o bpco/ 86 .Že c- I I -Z 186 w 1231World Banik Discussion Papers Efficiency and Substitution in Pollution Abatement Three Case Studies Dennis Anderson William Cavendish FILE COPY Recent World Bank Discussion Papers No. 126 Agricultural Technology in Sub-Saharan Africa: A Workshop on Research Issues. Suzanne Gnaegy andJock R. Anderson, editors No. 127 Using Indigenous Knowledge in Agricultural Development. D. Michael Warren No. 128 Research on Irrigation and Drainage Technologies: Fifteen Years of World Bank Experience. Raed Safadi and Herve Plusquellec No. 129 Rent Control in Developing Countries. Stephen Malpezzi and Gwendolyn Ball No. 130 Patterns of Direct Foreign Investment in China. Zafar Shah Khan No. 131 A New View of Economic Growth: Four Lectures. Maurice FG. Scott No. 132 Adjusting Educational Policies: Conserving Resources While Raising School Quality. 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The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list (with full ordering informnation) and indexes of subjects, authors, and countries and regions. The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, Department F, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'Iena, 75116 Paris, France. ISSN: 0259-210X Dennis Anderson is the Energy and Industry Advisor in the World Bank's Energy and Industry Department. William Cavendish was a consultant to the department. He is currently undertaking post-graduate research at St. Antony's College, Oxford. Library of Congress Cataloging-in-Publication Data Anderson, Dennis, 1937- Efficiency and substitution in pollution abatement- three case studies / Dennis Anderson, William Cavendish. p. cm. - (World Bank discussion papers ; 186) Includes bibliographical references. ISBN 0-8213-2309-1 1. Economic development-Environmental aspects-Mathematical models. 2. Environmental policy-Economic aspects-Mathematical models. 3. Substitution (Economics)-Mathematical models. I. Cavendish, William P. II. Tide. III. Series. HD75.6.A53 1992 363.73'7-dc2O 92-40657 CIP iii Foreword The studies presented in this report serve to show by reference to particular cases why good economic policies are often beneficial for the environment--and conversely why good environmental policies are good for economic growth and development. They were prepared for the 1992 World Development Report on Development and the Environment, and have been influential not only on the Bank's own policies and the thinking of its staff, but already on many people and institutions outside the Bank. The reader should, I believe, be especially interested in two findings: the huge scale of the prospective economic benefits from reforming prices and institutional arrangements in the sectors studied (electricity, transport and water supply), and the scope for pollution abatement through the adoption of low-polluting technologies and practices. Although the costs of the latter are sometimes significant, they are generally small when compared with the benefits of improving economic efficiency. The combination of efficiency and substitution is a powerful one from economic as well as environmental perspectives, and rationally pursued will leave societies materially better off, not worse off. dii Anthony A. Churchill Director Industry and Energy Department iv ACKNOWLEDGEMENTS We wish to thank our colleagues on the team that prepared the 1992 World Development Report for their comments and encouragement as the work progressed, and several others who helped in various ways: Andrew Steer, Larry Summers, Nemat Shafik, Sudhir Shetty, Stephen Mink, Patricia Annez, John Briscoe, Ken Piddington, John Dixon, William McGrath, Gordon Hughes, Salenna Wong, Nathalie Johnson, Andrew Parker, Wendy Ayres, Sushenjit Bandyopadhyay, Wilfred Beckerman, Robin Bates, Ted Moore, Jeremy Warford, Anthony Churchill, Robert Saunders, Jose Carbajo, Tim Hau and Asif Faiz. The usual disclaimers apply. v TABLE OF CONTENTS Page S UMMARY ........................................................ vii I. KEY QUESTIONS AND GENERAL APPROACH ...............................................1 The Contribution of Substitution .........................................................1 The Contribution of Economic Efficiency ........................................................ 2 Efficiency and Substitution Together ........................................................5 Model Outline ........................................................6 II. ELECTRICITY SUPPLY ........................................................9 Growth of Population and GNP ......................................................9 Model Elements and Structure ....................................................... 10 (i) Demand and Supply Assumptions (base case) ......................................... 10 (ii) Supply Costs (Best Practice Assumptions) ................................................. 11 (iii) Managerial Inefficiencies and Reform ....................................................... 13 (iv) Price Inefficiencies and Reform ....................................................... 14 (v) New Capacity Requirements ....................................................... 16 (vi) Net Economic Benefits Per Unit of Output ............................................... 17 (vii) Introduction of Low-polluting Technologies ........................................... 18 (viii) Emissions and Emissions Indexes ....................................................... 20 (ix) Investment Expenditures and Incremental Economic Benefits ........... 21 Results, Sensitivities and Conclusions ...................................... 22 III. ENERGY AND URBAN TRANSPORT ....................................................... 28 Introduction: Possibilities for Reducing Pollution ............................................ 28 Model Elements and Structure ....................................................... 29 (i) Vehicle Fuel Consumption (in Congested Urban Areas) ...................... 31 (ii) Vehicle Fuel Taxes and Pollution ....................................................... 32 (iii) Congestion Price Reforms ....................................................... 32 (iv) Costs of Emission Controls and Emission Coefficients .......................... 34 (v) Emissions Indexes ........................................................ 37 (vi) Economic Benefits ........................................................ 37 Results and Sensitivities ....................................................... 39 vi TABLE OF CONTENTS Page IV. WATER AND SANITATION .......................................................... 43 Key Issues in Water Supply and Sanitation ........................................................ 43 The Model .......................................................... 47 (i) Costs of Efficient Supply .48 (ii) Inefficiencies in the Sector .49 (iii) Prices and Resource Demands ................................................... 52 (iv) Investments ................................................... 53 (v) New Connections ................................................... 55 (vi) The Effects of Efficiency Reform: A Summary ..................................... 57 (vii) Benefits ................................................... 57 (viii) Health Benefits ................................................... 59 (ix) The Sanitation Model ................................................... 62 The Simulation Results ........................................................ 64 V. SIMPLIFICATIONS, APPLICATIONS TO OTHER ENVIRONMENTAL PROBLEMS, AND CONCLUSIONS .......................................................... 69 A More Direct Approach .......................................................... 69 Applications to Other Environmental Problems ............................................... 72 Conclusion .......................................................... 73 REFERENCES .................................................... 75 ANNEXES .................................................... 81 vii SUMMARY This paper presents the analysis and results of three simulation studies on economic growth and pollution, undertaken for the 1992 World Development Report (WDR) on Development and the Environment. Over the next four decades the population of developing countries is expected to rise by nearly 4 billion people, while their combined GNPs, if they are at all economically successsful, would rise more than seven-fold from its present level of $4 trillion/year. This would mean very large increases in economic and human activity, and the questions put to us were whether and to what extent pollution could be reduced in the course of this expansion, once environmental policies were in place, and what the effects on economic growth might be. (Several other chapters of the WDR dealt with the actual policies themselves.) We chose to address these questions by undertaking studies in particular sectors-electric power generation, the use of gasoline and diesel fuels in urban transport, and water and sanitation--and then gathered some information to see how far similar results might apply in other areas such as soil erosion, indoor and outdoor air pollution, emissions and effluents from various industrial activities, and the long-term reduction (should the need arise) of CO2 emissions from fossil fuels. The general findings were reported on in the WDR; the present paper is intended to explain the approach more fully. The simulation studies attempt to assess the relative contributions of substitution (changes in practices) and economic efficiency towards reducing pollution. By far the most important contribution comes from substitution towards low polluting or damaging technologies and practices, which are either available or being developed in nearly all sectors of economic activity. Since the private costs of these technologies and practices are often higher than those of polluting ones-though in important cases the costs are lower-- they would only be adopted once environmental taxes or regulations are in place. But once the required policies are in place, there is little doubt about their contribution to pollution abatement. Depending on the case, they can reduce pollution or damage per unit of output by factors ranging from 10 to 100 to 1000 and often more. It follows that, once substitution towards those technologies and practices is complete, large increases in output can be achieved with reduced pollution. Improving economnic efficiency in the sectors studied is another much- discussed means of reducing pollution while raising economic output (though not necessarily in the sectors themselves). Three kinds of efficiency improvements are studied below in a dynamic framework: the reduction of price inefficiencies, such as the elimination of subsidies for energy production and use; the reduction of managerial or "X" inefficiencies (which invariably accompany price-inefficiencies) such as those arising from avoidable losses and wastes in electricity and water supplies; and the net economic benefits of reducing the external costs of pollution. Quantifications were only possible for the first two types of efficiency improvement, and for one-half of the viii third, namely the costs of environmental policy (the external benefits proved to be too difficult to quantify). The extent of price and X-inefficiencies are often very large, and there is little doubt that they are damaging to the environment--and even more to economic performance. In the sectors studied, the benefits of addressing them would outweigh the costs of any socially satisfactory environmental policy by several orders, even neglecting their environmental benefits. The combination of economic efficiency and environmental policies which encourage substitution toward low-poliuting or damaging practices is thus a very powerful one, and would raise economic output in the course of improving the environment. The analysis is also concerned with the time it might take to arrive at such a satisfactory state of affairs once policies are in place. The time required will vary with the pollutant. It can be relatively short, for example, for reducing PM emissions, but much longer for reducing the pollution from S02, NOx and C02 (especially), the pollution associated with pooi' water and sanitation facilities, and the erosion of soils in agricultural areas. Even where all new investments are low-polluting or damaging, pollution would continue from the existing capital stock until it is retired, unless it is retrofitted with the low-polluting technologies. Addressing price and managerial or "X" inefficiencies is also a long and gradual process, likely to take two to three decades under assumptions that are not pessimistic. In this context, simulation studies show that the economic and environmental gains even from gradual reforms can be substantial. I I. KEY OUESTIONS AND GENERAL APPROACH The Contribution of Substitution 1.1 Can economic growth be maintained or increased in developing countries while pollution is being reduced? With the growth of per capita incomes and population, the demands for practically all goods and services associated with material progress are rising rapidly, as can readily be seen from their aggregate production and consumption statistics. Between 1965 and 1990, the growth rate of manufacturing in developing countries averaged nearly 7 percent per year (11.5 percent per year in East Asia, where output increased 15-fold in the period), of agriculture 3.2 percent per year, of industry 5 percent per year, and of the consumption of commercial energy nearly 6 percent per year, having increased four- fold in the period. Such growth rates will likely continue in the coming decades. Per capita consumption levels for all goods and services are still very low relative to those of the industrial countries, income elasticities are high, and the scope for "catch-up" is appreciable. 1.2 It is evident that if production activities were to expand with unchanged practices, such that the discharge of residuals into the environment per unit of output were also unchanged, then pollution and environmental damage would rise directly with the growth of economic output. In important cases, however, pollution has often declined to low levels as output has expanded, good examples being the elimination of smogs due to particulate matter emissions in the industrial cities of Europe and North America since the 1950s, and the provision of public water and sanitation services to virtually eliminate the water-borne diseases and epidemics that repeatedly afflicted the industrial countries until the first quarter of the present century (and were long considered their most serious environmental problem). In these and other cases pollution was reduced by changes in technologies and practices, and sometimes in the nature of goods and services provided--e.g., the substitution of gas and electrical heating for coal fires -- which reduced PM pollution per unit of output or consumption to very low levels. Consequently output and consumption rose while several types of local pollution declined. 1.3 It is true that, as one form of pollution is addressed, new forms of pollution sometimes emerge. For example, the problems of photochemical smogs began to appear in the 1970s in many industrial cities almost immediately following the successful conclusion of policies to address PM emissions. However, approaches have been developed to address these (and many other) problems. There is no fixed and inevitable link between pollution and growth. Table 1.1 lists several examples of low-polluting technologies and practices in various sectors of economic activity. They can be used to reduce the local and regional pollution arising from electricity generation and transport; emissions of C02; the pollution of rivers and drinking water; soil erosion; and industrial effluents. The right hand column of numbers compares the emissions or effluents from low polluting alternatives with those of the more polluting or damaging technologies and practices still widely in use in many countries. The indexes of the latter are set at 100 percent. The figures show that some substitute or technological or managerial alternative exists which is capable of reducing emissions or effluents per unit of output by factors of 10, 100 and sometimes 1,000 or more, depending on the problem 2 in hand. The figures are based on proven technologies and practices. The table is not of course comprehensive. Also, the required degree of pollution abatement differs greatly between cases; for example, a ten-fold reduction of sulphur emissions may be sufficient for power generation in some regions, whereas a hundred or even a thousand-fold decrease may be required for particulates in the same regions. The figures are not intended to indicate what is desirable, only to suggest that, once policies are in place to encourage the necessary innovations and substitutions, output may still be increased while environmental damage is being substantially reduced, in a very large number of cases. 1.4 The differences between the coefficients in the two middle columns of the table provide a measure of the differences between the "limits to growth" studies commonly cited by environmentalists on the one hand, and the studies of economists and others working on environmental policy on the other. The former assume fixed relationships between pollution and output, the latter that, with environmental policies in place, pollution or damage per unit output can be, and often historically has been, greatly reduced once substitutions towards low-polluting practices takes place. 1.5 The studies presented in this paper seek to assess how far, and over what period, pollution can be reduced as output expands once policies which favor low-polluting technologies and practices are in place. It provides case studies of three sectors--electricity generation, energy and urban transport, and water and sanitation--discusses the possibilities of similar results for agriculture, industry and indoor air pollution, and notes the results reported elsewhere of similar studies of technological alternatives to reduce carbon emissions,0 since these too are in accord with the main hypothesis. The Contribution of Economic Efficiency 1.6 The paper also analyses two aspects of economic efficiency as it relates to the growth of output in the sectors in question. The firat concerns the economic efficiency (or the net economic benefits) of reducing the external costs of damage. Both the damaging and the low-damaging practices discussed entail significant investment and operating costs. In important cases in energy and industry (for example, the use of gas for power generation, and "low waste" practices in industry) and also in water supply and sanitation, the costs of the low-damaging practices are lower than those of the damaging ones, cases in which economic improvements would unambiguously accompany environmental improvements. But in many cases the costs are higher, and it is necessary to consider what the benefits might be. While the evidence is, more often than not, of too poor-a-quality (and is sometimes not available) for quantitative estimates of social benefits to be made reliably, some indicators can be provided. Good examples are the reductions in water borne illnesses and deaths that are achieved by widening access to water and sanitation services; reductions of respiratory illnesses arising from controls on particulate matter emissions; and (often major) improvements in the productivity of soils when surface run-off of rainwater and soil erosion is reduced in agricultural areas through using the measures noted in Table 1.1. 0 Johansson, Kelly, Reddy and Williams (1992) and Anderson and Bird (1992). 3 Table 1.1 Relative pollution (or damage) intensities of pollution or low poglluting raccs (lluting =ractice = 100) for selected activities and pollutants Source and basis of Practice (Index)' Nature of Low-polluting index damage Polluting Low-polluting Alternatives 2 Electricity generation Particulate matter emissions 100 4.1 Natural gas; clean coal CO n 100 <0.1 technologies; scrubbers; S02 " 100 0 to <5 low sulphur fuels; "low NOx" NOX " 100 5 to <10 combustion methods and emission control catalysts. Diesel engine PM emissions 100 <10 "Clean"fuels and particulate "(raps" S02 n 100 5 Low sulphur fuels Gacone engines Pb emissions 100 0 Unleaded fuels; catalytic CO n 100 5 converters NOX 100 20 VOCs" 100 5 All fossil fuels CO2 emissions 100 < 03 Renewable energy sources hIanine pollution (oil) Systemic wastes 100 10 Improved ballasting/reduced waste discharges Spills 100 10 Improved operating, navigation and safety practices. Ripollution Fecal coliforn contamination 100 <).1 Sewerage works Dissolved oxygen 100 40 Sewerage works; reduced nutrient run-off from crops; reduced agro-industrial effluent Soil erosion sediment yield 100 <1 to 5 Agro-forestry; and soil erosion prevention practices such as contouring, mulching,terracing, bunding, use of vetiver grasses, "no till", and others Selectd indstrie4(water effuents) Pulp and paper 100 17/6 Effluent control technologies Paperboard 100 /40 (water and air); waste reduction Slaughterhouses 100 9/10 or avoidance through substitutes, Breweries 100 2110 in-plant recycling, and product recycling Tanneries 100 40/19 1 Per unit of output. See notes for basis 2 See notes for further descriptions 3 Can be negative if biomass (woody) fuels are used because they would be associated with a large standing stock of biomass. 4 The two figures provided for the low-polluting technologies relate to biological oxygen demand (BOD) and suspended solids per unit of production respectively. 4 ny relVd pllution. For electricity generation, gasoline and diesel engines, C02 emissions and marine pollution (oil), a review of technologies and evidence of pollution abatement is provided in Anderson (1991), drawing on OECD (1989), The Asian Development Bank (1991) (edited by King), and Bates and Moore (1991). The possible negative figure for C02 emissions could be realized by using biomass -- especially wood --as an energy source in a renewable way since this would be associated with an increase of carbon in storage. The data on systemic wastes for marine pollution from oil are from the US National Academy of Science Studies (1975 and 1985) on pollution of the seas, and the Marine Pollution Bulletin, Dec. 1990, Vol.21 No. 12, and compare average discharges (excluding accidental spills) in the 1980s with average discharges in 1970/71; for spills, the data compare the average spillage from tankers of over 25,000 tonnes in the period 1975-1979, when it was over 300,000 tonnes per year, and 1985-89, when it was 33,000 tonnes per year (Valdez, spillage was 35,000 tonnes); good descriptions of practices can be found in Shell (1983 and 1987). R1 lltinn. The data are based on the World Development Report 1992, figures 2.1 and 2.3. For fecal coliform contamination, the data are based on 43 urban sites in developing countries, and compare the cleanest and dirtiest rivers. For dissolved oxygen, the data are for 53 urban sites in developing countries, and likewise compare the clean and dirtiest rivers; the low polluting case, of course, corresponds to an inQrQa= in dissolved oxygen, by a factor of 1/0.4=2.5. Soil erQsio. Site specific evidence (for over 200 cases) of erosion with and without the erosion control methods noted is presented in Doolette and Magrath (1990). The decreases in erosion rates shown here are based on the data they report for eleven cases in Taiwan, and correspond to the best agronomic (but not necessarily the most expensive) practices. SelectWed industries. The source is Eckenfelder (1989), Table 1.2, who gives the figures on quantities of effluent discharged. The figures compare the discharges of firms in the bottom decile with those in the top decile in a survey of US firms. The units of production for the five industries are, respectively, tons of paper and paperboard, pounds of live weight, barrels of beer and pounds of hides. 1.7 The second aspect of economic efficiency analyzed is that of reducing price and managerial (sometimes called "technical" or "X") inefficiencies5 in the sectors in question. These sources of inefficiency often have quite deleterious effects on the environment, as they do on economic growth, and it is hard not to conclude sometimes that policies not only fail to discourage environmental damage, by not charging for external costs, but positively encourage it. Much-discussed examples of price inefficiencies that work in this way are the subsidies (surprisingly widespread) for various forms of energy use, for irrigation, for water supplies to industry and household consumers, for drawing down forestry reserves, for pesticides, for land clearance and the extensification of agriculture, and (owing to the reluctance of city authorities to introduce congestion pricing) for the use of cars in congested urban areas--all of which unnecessarily increase both emissions and economic waste.6 Managerial inefficiencies similarly lead to damage, as for instance in the case of oil spills.7 But they perhaps more often arise from inefficiencies in the pricing systems and defects in institutional structure. The regulation of prices for electricity and water supplies to below marginal cost in many countries, by reducing net 5 Liebenstein (1966); also AER Papers and Proceedings (1992).. 6 WDR (1992) provides many examples; See Warford and Schramm (1989) and Repetto (1987) for earlier discussions. 7 See Shell Briefing Service (1987) and the Petroleum Handbook (1983). The former notes that "some 80 percent or more of accidents involving oil spills can still be attributed to human error [and] that the substantial reduction of tanker accidents during the past few years is due largely to the attention paid to training." 5 revenues, frequently undermines the abilities of the utilities to maintain equipment; as will be seen, this gives rise to large losses in energy and water supplies, and to poor capacity utilization. Managerial inefficiencies may also be increased by harassment and interventions from govermnent departments in the day-to-day workings of public and private enterprises, arising from ill-defined regulatory arrangements.8 Once again, the consequence may be both increased pollution and economic loss. Efficiency and Substitution Together 1.8 Chapters 2 to 4 examine the relative contributions of substitution and efficiency to pollution abatement for the cases of electricity generation, vehicle fuels, and water supply and sanitation respectively. The approach in each case is to use simulation models, the structure and use of which can be anticipated from the result for particulate matter emissions shown in Figure 1.1. It shows how the indexes of aggregate emissions from coal-fired power stations in developing countries might develop in three situations. Demand growth is determined by (i) population growth, (ii) per capita income growth and (iii) electricity prices. In the upper curve, no change in the use of pollution abatement technologies is assumed, and no change in the ratio of actual prices charged to efficiency prices. Hence emissions rise exponentially with the growth of demand and supply, as they would be bound to do under these assumptions. Figure 1.1 Particulates Emissions Index Electricity Sector--Developing Countries 1990 * 100 1200_ Contribution 1000 J of energy / t ficiency 800 o 600- Contribution of low- 400 - No controls 3ut polluting with lmotovements technologies / td{/lrt( I controts adnr atlcleJacY 200 atticlency Imorovements 1990 1995 2000 2005 2010 2015 2020 2025 2030 Note: See Chapter 2 for details. 8 See for example the Onosode Commission's Report on Parastatals in Nigeria (1981). See also Adams, Cavendish and Mistry (1991). 6 1.9 In the second case (the middle curve), price and managerial efficiency are assumed to rise gradually to what might be called "good practice" levels. Recent surveys of electric power utilities in over sixty developing countries have found that (i) Prices averaged less than 50% of marginal costs; (ii) Losses from managerial inefficiencies are very large relative to those of industrial countries: losses in transmission and distribution are generally two to four times "good practice" levels, for example, while up to 40 to 60 percent of generation capacity is commonly out of service due to poor maintenance and breakdowns of plant and equipment; and (iii) 20-45 percent more fuel is consumed per unit output than in the industrial countries, again due in part to poor maintenance. Reforming prices and, with this, improving managerial efficiency gradually over a 20-30 year period would have three effects: * prices increases would reduce demand growth and thus emissions of all pollutants; * managerial efficiency improvements would further reduce emissions by reducing losses in generation as well as in transmission and distribution; and * supply costs woud be substantially reduced. The net effects on PM emissions are summarized in the middle curves; the effects on costs and economic output are discussed further in Chapter 2. 1.10 The lower curves shown in Figure 1.1 show the likely additional effects of gradually incorporating particulate matter emission control technologies into the capital stock via new investment. Pollution initially rises with the growth of output in the case shown, for two reasons: lags in the process of making policies and introducing new technologies; and pollution from the inherited (still-polluting) capital stock, which continues until the stock is retired or retrofitted. 1.11 But the long-term effects of substitution towards the low-polluting practice are nevertheless decisive. The curve is distinctly "bell-shaped." Once such practices are incorporated into the capital stock, along with a greater degree of price and managerial efficiency, it becomes possible to reduce pollution substantially even as output increases. This turns out to be a general result that we find applies to all cases discussed below, and probably to many others as well. Furthermore, it will be seen that the gains from the efficiency improvements noted above--reducing external costs, and improving prices and institutional arrangements--often offset the extra costs of pollution abatement by large amounts. Model Q0line 1.12 The models used below to analyze the above issues differ in detail between sectors, but have the following general features in common: (1) Demand. Projections of urban and rural populations, of per capita income growth, and then of the demands for the services in question under present prices. 9 World Bank Policy Paper on Electric Power (March 1992). 7 (2) Costs. Assessments are made of marginal supply costs for polluting and low-polluting practices (a) based on "good" practices, then (b) allowing for managerial ("X") inefficiencies, and (c) allowing also for technical progress. (3) Emissions. Estimates of emissions co-efficients are provided for the main pollutants and abatement technologies. (4) Policies. Three policy variables are used exogenously, related to (a) the rate at which low-polluting practices are introduced via new investment; and the rate at which (b) price- and (c) managerial inefficiencies are reduced. Changes in prices lead to revisions of demand projections, while increases in prices and managerial efficiency also raise--by reducing demands, and by increasing capacity utilization and reducing losses-the amount of inherited capital stock that is available to meet new demand increments. (5) Lags. The rate at which emissions can be reduced is determined by two factors--lags in the policy response, and the rate at which the inherited capital stock is retired or (where it is polluting) retrofitted. (6) Results. Three scenarios are developed in each case. One is the "do- nothing" option, what is termed below as the "unchanged practices" scenario. The second examines the effects of improving price and managerial efficiency, and the third combines such efficiency improvements with the gradual introduction of low polluting technologies. The following quantities are estimated: indexes of pollution for the main pollutants; costs; and, where possible, the economic benefits. 1.13 In the preparation of the present study, quantification was only practicable for the three sectors noted. Chapter 5 discusses possible extensions to agriculture and industry, and also summarizes the results of an earlier study on global warming, which used a similar model. For agriculture especially, data for a satisfactory quantitative analysis will require a significant effort to compile. For industry, there is still much to be done to interpret information on the costs and the effectiveness of various pollution control technologies in a large number of sectors;10 it is noteworthy how widespread innovative activity is in this area -- in the development of environmentally more benign products and processes, of "end- of-pipe" controls, and to improve "cleanliness-in-the-process", such as in-plant recycling and waste minimization. Nevertheless, enough is known to hypothesize that parallel conclusions to the ones reached in the present paper will often apply in other areas. 1.14 Lastly, a note on limitations. The analysis seeks to identify the "real" effects of environmental policies on pollution and on economic welfare. However, it does not discuss the actual design of such policies themselves-how best to tax or regulate the various pollutants discussed, what institutional arrangements are 10 An admirable beginning in this direction is to be found in UNIDO (1991) and Hirschhom (1991). 8 appropriate, and so forth. There is a rich literature on this subject. I Several other background papers for the WDR, and chapters 3 to 8 of the WDR, have also dealt with the subject extensively.12 Thus the present analysis concentrates on changes in those variables directly or indirectly effected by policies - the rate of introduction of low polluting technologies, and the rates of improvement in price and managerial efficiency. With reference to the developing countries in particular, the nature of the policies required to bring about the changes discussed merits a separate analysis, which our colleagues sought to provide in the WDR itself. 1.15 The studies presented are also forward-looking ones, and relate to situations in which there is still some flexibility in the choice of technologies and practices to deal with an environmental problem. The rather different problems arising, say, from the clean-up of radioactive and toxic wastes, or for restoring severely degraded lands, would require a different approach. The term 'substitution' is thus applied to the following cases: the use of existing technologies, fuels or materials which reduce pollution per unit of output, such as gas or "clean coal" technologies; the development and use of new technologies or resources, again with low pollution features, such as renewable energy sources in place of fossil or nuclear fuels; and changes in management practices, such as soil management practices (to reduce erosion) on agricultural lands and watersheds, or the use of "in- plant" recycling and low-waste practices by industry. 1.16 Summing up, to return to the question raised at the beginning of this Chapter, it does seem that environmental damage can be reduced to acceptable levels (and sometimes virtually eliminated) in the course of economic growth through the changes in technologies and practices that good economic policies (and associated institutional arrangements) help to bring about. Indeed, reducing divergences between social and private costs, when the externalities or deficiencies in institutional arrangements that give rise to environmental damage are present, should lead to an increase in the social rate of return to investment and thus in many situations to a calculable increase of the rate of economic growth. Two factors further point to favorable links between socially efficient policies and environmental improvement. One is the elimination of policies that are damaging to economic growth and the environment. The other is the quantitative importance of the resources generated by economic growth for financing and implementing environmental policy.13 These conclusions are not original; but it is hoped that the following chapters will contribute to the documentation of the case. 11 Most recently reviewed by Cropper and Oates (1992). See also the excellent review of Bohm and Russell in Kneese and Sweeney (1985). 12 A full listing of papers and references is provided in the WDR. 13 See the WDR, Chapter 9. 9 II. ELECTRICITY SUPPLY Growth of Population and GPM 2.1 It is necessary to begin with some assumptions about the growth of population and developing countries' GNPs. All the models presented in this paper begin with the projections summarized in Table 2.1. They go out to 2030, and are based on United Nations and World Bank sources. The population projections are the expected or 'base case" scenarios of these sources. Those for per capita incomes assume a gradual recovery of economic stability and growth in Africa and Latin America, and continued growth in Asia. Table 2.1 Assumptions of Population and GMP (in $1990) Used in the Models Unit 1990 1995 2000 2005 2010 2020 2030 Population total billion 4.10 4.51 4.94 5.36 5.79 6.65 7.46 rural billion 2.58 2.66 2.71 2.76 2.79 2.78 2.67 urban billion 1.52 1.86 2.22 2.60 3.00 3.87 4.79 Population growth rate total % pa. 2.02 1.89 1.74 1.62 1.50 1.32 0.75 rual % p.a. 0.67 0.51 0.38 0.30 0.17 -0.17 -0.85 urban % p.a 4.40 3.92 3.46 3.05 2.77 2.45 1.68 Shares of population nual % 62.90 58.80 54.90 51.40 48.20 41.80 35.80 urban % 37.10 41.20 45.10 48.60 51.80 58.20 64.20 Per capita GNP growth % p.a 2.50 2.50 2.50 3.40 3.40 3.30 3.30 PercapitaGNP US$ 750 840 960 1135 1341 1856 2568 GNP US$bn 3075 3831 4738 6082 7762 12341 19152 GNP growth rate % p.a. 4.57 4.43 4.29 5.07 4.95 4.66 4.08 Note: ActUal projections are yearly. The information presented is presented for 5 and 10 year intervals for convenience of tabulation. s 1. Population growth rates taken from the World Bank's 1990-91 population projections for less developed regions. Population smoothed using 5-year moving average. Less developed regions comprise Africa, Latin America, Asia (excluding Japan), Melanesia, Micronesia and Polynesia. 2. Per capita GNP growth rates from IEC (World Bank) projections of November 27, 1991. 3. 1990 GNP per capita taken ftom 1990 WDR, using figure for low and middle income countries. 10 2.2 These form a self-consistent and operationally relevant set of assumptions for the purposes of the present study. One might, for example, postulate social or economic calamities of various kinds, and thus very low rates of economic growth and development. But this would be to beg the question of how to reconcile environmental concerns w.ith the growth that developing countries hope for and plan to achieve; the main task ahead for environmental policy- makers, as it is for others, is to find policies that are consistent with-and will help- the aims of economic recovery and growth, and this requires avoiding pessimistic assumptions on GNP growth for the purposes of the present analysis. On the other hand, higher per capita growth rates might be assumed; as will be seen however, this would likely reinforce the conclusions reached below, and so the analysis concentrates mainly on the projections in table 2.1 Model Elements and Structure 2.3 The starting point is a projection of demand. In the base case, no reforms in pricing policy are assumed, so the projections are derived from the above assumptions on the growth of populations and per capita incomes. Next, expressions are introduced to represent the extent and costs of present-day managerial and price inefficiencies; the effects of gradual reforms to prices and managerial arrangements on costs, demand and thus on the investment requirements of the industry are then estimated. Such reforms reduce investment requirements by reducing demand growth and by improving the capacity utilisation of both inherited and new capital stock in each time period. The model then considers the effects on costs and emissions of introducing low polluting technologies. The key decision variables are those relating to the phasing-in of price and managerial reforms, and of low polluting technologies. To allow for lags in the implementation of policies and their effects on pollution, the emissions from each "vintage" of investments are estimated in a dynamic framework. It can be formulated using standard spreadsheets (we used Excel).14 ( Demand and Supply Assumptions (base case) 2.4 Statistics on electricity consumption are not readily available for many developing countries, so it is necessary to work with data on electricity generated and adjust for losses in transmission and distribution separately. In 1990, electricity production for public supplies in developing countries was approximately 2,400 TWh, or 585 Kwh per capita.15 Growth rates are very high, having been 7 percent per year in Africa in the late 1980s, 17 percent per year in Central America and the Caribbean, 13% per year in South Asia, and 17%o per year in East Asia (excluding Japan). The ratios of the growth rates of per capita consumption to the growth rates of incomes were in the range 1.5 to 3.0 (sometimes higher) over the period 1970- 1990.16 A per capita income elasticity of 1.5 was used in the analysis; the implications of higher elasticities are considered later. 14 Print outs are appended to this report (see Annex). 15 Trended up from the figures in the United Nations' Energy Statistics Yearbook (1988), which gives a production figure of 2180 Twh (billion KWh). 16 The actual ratio for all developing counties over the period 1965-1989 was 3.4 (see Table A10 and Table 1 of the WDR 1992 Indicators). 11 2.5 The base case projections assume no change in pricing policies, and demands are estimated from: - dt- do (Yt/Yo) (1) where dt is the per capita energy demand (scaled up for losses in transmission and distribution) met by public supplies, d0 the per capita demand in 1990, the initial year of the study, yt the per capita income, and my the income elasticity of demand. Total energy demand (Dt) is then Dtb = dtnt (2) where nt is population. The superscript "b" is introduced to denote that this is a base case estimate, to be adjusted later for assumptions about changes in prices. The demands for peak generating capacity are estimated by dividing (2) by the load factor times 24x365(=8760 hours per year). Load factors (the ratios of average to peak KW in the year) are about 0.5 in developing countries. (ii) Supply Costs (Best Practice Assumptions)17 2.6 Recent reviews of power system costs find that for coal fired plant, without flue gas desulphurisation, capital costs range from $900/KW for large units to $1500/KW for small units. The corresponding ranges for oil fired plant are $800 to $1400 per KW, for gas-fired steam cycle plant $700 to $1300 per KW, for combined cycle, gas-fired plant $520 to $800 per KW, for gas turbines $400 per KW (when they are used for peak load purposes only), and for low and medium speed diesels (which are still widely in use in Africa) $1200 and $600 per KW respectively. For transmission and high voltage distribution, incremental costs range from $500 to $800 per KW, to which needs to be added (the high, but less well documented) costs of low voltage distribution and consumer connections. Based on these figures and considering the diversity of power plant and situations in developing countries, the present study took a figure of $2500/KW as representing reasonably well the average incremental capital costs of power supply. Once again, this is an ex ante figure, reflecting best practice assumptions. 2.7 This estimate needs to be adjusted for three factors. The first is a reserve margin (20% is a typical figure) to allow for contingencies--unplanned outages and demand uncertainties--and for the downtimes of plant being maintained or repaired. The second is to allow for losses in transmission and distribution, which if we take those obtaining OECD countries to be representative of good practice situations, would be about 10 percent. The third factor is technical progress. In power generation the average thermal efficiencies of power stations have risen continuously over the present century (figure 2.1); for new gas-fired combined cycle power plant, they are now approaching 50 percent, and may prospectively rise to the 60-65 percent range with new (steam-injected, gas turbine combined cycle) power plant now being developed.18 In the circumstances of many 17 The following draws on the informative WDR background paper by Robin Bates and Ted Moore (1992) and benefited greatly from further discussions with Ted Moore. 18 c.f. the capital costs of the combined cycle technologies just noted, and cited by Bates and Moore (1992), and the papers in Johansson, Bodlund and Williams (1989) and Johannson, Kelly, Reddy and Williams (forthcoming). 12 developing countries, there are also scale economies still to be obtained in generation, transmission and distribution as the systems expand. Figure 2.1 Electricity Generation: Costs and Thermal Efficiency in the US, 1900-1990 Costs (US Cents/kWh) Thermal Efficiency (Percent) 40 140 120 - \ Costs - 30 100 \ Thermal EfflCieney 80 20 60- 40 - 10 20 - 0 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 Year Source: US OOE (19831. 'The Future of Electric Power in America' Source: Based on U.S. Department of Energy 1983. 2.8 Overall, average incremental costs capital of approximately one half of the figure just quoted are feasible in the long term, which led us to use the following factor to allow for the potential effects on costs of technical progress. If ICt are the incremental investment costs, then ICt = ICo /TPt, where TPt = Technical progress factor = 1 / (2 - e-gpt) (3) we took gp to be 0.02, which would imply a 45% fall in capital costs over the next 40 years. 13 2.9 For fuel costs of fossil fired plant, we took a figure of US cents 3 per KWh based on OECD data,19 declining with technical progress and rising with real fuel prices, according to the following function: Fuel costs, FCt = [0.03(1+pf)t ]/TPt (4) where pf is the rate of growth of real fuel prices (pf = 0.01 is assumed). For operation and maintenance (O&M) costs, an annual cost equal to 4 percent of incremental capital costs is used (a commonly used figure in the industry). The total incremental costs of supply are then the annualized incremental capital costs (a discount rate of 10% and a 30-year plant lifetime were used) plus fuel plus O&M costs. The sensitivity of the results to these cost assumptions will be commented on later. (iii) Managerial nefficiencies and Reform 2.10 There is little doubting that managerial (or "X") inefficiencies are high in the electric power utilities in developing countries, and the case for reform is overwhelming. Recent surveys of utilities have found2O that losses in transmission and distribution (which include theft as well as electrical losses) were commonly in the range 20 to 40 percent as compared with 10 percent that can be economically achieved in good practice situations; the ratios of the capacity available to meet peak demands to the capacity installed were in the range 50 to 70 percent, as compared with 80 to 90 percent for good practice situations; and that power stations were operating at 10 to 30 percent below rated thermal efficiencies,21 which both reduces capacity availability and increases fuel consumption. Some of these inefficiencies can probably be attributed to the stresses and strains of managing expansion and thus to the overloading of the networks and generators (to say nothing of the management); but to a significant degree, they are a consequence of poor financial performance and defective institutional arrangements. These factors are discussed in the WDR and in the World Bank's policy paper.22 If we define Mt as being the ratio of the managerial efficiency actually being achieved relative to what could be achieved in principle in good practice situations, and take the more favorable of the figures just quoted as a measure of inefficiency, then Mo (t=0=1990) would thus be around 100 (1.1/1.2) x (0.7/0.9) x (1/1.1) =65 percent. This means that managerial inefficiencies raise capital and operating costs by 1/0.65 -1, or by approximately 50 percent. 2.11 Even when it is agreed in principle that reforms are needed to improve managerial efficiency, it would be unreasonable to expect major improvements to be achieved within a short space of time. First, since so much turns on improvements in prices, in financial performance and, very often, in institutional arrangements, deciding both on the general requirements and on the details of a reform program takes time. Second, to avoid shocks, some countries may opt for a gradual phasing in of policies, particularly with respect to such matters as raising real prices. Third, 19 See OECD (1989) for the projected costs of new power stations. 20 See World Bank (1992b) and background papers, which report on surveys of 63 utilities, and Escay (1990). 21 Ibid. 22 Electric Power Policy Paper, op.cit. 14 there are huge backlogs of required maintenance to attend to and, fourth, the recruitment and training of skilled labor and managerial staff. For these reasons, the following function for Mt was assumed: -fit Mt= 1-(l-M,)e (5) where 1g is a measure of the rate at which managerial efficiency is improved. For the no reform scenarios discussed below, fg is zero; for the scenarios involving reforms, we took 9=0.03 for illustrative purposes (this would imply Mt rising to 80 percent of good practice levels over two decades). 2.12 The incremental costs of investment, fuel, and operations and maintenance when managerial inefficiencies are allowed for are the best-practice costs noted above divided by Mt. When estimating the investment requirements, there are also quantitatively large dynamic benefits to be obtained so long as the improved maintenance and operating practices apply to the performance of existing -- as well as the prospective performance of new -- investments. For example, improving the availability of existing power plant by 3 percentage points and reducing transmission and distribution losses correspondingly, may amount to one third or more of incremental annual capacity requirements in some countries. (On smaller systems, larger jumps than this are often possible when a large plant has been out of commission and is brought back into service.) More formally, if Qt is the actual peak capacity demand23 placed on the power stations in year t, then the extra output released by efficiency improvements in the year would be Qt[Mt-Mt-1], and the total new investment requirements would be AQt - QtAMt + retirements; as will be seen, the second term can lead to very large cost savings. The effects on investment expenditures will be considered shortly. (iv) Price Inefficiencies and Reform 2.13 The costs discussed above lead to an average marginal cost of supply of approximately US cents 10 per KWh, based on good practices, implying an efficiency price of about US 10 cents per KWh. In actuality, electricity prices in developing countries are barely half of this (Figure 2.2) suggesting that there would indeed be substantial gains from price reforms, as many have suggested. In fact, the departures between costs and prices are much greater once managerial inefficiencies are allowed for, since the latter raise real costs of supply to around US 15 cents per KWh. In addition, in a situation where low polluting technologies are gradually being introduced, the marginal costs (adjusted for managerial inefficiencies) might rise by up to another US 1.0 cents per KWh, depending on which pollutants are being addressed and the technologies used (see below), giving an average marginal cost of almost US cents 16 per KWh, the figure used in this study (for t=0). 23 Qt = Dt/(0.5x8760) where 0.5 is the load factor (see equation (2)) 15 EjL 2-2 Tariffs for Electric Power. 1988 US Cents/kWh 8.07 8 - 6 53 4.46 4.53 3.67 4 - 2.64 2- 0 OE6D OeveIoping Indi BrazIl Mexico China WeOighted Countriea Averaoe Weighted $er3"r e3 CountrIes) Source: Besant-Jones, 1990 2.14 As with reforms to improve managerial efficiency, the price reforms examined in the present study consider a gradual movement towards marginal costs. Denoting the efficiency price by Pit, marginal costs (using good practice assumptions) by MCt, and the actual price charged by P2t, the following relationships are used: Pit = MCt/Mt (6) P2t = PIt (1-0.7e-Bt) (7) where f is the rate at which price inefficiencies are reduced; we took JR to be the same as that used for reducing managerial inefficiencies, 0.03, on the grounds that improvements in one will depend greatly on improvements in the other. This implies roughly a halving of the distortions in prices over a period of two decades. It is of course possible that price reforms may proceed more rapidly than this; but even under the preceding assumptions, the economic and environmental benefits turn out to be substantial, so that our conclusions (discussed later) would apply with even greater force. The coefficient 0.7 is a measure of the initial departure between current prices (roughly 5 cents/KWh) and marginal costs based on current practices (15-16 cents/KWh). Note that as managerial efficiencies are addressed Plt MCt and thus P2t MCt. 16 (v) New Capacity Requirements 2.15 New capacity requirements equal * the incremental demand, adjusted for the effects of price reforms, * less the existing capacity "released" for service - through reductions in losses and in outages -- by associated improvements in managerial efficiency, * plus the new capacity required to replace plant being retired. To allow for the effects of price reforms the new peak capacity demands, Qt, are estimated from b mp Qt = Qtb (P2t/P2t) (8) where P2bt is the price charged in the base case, in which jg (defined above) is set to zero, Qtb is the peak capacity demand in the base case, and mp is the long-run price elasticity. In a review of studies in five developing countries, Bates and Moore (1981) find mp to be in the range -0.5 to -0.47 for residential consumers, and -0.65 to -0.45 for commercial and industrial consumers (these figures were about half of those reported for the industrial countries). The present study took an average value of -0.5. It also concentrated on long-run values partly because it is concerned with efficiency gains over the long run, and partly because the price reforms are phased in gradually, such that the long-term effects predominate. 2.16 The capacity brought back into service by improvements in managerial efficiency is given by the expression noted earlier, namely (Mt - Mt-I)Qt. To allow for the retirement of existing plant, we used a distribution function of the sort shown in figure 2.3, centered on the expected lifetime of the investments (25 years in the case of electricity supply); it thus allows for some plants being retired before their expected service life--due to breakdowns or for economic reasons--and others operating longer than expected. Figure 2.3 Retirement Function 1 d 0.9 0.8 I 0.7 I Likelihood 0.6 \ Expected Lifetime of Plant 0 5 Remaining 0.5 In Service 0.4 0.3 0.2 0.1 0 3 6 9 12 15 18 21 24 27 30 33 36 39 Age of Plant 17 The actual function used was Rn = 1 I 1+[(1-RO)/RO]e fn) (9) Rn is the likelihood of plant remaining in service n years after its installation. Values of Ro = 0.99 and 8 = 0.2 were used in the present study, corresponding to an expected plant lifetime of about 30 years. Thus for investments of capacity It-n installed n years before t, the capacity remaining in service in year t would be It-n Rn, the amount remaining in service in the previous year would be It-n Rn.-1, and the amount retired in the year, It-n (Rn-, - Rn). For the plant inherited at t = 0 we have used an exponential returement function: Initial plant remaining in service = Qoe.0t (10) and taken a value of 0 = 0.075 2.17 Adding the above terms together gives the following expression for incremental capacity requirements t It = AQt - Qt(Mt - Mt-1) + I It-n ( Rn - Rn1) + QO (e-0(t-1) - e-0t) n=1 (11) The third and fourth terms represent total retirements in year t. 2.18 The first two terms of (10) are worth discussing further, since they reveal how large the economic gains from efficiency reforms might be when inefficiencies are initially large. Using (8) they can be written approximately as AQtb (Qt/Qtb) + Qtmp(Pt - Pt-1)/Pt - Qt(MrMt-1) (12) where Pt is the price ratio P2t/P2bt, which increases over time in the reform case. Again, the superscript b refers to the base case. Thus there are three reasons why new investment requirements are significantly lower in the reform case: (i) The basis upon which the expansion takes place becomes progressively lower over time; hence Qt is increasingly less than Qtb and the annual investment requirements of meeting demand growth are 99 0 0 34.0 2-4 Conventional boiler Electrostatic precipitators(ESP)>99 0 0 34.0 2-4 Conventional boiler ESP/coal cteaning >99 10-30 0 34.0 4-6 Conventional boiler ESP/scrubbers (SO2) >99 90 0 34.0 12-15 Conventional boiler ESP/scrubbers (SO2 and NO.) >99 90 90 33.1 17-20 Fluidized bed combustion ESP >99 90 56 33.8 ) Pressurized fluidized bed combustion/ ) combined cycleb ESP >99 93 50 38.9 3... <0-2 . Integrated coal gasification/ ) combined cycleb None >99 99 50 38.0 ) Residual fuel oil Conventional boiler None 97 30 12 35.2 - Conventional boiler ESP/scrubbers (SO2) >99.9 93 12 35.2 10-12d Combined cycleb ESP/scrubbers (SO2 and NO,) >99.9 93 90 34.4 13 1 5d Natural gas Conventional boiler None >99.9 >99.9 37 35.2 } Conventional boiler Scrubbers (SO2 and NO.) >99.9 >99.9 78 35.2 ).. <0 Combined cycleb None >99.9 >99.9 90 44.7 ) Note: SO., sulfur dioxide; No,, nitrogen oxides. Figures for coal and residual fuel oil are based on 3 percent sulfur content. a. In relation to base case. The percentages are based on generation costs of 5 cents per kilowatt hour, excluding transmission and distribution. b. A combined cycle uses both gas and steam turbines to drive the generators. The gas turbines are powered by the hot gases emerging directly from the combustion chamber. Steam is also raised in the combustion chamber and by utilizing the still-hot exhaust gases from the gas turbines. The improvements in efficiency arise from the thermodynamic advantages of higher inlet temperatures to the heat engine (turbine). c. Varies with relative costs of oil and coal/ d. In relation to conventional oil boiler without controls. sources: Based on OECD 1989; Asian Development Bank 1991. 20 Table 2.3 Costs and Effectiveness of Pollution Abatement in Power Generation. Assumptions for Simulation Model Ratio: Capital costs with Emissions Abatwment Abatement to capital costs withouta who abatement efficiency Pollutant 1990 2Q10 22020 Oare r PM 1.02 1.02 1.01 230 95 97 S02 1.08 1.06 1.02 90 90 95 NOx 1.04 1.02 1.02 40 70 80 a Note that these are expressed in relation to the total capital costs of supply rather than to generation costs (the figures in table 2.2) which exclude transmission and transmission; this was done for convenience when interpreting the spreadsheet, since we were working with total supply costs. The figures are otherwise comparable. b Relative to a coal-fied plant without controls 3 percent sulphur coal (see table 2.2). The arrow denotes "rising to." 2.22 Table 2.3 may overstate costs. Costs have already declined substantially for the abatement of all pollutants from the combustion of coal, and may be expected to decline further with progress in coal cleaning and combustion technologies. Natural gas would also have a big impact on abatement, while possibly reducing supply costs overall (table 2.2); the same may apply to the use of coal gasification/combined cycle technologies.27 The scope for improving abatement efficiencies to levels higher than shown in table 2.3 is also appreciable, notably for particulate matter; the figures shown make an allowance for equipment working at below its nameplate or rated performance. (viii) Emissions and Emissions Indexes 2.23 The shares of low polluting technologies in new investment in fossil- fired power stations are denoted by A t. Recalling that Rn is the fraction of the new capacity introduced in year t-n that is still operating in year t, the amount of low polluting technology on the system in year t is t-1 (1-ho) o e01 QO + X (1-ht d) ALt-n It-n Rn (14) n=0 where QO is the initial capacity, At-n the share of the new investment using low- polluting technologies, ht-n the share of hydro in new investment (ho being the share initially on the system) and It-n the new capacity introduced in year t-n. A similar expression, involving the terms (1-Lt-n) obtains for the polluting technologies. We took ho and ht to be 0.25, based on the survey and assessment of Besant-Jones (1989). 27 See the background papers cited above. 21 2.24 For the cases in which the low-polluting technologies are deployed, A t is set at zero for t=0 and gradually rises to 1.0 over a 20 year period. Faster rates of deployment may be feasible and, if they were to be achieved, this would imply a much more rapid decline in pollution than computed below. However, even these "gradualist" assumptions led to quite big effects, and there seemed little point in pressing the case further. Three factors which add to the time taken to introduce the low polluting technologies are (a) the time required to test and prove the approach (this is especially true for the reduction of SO2 and NOR, though not for PM, for which the technologies are well-established); (b) the time required for the manufacturers of the equipment to meet a large and rapidly growing market (current installations of generating equipment are about 70,000 MW per year); and, once again, (c) the lags and delays of introducing policies. 2.25 Estimates of emissions follow straightforwardly from expressions like (14).Letting Oipt and Oilt be the emissions coefficients per unit of output of polluting and low polluting technologies respectively, then the actual emissions, Eit, are given by 28 t-1 Eit = I 1t-n (1-ht-n) {(1- i,t-n) Oi,p,t-n + A i,t-n Oi,l,t-n}Rn n=O + (1-h.) { (1-A i,o) 0i,p,o + A i,o ji,,oIQo e_Ot (15) The emissions indexes estimated below are obtained by dividing (15) through by emissions in year 0. (ix) Investment Expenditures and Incremental Economic Benefits 2.26 If ICt are the incremental investment costs in year t per unit of capacity (see equation (3)), and sit is the difference, per unit of capacity, in the investment costs between polluting and low polluting technologies for abating pollutant i, then the total investment expenditures (Itot,t) in year t are given by Itott = It [ICt + I A it sit] /Mt (16) i It is given by equation (11), and is the gross investment requirements (allowing for the existing capital stock 'liberated' to meet new demands by price and managerial efficiency reforms). The spreadsheets also calculate the investment costs savings relative to a base case in which the A s and the fEs (the rate of improvement of price and managerial efficiency) are set to zero. 28 The spreadsheets assumed average values of the Os rather than the vintage-specific values noted in table 2.3. Since the Os do not change much over time, the effect is small. 22 2.27 The incremental benefits in year t follow directly from the formula for unit benefits given earlier (equation (13) less incremental supply costs). Denoting the net economic benefits per unit increase in output by nebt, and recalling that ADt is the incremental energy demand in year t (ADt=ADb when B=0), the incremental net benefits are then ADt.nebt.29 2.28 An obvious omission from the benefit side of the above relationship is a term representing the external costs of pollution (and thus the benefits of abating it). It is not uncommon in environmental studies to find that evidence of the effects of pollution on human activity and the environment is so lacking as to preclude quantitative analysis. This study is alas no exception. With respect to electricity generation, some evidence is available to assess the effects of particulate matter emissions on health, but little is available on the other pollutants. A formal analysis of the quantitative economic benefits of pollution abatement in developing countries must await further analysis. 30 Results, Sensitivities and Conclusions 2.29 There are three results of interest: the relative effects of efficiency reforms and substitution on (a) emissions (b) investment expenditures and (c) the net economic benefits of supply. 2.30 The relative effects on emissions are shown in Figure 2.4. The upper curve shows an index of emissions of all pollutants assuming no investment in emission control takes place - what is termed an "unchanged practices" scenario. It grows exponentially the growth of supply and demand, shown in the upper curve of Figure 2.5. The main conclusion is that, without changes in abatement practices, including a shift to cleaner fuels, the emissions of all pollutants rise directly with demand met, as they would be bound to do. 2.31 Phasing in price and institutional reforms to improve price and managerial (or "X") efficiency have the effect of reducing the rate of growth of demand (the lower curve of figure 2.5) and the amount of fuel consumed per unit of output. Hence emissions rise more slowly, but still appreciably. This is not surprising. Thus to increase prices gradually to efficiency levels, would more than double real prices over present day levels. Without price reforms demand would very likely rise ten to eleven-fold over the period in question, so that a doubling of prices (with price elasticities of -0.5) might reduce the increase to the eight-to- ninefold range, after allowing for the additional benefits of improvements in managerial efficiency. Note also that technical progress reduces costs, and thus acts 29 The spreadsheets also estimate an ICOR for the industry, but this is of lesser interest. 30 Elementary calculations show, however, how economically important reducing external costs are likely to be. For example, mean TSP concentrations in Bangkok were about 220 ug (microgram)/m3 in the period 1983-88; according to the World Health Organization, a marginally acceptable level would be no more than 75 ug/m3. Workdays lost as a consequence of this pollution were estimated to be 5.8 million, restricted activity days 11.3 million and deaths over 300. Using the mean per capita income of Thailand ($4 per day) as a minimal measure of the impact of such pollution on health, the costs of workdays lost alone would niinimally be $20-25 million per year. A discussion of the impact of pollution on health in developing countries is to be found in the 1992 World Development Report, Chapter 2. 23 to reduce the efficiency price and thus to raise the economically efficient level of demand to be met. In sum, efficiency reforms would help to alleviate the pollution problem, but by themselves would not solve it. 2.32 Introducing pollution abatement technologies and "clean" fuels, in contrast, has a large effect, as shown in the lower curves in Figure 2.4 for the various pollutants. This too is not surprising, given the emissions coefficients discussed earlier for polluting and low-polluting technologies and fuels. The latter are capable of reducing emissions by factors of 10 for NO., 20 for SO2 (higher if gas or low sulphur fuels are used) and 100-1000 for PM; CO emissions can also be virtually eliminated by high efficiency combustion. Hence substantial declines in the main pollutants can be achieved over the long term even as output rises, with the partial exception of NOx. The lower curves also show pollution rising somewhat before it is abated; this is a consequence of the various lags discussed at length above-the time it takes to retire old plant and introduce new policies and practices-and the continued growth of demand before the policies have their full effect. 2.33 While the effects of increased price-and managerial efficiency on pollution are small (though they are not negligible) relative to those of the technologies designed to address pollution directly, their economic advantages are very large. This is illustrated by the calculations summarised in Figures 2.6, 2.7 and 2.8. Current annual investment expenditures in electricity supply in developing countries are estimated to be over $125 billion.31 But this is an ex ante estimate based on best practices. Allowing for the "X" inefficiencies discussed above raises the real costs of supply (both investment costs and variable costs) substantially by 50 to 60%; in addition, pricing electricity at less than one-half of best practice marginal costs, and less than one-third of actual marginal costs, can only act to raise demand levels further, and thus the investment requirements of meeting demand. The overall effects on investment are shown in Figure 2.6, and on net benefits and the economic rate of return to investment in Figures 2.7 and 2.8. Investment requirements are substantially lower with efficiency reforms for three reasons: demand growth is slower, capacity utilization is higher because plant are better maintained and operate closer to nameplate ratings, and losses are reduced. In fact investment requirements even decline for a period in the reform scenario on account of the benefits of reducing the demands placed on--and increasing the utilization of--the capital stock inherited in each time period (the dynamic benefits of efficiency reforms noted earlier). It is of interest that investment cost savings, under the assumptions discussed, would probably rise enormously, to around $100 billion per year in less than 10 years' time - more than ten times the investment costs of introducing pollution abatement technologies. 2.34 The estimates of net benefits and economic rates of return in Figures 2.7 and 2.8 tell the same story. With gradual reforms, the new demands can be met with lower investment because existing capacity is being made available for service through improvements in management, loss reductions and reduced wastes in consumption. High economic rates of return can be expected so long as gains from efficiency reforms are available. 31 C.f. the World Bank policy paper, op.cit. (1992). The Bank's estimate is $100 billion, excluding low voltage distribution. 24 2.35 How sensitive are such findings to assumptions in the parameters and to the rates of policy reform? For this analysis, we have chosen values of the policy decision variables (E and A ) such that reforms are phased in over a long period. It is readily shown (if indeed it is not obvious) that more aggressive policy reforms would lead to much larger economic benefits, and would also help to reduce emissions more rapidly. The gradualist assumptions examined here have a large impact nevertheless. If the policies were to be phased in over a much larger time period than the 20-year period we have assumed, pollution would of course rise to much higher levels before it is abated. 2.36 The assumptions on unit costs, pollution abatement parameters, and initial managerial inefficiencies are generally conservative, as it is hoped the preceeding discussion has made clear. Less-conservative assumptions would show that the gains from efficiency and the scope for pollution reduction are greater than indicated in Figures 2.4 to 2.8. Higher demand growth than we have assumed would reduce the rate of pollution abatement in the medium term--and would also strengthen the case for less-gradualist policies. 2.37 To sum up it is the introduction of low polluting technologies and fuels which has the decisive effect on pollution abatement. Improved price and managerial efficiency would have, by comparison, a small effect on pollution but a huge economic return. The combination of economic efficiency and good environmental policymaking thus improves economic output while reducing pollution, at least as far as electricity supply is concerned. 25 Electricity Pollution Emissions Index 1200 1000- 800 199O 100 600 400 200 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 ------Nomfre(m,no elwinv, ----Rrow oewn,nl- -Iton.ovi,$0 all pollulanls.1, *b-l---- Raot. tvio. Nox - e- reom. evi. PM Figure5 Demand for Electricity (GW) 7000 6000 5s000X 4000 GW 3000 7 2000 1000 O0 I IIII 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 |-N---No reform Reformf| 26 Investment Requirements 1400 1200 ,A5 1000 800 US$bn 600 400- 200 t990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 _-_ No reforrn, no - - Reform, no envinv - *- No reform, enviny -0 Reform, cnvinv cnvinv. Figure 2.7 Incremental Net Benefits 90 80- 70 60- 50 US$bn 40 30 20 10 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 -U --No reform, no -0- -- Reform, no enviny -*--Noreform, envinv, -0- - Reform, envinv. envinv. 27 Figure 2. Economic Rate of Return to Electricity Investments 35 30 25 20 15 10 L H -* .. .. 5 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 No reform, no 0 Reform, no envinv. + No reform, envinv. -0 Reform, envinv. envinv. 28 Ill ENERGY AND URBAN TRANSPORT Introduction: Possibilities for Reducing Pollution 3.1 This chapter examines three possibilities for reducing pollution from vehicles in urban areas: * the use of "clean" fuels and engine technologies; * raising vehicle fuel taxes; and * congestion pricing. The first is mainly a substitution effect, the second mainly a demand effect, and the third a combination of the two, since its introduction would probably both reduce the use of private vehicles and increase the use of public and non-motorized transport. Other possibilities may also be important for reducing pollution, such as the creation of vehicle free areas for pedestrians and non-motorized traffic, and the numerous measures available to improve traffic management and flows. However, it was only practicable to consider the three possibilities noted in the present study, with the implication that the following calculations of the scope for pollution abatement are conservative. Nevertheless, the scope for reducing pollution from vehicles in the cities of developing countries will be seen to be appreciable even under the assumptions used below. 3.2 The use of clean fuel and engine technologies for instance is still quite limited, although some developing coumtries are beginning to introduce controls.' Unleaded fuels are not much used, and the combination of old, generally ill- maintained vehicles make the emissions of all pollutants per vehicle-kilometer far higher than they were in the industrial countries even thirty years ago. Thus the emissions standards of Mexico for new gasoline-powered vehicles in 1990 were roughly 24 grams per km for CO, 2.9 grams per Km for VOCs, and 3.2 grams per km for nitrogen oxides, respectively ten, ten and five times higher than in the U.S. in the mid-1980s, where standards have since been tightened further. (The ratios of actual emissions per Km are probably higher than these figures we suggest, since the facilities for testing, monitoring and enforcing compliance with policies are much better in the U.S.) Table 3.1 provides one assessment of the scope for emissions reduction through the use of low polluting technologies for various types of vehicle. The types of technologies used--unleaded fuels, low sulphur fuels, catalytic converters to reduce NOx, CO and unburned hydro-carbons, particulate "traps" for diesels and more advanced versions (such as electronic ignition control) are to be found described and reviewed in many reports.2 Good maintenance enforced by regular vehicle inspections, may also reduce pollution appreciably. Reductions in pollution using options either "on the shelf" or now being tested are typically 90- 95% for PM (diesels and two-stroke motor cycles being the main offenders), 100% for lead, 95-98% for sulfur (mainly from diesels), 95% for CO, 90-95% for HC (except for 1 Seethe World Deyelg,ent pp. 124-126. 2 See footnotes to Table 3.1. 29 LPG vehicles) and 67-90% for NOx. Proven technologies therefore offer much promise for pollution abatement. 3.3 Raising vehicle fuel taxes is another commonly discussed possibility for reducing pollution. In Europe and Japan, gasoline prices range from $3 to $4 per U.S. gallon. In the United States and in developing countries they average about $1.25 per gallon and vary from about $0.4 per gallon (in Venezuela) to $2.6 per gallon in India.3 These differences arise from differences in gasoline taxes since border prices are roughly comparable across countries, with the exception of some land-locked African countries. In oil-exporting countries, the fuel is commonly subsidized. Smaller (though still large) differences are also found in diesel fuel taxes among countries. A good case can be made, though it has still to be critically explored,4 in favor of higher vehicle fuel taxes in many countries: they help defray the costs of road construction and maintenance; are possibly an efficient revenue raising tax (price elasticities are about -0.5, and deadweight losses may be small relative to many other taxes now in place, such as taxes on trade); and are relatively simple to administer. However, assessing the economic desirability or otherwise of higher fuel taxes raises many technical issues that could not be covered in this study and the following analysis concentrates on the effects of fuel taxes on pollution only. Specifically, it estimates the effects on pollution of developing countries gradually raising vehicle fuel taxes to levels now found in Europe. 3.4 It also examines the effects of gradually introducing congestion pricing in major urban centers. Despite the very successful example of the Singapore Area Licensing Scheme, introduced in 1976, and the benefits and practical promise of congestion pricing, this long-discussed option for policy has widely been ignored by city authorities elsewhere. There has, however, been a new flurry of research on the subject;5 the effects on pollution would probably be secondary in relation to the main benefits of the policies (reducing congestion) though they would not be negligible, and the present study presented a good opportunity to assess what they might be. It also shows that the economic gains from congestion pricing are potentially very large in relation to the costs of even quite aggressive pollution abatement policies--an excellent instance of good economics being good for the environment. Model Elements and Structue 3.5 The first step is to make demand projections for vehicle fuels based on present day prices and vehicle fuel efficiencies, and then to estimate the effects of reforms to prices on demand. (Only gasoline and diesel fuels are considered.) The gradual introduction of congestion prices and higher fuel taxes reduces the rate of growth of demand and thus of emissions of the main pollutants. Next, it estimates the effects on costs and emissions of introducing low polluting fuels and emission control technologies. As in other sectors, it is necessary to allow both for the lags in introducing policies and for the continued pollution from the inherited capital 3 See Kosmo (1989) for a general discussion of energy prices in developing countries, including petroleum product prices. The figures quoted in this paragraph are from various OECD and World Bank reports. 4 The paper of Shah and Larson (1992 b) presents an informative analysis in relation to carbon emissions. S See for example Goodwin and Jones (1989), Jones (1989), Newberry et al. (1988), Hau (forthcoming), and Heggie (1991), which contain many additional references. 30 Table 3.1 Emissions in Grams per Kilometer of Main Pollutants for Motor Vehicles With and Without Pollutant Controls Emission Without Controls Sulfur Lead PM CO HC NOx Passenger Cars 0.02 0.04 0.00 93.00 12A5 2.00 4 Stroke MotorCycle 0.01 0.02 0.00 46.50 12.30 0.20 2 Stroke MotorCycle 0.01 0.02 5.20 39.00 27.90 0.20 LPG Taxis 0.01 0.00 0.00 9.30 6.90 2.00 3&4 Wheel LPG 0.01 0.00 0.00 7.05 6.75 1.20 Diesel Light Duty Vehicles 0.13 0.00 0.63 2.85 1.05 1.40 Diesel Heavy Duty Vehicles 0.42 0.00 3.00 18.60 5.55 9.38 Emissions With Abatement Passenger Cars 0.01 0.00 0.00 4.65 0.62 0.20 4 Stroke MotorCylce 0.01 0.00 0.00 2.33 0.62 0.02 2 Stroke MotorCycle 0.00 0.00 3.90 1.95 1.40 0.02 LPG Taxis 0.01 0.00 0.00 0.47 3.45 0.20 3&4 Wheel LPG 0.00 0.00 0.00 0.35 3.38 0.12 Diesel Light Duty Vehicles 0.01 0.00 0.06 0.14 0.11 0.46 Diesel Heavy Duty Vehicles 0.02 0.00 0.30 0.93 0.56 3.09 Percent Abatement a/ Passenger Cars - 100 - 95 95 90 4 Stroke MotorCylce - 100 - 95 95 90 2 Stroke MotorCycle - 100 25 95 95 90 LPG Taxis - - - 95 50 80 3&4 Wheel LPG - - - 95 50 90 Diesel Light Duty Vehicles 98 - 90 95 90 67 Diesel Heavy Duty Vehicles 95 - 90 95 90 67 a! The dashes indicate that emissions without controls for the vehicle are already small and insignificant. Source: Communications from Michael P. Walsh. For further analysis and discussions of technical options see Walsh (1987) and (1990), Faiz, et al. (1990), Faiz and Carbajo (1991), and OECD (1986, 1987 and 1988). 31 stock (vehicle fleet), which still uses the older, more-polluting technologies. The levels of emissions of each of the major pollutants are then estimated for three scenarios: one with unchanged policies; a second which assesses the effects of price efficiency reforms on pollution; and a third which looks at the best of both worlds by combining efficiency reforms with the introduction of low polluting fuels and technologies. (i) Vehicle Fuel Consumption (in Congested Urban Areas) 3.6 The base case demand projections (assuming no changes in prices) are estimated from dt = do (Yt/YO)my (1 + 8) -t (1) where dt is the per capita demand for vehicle fuels in year t, do being the initial per capita demand, Yt is the per capita income, my the income elasticity of demand, 8 a factor to allow for improvements in vehicle fuel efficiency over time, induced by technical progress. Total demand for vehicle fuels, Dtb (the superscript b as before denoting the base case) is then Dtb = dt nt (2) where nt is population. The fraction of fuels consumed in urban areas (in times of congestion) will be considered shortly. 3.7 In 1990, the per capita consumption of vehicle fuels (do) in developing countries was 420 Kg of oil equivalent energy (0.42 toe). The per capita income elasticity of demand was also very high, as can be inferred from the data shown in Figure 3.1; per capita consumption of petroleum increased at 3.5% per year in developing countries over the period 1961-1987,6 as compared with per capita income growth rates of approximately 2.5%, a ratio of 1.4 between the former and the latter. The data are not readily available for precise estimates of elasticities to be made,7 but allowing for the point that oil prices increased appreciably during the period before falling and then recovering again in the late 1980s, the value of my = 1.2 used in this study is probably conservative.8 The technical progress factor 8 was taken to be 0.01.9 The sensitivity of the results to these and other assumptions will be discussed later. 6 World Bank (1988) Prospects for Prnmary Commodities 1988-2000. 7 There is still much work to be done to compile a price series for vehicle fuels across countries. 8 Pindyck (1979) found income elasticities for gasoline and diesel fuels in Greece, Spain and Turkey to range from 1.5 to about 3.2, and for Mexico and Brazil to be about 1.2. More recent country studies by Imran found income elasticities for these fuels to range from 1.0 to 1.5 in four Asian countries. Imran (1992, unpublished), and Imran and Quan (drat 1992). 9 Data shortages precluded formal statistical analysis, and we chose parameter based on a reading of various country reports that would if anything lead to our conclusions being understated rather than overstated. A value of 6 = 0.01, for example, implies only a 30% decline in the unit fuel consumption of vehicle fleets, due to technical progress, over the next 34 decades. 32 (ii) Vehicle Fuel Taxes and Pollution 3.8 The intention is to examine the possible effects on pollution of raising fuel taxes in developing countries from their presently low levels to levels currently found in Europe. Retail prices in Europe for diesel fuels and gasoline average about $3/goe (= $924 toe), and in developing countries about $1.5/goe.10 The function used to estimate the real cost (defined by Plt ) of transport fuels to road users in OECD economies was as follows: 924 (1 + pf)t (1 + S) -t = Pit where pf is the annual rate of increase of real fuel prices (as in Chapter 2, pf = 0.01) and 5, as below, is the annual rate of increase in the fuel efficiency of vehicles attributable to technical progress. Defining 1 to be the rate at which prices (including taxes) in developing countries approach those found in Europe, the costs of fuel to road users (in $/toe) in developing countries is then pit-Plt* [1-(0.5e -) (3) When 1 = 0, Pit of course remains at its present level (just under half the level found in Europe). Total vehicle fuel consumption, adjusted for tax reforms, denoted by Dt is then given by Dt*= Dt[P .Ž.....>OfPl (4) PiPt 9 = °e mp1 being the price elasticity of demand, which we took to be - 0.5. For studying the effects of price reforms, we considered the case where 13 = 0.03. (iii) Congestion Price Reforms 3.9 The most concrete evidence available on the effects of congestion pricing on traffic flows and fuel consumption is from the Singapore Area Licensing Scheme, which charges on average approximately US$2 per day for vehicles entering the central business district in business hours. It is estimated that the effect has been to reduce traffic by about 50%. 12 Taking 5 miles as the average journey (10 miles round trip) the charge works out at US$0.4 per mile or $4/gallon (or $1230 toe) assuming 10 mpg consumption in urban traffic conditions. Since the average retail price of vehicle fuels averaged approximately $1/gallon, the licenses were effectively equivalent to an increase in the cost of fuel used in business hours from US$1 to $5 per gallon of oil equivalent energy. (In actuality of course, the licenses were charged for directly, and not based on fuel used, but for the purposes of the 10 Various issues of the Jternational Energy Annual, of OECD/IEA.. 11 Again, see the belpful review of Bates and Moore (1991). 12 Goodwin and Jones (1989) and Jones (1989). 33 present study we found it analytically convenient to think of them as if they were based on fuel used in times of congestion.) 3.10 The following calculations consider the case where congestion charges are gradually rather than rapidly introduced. How they would be introduced and in what form-as area licensing schemes, through parking taxes, through electronic pricing, or through combinations of these and other measures--is a subject dealt with in several of the papers cited above, and is not discussed further below; instead, the analysis concentrates on the possible effects of congestion charges on pollution based on one or some combination of these approaches. Defining 7 to be the rate at which congestion prices approach their optimum level, the effective price of vehicle fuels in urban areas would be: P2t = Pit + 1230 (1-e Y5t)) Since the gap between efficiency and actual prices is so large in the case of congestion, the same constant rate of price reform as is assumed to accrue for other energy prices actually leads to a much faster price rise. In other words, the incremental effects of price reforms on pollution abatement (as also on economic efficiency) are larger when distortions are initially large than when they are initially small. 3.11 At this point it is necessary to redefine Dt to be the fuel consumption in urban areas in times of congestion. Reliable data are not readily available on this quantity, so it was necessary to make two assumptions. The first was that the share of fuel consumed in large urban areas would be at least as large as the share of urban areas in total population, but would rise with urbanization; the second that consumption in times of congestion would be approximately three-fourths of total vehicle fuel consumption in urban areas. 13 The former assumption is probably quite conservative; for example, Panayotou (1992) reports that half the vehicle fleets in Thailand and Mexico operate in the capital cities while in Brazil one-third of the fleet operates in Sao Paulo alone. Hence Dt is redefined to be 0.75x (urban/total population) times the expression given in (4) above. * 3.12 With Dt now denoting vehicle fuel consumption in urban areas, in times of congestion, when fuel taxes are raised but no congestion prices exist, then the consumption when congestion prices are introduced, denoted by Dt , would be reduced to Dt Dt *(P2t/Plt) mp2 (6) where mp2 is the congestion price elasticity. For mp2 we used a value of -0.6, based on the study of Oum, Waters and Yong (1990), which they describe as an "all day 13 As in all studies, there is no good substitute for gathering the required information for good estimates to be made. The folowing calculations are based on the best assumptions we could make until better information is available. 34 elasticity." Again, higher (numerical) values of mp2 and r than we have assumed would show yet greater effects on fuel consumption and pollution abatement than (the still-large effects) computed below. (iv) Costs of Emission Controls and Emission Coefficients 3.13 The estimates of costs are based on the best practices now available or emerging in the OECD economies. These practices include the use of unleaded fuels with "three-way" catalysts and exhaust-gas recirculation for gasoline engines, and trap-oxidizer systems (to reduce particulates) for diesel engines. Descriptions of these technologies, their costs and performance, can be found in the technical literature.14 They are capable of achieving significant reductions in emissions of six major pollutants--CO, HC, NOx, Pb, PM and SO2. On the assumption that half of 15 the fuels used in urban transport are diesel and half are gasoline , the following emissions coefficients were used16 (Table 3.2): Table 3.2 Emissions Coefficients. grams/vehicle Km Without With Percent Main Source of Pollutant Controls Controls Abatement Pollution (Engine Type) CO 26.8 1.3 95 Gasoline & diesel HC 2.9 0.2 93 Gasoline & diesel NOx 2.3 0.4 80 Gasoline & diesel Pb 0.03 0.0 100 Gasoline PM 2.0 0.3 85 Diesel °02 0.3 0.01 95 Diesel Source: As footnoted above in footnote 14. (Figures rounded.) 3.14 Letting cit denote the unit cost of introducing emission control technology i in year t , the model puts ci = ci0 (1 + '5) to allow for the contribution of technical progress to reducing the costs of controls (8 = 0,01, as above). Values of cio can be found in (or estimated from) the sources just noted; we used those shown in Table 3.3. The technologies together address the six major pollutants noted earlier arising from the use of gasoline and diesel fuels, and have performance characteristics corresponding to the data listed in Table 3.1 above. 14 See e.g., OECD (1986, 1987, 1988), Faiz and Carbajo (1991), Walsh (1987, 1990), Faiz et al. (1990) and Walsh (1987, 1990). 15 This corresponds roughly to the shares of diesel fuels and gasoline in total fuel consumption. See BP Statistical Review of Werld Te3gy. 16 c.f . t.he data in Table 3.1 above. 35 Figure 3.1 Passenger Traffic, Freight Transportation and Motor Vehicles vs. GNP (1960-88) Passenger-Kilometer by Motor Vehicles Billion Passenger-km 1000 10 0 +A * O + * 10 * 10 100 1000 10000 100000 GNP Per Capita 11988 US$) + China a Korea I Japan A India Passenger-Kilometer by Railway Billion Passenger-km 1000 + 100 *a * 10 100 1000 10000 100000 GNP Per Capita (1988 USS) + China a Korea I Japan I India Passenger-Kilometer by All Types of Tranwortation Billion Passenger-km 10000 100 +4 4' a, 10 1 10 100 1000 10000 100000 GNP Per Capita (1988 USS) + China * Korea 0 Japan USA . india Brazil S SatlstlewI lbarbook of Chino, Kore Stalatisioa vrbo&o8k,Japn StatlatIoe1 WYarbookk *trsnsport in China. Stott Working Paper No. 723,GNP was taken lrom World Bnk. 1966 and 1966 data are currently not available for USA, Indi, and Brazl. Saurce: World Staff Working Paper No. 723, "Transport in China." 36 Table 3.3 Cost Coefficients in US$/toe, of Emission Control Technologies, 1990 Technology $/to Three-way catalyst, electronic ignition, exhaust gas recirculationa) 37.0 (c10) Unleaded gasoline b) 9.2 (c2,) Fuel desulphurisation 12.3 (c30) Trap oxidizer systems c) 25.0 (c40) Sources: As footnoted in para. 3.13 (foottote 14). 3.15 One reason why the coefficients shown in Table 3.3 were chosen is that they provide a reasonable upper bounds estimate of the costs of pollution controls. In practice, the technologies noted, though tested and proven in industrial countries, could not be introduced in a short period in most developing countries, even assuming the required policies are in place. The facilities required to monitor emissions and test vehicles for compliance with policy would need to be developed, as would the infrastructure to provide unleaded and low sulphur fuels and to install and service emissions control devices. It is also possible that the technologies would operate at below rated performance owing to poor maintenance and to non-compliance with policies in some instances. For these reasons, the policies--or rather, their effects on the choice of fuels and technologies--are assumed to be phased-in gradually over a twenty-year period. 3.16 Thus defining It to be the total consumption of fuel by vehicles newly introduced in year t , and A t to be the share of these vehicles fitted with the emissions control technologies, the incremental costs of emissions control in year t are estimated from [0.5 (cit + c2t + c3t) + 0.5(c3t + c4t) I A t.It (7) The first term in the square brackets represents the costs of emissions controls on gasoline vehicles, the second of emissions controls on diesel vehicles, each accounting for half of total fuel consumption. The i subscripts 1 to 4 correspond to the technologies listed in Table 3.3 in the order in which they are listed. a) Based on a cost per car of US$600, amortized over 5 years (amortisation factor of 0.2) and assuming 10,000 miles travelled per year at 10 mpg. b) Figures in OECD reports range from 2 to 10 US cents/gallon, averaging about 4 US cents/gallon. c) Cost of trap-oxidisers US$400/car (other assumptions as in f.n.a) and an increased fuel consumption of 2%. Note that the cost per unit of fuel consumed is lower for larger vehicles, so that applying this cost coefficient to all diesel vehicles will not understate costs. 37 (v) Emissions Indexes 3.17 The analysis is very similar to that for electricity in Chapter 2 (see equations 14 and 15 and text), and allow for the point that, even if new vehicles are fitted with emission controls, pollution is likely to persist for some years so long as the older, more polluting vehicles are still operating. As before, let Rn be the fraction of vehicles introduced in a particular period and remaining in service n years later. (Rn has the same profile as that shown in figure 2.3; an average vehicle lifetime of about 10 years was chosen.) Then assuming average fuel consumption per vehicle does not change in the year,17 the total fuel consumption by new vehicles introduced in year t equals the incremental fuel demand adjusted for price reforms, ADt , plus the fuel used by new vehicles replacing those that are being retired; i.e., t Dt EA + Y It n(Rni - )+Do(e0 (t-1) -e -0t n=1 (8) The last two terms reflect the incremental consumption of new vehicles introduced to replace those retired or scrapped in year t . 3.18 The fuel consumed by the polluting stock, denoted by St, or, rather, by vehicles without controls, defined by Dpt , is then given by t - 1 (9) DPt It-n (1 t )Rn + Do0t n=o and the share of fuel consumed by the polluting stock, denoted by St, is St = DPt Dt . Hence if we again define 6.pt and Oilt to be the emissions coefficients of polluting and low polluting technologies respectively (the values shown for each pollutant i in table 3.2), the total emissions of pollutant can be estimated from Eit = [ 9iptSt + 9ilt ( 1 -St) ] Dt (10) and dividing by Ejo provides an index of emissions for each pollutant relative to emissions in the initial year of the study. (vi) Economic Benefits 3.19 There are two economic benefits commonly identified with the policies examined in the model.is The first are the net benefits of reducing the costs of 17 In retrospect, it would have been better to relax this assumption. 18 Tbree, where increased fuel taxation is econoniically efficient. 38 pollution, mainly the damage to health, building and urban amenity. Estimates of these benefits could not be made in the present study owing to a lack of data and research on the developing countries, and reliable estimates will have to await further research. The second are the benefits of congestion pricing, on which some rough estimates can be made using familiar cost-benefit constructs (Figure 3.2). 3.20 In Figure 3.2 the costs of congestion are expressed in relation to the quantity of vehicle fuels used in periods of congestion, the latter being an analytically convenient surrogate measure of traffic volume in these periods (para. 3.9). A demand curve is also shown. Recalling that P2t is the actual price effectively charged for vehicle fuels (including congestion charges) in times of congestion, the actual consumption of vehicle fuels in year t is (see equation 6): ** * 2 Dt = Dt (2t /Pl) mp2 and the overall reduction in demand attributable to the congestion charge is (Dt - Dt ). Similarly, in t-1 the overall reduction of demand attributable to congestion charges would be (Dt-i - Dt ). Hence the net incremental benefits of the improvement in congestion prices between years t and t-1 , shown in figure 3.2, would be ** * ** * [(Dt - Dt )-(Dtl - Dtl )x X (Ht - P2t) (11) Since the MC curve (including the costs of congestion) is steep, we have used the approximation (Ht - P2t ) - 2 x (Hot - P2t ), where Hot is the optimal long-run congestion charge plus the marginal costs of fuel (see Figure 3.2), and Ht the actual marginal cost. Figure 3.2 A MC (incl. congestion cost) MC and -Ht Price -- - - Hot - P2 (with charges) - P1 (no charges) Dt. Dt' Fuel Consumption (in times of congestion) 39 3.21 On the same assumptions, the benefits of congestion charges in year t relative to the case where no charges are in place can be estimated. Using the above notation these are given by z 2 [Hot - (P2 + P1)/2 ] (Dt - Dt*) (12) Results and Sensitivitiesl9 3.22 Figure 3.3 shows the relative contributions of substitution and efficiency reforms to pollution abatement using three scenarios. In the first, the "unchanged practices" scenario, no efficiency reforms are in place, and no policies to curb vehicle pollution: all forms of pollution rise exponentially with fuel and vehicle use and fuel consumption. In the second, congestion prices are gradually introduced, and fuel taxes are gradually raised as described. The effect is to lower the overall rate of growth of emissions. However, emissions still grow appreciably because four factors outweigh the price elasticity effects: the influences of population growth, of migration to urban areas, of income growth and high income elasticities of demand. 3.23 It is the substitution of clean fuels and emission control technologies which again have the decisive effect, as shown in the lower group of curves in Figure 3.3 (the third scenario, which combines price reforms with pollution controls). Higher fuel taxes and congestion prices, under the assumptions discussed, might reduce emissions of the main pollutants by 30 percent or so; but, as noted, this is not enough to offset the effects of demand growth. Adding in an emissions tax or a regulation to introduce cleaner fuels would, by raising the cost of transport, also have an effect on demand; but it would be a very small one, equivalent to less than one percent of total demand.2o But the substitutions towards improved fuels and the emission control technologies that such taxes on regulations would bring about would have a very large effect on pollution abatement, reducing pollution by factors of 100% (in the case of lead) and 85-95% for the other pollutants. Hence a combination of price efficiency ad environmental policies is capable of reducing emissions to 0 percent of their initial levels in the case of lead, and to 3 to 10 percent of their initial levels in the case of the other pollutants. Thus a significant reduction of pollution becomes possible even as consumption is rising. 3.24 What about costs? Turning to unleaded fuels, the costs discussed above work out at about 4 percent of total costs of fuel use in gasoline vehicles and substantially less than one percent of the total costs of vehicle use. For all the pollutants discussed, the total average costs, based on the data discussed above, are in the range of $30-50/toe or 10 to 15 U.S. cents/goe, or about 3 percent of the total cost of vehicle use excluding road user costs, depending on assumptions on vehicle lifetimes and miles travelled. (These estimates correspond to the annualized costs of using the clean technologies and fuels divided by the annualized costs of vehicle use.) 19 The numerical results are tabulated in the Annex. 20 As discussed below, the cost of emissions controls would be 2-3 percent of the toal costs of vehicular transport while price elasticities are around -0.5. 40 3.25 The implication is, therefore, that targetted pollution reduction measures (whether in the form of taxes or regulations), costing roughly 10 to 15 U.S. cents per gallon, would achieve a far greater abatement of the pollutants discussed than fuel taxes plus congestion charges of roughly 50 times this amount. (The fuel taxes studied are about $2 per gallon, and congestion charges $4-5 per gallon.) As many economists have concluded (see WDR Chapter 3 for a review), indirect instruments such as general taxes on fossil fuels can be an exceedingly blunt instrument for reducing pollution, and a relatively ineffective one, when compared with a more clinical approach in which instruments are targetted directly on the offending pollutant. 3.26 Yet it turns out that, in the present case, the indirect instruments may have advantages in terms of economic efficiency which makes them worth pursuing in additionAt policies targetted on pollution directly, such as emissions taxes or regulations. This is illustrated in Figure 3.4 for the case of congestion pricing. Under the assumptions discussed above, the benefits turn out to be very large in absolute terms and relative to the costs of abating pollution directly. They outweigh the latter by a factor of ten in the first decade, and support a commonly held perception that the achievement of economic efficiency in energy and transport would not only 'pay' for pollution abatement, but would likely leave economies materially better off, quite apart from the benefits of a better environment. 3.27 As to the sensitivity of the results to the assumptions used, the first point to make concerns the importance of policy. The actual growth of pollution could be anywhere within the bounds set by the first and third scenarios shown. This is a very wide range, and serves to show that what happens will turn far more on policy than on any other factor. With no policies introduced, and no efficiency reforms, the situation would be at least as bleak as shown in the upper curve while with more aggressive policy reforms (higher values of g and rates of growth of A t) the situation would be at least as good as shown in the lower curves. 3.28 The benefit estimates require more information and analysis. The benefits of reducing vehicle pollution still need to be researched in developing countries, as do the possible benefits of raising vehicle fuel taxes. The preceding calculations of the benefits of congestion pricing rest on a simple model, and are intended only to indicate their rough order of magnitude and how they compare with the costs of environmental policies. If congestion pricing is complemented by non-price measures--such as investments in traffic management, and in the provisions of vehicle-free precincts for pedestrians and routes for non-motorized traffic--it is possible that the benefits would be larger than suggested above. Congestion pricing would also leave the city authorities financially better-placed to implement non-price measures. 3.29 To sum up, the conclusions are similar to those reached in the previous chapter. It is the introduction of low-polluting technologies which has the biggest effect on pollution abatement. Congestion pricing, the improvements in traffic management and investments in urban amenity that it would help to facilitate, and, possibly, higher vehide fuel taxes, would help to moderate the growth of pollution somewhat; but these policies are best judged by their economic returns rather than by their impact on pollution. 41 Figure 3.3 VehiCle ;::r Developing countries: rigure3.3 Vh Tcle eeSSI en armios. 1923 pollution EmjSS10lS From Land Transport 600 500 400 1990 100 300 200 1990 1993 1996 t999 2 t0 2 2005 200 S 20u s 2014 ao l990 -993 Energy pri,- price reorm -al No o re fOnn.n reform -all pasalin O cInv;nv -el Pu nvinv - 14CPlsnvv- IPlus cnviny CO pu \ Pbt ~~~~~ ~~-X- Plus envi9s Plus 0,vinv - Pb Plu 42 Figure 3.4 Total Annual Benefits of Reforming Congestion Prices and Total Annual Costs of Pollution Abatement Compared (Estimates are relative to the base case) 400 350 300 250 US$bn 200 - - 150 - 100 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 -U--- Total costs of emissions control -t Congestion pricing benefits relative to no reform case 43 IV. WATER AND SANITATION Key Issues in Water Supply and Sanitation 4.1 The model for the supply of water and sanitation services differs from the models so far used in two ways. First, in the developing countries the expansion of supplies--in particular expansions to increase the number of people served with safe water and sanitation--has so far been determined by the volume and efficiency of public investment. The provision of services has been considered the responsibility of the public utilities. Thus whereas the models for the electricity and energy sector were demand driven, with investment levels endogenously responding to rising demands, changing costs and changing prices, in this sector the model is investment-constrained, and it is the quantity and quality of investment exogenously chosen that determines the amount of demand that is met. 4.2 Second, the environmental problem arises from the lack of output in service, not its provision. Consumption of unsafe water with inadequate sanitation gives rise to some of the most serious health problems facing developing countries-- diarrhoea, whipworm, ascariasis, schistosomiasis, hookworm and trachoma.0 Achieving the universal provision of safe water and sanitation services is among the most important goals of development, and the proportion of the population served is itself an index of environmental quality. 4.3 Some progress was made in the 1980sl towards the goal of universal provision (Table 4.1). The total number of people in developing countries with access to satisfactory potable water doubled from 1.4 billion in 1980 to 2.8 billion in 1990, with a large rise in numbers served in rural areas. The rise in the number of people with adequate sanitation was less marked, but still increased from 1.5 to 2.4 billion over the same period. Despite these efforts, however, rising populations meant that the number of people without service remained high. The number of rural dwellers without access to satisfactory water is estimated to be 1 billion, and without access to adequate sanitation 1.3 billion. Further, in urban areas the increase in services only just kept pace with the expansion of populations, such that there were small rises in the number of unserved for both potable water and sanitation. 0 Table 4.5 below summarizes some data on the incidence of these diseases. See: Feachem,RG. et al. (1983) Sanitation and disease. John Wiley, New York; Esrey,S.A., Feachem,RG. and Hughes,J.M. (1985) Interventions for the control of diarrhoeal diseases among young children: improving water supplies and excreta disposal facilities. Bulletin of the World Health Organization 63, 757-772; WHO (1985) The control of schistosomiasis: report of a WHO expert committee. WHO, Geneva; Crompton, D.W.T., Nesheim,M.C. and Pawlowski,Z.S. (eds.) (1988) Ascariasis and its prevention and control. Taylor and Francis, New Yoik; Herrin,A.N. and Rosenfield,P.L. (eds.) (1988) Economics, health and tropical diseases. University of Philippines, Manila; Prost, A. and Negrel, A.D. (1989) Water, trachoma and conjunctivitis. Bulletin of the World Health Organization 67(1), 9-18; Huttly,S.R.A. (1990) The impact of inadequate sanitary conditions on health in developing countries. World Health Statistics Quarterly 43, 118-126; Feachem, R.G.A., Kjellstrom, T., Murray, G.JL., Over, M. and Phillips., M.A. (1992), The health of adults in the developing world, Oxford University Press, Oxford, U.K. 1 The Intemational Drinking Water Supply and Sanitation Decade. 44 TABLE 4.1: POPULATIONS WITH ACCESS TO WATER AND SANITATION IN LDCs. 1980 AND 1990 (billions) WATER SANITATION Safisfactory Unsatisfactory Adequate* Inadequate 1980 1990 1980 1990 1980 1990 1980 1990 Urban 0.8 1.2 0.2 0.3 0.7 1.1 0.3 0.4 Rural 0.6 1.6 1.6 1.0 0.8 1.3 1.4 1.3 Total 1.4 2.8 1.8 1.3 1.5 2.4 1.7 1.7 Note: * The WHO definition of "adequate" sanitation includes pit latrines. Source: World Health Organization data. 4.4 Besides the different experience in urban and rural areas, there are large differences between the low-income developing countries and the middle- income developing countries (Table 4.2). In middle-income countries, there are still small numbers of people unserved, for both potable water and sanitation. However, given higher average income levels in these countries, slower population growth in the future, and higher forecast GDP growth relative to the lower-income developing countries, our work suggested that this group of countries should be able to achieve universal coverage comparatively rapidly. The big problem occurs in the low- income countries where substantial numbers remain unserved, approximately 1 billion without satisfactory water and 1.5 billion without adequate sanitation. It is therefore the low-income developing countries (lidcs) that we focus on in this chapter, in contrast to the work on electricity and tranport. TABLE 4.2: ACCESS TO WATER AND SANITATION IN LOW- AND MIDDLE-INCOME DEVELOPING COUNTRIES. 1990 (billions) WATER SANITATION Satisfactory Unsatisfacty Adequate Inadequate Low Income 2.0 1.0 1.5 1.5 Middle Income 0.8 0.3 0.9 0.2 Total 2.8 1.3 2.4 1.7 Surce: World Health Organization data. 4.5 In modelling the water supply and sanitation sector, the chief focus of our work was to incorporate the various problems that low-income countries face in meeting the goal of universal provision. The first is population growth (Table 4.3). Their total population is expected to double in the next forty years, with the current annual increase (60 million per year) being greater than the annual increase in new 45 connections to services achieved in the decade of the 1980s, which in itself required much effort to achieve under the programs of the "water and sanitation decade"; the countries are running merely to stand still. Particularly rapid growth is forecast to occur in cities: with absolute rural populations expected to decline, urban populations will probably rise by more than threefold in forty years such that, whereas only 33 percent of lower-income developing country populations live in cities in 1990, 68 percent are expected to do so by the year 2030. TABLE 4.3: LONG-RUN POPULATION TRENDS IN LOW-INCOME DEVELOPING COUNTRIES (in billions) 1990 2000 2010 2030 Total Population 3.0 3.6 4.2 5.5 Rural Population 2.0 1.9 1.8 1.8 Urban Population 1.0 1.7 2.4 3.7 Urban (%) 33% 47% 56% 68% Note: Definition of a Low-Income Developing Country taken from World Development Report 1991. SoIrc: World Bank Population Projections 1990-91; United Nations Report, World Urbanization Prospects 1990. 4.6 Second, there is the problem of rising long run marginal costs in urban water and sanitation supply, which is partly due to a rapid urbanization. Evidence on rising supply costs is widespread,2 and is summarized in Figure 4.1. Taken from World Bank projects, this shows how the real costs of water supply frequently more than double from one project to the next. The cost increases are caused by several factors, most notably:3 1. Rapid demand increases due to rapid urban growth, and a growing scarcity of economically exploitable water resources.4 Indicators of this problem are the location of source works at greater distances from the urban areas served (e.g., Amman, Mexico City, Shanghai), the greater depth of boreholes for groundwater extraction following sometimes dramatic drops in and saltwater intrusion into the upper acquifiers (e.g., Bangkok, Lagos, Jakarta), and the associated additional pumping and storage costs. The costs of sanitation also rise with urbanization and as more households use acquaprivies (which only a minority have at present). 2 See Gam, H.. (1990) "The costs and price of water: the current situation and the future", UNDP (1990) "Global consultation on safe water and sanitation for the 1990s", World Bank (1988) "Annual sector review: water supply and sanitation", and World Bank (1991) FY90 Sector Review, 'Water Supply and Sanitation,' Report INU-0R6, lna ture and Urban Development Department, Washington, D.C. 3 Source: (am, H. (1990.). 4 There is both a "pure" demand effect on making water scarcer, but this is worsened by the misallocation of water resources between the industrial, agricultural and household sectors. Analysis suggests that the marginal return to a unit of water provided to industry or households is a multiple of that in agriculture, due to subsidies and inefficient usage in the latter. 46 Figure 4.1 Supplying water to urban are as: current cost and projected future cost (1988 dollars per cubic meter of water) Future cost 1.4 1.2 1.0 0.8 0.6 4 0.2 33$ 0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 Current cost - -- Future cost is three times current cost --,, Future cost is twice current cost fs s^Future cost equals current cost Source: Wor]d Bank 1992(a). 47 2. Pollution of surface water sources arising from the discharge of industrial, agricultural and household wastes, requiring additional treatment facilities, sometimes special technologies for toxic wastes and the general introduction of higher cost technologies. 4.7 The rising long-run supply costs mean that more investment is required for a given rate of new connections. It has been calculated that in the 1980s developing country governments and external agencies spent roughly US$100 for every extra person served with safe water and sanitation. If the same investment levels were repeated in the 1990s, then there would be only US$20 for each remaining unserved individual, given current numbers unserved and anticipated population growth. The mere continuation of investment at current levels, or even a significant rise in investment, will therefore not go far towards the goal of universal provision--all the more so given that marginal supply costs are rising. 4.8 Alongside population growth and rising supply costs in urban areas, two other factors put a strain on investment resources. The first is that an increasing share of new investments in the sector must be devoted to meeting the rising demands of those already connected to services; a growth in the use of flush- toilets alone will greatly add to demands for the water and sewage systems. The second is the inefficiencies that have plagued the water supply and sanitation sector in developing countries. These are discussed later in this chapter: for now it suffices to note that the effect of poor performance has been to raise the effective investment cost of supply by a half or more. Reforming inefficient practices is perhaps the best option developing countries have for expanding and maintaining supplies, and is examined at some length below. The Model 4.9 The model first estimates the demands for water supply and sanitation services associated with population and income growth. Limiting the expansion of supply to meet this demand are investment constraints. The extent to which new investment is translated into new connections depends on the incremental demands of those consumers already on the system (which are satisfied first), and the unit costs of new investments. Both of these depend on the level of price and managerial inefficiencies prevalent in the sector. As well as calculating the number of new connections under various assumptions, the model also calculates economic benefits and joint health benefits from water and sanitation improvements. 4.10 These "performance criteria" are compared under four different scenarios. The first is a "business-as-usual" scenario, where the shares of investment, as a percentage of GNP, allocated to water and sanitation, remain at their present levels, and there is no improvement in the efficiency of the supply or in the use of services. The second and third scenarios represent slow and fast reform, respectively, of inefficient practices. As in the electricity model, inefficiencies have two co-related components--price and managerial (or "X") inefficiencies--and the scenarios of economic and institutional reform consider improvements in both. We also chose to set investment levels higher in the reform than in the no reform 48 scenarios on the grounds that improved pricing and managerial policies would raise more financial resources for investment. A fourth scenario simulates the higher investment levels of the reform scenarios, but without the efficiency improvements, in order to assess the comparative effect of quality vs. quantity of investment on supply. 4.11 The following presents a step-by-step exposition of the structure of the water and then the sanitation model. The concluding section discusses the results. (i) Costs of Efficient Supply 4.12 The costs of supplying water are summarized in successive World Bank sector documents, the latest being the FY90 Review of Water Supply and Sanitation Projects. Although the average marginal costs of supply, ct, vary greatly between regions,5 a typical figure is US$0.60/m3 per annum, of which US$0.40/m3 is annualized investment costs, i't (equivalent to non-annualized investment costs, it, of roughly US$4.00/m3), with the remainder being operations and maintenance, of which roughly half is the labor component of water supply. This average figure, however, hides an important difference between the annualized costs of supply in rural areas, i'r,t, and urban areas, i'u,t, with the latter being three times higher. Further, for the reasons mentioned in the previous section, iPu,t has been rising and is expected to continue to do so. Over the past two decades, urban costs of supply have doubled, and may double again in the next two, a growth rate of 3 percent per annum. In the present study, i't is calculated as the weighted average of i'r,t and i'u,t, where the weights are the relative shares of the rural and urban areas in total population. So there are two factors driving up long-run average costs of supply, namely the increase in urban costs, and the urbanization of populations in low- income developing countries. 4.13 There is clearly a limit to projected increases in urban supply costs. For example, in an efficient world, where the net marginal benefits of different uses for water6 are equalized, the limit to the extent to which i'u,t will rise is defined by the cost of the alternative uses of water. For urban water supply, this is the opportunity cost of channelling water over long distances, say from agricultural regions that would otherwise use the water for irrigation. Based on discussions with our colleagues we have put the limit at US$1.50/m3. In most countries, irrigation water is heavily subsidized, with farmers rarely paying more than 50 percent of the marginal costs of supply; irrigation also represents by far the largest single use of water, accounting for roughly 91 percent of water use in lower-income countries versus only 4 percent for domestic use.7 Overconsumption is a consequence of the subsidies. In the reform scenarios, there is thus an implicit assumption that the pricing policies for all water uses are reformed, and hence that water could in principle be diverted (in comparatively small amounts) from irrigation for use as 5 Regional figures for ct given in World Bank (1991) are Africa, US$0.65/m3; Asia, US$0.46/m3; EMENA, US$0.67/m3 and LAC, US$0.41/n3. 6 Namely water for ilrigation, industry, drinking and other domestic uses. 7 Source: World Resources Institute (1990), World Resources 1990-1991. Oxford University Press, New York. 49 urban drinking water. The impact of this is to cap i'U,t at approximately US$1.50/m3. 4.14 However, even in the scenarios where prices remain unreformed, urban cost increases will not continue endlessly. The water could still be obtained from agricultural regions, albeit at a higher cost if the latter are wasting it. The projected costs of water supply assumed in the model are as follows (Table 4.4); the sensitivity of the results to the assumption will be commented on later. Table 4.4. COST PROIECTONS ($/m3) 1990 2010 2030 2030 No Reform Reform Investment costs it 4.40 9.18 14.75 11.19 Annualized investment costs i't 0.44 0.92 1.48 1.12 - Rural is,t 0.26 0.26 0.26 0.26 - Urban i u,t 0.79 1.43 2.04 1.52 Recurrent costs rct 0.20 0.42 0.67 0.51 Marginal costs ct 0.64 1.34 2.15 1.63 4.15 As Table 4.4 shows, investment costs double in all scenarios between 1990 and 2010, due to the rising urban costs of supply and to the rising share of urban populations in total consumtpion. But marginal costs become progressively larger in the no reform scenarios. (ii) Inefficiencies in the Sector 4.16 Two types of inefficiency are widespread in the water sector. First, as in the electricity (and doubtless other) sectors, there are the various sources of managerial (or "X" or technical) inefficiency, such as losses arising from the poor maintenance of waterworks and of the transmission and distribution networks. The second is, again as in other sectors, price inefficiency, in the present case arising from government controls on prices and subsidies for water supply; this not only leads to managerial inefficiencies, for example by undermining the cash flows of the utilities and thus their abilities to finance required maintenance, but also to wastes in consumption. 4.17 With regard to managerial inefficiencies, the most obvious indicator of their size is the volume of unaccounted-for-water (UFW). This consists of physical losses arising from poor construction and maintenance, and administrative losses arising from incorrect billing, faulty meters, and theft; its level is high in almost all countries. For example, the Global Consultation on Safe Water and Sanitation for 50 the 1990s reports that large savings are possible in water supply through the reduction of leakage, which can amount to as much as 60 percent of abstracted water. Furthermore, just 20 percent of the leakages account for 80 percent of the volume of water lost. UFW accounted for 18 to 36 percent of water in Bombay, 40 percent in Buenos Aires and Santiago, and 60 percent in Peru. A review of World Bank projects between 1966 and 1981 found UFW to be an average of 35 percent of total water produced, resulting in an aggregate revenue loss of 43 percent of actual sales revenue. One of the most extreme examples of UFW comes from the Manila II Water and Sanitation Project. At its start in 1978, Manila had a 46 percent UFW rate. This rose to 66 percent by the time of the project's completion in 1986, with the result that the increase in UFW was equivalent to the entire output of the project.8 Poor management has thus been highlighted as one of the key reasons for poor operational performance in the water sector. The review carried out by the World Bank (1992) lists lack of managerial autonomy, continual political interference and poor rewards as the chief causes of poor management. They are not inevitable in public utilities, as is demonstrated by the efficient functioning of the Water Utility Corporation (WUC) in Botswana and the Public Utilities Board (PUB) in Singapore (which has, at 8 percent, the lowest level of UFW in the world). 4.18 As regards price inefficiencies, various World Bank reports have found that, for projects between 1966 and 1981, the average tariff on water sold was US$0.26/m3 as against an average incremental cost of US$0.49/m3 (53 percent of cost). For later projects between 1987 and 1990, the average tariff on water sold was US$0.32/m3 as against an average incremental cost of US$0.55/m3 (58 percent of cost).9 Similarly, a review of the water sector in 14 EMENA countries found average tariffs as a percent of economic costs to be 59 percent, with 7 countries below 50 percent. Subsidized prices in conjunction with a poor collection record has meant that water utilities have had extremely poor financial and hence operational performance, resulting in highly restricted services of irregular quality. Further, what water is produced has often accrued to better-off customers, making water supply policies in developing countries both inefficient and inequitable. 4.19 Economic and institutional reforms to improve prices and the management of supply are unlikely to take effect in a short period. As in studies in Chapters 2 and 3, we have assumed that the effects of such reforms would be gradual, and have used relationships of the following form: mt = 1-moe-Bt 0 < B S 1, mo = 0.333 qt=1-qOe-Yt 0o< <1, qo=0.4 (1) 8 Source: World Bank (1992c) Water Supply and Sanitation Projects: the Bank's experience, 1967-89. OED Report No. 10789, World Bank, Washington, D.C. 9 All figures in 1988 US$. 51 where: mt = the ratio of the supply costs that would be associated with good practice to actual supply costs. At t=o it is 0.67 under the above assumptions, and rises to unity as actual costs converge to those found in good practice situations. B = the rate of reform of managerial efficiency; qt = the ratio of actual prices (denoted by Pc,t) to Cost; Y = the rate of convergence of prices charged to efficiency prices. Setting mo = 0.333 implies one third of the water is initially being lost through managerial inefficiencies, while qo = 0.4 implies that prices are initally set at 60 percent of costs. For the reform cases studied below, we have considered values of Y' and B to be 3% per year (slow reform) and 5% per year (fast reform). In the slow reform case, this would imply prices and managerial efficiencies rising to roughly 80 percent of "good practice" levels in 25 years, and in the fast reform case to 90 percent of good practice levels. 10 4.20 Managerial inefficiencies unilaterally raise the costs of water supply, giving adjusted cost coefficients, so that i t = it/mt; t = t/m; c*t = Ct/mt. (2) where the cost terms it , i't and ct are as defined earlier (in Table 4.4), and the asterisks denote "adjusted for managerial inefficiencies". The prices actually charged for water (pcat) are related to the actual marginal costs of supply, c*t , by the expression: Pc,t = c t (3) This reflects the point that efficiency reforms pull in opposite directions on prices, the managerial reforms acting to lower costs and thus the level of efficiency prices, and the price reforms (by removing subsidies) to raise prices. The latter tends to dominate in the medium term, the former in the long term. 4.21 These inefficiencies affect several other variables in the model. By raising investment and operating costs, they reduce both the amount of water 10 At first glance, it may seem sensible to treat these two inefficiencies through one equation, since it is conmmonly held that reforms of managerial and price inefficiencies will occur as part of the same reform package. lowever, though they have the same functional form, we specify two different equations for these effects for two reasons. First, reductions in managerial slack can occur independently of moves towards marginal cost pricing through the introduction of "private sector style" incentive systems for managers, reforms in hiring and fiing, and more intensive monitoring of management effort by the government (See Shirley,M. and Nellis,J. (1991) Public enterprise reforn: the lessons of experience. Economic Development Institute, World Bank, Washington DC.). Second, the two sources of inefficiency impact on costs and benefits in different ways, so it was analytically appropriate to make the distinction. 52 supplied by--and the health benefits of--new investment. The simulations presented in Section 3 show these effects can be substantial. (iii) Prices and Resource Demands 4.22 Per capita water demands at present depend primarily on whether the consumer is connected to a lower-cost source of public supply, or whether they must-needs use higher cost supplies such as personal collection from wells or surface water or water vendors. Unconnected consumers currently use about 20 to 30 litres of water per capita per day, or roughly 9m3 per capita per annum. In projecting consumption of water by unconnected consumers denoted by V0t we used a standard demand function: VO,t = VO,0 (yt / Yo)MY (pu,t / Pu,o)P_ where: V0,t = annual per capita consumption of water by an unconnected consumer; yt = average per capita incomes in lidcs;11 MYJ = income elasticity of water demand. pu t = price of safe water for unconnected consumers mp = price elasticity of water demand Recent studies have found that the income elasticity of demand for potable water at the income levels of the lower-income developing countries is quite low; based on various studies, a value of 0.3 is used below.12 The price of safe water for unconnected consumers (Pu,t) can refer either to the direct price (e.g., the price paid to water vendors) or to the imputed price, taking into account the costs of collecting and boiling water. Values of Pu,t in urban and rural areas have been found to range from a minimum of 2 to as much as 100 times the marginal cost of the efficient supply of similar quality water to connected consumers (ct).13 One result of this price difference is that it is the people with the lowest incomes--who are the large majority of the unconnected--often pay more for water while consuming less. Recent studies have found poor urban households paying up to 20 percent of their cash incomes on water, with average figures above 10 percent being common.14 11 See Table 2.1 Chapter 2 for projections. 12 See Katzman, M. (1977), Income and price elasticities of demand for water in developing countries, Water Resources Bulletin, 13, 44-55, and.Briscoe, et al. (1990). Evidence from OECD countries suggests that point income elasticities of demand rise above a certain income threshold, but that this threshold is above the range of incomes considered in our projections. 13 See WDR92, chapter 5. 14 See the review in Section 7 of Whittington, D., Lauria, D.T. and Mu, X. (1991). A study of water vending and willingness to pay for water in Onitsha, Nigeria," World Developent. 19 (213), pp. 179-198. 53 4.23 In the following exercise, we have taken the ratio pu,t/ct to be 3; this probably errs on the low side and means that the benefits of expansion (considered later) are also underestimated. Thus Pu,t doubles between 1990 and 2010, after which its rise is slowed by the capping of ipu t (see Table 4.4 and text discussion, above.) Note that, although ct is lower in the reform scenarios than in no reform scenarios, we take it that efficiency reforms do not substantially affect the price of water for unconnected consumers, which follows the same path in all scenarios; by implication, vo0t is also the same in all scenarios. 4.24 For both connected and unconnected consumers, water demands appear to be fairly price inelastic. We have taken a figure of -0.25 as a reasonable assumption based on the literature.'5 Given the above, total annual water consumption by connected consumers is dt = (nt-l + Ant)vlt (5) where: nt = number of people connected in lidcs; Ant = number of new connections (determined endogenously later in the model). vl,t = average annual per capita consumption by people with public supplies. vj,t is determined by a consumption function similar to that given for vo,t above, with v1,0 being 23 m3/capita per year. Note that v1,0 is two-and-a-half times vO,0 ; this is consistent with the information available to us that for any given prices and per capita incomes, there is a significant step increase in household consumption once public supplies are available, which is of course not surprising. (iv) Investments 4.25 In the 1980s, developing countries and external agencies significantly raised investment in water and sanitation, encouraged by the programs of the "Water Supply and Sanitation Decade" initiated by the United Nations General Assembly in November 1980. The WHO and World Bank estimates suggest that combined average annual investments in the sectors during the decade were between US$10 billion and US$14 billion. Investment levels were kept constant despite a decline in total public investment, and amounted to approximately 0.5 percent of GDP, 2.3 of total investment, and 4.3 percent of public investment. Nevertheless, the investments were insufficient to make the goal of universal coverage by the 1990s feasible; as discussed earlier, substantial numbers remained unserved by safe water or sanitation by the end of the decade with little prospect of any substantial improvement in the near future. In addition, the marginal 15 See Katzman (1977) and Briscoe, et al. (1990). 54 efficiency of much of the investment was low. In reviews of the International Drinking Wal:er Supply and Sanitation Decade, there are numerous references to supply systems ceasixLg to function after a few years due to failures in project advice, maintena.nce and oth er factors.16 4.26 Thus the efficiency of investments, including the efficiency with which they are operated atld maintained, is as important (if not more so) than the amount of investment. A low managerial efficiency--reflected in low values of the vari.ables mt above--reduces the possible rate of new connections by raising unit investment costs and by raising losses on the existing system. Price-inefficiencies also lower the rate of new connections by reducing financial returns and the rate of investment by public utilities and private (non-utility) investors,17 and of course by encouraging waste. 4.27 In the scenarios without efficiency reforms, we have considered the case where the rate of investment in water supply remains at its present level, about 1.7 percent of total investment by lower-income development countries. In the reform scenarios, we have considered the case where total investments in water supply (sanitation is discussed later) could gradually rise to twice this level, according to the function: It = 0.017(2-e- Yt)Yt (6) where: It cotal investments in the water sector Yt -GN:P of lower-income developing countries In the fast reform case considered below (' = 5 percent per year), this would imply a 70 percent increase in the rate of new investment over a 25-year period, and 50 percent in the slow reform case ( 7 = 3 percent per year). These may seem to be very large increases. But the noteworthy point is that the contribution of the increased investment to the rate of new connections, other than that required to rehabilitate systems and extend distribution, still turns out to be much less than that of reduced losses andt wastes from the reforms. In other words, even if It were unchanged by the reform-s, the contributiuon of efficiency would still be very large. 16 WVorld De-velopment Report (1992), Chapter 5. 17 See Briscoe, J. and de Farranti,D. (1988) Water for rural communities: helping people help themselves. World Bank, Washington D.C.; Whittington, D., Lauria, D.T. and Mu, X. (1989). Paying for urban services: a study of water vending and willingness to pay for water in Onitsha, Nigeria. Report INU40, World Bank, Washington, D.C. Singh,B., Ramasubban,R., Briscoe,J., Griffin,C., and Kim,C. (1991) Rural water supply in Kerala how to emerge from a low-level equilibrium trap; Whittington, D., Lauria, D.T, Wright, A.M., Choe, C.K., Hughes, I.A. and Sharna, V. (1992), Household demand for improved sanitation services: a case study of Kumasi, Ghana. Program Report Series, UNDP/World Bank Water and Sanitation Programme, Washington, D.C., Briscoe, J., Furtado de Castro, P., Griffin, C., North, J. and Olsen, 0. (1990), Towards equitable and sustainable rural water supplies: a contingent valuation study in Brazil. The World Bank Economic Review, 4(2), pp. 115-134; Bhatia,R, and Falkenmark,M. (i992) Water resource policies and the urban poor: innovative approaches and policy imperatives. Background Paper for e W Iorking Group on Water and Sustainable Urban Development, International Conference on Water and the Envirouent, Development Issues for the 21st Century, Dublin; World Bank (forthcoming), Towards a new rural water suppNy paradigm: implications of a half-century study of households' willingness to pay for improved water s$rvices. Worl B $nk Research Observer 55 (v) New Connections 4.28 Additional water supplies for consumers come from two sources: new investment and (in the reform cases) increased water from the existing capital stock as losses are reduced. The contributions of new investment and (the improved performance of) the existing capital stock to the rise in consumption of water can thus be broken down as follows: Adt = AKn,t + AKet where: AKn,t = contribution of new capital stock AKe,t = contribution of existing capital stock. Recalling that mt is the ratio of "good practice" to actual supply costs, and is proxied by the ratio of losses in good practice situations to those that actually occur, the amount of water produced. and which is theoretically available for consumption if excess losses (relative to good practice situations) were avoided, is dt/mt , and the amount supplied to consumers is (dt/mt) x mt = dt In the following period, the same amount of water would be produced, other things being constant, but if managerial efficiency improves, losses are reduced to mt+1 , and the amount of water supplied rises to (dt/mt) x mt+1 . It follows that the increased supply from the existing capital stock, as managerial efficiency is improved, is AKp t =dt . Amt/mt 4.29 The rehabilitation of existing capital stock, though, usually involves some new investment, in the form of investment in new distribution to accommodate water that is no longer lost to leakages, plus investments to repair leaking and damaged equipment. The incremental costs of rehabilitation are typically one quarter of those of new supply. Thus new investments can be applied either to expand the system, or to rehabilitate existing stock, so that (remembering that i t is the incremental investment cost per m3 adjusted for managerial inefficiencies): It = i*tAKn,t+0.25i*tAKe,t Recalling that AKnt = Adt - AKe,t , it follows that the total rise in water consumption is Adt = It/i*t + 0.75 dt Amt/mt (7) The second term represents the contribution of managerial efficiency reforms to new supplies, after allowing for the costs of rehabilitation. When Adt = 0, Adt = It/i*t only. The additional water is available to meet the increased demands of those already connected to the system and the demands of newly connected consumers. 56 4.30 Price reforms like managerial reforms also permit a rise in the number of new connections, since they reduce wastes in consumption (in the model, price increases lower the volume of consumption, vlit ). The effect is large; for example, a price increase of 10 percent (much less than is required to eliminate current subsidies) would eventually reduce consumption of existing consumers by 2.5 percent; this is theoretically sufficient to allow an extra 50 million people to be connected. Using the approximation Adt - Antvl,t+(vl,t-vl,t-l)nt-1 (8) then the rise in new consumers Ant is Ant = Adt/vl,t-((vli,t-vl,t-l)/vl,t)nt-1 (9) 4.31 The second term is the increase in consumption of existing consumers divided by their average volume of consumption. When prices are raised to better reflect the costs of supplies, and wastes in consumption are thus reduced, their increase in consumption is smaller and the number of new connections, Ant, is larger. The target environmental variable in the model is nt, with success being judged by the extent to which progress is made toward the goal of universal coverage. 4.32 In order to make explicit some of the interconnections in the model, it might be useful to summarize some relationships: Ant = Adt/v,it -A vl,t, nt- (10) Adt = It / i t + 0.75 dt Amt/mt (11) dt = (Ant-, + nt-1) v1,t (12 The volume of consumption per consumer, managerial efficiency and investment levels are determined exogenously by the various price, income, investment and efficiency reform variables as described. This means that we have three equations to solve for Ant , dt and Ant 18, 19. 18 In retrospect it would perhaps have been clearer and more straightforward to have used the approximation Adt = It / i*t + 0.75 dt. I Amt/mt, and dispensed with the third equation by putting dt = dt-I + Adt 19 Solution is through iteration. The model is calibrated in the Excel spreadsheet package to iterate until the solution converges to an accracy of tee decimal places. 57 (vi) The Effects of Efficiency Reform: A Summary 4.33 At this point, it might also be useful to summarize how efficiency reforms work in the model. There are three points to bear in mind: 1. The gradual convergence of prices actually charged to consumers toward the marginal costs of production, through the gradual abolition of subsidies, reduces per capita water consumption for both new and existing consumers connected to public supplies. Given the formula v =v10 (yt/ YO) my t o)M (13) Then, for > 0: vlt v1,o (yt/ Yo)my (ct*qt/pc,o)P and, for r = 0: vi',t =V1,0 (Yti YO) m In the reform scenarios ( Y > 0), per capita consumption ( vlt) is lower than the no reform scenario because of higher prices. (The price elasticity co-efficient, mp. is of course negative). 2. However, efficiency reforms also reduce costs (ct*) and thus the level of the efficiency price to which (with reforms) actual prices are converging. This dampens the rate of increase in prices somewhat, though the overall effect is still a reduction in per capita consumption by consumers already connected. (Actual prices in lower-income developing countries are in fact lower than the marginal costs that would obtain even under "best practice" assumptions, so that prices still need to be raised.) 3. The contribution of managerial reforms comes through two other channels. First, by lowering incremental investment costs, they make it possible to connect more new consumers per unit of investment. Second, reforms of managerial practices effectively "liberate" water for utilization from the current capital stock, since they raise the output of all installed capacity, not just of new capacity. (vii) Benefits 4.34 The model presented so far addresses the question of coverage in lower-income developing countries, given financing constraints and rising costs. This section discusses the economic benefits of investments in water supply, and the next section the health benefits of improved water and sanitation supply. 58 4.35 The economic benefits of increased water supply, ignoring for the moment the economic benefits of improved health, are taken to be equal to the consumers' surplus benefits less the efficiency losses arising from prices being below the marginal costs of supply (see Figure 2.2). This follows standard cost-benefit practices. To allow for the effects of managerial inefficiencies, the marginal costs on which the efficiency losses are based are set equal to ct* = ct/mt Figure 4.2 P ($/m3) A Pta _ b Price efficiency | \ / ~~~~losses Pc,t d # l t I I I VO,t V2,t V1 t a (m3lcaplta) (a,b,c,d = consumers' surplus, the shaded area the efficiency lossses). For new consumers the cost savings component of the consumers' surplus equals (pu t - Pc,t ) times their volume of consumption before connection, vot . The consumers' surplus' benefits of the additional consumption [(vl,t - vo,t)J made possible by public supplies are valued as (pu,t - Pc,t )/2. Similar formulae apply to consumers already connected if it is assumed that without increases in supply they too turn to non-public sources for addtional supplies. (This often happens when additional supplies are not forthcoming, if only because losses in pressure are commonplace.) The losses from inefficiency are estimated from the area between the marginal cost curve and the demand curve. The components of the economic benefit-cost calculations are then as follows: New consumers' CS: Ant,vo,t (Pu,t - Pc,t) + Ant (vl,t - Vo,t) (Pu,t - Pc,t)/2 Existing consumers' CS: ntAvot (Pu,t - Pc,t) + nt(Avl,t - Avo,t) (Pu,t - Pc,t)/2 Price inefficiency losses: Ant (vl,t - v2,t) (c*t - Pc,t)/2 + nt (Avl,t- AV2,t) (c*t - Pu,t)/2 (new and existing consumers) (14) 59 The volume of consumption (v2,t) that would obtain if efficiency prices were in place, is estimated from. *m 4.36 Reforms favor new consumers because more can be connected, their volumes of water consumption increase while the costs of water to them fall. For existing consumers, higher prices do mean higher costs--though also improved service if managerial efficiencies improve. (viii) Health Benefits 4.37 There is a substantial literature on the association between poor water, inadequate sanitation, and ill-health. There are five broad categories of disease related to poor water and sanitation: (i) water-borne diseases, such as typhoid, cholera, diarrhoeal diseases, gastroenteritis and infectious hepatitis; (ii) water-washed ipfections, such as trachoma, leprosy and conjunctivitis; Oiii) water-based diseases, such as schistosomiasis and guinea-worm; (iv) water-related insect vectors, such as malaria and onchocerciasis; (v) infections associated with defective sanitation, such as hookworm and other helminthic infections. These are among the most pressing diseases facing poor developing countries. The number of people suffering from them is immense. The WHO estimates that 750 million children suffer from acute diarrhoeal diseases alone, which are the cause of 5 million deaths of children under the age of five each year.20 The following Table provides further information on the incidence of diseases. 20 For estimates of incidence, see various parts of the World Bank's Health Sector Priorities Review to be published in Jamison and Dean (forthcoming). Morbidity reduction estimates are taken from Esrey,S.A., Feachem, R.G. and HughesJ.M. (1985) Interventions for the control of diawhoeal diseases among young children: improving water supply and excreta disposal facilities. Bulletin of the World Health Organization 63, 757-772 and Esrey, S.A., Potash, J.B., Roberts, L. and Shiff, C. (1990) Health benefits from improvements in water supply and sanitation: survey and analysis of the literature of selected diseases, United States Agency for Intemational Development, Water and Sanitation for Health Technical Report 66, Washington, D.C. 60 Table 4.5 INCIDENCE OF WATER-BORNE AND WATER-WASHED DISEASES IN DEVELOPING COUNTRIES % Reduction in Morbidity from Improved Water Supply Disease Incidence and Sanitation Diarrhoea 875 million 26 Trachoma 500 million 27 Schistosomiasis 260 million 77 Hookworm 800 million na Whipworm (Trichuris) 750 million na Roundworm (Ascariasis) 1,000 million 29 4.38 There is still much about the aetiology and method of transmission of these diseases that is poorly understood, and some controversy about the relative importance of the different factors which are statistically and observationally associated with ill-health in actually causing various diseases and infections. At one point evaluations of the health-impact of water and sanitation interventions were so disappointing that many were led to believe that such investments could not be justified on health grounds at all. However, the studies (and often the projects) often did not allow for the interactions between, inter alia, water quality, hygienic practices and nutrition.21 Uncovering these interactions required extensive purpose-collected data on a range of household variables.22 A review of such studies produced the indicative figures in the above table. The general condusion is that the provision of improved water supply and sanitation can greatly improve household health, but under two conditions: first (not surprisingly), is that the water produced by the projects needs to be reliable in quantity and quality (something that always does not happen); and second, that improvements in health are achieved more consistently when water supplies and sanitation are jointly supplied, together with improvements in hygiene. 4.39 However, although it is known that improved water and sanitation can reduce the incidence of disease, there are still significant gaps in our knowledge about the incidence and effects of diseases in developing countries. Much is known, for example, about child mortality and morbidity, but much less about adult 21 See Blum,D. and Feachem,R.G. (1983) Measuring the impact of water-supply and sanitation investments on diarrhoeal diseases: problems of methodology. International Journal of Epidemiology 12(3), 357-365. 22 An excellent case study of this sort which demonstrates a quantitative link between water investments and diarrhoeal diseases is Daniels,D.L. et al. (1990) A case-control study of the impact on diarrhoea morbidity of improved sanitation in Lesotho. Bulletin of the World Health Organization 68(4), 455-463. 61 mortality and morbidity.23 Even if these gaps were filled, there would still be much uncertainty about the appropriate measurement of the economic costs of ill health and death from preventable diseases and infections. Economists' methods for quantifying the value of life have proved to be controversial. Furthermore, the question of the economic costs of ill-health - especially adult ill-health - is only recently beginning to be addressed adequately. Once again, there has been an evolution of thought in the literature. At first, researchers expected to find significant direct costs to adult ill-health. The generic absence of these costs was surprising until it was realized that households with chronically poor health anticipate and deal with disease through 'coping' mechanisms that spread the economic costs of individual ill-health to other members of the household.24 An accurate measurement of all these costs is sti'll not available. At present, we still have neither adequate knowledge nor a satisfactory methodology for placing an economic valuation on the costs of each disease related to water and sanitation in the circumstances of developing countries. 4.40 For the simulation studies, it was nevertheless considered relevant to examine at least one indicator of the links between water, sanitation and health. The present study considered the possible effects on infant mortality. While this ignores both child morbidity, and adult morbidity and mortality, it is a tractable relationship to estimate statistically. Infant mortality rates (imrs) also have the advantage of being a frequently-cited development indicator. Coefficients for the impact of improved water supply and sanitation on imrs were derived from cross- country regression analysis. Data for this regression analysis were taken from the World Bank's Economic and Social Database and supplemented by data from the WHO, which together provided 238 separate observations on a vector of variables that were thought likely to influence imrs, namely total population, urban population, the extent of urbanization, per capita incomes, percentage of the population with access to safe water, and the percentage of population with access to adequate sanitation. 4.41 A variety of functional forms were tried in order to capture potential non-linearities. Variables that proved consistently insignificant were dropped and the final equation was:25 ln imr = 6.915 - 0.209 ln pcy - 0.157 ln wat - 0.208 ln san (15) (5.605) (2.350) (5.302) R2 = 0.53 s.e.y = 0.488 F-stat = 87.90 where: imr = infant (years < 1) deaths per 1,000 live births pcy = per capita income in 1985 US$ wat = percentage of population with access to safe water 23 See Feachem, R.G. et al. (1992). 24 See Feachem et al., op. ciL who cites examples of typical coping mechanisms as reducing work in the household (i.e., cleaning, collecting water, preparing food etc.) to maintain job productivity, keeping children from school, sacrificing specialization of labour in firms with high labour turnover caused by illness, and the maintenance of labour surplus as an insurance strategy. 25 The data used were for 1985 from the sources mentioned. 62 san = percentage of population with access to adequate sanitation The estimated elasticities of the variables turn out to be in the same range as those produced by single project and single disease studies.26 4.42 To estimate infant mortality levels from this equation, an estimate of the number of live births is needed. For the present study, we took projections of the crude birth rate in lidcs from World Bank and United Nations population projections. (Both these agencies forecast a rapid fertility decline in lower-income developing countries following 2025, and hence a sudden fall in the number of live births, which shows up as a kink in the curve in the infant mortality projections presented later.) (ix) The Sanitation Model 4.43 This model is much less ambitious than the model of water supply and demand. Gathering the required information and reviewing the various problems that afflict the supply of sanitation services proved to be too large a task, and a thorough examination of the effects of such matters as efficiency reform and technical developments (such as those in low-cost sanitation facilities) on the overall supply of services, as populations and incomes expand, will have to await further analysis. However, bearing in mind the questions put to us in the preparation of the WDR, as to the contribution of economic growth to environmental improvements, some elementary calculations were made. In particular an attempt was made to indicate what the answers to the following questions might be once a fuller analysis has been done: (i) What is the contribution of economic growth to the provision of services, allowing for the point that it provides more resources for investment? (ii) In the judgement of several of our colleagues, the costs of providing services in urban areas are often rising, if only because the costs of water for pour-flush toilets and acquaprivies (sewered or other) are rising. What might be the impact of cost reductions, say through improvements in supply efficiencies, on the provision of services as populations grow? (iii) What are the joint effects of improved water and sanitation on infant mortality (the health indicator we have just discussed)? 4.44 As in water, a major constraint on expanding supplies in the sector has been investment funds, or rather the lack of them. Sanitation investment in the 1980s constituted roughly 0.6 percent of total ldc investment, with the most of this being public investment, and thus the same arguments hold in specifying investments in sanitation as we discussed with reference to water. The investment function used was therefore similar to that used above for water supply. It = 0.006(2-e-9t)Yt (17) where: It = total investments in the sanitation sector Yt = gnp of lower-income developing countries. 26 Various references are provided in footnote 0 to this chapter. 63 1 = rate of improvement in the efficiency (reductions in unit costs) in the supply of sanitation services; it is assumed to be the same as that in the water sector. 4.45 The differing investment costs of providing adequate sanitation in urban and rural areas are much larger than those for providing water supply. Whereas for water the ratio of per capita investment costs in urban areas to those in rural areas is 3, in sanitation the ratio is over 7. Table 4.6 provides some estimates of costs for various types of sanitation. In large measure, the higher costs of sanitation in urban areas arises from the greater use of higher cost facilities, shown in the right-hand side of the Table, and may be expected to rise further as a greater proportion of urban populations use them. (Costs in rural areas would also rise for the same reason.) Another factor, as noted, is the rising cost of water. Table 4.6 Financial ReQuirements for Investment and Recurrent Cost per Household (1978 U.S. dollars) Total Monthly Total Monthly Investment Recurrent Investment Recurrent Facility Cost Cost Facility Cost Cost Low cost Medum cost PF toilet 70.7 0.5 Sewered acquaprivy 570.4 2.9 Pit latrine 123.0 -- Acquaprivy 1,100.4 0.5 Conununal facilityd/ 355.2 0.9 Japanese cartage 709.9 5.0 Vacuum track cartage 107.3 1.6 Low-cost septic tanks 204.4 0.9 High cost Composting latrine 397.7 0.4 Septic tank 1,645.0 11.8 Bucket cartage hl 192.2 2.3 Sewerage (design population) 1,478.6 10.8 Source: Kalbermatten, Julius and Gunnerson (1982). 4.46 Based on the costs shown, and updating them to 1990 prices, we used investment costs per capita of $20 and $130 (figures rounded) for rural and urban areas respectively.27 Allowing for increases in the cost of water and a shift to higher cost facilities, the costs in urban areas are assumed to rise to $420 per capita in the no reform scenario and $300 per capita in the reform scenario. The lower cost assumptions in the latter case were considered justified for two reasons--the greater availability and lower costs of water, and the greater effort that an efficient utility would make to take advantage of providing lower cost services. Although alternative assumptions are of course posisble, the following results are not without 27 These investment cost figures are an average for pour-flush toilets, pit latrines and communal facilities. Investment costs would be roughly 50 percent higher if flush toilets connected to sewerage systems alone were being considered. 64 interest, and the main conclusions regarding the importance of economic growth, investment and efficiency for the supply of services, and for the economic and health benefits derived from them, are robust. 4.47 The actual formula used to calculate the ratio of the costs of supply in the efficiency reform case to that in the no reform case are similar to that used for water supply: sj/stn = [1-moe-Lt /[l-mO] 0 < L < 1, mO = 0.333 where mo is a measure of the losses (added costs) of managerial inefficiencies. Stn and str are respectively the unit costs of sanitation in the no reform and the reform scenarios. Reducing these inefficiencies has three effects. First, the difference between the actual and efficient costs of supply is reduced; second, the share of investment in the sector rises; third, more people are thus provided with service. The Simulation Results 4.48 The results are summarized in Figures 4.3 to 4.6 28 which respectively show estimates of the following quantities: * The numbers in low income countries without access to safe water; * The numbers in low income countries without access to adequate sanitation; * The annual incremental economic benefits of expanding water supplies; and * Infant mortality per year. In each case, four scenarios are considered: (i) no reform, a genuine "business-as- usual" scenario; (ii) accelerated investment, with no reforms (the investment increase is substantial, as discussed above); (iii) slow reforms to prices and managerial arrangements (which also raise investment); and (iv) fast reforms to prices and managerial arrangements (with a consequently larger rise in investment). 4.49 When interpreting the results, it might be noted that various reports on the International Water and Sanitation Decade often expressed the fear that without changes in practices, water and sanitation supply systems would be swamped by rising populations and rising demands, thus reversing the progress made in the 1980s. None, however, looked much beyond the year 2000 or carried out a quantitative analysis. Our work suggests that the outlook is much gloomier than even these commentators fear--unless there are indeed major reforms, perhaps more radical than considered in our scenarios. 28 he full print-outs are in the annexes. 65 4.50 First consider the business-as-usual scenario. The numbers without access to safe water supplies could likely rise by 2 billion people, from 1 to 3 billion, as populations rise in the low-income countries in the next four decades, and without sanitation the number might also rise by 2 billion, from 1.5 to 3.5 billion. In the 1980s, the increase in numbers served roughly kept pace with the growth of populations, but much of the investment was in rural areas, where costs are lower and increase less sharply. In the decades ahead, larger shares of the population growth will be in urban areas, where costs are higher and rising. There is thus likely to be an enormous slippage, under the assumptions discussed, with large increases in the numbers unserved, and all the risks that this implies for health (Figure 4.6) and the environment. 4.51 Raising investment rates steadily to 50 percent more than today's rates does not substantially alter this conclusion (Figures 4.3, 4.4 and 4.6). 4.52 Reforming prices and managerial arrangements, on the other hand, would make a large difference by reducing wastes in consumption and in supply. The encouraging point is that, in the case of water, even the gradual rates of improvement assumed in price and managerial efficiency are capable of putting the low-income developing countries onto a path which would eventually lead to universal provision (Figure 4.3)--though it would clearly be a long haul, taking perhaps four decades or more. 4.53 We are less confident about the results for sanitation. The business-as- usual scenario, with the number of people without even primitive sanitation facilities rising to two, then to over three billion as populations expand and costs rise is a distinct possibility--even with public investment significantly increased. But we have not done justice to the potential gains from reform. In fact, all that we have assumed is that costs might not rise so quickly and that investment could be gradually increased. The effects of price and institutional reforms have not been modelled, as they were for water supply, while it is possible that investment (and private investment by households in sanitation in particular) may be far more responsive to income growth and good public and community policies than we have tacitly assumed.29 A quantitative analysis of these possibilities will have to await another study. What can be said is that it is only through institutional and economic reforms that a deteriorating situation might be avoided--more investment by itself will not do it-and the goal of universal provision realized over the long haul.30 4.54 This raises a general point about future developments, which applies to all the results presented in this study, including those on water supply also and on energy production and use in Chapters 2 and 3. None of the scenarios are forecasts. Future developments could readily lie anywhere between the bounds of the unchanged practices (business-as-usual) and the efficiency reform scenarios presented. Indeed, with alternative assumptions on some parameters and on the rate of per capita income growth, it is possible to construct 'worst case' scenarios that 29 Again, see Chapter 5 of the 1992 World Development Report, prepared by John Briscoe. 30 Ibid. 66 are worse than the unchanged practices (business-as-usual) scenarios presented above and, on the other hand, scenarios that are better than those we have constructed for the reform cases. But this would only serve to emphasize the conclusion that future developments will turn on the quality of public policies far more than on any other factor. It is not possible to forecast which policies will be followed; but it is possible to outline, if only roughly, what the consequences of the various options might be, and this of course is the purpose of the present analysis. 4.55 Hence once again the simulations have pointed to the crucial role of policy in solving an economic and an environmental problem. In the case of water and sanitation, as in other sectors, good economic and institutional policies are not only good for people's health and the environment, but also for the economy. This is shown for the (admittedly crude) estimates of economic benefits of increased water supplies, shown in Figure 4.5. Fetching and carrying water (often over large distances) when public supplies are not available represents enormous economic and social costs to literally billions of people, quite apart from the deleterious effects of unsafe water on their health and productivity. As in the other sectors we have studied therefore, we have once again an excellent--and perhaps the most compelling--example of good economic policies being good for economic growth and the environment, and also for people's health and welfare. 67 Figure 4.3 Number in Low Income Countries Without Access to Safe Water 3.50 - - 3.00 2.00-- Billion ,., 0.50 1.00 0.00 - I I11 I FlI ' IIil! I:i Il'F ,§ll ,l 1990 1993 1996 1999 2002 2005 2003 2011 2014 2027 2020 2023 2026 2029 +S--- No -C---NAccelerate -*-Slow Fas Reform d Reform Reform Irlvesolent Figure 4.4 Number in Low Income Countries Without Access to Adequate Sanitation 3.50 3.00 2.50 -- Billion 1.50 1.00 0.50 2990 1993 1996 1999 2002 2005 200S 20tl 2014 2017 2020 2023 2026 2029 No - Accelerate - Slow Past Reform d Reform Reform lnvestnent 68 Figure 4.5 Annual Incremental Benefits From Water Supply Under Different Scenarios 14.00 T 12.002- _ 10.00 /1 I f,~~~~~~~~~~~~~/ 8.00 / TUSSbnsi{ 6.00 4.00 2.00- ' I 0.00 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 --A* No ----Accelerate - Slow F a3t Reform d Reform Reforrm Investmnent Figure 4.6 Infant Mortality Rates From Different Water Supply and Sanitation Scenarios 35 30 65 Deaths 11cr '000 jive 6 births | 55 50 45 1990 1993 1996 1999 2002 2005 200s 2011 2014 2017 2020 2023 2029 2029 |-- No Reform - Accelerated -.- Slow Reform 0- Fast Reform Invesomtnt 69 V. SIMPLIFICATIONS, APPLICATIONS TO OTHER ENVIRONMENTAL PROBLEMS, AND CONCLUSIONS A More Direct Approachl 5.1 Several of the above results can be arrived at more directly if reasonable judgements can be made as to the shares of total output provided by low polluting technologies and practices in each period. When determining the level of emissions there are three quantities of interest: * The level of output, Qt The shares of output provided by low polluting or low damaging practices, St , and * The emissions per unit output of the low polluting and polluting practices, El and 0p respectively. The total emissions relative to emissions in the base year, denoted by the index Et are then t= [(1-St) + St(9 I/ , p)] (QV'QO) (1) When St = 0 , Et = (Qt/Qo) , and thus emissions rise directly with output. But as St approaches unity, they fall to Et = (OI/Op) (Qt/Qo). Since (191p) may range from 1/20 to 1/1000 or less for many types of pollutants, large reductions in pollutions can be achieved in the presence of large increases in output. 5.2 In practical situations, the shares of new technologies and practices in total output of the take the form of an 'S' or 'learning curve', shown in Figure 5.1b; the emissions index can then be calculated from a knowledge of the ratio 0 I/ O p and assumptions about the level and growth of output, Qt/Qo.* Figure 5.1c shows what the corresponding emissions index (solid line) would be using values of (01/0p) of 1/10 (typical for SO2 and NOx controls), 1/1000 (typical for PM and unleaded fuels), for the case when Qt/Qo doubles every 15 years. 5.3 When deciding on the values of St the crucial determinants are four:2 * Policy. Without environmental taxes or regulations in place, St = 0. But when an environmental tax (or the imputed tax of a regulatory policy) equals or exceeds the costs of introducing the I The approach described below can easily and quickly be set up on a spreadsheet captures most of the points brought out in Chapters 2 and 3 in particular, and may be useful for the "in-field" analysis of most problems. 2 The 'S' curves shown in Figure 5.1(b) assume an expected lifetime of 15 years for new investments. Investments in low poL'uting technologies are introduced according to the 'ramp' function: A t = t/T where T = 20 and A t = 1 when t 2 T. 70 low polluting practices, St may typically take the form shown in Figure 2.6. Further, the more it exceeds the costs of the low polluting practices, or the 'tighter' the regulations, the faster St is likely to rise. * Response times. There are also limits to the rate at which the producers can practically respond to any new incentives. When the technologies are still being developed and tested, response times can be quite long and, even when the technologies or practices are already developed, it may often be some time before the producers can invest in the new practices on a large scale. * The inherited capital stock. Even when all new investments are polluting, pollution will still continue until the existing capital stock using the offending practice is retired or retrofitted. The costs of retrofitting are generally much higher than those of incorporating low polluting or damaging practices in new investment, retrofitting is often uneconomical, and early retirement may sometimes be preferred. Much depends on the local situation and costs. 3 iOutpiut Lgowth. The rapid growth of output can work in two directions, and again much will depend on the particular situation. High rates of output growth and investment generally lead to a more rapid retirement of the existing stock and provide an opportunity for low polluting practices to be incorporated in new investment; on the other hand, high rates of growth mean that the scale of the problem to be addressed becomes increasingly larger and higher rates of investment may be needed to avoid pollution intensifying unacceptably. 5.4 Use of relationships like (1) also enables an approximate assessment to be made of the contributions of price reforms to pollution abatement. Consider the simple demand function Dt for a sector's output, with demand being equal to supply, QW Qt = Dt = QO (Yt/Yo) Y (Pt/Po)MP (2) where Yt denotes income, Pt prices, and my and mp are income and price elasticities respectively. Income elasticities for many of the goods and services commonly associated with pollution in developing countries (and in particular for commercial energy and industrial products) are generally in excess of unity; hence a doubling of income, say, over a fifteen year period would lead to more than a doubling of demand and output. Price elasticities, on the other hand, are typically around -0.5, so that if prices are initially distorted by a factor of two, the effects on pollution of removing the distortions would be relatively small (though not insignificant) reducing it by around 30%, which would not be enough to offset the effects of the growth of incomes (nor of populations) on demand and output. Even assuming a price elasticity of -1.0 would still mean that pollution would rise in most situations. 71 Figure 5.1 Simplified Calculations of Emissions Indexes Output Assumptions gm No 7W 6W SW 4W 3W SW 100 40 . 0 2 4 6 t 10 12 14 16 18 20 22 24 26 2 20 32 34 36 38 40 Tnne - *- Per capita demands - Total demands Emissions Relative to Basc Year 4W / / 350 A 300 250 10--002I02W 230 1W0 50 0 . . . . . ... ThIt -a----- *No low-pofiuting ----- 90% reduction possible - - 99% rcducdon possible c 99.9% reductiok substtution ' possible Shares of Polluting and Low-Polluting Capital Stock 0.90 0.00 0.70 0.60 0.30 0.40- 0.30 0.30 0.10 023 4 6 a 20 12 14 16 is 20 22 1 24 23 29 0 32 34 36 38 40 ----Shart of capita stock that is low-polluting -0--- -- Share of capital stock dhat is Polluting 72 The economic benefits of price reforms, as shown in the cases presented above, would be very large; but while the "win-win" options are economically desirable, they are not a sufficient condition for pollution to be abated. Once again, targetted policies, using environmental taxes or regulations, or in some cases public investment, are necessary if there is to be substitution towards the low polluting practices. 5.5 Expressions like (2) also show that the effects of the added costs of pollution control on demand and output are generally quite small. Costs were reviewed in the WDR, and in the case studies presented above. They are typically 5% of total output costs, sometimes less, but in exceptional cases (e.g., in chemicals) might rise to 20%. Taking the latter figure and a price elasticity of -0.5, would imply a 10% reduction in demand arising from the extra costs of an environmental policy, rather less than two years' growth of demand in developing countries, and much less than one years' growth of demand in cases where the costs of environmental controls are 5% or less to total output costs. Thus the effects of environmental taxes or regulations on output are generally small--it is their effects on technical choice and management practices that are large. Applications to Other Environmental Problems 5.6 Is the above approach, and are some of the conclusions reached, more generally applicable? The possibilities for substituting low polluting or low damaging practices for polluting or damaging ones occur in numerous activities, in addition to those studied above. Examples from other sectors were tabulated in Table 1.1. They suggest that substitution, and the changes in technologies and management policies with which it is associated, will be found to be quantitatively the most important factor in other sectors too. The following three examples might suffice to make the point. 5.7 Soil Erosion. Several practices are capable of reducing soil erosion to low levels: farm forestry; the planting of windbreaks or shelterbelts; contouring with vetiver grasses or other vegetative barriers; and structural measures such as land levelling, building 'earth banks' or 'bunds,' and terracing. The appropriate choice of practice varies with terrain, costs and several other factors. But the interesting point is not only do they reduce erosion, they enhance the soil's productivity through improving the retention of moisture and nutrients.3 Cost-benefit studies have found the prospective economic returns to investment to be good.4 5.8 Global Warming. In theory, the whole of the world's energy demands could be met by renewable energy resources, and net carbon emissions reduced to zero. While the ambiguities in the evidence about the extent and consequences of global warming is such that a full-scale program of substitution of such energy resources for fossil fuels is unwarranted at the present time, there is now little doubt that substitutes for fossil fuels exist, and could be harnessed on a very large scale should the need arise--principally in the form of solar energy, using solar-thermal devices or photovoltaic cells, biomass fuels for electric and non-electric markets, and 3 See Doolette and Magrath (1990) for a review of uses. 4 See Magrath in Doolette and Magratb (ibid) and Anderson (1989). 73 conversion devices such as fuel cells with hydrogen as the primary fuel.5 Cost estimates vary, with some studies showing that renewables are becoming competitive in several energy markets already, and others estimating that they may add no more than US cents 2/KWh to the costs of electricity in regions of medium to high solar insolation, and $0.5 to $1.0 per gallon of oil equivalent in the liquid fuel markets. Should the need arise, substitution toward renewable energy on a large scale is technically and economically feasible. 5.9 Indoor Air Pollution. Over half the world's populations cook with biomass fuels, primarily dung, wood and charcoal. As the WDR noted,6 concentrations of suspended particulate matter indoors reach 10 and sometimes 100 times the WHO health guidelines for air pollution, which recommend that concentrations of 230 micrograms per cubic meter should not be surpassed more than 2% of a year. The substitution of commercial fuels, principally gas and electricity, virtually eliminates this source of pollution. 5.10 From the perspective of policymaking, one difference between indoor air pollution and other environmental problems is that it is a consequence of incomes being low rather than of externalities (though externalities are present). It exhibits all the features of an "inferior good", since its use declines with per capita incomes and with the abilities of people to afford commercial energy and appliances. (The shift to commercial energy also is associated with a significant increase in the technical efficiency with which energy is used in the house.) onglusion 5.11 Hence, substituion toward low polluting or damaging practices seems to be of general importance. Several industry studies undertaken by UNIDO and U.S. government departments7 have reached similar conclusions for a large number of industrial processes and products. 5.12 As regards the contribution of economic efficiency to pollution abatement, its quantitative importance will vary among countries and the problem in hand. The reviews of the 1992 WDR, and of others befoFe it,8 uncovered a surprisingly large number of instances in many developing and industrial countries where prevailing policies were biased against economic efficiency and growth and good environmental management: e.g., in the absence of satisfactory tenurial arrangements in agriculture; in defective (often corrupt) licensing policies for forestry; in unnecessary subsidies for irrigation, for practically all forms of energy production and use, for land clearance and for water-supplies to industrial and household consumers; and, as discussed above, in shortcomings in urban traffic management and pricing policies. The extent of the deformities in policies, and thus the gains from reforms, will vary greatly with the situation. What can be said is that, where economic policies are indeed biased against efficiency and the environment, the prospective economic benefits of reform have so far been estimated to be very large while their prospective environmental benefits (however S See Johanssen, Kelly, Reddy and Williams (1992), and Anderson and Bird (1992). 6 Drawing on studies by Smith (1988), Anderson and Bird (1992) and Anderson (1991). 7 UNIDO (1991) for a general review. Also, Hirschhorn and Oldenberg (1991). 8 See Schramm and Warford (1989) and Repetto (1988). 74 defined) have been estimated to be small (though not negligible) compared with the contribution of substitution. Substitution also leads to efficiency gains, under an economically rational environmental policy, via the reduction of external costs. 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Calculations were made for each year, but to simplify presentation, only the results for 5- and then 10-year intervals are shown for beyond year 2000. t82 Electricitv No Reform, No Envlnv Unit 1990 1991 1992 1993 1994 1995 1996 1997 199S 1999 2000 2005 2010 2015 2020 2025 2030 1. Supply/demand assumptions - reference Price clastity of dasnand:| 0.501 Income elasticity of demand: 1.50 Per capita demands KWh 585 607 630 654 678 704 731 758 787 816 847 1089 1399 1785 2277 2905 3705 Total demands TWh 2398 2538 2686 2842 3006 3178 3359 3550 3750 3960 4181 5836 8096 11096 15142 20566 27639 Total capacity demands OW 551 584 618 653 691 731 772 816 862 910 961 1342 1861 2551 3481 4728 6354 Incremental capacity GW 30.6 32.2 34.0 35.8 37.7 39.6 41.6 43.8 46.0 48.4 50.8 85.9 117.2 155.0 208.6 279.0 347.4 2. Costs with good practices, polltech Real price rise of fuel, p.a: 0.01 Tech. progress growth rate p.a.: 0.02 Technicalprogressfactor 1.00 1.02 1.04 1.06 1.08 1.10 1.11 1.13 1.15 1.16 1.18 1.26 1.33 1.39 1.45 1.50 1.55 Investment costS US$/KW 2500 2451 2406 2362 2322 2283 2246 2211 2178 2146 2116 1985 1880 1794 1723 1663 1612 Investment costs USS/KWh 0.69 0.68 0.66 0.65 0.64 0.63 0.62 0.61 0.60 0.59 0.58 0.55 0.52 0.49 0.48 0.46 0.44 Annual inv. costs, pt USS/KWb/yr 0.07 0.07 0.07 0.07 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.05 0.05 0.05 0.05 0.05 0.04 Fuel costs USS/KWh 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 00 0.03 0.03 0.03 Operatons and management USS/KWh 0.03 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Marginal costs of pt USS/KWh 0.13 0.12 0.12 0.12 0.12 0.12 0.12 0.11 0.11 0.11 0.11 0.10 0.10 0.10 0.09 0.09 0.09 3. Managerial (in)eMciency Muagerial efficiency iMnprovemcnL sate: 0.00 Actual supply/good practice supply 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 Adjusted fuel costs USS/KWh 0.05 0.05 0.05 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 Adj. annual inv. costs, pt USS/KWhlyr 0.11 0.10 0.10 0.10 0.10 0.10 0.10 0.09 0.09 0.09 0.09 0.08 .0.08 0.08 0.07 0.07 0.07 Adj. marginal costs,pt USS/lWh 0.19 0.19 0.19 0.19 0.18 0.18 0.18 0.18 0.17 0.17 0.17 0.16 0.15 0.15 0.15 0.14 0.14 Adj. investment costs, pt USS/KWh 1.06 1.04 1.02 1.00 0.99 0.97 0.95 0.94 0.92 0.91 0.90 0.84 0.80 0.76 0.73 0.71 0.68 4. Low-polluting technologies & hydro Rate of retirenent/retrofitaing: 0.20 Capital costs of PM Iplpt ratio 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.015 1.010 1.010 1.010 Capital cosu of SOx lpt/pt rado 1.080 1.079 1.078 1.077 1.076 1.075 1.074 1.073 1.072 1.071 1.070 1.065 1.060 1.040 1.020 1.020 1.020 Capital coats of NOxlptp rtio 1.040 1.039 1.038 1.037 I.036 1.035 1.034 1.033 1.032 1.031 1.030 1.025 1.020 1.020 1.020 1.020 1.020 Adj ineff. iny. costs, PM Ipt USS/KWh 1.08 1.06 1.04 1.02 1.00 0.99 0.97 0.96 0.94 0.93 0.92 0.86 0.81 0.77 0.74 0.71 0.69 Adj ineff. inv. costs, S02 IptUSS/KWh 1.17 1.14 1.12 1.10 1.08 1.06 1.04 1.03 1.01 0.99 0.98 0.91 0.86 0.80 C.75 0.73 0.70 Adj ineff. inv. costs NOx IpUSS/KWh 1.21 1.18 1.16 1.14 1.12 1.09 1.08 1.06 1.04 1.02 1.01 0.94 0.88 0.82 0.77 0.74 0.72 Adj. marginal costs, all Ipt USS/KCWh 0.21 0.21 0.20 0.20 0.20 0.19 0.19 0.19 0.18 0.18 0.18 0.17 0.16 0.15 0.15 0.15 0.14 Hydro share of new investments 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 SOx Ipt share of non-hydro investment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NOx Ipt share of non-hydro investment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 PM Ipt share of non-hydro investment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Retirement schedule, initital capital 0.990 0.988 0.985 0.982 0.978 0.973 0.968 0.961 0.952 0.942 0.931 0.831 0.645 0.400 0.197 0.083 0.032 Incr. share of new inv. in S02 Ipt: 0.00 Incr. shamr of new inv. in NOx IpL 0.00 5. Price (in)efflciency Convergence rt e of prices: 0.00 Incr. share of new inv. in PM lpt: 0.00 Electricity price before inv. USS/KlWh 0.25 0.25 0.24 0.24 0.24 0.23 0.23 0.23 0.22 0.22 0.22 0.21 0.20 0.19 0.19 0.18 0.18 Efficiency price USS/KWh 0.21 0.21 0.20 0.20 0.20 0.19 0.19 0.19 0.18 0.18 0.18 0.17 0.16 0.15 0.15 0.15 0.14 Actual price/MC price ratio 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 Actual price charged USSKWh 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.05 0.05 0.05 0.05 0.05 0.04 0.04 0.04 6. Unit benefit estimates Consumers' surplus USS/KWh 0.14 0.14 0.14 0.14 0.13 0.13 0.13 0.13 0.13 0.13 0.12 0.12 0.11 0.11 0.11 0.10 0.10 Revenues less supply costs USS&KWh .0.15 -0.14 -0.14 -0.14 -0.14 -0.13 4013 .0.13 -0.13 -0.13 -0.13 -0.12 -0.11 -0.11 -0.10 -0.10 -0.10 Net benefits USSlKWh 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Memo: Value added USS/KWh -0.03 -0.03 -0.03 -0.3 -0.03 -03 -0.03 -0.03 -0.03 -0.03 -0.03 -0.03 -0.03 -0.03 -0.03 -0.03 0Q03 ERR perent 9.66 9.67 9.69 9.70 9.72 9.73 9.75 9.76 9.78 9.80 9.81 9.89 9.97 10.17 10.38 10.39 10.40 7. Health effects (extrapolations from Bangkok data) TSPconcentrationminusnonms ugqn3 162 176 190 206 222 239 257 275 295 316 338 501 724 1020 1420 1955 2653 PM-induced mortality million 0.38 0.43 0.48 0.55 0.61 0.68 0.76 0.85 0.95 1.05 1.16 2.01 3.35 5.38 8.47 13.07 19.60 PM-induced work days lost billion 1.5 1.7 1.9 2.2 2.4 2.7 3.1 3.4 3.8 4.2 4.6 8.0 13.4 21.5 33.8 52.2 78.2 PM-induced restricted activity days br 13.9 15.7 17.8 20.0 22.4 25.1 28.0 31.2 34.6 38.4 42.5 73.8 122.8 197.3 310.7 479.2 718.4 Disc. 10-year ave. urban Y USSOO 17.5 17.9 18.4 18.8 19.3 19.8 20.3 20.8 21.3 21.8 22.4 26.4 31.2 36.7 43.2 50.8 59.8 CostofPM-induced mortality USSbn 6.6 7.7 8.9 10.3 11.8 13.5 15.5 17.7 20.1 22.9 25.9 53.2 104.6 197.8 366.3 664.6 1172.0 CostofPM-inducedWDL USSbn 2.2 2.5 2.9 3.4 3.9 4.4 5.1 5.8 6.6 7.5 8.5 17.5 34.4 65.0 120.4 218.5 385.3 83 Electricity No Reform, No Envlnv Unit 199O 1991 1992 193 194 199S 1996 1997 19S 1999 2000 2005 2010 2015 2020 2025 2030 S. Supply/demand assumptons - reform effects Demandadj.forpricereform GW 551 584 618 653 691 731 772 816 862 910 961 1342 1861 2551 3481 4728 6354 Incremental capacity demand GW 30.6 32.2 34.0 35.8 37.7 39.6 41.6 43.8 46.0 48.4 50S 85.9 117.2 155.0 208.6 279.0 347.4 Retirements of existing K GW 37.6 35.6 33.2 31.0 29.1 273 25.8 24.4 23.3 22.4 21.7 22.4 31.5 49.1 71.5 97.9 132.2 Gross total capacity required GW 68.2 67.8 67.2 66.9 66.8 66.9 67.4 68.2 69.3 707 72.5 10.3 148.7 204.1 280.1 376.9 479.6 Capacity saved by managerial mforms 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0O 0.0 0.0 0.0 0O 0.0 0.0 0.0 Gross new capacity required GW 68.2 67.8 67.2 66.9 66.8 66.9 67.4 68.2 693 70.7 72.5 1083 148.7 204.1 280.1 376.9 479.6 9. Output, beneflts and Investment Investment required USSbn 254.2 247.9 241.0 235.4 231.0 227.8 22S.8 224.9 225.1 226.4 228.8 320.6 416.8 S45.7 719.3 934.3 1152.6 Investment required, bc USSbn 2542 247.9 241.0 235.4 231.0 227.8 225.8 224.9 225.1 226.4 228.8 320.6 416.8 545.7 719.3 934.3 1152.6 Investment savings over bc USSbn 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Incrementaf net benefits USSbn -0.6 -0.5 45 -05 4.5 405 -0.5 -0.5 -0.5 .4 4.4 404 QI 0.9 2.6 3.5 4.4 Investment needed as % of LDC inv. 413 38.6 35.9 33.5 31.5 29.7 28.2 26.9 25.8 24.9 24.1 26.4 26.9 27.8 29.1 30.2 30.1 Gross benefits as % of LDC growth -04 0.4 4 -0.3 -.3 -0.3 43 4.3 4.3 Q2 -0.2 -Q1 0.0 0.2 0.5 0.5 0.6 ICOR- industry -74 -69 *64 -59 -56 -S2 -49 -47 -45 -43 .41 -34 -32 -31 -29 -28 -Z2 ICOR - GNP -459 -454 -448 -446 -447 -452 -461 -473 -491 .515 -545 -844 -3497 579 273 267 265 10. Poflutfon/emlssons Index PT emissions of S02 OOOVyear/GW 90.0 PT aniusions of NOx OOty0earGW 4QO PT emissions of PM OOOtlyear/GW 230.0 LPT emissions of S02 OOOt/year/GW 9.0 8.8 8.7 8.5 8.4 8.2 8.1 8.0 7.8 7.7 7.6 7.1 6.8 6.5 6.2 6.0 5.8 LPTemissionsofNOx 000u4ear/GW 12.0 I.S 11.5 113 11.1 11.0 10.8 10.6 10.5 10.3 10.2 95 9.0 8.6 8.3 8.0 7.7 LPToemissionsofPM OOOt/year/GW 11.5 11.3 11.1 10.9 10.7 IS IQ3 10.2 IO 9.9 9.7 9.1 8.6 8.3 7.9 7.6 7.4 S02 emissions mtonneslyear 37.2 39.4 41.7 44.1 46.6 493 52.1 55.1 58.2 61.5 64.9 90.6 125.6 172.2 235.0 319.1 428.9 NOx emissions mtonnes/year 165 17.5 18.5 19.6 20.7 21.9 23.2 24.5 25.9 273 28.8 40.2 55.8 76.5 104.4 141.8 190.6 PM emissions mwnnes/year 95.1 100.7 106.5 112.7 1192 126.0 133.2 140.8 148.7 157.0 165.8 231.4 321.0 440.0 600.4 815.5 1096.0 SO2emnissionsindex 100.0 105.8 112.0 118.5 125.3 132.5 140.1 148.0 156.4 16S.1 174.3 243.3 337.6 462.7 631.4 857.6 1152.5 NOx emissions index 100.0 105.8 112.0 118.5 125.3 132.5 140.1 148.0 156.4 165.1 174.3 243.3 337.6 462.7 631.4 857.6 1152.5 PM emissions index 100.0 105.8 112.0 118.5 125.3 132.5 140.1 148.0 156.4 165.1 1743 243.3 337.6 462.7 631.4 857.6 1152.5 84 Electricitv Reform, No Envlnv Unit 1990 1991 1992 1993 1994 1995 1996 1997 199S 1999 2000 2005 2010 2015 2020 2025 2030 1. Supply/demand assumptions - reference Price elasticity of demand:| 0.501 Income elasticity of demand: 1.50 Per capita demands KWh 585 607 630 654 678 704 731 758 787 816 847 1089 1399 1785 227' 2905 3705 Total demands TWh 2398 2538 2686 2842 3006 3178 3359 3550 3750 3960 4181 5836 8096 11096 15142 20566 27639 Total capacity demands OW 551 584 618 653 691 731 772 816 862 910 961 1342 1861 2551 3481 4728 6354 Incremental capacity GW 30.6 32.2 34.0 35.8 37.7 39.6 41.6 43.8 46.0 48.4 50.8 85.9 117.2 155.0 208.6 279.0 347.4 2. Costs wvith good practices, polltech Real price rise of fuel, p.a.: 0.01 Tech. progress growth rate p.a: 0.02 Technical progress factor 1.00 1.02 1.04 1.06 1.08 1.10 1.11 1.13 1.15 1.16 1.18 1.26 1.33 1.39 1.45 1.50 1.55 Investment cosu USS/KW 2500 2451 2406 2362 2322 2283 2246 2211 2178 2146 2116 1985 1880 1794 1723 1663 1612 Investment cosu USS/KWh 0.69 0.68 0.66 0.6S 0.64 0.63 0.62 0.61 0.60 0.59 0.58 0.55 0.52 0.49 0.48 0.46 0.44 Annual inv. costs, pt USS/KWhVyr 0.07 0.07 0.07 0.07 0.06 0.06 0.06 0.06 0.06 0.06 0.06 O.05 0.05 0.05 0.05 0.05 0.04 Fuel costs USS/KWh 0.03 0.03 0.03 0.03 03 0.03 0.03 0.03 QQ 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 Operadons and management USS/KWh 0.03 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 O.02 Marginal cosu of pt USS/KWh 0.13 0.12 0.12 0.12 0.12 0.12 0.12 0.11 0.11 0.11 0.11 0.10 0.10 0.10 0.09 0.09 0.09 3. Managerial (In)emciency Managerial efficiency improvement rate: 0.03 Actual supply/good practice supply 0.65 0.66 0.67 0.68 0.69 0.70 0.71 0.72 0.72 0.73 0.74 0.78 0.81 0.83 0.86 0.88 0.89 Adjusted fuel costs USS/KWh 0.05 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 Adj. annual inv. cosu, pt US$/IKWhyr 0.11 0.10 0.10 0.10 0.09 0.09 0.09 0.09 0.08 0.08 0.08 0.07 0.06 0.06 0.06 0.05 0.05 Adj.marginalcosu,pt USS/KWh 0.19 0.19 0.18 0.18 0.17 0.17 0.16 0.16 0.16 0.15 0.15 0.13 0.12 0.12 0.11 0.11 0.10 Adj. investment cosu, pt USS/KWh 1.06 1.02 0.99 0.96 0.93 0.90 0.88 0.85 0.83 0.81 0.79 0.71 0,64. 0.59 0.55 0.52 0.50 4. Low-poluting technologles & hydro Rate of redrement/retrofiting: 0.20 Capital cosu of PM lpt/pt ratio 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.015 1.010 1.010 1.010 Capital costs of SOx lpt/pt ratio 1.080 1.079 1.078 1.077 1.076 1.075 1.074 1.073 1.072 1.071 1.070 1.065 1.060 1.040 1.020 1.020 1.020 Capita cosu of NOx lpt/pt ratio 1.040 1.039 1.038 1.037 1.036 1.035 1.034 1.033 1.032 1.031 1.030 1.025 1.020 1.020 1.020 1.020 1.020 Adj ineff. inv. costs, PM lpt USS/KWh 1.08 1.04 1.01 0.98 0.95 0.92 0.89 0.87 0.85 0.82 0.80 0.72 0.65 0.60 0.56 0.53 0.50 Adj ineff. inv. costs. S02 1ptUSS/KWh 1.17 1.13 1.09 1.05 1.02 0.99 0.96 0.93 0.91 0.88 0.86 0.76 0.69 0.63 0.57 0.54 0.51 Adj ineff. inv. costs, NOx lptUSS/KWh 1.21 1.17 1.12 1.09 1.05 1.02 0.99 0.96 0.93 0.91 0.88 0.78 0.71 0.64 0.58 0.55 0.52 Adj. marginal cosu, all lpt USS/KWh 0.21 0.20 0.20 0.19 0.18 0.18 0.17 0.17 0.17 0.16 0.16 0.14 0.13 0.12 0.11 0.11 0.10 Hydro share of new investrnenu 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 SOx Ipt share of non-hydro investment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NOx Ipt share of non-hydro investment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 .0.00 0.00 0.00 PM Ipt share of non-hydro investment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Redrement schedule, initital capital 0.990 0.988 0.985 0.982 0.978 0.973 0.968 0.961 0.952 0.942 0.931 0.831 0.645 0.400 0.197 0.083 0.032 Incr. share of new inv. in S02 Ipt: 0.00 Incr. share of new iny. in NOx lpt: 0.00 S. Price (ln)eMclency Convergence rate of prices: 0.03 Incr. share of new inv. in PM lpts 0.00 Electricity price before inv. USS/KWh 0.25 0.25 0.24 0.24 0.24 0.23 0.23 0.23 0.22 0.22 0.22 0.21 0.20 0.19 0.19 0.18 0.18 Efficiency price USS/KWh 0.21 0.20 0.20 0.19 0.18 0.18 0.17 0.17 0.17 0.16 0.16 0.14 0.13 0.12 0.11 0.11 0.10 Actual price/MC price ratio 0.30 0.32 0.34 0.36 0.38 0.40 0.42 0.43 0.45 0.47 0.48 0.55 0.62 0.67 0.72 0.76 0.79 Actual price charged US$/KWh 0.06 0.06 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 6. Unit beneflt estimates Consumers' surplus USS/KWh 0.14 0.14 0.14 0.13 0.13 0.13 0.12 0.12 0.12 0.12 0.11 0.10 0.10 0.09 0.09 0.09 0.08 Revenues less supply costs USS/KWh -0.15 -0.10 -0.09 -0.09 -0.08 -0.08 -0.07 -0.07 -0.06 -0.06 -0.05 .0.04 -0.03 -0.02 -0.01 -0.01 .0.01 Net benefits US5/KWh 0.00 0.04 0.04 0.04 0.05 0.05 0.05 0.06 0.06 0.06 0.06 0.07 0.07 0.07 0.08 0.08 0.08 Memo: Value added USS/KWh -0.03 -0.02 -0.02 -0.01 -0.01 -0.01 0.00 0.00 0.00 0.00 0.01 0.01 0.02 0.02 0.03 0.03 0.03 ERR percent 9.66 14.51 15.19 15.84 16.50 17.16 17.83 18.48 19.12 19.75 20.35 22.37 24.60 26.87 29.07 30.62 32.12 7. Health effects TSP concentration minus normz ughrn3 162 169 178 187 197 208 219 231 244 258 273 389 547 756 1037 1412 1899 PM-induced mortaliy million 0.38 0.41 0.45 0.50 0.54 0.60 0.65 0.71 0.78 0.86 0.94 1.56 2.53 3.99 6.19 9.44 14.02 PM-induced work days lost billion 1.5 1.7 1.8 2.0 2.2 2.4 2.6 2.9 3.1 3.4 3.7 6.2 10.1 15.9 24.7 37.7 56.0 PM-inducedrestrictedactivitydays br 13.9 15.2 16.6 18.2 19.9 21.8 23.9 26.2 28.7 31.4 34.3 57.2 92.7 146.2 226.9 346.1 514.0 Disc 10-year ave. urban Y USSOOO 17.5 17.9 18.4 18.8 19.3 19.8 20.3 20.8 21.3 21.8 22.4 26.4 31.2 36.7 43.2 50.8 59.8 CostofPM-inducedmorrality USSbn 6.6 7.4 R.3 9.3 10.5 11.8 13.2 14.8 16.7 18.7 20.9 41.3 79.0 146.6 267.5 480.0 838.5 Cost of PM-induced WDL USSbt 2.2 2.4 2.7 3.1 3.4 3.9 4.3 4.9 5.5 6.1 6.9 13.6 26.0 48.2 87.9 157.8 275.6 85 Electricity Reform, No EnvInv Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 2030 8. Supply/demand assumptions - reform effects Dunandadj.forpricerform OW 551 569 588 610 633 658 685 713 744 776 810 1080 1448 1935 2589 3463 4596 Incremental capacity demand oW 30.6 17.6 19.5 21.4 23.2 25.0 26.8 28.5 30.3 32.2 34.1 61.0 83.1 109.3 1465 195.1 241.3 Retirements of existing K OW 37.6 35.6 33.1 30.9 28.9 27.1 25.5 24.0 22.8 21.8 21.0 20.5 26.8 39.8 55.9 74.5 98.6 Gross total capacity required OW 68.2 53.2 52.6 52.3 52.1 52.1 52.2 52.6 53.2 54.0 55.1 81.4 109.9 149.0 202.4 269.6 339.9 Capcity saved by managerial rforms 0.0 5.9 5.9 5.9 6.0 6.0 6.1 6.2 6.2 6.3 6.4 7.3 8.5 9.7 11.2 12.9 14.8 Gross new capacity rquired GW 68.2 47.3 46.7 46.4 46.1 46.0 46.1 46.4 46.9 47.7 48.7 74.1 101.5 139.3 191.2 256.7 325.2 9. Output, benefits and Investment Investment rquird USSbn 254.2 165.0 157.5 151.3 145.8 141.1 137.4 134.5 132.3 131.0 130.5 179.2 224.3 285.3 366.9 465.7 561.7 Investment nquird, bc USSIn 254.2 247.9 241.0 235.4 231.0 227.8 225.8 224.9 225.1 226.4 228.8 320.6 416.8 545.7 719.3 934.3 1152.6 Investment savings overbc USSbn 0.0 82.8 83.5 84.2 85.2 86.7 S8.4 90.4 92.7 95.3 98.3 141.4 192.5 260.4 352.5 468.6 590.9 Incremental net benefits USSbn -0.6 2.8 3.4 4.1 4.8 5.5 6.2 6.9 7.6 8.3 9.1 17.6 25.4 34.9 48.3 65.4 82.2 Investnentneededas%ofLDCinv. 41.3 25.7 23.4 21.5 19.9 18.4 17.2 16.1 15.2 14.4 13.8 14.7 14.4 14.5 14.9 15.1 14.7 Gross benefiu as 98 of LDC growth -0.4 2.0 2.4 2.7 3.0 3.4 3.6 3.9 4.2 4.4 4.7 6.0 6.9 7.8 8.8 9.7 10.9 ICOR - indusuy -74 -103 -111 -126 -155 .214 -381 -2831 475 213 135 45 30 25 22 19 18 ICOR - GNP -459 59 46 37 31 26 22 20 17 16 14 10 9 8 8 7 7 10. Pollution/emissions index PT emissions of S02 000thyear/GW 90.0 PT emissions of NOx 000tlyear/GW 40.0 PT emissions of PM 00t/year/GW 230.0 LPTemnissions of S02 000t/year/GW 9.0 8.8 8.7 8.5 8.4 8.2 8.1 8.0 7.8 7.7 7.6 7.1 6.8 6.5 6.2 6.0 5.8 ILPTnemissionsofNOx OODt/year/GW 12.0 11.8 11.5 11.3 11.1 11.0 10.8 10.6 10.5 10.3 10.2 9.5 9.0 8.6 8.3 8.0 7.7 LPTemnissionsofPM 000thyear/GW 11.5 11.3 11.1 10.9 10.7 10.5 10.3 10.2 10.0 9.9 9.7 9.1 8.6 8.3 7.9 7.6 7.4 S02 emissions mtonnes/year 37.2 38.4 39.7 41.2 42.7 44.4 46.2 48.2 50.2 52.4 54.7 72.9 97.8 130.6 174.8 233.7 310.2 NOx emissions mtonnes/year 16.5 17.1 17.7 18.3 19.0 19.7 20.5 21.4 22.3 23.3 24.3 32.4 43.4 58.1 77.7 103.9 137.9 PM emissions mtonnes/year 95.1 98.1 101.5 105.2 109.2 113.5 118.1 123.1 128.3 133.8 139.7 186.2 249.8 333.8 446.7 597.3 792.8 t02emissionsindex 100.0 103.2 106.7 110.6 114.8 119.4 124.2 129.4 134.9 140.7 146.9 195.8 262.7 351.0 469.7 628.1 833.6 NOxerissionsindex 100.0 103.2 106.7 110.6 114.8 119.4 124.2 129.4 134.9 140.7 146.9 195.8 262.7 351.0 469.7 628.1 833.6 PM emissions index 100.0 103.2 106.7 110.6 114.8 119.4 124.2 129.4 134.9 140.7 146.9 195.8 262.7 351.0 469.7 628.1 833.6 86 Elstri:itx No Reform, Envlnv Unit 1990 1991 1992 1993 1994 1995 199C 1997 1998 1999 2000 2005 2010 201S 2020 2025 2030 1. Supply/demand assumptions - reference Prie elasticity of d_mnd:| 0.501 nwcome elatcity of demnand: 1.50 Percapiadudemands KWh 585 607 630 654 67S 704 731 758 787 816 847 1089 1399 1785 2277 2905 3705 Total demands TWh 2398 2538 2686 2842 3006 3173 3359 3550 3750 3960 4181 5836 8096 11096 15142 20566 27639 Total capacity demands OW 551 584 618 653 691 731 772 816 862 910 961 1342 1861 2551 3481 4728 6354 Incremental capacity GW 30.6 32.2 34.0 35.3 37.7 39.6 41.6 43.8 46.0 48.4 50.8 35.9 117.2 155.0 208.6 279.0 347.4 2. Costs with good practices, poUtech Real price rie of fue. p.a: 0.01 Toe. pgrmss growth rte p.s: 0.02 7'echnical progmess factor 1.00 I 1.04 1.06 1.03 1.10 1.11 1.13 1.15 1.16 1.18 1.26 1.33 1.39 1.45 1.50 1.55 Investment costs USSWKW 2500 2451 2406 2362 2322 2233 2246 2211 217S 2146 2116 1985 1880 1794 1723 1663 1612 Investment costs USS/KWh 0.69 0.68 0.66 0.65 0.64 0.63 0.62 0.61 0.60 0.59 0.58 0.55 0.52 0.49 0.48 0.46 0.44 Annual inv. costs, pt USS/KWh/yr 0.07 0.07 0.07 0.07 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.05 0.05 0.05 0.05 0.05 0.04 Fuel costs USS/KWI 03 0. 0.03 0.03 0.03 M0. 0.03 0.03 0.03 0. 0.03 0.03 0.03 0.03 0.03 0.03 0.03 Operations and managemaet USSlKWh 0.03 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Marginal costs of pt USS/KWh 0.13 0.12 0.12 0.12 0.12 0.12 0.12 0.11 0.11 0.11 0.11 0.10 0.10 0.10 0.09 0.09 0.09 3. Managerial (in)eftlcency Managerial efficiency improvement Mts: 0.00 Actual supply/good practice supply 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 0.65 Adjusted fuel costs USS/KWh 0.05 0.05 0.05 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 Adj. annual inv. costs, pt USS/KWh/yr 0.11 0.10 0.10 0.10 0.10 0.10 0.10 0.09 0.09 0.09 0.09 0.08 0.08 0.08 0.07 o.a7 0.07 Adj. marginal costs, pt USS/KWh 0.19 0.19 0.19 0.19 0.18 0.18 0.18 0.18 0.17 0.17 0.17 0.16 0.15 0.15 0.15 0.14 0.14 Adj. investment cosut pt USS/KWh 1.06 1.04 1.02 1.00 0.99 0.97 0.95 0.94 0.92 0.91 0.90 0.84 0.80 0.76 0.73 0.71 0.68 4. Low-polluting technologies & hydro Rate of mtir /nretrofitting: 0.20 Capital costs of PM ]ptpPt ratio 1.020 1.020 1.020 1.020 1.020 l.20 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.015 1.010 1.010 1.010 Capital costs of SOx lpt/pt ratio 1.080 1.079 1.078 1.077 1.076 1.075 1.074 1.073 1.072 1.071 1.070 1.065 1.060 1.040 1.020 1.020 1.020 Capital costsofNOxlptipt ratio 1.040 1.039 1.038 .07 1.036 1.035 1.034 1.033 1.032 1.031 1.030 1.025 1.020 1.020 1.020 1.020 1.020 Adj ineff. inv. costs. PM Ipt USS/KWh 1.08 1.06 1.04 1.02 1.00 0.99 0.97 0.96 0.94 0.93 0.92 0.86 0.81 0.77 0.74 0.71 0.69 Adj ineff. inv. costs, S02 IptUSSKWh 1.17 1.14 1.12 1.10 1.08 1.06 1.04 IM 1.01 0.99 0.98 0.91 0.86 0.80 0.75 0.73 0.70 Adj ineff. inv. costs, NOx lptUSS/KWh 1.21 1.18 1.16 1.14 1.12 1.09 1.08 1.06 1.04 1.02 1.01 0.94 0.88 0.82 0.77 0.74 0.72 Adj. marginal costs, all Ipt US5/KWh 0.21 0.21 0.20 0.20 0.20 0.19 0.19 0.19 0.18 0.18 0.18 0.17 0.16 0.15 0.15 0.15 0.14 Hydro share of new invesinenu 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 025 0.25 0.25 0.25- 0.25 0.25 0.25 0.25 0.25 SOx lpt share of non-hydro investrnem 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.75 1.00 1.00 1.00 1.00 1.00 NOx lpt share of non-hydro investment 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.75 100 1.00 1.00 1.00 1.00 PM Ipt share of non-hydro invesutent 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.75 1.00 1.00 1.00 1.00 1.00 Retirement schedule, initital capital 0.990 0.9S8 0.985 0.982 0.978 0.973 0.968 0.961 0.952 0.942 0.931 0.831 0.645 0.400 0.197 0.083 0.032 Lr. share of new inv. in S02 lpt 0.05 Iar. sahe of new inv. in NOx lpt: 0.05 5. Price (In)emclency Convegence rate of prices: 0.00 Incr. share of new inv. in PM Ipt 0.05 Elecricitypricebeforeinv. USS/KWh 0.25 0.25 0.24 0.24 0.24 0.23 0.23 0.23 0.22 0.22 0.22 0.21 0.20 0.19 0.19 0.18 0.18 Efficiency price USS/KWh 0.21 0.21 0.20 0.20 0.20 0.19 0.19 0.19 0.18 0.13 0.18 0.17 0.16 0.15 0.15 0.15 0.14 Actual price/MC price atio 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 Actual price charged USS/KWh 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.05 0.05 0.05 0.05 0.05 0.04 0.04 0.04 6. Unit benefit estimates Consumers' surplus USS/KWh 0.14 0.14 0.14 0.14 0.13 0.13 0.13 0.13 0.13 0.13 0.12 0.12 0.11 0.11 0.11 0.10 0.10 Revenues less supply cosu USS/KWh 4.015 .0.14 -0.14 40.14 40.14 -0.13 -0.13 Q0.13 -0.13 -a013 *0.13 -0.12 40.11 40.11 .0.10 -0.10 -0.10 Net benefits USS/KWh 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Memo: Value added USS/KWh -0.03 .0.03 4003 -0.03 -0.03 -0.03 403 40.03 40.03 .0.03 .0.03 40.03 40.03 40.03 .0.03 -0.03 -0.03 ERR percent 9.66 9.67 9.69 9.70 9.72 9.73 9.75 9.76 9.78 9.80 9.81 9.89 9.97 10.17 10.38 10.39 10.40 7. Health effects TSPconcentration minus norms ugtm3 162 174 186 197 208 218 228 237 246 254 261 296 284 236 178 125 91 PM-induced mortality million 0.38 0.43 0.47 0.52 0.57 0.63 0.68 0.73 0.79 0.84 0.89 1.19 1.31 1.24 1.06 0.83 0.67 PM-induced work days lost billion 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.4 3.6 4.7 5.2 5.0 4.2 3.3 2.7 PM-induced restricted activity days br 13.9 15.6 17.4 19.2 21.1 23.0 24.9 26.9 28.8 30.3 32.8 43.6 48.2 45.6 38.9 30.6 24.5 Disc. 10.year ave. urban Y USSOOO 17.5 17.9 18.4 18.8 19.3 19.8 20.3 2QS 21.3 21.8 22.4 26.4 31.2 36.7 43.2 50.8 59.8 CostofPM-inducedmortality USSbn 6.6 7.6 S.7 9.9 11.1 12.4 13.8 15.2 16.7 18.3 20.0 31.4 41.1 45.7 45.8 42.4 40.0 Cost of PM-induced WDL USSbn 2.2 2.5 2.9 3.2 3.6 4.1 4.5 5.0 5.5 6.0 6.6 10.3 13.5 15.0 15.1 13.9 13.2 87 Electricity No Reform, EnvInv Unit 1990 1991 1992 1993 1994 1995 1996 1997 199S 1999 2000 2005 2010 2015 2020 2025 2030 S. Supply/demand assurupUons - reform effects Demandadj.forpricereform OW 551 584 618 653 691 731 772 816 862 910 961 1342 1861 2551 3481 4728 6354 Incremental capacity demand GW 30.6 32.2 34.0 35.8 37.7 39.6 41.6 43.8 46.0 48.4 50.8 85.9 117.2 155.0 208.6 279.0 347.4 Retirements of existing K GW 37.6 35.6 33.2 31.0 29.1 27.3 25.8 24.4 23.3 22.4 21.7 22.4 31.5 49.1 71.5 97.9 132.2 Gross total capacity required OW 68.2 67.8 67.2 66.9 66.8 66.9 67.4 68.2 69.3 70.7 72.5 108.3 148.7 204.1 280.1 376.9 479.6 Capacity saved by managerial reforms 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Gross new capacity required OW 68.2 67.8 67.2 66.9 66.8 66.9 67.4 68.2 69.3 7?7 72.5 108.3 148.7 204.1 280.1 376.9 479.6 9. Output, benefits and Investment Invesunent required USSbn 254.2 249.5 244.0 239.8 236.7 234.7 233.8 234.1 235.4 237.9 241.5 345.2 455.5, 583.7 752.8 977.7 1206.1 Investment required, bc USSbn 254.2 247.9 241.0 235.4 231.0 227.8 225.8 224.9 225.1 226.4 228.8 320.6 416.8 545.7 719.3 934.3 1152.6 Investment savings over bc USSbn 0.0 -1.6 -3.0 -4.4 -5.7 -6.9 -8.1 -9.2 -10.4 -11.5 -12.7 -24.6 -38.7 -38.0 -33.4 -43.4 -53.5 Incemental netbenefits USSbn -0.6 -0.5 -Q5 -0.5 -.5 -0.5 -0.5 -05 -05 -0.4 -0.4 -Q4 -0. 0.9 2.6 3.5 4.4 Investment needed as 9 of LDC inv. 41.3 38.8 36.3 34.2 32.3 30.6 29.2 28.0 27.0 26.2 25.5 28.4 29.3 29.8 30.5 31.6 31.5 Gross benefits as % of LDC growth -0.4 -0.4 40.4 -0.3 -0.3 -0.3 -0.3 -03 -03 -0.2 -0.2 -0l 0.0 0.2 0.5 0.5 0.6 ICOR - industry -74 -69 -65 -61 -57 -54 -51 -49 47 45 -43 -36 -35 -33 -30 -29 -28 ICOR - GNP -459 457 454 454 458 -466 -477 493 -514 -541 -575 -909 -3821 619 286 279 277 10. PoUution/emlssions Index PT emissions of S02 000t/year/GW 90.0 PT emnissions of NOx 0001/year/GW 40.0 PT emissions of PM 000t/year/GW 230.0 LPTesmissions of S02 000ttyear/GW 9.0 8.8 8.7 8.5 8.4 8.2 8.1 8.0 7.8 7.7 7.6 7.1 6.8 6.5 6.2 6.0 5.8 LPPTemissionsofNOx 000t/year/GW 12.0 11.8 11.5 11.3 11.1 11.0 10.8 10.6 10.5 10.3 IQ2 9.5 9.0 8.6 8.3 8.0 7.7 LPTemissionsofPM 000t/year:GW 11.5 11.3 11.1 10.9 10.7 10.5 13 10.2 10.0 9.9 9.7 9.1 8.6 8.3 7.9 7.6 7.4 S02 emissions mtonnes/year 37.2 39.2 41.1 42.9 44.6 46.3 47.9 49.4 50.8 52.1 53.4 59.7 59.3 53.7 47.2 42.0 40.3 NOx emissions mtonnes/year 16.5 17.4 18.3 19.2 20.0 20.8 21.7 22.4 23.2 24.0 24.7 29.1 31.5 32.6 34.2 37.5 43.4 PM emissions mtonnes/year 95.1 100.1 104.9 109.4 113.7 117.8 121.7 125A 128.8 132.0 134.9 149.0 144.3 124.7 101.5 80.2 66.5 S02 enissions index 100.0 105.3 1104A 115.2 119.9 124.3 128.6 132.6 136.5 140.1 143.4 160.5 159.5 144.4 126.8 112.8 108.4 NOxeemissions index 100.0 105.4 110.7 115.9 121.0 126.0 130.9 135.7 140.4 145.0 149.4 175.6 190.4 197.1 206.9 226.6 262.2 PM emissions index 100.0 105.3 110.3 115.0 119.6 123.9 128.0 131.9 135.5 138.8 141.9 156.7 151.7 131.2 106.7 84.4 70.0 88 ElgSricity Reform, Envlnv Unit 1990 1991 199 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 2030 1. Supply/demand asumptlons- reference Price elasticity of danad: 1 0.501 Income elasticity of demand: 1.50 Per capitnadantands KWh 585 607 630 654 678 704 731 758 787 816 347 1089 1399 1785 2277 2905 3705 Total demands TWht 2398 2538 2686 2842 3006 3178 3359 3550 3750 3960 4181 5836 8096 11096 15142 20566 27639 Tot alpcizy deands OW 551 584 618 653 691 731 772 816 862 910 961 1342 1861 2551 3481 4728 6354 hsaecnseza capacity GW 30.6 32.2 34.0 35.8 37.7 39.6 41.6 43.8 46.0 48.4 50.8 85.9 117.2 155.0 208.6 279.0 347.4 2. Costs with good practices, politec Rea price rise of fuel, p.s.: 0.01 Tech. progres growth maw p-&.: 0.02 Tedhncal progress factor 1.00 1.02 1.04 1.06 1.08 1.10 1.11 1.13 1.15 1.16 1.18 1.26 1.33 1.39 1.45 1.50 1.55 hzvetmetn cemu US$IKW 25020 2451 2406 2362 2322 2283 2246 2211 2178 2146 2116 1985 1880 1794 1,723 1663 161.2 nvestrmen costs USSACWII 0.69 0.68 0.66 0.65 0.64 0.63 0.62 0.61 0.60 0.59 0.58 0.55 0.52 0.49 0.48 0.46 0.44 Annual mav. costs, pt USS/KWhAir 0.07 0.07 0.07 0.0`7 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.05 0.05 0.05 0.05 0.05 0.04 Fue costs USSIKWh 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 Opertions and manqgemen USS/KW1I 0.03 0.03 0.03 0.03 0.03 0.0 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Marginal cosuof Pt USS/KWhI 0.13 0.12 0.12 0.12 0.12 0.12 0.12 0.11 0.11 0.11 0.11 0.10 0.10 0.10 0.09 0.09 0.09 2. ManagerIa (in)efflclanq Managerial efficiency improvement rat&: 0.03 Actua supply/good practice supply 0.65 0.66 0.67 I0.68 0.69 0.70 0.71 0.72 0,72 0,73 0.74 0.78 0.81 0.83 0.86 0.88 0.39 Adjusted fate cosus USSXKWI 0.05 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 Adj. armuLsi nv. cosu. pt USSIIKWhtyr 0.11 0.10 0.10 0.10 0.09 0.09 0.09 0.09 0.08 0.08 0.08 0.07 0.06 0.06 0.06 0.05 0.05 Adj. marginal costs, pt USS/KW 0.19 0.19 0.18 0.18 0.17 0.17 0.16 0.16 0.16 0.15 0.15 0.13 0.12 0.12 0.11 0.11 0.10 Adj. investmnent cots., pt USS/KWh 1.06 1.02 0.99 0.96 0.93 0.90 0.88 0.85 0.83 0.81 0.79 0.71 Q.64 0.5 0.55 0.52 0.50 4. Low-polluting technologIes & hydro RPte of mtimement/retrofiting: 0.20 capital costsofPMiph/p1 ratio 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.020 1.015 1.010 1.010 1.010 Capizaleosu of SOXlpI/ ratio 1.080 1.0`79 1.078 1.077 1.076 1.0`75 1.074 1.073 1.072 1.071 1.070 1.065 1.060 1.040 1.020 1.020 1.020 Capital cosu of NO%1p*t ratio 1.040 1.039 1.03 1.037 1.06 1.03 1.034 1.033 1.032 1.MI 1.030 1.025 1.020 1.020 1.020 1.020 1.020 Adj ineff. imv. cornts, PM lp1 USS/KWh 1.08 1.04 1.01 0.98 0.95 0.92 0.89 0.87 0.85 0.82 0.80 0.72 0.65 0.60 0.56 0.53 0.50 Adj ineff. imv, costs, S02 lpt USS/KWh 1.17 1.13 1.09 1.05 1.02 0.99 0.96 0.93 0.91 0.88 0.86 0.76 0.69 0.63 0.57 0.54 0.51 Adj ineff. imv. cosus, NOx lpLUSS/KWh 1.21 1.17 1.12 1.09 1.05 1.02 0.99 0.96 0.93 0.91 0.88 0.78 0.71 0.64 0.58 0.55 0.52 Adj. marginal wotu, all Ipt UlS3XIWh 0.21 0.20 0.20 0.19 0.18 0.18 0.17 0.17 0.17 0.16 0.16 0.14~ 0.13 0.12 0.11 0.11 0.10 HKydro share of new invesmmtet 0.2 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.2 0.25 0.25 0.25 0.25 0.25 0.25 0.25 SOx ipt share of non-hydra invesunent 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.75 1.00 1.00 1.00 1.00 1.00 NOx Ipt share of non-hydro invesment 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.75 1.00 1.00 1.00 1.00 1.00 PM IpL shar of non-hydro investment 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.75 1.00 1.00 1.00 1.00 1.00 Retirement schedule, initital capital 0.990 0.988 0.985 0.982 0.978 0.973 0.968 0.961 0.952 0.942 0.931 0.831 0.645 0.400 0.197 0.083 0.032 Incr. share of new imv. in S02 lp: .0.05 Incr. sharm of new inv, in NOx lpt: 0.05 S. Price (ln)efflcency Convergence rate of prices: 0.03 [ncr. share of new imv. in PM Ipt: 0.05 Slecuicity pgmce before inv. USSIKWh 0.25 0.25 0.24 0.24 0.24 0.23 0.23 0.23 0.22 0.22 0.22 0.21 0.20 0.19 0.19 0.18 0.18 Efficiency price USS/K'Wh 0.21 0.20 0.20 0.19 0.18 0.18 0.17 0.17 0.17 0.16 0.16 0.14 0.13 0.12 0.11 0.11 0.10 Actual pricelC price ratio 0.30 0.32 0.34 0.36 0.38 0.40 0.42 0.43 0.45 0.47 0.48 0.55 0.62 0.67 0.72 0.76 0.79 Actual pric charged USSIKWht 0.06 0.06 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 6. Unit benefit estmates Cosue susplus USS/KWhI 0.14 0.14 0.14 0.13 0.13 0.13 0.12 0.12 0.12 0.12 0.11 0.10 0.10 0.09 0.09 0.09 0.08 Revenue less supply costs USS/KW* -.0.1 .0.10 .0-09 .0.09 .0.08 -0.08 .0.0`7 .0.0`7 .0.06 .0.06 -0.05 .0.04 .0.03 .0.02 -0.01 .0.01 .0.01 Net benerius USSjIKWh 0.00 0.04 0.04 0.04 0.05 0.05 0.05 0.06 0.06 0.06 0.06 0.07 0.07 0.07 0.08 0.08 0.08 Mlemo: Value added USS/KWht -0.03 -0.02 -0.02 -0.01 -0.01 -0.01 0.00 0.00 0.00 0.00 0.01 0.01 0.02 0.02 0.0 0.03 0.03 BRR percet 9.66 14.51 15.19 15.84 16.50 17.16 17.83 18.48 19.12 19.75 20.35 22.37 24.60 26.87 29.07 30.62 3Z2.1 7. HeIth effect TSP concentation mfi nusomu ugtn3 162 168 174 180 186 192 197 202 206 210 214 232 216 173 124 79 50 PM-induced mortaity mtillion 0.38 0.41 0.44 0.48 0.5 0.55 0.59 0.62 0.66 0.70 0.73 0.93 1.00 0.91 0.74 0.53 0.37 Pbo-Induced work days lost billion 1.5 1.6 1.8 1.9 2.1 2.2 2.3 2.5 2.6 2.8 2.9 3.7 4.0 3.6 2.9 2.1 1.5 PM.induced mesricted activity days br 13.9 15.1 16.3 17.6 18.8 20.2 21.5 22.8 24.2 25.5 26.9 34.2 36.7 33.5 27.1 19.4 13.6 Disc 10-year ave. urban Y USSOOO 17.5 17.9 18.4 1 8.8 19.3 19.8 20.3 20.8 21.3 21.8 22.4 26.4 31.2 36.7 43.2 50.8 59.8 costaof PM-induced mowtulity USSbn 6.6 7.4 8.2 9.0 9.9 10.9 11.9 12.9 14.0 15.2 16.4 24.7 31.2 33.5 31.9 27.0 22.21 Cost of PM-induced WDL USSbn 2.2 2.4 2.7 3.0 3.3 3.6 3.9 4.3 4.6 5.0 5.4 8.1 10.3 11.0 10.5 8.9 7.3 89 Electricity Reform, Envlnv Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 2030 S. Supply/demand assumptions - reform effects Demand adj. for price reform OW 551 569 588 610 633 658 685 713 744 776 810 1080 1448 1935 2589 3463 4596 Incremental capacity demand GW 30.6 17.6 19.5 21.4 23.2 25.0 26.8 28.5 30.3 32.2 34.1 61.0 83.1 109.3 146.5 195.1 241.3 Retirements of existing K GW 37.6 35.6 33.1 30.9 28.9 27.1 25.5 24.0 22.8 21.8 21.0 20.5 26.8 39.8 55.9 74.5 98.6 Gross total capacity required GW 68.2 53.2 52.6 52.3 52.1 52.1 52.2 52.6 53.2 54.0 55.1 81.4 109.9 149.0 202.4 269.6 339.9 Capacity saved by managerial reforms 0.0 5.9 5.9 5.9 6.0 6.0 6.1 6.2 6.2 6.3 6.4 7.3 8.5 9.7 11.2 12.9 14.8 Gross new capacity required GW 68.2 47.3 46.7 46.4 46.1 46.0 46.1 46.4 46.9 47.7 48.7 74.1 101.5 139.3 191.2 256.7 325.2 9. Output, benefits and investment Investment required USSbn 254.2 166.3 159.8 154.5 149.9 146.1 143.1 140.9 139.5 138.8 139.0 194.6 247.3 306.9 385.2 488.7 589.3 Investment required,bc USSbn 254.2 247.9 241.0 235.4 231.0 227.8 225.8 224.9 225.1 226.4 228.8 320.6 416.8 545.7 719.3 934.3 1152.6 Investment savings over bc US5bn 0.0 81.6 81.2 80.9 81.1 81.7 82.7 84.0 85.6 87.5 89.8 126.0 169.5 238.8 334.2 445.6 563.3 Incremental net benefits USSbn -0.6 2.8 3.4 4.1 4.8 5.5 6.2 6.9 7.6 8.3 9.1 17.6 25.4 34.9 48.3 65.4 82.2 Investment needed as % of LDC inv. 41.3 25.9 23.8 22.0 20.4 19.1 17.9 16.9 16.0 15.3 14.7 16.0 15.9 15.6 15.6 15.8 15.4 Gross benefits as% of LDC growth -0.4 2.0 2.4 2.7 3.0 3.4 3.6 3.9 4.2 4.4 4.7 6.0 6.9 7.8 8.8 9.7 10.9 ICOR - industry -74 -103 -112 -129 -160 -222 -397 -2966 501 225 144 49 33 27 23 20 19 ICOR - GNP -459 59 46 38 31 27 23 21 18 17 15 11 10 9 8 7 7 10. Pollutlon/emissions Index PT emissions of S02 000t/year/GW 90.0 PT emissions of NOx 000t/year/GW 40.0 PT emissions of PM 000t/yearlGW 230.0 LPT emissions of S02 000t/year/GW 9.0 8.8 8.7 8.5 8.4 8.2 8.1 8.0 7.8 7.7 7.6 7.1 6.8 6.5 6.2 6.0 5.8 LPTemissionsofNOx OOOt/year/GW 12.0 11.8 11.5 11.3 11.1 11.0 10.8 10.6 10.5 10.3 10.2 9.5 9.0 8.6 8.3 8.0 7.7 LPTemissionsofPM 000t/year/GW 11.5 11.3 11.1 10.9 10.7 10.5 10.3 10.2 10.0 9.9 9.7 9.1 8.6 8.3 7.9 7.6 7.4 S02 emissions mtonnes/year 37.2 38.2 39.2 40.2 41.1 42.0 42.9 43.7 44.5 45.2 45.8 49.4 47.9 42.6 36.7 32.0 30.0 NOx emissions mtonnes/year 16.5 17.0 17.5 18.0 18.4 18.9 19.4 19.8 20.3 20.7 21.1 23.9 25.1 25.4 26.1 27.9 31.7 PM emissions mtonnesfyear 95.1 97.7 100.2 102.6 104.9 107.1 109.2 111.1 112.9 114.5 116.0 123.4 117.0 99.6 79.8 62.0 50.3 S02 emissions index 100.0 102.8 105.4 108.0 110.6 113.0 115.3 117.5 119.5 121.4 123.1 132.7 128.8 114.5 98.7 85.9 80.6 NOx emissions index 100.0 102.8 105.7 108.6 111.5 114.3 117.1 119.9 122.6 125.2 127.7 144.2 152.0 153.8 157.7 168.9 191.7 PM emissions index 100.0 102.7 105.4 107.9 110.3 112.6 114.8 116.8 118.7 120.4 121.9 129.8 123.0 104.7 83.9 65.2 52.9 IeIu v eStne-u t C o sts of °P °\ l 1.20 USswb ° 0.60 0.40 °°° 2002 2004200620 2028 2 0.200 9019,IN 70Mo TOtal Production of Electricity 6000 5000 200o 199o 1992 1994 1996 1998 2000 2002 204 2006 2008 20 10O 2012 20114 2016 20 18 2020 2 2 0 4 2 2 0 8 2 3 ooNO refo04,,2Refo23 Investment Requirements 1400 1200 1000 800 - - US$bn 600 400 200 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 |U-------- No reform, no - Reform, no envinv *- No reform, envinv ° Reform, envinv envinv. Incremental Net Benefits 90 80 70 60 50 US$bnrk 40 30 20 10 0 -- - - - - - - - -. - m --- - - - I I I I I I i i i 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 *U-- No reform, no - - Reform, no envinv *- No reform, envinv. Refonn, envinv. envinv. Unit Net Benefits 0.08 0.07 0.06 0.05 0.04 US$/KWh 0.03 0.02 0.01 0.00 -0.01 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 No. re o r ,n e or n o e v n g nvnvReonenvinvnvn -*No reforrn, envinv -- Reforrn, envin Economic Rate of Return to Electricity Investments 35 30 25 20 15 10 u. u 5 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 ----- *No reform, no Reform, no envinv. -*--- No reform, envinv. -F-{-- Reform, envinv. envinv. Electricity Pollution Emissions Index 1200 1000 800 1990=100 600 400 200 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 -U-- No reform, no envinv, - - Reforn, no envinv, all -*- Reform, envinv, S02 all pollutants pollutants - Reform, envinv, NOx A- Reform, envinv, PM 97 Energy and Land Trans]2ort No Reform, No EnvInv Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 201S 2020 2025 203 1. Energy consumption in land transport Incomne elasticity of demand: 1.20 Rate of technical progress: 0.01 .And trans. oons. ratio: 0.50 Per capita consusnption of fuel toe/cap 0.21 0.21 0.22 0.23 0.23 0.24 0.25 0.26 0.26 0.27 0.28 0.34 0.42 0.51 0.61 0.75 0.91 Fuel consumed in land uranspr mnre 425 447 469 493 517 543 569 597 626 657 688 913 1,205 1,573 2.045 2,645 3,386 Technical progress factor 1.00 0.99 0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.91 0.86 0.82 0.78 0.74 0.71 0.67 Fuel cons. with tech. prog. mnoe 425 442 460 478 497 516 536 557 578 600 623 787 988 1,227 1,517 1,867 2,274 2. Energy price reforms Rate of energy price convergence: 0.00 Energy price elasticity of demand:!I 0.50Peal fuel price rise pa: 0.01 OECD energy price (mcd. tax)USS/toe 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 Approach to OECD price 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.5 0.50 0.50 LDC energy price - 1 UJS$Soe 462 462 462 462 462 462 462 462 462 462 462 462 462 462 462 462 462 Adjusted fuel c-onsumption. 1 mttoe 425 442 460 478 497 516 536 557 578 600 623 787 988 1,227 1,17 1,867 2,274 3. Congestion price reforms Rate of congestion price convergence: 0.002ongestion price elasticity of demand: 1 0.601 Fuel used in congested uranspor ratio 0.19 0.19 0.19 0.20 0.20 0.21 0.21 0.21 0.22 0.22 0.23 0.24 0.26 0.28 0.29 0.31 0.32 Fuel inefficiency factor ratio 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 Optirnal congestion charge USS/toc 1,231 1.231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1.231 1,231 1,231 1,231 1,231 1.231 Approach to price efficiency 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Additional congestion charge US$/toe 0 0 0 0 0 0 0. 0 0 0 0 0 0 0 0 0 0 LDC energy price - 2 462 462 462 462 462 462 462 462 462 462 462 462 462 462 462 462 462 Fuel cons. in urban transport mtoe 118 126 134 142 150 159 169. 179 189 199 210 287 384 506 662 857 1,095 Adj. fuel cons. in urbantrans. mtoe 118 126 134 142 150 159 169 179 189 199 210 287 384 506 66.2 857 1,095 Adjusted fuel consumption - 2 mtoe 425 442 460 478 497 516 536 557 578 600 623 787 988 1,227 1,517 1,867 2,274 Incremental adj. fuel cons. mtoe 21 17 18 18 19 19 20 21 21 22 23 36 44 52 63 75 82 4. Unit costs of emissons control, and benefits EGR, 3-way catalyst, electronldSSAoe 37.00 36.63 36.27 35.91 35.56 35.20 34.86 34.51 34.17 33.83 33.50 31.87 30.32 28.85 27.45 26.12 24.85 Unleaded gasoline (Pb) USS/toe 9.24 9.15 9.06 8.97 8.88 8.79 8.70 8.62 8.53 8.45 8.36 7.96 7.57 7.21 6.86 6.52 6.21 Fuel desuiphurization (SOx. PbtSSAoe 12.31 12.19 12.07 11.95 11.83 11.71 11.60 11.48 11.37 11.26 11.14 10.60 10.09 9.60 9.13 8.69 8.27 Tr2p-oxidiser system (PIM) USSAoe 25.00 24.75 24.51 24.26 24.02 23.79 23.55 23.32 23.09 22.86 22.63 21.53 20.49 19.49 18.55 17.65 16.79 Incr. costs ofernissions control US$bn 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total costs of emnission c-ontrol USSbn 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Incr. benefits of cong. pricing USSbn 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Cong. pric. besn. re]. to no rcfonUS5bn 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Net incremental benefits USSbn 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Net toEal benefits US$bn 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 S. Emissions indices Polluting tcnologies Percent reduction Low polluting technologies gasoline di4ese average gasoline diesel ave. gs7oline diesel average gmi/vlan gm/vlam gm/tvlam gm/toe gm/vkan gm/vvkn gm/vkmn gm/toe Emissions of CO 33.66 20.00 26.83 44# 95 95 95 1.68 1.00 1.34 6611 Emissions of HC 3.90 2.00 2.95 14538 95 90 93 0.20 0.20 0.20 973 Emissions of NOx 3.00 1.50 2.25 11088 80 93 84 0.60 0.10 0.35 1725 Emissions of Pb 0.0r7 0.00 0.03 169 100 100 100 0.00 0.00 0.00 0 Emissions of PM 0.33 3.70 2.02 9930 25 92 86 0.25 0.30 0.27 1349 Emissions of SOx 0.21 0.30 0.26 1257 95 95 95 0.01 0.02 0.01 63 Share of new inv. with emissions contr 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Share of new inv. without em-iss. contr 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Retirement/retrofitting factor 0.990 0.984 0.973 0.957 0.931 0.890 0.831 0.749 0.645 0.524 0.400 0.052 0.004 0.000 0.000 0.000 0.000 6. EmissIons Increment of new investments in clean technologies: 0.00 Rate of retrofitting: 0.50 CO emissions '000 tonnes/year 56193 58455 60Y794 63212 65705 68276 70926 73657 76471 79371 82359 ###4W #*#### ##"# ###~ ## ## HC emrissions '000 wonnes/year 6178 6427 6684 6950 7224 7507 7798 8099 8408 8727 9056 11437 14358 17833 22054 27146 33062 NOx emissions '0OO tonnes/year 4712 4902 5098 5301 5510 5726 5948 6177 6413 6656 6907 8723 10951 13602 16821 20705 25217 Pb emissions '000 tonnestyear 72 75 78 81 84 87 91 94 98 102 106 133 167 208 257 316 385 PM emissions '000 tonnes/year 4220 4390 4566 4747 4935 5128 5327 5532 5743 5961 6185 7812 9807 12181 15064 18542 22583 SOx emissions '000 tornnes/year 534 556 578 601 624 649 674 700 727 754 783 989 1241 1542 1906 2347 2858 CO emissions index 100.0 104.0 108.2 112.5 116.9 121.5 126.2 131.1 136.1 141.2 146.6 185.1 232.4 288.6 356.9 439.4 535.1 HC emissions index 100.0 104.0 108.2 112.5 116.9 121.5 126.2 131.1 136.1 141.2 146.6 185.1 232.4 288.6 356.9 439.4 535.1 NOx emissions index 100.0 104.0 108.2 112.5 116.9 121.5 126.2 131.1 136.1 141.2 146.6 185.1 232.4 288.6 356.9 439.4 535.1 Pb emissions index 100.0 104.0 108.2 112.5 116.9 121.5 126.2 131.1 136.1 141.2 14.6.6 185.1 232.4 288.6 356.9 439.4 535.1 PM emissions index 100.0 104.0 108.2 112.5 116.9 121.5 126.2 131.1 136.1 141.2 146.6 185.1 232.4 288.6 356.9 439.4 535.1 SOx eniissions index 100.0 104.0 108.2 112.5 116.9 121.5 126.2 131.1 136.1 141.2 146.6 185.1 232.4 288.6 356.9 439.4 535.1 98 Energv and Land Transoort No Reform, No EnvInv Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 20 2030 7. Contribution to economic output and growth Value added in sector USSbn 240 249 259 270 280 291 303 314 326 339 351 444 557 692 856 1,054 1,283 Value added as % of GNP approx 7.80 7.76 7.72 7.68 7.65 7.61 7.57 7.53 7.49 7.46 7.42 7.30 7.18 7.06 6.94 6.82 6.70 Baseline investment in sector USSbn 26.1 27.3 28.6 29.9 31.2 32.6 34.0 35.5 37.0 38.6 40.3 51.7 66.0 83.4 104.9 131.4 162.8 ICOR -2.1 2.8 2.9 2.9 2.9 3.0 3.0 3.0 3.1 3.1 3.2 2.6 2.7 2.9 3.0 3.1 3.5 8. Memo items Total output mtoe 425 442 460 478 497 516 536 557 578 600 623 787 988 1,227 1,517 1,867 2,274 Total polluting output mtoe 425 442 460 478 497 516 536 557 578 600 623 787 988 1,227 1517 1,867 2,274 Share of ouput from polluting K 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 New investments mtoe 93.9 78.1 68.2 60.7 55.2 51.8 50.6 51.6 55.0 60.5 67.1 95.6 113.5 143.8 175.2 215.3 253.9 Notes: 1. Ircremental deadweight losses of energy taxtaon are assumed equal to the reduction in deadweight losses through the removal of uaxation elsewhere. 2. Emissions figures are taken from Faiz et al. (1990) and OECD (1988). Emnissions reduction percentages are based on the actions specified in section 4. 99 Energy and Land Transport Energy Price Reform, No Envlnv Unit 1990 1991 1992 1993 1994 1995 1996 1997 199S 1999 2000 2005 2010 201S 2020 2025 2030 1. Energy consumption In land transport Income elasticity of demand: 1.20 Rate of technical progress: 0.01 Zand trans. cons. ratio: 0.50 Per capita consunption of fuel toe/cap 0.21 0.21 0.22 0.23 0.23 0.24 0.25 0.26 0.26 0.27 0.28 0.34 0.42 0.51 0.61 0.75 0.91 Fuel consumed in land transpor mtoe 425 447 469 493 517 543 569 597 626 657 688 913 1,205 1,573 2,045 2,645 3,386 Technical progress factor 1.00 0.99 0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.91 0.86 0.82 0.78 0.74 0.71 0.67 Fuel cons. with tech. prog. mtoe 425 442 460 478 497 516 536 557 578 600 623 787 988 1,227 1.517 1,867 2,274 2. Energy price reforms Rate of energy price convergence: 0.03 Energy price elasticity of demand:| 0.501eal fuel price rise pa: 0.01 OECD energy price (mcl. tax)USSAoe 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 Approach to OECD price 0.50 0.51 0.53 0.54 0.56 0.57 0.58 0.59 0.61 0.62 0.63 0.68 0.73 0.76 0.80 0.83 0.85 LDCenergy price- 1 USS/toe 462 476 489 502 514 526 538 550 561 571 582 629 670 706 736 762 785 Adjusted fuel consumption -1 mtoe 425 436 447 459 471 484 497 511 525 540 555 674 820 993 1,202 1,454 1,745 3. Congestion price reforms Rate of congestion price convergence: 0.00 :ongestion price elasticity of demand: | 0.601 Fuel used in congested transpor ratio 0.19 0.19 0.19 0.20 0.20 0.21 0.21 0.21 0.22 0.22 0.23 0.24 0.26 0.28 0.29 0.31 0.32 Fuel inefficiencyfactor ratio 1.50 1.50 150 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 Optimal congestion charge USS/toe 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 Approach to price efficiency 0.00 0.00 0.00 0.00 0.00 0.00 0.00 o.o0 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0o 0.00 Additional congestion charge USSAoe 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 LDCenergyprice 2 462 476 489 502 514 526 538 550 561 571 582 629 670 706 736 762 785 Fuelcons.inurbantransport mtoe 118 124 130 136 143 149 156 164 171 179 188 246 319 409 524 667 840 Adj.fuelcons.inurbantrans. mtoe 118 124 130 136 143 149 156 164 171 179 188 246 319 409 524 667 840 Adjusted fuel consumption -2 mtoe 425 436 447 459 471 484 497 511 525 540 555 674 820 993 1,202 1,454 1,745 Incremental adj.fuelcons. mtoe 21 11 11 12 12 13 13 14 14 15 15 26 32 37 45 54 58 4. Unit costs of emissons control, and benefits EGR, 3-way catalyst, electrondSS/toe 37.00 36.63 36.27 35.91 35.56 35.20 34.86 34.51 34.17 33.83 33.50 31.87 30.32 28.85 27.45 26.12 24.85 Unleaded gasoline (Pb) USS/toc 9.24 9.15 9.06 8.97 8.88 8.79 8.70 8.62 8.53 8.45 8.36 7.96 7.57 7.21 6.86 6.52 6.21 Fueldesulphurization(SOx.PUSS/toe 12.31 12.19 12.07 11.95 11.83 11.71 11.60 11.48 11.37 11.26 11.14 10.60 10.09 9.60 9.13 8.69 8.27 Trap-oxidiser system (PM) USSAoe 25.00 24.75 24.51 24.26 24.02 23.79 23,55 23.32 23.09 22.86 22.63 21.53 20.49 19.49 18.55 17.65 16.79 Incr. costs of emissions controlUSSbn 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 00 Total costs of emission control USSbn 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Incr. benefits of cong. pricing USSbn 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Cong. pric. ben. rel. to no refonUSSbn 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net incremenLal benefits USSbn 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net total benefits US$bn 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 S. Emissions indices Polluting technologies Percent reduction Low polludng technologies gasoline diesel average gasoline diesel ave. gasoline diesel average gm/nvan gm/vkm gmivltm gmAoc gmlvkm gntvkm gmlvkm gm/toe Emissions of CO 33.66 20.00 26.83 ##### 95 95 95 1.68 1.00 1.34 6611 Emissions of HC 3.90 2.00 2.95 14538 95 90 93 0.20 0.20 0.20 973 Emissions of NOx 3.00 1.50 2.25 11088 80 93 84 0.60 0.10 0.35 1725 Emissions of Pb 0.07 0.00 0.03 169 100 100 100 0.00 0.00 0.00 0 Emissions of PM 0.33 3.70 2.02 9930 25 92 86 0.25 0.30 0.27 1349 Emissions of SOx 0.21 0.30 0.26 1257 95 95 95 0.01 0.02 0.01 63 Share of new inv. with emissions contr 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Share of new inv. without emiss. contr 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Retiretnent/retrofitting factor 0.990 0.984 0.973 0.957 0.931 0.890 0.831 0.749 0.645 0.524 0.400 0.052 0.004 0.000 0.000 0.000 0.00 6. EmLssions Increment of new investments in clean technologies: 0.00 Rate of retrofitting: 0.50 CO emissions 000 tonnes/year 56193 57610 59098 60656 62279 63966 65719 67538 69422 71374 73395 89116 ### #### ##### # ##v## HCemissions 000tonnes/year 6178 6334 6498 6669 6848 7033 7226 7426 7633 7848 8070 9798 11919 14429 17471 21133 25366 NOxemissions 000tonnes/year 4712 4831 4956 5087 5223 5364 5511 5664 5822 5986 6155 7473 9091 11005 13325 16118 19347 Pb emissions 000 tonnes/year 72 74 76 78 80 82 84 87 89 91 94 114 139 168 204 246 296 PM emissions '000 tonnes/year 4220 4327 4438 4555 4677 4804 4936 5072 5214 5360 5512 6693 8141 9855 11934 14435 17326 SOx emissions '000 tonnes/year 534 548 562 576 592 608 625 642 660 678 698 847 1030 1247 1510 1827 2193 CO erissions index 100.0 102.5 105.2 107.9 110.8 113.8 117.0 120.2 123.5 127.0 130.6 158.6 192.9 233.5 282.8 342.0 410.6 HCemissions index 100.0 102.5 105.2 107.9 110.8 113.8 117.0 120.2 123.5 127.0 130.6 158.6 192.9 233.5 282.8 342.0 410.6 NOxeemissionsindex 100.0 102.5 105.2 107.9 110.8 113.8 117.0 120.2 123.5 127.0 130.6 158.6 192.9 233.5 282.8 342.0 410.6 Pb emissions index 100.0 102.5 105.2 107.9 110.8 113.8 117.0 120.2 123.5 127.0 130.6 158.6 192.9 233.5 282.8 342.0 410.6 PM emissions index 100.0 102.5 105.2 107.9 110.8 113.8 117.0 120.2 1235 127.0 130.6 158.6 192.9 233.5 282.8 342.0 410.6 SOx emnissions index 100.0 102.5 105.2 107.9 110.8 113.8 117.0 120.2 123.5 127.0 130.6 158.6 192.9 233.5 282.8 342.0 410.6 100 Energv and Land Transnort Energy Price Reform, No Envlnv Unit 1990 1991 1992 1993 1994 199S 1996 1997 1998 1999 2000 200S 2010 2015 2020 2025 2030 7. Contribution to economlc output and growth Valueaddedinsector US$bn 240 246 252 259 266 273 280 2S8 296 305 313 380 463 560 678 820 985 Value added as % of GNP approx 7.80 7.65 7.51 7.37 7.25 7.13 7.01 6.91 6.80 6.70 6.61 6.25 5.96 5.71 5.50 5.31 5.14 Baseline investment in sector US$bn 26.1 27.3 28.6 29.9 31.2 32.6 34.0 35.5 37.0 38.6 40.3 51.7 66.0 83.4 104.9 131.4 162.8 ICOR -2.1 4.5 4.5 4.5 4.5 4.5 4.5 4.6 4.6 4.6 4.7 3.6 3.7 4.0 4.1 4.3 5.0 S. Memo Items Total output mtoe 425 436 447 459 471 484 497 511 525 540 555 674 820 993 1,202 1,454 1,745 Total polluting output mtoe 425 436 447 459 471 484 497 511 525 540 555 674 820 993 1,202 1,454 1,745 Share of output from polluting K 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 New investments mtoe 93.9 71.7 61.7 54.1 48.4 44.8 43.3 44.0 46.9 51.6 57.4 79.4 91.5 114.1 136.2 165.2 192.3 Notes: 1. Incremental deadweight losses of energy taxation are assmsed equal to the reduction in deadweight losses through the removal of taxation elsewhere. 2. Emissions figures are taken frorn Faiz et al. (1990) and OECD (1988). Emissions reduction percentages are based on the actions specified in section 4. 101 Energy and Land Transport Both Reform, No EnvInv Unit 1990 1991 1992 1993- 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 203 1. Energy consuimption in land transport Income elasticity of demand: 1.20 Rate of technical progres: 0.01 .And trans. cons. ratio: 0.50 Per capita consumnption of fuel toe/cap 0.21 0.21 0.22 0.23 0.23 0.24 0.25 0.26 0.26 0.27 0.28 0.34 0.42 0.51 0.61 0.75 0.91 Fuel consumed in land traspor mtoe 425 447 469 493 517 543 569 597 626 657 688 913 1,205 1,573 2,045 2,645 3.386 Technical progress factor 1.00 0.99 0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.91 0.86 0.82 0.78 0.74 0.71 0.67 Fuel cons. with tech. prog. mtoe 425 442 460 478 497 516 536 557 578 600 623 787 988 1,227 1,517 1,867 2,274 2. Energy price reforms Rate of energy price convergence: 0.03 Energy pfice elasticity of demand: I 0.50Paal fuel price rise pa: 0.01 OECD energy price (incl. tax)USSAoe 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 Approach to OECD price 0.50 0.51 0.53 0.54 0.56 0.57 0.58 0.59 0.61 0.62 0.63 0.68 0.73 0.76 0.80 0.83 0.85 LDC energy price - 1 USSAtoe 462 476 489 502 514 526 538 550 561 571 582 629 670 706 736 762 785 Adjusted fuel consumption - 1 mtoe 425 436 447 459 471 484 497 511 525 540 555 674 820 993 1,202 1,454 1,745 3. Congestion price reforms Rate of congestion price convergence: 0.03 7ongestion price elasticity of demand:l1 0.601 Fuel used in congested traspor ratio 0.19 0.19 0.19 0.20 0.20 0.21 0.21 0.21 0.22 0.22 0.23 0.24 0.26 0.28 0.29 0.31 0.32 Fuel inefficiency factor ratio 1.50 1.49 1.47 1.46 1.44 1.43 1.42 1.41 1.39 1.38 1.37 1.32 1.27 1.24 1.20 1.17 1.15 Optimal congestiondcharge jSS/Aoc 1.231 1,231 1,231 1,231 1,231 1,231 1.231 1,231 1,231 1,231 1.231 1,231 1.231 1,231 1,231 1,231 1,231 Approach to price efficiency 0.00 0.03 0.06 0.09 0.11 0.14 0.16 0.19 0.21 0.24 0.26 0.36 0.45 0.53 0.59 0.65 0.70 AddiLional congestion charge USSAoc 0 36 72 106 139 172 203 233 263 291 319 446 556 650 731 801 861 LDC energy price -2 462 512 561 608 653 698 741 783 823 863 901 1.076 1,226 1,356 1,467 1,563 1,645 Fuel cons. in urban transport mtoe 118 123 127 132 137 142 148 153 159 165 171 216 271 337 421 523 644 Adj. fuel cons. in urban trans. mtoe 118 117 117 118 119 120 122 124 126 129 132 157 188 228 278 340 413 Adjusted fuel consumption - 2 mtoe 425 430 437 444 453 462 471 481 492 504 516 615 738 883 1,059 1,271 1,514 Incremental adj. fuel cons. mtoe 21 5 7 7 8 9 t10 10 it 11 12 22 '27 31 38 45 48 4. Unit costs of emissons control, and beneflts EGR, 3-way catalyst, electrontdSS/toe 37.00 36.63 36.27 35.91 35.56 35.20 34.86 34.51 34.17 33.83 33.50 31.87 30.32 28.85 27.45 26.12 24.85 Unleaded gasoline (Pb) USSAtoe 9.24 9.15 9.06 8.97 8.88 8.79 8.70 8.62 8.53 8.45 8.36 7.96 7.57 7.21 6.86 6.52 6.21 Fuel desulphurization (SOx, PbiSSAoe 12.31 12.19 12.07 11.95 11.83 11.71 11.60 11.48 11.37 11.26 11.14 10.60 10.09 9.60 9.13 8.69 8.27 Trap-oxidiser system (PM) US$SAoe 25.00 24.75 24.51 24.26 24.02 23.79 23.55 23.32 23.09 22.86 22.63 21.53 20.49 19.49 1 8.55 17.65 16.79 Incr. costs of emissions control USSbn 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total c-osts of emission control USSbn 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Incr. benefits of cong. pricing USSbn 0.0 12.7 11.0 9.7 8.8 8.1 7.5 7.0 6.7 6.4 6.1 6.5 6.6 6.8 7.2 7.5 7.3 Cong. pric. ben. rml. to nio refonUSSbn 0.0 12.9 24.0 33.8 42.7 50.8 58.4 65.4 72.2 78.6 84.8 119.7 156.8 198.2 246.9 304.1 370.2 Net incremental benefits USSbn 0.0 12.7 11.0 9.7 8.8 8.1 7.5 7.0 6.7 6.4 6.1 6.5 6.6 6.8 7.2 7.5 7.3 Net total benefitEs USSbn 0.0 12.9 24.0 33.8 42.7 50.8 58.4 65.4 72.2 78.6 84.8 119.7 156.8 198.2 246.9 304.1 370.2 S. Emissions Indices Polluting tchologies Percentt reduction Low pollutn technologies gasoline di~ese average gasoline diesel ave. gsoline diesel average gm/vlam gm/vkmn gm/vkon gm/toe gsn/vkxn gm/vlcn gsn/vkrn gm/toe Emissions of CO 33.66 20.00 26.83 ##### 95 95 95 1.68 1.00 1.34 6611 Emissions of HC 3.90 2.00 2.95 14538 95 90 93 0.20 0.20 0.20 973 Emissions of NOx 3.00 1.50 2.25 11088 80 93 84 0.60 0.10 0.35 1725 Emissions of Pb 0.07 0.00 0.03 169 100 100 100 0.00 0.00 0.00 0 Emissions of PM 0.33 3.70 2.02 9930 25 92 86 0.25 0.30 0.27 1349 Emissions of SOx 0.21 0.30 0.26 1257 95 95 95 0.91 0.02 0.01 63 Share of new inv. with emissions conts 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Share of new inv. withoutemniss. conEr 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Retiremrent/reLrofitting factor 0.990 0.984 0.973 0.957 0.931 0.890 0.831 0.749 0.645 0.524 0.400 0.052 0.004 0.000 0.000 0.000 0.000 6. Emissions Increment of stew investments in clean technologies: 0.00 Rate of retrofitting: 0.50 CO emissions '000 tonnes/year 56193 56908 57770 58757 59848 61034 62305 63657 65085 66589 68166 81269 97529 #0000###~*### HC emissions 'Ooo tonnes/year 6178 6257 6352 6460 6580 6711 6851 6999 7156 7322 7495 8936 10723 12839 15399 18474 22008 NOxtemissions '000 tonnesityear 4712 4772 4845 4927 5019 5118 5225 5338 5458 5584 5716 6815 8179 9793 11745 14090 16786 Pb emissions 'O000tonnes/year 72 73 74 75 77 78 80 82 83 85 87 104 125 150 179 215 256 PM enmissions '000 tones/year 4220 4274 4339 4413 4495 4584 4679 4781 4888 5001 5119 6103 7325 8770 10519 12618 15032 SOx emaissions 'Ooo tossnes/year 534 541 549 558 569 580 592 605 619 633 648 772 927 1110 1331 1597 1902 CO emissions index 100.0 101.3 102.8 104.6 106.5 108.6 110.9 113.3 1 15.8 118.5 121.3 144.6 173.6 207.8 249.2 299.0 356.2 HC emissions index 100.0 101.3 102.8 104.6 106.5 108.6 110.9 113.3 115.8 118.5 121.3 144.6 173.6 207.8 249.2 299.0 356.2 NOx emissions index 100.0 101.3 102.8 104.6 106.5 108.6 110.9 113.3 115.8 118.5 121.3 144.6 173.6 207.8 249.2 299.0 356.2 Pb emissions index 100.0 101.3 102.8 104.6 106.5 108.6 110.9 113.3 115.8 118.5 121.3 144.6 173.6 207.8 249.2 299.0 356.2 PM emissions index 100.0 101.3 102.8 104.6 106.5 108.6 110.9 113.3 115.8 118.5 121.3 144.6 173.6 207.8 249.2 299.0 356.2 SOx em-issions index 100.0 101.3 102.8 104.6 106.5 108.6 110.9 113.3 115.8 118.5 121.3 144.6 173.6 207.8 249.2 299.0 356.2 102 Energv and Land Transnort Both Reform, No EnvInv Unit 1990 1991 1992 1993 1994 1995 1996 1997 199S 1999 2000 2005 2010 2015 2020 2025 2030 7. Contribution to economic output and growth Value added in sector US5bn 240 243 247 251 255 260 266 272 278 284 291 347 416 498 598 717 854 Value added as % of GNP approx 7.80 7.56 7.34 7.14 6.96 6.80 6.65 6.51 6.38 6.26 6.14 5.70 5.36 5.08 4.84 4.64 4.46 Baseline investment in secor US5bn 26.1 27.3 28.6 29.9 31.2 32.6 34.0 35.5 37.0 38.6 40.3 51.7 66.0 83.4 104.9 131.4 162.8 ICOR -2.1 9.0 7.8 7.1 6.7 6.4 6.3 6.2 6.1 6.0 6.0 4.2 4.4 4.7 4.9 5.1 6.0 8. Memo Items Total output mtoe 425 430 437 444 453 462 471 481 492 504 516 615 738 883 1,059 1,271 1,514 Total polluting output mtoe 425 430 437 444 453 462 471 481 492 504 516 615 738 883 1.0S9 1,271 1,514 Share of output from polluting K 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 New invessnenu mtoe 93.9 66.4 56.9 49.7 44.3 40.8 39.3 39.9 42.6 47.1 52.4 71.4 81.3 100.6 119.0 143.3 165.6 Notes: 1. Incremnental deadweight losses of energy taxation are assumed equal to the reduction in deadweight losses through the removal of taxation elsewhere. 2. Emissions figures are taken from Faiz at al. (1990) and OECD (1988). Emissions reduction perentages are based on the actions specified in section 4. 103 Enerev and Land Iransnlort Both Reform, Envlniv Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 203 1. Energy consumption In land transport I Income elasticity of demand: 1.20 Rate of technical progress: 0.01 ...and trams. conis, ratio: 0).50 Per capita consumption of fuel toWcap 0.21 0.21 0.22 0.23 0.23 0.24 0.25 0.26 0.26 0.27 0.28 0.34 0.42 0.51 0.61 0.75 0.91 Fuel consumed in land transpor mioe 425 447 469 493 517 543 569 597 626 657 688 913 1,205 1.573 2.045 2,645 3,386 Technical progress factor 1.00 0.99 0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.91 0.86 0.82 0.78 0.74 0.71 0.67 Fuel cons. with tech. prog. mtoe 425 442 460 478 497 516 536 557 578 600 623 787 988 1,227 1,517 1,867 2,274 2. Energy price reforms Rate of energy price convergence: 0.03 Energy price elasticity of demnand:I1 0.50Pea1 fuel price rise pa: 0.01 OECD energy price (mcd. tax)USSAoe 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 924 Approach to OECD price 0.50 0.51 0.53 0.54 0.56 0.57 0.58 0.59 0.61 0.62 0.63 0.68 0.73 0.76 0.80 0.83 0.85 LDC energy price - I USS/Aoc 462 476 489 502 514 526 538 550 561 571 582 629 670 706 736 762 785 Adjusted fuel c-onsumption - 1 ntoc 425 436 447 459 471 484 497 511 525 540 555 674 820 993 1,202 1,454 1,745 3. Congestion price reforms Rate of congestion price convergence: 0.03 :ongestion price elasticity of demand: 1 0.601 Fuel used in congested tranpor ratio 0.19 0.19 0.19 0.20 0.20 0.21 0.21 0.21 0.22 0.22 0.23 0.24 0.26 0.28 0.29 0.31 0.32 Fuel inefficiency factor ratio 1.50 1.49 1.47 1.46 1.44 1.43 1.42 1.41 1.39 1.38 1.37 1.32 1.27 1.24 1.20 1.17 1.15 Optimal congestion charge USSAoe 1,231 1,231 1,231 1,231 1,231 1.231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 Approach to price efficiency 0.00 0.03 0.06 0.09 0.11 0.14 0.16 0.19 0.21 0.24 0.26 0.36 0.45 0.53 0.59 0.65 0.70 Additional congestion charge USSAce 0 36 72 106 139 172 203 233 263 291 319 446 556 650 731 801 861 LDC energy price -2 462 512 561 608 653 698 741 783 823 863 901 1,076 1,226 1,356 1,467 1,563 1,645 Fuel cons.in urban transport mtoe 118 123 127 132 137 142 148 153 159 165 171 216 271 337 421 523 644 Adj. fuelcoons. in urban trans. mtoe 118 117 117 118 119 120 122 124 126 129 132 157 188 228 278 340 413 Adjusted fuel consumption -2 mtoe 425 430 437 444 453 462 471 481 492 504 516 615 738 883 1,059 1,271 1,514 Incremental adj. fuel cons. mntoe 21 5 7 7 8 9 10 10 11 11 12 22 27 31 38 45 48 4. Unit costs of emlasons control, and benerits EGR. 3-way catayst, electronidSSAoe 37.00 36.63 36.27 35.91 35.56 35.20 34.86 34.51 34.17 33.83 33.50 31.87 30.32 28.85 27.45 26.12 24.85 Unleaded gasoline (Pb) USSAoe 9.24 9.15 9.06 8.97 8.88 8.79 8.70 8.62 8.3 8.45 8.36 7.96 7.57 7.21 6.86 6.52 6.21 Fuel desulphurization (SOx, PhTSSAtoe 12.31 12.19 12.07 11.95 11.83 11.71 11.60 11.48 11.37 11.26 11.14 10.60 10.09 9.60 9.13 8.69 8.27 Trap-oxidiser system (PM) USS/toe 25.00 24.75 24.51 24.26 24.02 23.79 23.55 23.32 23.09. 22.86 22.63 21.53 20.49 19.49 18.55 17.65 16.79 Incr. coasts of emissions control USSbn 0.2 0.3 0.4 0.5 0.5 0.6 0.6 0.7 0.8 1.0 1.3 2.4 3.2 3.8 4.2 4.8 5.3 Total coats of emission control US$Im 0.2 0.5 0.9 1.4 1.9 2.4 2.9 3.6 4.2 5.1 6.1 13.9 23.0 31.1 37.4 43.0 48.7 Incr. benefLscsof cong. pricing US$bn 0.0 12.7 11.0 9.7 8.8 8.1 7.5 7.0 6.7 6.4 6.1 6.5 6.6 6.8 7.2 7.5 7.3 Cong. psic. ben. rel. to no refoniUSSbrn 0.0 12.9 24.0 33.8 42.7 50.8 58.4 65.4 72.2 78.6 84.8 119.7 156.8 198.2 246.9 304.1 370.2 Net incremental benefits USSbn -0.2 12.4 10.6 9.3 8.3 7.5 6.9 6.3 5.8 5.3 4.9 4.2 3.4 3.1 2.9 2.7 1.9 Net total benefits USSbn -0.2 12.3 23.1 32.5 40.9 48.5 55.4 61.9 68.0 73.5 78.7 105.8 133.8 167.2 209.5 261.1 321.4 5. Emissions indices Polluting tecnologies Percent reduction Low polluigtcooie gasioli dise average gasoline dieme avigaine dese averaolgies gm/vlan gn/vlcm gmi/vlan gm/to gro/vlu gm/vkrm gm/vlan gm/toe Emissions of CO 33.66 20.00 26.83 ###W 95 95 95 1.68 1.00 1.34 6611 Emissions of HC 3.90 2.00 2.95 14538 95 90 93 0.20 0.20 0.20 973 Emissions of NOx 3.00 1.50 2.25 11088 80 93 84 0.60 0.10 0.35 1725 Emissions of Pb 0.07 0.00 0.03 169 100 100 100 0.00 0.00 0.00 0 Emissions of PM 0.33 3.70 2.02 9930 25 92 86 0.25 0.30 0.27 1349 Emissions of SOx 0.21 0.30 0.26 1257 95 95 95 0,01 0.02 0.01 63 Share of new inv. with emrissions contu 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.80 1.00 1.00 1.00 1.00 1.00 Share of new inv. without emiss. contr 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.60 0.55 0.50 0.45 0.20 0.00 0.00 0.00 0.00 0.00 Retirement/retrofitting factor 0.990 0.984 0.973 0.957 0.93 1 0.890 0.831 0.749 0.645 0.524 0.400 0.052 0.004 0.000 0.000 0.000 0.000 6. Emissions Increment of new investmnents in clean tedmologies: 0.05 Rate of retrofitting: 0.50 CO emissions '000 tonnes/year 55603 55491 55292 55054 54792 54501 54143 53646 53177 52083 50549 39087 24013 12332 8101 8532 10030 HCemiissions 'Ooo tonsxes/year 6115 6104 6084 6061 6034 6005 5969 5918 5870 5755 5593 4380 2784 1561 1150 1251 1476 NOx emiissions '000 tonnea/year 4668 4667 4660 4651 4642 4631 4617 4592 4570 4503 4403 3671 2699 2007 1909 2202 2613 Pbenmissions 'Ooo tonnes/year 71 71 71 70 70 69 69 68 67 66 64 47 26 9 1 0 0 PM emiissions '000 tonnes/year 4180 4177 4169 4160 4149 4137 4122 4097 4075 4010 3916 3222 2302 1635 1504 1723 2044 SOx emissions '000 tonnes/year 528 527 526 523 521 518 515 510 505 495 480 371 228 117 77 81 95 CO emissions index 100.0 99.8 99.4 99.0 98.5 98.0 97.4 96.5 95.6 93.7 90.9 70.3 43.2 22.2 14.6 15.3 18.0 HC emissions index 100.0 99.8 99.5 99.1 98.7 98.2 97.6 96.8 96.0 94.1 91.5 71.6 45.5 25.5 18.8 20.5 24.1 NOx emissions index 100.0 100.0 99.8 99.6 99.4 99.2 98.9 98.4 97.9 96.5 94.3 78.6 57.8 43.0 40.9 47.2 56.0 Pb emnissions index 100.0 99.7 99.3 98.7 98.1 97.5 96.7 95.6 94.6 92.3 89.3 66.3 36.2 12.3 2.1 0.2 0.0 PM emiissions index 100.0 99.9 99.7 99.5 99.3 99.0 98.6 98.0 97.5 95.9 93.7 77.1 55.1 39.1 36.0 41.2 48.9 SOx emissions index 100.0 99.8 99.4 99.0 98.5 98.0 97.4 96.5 95.6 93.7 90.9 70.3 43.2 22.2 14.6 15.3 18.0 104 Energv and Land Transnort Both Reform, Envlnv Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 2030 7. Contribution to economic output and growth Valuc added in sector US5bn 240 243 247 251 255 260 266 272 278 284 291 347 416 498 598 717 854 Value added as % of GNP approx 7.80 7.56 7.34 7.14 6.96 6.80 6.65 6.51 6.38 6.26 6.14 5.70 5.36 5.08 4.84 4.64 4.46 Baseline investnentin sector USSbn 26.1 27.3 28.6 29.9 31.2 32.6 34.0 35.5 37.0 38.6 40.3 51.7 66.0 83.4 104.9 131.4 162.8 ICOR -2.1 9.0 7.8 7.1 6.7 6.4 6.3 6.2 6.1 6.0 6.0 4.2 4.4 4.7 4.9 5.1 6.0 S. Memo items Total output mtoe 425 430 437 444 453 462 471 481 492 504 516 615 738 883 1,059 1,271 1,514 Total polluting output mtoe 420 419 417 415 412 410 406 402 397 388 375 279 152 52 9 1 0 Share of output from polluting K 0.99 0.97 0.95 0.93 0.91 0.89 0.86 0.83 0.81 0.77 0.73 0.45 0.21 0.06 0.01 0.00 0.00 New investments mtoe 93.9 66.4 56.9 49.7 44.3 40.8 39.3 39.9 42.6 47.1 52.4 71.4 81.3 100.6 119.0 143.3 165.6 Notes: 1. Incremental deadweight losses of energy taxation are assumed equal to the reduction in deadweight losses through the removal of taxation elsewhere. 2. Emissions figures arc taken from Faiz et aL (1990) and OECD (1988). Emissions reduction percentages are based on the actions specified in section 4. Total Costs of Pollution Control and Total Benefits of Congestion Pricing 400 350 300 250 o US$bn 200 - - 150 100 50 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 * --- Total costs of emissions control - Congestion pricing benefits relative to no reform case In c re m e n t. , c o sts o f P o llu t o C n r o a d I c e e ta Benefits ofCotngtnControlandgic 14.00 p 12.00 10.00 8.00 US$bn 6.00 4.00 0 2.00 0.00 1 990 1993 1996 1999 2002 20 0 8 21 0 4 2 1 00 22 0 6 2 2 ~ lncrineflj Coss of missi ns co~ 0J ~ LJ-~ n cremental benef its of 2 2 MO -EPIissions From, Land Tr S00 400 1990 100 300 200 l o 0~~~~~~~~~~~~~~~~~~~~~~ 1990 1993 1996 o99909S | Pl"Senvinv CO nn .aX f S 1 ~~~~~~~223 026 22 | p ~~~~~~~~~~Plus envin, H Price refrn ,l| I ~~ Pl Pus envinv 'Plu sP enx Plus en vi v V O, _ ~~~~~~~~~~~Plus envinv _ SOx | Lead Emissions From Land Transport 600 500 400 1990 =100 300-- 200 100 0 I I I I I -1 1 A A A A A A A A 1 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 * No refonn, no envinv Energy price reform - Plus congestion reform Plus envinv Fuel Consumption in Land Transport 2,500 2,000 1,500 C Mtoe per annum 1,000 500 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 -*-- No reform, no - Energy price *- Plus congestion Plus envinv envinv reform reform New Investments in Land Transport 300 250 200 Mtoe units 150 - - 100 50 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 | *--- No reform, no = Energy price reform *- Plus congestion - Plus envinv envinv reforml Low Y Potable Water SUDDIV No Reform Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 200S 2010 2015 2020 2025 2030 I. Costs with good practices Rate of growth of uirban costs: 0.03 Investment costu Shril 4.40 4.56 4.73 4.91 5.10 5.30 5.51 5.72 5.94 6.18 6.41 7.71 9.18 10.94 13.06 14.31 14.75 Recurrent COSts S/Tn3 0.20 0.21 0.22 0.22 0.23 0.24 0.25 0.26 0.27 0.28 0.29 0.35 0.42 0.50 0.59 0.65 0.67 -Labour cornponent S/rn3 0.10 0.10 0.11 0.11 0.12 0.12 0.13 0.13 0.14 0.14 0.15 0.18 0.21 0.25 0.30 0.33 0.34 -Maintenance cosus S/m3 0.10 0.10 0.11 0.11 0.12 0.12 0.13 0.13 0.14 0.14 0.15 0.18 0.21 0.25 0.30 0.33 0.34 Average annualised incremnental investmnent costs (AAIIC) Shril 0.44 0.46 0.47 0.49 0.51 0.53 0.55 0.57 0.59 0.62 0.64 0.77 0.92 1.09 1.31 1.43 1.48 -Rural AAIIC $/rn3 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 -Urban AAIIC S/m3 0.79 0.82 0.84 0.87 0.89 0.92 0.95 0.97 1.00 1.03 1.07 1.23 1.43 2.66 2.92 2.04 2.04 Marginal cost of suspply SAm3 0.64 0.66 0.69 0.71 0.74 0.77 0.80 0.83 0.86 0.90 0.93 1.12 1.34 1.59 1.90 2.08 2.15 2. Managerial/technical (in)eMlciency Efficiency improvement rate: 0.00 Actual supply/good practice supply 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 Adj. incremental inv. costs $/m3 0.66 0.68 0.71 0.74 0.77 0.80 0.83 0.86 0.89 0.93 0.96 1.16 1.38 1.64 1.96 2.15 2.21 Adjusted invesument costs S/m3 6.60 6.84 7.10 7.37 7.66 7.95 8.26 8.58 8.92 9.26 9.62 11.56 13.78 16.41 19.58 21.47 22.13 Adj. marginal cost S/m3 0.96 1.00 1.03 1.07 1.11 1.16 1.20 1.25 1.30 1.35 1.40 1.68 2.00 2.39 2.85 3.12 3.22 3. Prices, subsidies, per capita consumption Rate of change of price ratio: 0.00 MC price without supply S/m3 1.92 1.99 2.07 2.14 2.23 2.31 2.40 2.50 2.59 2.69 2.80 3.36 4.01 4.77 5.70 6.25 6.44 MC price with efficient supply S/im3 0.64 0.66 0.69 0.71 0.74 0.77 0.80 0.83 0.86 0.90 0.93 1.12 1.34 1.59 1.90 2.08 2.15 MC price with inefficient supply S/Tn3 0.96 1.00 1.03 1.07 1.11 1.16 1.20 1.25 1.30 1.35 1.40 1.68 2.00 2.39 2.85 3.12 3.22 Actual price/MC price S/M3 0.60 0.58 0.56 0.54 0.52 0.50 0.48 0.46 0.44 0.43 0.41 0.34 0.29 0.24 0.20 0.1 0.18 Actual price charged with supply S/m3 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 Price elasticity of derrand:I 0.251 Income elasticity of demand: 0.30 Consumption ratio: 3.38 Vol. cons. without supply m3lcaplyear 9.13 9.13 9.13 9.13 9.13 9.13 9.12 9.12 9.12 9.12 9.12 9.12 9.14 9.17 9.19 9.41 9.79 Vol. cons., ineff. supply, subsidy 22.81 23.03 23.24 23.46 23.68 23.90 24.12 24.35 24.58 24.81 25.04 26.23 27.48 28.79 30.16 31.60 33.11 Vol. cons., ineff. supply only 20.08 20.08 20.09 20.08 20.08 20.08 20.07 20.07 20.06 20.06 20.06 20.07 20.12 20.18 20.23 20.71 21.54 4:17otal water consumption and production Rehabilitation costsAinvestrment cost ratio: 0.25 Total water production bn m3 68.6 .69.4 70.2 71.0 71.9 72.7 73.6 74.4 75.3 76.2 77.1 81.7 86.5 91.7 97.0 102.9 109.8 Managerial eff. improvements bn-m3 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Consumption from new inv. bn m3 0.53 0.53 0.54 0.55 0.56 0.56 0.57 0.57 0.58 0.59 0.59 0.63 0.66 0.70 0.73 0.83 0.99 Total rise in consurnption bn m3 0.53 0.53 0.54 0.55 0.56 0.56 0.57 0.57 0.58 0.59 0.59 0.63 0.66 0.70 0.73 0.83 0.99 Total water consumption bn m3 45.7 46.3 46.8 4-7.4 47.9 48.5 49.1 49.6 50.2 50.8 51.4 54.5 57.7 61.1 64.7 68.6 73.2 S. Water Investments Upper limit of in. response to price reform: 2 Investment costs 3/m3 6.60 6.84 7.10 7.37 7.66 7.95 8.26 8.58 8.92 9.26 9.62 11.56 13.78 16.41 19.58 21.47 22.13 Water consumption m3/caplyear 22.81 23.03 23.24 23.46 23.68 23.90 24.12 24.35 24.58 24.81 25.04 26.23 27.48 28.79 30.16 31.60 33.11 Investments costs S/cap/year 151 158 165 173 181 190 199 209 219 230 241 303 379 472 591 679 733 Total investment in water USSbrt 3.48 3.66 3.85 4.04 4.25 4.47 4.69 4.93 5.18 5.43 5.70 7.23 9.11 11.42 14.28 17.76 21.86 As a %oftotal LDC investunent 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.70 6. Access to safe water LDC Population billion 3.00 3.06 3.12 3.18 3.24 3.30 3.36 3.43 3.49 3.55 3.61 3.92 4.23 4.54 4.86 5.18 5.45 Numnber with safe water billion 2.00 2.00 2.01 2.01 2.02 2.02 2.03 2.03 2.04 2.04 2.05 2.07 2.09 2.12 2.14 2.16 2.20 Rise in number with safe water billion 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.005 0.004 0.006 0.009 Ratio with safe water 9b 66.62 65.49 64.37 63.30 62.26 61.26 60.29 59.36 58.45 57.58 56.73 52.85 49.53 46.63 44.05 41.81 40.36 Number with unsafe water billion 1.00 1.06 1.11 1.17 1.22 1.28 1.34 1.39 1.45 1.51 1.56 1.85 2.13 2.42 2.72 3.01 3.25 Ratio of unserved to 1990 unserved 100.0 105.5 111.0 116.6 122.2 127.7 133.4 139.0 144.6 150.2 155.9 184.4 213.1 242.0 271.4 300.6 324.7 7. Health effects Crude birth rate per'000 pop 28.9 28.4 28.0 27.5 27.1 26.6 26.2 25.8 25.5 25.1 24.7 23.2 21.9 20.9 19.8 16.6 16.0 No. of births per annumn million 86.8 87.1 87.3 87.6 87.8 87.9 88.2 88.5 88.8 89.0 89.2 90.9 92.6 94.9 96.2 85.9 87.5 Wnant mortality rate per'000 births 71.3 71.2 71.1 71.0 70.8 70.7 70.5 70.4 70.2 70.0 69.9 69.0 67.9 66.8 65.6 64.3 62.7 Infant morataity million 6.19 6.20 6.21 6.21 6.21 6.21 6.22 6.23 6.23 6.23 6.23 6.27 6.29 6.34 6.31 5.52 5.49 Infant mortality, base case million 6.19 6.20 6.21 6.21 6.21 6.21 6.22 6.23 6.23 6.23 6.23 6.27 6.29 6.34 6.31 5.52 5.49 Infant mortality over base case million 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Cumulative lives lost/saved million 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 112 Low Y Potable Water SupDly No Reform Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 2030 S. Benefits and ratios Benefits to new consuners USSbn 0.10 0.10 0.11 0.12 0.12 0.13 0.14 0.15 0.15 0.16 0.17 0.22 0.27 0.33 0.39 0.63 1.05 -Consumer surplus USSbn 0.11 0.11 0.11 0.12 0.13 0.14 0.15 0.15 0.16 0.17 0.18 0.23 0.30 0.36 0.44 0.71 1.19 - Subsidy pricing welfare losses USSbn 0.00 0.00 0.00 0.00 0.00 0.01 0.01 0.01 0.01 0.01 0.01 0.02 0.02 0.04 0.05 0.09 0.15 Benefits to existing consumers USSbn 0.22 0.22 0.23 0.23 0.24 0.25 0.27 0.28 0.29 0.31 0.33 0.44 0.57 0.72 0.90 1.86 2.07 - Consumer surplus USSbn 0.29 0.31 0.32 0.34 0.36 0.39 0.41 0.44 0.46 0.49 0.53 0.71 0.93 1.21 1.56 2.24 2.47 -Subsidy pricing welfare losses USSbn 0.08 0.09 0.10 0.11 0.12 0.13 0.14 0.16 0.17 0.18 0.20 0.27 0.36 0.49 0.66 0.37 0.41 Total increase in benefits USSbn 0.32 0.32 0.34 0.35 0.37 0.39 0.41 0.43 0.45 0.47 0.50 0.65 0.84 1.05 1.29 2.49 3.12 - due to investment % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - due to improved efficiency % 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 As a % of LDC growth (dYjt/dYt) 0.63 0.61 0.60 0.60 0.60 0.61 0.61 0.61 0.62 0.62 0.63 0.67 0.70 0.71 0.71 1.13 1.28 Incr. benefit-investment ratio 0.093 0.088 0.087 0.087 0.087 0.086 0.086 0.086 0.086 0.087 0.087 0.090 0.092 0.092 0.090 0.140 0.143 Adjusted ICER 10.8 11.4 11.4 11.5 11.5 11.6 11.6 11.6 11.6 11.5 11.5 11.1 10.8 10.9 11.1 7.1 7.0 Low Y Sanitation No Reform, I = 0.60% Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 2030 1. Costs and beneflts Rate of growth of urban costs: 0.03 Efficiency improvement rate: 0.00 Investmentcostperperson S/annum 54.1 57.1 60.3 63.6 67.0 70.6 74.3 78.1 82.1 86.1 90.3 112.6 137.4 166.7 201.8 243.1 290.8 - Rural S/annum 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 -Urban Slannum 128.3 132.2 136.2 140.2 144.4 148.8 153.2 157.8 '162.6 167.5 172.5 199.9 231.8 268.7 311.5 361.1 418.6 Actual cost/good practice cost 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 Adj. investment cost/person S/annum 81.2 85.7 90.5 95.4 100.6 105.9 111.4 117.2 123.1 129.2 135.4 168.8 206.1 250.1 302.7 364.7 436.2 Expenditure per person S/annum 16.67 17.19 17.74 18.29 18.87 19.47 20.08 20.72 21.37 22.04 22.74 26.55 30.99 36.20 42.28 49.39 57.69 Incremental outpuE-investmentratio 0.205 0.201 0.196 0.192 0.188 0.184 0.180 0.177 0.174 0.171 0.168 0.157 0.150 0.145 0.140 0.135 0.132 ICOR 4.872 4.986 5.100 5.215 5.328 5.440 5.549 5.656 5.760 5.860 5.955 6.360 6.652 6.910 7.160 7.383 7.561 1.Access to adequate sanitation LDC Population billion 3.00 3.06 3.12 3.18 3.24 3.30 3.36 3.43 3.49 3.55 3.61 3.92 4.23 4.54 4.86 5.18 5.45 No. wiLh adequate sanitation billion 1.53 1.55 1.56 1.58 1.59 1.60 1.62 1.63 1.65 1.66 1.68 1.75 1.83 1.91 1.99 2.08 2.17 din#withadequatesanitation billion 0.015 0.015 0.015 0.015 0.015 0.015 0.015 0.015 0.015 0.015 0.015 0.015 0.016 0.016 0.017 0.017 0.018 % with adequate sanitation % 50.97 50.47 49.98 49.50 49.03 48.58 48.14 47.71 47.30 46.90 46.52 44.76 43.29 42.06 41.01 40.14 39.70 # with inadequate sanitation billion 1.47 1.52 1.56 1.61 1.65 1.70 1.74 1.79 1.84 1.88 1.93 2.16 2.40 2.63 2.87 3.10 3.29 Ratio of unserved to 1990unserved 100.0 103.0 106.1 109.2 112.3 115.4 118.5 121.7 124.8 128.0 131.2 147.1 163.0 178.8 194.8 .210.5 223.5 3. Benefits and investment Increase in value added USSbn 0.25 0.26 0.27 0.27 0.28 0.29 0.30 0.31 0.32 0.33 0.34 0.40 0.48 0.58 0.70 0.85 1.02 As a % of LDC income (dYjt/Yt) 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 As a % of LDC growth (dYjt/dYt) 0.50 0.49 0.48 0.47 0.46 0.46 0.45 0.44 0.44 0.43 0.43 0.41 0.40 0.39 0.39 0.38 0.42 Total investment in sanitation USSbn 1.23 1.29 1.36 1.43 1.50 1.58 1.66 1.74 1.83 1.92 2.01 2.55 3.21 4.03 5.04 6.27 7.72 As % of total LDC investment 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 113 Low Y Potable Water SuOD1V Slow Reform (3% pa) Unit 1990 1991 1992 1993 1994 199S 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 2030 1. Costs with good practices Rate of growth of urban costs: 0.03 Investment cosu Shm3 4.40 4.56 4.73 4.91 5.10 5.30 5.51 5.72 5.94 6.18 6.41 7.71 9.18 10.10 10.51 10.88 11.19 Recurrent costs SWn3 0.20 0.21 0.22 0.22 0.23 0.24 0.25 0.26 0.27 0.28 0.29 0.35 0.42 0.46 0.48 0.49 0.51 -Labourcomponent S/m3 0.10 0.10 0.11 0.11 0.12 0.12 0.13 0.13 0.14 0.14 0.15 0.18 0.21 0.23 0.24 025 025 -Maintenance costs S/n3 0.10 0.10 0.11 0.11 0.12 0.12 0.13 0.13 0.14 0.14 0.15 0.18 0.21 0.23 0.24 0.25 025 Average armualised incremental investment costs (AAIIC) S/m3 0.44 0.46 0.47 0.49 0.51 0.53 0.55 0.57 0.59 0.62 0.64 0.77 0.92 1.01 1.05 1.09 1.12 - Rural AAIIC S/m3 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 -Urban AAIIC S/m3 0.79 0.82 0.84 0.87 0.89 0.92 0.95 0.97 1.00 1.03 1.07 1.23 1.43 1.52 1.52 1.52 152 Marginal cost of supply Snm3 0.64 0.66 0.69 0.71 0.74 0.77 0.80 0.83 0.86 0.90 0.93 1.12 1.34 1.47 1.53 1.58 1.63 2. Managerial/technical (in)efficiency Efficiency improvement rate: 0.03 Actual supply/good practice supply 0.667 0.677 0.686 0.695 0.704 0.713 0.722 0.730 0.738 0.746 0.753 0.787 0.817 0.843 0.864 0.883 0.900 Adj. incremental inv. costs Sm3 0.66 0.67 0.69 0.71 0.72 0.74 0.76 0.78 0.81 0.83 0.85 0.98 1.12 1.20 1.22 1.23 1.24 Adjusted investunent costs SWm3 6.60 6.74 6.90 7.07 7.25 7.43 7.63 7.84 8.06 8.28 8.52 9.79 11.24 11.99 12.16 12.32 12.44 Adj. marginal cost S/m3 0.96 0.98 1.00 1.03 1.05 1.O0 1.11 1.14 1.17 1.20 1.24 1.42 1.63 1.74 1.77 1.79 1.81 3. Prices, subsidies, per capita consumption Rate of change of price ratio: 0.03 MC price without supply Shn3 1.92 1.99 2.07 2.14 2.23 2.31 2.40 2.50 2.59 2.69 2.80 3.36 4.01 4.77 5.70 6.25 6.44 MC price with efficient supply S/m3 0.64 0.66 0.69 0.71 0.74 0.77 0.80 0.83 0.86 0.90 0.93 1.12 1.34 1.47 1.53 1.58 -1.63 MC price with inefficient supply S/m3 0.96 0.98 1.00 1.03 1.05 1.08 1.11 1.14 1.17 1.20 1.24 1.42 1.63 1.74 1.77 1.79 1.81 Actual price/MC price S/m3 0.60 0.61 0.62 0.63 0.65 0.66 '0.67 0.68 0.69 0.69 0.70 0.74 0.78 0.81 0.84 0.86 0.88 Actual price charged with supply S/m3 0.58 0.60 0.63 0.65 0.68 0.71 0.74 0.77 0.80 0.84 0.87 1.06 1.28 1.41 1.48 1.54 1.59 Price elasticity of demand:1 0.251 Income elasticity of demand: 0.30 Consumption ratio: 2.62 Vol. cons. without supply m3/capiyear 9.13 9.13 9.13 9.13 9.13 9.13 9.12 9.12 9.12 9.12 9.12 9.12 9.14 9.17 9.19 9.41 9.79 Vol. cons., ineff. supply, subsidy ' 22.81 22.79 22.77 22.74 22.72 22.69 22.67 22.64 22.62 22.60 22.58 22.52 22.52 23.00 23.82 24.71 25.68 Vol. cons., ineff. supply only ' 20.08 20.16 20.23 20.30 20.36 20.42 20.48 20.53 20.58 20.63 20.68 20.92 21.17 21.82 22.79 23.80 24.87 4 Total water consumption and production Rehabilitation costs/investment cost ratio: 0.25 Total water production bn m3 68.6 69.2 69.8 70.4 71.1 71.9 72.6 73.4 74.3 75.2 76.1 81.3 87.4 94.6 103.9 115.8 130.6 Managerial eff. improvements bn m3 0.00 0.67 0.65 0.64 0.63 0.61 0.60 0.59 0.58 0.57 0.56 0.51 0.48 0.44 0.42 0.40 0.39 Consumtpdon from new inv. bn m3 0.53 0.39 0.43 0.46 0.50 0.53 0.57 0.60 0.63 0.67 0.70 0.88 1.06 1.34 1.77 2.28 2.89 Total rise in consumption bn m3 0.53 1.06 1.08 1.10 1.12 1.15 1.17 1.19 1.21 1.24 1.26 1.39 1.53 1.79 2.18 2.68 3.28 Total water consumption bnm3 45.7 46.8 47.9 49.0 50.1 51.2 52.4 53.6 54.8 56.0 57.3 64.0 71.4 79.7 89.9 102.3 117.5 5. Water investments Upper limit of inv. response to price reform: 2 Invesunentcosts S/m3 6.60 6.74 6.90 7.07 7.25 7.43 7.63 7.84 8.06 8.28 8.52 9.79 11.24 11.99 12.16 1232. 12.44 Water consumption m3/cap/year 22.81 22.79 22.77 22.74 22.72 22.69 22.67 22.64 22.62 22.60 22.58 22.52 22.52 23.00 23.82 24.71 25.68 Investments costs S/caplyear 151 154 157 161 165 169 173 178 182 187 192 220 253 276 290 304 319 Total investment in water USSbn 3.48 3.76 4.07 4.39 4.73 5.09 5.47 5.86 6.28 6.72 7.18 9.85 13.22 17.45 22.75 29.30 37.14 Asa % of total LDC investment 1.70 1.75 1.80 1.85 1.89 1.94 1.98 2.02 2.06 2.10 2.14 2.32 2.47 2.60 2.71 2.81 2.89 6. Access to safe water LDC Population biUion 3.00 3.06 3.12 3.18 3.24 3.30 3.36 3.43 3.49 3.55 3.61 3.92 4.23 4.54 4.86 5.18 5.45 Number with safe water billion '2.00 2.00 2.05 2.10 2.15 2.21 2.26 2.31 2.37 2.42 2.48 2.78 3.10 3.41 3.71 4.06 4.48 Rise in number with safe water billion 0.005 0.048 0.049 0.051 0.052 0.053 0.054 0.055 0.056 0.057 0.058 0.063 0.068 0.055 0.066 0.079 0.094 Ratio with safe water % 66.62 65.49 65.77 66.07 66.40 66.75 67.11 67.49 67.88 68.29 68.71 70.93 73.33 75.10 76.28 78.46 82.19 Numberwithunsafewater billion 1.00 1.06 1.07 1.08 1.09 1.10 1.11 1.11 1.12 1.13 1.13 1.14 1.13 1.13 1.15 1.11 0.97 Ratio ofunserved to 1990 unserved 100.0 105.5 106.6 107.7 108.7 109.6 110.5 111.2 111.8 112.3 112.7 113.7 112.6 112.9 115.1 111.3 97.0 7. Health effects Crude birth rate per '000 pop 28.9 28.4 28.0 27.5 27.1 26.6 26.2 25.8 25.5 25.1 24.7 23.2 21.9 20.9 19.8 16.6 16.0 No. of births per annum million 86.8 87.1 S7.3 87.6 87.8 87.9 88.2 88.5 88.8 89.0 89.2 90.9 92.6 94.9 96.2 85.9 87.5 Infant mortality rate per'000 births 71.3 71.2 70.8 70.4 70.0 69.6 69.2 6S.8 68.4 67.9 67.5 65.3 63.0 60.7 58.5 56.1 S3.4 lnfantmortality million 6.19 6.20 6.19 6.17 6.15 6.12 6.11 6.09 6.07 6.05 6.02 5.93 5.83 5.76 5.63 4.82 4.67 Infant mortality, base case million 6.19 6.20 6.21 6.21 6.21 6.21 6.22 6.23 6.23 6.23 6.23 6.27 6.29 6.34 6.31 5.52 5.49 Infant mortality over base case million 0.00 0.00 0.02 0.04 0.07 0.09 0.11 0.14 0.16 0.19 0.21 0.34 0.46 0.58 0.68 0.70 0.81 Cumulative lives lost/saved million 0.00 0.00 0.02 0.07 0.14 0.23 0.34 0.48 0.64 0.83 1.04 2A7 4.52 7.18 10.37 13.85 17.69 114 Low Y Potable Water SupDIV Slow Reform (3% pa) Unit 1990 1991 1992 1993 1994 1995 1996 1997 11999 20 2005 2010 2015 2020 2025 2030 8. Incremental benefits and ratios Benefits to new consumers USSbn 0.10 1.05 1.11 1.18 1.25 1.33 1.41 1.49 1.57 1.66 1.75 2.26 2.91 2.95 4.57 6.30 8.05 -Consumer surplus USSbn 0.11 1.07 1.14 1.20 1.28 1.35 1.43 15 1.59 1.6S 1.77 228 2.93 2.96 458 6.31 8.06 - Subsidy pricing welfare losses USSbn 0.00 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.0 0.2 0.0 0.02 0.02 0.01 0.01 0.01 0.01 Benefits to existing consumers USSbn 0.22 0.01 0.00 0.00 40.01 -0.01 -0.02 -. -0.02 402 402 0.02 0.06 0.95 1.37 2.46 2.98 - Consumer surplus US$bn 0.29 -0.03 -0.03 -0.04 -0.04 -0.05 40.05 -0.05 40.05 405 -0.05 ..01 0.04 0.93 1.36 2.45 2.97 - Subsidy pricing welfare losses USSbn 0.08 -0.04 -0.04 -0.04 -.04 -0.03 -0.03 40.03 4.03 4-03 .0.03 -0.03 -0.03 402 4.01 4.01 -0.01 Total increase in benefits USSbn 0.32 1.06 1.12 1.18 1.24 1.31 1.39 1.47 1.55 1.64 1.73 2.28 2.97 3.89 5.94 8.76 11.03 -due to investment % 100.0 37.0 39.6 42.0 44.2 46.4 48.4 50.4 52.2 54.0 55.7 63.0 68.9 75.2 80.8 85.0 88.1 -due to improved efficiency % 0.0 63.0 60.4 58.0 55.8 53.6 51.6 49.6 47.8 46.0 44.3 37.0 31.1 24.8 19.2 15.0 11.9 As a % of LDC growth (dYjt/dYt) 0.63 1.99 2.00 2.02 2.04 2.06 2.09 2.11 2.14 2.17 2.19 2.34 2.48 2.63 3.27 3.96 4.53 Incr. benefit-investment ratio 0.093 0.281 0.274 0.268 0.263 0.258 0.254 0.250 0.247 0.244 0.241 0.231 0.225 0.223 0.261 0.299 0.297 Adjusted ICBR 10.8 3.6 3.6 3.7 3.8 3.9 3.9 4.0 4.0 4.1 4.1 4.3 4.5 4.5 3.8 3.3 3.4 Lov_ Y Sanitation Slow Reform, (3% pa) Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2007 2010 2015 2020 2025 2030 1. Costs and benefits Rate of growth of urban costs: 0.03 Efficiency improvmen race: 0.03 Investment cost per person S/annum 54.1 57.1 60.3 63.6 67.0 70.6 74.3 78.1 82.1 86.1 90.3 112.6 137.4 166.7 196.1 204.5 211.6 - Rural S/annum 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 - Urban Slannum 128.3 132.2 136.2 140.2 144.4 148.8 153.2 157.8 162.6 167.5 172.5 199.9 231.8 268.7 302.4 302.4 302.4 Actual cost/good practice cost 0.667 0.677 0.686 0.695 0.704 0.713 0.722 0.730 0.738 0.746 0.753 0.787 0.817 0.843 0.864 0.883 0.900 Adj. investment cost/person S/annum 81.2 84.5 87.9 91.5 95.2 99.0 103.0 107.0 111.2 115.5 119.9 142.9 168.2 197.9 226.9 231.6 235.2 Expenditure per person S/annum 16.67 17.19 17.74 18.29 18.87 19.47 20.08 20.72 21.37 22.04 22.74 26.55 30.99 36.20 42.28 49.39 57.69 Incremental output-investrnent ratio 0.205 0.204 0.202 0.200 0.198 0.197 0.195 0.194 0.192 0.191 0.190 0.186 0.184 0.183 0.186 0.213 0.245 ICOR 4.872 4.913 4.956 5.000 5.043 5.086 5.127 5.167 5.205 5.240 5.272 5.385 5.427 5.467 5.366 4.689 4.077 ) Access to adequate sanitation LDC Population billion 3.00 3.06 3.12 3.18 3.24 3.30 3.36 3.43 3.49 3.55 3.61 3.92 4.23 4.54 4.86 5.18 5.45 No. with adequate sanitation billion 1.53 1.55 1.56 1.58 1.60 1.61 1.63 1.65 1.67 1.69 1.71 1.83 1.96 2.11 2.28 2.48 2.74 d in # with adequate sanitation billion 0.015 0.016 0.016 0.017 0.018 0.018 0.019 0.019 0.020 0.021 0.021 0.024 0.028 0.031 0.035 0.045 0.056 %'o with adequate sanitation 9o 50.97 50.49 50.04 49.62 49.23 48.88 48.55 48.25 47.97 47.72 47.50 46.69 46.37 46.45 46.85 47.93 50.18 # with inadequate sanitation billion 1.47 1.52 1.56 1.60 1.65 1.69 1.73 1.77 1.81 1.85 1.90 2.09 2.27 2.43 2.58 2.69 2.72 Ratio of unserved to 1990 unserved 100.0 103.0 106.0 108.9 111.8 114.7 117.6 120.4 123.2 126.0 128.8 141.9 154.1 165.3 175.5 .183.1 184.6 3. Benefits and investment Increase in value added USSbn 0.25 0.27 0.29 0.31 0.33 0.35 0.38 0.40 0.43 0.45 0.48 0.65 0.86 1.13 1.50 2.21 3.22 As a % of LDC income (dYjtlYt) 0.02 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.04 0.04 0.05 As a % of LDC growth (dYjt/dYt) 0.50 0.51 0.52 0.53 0.54 0.56 0.57 0.58 0.59 0.60 0.61 0.66 0.72 0.76 0.82 1.00 1.32 Total investment in sanitation USSbn 1.23 1.33 1.44 1.55 1.67 1.80 1.93 2.07 2.22 2.37 2.53 3.48 4.66 6.16 8.03 10.34 13.11 As % of total LDC investment 0.60 0.62 0.63 0.65 0.67 0.68 0.70 0.71 0.73 0.74 0.76 0.82 0.87 0.92 0.96 0.99 1.02 115 Low Y Potable Water Sup2ly Fast Reform (5% pa) Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 2030 1. Costs with good practices Rate of growth of urban COStS: 0.03 Investment costs SJmn3 4.40 4.56 4.73 4.91 5.10 5.30 5.51 5.72 5.94 6.18 6.41 7.71 9.18 10.10 10.51 10.88 11.19 Recurrent costs $Jm3 0.20 0.21 0.22 0.22 0.23 0.24 0.25 0.26 0.27 0.28 0.29 0.35 0.42 0.46 0.48 0.49 0.51 -Labourcomponent S/m3 0.10 0.10 0.11 0.11 0.12 0.12 0.13 0.13 0.14 0.14 0.15 0.18 0.21 0.23 0.24 0.25 0.25 - Maintenance costS S/m3 0.10 0.10 0.11 0.11 0.12 0.12 0.13 0.13 0.14 0.14 0.15 0.18 0.21 0.23 0.24 0.25 0.25 Average annualised incremental investment costs (AAIIC) S/m3 0.44 0.46 0.47 0.49 0.51 0.53 0.55 0.57 0.59 0.62 0.64 0.77 0.92 1.01 1.05 1.09 1.12 - Rural AAilC S/m3 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 - Urban AAIIC S/m3 0.79 0.82 0.84 0.87 0.89 0.92 0.95 0.97 1.00 1.03 1.07 1.23 1.43 1.52 1.52 1.52 1.52 Marginal cost of supply S/m3 0.64 0.66 0.69 0.71 0.74 0.77 0.80 0.83 0.86 0.90 0.93 1.12 1.34 1.47 1.53 1.58 1.63 2. Managerialltechnical (in)efficiency Efficiency improvement rate: 0.05 Actual supply/good practice supply 0.667 0.683 0.698 0.713 0.727 0.740 0.753 0.765 0.777 0.787 0.798 0.843 0.877 0.904 0.926 0.942 0.955 Adj. incremental inv. costs S/m3 0.66 0.67 0.68 0.69 0.70 0.72 0.73 0.75 0.77 0.78 0.80 0.91 1.05 1.12 1.14 1.16 1.17 Adjustedcinvestmentcosts S/m3 6.60 6.68 6.78 6.89 7.02 7.16 7.31 7.48 7.66 7.84 8.04 9.15 10.47 11.17 11.36 11.55 11.72 Adj. marginal cost S/m3 0.96 0.97 0.99 1.00 1.02 1.04 1.06 1.09 1.11 1.14 1.17 1.33 1.52 1.62 1.65 1.68 1.70 3. Prices, subsidies, per capita consumption Rate of change of price ratio: 0.05 \MC price without supply $Jm3 1.92 1.99 2.07 2.14 2.23 2.31 2.40 2.50 2.59 2.69 2.80 3.36 4.01 4.77 5.70 6.25 6.44 MC price with efficient supply S/m3 0.64 0.66 0.69 0.71 0.74 0.77 0.80 0.83 0.86 0.90 0.93 1.12 1.34 1.47 1.53 1.58 1.63 MC price with inefficient supply S/m3 0.96 0.97 0.99 1.00 1.02 1.04 1.06 1.09 1.11 1.14 1.17 1.33 1.52 1.62 1.65 1.68 1.70 Actual price/MC prHce S/m3 0.60 0.62 0.64 0.66 0.67 0.69 0.70 0.72 0.73 0.74 0.76 0.81 0.85 0.89 0.91 0.93 0.95 Actual price charged with supply SJm3 0.58 0.60 0.63 0.66 0.69 0.72 0.75 0.78 0.81 0.85 0.89 1.08 1.30 1.44 1.50 1.56 1.61 Price elasticity of dernand:| 0.251 Income elasticity of demand: 0.30 Consumption ratio: 2.62 Vol. cona. without supply m3/captyear 9.13 9.13 9.13 9.13 9.13 9.13 9.12 9.12 9.12 9.12 9.12 9.12 9.14 9.17 9.19 9.41 9.79 Vol. cons., ineff. supply, subsidy " 22.81 22.77 22.74 22.70 22.66 22.63 22.60 22.57 22.54 22.51 22.49 22.42 22.43 22.90 23.73 24.62 25.60 Vol. cons., ineff. supply only " 20.08 20.20 20.32 20.43 20.52 20.61 20.70 20.77 20.84 20.91 20.98 21.28 21.55 22.22 23.18 24.18 25.24 4 Total water consumption and production Rehabilitation coststinvestmnent cost ratio: 0.25 Total waterproduction bnm3 68.6 69.0 69.5 70.0 70.7 71.4 72.1 72.9 73.8 74.7 75.7 81.4 88.3 96.5 107.1 120.4 136.9 Managerial eff. improvements bn m3 0.00 1.09 1D4 1.00 0.96 0.92 0.89 0.85 0.82 0.79 0.76 0.64 0.54 0.46 0.40 0.35 0.31 Consumption from new inv. bn m3 0.53 0.30 0.36 0.42 0.48 0.53 0.59 0.64 0.69 0.75 0.80 1.05 1.28 1.64 2.13 2.72 3.40 Total rise in consumption bnm3 0.53 1.39 1.40 1.42 1.44 1.45 1.47 1.50 1.52 1.54 1.56 1.69 1.83 2.10 2.53 3.07 3.71 Total water consumption bn m3 45.7 47.1 48.5 49.9 51.4 52.8 54.3 55.8 57.3 58.8 60.4 68.6 77.4 87.3 99.1 113.4 130.7 S. Water investments Upper limit of inv. response to price refonn: 2 Investmentcosts S/m3 6.60 6.68 6.78 6.89 7.02 7.16 7.31 7.48 7.66 7.84 8.04 9.15 10.47 11.17 11.36 11.53 11.72 Water consumption m3/capJyear 22.81 22.77 22.74 22.70 22.66 22.63 22.60 22.57 22.54 22.51 22.49 22.42 22.43 22.90 23.73 24.62 25.60 Investments costs S/cap/year 151 152 154 156 159 162 165 169 173 177 181 205 235 256 269 284 300 Total investmentin water USSbn 3.48 3.84 4.21 4.61 5.02 5.46 5.91 6.39 6.88 7.40 7.95 11.04 14.86 19.58 25.36 32.43 40.76 As a % of total LDC investment 1.70 1.78 1.86 1.94 2.01 2.08 2.14 2.20 2.26 2.32 2.37 2.60 2.77 2.91 3.02 3.10 3.17 6. Access to safe water LDC Population billion 3.00 3.06 3.12 3.18 3.24 3.30 3.36 3.43 3.49 3.55 3.61 3.92 4.23 4.54 4.86 5.18 5.45 Number with safe water billion 2.00 2.00 2.07 2.13 2.20 2.27 2.33 2.40 2.47 2.54 2.61 2.98 3.37 3.74 4.10 4.51 5.00 Rise in number with safe water billion 0.005 0.064 0.065 0.066 0.067 0.068 0.069 0.069 0.070 0.071 0.072 0.076 0.081 0.066 0.078 0.091 0.107 Ratio with safe water % 66.62 65.49 66.29 67.08 67.85 68.63 69.39 70.16 70.92 71.67 7242 76.11 79.73 82.43 84.34 87.22 91.67 Number with unsafe water billion 1.00 1.06 1.05 1.05 1.04 1.04 1.03 1.02 1.01 1.01 1.00 0.94 0.86 0.80 0.76 0.66 0.45 Ratio of unserved to 1990 unserved 100.0 105.5 105.0 104.6 104.0 103.5 102.8 102.0 101.2 100.3 99.3 93.4 85.6 79.7 76.0 66.0 45.3 7. Health effects Crudebirthrate per'O00pop 28.9 28.4 28.0 27.5 27.1 26.6 26.2 25.8 25.5 25.1 24.7 23.2 21.9 20.9 19.8 16.6 16.0 No. of births per annum million 86.8 87.1 87.3 87.6 87.8 87.9 88.2 88.5 88.8 89.0 89.2 90.9 92.6 94.9 96.2 85.9 87.5 Infant mortality rate per'000 births 71.3 71.2 70.7 70.2 69.8 69.3 68.8 68.3 67.8 67.3 66.8 64.2 61.7 59.2 56.9 54.4 51.7 Infantmortality million 6.19 6.20 6.18 6.15 6.12 6.09 6.07 6.04 6.02 5.99 5.95 5.84 5.71 5.62 5.48 4.68 4.52 Infant mortality, base case million 6.19 6.20 6.21 6.21 6.21 6.21 6.22 6.23 6.23 6.23 6.23 6.27 6.29 6.34 6.31 5.52 5.49 Infant mortality over base case million 0.00 0.00 0.03 0.06 0.09 0.12 0.15 0.18 0.21 0.25 0.28 0.43 0.58 0.72 0.83 0.85 0.96 Cumulative lives lost/saved million 0.00 0.00 0.03 0.09 0.19 0.31 0.46 0.65 0.86 1.11 1.38 3.22 5.82 9.14 13.07 17.29 21.89 116 Low Y Potable Water Sunnlv Fast Reform (5% pa) Unit 1990 1991 1992 1993 1994 1995 1996 1997 199S 1999 2000 2005 2010 2015 2020 2025 2030 8. Incremental beneflts and ratios Benefits to new constuners USSbn 0.10 1.40 1.46 1.53 1.61 1.69 1.78 l.S7 1.96 2.06 2.16 2.73 3.45 3.54 5.37 7.27 9.12 -Consumersurplus USSbn 0.11 1.43 1.49 1.56 1.63 1.71 1.80 1.89 1.98 2.08 2.18 2.74 3.46 3.54 5.37 7.27 9.13 - Subsidy pricing welfare losses USSbn 0.00 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.01 0.01 0.00 0.00 0.00 0.00 Benefits to existing consumrsm USSbn 0.22 0.01 0.00 -0.01 -0.01 -0.02 -0.02 -0.03 -0.03 -0.03 -0.03 0.01 0.06 1.03 1.51 2.72 3.32 - Consumer surplus USSbn 0.29 -0.05 -0.06 -0.06 -0.06 -0.06 -0.07 -0.07 -0.07 -0.06 -0.06 -0.02 0.04 1.02 1.50 2.72 3.31 - Subsidy pricing welfare losses USSbn 0.08 -0.06 -0.06 -0.05 -0.05 -0.05 -0.04 -0.04 -0.04 -0.03 -0.03 -0.02 40.02 -0.01 -0.0 -0.01 0.00 Total increase in benefits USSbn 0.32 1.41 1.46 1.53 1.60 1.67 1.75 1.84 1.93 2.03 2.13 2.74 3.51 4.57 6.88 9.99 12.44 -due Lo investment % 100.0 21.7 25.7 29.5 33.1 36.5 39.8 42.8 45.7 48.5 51.0 62.0 70.3 78.0 84.3 88.7 91.7 - dueto improved efficiency % 0.0 78.3 74.3 70.5 66.9 63.5 60.2 57.2 54.3 51.5 49.0 38.0 29.7 22.0 15.7 11.3 8.3 As a % of LDC growth (dYjt/dYt) 0.63 2.65 2.63 2.62 2.62 2.63 2.64 2.65 2.67 2.68 2.70 2.82 2.93 3.09 3.79 4.52 5.10 Incr. benefit-investment ratio 0.093 0.367 0.348 0.331 0.318 0.306 0.297 0.288 0.281 0.274 0.269 0.248 0.236 0.233 0.271 0.308 0.305 Adjusted ICBR 10.8 2.7 2.9 3.0 3.1 3.3 3.4 3.5 3.6 3.6 3.7 4.0 4.2 4.3 3.7 3.2 3.3 Low Y Sanitation Fast Reform, (5% pa) Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 2030 1. Costs and benefits Rate of growth of urban costs: 0.03 Efficiency improvement rate: 0.05 Investmentcostperperson S/annum 54.1 57.1 60.3 63.6 67.0 70.6 74.3 78.1 82.1 86.1 90.3 112.6 137.4 166.7 196.1 204.5 211.6 * Rural Sannum 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1. 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 * Urban S/annum 128.3 132.2 136.2 140.2 144.4 148.8 153.2 157.8 162.6 167.5 172.5 199.9 231.8 268.7 302.4 302.4 302.4 Actual cost/good practice cost 0.667 0.683 0.698 0.713 0.727 0.740 0.753 0.765 0.777 0.787 0.798 0.843 0.877 0.904 0.926 0.942 0.955 Adj. investment cost/person S/annum 81.2 83.7 86.3 89.2 92.2 95.4 98.7 102.1 105.7 109.4 113.1 133.6 156.6 184.4 211.9 217.1 221.6 Expenditure per person S/annum 16.67 17.19 17.74 18.29 18.87 19.47 20.08 20.72 21.37 22.04 22.74 26.55 30.99 36.20 42.28 49.39 57.69 Incremental output-investment ratio 0.205 0.205 0.205 0.205 0.205 0.204 0.204 0.203 0.202 0.202 0.201 0.199 0.198 0.196 0.200 0.227 0.260 ICOR 4.872 4.867 4.869 4.875 4.886 4.898 4.913 4.928 4.945 4.961 4.976 5.033 5.054 5.093 5.012 4.396 3.841 1. Access to adequate sanitation LDC Population billion 3.00 3.06 3.12 3.18 3.24 3.30 3.36 3.43 3.49 3.55 3.61 3.92 4.23 4.54 4.86 5.18 5.45 No. with adequate sanitation billion 1.53 1.55 1.56 1.58 1.60 1.62 1.64 1.66 1.69 1.71 1.74 1.87 2.03 2.21 2.41 2.65 2.95 din # with adequate sanitation billion 0.015 0.016 0.017 0.018 0.019 0.020 0.021 0.022 0.023 0.024 0.025. 0.029 0.033 0.037 0.042 0.053 0.065 % with adequate sanitation % 50.97 50.50 50.08 49.70 49.37 49.07 48.81 48.58 48.39 48.23 48.09 47.80 48.04 48.68 49.61 51.26 54.14 # with inadequate sanitation billion 1.47 1.52 1.56 1.60 1.64 1.68 1.72 1.76 1.80 1.84 1.87 2.05 2.20 2.33 2.45 2.52 2.50 Ratio of unservedto l990unserved 100.0 103.0 105.9 108.7 111.6 114.3 117.0 119.7 122.3 124.8 127.3 139.0 149.3 158.4 166.4 171.4 170.0 3. Benefits and investment Increase in value added USSbn 0.25 0.28 0.31 0.33 0.36 0.39 0.42 0.46 0.49 0.53 0.56 0.77 1.04 1.36 1.79 2.60 3.75 As a 9% of LDC income (dYjt/Yt) 0.02 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.04 0.04 0.04 0.04 0.05 0.06 As a % of LDC growth (dYjt/dYt) 0.50 0.52 0.55 0.57 0.60 0.62 0.64 0.66 0.68 0.70 0.71 0.79 0.87 0.92 0.98 1.18 1.54 Total investment in sanitation USSbn 1.23 1.35 1.49 1.63 1.77 1.93 2.09 2.25 2.43 2.61 2.80 3.90 5.25 6.91 8.95 11.45 14.39 As % of total LDC investment 0.60 0.63 0.66 0.68 0.71 0.73 0.76 0.78 0.80 0.82 0.84 0.92 0.98 1.03 1.07 1.10 1.12 117 Low Y Potable Water Su2ply Accelerated Investment Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 2030 1. Costs with good practices Rate of growth of uirban costs: 0.03 Investment costs S/mn3 4.40 4.56 4.73 4.91 5.10 5.30 5.51 5.72 5.94 6.18 6.41 7.71 9.18 10.94 13.06 14.31 14.75 Recurrent costs S/m3 0.20 0.21 0.22 0.22 0.23 0.24 0.25 0.26 0.27 0.28 0.29 0.35 0.42 0.50 0.59 0.65 0.67 -Labour component S/m3 0.10 0.10 0.11 0.11 0.12 0.12 0.13 0.13 0.14 0.14 0.15 0.18 0.21 0.25 0.30 0.33 0.34 -Maintenance costs SWm 0.10 0.10 0.11 0.11 0.12 0.12 0.13 0.13 0.14 0.14 0.15 0.18 0.21 0.25 0.30 0.33 0.34 Average annualised incremnental investment costs (AAIIC) SWot 0.44 0.46 0.47 0.49 0.51 0.53 0.55 0.57 0.59 0.62 0.64 0.77 0.92 1.09 1.31 1.43 1.48 -Rural AAIIC $/m 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26 Urban AAIIC S/m3 0.79 0.82 0.84 0.8 0.89 0.92 0.95 0.97 1.00 1.03 1.07 1.23 1.43 1.66 1.92 2.04 2.04 Marginal c-ost of supply S/mS3 0.64 0.66 0.69 0.71 0.74 0.77 0.80 0.83 0.86 0.90 0.93 1.12 1.34 1.59 1.90 2.08 2.15 2. Managerlalltechnical (ln)efflciency Efficiency improveiment rate: 0.00 Actual supply/good practice supply 0.667 0.667 0.667 0.667 0.667 0.667 0.667- 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 Adj. incremental inv. costs Shm3 0.66 0.68 0.71 0.74 0.77 0.80 0.83 0.86 0.89 0.93 0.96 1.16 1.38 1.64 1.96 2.15 2.21 Adjusted insvestssnent costs Slns3 6.60 6.84 7.10 7.37 7.66 7.95 8.26 8.58 8.92 9.26 9.62 11.56 13.78 16.41 19.58 21.47 22.13 Adj. marginal cost S/soS 0.96 1.00 1.03 1.07 1.11 1.16 1.20 1.25 1.30 1.35 1.40 1.68 2.00 2.39 2.85 3.12 3.22 3. Prices, subsidies, per capita consumption Rate of change of price ratio: 0.00 MC price without supply S/mnS 1.92 1.99 2.07 2.14 2.23 2.31 2.40 2.50 2.59 2.69 2.80 3.36 4.01 4.77 5.70 6.25 6.44 MC price with efficient supply S/mS 0.64 0.66 0.69 0.71 0.74 0.77 0.80 0.83 0.86 0.90 0.93 1.12 1.34 1.59 1.90 2.08 2.15 MC price with inefficient supply S/m3 0.96 1.00 1.03 1.07 1.11 1.16 1.20 1.25 1.30 1.35 1.40 1.68 2.00 2.39 2.85 3.12 3.22 Actual price/MC price S/mS 0.60 0.58 0.56 0.54 0.52 0.50 0.48 0.46 0.44 0.43 0.41 0.34 0.29 0.24 0.20 0.18 0.18 Actual price charged with supply S/mS 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 Price elasticity of demand:j 0.251 Income elasticity of demand: 0.30 Consumnpton ratio: 3.38 Vol. cons. withoutisupply m3/cap/year 9.13 9.13 9.13 9.13 9.13 9.13 9.12 9.12 9.12 9.12 9.12 9.12 9.14 9.17 9.19 9.41 9.79 Vol. cons., ineff. supply, subsidy 22.81 23.03 23.24 23.46 23.68 23.90 24.12 24.35 24.58 24.81 25.04 26.23 27.48 28.79 30.16 31.60 33.11 Vol. cons., ineff. supply only 20.08 20.08 20.09 20.08 20.08 20.08 20.07 20.07 20.06 20.06 20.06 20.07 20.12 20.18 20.23 20.71 21.54 4Totsti water consumption and production Rehabilitation costs/investment cost ratio: 0.25 Total water production bn m3 68.6 69.4 70.3 71.3 72.3 73.3 74.4 75.5 76.7 77.9 79.1 85.9 93.7 102.3 111.8 122.3 135.2 Managerial eff. improvements bn m3 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Consumption from new insv. bn m3 0.53 0.56 0.59 0.63 0.66 0.69 0.72 0.74 0,77 0.80 0.83 0.95 1.08 1.19 1.30 1.51 1.84 Total rise in consumption bn m3 0.53 0.56 0.59 0.63 0.66 0.69 0.72 0.74 0.77 0.80 0.83 0.95 1.08 1.19 1.30 1.51 1.84 Tota water consumption bn m3 45.7 46.3 46.9 47.5 48.2 48.9 49.6 50.3 51.1 51.9 52.7 57.3 62.4 68.2 74.5 81.5 90.1 5. Water investments Upper limit of inv. response to price reformn: 2 Investrnent costs S/mn3 6.60 6.84 7.10 7.37 7.66 7.95 8.26 8.58 8.92 9.26 9.62 11.56 13.78 16.41 19.58 21.47 22.13 Warer consumption m3/cap/year 22.81 23.03 23.24 23.46 23.68 23.90 24.12 24.35 24.58 24.81 25.04 26.23 27.48 28.79 30.16 31.60 33.11 Investments costs S/cap/year 151 158 165 173 181 190 199 209 219 230 241 303 .:379 472 591 679 733 Total investment in water USS1n 3.48 3.84 4.21 4.61 5.02 5.46 5.91 6.39 6.88 7.40 7.95 11.04 14.86 19.58 25.36 32.43 40.76 As a % of total LDC investmnent 1.70 1.78 1.86 1.94 2.01 2.08 2.14 2.20 2.26 2.32 2.37 2.60 2.77 2.91 3.02 3.10 3.17 6. Access to safe waterI LDC Population billion 3.00 3.06 3.12 3.18 3.24 3.30 3.36 3.43 3.49 3.55 3.61 3.92 4.23 4.54 4.86 5.18 5.45 Number with safe water billion 2.00 2.00 2.01 2.02 2.03 2.03 2.04 2.06 2.07 2.08 2.09 2.17 2.25 2.35 2.45 2.56 2.69 Rise in number with safe water billion 0.005 0.006 0.007 0.008 0.009 0.010 0.011 0.012 0.012 0.013 0.014 0.017 0.019 0.020 0.020 0.024 0.031 Ratio wish safe water % 66.62 65.49 64.41 63.40 62.46 61.59 60.76 60.00 59.28 58.60 57.96 55.29 53.29 51.72 50.42 49.39 49.34 Ntumber witisunsafe water billion 1.00 1.06 1.11 1.16 1.22 1.27 1.32 1.37 1.42 1.47 1.52 1.75 1.98 2.19 2.41 2.62 2.76 Ratio of unserved to 1990 unserved 100.0 105.5 110.9 116.2 121.5 126.7 131.8 136.8 141.7 146.6 151.4 174.9 197.2 218.9 240.5 261.5 275.8 7. Health effects Crude birth rate perO000pop 28.9 28.4 28.0 27.5 27.1 26.6 26.2 25.8 25.5 25.1 24.7 23.2 21.9 20.9 19.8 16.6 16.0 No. of births per antnum million 86.8 87.1 87.3 87.6 87.8 87.9 88.2 88.5 88.8 89.0 89.2 90.9 92.6 94.9 96.2 85.9 87.5 Infant mortality rate per 000 births 71.3 71.2 71.1 70.9 70.7 70.5 70.3 70.1 69.8 69.6 69.3 67.9 66.3 64.5 62.7 60.9 58.8 InfanL mortality million 6.19 6.20 6.21 6.21 6.21 6.20 6.20 6.20 6.20 6.19 6.18 6.17 6.14 6.13 6.04 5.23 5.14 Ianfat mortality, base case million 6.19 6.20 6.21 6.21 6.21 6.21 6.22 6.23 6.23 6.23 6.23 6.27 6.29 6.34 6.31 5.52 5.49 Infant mortality over base case million 0.00 0.00 0.00 0.01 0.01 0.01 0.02 0.05 0.03 0.04 0.05 0.09 0.15 0.21 0.27 0.29 0.34 Cumulative lives lost/saved million 0.00 0.00 0.00 0.01 0.02 0.03 0.05 0.07 0.11 0.15 0.19 0.57 1.21 2.14 3.38 4.81 6.43 118 Low Y Potable Water SuglDv Accelerated Investment Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 2015 2020 2025 2030 8. Incremental benefits and ratios Benefits to new consueners USSbn 0.10 0.13 0.16 0.20 0.23 0.27 0.31 0.36 0.40 0.44 0.49 0.76 1.07 1.42 1.83 2.49 3.42 - Consumer surplus USSbn 0.11 0.13 0.17 0.20 0.24 0.28 0.33 0.37 0.42 0.47 0.52 0.81 1.17 1.58 2.06 2.83 3.89 - Subsidy pricing welfare losses USSbn 0.00 0.00 0.00 0.01 0.01 0.01 0.01 0.02 0.02 0.02 0.03 0.06 0.10 0.15 0.23 0.34 0.47 Benefits to existing consumers USSbn 0.22 0.22 0.23 0.23 0.24 0.26 0.27 0.28 0.30 0.32 0.33 0.46 0.61 0.80 1.03 2.20 2.53 -Consumer surplus USSbn 0.29 0.31 0.32 0.34 0.37 0.39 0.41 0.44 0.47 0.50 0.54 0.74 1.00 1.34 1.78 2.64 3.02 - Subsidy pricing welfare losses USSbn 0.08 0.09 0.10 0.11 0.12 0.13 0.15 0.16 0.17 0.19 0.20 0.28 0.39 0.55 0.75 0.44 0.50 Total increase in benefits USSbn 0.32 0.35 0.39 0.43 0.48 0.53 0.58 0.64 0.70 0.76 0.83 1.21 1.68 2.22 2.86 4.69 5.94 - due to investrnent % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - due to improved efficiency % 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 As a % of LDC growth (dYjt/dYt) 0.63 0.65 0.70 0.74 0.79 0.83 0.88 0.92 0.96 1.00 1.05 1.25 1.40 1.50 1.57 2.12 2.44 Incr. benefit-investnent ratio 0.093 0.090 0.092 0.094 0.095 0.097 0.099 0.100 0.101 0.103 .104 0.110 0.113 0.113 0.113 0.145 0.146 Adjusted ICBR 10.8 11.1 10.8 10.7 10.5 10.3 10.1 10.0 9.9 9.7 9.6 9.1 8.8 8.8 8.9 6.9 6.9 Low Y Sanitation Accelerated Investment Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2005 2010 201S 2020 2025 2030 1. Costs and benefits Rate of growth of urban costs: 0.03 Efficiency imnprovement rate: 0.00 Investmentcostperperson S/annum 54.1 57.1 60.3 63.6 67.0 70.6 74.3 78.1 82.1 86.1 90.3 112.6 137.4 166.7 201.8 243.1 290.8 - Rural S/annum 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 - Urban S/annum 128.3 132.2 136.2 140.2 144.4 148.8 153.2 157.8 162.6 167.5 172.5 199.9 231.8 268.7 311.5 361.1 418.6 Actual cost/good practice cost 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 0.667 Adj. investmentcost/person S/annum 81.2 85.7 90.5 95.4 100.6 105.9 111.4 117.2 123.1 129.2 135.4 168.8 206.1 250.1 302.7 364.7 436.2 Expenditure perperson S/annum 16.67 17.19 17.74 18.29 18.87 19.47 20.08 20.72 21.37 22.04 22.74 26.55 30.99 36.20 42.28 49.39 57.69 Incremental output-investment ratio 0.205 0.201 0.196 0.192 0.188 0.184 0.180 0.177 0.174 0.171 0.168 0.157 0.150 0.145 0.140 0.135 0.132 ICOR 4.872 4.986 5.100 5.215 5.328 5.440 5.549 5.656 5.760 5.860 5.955 6.360 6.652 6.910 7.160 7.383 7.561 1 Access to adequate sanitation LDC Population billion 3.00 3.06 3.12 3.18 3.24 3.30 3.36 3.43 3.49 3.55 3.61 3.92 4.23 4.54 4.86 5.18 5.45 No. with adequate sanitation billion 1.53 1.55 1.56 1.58 1.60 1.62 1.63 1.65 1.67 1.69 1.71 1.82 1.95 2.08 2.22 2.38 2.54 din # with adequate sanitation billion 0.015 0.016 0.016 0.017 0.018 0.018 0.019 0.019 0.020 0.020 0.021 0.023 0.025 0.028 0.030 Q.031 0.033 % with adequate sanitation % 50.97 50.49 50.04 49.63 49.24 48.89 48.56 48.25 47.97 47.72 47.48 46.55 46.03 45.80 45.78 45.95 46.57 4 with inadequate sanitation billion 1.47 1.52 1.56 1.60 1.65 1.69 1.73 1.77 1.81 1.86 1.90 2.09 2.28 2.46 2.63 2.80 2.91 Ratio of unserved to 1990 unserved 100.0 103.0 105.9 108.9 111.8 114.7 117.6 120.4 123.2 126.0 128.8 142.3 155.1 167.3 179.0 190.1 198.0 3. Benefits and investment Increase in value added USSbn 0.25 0.27 0.29 0.31 0.33 0.35 0.38 0.40 0.42 0.45 0,47 0.61 0.79 1.00 1.25 1.55 1.90 As a % of LDC income (dYjt/Yt) 0.02 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 As a % of LDC growth (dYjt/dYt) 0.50 0.51 0.52 0.53 0.55 0.56 0.57 0.57 0.58 0.59 0.60 0.63 0.66 0.68 0.69 0.70 0.78 Total investment in sanitation USSbn 1.23 1.35 1.49 1.63 1.77 1.93 2.09 2.25 2.43 2.61 2.80 3.90 5.25 6.91 8.95 11.45 14.39 As % of total LDC investment 0.60 0.63 0.66 0.68 0.71 0.73 0.76 0.78 0.80 0.82 0.84 0.92 0.98 1.03 1.07 1.10 1.12 119 Number in Low Income Countries Without Access to Safe Water 3.50 3.00 2.50 2.00 Billion 1.50 1.00 0.50 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 *U---- No - Accelerate - Slow - Fast Reform d Reform Reform Investment 120 Number in Low Income Countries Without Access to Adequate Sanitation 3.50 3.00 2.50 2.00 Billion 1.50 1.00 0.50 0.0 - I l l l l l l l1 1 1 1 l l l l l l l l l l l l l l l l l l 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 *U--- No Accelerate -' Slow - Fast Reform d Reform Reform Investment 121 Annual Incremental Benefits From Water Supply Under Different Scenarios 14.00 12.00 10.00 / /j* 8.00 7 US$bn 6.00 4.00 2.00 0.00 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 -*--- No Accelerate * Slow - Fast Reform d Reform Reform Investment Infant Mortality In Water Supply and Sanitation Scenarios 6.50 6.00 5.50 Millions 5.00 2020: onset of fertility transition 4.50 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 | No Reform n Accelerated * Slow Reform - Fast Reform Investment Infant Mortality Rates From Different Water Supply and Sanitation Scenarios 75 70 65 Deaths per '000 live births 6 55 50 45 - - 1---I -- I I I I I I I I I I I- 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 No Reform Accelerated *- Slow Reform 0 Fast Reform Investment Marginal Cost of Efficient and Inefficient Water Supply 3.50 3.00 2.50 2.00 US$/m3 1.50 1.00 o . o I I I I I I I I I II I I I I I I I I I I I I I I I I f I I I I I 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 ____* Efficient Supply, Inefficient Efficient Supply, No Reform & Supply, No Slow Reform and Accelerated Reform & Fast Reform Investment Accelerated Investment Inefficient * Inefficient Supply, Slow Supply, Fast Reform Reform Incremental Capital-Benefit Ratio in Water Supply 12 10 8 6 4 2 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 U-No Reform - --Accelerated * Slow Reform --ZO, Fast Reform Investment 126 Water Prices in No Reform and Slow Reformn Scenarios 7.00 6.00 5-00 AX 4.00 US$1113 3.00 o.oo~~~~~~~~~~~~~~~~n 2.00ln,7 orppleo iEfficienpneAtual nopl refonm ChargedS pricie I ~ ~ ~ ~~~~~no charged,In r sL b o t h r e f o r m s l o w reformSupy °nn ~ ~~~n Inefficen~~ ~ ~~~ ~~~ ~~~~~~~~~~~~~~~~ ~ A c ua refor Distributors of World Bank Publications ARGENTINA FINLAND KOREA, REPUBLIC OF SOUTH AFRICA, BOTSWANA Carlos Hirsch, SRL Akaeeminen Kirjakauppa Pan Korea Book Corporaion For singLetitiec Galeria Guemes P.O. 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