Local air pollution, and the health problems it causes, have received increased attention in many parts of the world, often because of specific incidents in major cities. However, over the last few years, the evidence-base has improved significantly, and now demonstrates that the health impacts of local air pollution, particularly from road transport, are much larger than previously thought. Drawing on this improved evidence-base this study estimates the economic cost of the health impacts of air pollution from road transport – on a global scale, but with special reference to People’s Republic of China, India and the OECD member countries.

Outdoor air pollution kills more than three million people across the world every year, and causes health problems from asthma to heart disease for many more. This is costing OECD societies plus People’s Republic of China and India an estimated USD 3.5 trillion dollars a year in terms of the value of lives lost and ill health, and the trend is rising. But how much of the cost of those deaths and health problems is due to pollution from cars, trucks and motorcycles on our roads? Initial evidence suggests that in OECD countries, road transport is likely responsible for about half the USD 1.7 trillion total.

This chapter begins with a restatement of the economic first principles informing the valuation of life and health and, therewith, the cost of mortalities and morbidities. It shows that a standard method is available by which to measure the cost of mortality – the value of statistical life (VSL). While there is work to be done in order to establish standard measurement methods regarding morbidity, it is possible to proceed with an indicative estimate of the additional cost imposed by morbidities drawn from the best available evidence.

This chapter reviews the extensive new epidemiological evidence that has become available since the WHO’s 2010 Global Burden of Disease study. It tabulates health impacts from ambient particulate matter and ambient ozone pollution – including deaths, years of life lost (YLLs), and disability adjusted life years lost (DALYs) – for all OECD countries plus China and India. This chapter also provides a new calculation of the economic cost of deaths from ambient air pollution for all OECD countries plus China and India, along with an additional indicative estimate for the cost of morbidities.

This chapter explores some of the policy implications of the cost burden of the health impacts of outdoor air pollution. It argues the need to maintain strong regulatory regimes – in particular, a strict vehicle standards regime – but also the need the rethink the regulatory and tax settings for diesel vehicles. This chapter also shows that the benefits of reducing the economic cost burden imposed by air pollution could easily outweigh the monetary costs of investments in more ambitious mitigation programmes, and that it is necessary, generally speaking, to rethink the approach to investment appraisals.