Managing Urban Air Quality:

Achieving Effective Results

The World Bank14 May 2002

Growth & Urban Air Quality

• The environmental “inverse-U” curve has long been empirically shown.

• Air pollution (PM10) levels have traditionally risen together with per capita national income — up to a certain level — before falling.

• The PM10 turning point has historically been $4,000 – 8,000 per capita.

Inverse U-Curve

0 5,000 10,000 15,000 20,000 25,000 30,000

Per capita income in US$

PM

10 c

on

cen

trat

ion

Schematic diagram

Is this pattern firm? – No.

• Conventional interpretation: income growth must precede effective environmental management.

• Better interpretation: new technologies and better economic policies can lead to flatter and lower curves, shifted to the left.

• Economic efficiency across sectors is the key to pushing the curve flatter, and to the left.

Economic efficiency across what sectors – and why?

• Different sectors affect urban air quality, such as urban development, transport, industry and commerce.

• The primary objective of these sectors is not urban air quality management.

• Improving sector efficiency is an important step towards improving urban air quality at least cost.

• Use of direct regulation of air quality alone is more expensive than combining regulation with sectoral efficiency improvement.

The primary objectives of various sectors with a role to play in urban AQM

• Transport: increasing access to mobility and moving goods efficiently

• Commerce: wholesale/retail sales of goods and services • Energy: supplying sufficient energy to meet demand at

least cost• Industry: supplying goods to meet demand at least cost• Housing: providing adequate shelter, water, and safe

living conditions

In each sector, there’s a link between efficiency and improved AQM.

• This presentation takes the examples of transport, fuel taxation, and urban planning

• Several notes addressing these sectoral efficiency issues are on the Bank’s regional AQM website,

www.worldbank.org/sar/urbanair

Introducing Higher Efficiency in Urban Transport

• Shift riders from private cars and small vehicles to public transport by: Providing more attractive and cleaner public transport services, typically through formal commercial regulation, not informal Improving traffic management, including bus priority lanes and segregated busways

• Design more efficient routes Example: improve land use planning, increase urban density, concentrate destination of most trips in CBD

How to improve public transport efficiency

• Introduce effective competitionExample: Chile, Santiago (Example shows the weakness of unregulated competition. Competition does not mean informal operators.)

• Give priority to busesDedicated bus lanes (Manila, Kuala Lumpur, Bangkok), totally segregated busways (Curitiba, Bogotá). (See Briefing note #3 on the website.)

• Reconsider public transport subsidies

How effective are transport subsidies?

Argument: Subsidize public transport fares to help the poor and attract passengers away from cars.

Cons1. Up to half of subsidy “leaks” to benefit bus companies

rather than passengers.2. Private car usage is not sensitive to bus fare level, so

there is little modal shift.3. Not cost-effective for reducing pollution. AlternativeExample from Bogotá: Give priority to buses to make them

cleaner at the same fare

How Should Fuels be Taxed?

Should “dirty” fuels be taxed to reduce health damage? And clean fuels subsidized?

Objectives of fuel taxes:• Raise general government revenue; finance road

provision and maintenance• Redistribute income• Reduce environmental externality• Reduce congestion

Not possible to meet these objectives simultaneously through fuel tax policies alone.

Guidelines for fuel taxes (1)

• Consider more precisely targeted alternatives to fuel taxes.

• Correct environmental externalities by taxing polluting goods, not by subsidizing cleaner alternatives.

• There is a strong case for a diesel tax: road damage by heavy duty diesel vehicles, not all final goods are taxed, and there’s a long-term substitutability with gasoline.

Guidelines for fuel taxes (2)

• Subsidize kerosene to accelerate household fuel switching from biomass?

Current universal subsidy leads to leakage to the transport sector, insufficient supply for the poor, drain on government budget

• Tax gasoline, a fuel for the rich, heavily?

Large price differential with diesel leads to conversion to diesel, a large diesel-to-gasoline fuel demand ratio

The Fundamental Objectives of Urban planning

1. Allocate urban infrastructure and land use efficiently

2. Manage spatial extension while minimizing infrastructure costs

3. Maintain or improve urban environmental quality

4. Preserve the natural environment immediately outside the urban area

Unfortunately, some of these may work against one another, such as #1 vs. #4.

Improving efficiency through higher densities (1)

• Historically, India has sought to reduce congestion by mandating low FSI (floor space index), or uniform FSI throughout the city.

• Relative to what could be, this implies: Shortage of land in city centers, land price-to-income ratio

among the highest in the world Commercial property development not viable, so lack of

investment and lack of business, lower government revenue Greater traveling distance, more motorized trips The poor get isolated away from city centers, even cut off

from job opportunities

Improving efficiency through higher densities (2)

• In contrast, higher densities can reduce air pollution by:– Making public transport more financially viable– Reducing number of motorized trips– Reducing each trip length

• But only if it is accompanied by well executed traffic management

• Otherwise a significant increase in two- and three-wheelers, more congestion, more pollution

Improving efficiency through higher densities (3)

• The two key policies required to achieve higher density are

higher FSI limits ad valorem land or property taxes

• This will generate additional government revenues – generated by realizing “agglomeration economies” necessary to finance the needed infrastructure.

• Of course, there are also infrastructure savings by having less sprawl.

Difficult trade-offs in zoning (1)• The conventional argument: Ban new industries

in metropolitan areas, but provide job security safety net by making layoffs difficult

• Relative to what could be, this implies: Higher unemployment or under-employment in informal

sector in metropolitan areas

Old and polluting factories in financial difficulties cannot relocate by selling land at market value

Small and medium-sized industries that need labor from urban areas operate illegally, contributing to air pollution

Urban workers commute long distances to get to work

Difficult trade-offs in zoning (2)• Efficient land markets push land-intensive

industries toward the periphery of the city• Pockets of less land-intensive and cleaner industry

within cities allows:

Smaller enterprises to maintain profitability

Workers to have shorter commutes

“Agglomeration economies” to be realized• But zoning industrial areas within cities requires a

better zoning process, including public inputs

Conclusion (1)

• Direct environmental regulation works, but only so far.

• It is relatively expensive in isolation from other sectoral policies: in Delhi, there are increasing marginal costs in reducing transport emissions through direct regulation in Mexico City, a “floor” has been reached in easy air pollution reductions

• Economic efficiency across sectors is the key to pushing the “inverse-U curve” that links air quality with rising per capita income down and to the left.

Conclusion (2)

•  However, there is not always a synergy between environmental and non-environmental objectives of sector policies. As a result, important trade-offs may have to be made.

• Sectoral policy analysis helps evaluate the interactions between air quality management and other sector activities in order to arrive at solutions that maximize society’s welfare.