by projected population-weighted concentrations for
the appropriate time horizon. These projected concentrations use as a baseline the mean
1995-1999 observed, population-weighted (1995 census) 24-hour mean PM
10
(64.06 ug/m
3
)
or O
3
maximum concentration (0.114 ppm), from Cesar et al. (2000). The projection to
future population-weighted concentrations is achieved by a linear interpolation of mean
concentration results from the Multiscale Climate Chemistry Model (MCCM) model for
1998 and 2010 based on the emissions inventory for 1998 and emissions inventory
projection for 2010 of the CAM (PROAIRE, 2002; Salcido et al. 2001).

To estimate changes in PM
10
concentrations, the chemical species in the observed
particulate matter are attributed to primary pollutants based on chemical analyses of the
composition of particulate matter in the MCMA (Chow et al. 2002). Fractional changes in
the emission inventories of primary pollutants can then be related to fractional reductions in
particulate concentrations. Results of chemical analyses of the composition of particulate
matter from 6 sampling sites during the IMADA campaign of March 1997 (Chow et al.
2002) are averaged, with weighting based on the total mass of each sample. In order to
attribute organic carbon to its primary (combustion) and secondary (hydrocarbon) sources,

observed organic carbon is disaggregated into its primary and secondary contributions.
Following Turpin et al. (1991), we estimate the primary organic contribution to total
organic carbon based on a fixed ratio to elemental carbon mass of 1.9, a mean value for the

10
Los Angeles basin. The mass of secondary organic carbon is then the difference of the total
organic carbon mass and the mass of primary organic carbon. Total primary particulate
mass from combustion sources (25%) is the sum of primary organic and elemental carbon
.
Secondary organic carbon mass (2%) is attributed to hydrocarbon emissions. Additionally,
the mass of particles associated with geological sources (45%) is attributed to primary PM
10

emissions from geologic sources; the mass of particles associated with total particulate
ammonium nitrate (7%) is attributed to NO
x
emissions; and the mass of particles associated
ammonium sulfate (11%) is attributed to SO
2
emissions.

The peak mean O
3
reduction fraction (RO
3
max) is estimated from the fractional reductions
in hydrocarbon (RHC) and NO
x
(RNO
x

) by:

RO
3
max = 0.5353*RNO
x
- 0.2082*(RNO
x
)
2
+ 0.1112*RHC

This equation is derived from a series of runs of the MCCM for Mexico City (Salcido et al.,
2001) where HC and NO
x
emissions are varied in equal proportion from all sources and O
3

concentration changes were recorded. The above equation results from a polynomial
regression fit to the results of Salcido et al. (2001).

These reduced-form air quality modeling approaches are limited by the still large
uncertainty about fundamental processes responsible for ozone and particulate formation in
the Mexico City Valley. Further, the approaches have uncertainty due to the lack of spatial
and temporal resolution and imperfections in the modeling and measurement techniques on
which the approaches are based. An exact quantification of the uncertainty is beyond the
scope of this analysis. Based on the work of Cohen et al. (2003) and comparisons made
during this study, we make a conservative estimate of 30% uncertainty on primary
particulate results, and 50% uncertainty on the secondary particulate and maximum ozone
results.

In Table II.3, concentration change estimates based on Source Apportionment and the
Ozone Isopleth methods are shown for each of the control measures.

Table II.3. Annual particulate and maximum ozone exposure changes (ìg/m
3
)

Particulates (PM
10
) Maximum Daily O
3


Mean 95% CI Mean 95% CI
Time Horizon 2003-2010
Taxi Renovation 0.36 (0.17 : 0.58) 5.13 (1.59 : 9.97)
Metro Expansion 0.01 (0.01 : 0.02) 0.14 (0.04 : 0.28)
Hybrid Buses 0.14 (0.06 : 0.23) -0.07 (-0.14 : -0.02)
LPG Leaks 0.07 (0.02 : 0.28) 0.91 (0.14 : 1.76)
Cogeneration 0 (0 : 0) 0.06 (0.02 : 0.11)
Time Horizon 2003-2020
Taxi Renovation 0.24 (0.12 : 0.38) 3.02 (0.94 : 5.87)
Metro Expansion 0.12 (0.07 : 0.18) 1.07 (0.33 : 2.08)
Hybrid Buses 0.15 (0.07 : 0.25) -0.07 (-0.14 : -0.02)
LPG Leaks 0.06 (0.02 : 0.12) 0.74 (0.23 : 1.43)
Cogeneration 0 (0 : 0.01) 0.08 (0.02 : 0.15)

11

Health Impacts Analysis

Results from epidemiological studies are used to estimate avoided cases of mortality and
morbidity (H
ij
) due to reductions in ambient concentrations of ozone and PM
10
. A standard
dose response equations with the following form is used:

NCRH
jiijij
×××=
β


Where â
ij
is the dose-response coefficient for the i
th
effect from the j
th
pollutant (% increase
in cases/year/person/ ìg/m
3
), R
i
is the background rate of the effect of interest
(cases/year/person), C
j

is the change ambient concentration of pollutant j (µg/m
3
) averaged
across the entire population as determined by the air quality module, and N is the
population at risk (persons).

A set of 19 health impacts, including premature mortality, chronic bronchitis, medical
attention for cardiovascular and respiratory disease, and work loss days are analyzed in this
study. Dose response coefficients for each outcome are gathered from three main meta-
analyses (USEPA, 1999; Cesar et al., 2002; Evans et al., 2002), with supplementary studies
for information on select outcomes. Greater weight is placed on evidence originating from
Mexico. Uncertainty in epidemiological evidence is included in our modeling, by including
a distribution of possible dose response values. A detailed description of the sources for
each coefficient and a summary table are included in Chapter V.

Information on rates of hospitalizations and emergency room visits for respiratory and
cardiovascular diseases were gathered in a co-study conducted by the National Institute of
Public Health (INSP) using the database from the IMSS social security system. This
system covers approximately 80% of the population of the Federal District and nearly 30%
of the state of Mexico. This database was chosen due to its data quality and availability.
While it does not represent the entire Mexico city population, it accurately captures the
trends in the city. Furthermore, the data gathered from this database account for less than
10% of the total monetary impacts. Tables II.4a and b summarize results of the health
impacts for the two time horizons.


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Table II.4a Annual mean health impacts (cases/year)
Time horizon 2003-2010

Taxi
Renovation
Metro
Expansion
Hybrid
Buses
LPG Leaks Cogeneration
1.1 Acute Mortality

Total mortality
57

2
9
11

1
Infant mortality
29

1
11 6

0
1.2 Chronic Mortality

Total
6

0
2
1

0
Cardio-respiratory
1

0
0
0

0
Lung Cancer
7

0
2
1

0
1.3 Chronic Bronchitis
448

16
171
89

4
1.4 Hospital admissions

All Respiratory
223

6
1
39

2
COPD
38

1
0
7

0
All Cardiovascular
1

0
0
0

0
Congestive Heart Failure
1

0
0

0

0
Ischemic Heart Disease
0

0
0
0

0
Pneumonia
49

1
0
9

1
Asthma
21

1
1
4

0
1.5. Emergency room visits (ERVs)

Respiratory Causes

1,065

30 17 190

12
Asthma
990

28 14 176

11
1.6. Restricted Activity Days
13,326

476
5,103
2,663

123
1.7 Minor Restricted Activity Days
495,076

14,660
44,611
90,682

5,207
1.8 School Absenteeism
218,384

6,458
17,303
39,723

2,336


13
Table II.4b Annual mean health impacts (cases/year)
Time horizon 2003-2020


Taxi
Renovation
Metro
Expansion
Hybrid
Buses
LPG Leaks Cogeneration
1.1 Acute Mortality

Total mortality
36

15 10
9
1
Infant mortality
19

10 12
5
0
1.2 Chronic Mortality

Total
4

2
3
1
0
Cardio-respiratory
0

0
0
0
0
Lung Cancer
4

2
3
1
0
1.3 Chronic Bronchitis
295

152

184
76
6
1.4 Hospital admissions

All Respiratory
134

49
1
33
3
COPD
22

8
0
5
1
All Cardiovascular
0

0
0
0
0
Congestive Heart Failure
0

0

0
0
0
Ischemic Heart Disease
0

0
0
0
0
Pneumonia
29

10
0
7
1
Asthma
12

5
1
3
0
1.5. Emergency room visits (ERVs)

Respiratory Causes
632

232

19
154
16
Asthma
583

215
15
144
15
1.6. Restricted Activity Days
8,908

4,584
5,575
2,320
176
1.7 Minor Restricted Activity Days
296,928

119,279
48,591
73,350
7,190
1.8 School Absenteeism
132,439

52,346
18,814
32,756

3,174

Valuation

Here we evaluate the benefits of reduced health impacts by economic valuation and in
terms of the quality-adjusted life-years (QALYs) saved. The economic valuation allows us
to compare the costs with the benefits using the same metric. QALYs, on the other hand,
allow comparisons of benefits to costs without putting monetary values on public health.
This provides us with an alternative means of measuring control effectiveness, and allows
us to calculate cost per QALY ratios.

For the economic valuation we use three methodologies to determine the total social benefit
due to reductions in health impacts: 1. Direct health costs 2. Productivity loss and 3.
Willingness to pay (WTP). These three methods are combined to give the total social
benefits from reductions in health impacts, removing some impacts to avoid overlap. Direct
health costs were derived from an analysis by the Mexican National Institute of Public
Health (INSP) of costs of hospitalizations and emergency room visits. Productivity loss is
calculated by the salary loss over the duration of an illness or years lost due to premature
mortality. Finally, for WTP, we use results from a study conducted in Mexico (Ibarrarán
et al., 2002) as well as those from the international body of literature adjusted to Mexican
income, placing more weight on the Mexican study.

14

Table II.5. Monetary benefits (2003 million US$ / year)

Mean 95% CI
Time Horizon 2003-2010
Taxi Renovation 152 (57.3 : 293)
Metro Expansion 4.97 (2.08 : 9.07)

Hybrid Buses 38.4 (12.3 : 80.2)
LPG Leaks 28.7 (9.11 : 59.9)
Cogeneration 1.46 (0.48 : 2.95)
Time Horizon 2003-2020
Taxi Renovation 96.0 (37.7 : 182)
Metro Expansion 44.7 (19.2 : 83.3)
Hybrid Buses 41.6 (13.5 : 88.1)
LPG Leaks 24.4 (8.05 : 52.1)
Cogeneration 2.03 (0.68 : 4.09)


Finally, in order to provide an alternative valuation method that does not apply a dollar
value to health, we also perform a QALY analysis. QALYs account for both duration and
quality of life in each health state when calculating health benefits. The QALYs gained by
an intervention are simply the sum of quality-adjusted life years gained by avoiding
premature mortality and disease. QALYs are calculated by the following equation:

ii
THuQALY ×= )(

Where u(H
i
) is a utility weight assigned to a given health outcome (zero to one), and T
i
is
the duration of that health outcome. The utility weights we use here are from several
international studies (Fryback et al., 1993; Liu et al., 2000; Stouthard et al., 2000), as none
have yet been done in Mexico. The duration of illnesses are obtained from the IMSS
databases, whereas the life years lost per premature mortality are calculated from a separate
INSP study.

Table II.6. Total QALYs saved per year

Mean 95% CI
Time Horizon 2003-2010
Taxi Renovation 2935 (1543 : 4694)
Metro Expansion 102 (57 : 159)
Hybrid Buses 972 (415 : 1718)
LPG Leaks 574 (209 : 1110)
Cogeneration 28 (10 : 52)
Time Horizon 2003-2020
Taxi Renovation 1914 (1009 : 3003)
Metro Expansion 946 (554 : 1425)
Hybrid Buses 1050 (440 : 1902)
LPG Leaks 493 (175 : 944)
Cogeneration 39 (15 : 74)



15
II.4. Results

We find that the combination of these 5 measures will substantially reduce emissions of
local air pollutants, as well as GHG. These measures will reduce PM
10
exposure by
approximately 1% (0.6 ìg/m
3
) for both time horizons; and will reduce maximum ozone
concentrations by approximately 3% (6.2 ìg/m

3
and 4.8 ìg/m
3
, respectively for 2003-2010
and 2003-2020), while eliminating emissions of more than 300,000 tons C equivalent per
year and 400,000 tons C equivalent per year, respectively. Together, these reductions will
save more than 4,600 and 4,400 QALYs per year, respectively. Monetized benefits are
estimated to be $225 million USD per year and $210 million USD per year, respectively,
for the combined 5 controls. Total annualized costs are less than 30% of the estimated
benefits: we estimate costs to be $66 million per year for 2003-2010 and $50 million USD
per year for 2003-2020.

Each measure contributes uniquely to these results. The impact of each individual measure
is discussed below.

For the 2003-2010 time horizon, the benefits of the Taxi Fleet Renovation are far greater
than the costs (Table II.2. and II.5). Costs are small for this measure because of significant
fuel efficiency gains realized with newer vehicles. Benefits are high because of large ozone
reductions, and also because of significant reductions in secondary particulate
concentrations reductions (Table II.3). We estimate that approximately 3,000 QALYs per
year could be saved with the measure (Table II.6), at mean cost of approximately $3,000
per QALY. On the longer time horizon, net costs turn into net savings as the fuel cost
savings continue to accumulate without additional investment costs. Annualized benefits
are still large, though less so, for the long time horizon because there is deterioration in
emissions among aging vehicles that gradually increases local emissions, and thus
decreases local benefits with time. For 2003-2020, we estimate that approximately 2,000
QALYs per year could be saved (Table II.6) at the same time as cost savings are realized.

Consistent with existing government proposals, this analysis assumes that only 5 km of
Metro would be built from 2003-2010, and an additional 71 km from 2011-2020. For this

reason, it appears as to be a relatively small, inexpensive measure on the short time horizon,
but much larger undertaking on the long horizon (Table II.2). Because Metro Expansion
involves significant capital investment, the inclusion of the recuperation value for the
Metro (30 year useful life) offsets a significant portion of these initial costs. We find that
the local emission reduction benefits (Table II.5, II.6) can also be large and compensate for
a majority, if not all, of the net costs for both time horizons. For example, for 2003-2020,
we estimate that approximately 950 QALYs per year could be saved (Table II.6) at a cost
of approximately $50,000 per QALY by the expansion of the Metro. This analysis assumes
that the extension of the Metro causes a significant reduction in the use of on-road public
bus transportation, which means local emissions are significantly reduced. However,
increase in Metro length requires more electricity and increases emissions from power
plants that are primarily located outside the valley. Thus, the Metro Expansion causes a net
transfer of local emissions from inside to outside the valley. We assume that population
density is substantially lower where the electricity is generated than in Mexico City, and for
this reason, public health impacts will be negligible from increased power generation. This

16
transfer of local emission helps to make local benefits large enough to offset much, if not
all, of the costs for this measure.

The Hybrid Buses measure has large upfront investment costs due to the expensive nature
of the technology, but also generates significant cost savings on the long term due to greatly
enhanced fuel efficiency (Table II.2). Benefits are large for both time horizons primarily
because of large reductions in primary particulate emissions. For both time horizons, we
find that approximately 1,000 QALYs per year could be saved (Table II.6). This measure is
implemented between 2003 and 2006. Annualized costs are, therefore, lower and benefits
higher for the long time horizon than for the short time horizon; thus the cost per QALY
reduces from approximately $60,000 for 2003-2010 to $20,000 for 2003-2010.

The LPG leaks reduction measure, on the other hand, has low costs because of the low unit

costs for each stove repair. Benefits are much larger than the costs because of the
significant reduction in hydrocarbon emissions that reduces both ozone and secondary
organic particulate exposure. For both time horizons, approximately 500 QALYs per year
could be saved (Table II.6) at a cost of approximately $50,000 per QALY.

For Cogeneration, net costs are low due to the significant gains in fuel efficiency and the
inclusion of the recuperation value of the equipment at the end of each time horizon (20
year useful life). Local benefits are not very large for this measure because the gains in
efficiency derive from simultaneous on-site production of thermal and electrical energy that
replaces off-site electricity generation and on-site thermal energy production. As explained
above, only a small portion (3.1%) of the electricity consumed in Mexico City is generated
in the valley. Though Cogeneration significantly reduces the total emissions by
substantially increasing efficiency, the measure moves emissions of local pollutants into the
valley, and thus local benefits are small. QALYs saved are on the order of 30 per year for
both time horizons (Table II.6) at a cost of approximately $25,000 per QALY.

In Figure II.1, we compare local and global net benefits. The local net benefits are defined
as the Monetized Health Benefits (Table II.5) minus Costs (Table II.2), while the global net
benefit is the reduction in GHG emission. Figure II.1 illustrates that the Taxi Fleet
Renovation measure is clearly the best measure from the joint local – global perspective.
The Hybrid Bus measure for 2003-2020 and the LPG Leak measure on both time horizons
are the next-most promising for joint local / global control. The Metro Expansion, in large
part because of its very high costs, is less promising from the joint perspective.
Cogeneration also does not have sufficient local benefits to make it interesting for joint
local – global control.


17
Figure II.1: Net Health Benefits vs. C equivalent Reduction

II.5. Discussion and Conclusions

Taxi fleet renovation offers the most promising opportunity for the joint control of local
and global pollution of the measures studied here. Further, benefits might be found to be
significantly larger than estimated here if changes in primary particulate matter emissions
could be estimated. The large potential benefits of this measure have already been
recognized by decision-makers in Mexico City, and the implementation of this measure has
begun as of 2002-2003 with public funding for the replacement of 3,000 taxis.

The LPG leak measure also provides benefits than are much larger than the total costs.
Emissions reductions and local benefits from this measure are small compared to the taxi
fleet renovation, but investment costs are quite small, making implementation of the LPG
leak measure relatively feasible from a decision-making standpoint.

Cogeneration provides more than 50% of the GHG benefits from this set of measures, but
essentially no local benefit because it moves emissions of local pollutants into the valley,
and health benefits from the reduced emissions at power plants located outside the valley
are assumed to be negligibly small. Were a similar study conducted at the national level,
Cogeneration may turn out to be a promising joint local / global option because health
benefits derived in populations living near to power plants could be considered. This will
depend, of course, on population exposure to emissions generated by electricity production
across the country.

18

Metro Expansion has large local benefits, particularly for the long time horizon when the
measure has been fully implemented. However, the extremely high initial investment costs

required for the measure make its implementation unlikely.

Finally, the Hybrid Bus measure may have positive net benefits if the long time horizon is
considered. However, the analysis of this measure has large uncertainty because the
emission factors used were derived for the altitude, driving conditions, and fuel mix of New
York City, not for Mexico City. Altitude has been shown (Yanowitz et al. 2000) to
significantly impact emissions behavior from heavy-duty vehicle technology, but these
impacts have not been specifically calculated for the technologies under consideration here.
We recommend that a better understanding of emissions factors be obtained and also that
the cost-effectiveness of other types of advanced technologies (e.g. Cohen et al., 2003) also
be considered in order to determine what would be the best advanced bus technology to
introduce in Mexico City.

This work indicates that measures to improve the efficiency of transportation are key to
joint local / global air pollution control in Mexico City. The three measures in this category
that are analyzed here all have monetized public health benefits that are larger than their
costs when the appropriate time horizon is considered. Global benefits, due to improved
fuel efficiency, are also large. In contrast, we find that traditional “no-regrets” electricity
efficiency do provide large GHG emission reductions, but do not provide local benefits to
Mexico City because the majority of electricity is produced outside of the valley in which
Mexico City is located.

Further work is needed to analyze more measures that cover a wider range of opportunities
for joint local / global air pollution control. Also very important is to quantify the air
pollution improvements and cost savings that could be acquired from reduced congestion
in the MCMA. Such an analysis may indicate that the benefits from transportation
efficiency improvement are, in fact, much larger than estimates here. Improved
understanding of emission factors from new and old vehicles under Mexico City driving
conditions is also greatly needed, and could significantly impact results.

II.6. References

CAM, Comisión Ambiental Metropolitana (2002) “Programa para Mejorar la Calidad del
Aire de la Zona Metropolitana del Valle de México, 2002-2010” (PROAIRE), Comisión
Ambiental Metropolitana, México City.

Cesar, H., et al. (2000) “Economic valuation of Improvement of Air Quality in the
Metropolitan Area of Mexico City,” Institute for Environmental Studies (IVM)

Cesar, H., et al. (2002) “Air pollution abatement in Mexico City: an economic valuation,”
World Bank Report


19
Chow, J.C., J.G. Watson, S.A. Edgerton, and E. Vega (2002) “Chemical composition of
PM
2.5
and PM
10
in Mexico City during winter 1997,” The Science of the Total Environment
287, p.177-201.

Cohen, J.T., J.K. Hammitt, and J.I. Levy (2003) Fuels for urban transit buses: A cost-
effectiveness analysis. Environ. Sci. Technol 37. 1477-1484.

Evans et al. (2002) “Health benefits of air pollution control,” in Air Quality in the Mexico
Megacity: An Integrated Assessment, Kluwer Academic Publishers, Boston, 384 pp.


Fryback, D., E. Dasbach, R. Klein, B. Klein, N. Dorn, K. Peterson, and P. Martin (1993)

"The beaver dam health outcomes study: initial catalog of health-state quality factors,"
Medical Decision Making, 13: 89-102.

Ibarrarán, M., E. Guillomen, Y. Zepeda, and J. Hammit (2002) “Estimate the economic
value of reducing health risks by improving air quality in Mexico City,” preliminary
results.

Liu, J., J. Hammitt, J. Wang, and J. Liu (2000) “Mother’s willingness to pay for her own
and her child’s health: a contingent valuation study in Taiwan,” Health Economics, 9: 319-
326.

M.J. Bradley & Associates, Inc. (2000) “Hybrid-electric drive heavy-duty vehicle testing
project: Final emissions report.”

Salcido et al. (2001) “MCCM Parametric Studies: Estimation of the NO
x
, HC and PM
10
emission reductions required to produce a 10% reduction in the Ozone and PM
10
surface
concentrations and compliance with the MCMA air quality standards, with reference to the
2010 MCMA Emission Inventory,” Grupo de Modelación de la Comisión Ambiental
Metropolitan (CAM), 42 pp.

Sheinbaum P., C., L. Ozawa, O. Vázquez, and G. Robles (2000) “Inventario de emisiones
de gases de efecto invernadero asociados a la producción y uso de la energía en la Zona
Metropolitana del Valle de México: Informe final.” Grupo de Energía y Ambiente, Instituto
de Ingeniería, UNAM, report to the CAM and the World Bank.

SMA, Secretaria del Medio Ambiente del Distrito Federal (2002) Red Automática de
Monitoreo Atmosférico (RAMA).

Stouthard, M., M. Essink-Bot and G. Bonsel (2000) “Disability weights for disease: a
modified protocol and results for a western European region,” European Journal of Public
Health, 10: 24-30.

Turpin, B.J., J.J. Huntzicker, S.M. Larson and G.R. Cass (1991) “Los Angeles summer
midday particulate carbon: Primary and secondary aerosol,” Envi. Sci. Technol., 25(10)
1788-1793.

20

TUV Rheinland de Mexico, S. A. de C. V. (2000) “Programa para la reducción y
eliminación de fugas de Gas LP, en las instalaciones domésticas de la Zona Metropolitana
del Valle de México.”

U.S. Environmental Protection Agency (1999) "The Benefits and Costs of the Clean Air
Act 1990-2010," Washington, D.C., Office of Air and Radiation, EPA report no. 410/R-
99/001.

West, J.J., P. Osnaya, I. Laguna, J. Martínez, A. Fernández (2003) “Co-control of urban air
pollutants and greenhouse gases in México City.” Final report to US National Renewable
Energy Laboratory, subcontract ADC-2-32409-01.

Yanowitz, J., R.L. McCormick and M.S. Graboski (2000) “In-use emissions from Heavy-
Duty diesel vehicles.” Environ. Sci. Technol. 3, p 729-740.

21
III.1 General Methodology for Estimating Emissions Reductions and Costs

III.1.1. Introduction

We estimate the time profiles of local pollutant (PM
10
, SO
2
, CO, NO
X
, and HC) and global
pollutant (CO
2
, CH
4
, and N
2
O) emission reductions, and direct costs for 5 control measures
that address transportation, residential and industrial sources of local and global air
pollution emissions. Detailed descriptions of each measure is outlined in sections III.2
through III.6. We also report emission reductions of PM
2.5
, calculated as a fraction of PM
10

emissions (US EPA, 2000) for illustrative purposes, but do not use these estimates of
emission reduction in the rest of the analysis.

As described below, for each measure an emissions baseline is defined given currently
measured or otherwise determined emissions factors and activity levels, combined with

reasonable future predictions regarding their behavior without intervention. Control
measures cause a change from this baseline by altering future activity levels and / or
emissions factors. While emissions factors used in the study are meant to capture current
driving conditions, the cost savings and changes in emissions due to reduced congestion
could not be calculated because this was far beyond the scope of this study. We encourage
the pursuit of improved understanding of congestion impacts in future work since these
impact may, in fact, be large.

Our objective is to estimate emissions reductions and costs for each year from 2003 to
2020. In this way, the different time-profiles of the programs costs and impacts can be
studied. For incorporation into the cost – benefit and ancillary benefits analyses that are the
goal of this study, we annualize the results obtained over these time horizons using several
different discount rates. Annualized costs and emissions reduction can be considered as a
constant annual flux of costs or emission reductions over the time-period that gives an
equivalent net present value to the net present value estimated from the actual time-profile
of the program. In this way, annualized results allow direct comparisons between measures
with different time-profiles.

Further, annualized results allow cost-benefit and ancillary benefit calculations to be much
simplified since it is only necessary to calculate air quality changes and health impacts
based on a single set of emissions reductions that appropriately represent the entire time
horizon, as opposed to having to do such calculations for each year. The fact that our
reduced-form air quality models (see Chapter IV) are essentially linear facilitates the use of
annualized emissions reductions.

III.1.2. Choice of Time Horizon

We study both a short time horizon (2003 through 2010) that is consistent with Mexico
City’s Program for Improved Air Quality in the Valley of Mexico (Programa para Mejorar
la Calidad de Aire en el Valle de Mexico, PROAIRE) 2002-2010. We also study a long

time horizon (2003 through 2020) that allows consideration of the lasting effects of control

22
measures implemented up to 2010, and also allows consideration of realistic long-term
implementation plans for the Metro Expansion control measure.

III.1.3. Choice of Discount Rate

We calculate costs and emissions reductions using 3 discount rates, 3%, 5% and 7%. We
also present results when discounting is ignored, or 0%. Our benchmark scenario, for
which results are considered in Chapters IV to IX, uses a discount rate of 5%.

III.1.4. Equations used for Discounting and Annualization

Discounting to estimate the Net Present Value (NPV) in 2003 (where j is the year from
2003, “value” is the emission reduction or cost in that year, and dr is the discount rate) uses
Equation III.1.1.

∑
=
+
=
n
j
j
j
dr
value
NPV
1

)1(
Equation III.1.1

Annualization (where Nyr is the number of years over which to annualize) uses Equation
III.1.2.



[ ]
NPV
dr
dr
valueannualized
Nyr
⋅
+−
=
−
)1(1
_
Equation III.1.2


III.1.5. References

U.S. Environmental Protection Agency (2000) "National Air Pollutant Emission Trends:
1900 - 1998," Washington, D.C., EPA report no. 454/R-00-002.

23
III.2. Renovation of the Taxi Fleet

III.2.1. Introduction
In 1998 approximately 109,400 taxis were circulating in the Mexico City Metropolitan
Area (MCMA); 103,298 in the Federal District and the rest in the State of Mexico.
According to official figures, the total number of taxis accounted for 3.4 percent of the
entire vehicle fleet in the metropolitan area that year (CAM, 2002a, Table 5.2.2.2). In the
Federal District alone, taxis accounted for about 5 percent of the vehicle fleet and about 20
percent of the total vehicle kilometers traveled (CAM, 2002a, Table A.2.6). The emissions
from these activities are estimated at 188 tons per year of PM
10
; 535 tons of SO
2
; 115,200
tons of CO; 10,366 tons of NO
X
; and 13,733 tons of HC, respectively (CAM, 2002a, Table
5.2.2.8).

By their nature taxis are high-use vehicles. Over time their emission control systems would
be expected to deteriorate more rapidly than those of other vehicles used less intensively
(however, see Kojima and Bacon, 2001). This is one reason why taxis are sometimes
subject to more frequent tests in vehicle inspection and maintenance (I/M) programs. High-
use vehicles also consume more fuel, which contributes particularly to emissions of
greenhouse gases (GHG), and which makes up an important part of the vehicle operating
costs. The problems associated with emissions from taxis are thus similar to the ones of the
private car fleet, but they tend to be exacerbated by a more intense use of taxi vehicles.

The weighted average age of taxis in the Federal District was 5.7 years in 1998. Four years
later, this number had grown considerably and, according to some estimates, 49% of the
fleet was more than 10 years old and should have been taken off the road in order to

comply with existing regulations (Gonzalez, 2002). However, there are large uncertainties
associated with these estimates. A reliable vehicle registration database does not exist, and
it is difficult to obtain time-series data. While new vehicle sales are added to the existing
population every year, vehicle retirement is often not captured. As a result, large
differences have been measured when the official figures are compared with data from
extensive field surveys (Kojima and Bacon, 2001).

The inconsistencies observed in the official records of the overall fleet size and
composition are recognized by the Metropolitan Commission for Transport and Roadways
(COMETRAVI, 1999a), and are similar to problems encountered in other parts of Latin
America (for a discussion in the context of the MCMA, see Gakkenheimer et al. 2002).
Modeling the evolution of the taxi fleet is also complicated by the fact that most taxis are
traded on the market for used vehicles, and that an unknown number of vehicles have been
turned into taxis illegally.

Yet, despite these challenges there seems to be a consensus within the local governments of
the MCMA that something needs to be done about the emissions from the existing taxi
fleet. High-use vehicles (i.e., taxis and microbuses) are currently required to be renewed
after a certain number of years, but the restrictions are not effectively enforced and the age
of an increasing number of these vehicles is higher than their age limit.


24
Apart from their impact on air quality and human health, there are also other problems
related to the taxis. In particular, 60-70 percent of the taxi owners have only one vehicle as
their main source of household income (Gonzalez, 2002). As a consequence, these owners
work between 8 and 12 hours a day and typically they do not have any kind of social
security. Public policies to reduce emissions from taxis ought to be sensitive to this fact. In
the present analysis, however, we shall focus on the total emission reductions and the direct
costs of such policies, while ignoring their implications for the distribution across

individuals and households.

III.2.2. Description of the Measure
In response to growing concerns about the emissions from taxis, an ambitious program has
been designed to scrap 80,099 old taxis in the Federal District, and to replace them by
vehicles that comply with more stringent emissions standards. The program is being
implemented over a four year period, provided sufficient public funds are available. There
are four overall goals of the program (Gonzalez, 2002).

First, in order to reduce emissions of local air pollutants, such as CO, NO
X
and HC, old taxi
vehicles will be replaced by newer vehicles that comply with at least Tier 1 emission
standards. The replacement is facilitated by an incentive for present taxi owners to scrap
their old vehicle in exchange for a premium of 1,500 U.S. dollars. In addition, subsidies are
given to owners of new taxis in terms of reduced purchase prices from the automobile
industry, a special tax relief from the government of the Federal District, interest rate
subsidies from credit institutions, and subsidies on spare parts and services.

Second, a requirement is included in the program that new vehicle engines must comply
with a minimum fuel economy of 12.6 km per liter. Compared with the existing taxi fleet,
the requirement would imply not only considerable savings in fuel cost, but also a reduction
in GHG emissions. Note, however, that this is based on the assumption of no “rebound
effect” from an improvement in the fuel economy of new vehicles (NRC, 2002; Portney,
2002).

Third, as emphasized above a number of other problems surround the organization of the
taxi fleet. About 90 percent of the vehicles in service are so-called “free” taxis that
circulate the streets empty looking for passengers. In contrast with fixed-site taxis, which
typically operate from a coordinated taxi stand, free taxis are not formally organized. They

produce more emissions per passenger kilometer traveled and are generally considered to
be less safe. In the taxi renewal program, provisions are therefore included to increase the
share of fixed-site taxis as a means to reduce the emissions and improve the safety of the
passengers simultaneously. However, it remains an open question to what extent the
operators of free taxis will have sufficient incentives to join a taxi stand, or another form of
coordinated operation. Consequently, we shall not consider this element of the program in
the analysis.

The fourth goal of the program is to improve the income of the taxi owners through public
and private subsidies and through increased social security. Financial support is thus
provided, not only for the scrappage of old and the purchase of new taxis, but also for

25
recurring expenditures on vehicle operation and maintenance (i.e., interest rate subsidies
and subsidies on spare parts and services). In addition, since taxi credits are generally
considered by the commercial banks to be a risky asset leading to a prohibitively large risk
premium on private commercial loans, a mechanism has been designed between the private
financial sector, the government of the Federal District, and the National Development
Bank (Nacional Financiera) to provide guaranteed loans at fixed interest rates. An
insurance scheme for taxi owners is also being considered jointly with the loan for the
purchase of a new vehicle (Gonzalez, 2002; SETRAVI, 2002a).

According to the announced plan, the taxi renewal program is being implemented from
2002 to 2006 as part of an overall effort to integrate transport and environmental policies in
the Federal District (CAM, 2002b; SETRAVI, 2002b). However, the financial viability of
the program remains insecure. Not only are the financial resources of the Federal District
scarce, but there are also large imbalances in the public finances of the transport sector.
These imbalances stem in part from a massive underpricing of public transport and
infrastructure, such as the metro system and the road network, and in part from the inability
of the local Secretariat of Transport and Roadways to raise public revenues. For the fiscal

year of 2002, it is estimated that only 37% of the total expenditures in the transport sector
are covered by the revenues raised (Gakkenheimer et al., 2002; SETRAVI, 2002b).

From the documents available it is difficult to get a clear picture of the current state of the
taxi substitution program. In the preliminary Integrated Transport and Roadways Program
(Programa Integral de Transporte y Vialidad, PITV) for 2002-2006, a total amount of 10
million US dollars has been designated to a fund for the substitution of 10,000 free taxis
(SETRAVI, 2002b). In the Program for Improved Air Quality in the Valley of Mexico
(Programa para Mejorar la Calidad de Aire en el Valle de Mexico, PROAIRE) 2002-2010,
about 80,000 of the oldest taxis are expected to be gradually replaced at a total cost of 800
million U.S. dollars, of which 80 million dollars would be financed by the public sector and
720 million dollars by the private sector (CAM, 2002b). Finally, in a brief summary of the
progress of PROAIRE, Paramo (2003) comments on the availability of funds for the
substitution of only 3,000 taxis for the fiscal year 2002.

These discrepancies are probably a reflection of the financial insecurity of the program. It is
also a fact that the fiscal budget covers expenditures only one year ahead, while the
scrappage and replacement of taxis is a multi-year effort that cuts across institutional
boundaries within and outside the government of the Federal District. In this respect, the
program should be contrasted with the only other known scrappage program of a
comparable magnitude, which was considered for almost a decade in California to improve
air quality in the greater Los Angeles area, but which was subsequently abandoned by
policy makers (Dixon and Garber, 2001a, 2001b; Dixon, Garber, and Porche, 2002).

Some taxis in the Federal District have already been scrapped and replaced. Information
about these experiences would be useful for the evaluation of the program. Yet, data on the
costs and emissions characteristics of both the old taxis that are scrapped and the new
vehicles introduced have not been available for the purpose of the analysis. We therefore
conduct a prospective analysis of the program, based on our expectations about its likely
impacts, and assume a period of implementation from 2003 to 2007.