10/12/16: Roads to Polluting Hell Outside the Electric Vehicles' Backyard

The old adage that the road to hell is commonly paved with good intentions, taken through the prism of economic analysis, can often be sharpened by modifying it. In truth, more often then not, the road to hell for some is often paved with good intentions and fortunes of the others.

For an example of such modification, consider a recent NBER paper, titled "Distributional Effects of Air Pollution from Electric Vehicle Adoption" (NBER Working Paper No. w22862) by Stephen P. Holland, Erin T. Mansur, Nicholas Z. Muller and Andrew J. Yates.

In the paper, the authors looked at the distribution of gains and losses in the form of air pollution arising from the adoption of electric vehicles in the U.S. To do so, the authors employed "...an econometric model to estimate power plant emissions and an integrated assessment model to value damages in air pollution from both electric and gasoline vehicles." The authors also used the registration location of electric vehicles.

The key findings are:

1. "...people living in census block groups with median income greater than about $65,000 receive positive environmental benefits from these vehicles while those below this threshold receive negative environmental benefits" For the want of better description, the better off are dumping their pollution onto the less better off via electric vehicles.
2. "Asian and Hispanic residents receive positive environmental benefits, but White and Black residents receive negative environmental benefits. In multivariate analyses, environmental benefits are positively correlated with income and urban measures, conditional on racial composition. In addition, conditional on income and urbanization, separate regressions find environmental benefits to be positively related with Asian and Hispanic block-group population shares, negatively correlated with White share, and uncorrelated with Black share." Which means that re-allocation of pollution shifts negative externality toward urban (not rural) poor.
3. "Environmental benefits tend to be larger in states offering purchase subsidies. However, for these states, an increase in subsidy size is associated with a decrease in created environmental benefits." Or put more simply: the greater the subsidies to purchases of the electric vehicles, the lower are the benefits from electric vehicles. Although we have no idea if the associated redistributed costs of these vehicles are any less worse.

The results are pretty intuitive. To power all these Teslas and BMW i-models and the rest of the electric cars lot, one has to generate electricity. Power plants (even those based on renewables, although their social and environmental costs are not factored in the study) are based in areas where those using electric vehicles do not tend to live. So when an executive in Silicon Valley drives her/his Tesla to work, the air pollution around her/him is reduced. But the air around a power generating plant gets worse, because a plant somewhere has to burn some natural gas or captured methane etc to power that Tesla, and that somewhere ain't in the area where the Tesla-driving hipster lives or, even, works.

Hipster's good fortune is a polluting hell for someone who can't afford living outside the industrially intensive areas where hipster's Tesla gets its electricity from. Oh... and one more thing: unlike in normal cases of externalities, there is no mechanism to compensate the losers in this game, because the hipsters get tax subsidies on their Teslas. There is nothing being raised from the beneficiary of the externality to compensate the loser from the externality. Even in theory, someone loses when someone gains.