Implementing QALYs in the Analysis of Air Pollution Regulations

In recent years, there has been growing interest in cost-effectiveness analysis for environmental regulations using quality-adjusted life years as the measure of effectiveness. This paper explores the implications of the QALY approach for measuring the impacts of air pollution regulations, with an example using the U.S. Environmental Protection Agency’s Heavy Duty Engine/Diesel Fuel regulations. The paper also examines the issues surrounding the potential use of QALY measures in cost-benefit analysis for air pollution regulations. Key findings are that, compared with a cost-benefit approach, the QALY framework gives more weight to reductions in incidence of chronic disease relative to reductions in premature mortality risk, especially when the mortality risk reductions occur in older populations. In addition, use of monetized QALYs in cost-benefit analysis is not recommended, due to fundamental differences in the theoretical grounding of the different measures. However, application of monetized QALYs based on age-specific willingness to pay (WTP) for mortality risk reductions gives very similar results to typical cost-benefit analysis for mortality risk reductions, as opposed to using values for QALYs based on non-age specific WTP. The paper concludes that in cases where mortality provide the majority of a regulation’s impacts, QALY based cost-effectiveness analysis and WTP based cost-benefit analysis may not differ in their conclusions. However, in cases where morbidity or non-health outcomes are significant, cost-effectiveness and cost-benefit analysis may result in different evaulations of the efficiency of the regulation.