Helena Joyce
The effects of air and water pollution on the environment and human health are well-known, but the economic impacts are less often considered. The costs of pollution-related diseases are significant, and the environmental damage caused by industrial activities can also impact economic growth. For instance, in the US, air pollution was estimated to cost roughly 5% of yearly GDP in 2014. As such, economists have long argued that GDP is an incomplete measure of economic performance, as it does not account for environmental degradation. However, efforts to address this issue are underway, with the World Bank promoting a circular economy and the US Commerce Department introducing green GDP tabulations.
| Characteristics | Values |
|---|---|
| Air pollution cost as a percentage of GDP | 4-5% in 2014 |
| Air pollution cost in absolute terms | $790 billion in 2014 |
| Air pollution cost as a percentage of GDP (historical) | Much higher in the 1970s |
| Air pollution cost in absolute terms (historical) | $2.9 trillion in 2018 |
| Air pollution cost as a percentage of GDP (country-specific) | 5% in China |
| Water pollution cost as a percentage of GDP | Not found |
| Water pollution cost in absolute terms | Not found |
| Combined air and water pollution cost as a percentage of GDP | Not found |
| Combined air and water pollution cost in absolute terms | Not found |
| Other costs of air and water pollution | Loss of biodiversity, health issues, loss of productivity, etc. |
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What You'll Learn
Air pollution costs and economic impact
Air pollution has a significant economic impact and poses a major threat to global public health. It is estimated to cost around 5% of the yearly gross domestic product (GDP) in the US, which was $790 billion in 2014. The costs are largely driven by the health impact of air pollution, including early deaths, reduced productivity, and reduced life expectancy.
The economic impact of air pollution is not limited to the US. Globally, air pollution is estimated to cause a 5% reduction in global GDP, amounting to $6 trillion in health damages annually. The World Bank estimates that 1.2 billion workdays are lost globally each year due to air pollution, and this number could reach 3.8 billion days by 2060.
The costs of air pollution are concentrated within a few economic sectors. The top four sectors responsible for the highest external damages are agriculture, utilities, manufacturing, and transportation. These sectors contribute just under 20% of GDP but account for over 75% of all air pollution-related damages. For example, ammonia, the largest contributor to damages from agriculture, is emitted through livestock-raising and fertilizer application, forming secondary particulate matter (PM2.5) downwind of farms. Similarly, damages from the utilities sector are driven by sulfur dioxide (SO2), a by-product of coal combustion that forms secondary PM2.5.
While air pollution damages have been decreasing over time, the decline has not been uniform across industries. Some economic activities, such as animal production, aquaculture, water transportation, and crop production, still incur very large damages from air pollution compared to the value they bring to the economy.
Addressing air pollution is crucial for building stronger economies and improving public health. Implementing air pollution control strategies can have significant economic benefits, primarily by improving mortality and morbidity rates associated with lowering PM2.5 levels. Additionally, businesses can boost their environmental, social, and governance (ESG) impact and performance by taking joint action on climate and air quality.
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Water pollution and ecosystem degradation
Water pollution and environmental degradation are pressing issues that have severe consequences for human health and ecosystems. Water pollution occurs when harmful substances, such as chemicals, waste, plastics, and microorganisms, contaminate bodies of water, making them toxic to humans and the environment. This problem is widespread, with rivers, reservoirs, lakes, and seas being inundated with pollutants. According to the World Health Organization (WHO), one in three people worldwide is affected by polluted water, and unsafe water kills more people annually than war and violence combined.
Agricultural activities are a significant contributor to water pollution and degradation. The agricultural sector is the largest consumer of freshwater resources, using about 70% of the earth's surface water for farming and livestock production. However, it is also a leading cause of water degradation. Fertilizers, pesticides, and animal waste from farms wash into waterways during rainfall, leading to nutrient pollution and algal blooms that are harmful to both people and wildlife. Additionally, the use of wastewater for livestock farming introduces toxins into the food chain, posing risks to human health.
Industrial activities also play a role in water pollution. Chemical and industrial pollutants, such as heavy metals (e.g., arsenic, mercury, lead), pesticides, and nitrate fertilizers, are finding their way into water supplies. These toxins can have severe health impacts, including cancer, hormone disruption, and altered brain function. The contamination of drinking water in Flint, Michigan, due to cost-cutting measures and aging infrastructure, serves as a stark example of the dangers of industrial pollutants in water.
Water degradation has been worsening globally since the 1990s and is expected to worsen further, posing increased threats to human health and the environment. Addressing water pollution and ecosystem degradation is crucial to ensuring the health and well-being of current and future generations. Implementing measures to reduce pollution, improve water quality, and promote sustainable practices in agriculture and industry is essential to mitigate the negative impacts on human health, ecosystems, and social and economic development.
While the impacts of water pollution and ecosystem degradation are not directly accounted for in GDP calculations, they have significant economic implications. The costs of pollution-related diseases and health issues are substantial, and the lack of access to clean water and sanitation affects billions of people worldwide. Additionally, the degradation of water sources can have long-term consequences for industries that rely on them, such as agriculture, fisheries, and tourism. Thus, while not explicitly included in GDP, the economic impacts of water pollution and ecosystem degradation are far-reaching and underscore the urgency of addressing these issues.
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Industrial activities and environmental pollution
Industrial activities are a major contributor to environmental pollution, and the resulting pollution has significant economic and health impacts. The World Bank has recognized the need to address the root causes of pollution, which lie in the dominant "take, make, waste" linear economy, and has been working to promote a circular economy, resource efficiency, and sustainable markets in various sectors.
Industrial activities often lead to increased exposure to chemicals, toxic materials, and polluted lands. The release of pollutants into the air, water, and soil can have far-reaching consequences for the environment and human health. For example, the increasing use of drugs in livestock, poultry production, and fish farming has led to the genetic selection of more harmful bacteria, which can have serious consequences for both human and animal health. In addition, the now worldwide presence of marine microplastics has adversely impacted many marine species, including high-profile megafauna such as marine birds, turtles, cetaceans, and fish.
Air pollution is one of the most significant forms of industrial pollution. The top four sectors responsible for the highest external damages are agriculture, utilities, manufacturing, and transportation, which contribute just under 20% of GDP but are responsible for more than 75% of all air pollution-related damages. In the United States, air pollution costs the country roughly 5% of its yearly GDP in damages, with the highest costs coming from early deaths attributable to exposure to fine particulate matter (PM2.5). While air pollution damages in the US have been decreasing over time, the decline has not been uniform across industries, and some economic activities, such as animal production and water transportation, still entail very large damages from air pollution.
Water pollution is another significant issue stemming from industrial activities. Industrial releases of pollutants into water bodies can have severe environmental and health impacts. For example, the presence of pharmaceuticals in sewage effluent is a major concern, yet residues of pharmaceuticals in aquatic systems are often not included in regular monitoring programs. In Europe, industrial releases of pollutants that damage human health and the environment into water bodies declined overall between 2010 and 2022, with releases of heavy metals seeing a significant decrease.
Soil pollution is also a concern, particularly in the context of industrial activities. Pesticides and other chemical pollutants can contaminate arable soil and land parcels, rendering them unsafe for use. In 2016, China implemented a Soil Pollution Action Plan, aiming to safely utilize contaminated arable soil and polluted land parcels through source control of pollutions and remediation of contaminated fields.
Overall, industrial activities have significant environmental and health impacts through various forms of pollution. Addressing the root causes of pollution and transitioning towards a more sustainable and regenerative economy are crucial for mitigating these impacts and promoting a healthier and more prosperous future for all.
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Pollution management and poverty alleviation
The gross domestic product (GDP) is a measurement of economic performance. However, economists have long known that it is incomplete, as it does not account for the value of leisure time, the value of home production, and environmental and natural resources. For instance, while the GDP includes the value of standing forests when they are cut down, it does not account for the environmental damage caused by their removal.
Similarly, the GDP does not account for the negative externalities of pollution, which can extend into non-market impacts. Pollution damages are largely concentrated within a few economic sectors, such as agriculture, utilities, manufacturing, and transportation, which contribute just under 20% of GDP but are responsible for over 75% of all air pollution-related damages. These damages are caused by a unique mix of chemicals emitted by each sector, such as sulfur dioxide (SO2) from coal combustion in the utilities sector, and ammonia from livestock-raising and fertilizer application in the agriculture sector.
The costs of pollution-related diseases are significant, with lead exposure costing countries $6 trillion, equivalent to 6.9% of global GDP. Pollution also causes an unacceptable toll on health and human capital, with children under 5 years of age losing 765 million IQ points due to pollution. In addition, air pollution negatively impacts the U.S. economy, costing the country approximately 5% of its yearly GDP in damages ($790 billion in 2014).
Therefore, pollution management is critical to alleviating poverty, boosting shared prosperity, and addressing the demands of millions of people for healthier and more productive lives. It can also contribute to climate change mitigation through the reduction of black carbon and methane emissions, and enhance competitiveness through job creation, better energy efficiency, improved transport, and sustainable development.
The World Bank has been working to increase the identification of toxic sites and research their health and economic impacts. The Bank promotes a circular economy, resource efficiency, and sustainable markets in various sectors, such as textile and apparel, agribusiness, and construction materials. In addition, the Bank carries out analytical work to identify environmental priorities for poverty alleviation, such as in Africa, where it has helped set environmental priorities and informed investments, policy reforms, and capacity-building interventions in countries like Ethiopia, Nigeria, Rwanda, and Mexico.
China's poverty alleviation programs provide another example of successful pollution management and poverty alleviation. Through the implementation of various policies, China has lifted hundreds of counties out of absolute poverty without compromising its environment for economic development. The removal of the "poverty hat" in these counties has prompted a focus on environmental protection, resulting in improved air quality through increased carbon sequestration and reduced resource depletion.
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Economic growth and environmental sustainability
The costs of pollution to human health and the environment are significant. For example, lead exposure has cost countries $6 trillion, equivalent to 6.9% of global GDP. Air pollution in the US has been estimated to cost roughly 5% of its yearly GDP, with the highest costs coming from early deaths due to exposure to fine particulate matter (PM2.5). The economic sectors responsible for the highest external damages, such as agriculture, utilities, manufacturing, and transportation, contribute just under 20% of GDP but are responsible for over 75% of all air pollution-related damages.
To address these issues, the concept of "green accounting" or "environmental accounting" has emerged, which seeks to include the value of environmental pollution damages in economic measurements like GDP. This approach treats natural and environmental resources as productive assets, with their depletion and degradation subtracted from GDP calculations. Additionally, the World Bank and other organizations have promoted the adoption of a circular economy, resource efficiency, and sustainable markets in various sectors to reduce pollution and improve environmental sustainability.
Research on the relationship between economic development and environmental pollution has shown that economic growth can increase environmental pollution emissions, particularly in a medium-growth regime. However, in high- or low-growth regimes, the growth rates of pollution emissions and GDP are negatively correlated. This indicates that economic growth can inhibit environmental pollution under certain conditions. For example, the implementation of the Clean Air Act in the US in 1970 has contributed to a significant decrease in PM2.5 and associated damages since the 1970s.
Overall, achieving economic growth while maintaining environmental sustainability requires addressing the root causes of pollution, such as the dominant linear economy model, and transitioning to more sustainable practices and policies. This includes improving industrial processes, adopting cleaner technologies, and promoting environmental protection and governance. By doing so, we can alleviate poverty, boost shared prosperity, and address the demands of millions of people for healthier and more productive lives.
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Frequently asked questions
Yes, air pollution has a negative impact on a country's GDP. In 2014, air pollution cost the US roughly 5% of its GDP in damages. Globally, air pollution cost the world economy 3.3% of the world's GDP in 2018.
Air pollution damages are largely concentrated within a few economic sectors: agriculture, utilities, manufacturing, and transportation. These sectors contribute just under 20% of the GDP but are responsible for 75% of all air pollution-related damages. Air pollution also leads to increased work absenteeism and healthcare costs, which negatively impact a country's GDP.
Water pollution, like air pollution, has negative economic consequences. Water pollution disrupts ecosystems and leads to losses in biodiversity, which provide essential services such as food production, water purification, and flood protection. These ecosystem services are valued at over $125 trillion, which is more than the global GDP.
Countries can implement measures to reduce air and water pollution, such as adopting cleaner technologies, improving waste management, and enforcing environmental regulations. These measures can have a positive return on investment by improving the health and productivity of the population, reducing healthcare costs, and increasing economic output.
