Wednesday, June 16, 2010

Not cost-effective

Earlier in the week, the government announced plans to weaken air quality standards - a move that will result in the deaths of hundreds of New Zealanders and amounts to a cold-blooded policy of murder of the old, the sick, and the very young. The policy is currently subject to public consultation, and I've been browsing through the supporting documentation. In the process, I've discovered something quite interesting: the government's policy fails its own strapped-chicken cost-benefit analysis.

When the government first looked at reducing air quality standards, it commissioned a cost-benefit analysis from the NZIER [PDF]. The results of that were crystal clear: the standards as written would save 635 lives and 505 hospitalisations, as well as over one million "reduced activity days" when people are too sick to work. Even allowing for costs to business, the result was strongly positive: the NPV of costs minus benefits was $955 million. Extending the compliance timeline to 2020 reduced costs, but also significantly reduced benefits (to the tune of 500 corpses); the NPV on that was $159 million. The choice should therefore be a no-brainer: implement the standards, and save lives and health costs while doing so.

This wasn't good enough for Nick Smith, as it undermined what he wanted to do (gut standards), so he had the Ministry for the Environment perform their own cost-benefit analysis [PDF]. To meet the Minister's expectations, they strapped the chicken, assuming that the regulations would not be complied with until 2017 (resulting in a significant reduction in benefits), while adding arbitrary costs (which they admit they have no real basis for) for polluters going out of business. The result undermines the case for the current regulations, as an extension past 2017 will not significantly reduce benefits, while significantly reducing costs. But in the process, they also investigated alternative policies, including those that strengthened the regulations and enhanced compliance (options 2 and 3). Embarrassingly for Nick Smith, these turned out to have even greater net benefits than his preferred option to gut the standards (see p20 of the RIS linked above; Smith's preferred option is 4). These alternatives were included in the public discussion document, Proposed Amendments to the National Environmental Standards for Air Quality, but oddly, that full cost-benefit data was not presented. Instead, CBA analysis was only performed between MfE's strapped chicken "status quo B" and the Minister's two preferred options (showing, unsurprisingly, that they were positive). Meanwhile, costs and benefits for the other options were hidden away in an appendix, and never compared to give a net figure. I've compiled the information in the table below:

Status Quo B685438247
Option 1 (TAG recommendations)38393290
Option 2987268719
Option 3987193794
Option 4a (preferred)534126408
Option 4b (preferred)534125409

(All figures in 2008 $million)

So, why is Nick Smith condemning hundreds of extra people to death to choose a less cost-effective option for managing air quality? Maybe the media should be asking him that.