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Electric Vehicle Economic Analysis
Federal policy makers propose to favor the development of electric vehicles (EV) through the spending of millions of tax dollars to support the building of an infrastructure for charging stations. This is despite the fact that for many regions of the country electricity is generated by fossil fuel burning power plants. Emissions from these power plants are carried by wind currents to neighboring states. The government is, in fact, supporting increases in lung and cardio-vascular diseases from pollutants with such a policy. The following excerpt is from a paper by Holland et al. on the economic and geographic analysis of electric vehicle impact by geographic region in the U.S.
Editor: If similar analyses were performed in many other countries, similar situations would prevail; namely, electricity for EV (or other eco-friendly products) is generated from use of fossil fuels (mostly coal). In many parts of the U.S. fossil fuels are the primary energy source for generating electricity. In another instance of this inconsistency, electricity to manufacture solar panels in China (a major source of panels in the US and abroad) is produced using coal-burning plants. For these and other environmental inconsistencies see article by Kate Bartlett and Emma Foster in The Sunday Magazine, July 25, 2021 entitled: "Greased Lightning: The Future of Electrification."
American Economic Review 2016, 106(12): 3700–3729 http://dx.doi.org/10.1257/aer.20150897 3700. Are There Environmental Benefits from Driving Electric Vehicles? The Importance of Local Factors† By Stephen P. Holland, Erin T. Mansur, Nicholas Z. Muller, and Andrew J. Yates*
We combine a theoretical discrete-choice model of vehicle purchases, an econometric analysis of electricity emissions, and the AP2 air pollution model to estimate the geographic variation in the environmental benefits from driving electric vehicles. The second-best electric vehicle purchase subsidy ranges from $2,785 in California to−$4,964 in North Dakota, with a mean of −$1,095. Ninety percent of local environmental externalities from driving electric vehicles in one state are exported to others, implying they may be subsidized locally, even when the environmental benefits are negative overall. Geographically differentiated subsidies can reduce deadweight loss, but only modestly.
For a variety of reasons, including technological advances, environmental concerns, and entrepreneurial audacity, the market for pure electric vehicles, which was moribund for more than a century, is poised for a dramatic revival.1 Several models are already selling in considerable volumes, the portfolio of electric vehicles is beginning to span the vehicle choice set, and almost all major manufacturers are bringing new models to the market. The Federal Government is encouraging these developments by providing a significant subsidy for the purchase of an electric vehicle, and some states augment the federal policy with their own additional subsidy.2
Proponents of these subsidies argue electric vehicles generate a range of short-term and long-term benefits such as reduced environmental impacts, innovation spillovers, and reduced reliance on imported oil.3 In this paper we analyze whether electric vehicles do indeed generate short-term environmental benefits by examining air pollution damages from driving gasoline vehicles and charging electric vehicles. In particular, we focus on the importance of local factors by including global and local pollution, spatial heterogeneity of damages, pollution export across political jurisdictions, and policy that may vary by location.
Three main considerations motivate our analysis. First, prior studies of electric vehicles have focused on calculating the emissions of electric vehicles but have not had a conceptual framework for analyzing electric vehicle subsidies.4 We analyze a model of vehicle choice, which gives us the theoretically sound and intuitive result that the subsidy should be equal to the difference in lifetime damages between an electric vehicle and a gasoline vehicle. Our theoretical framework also allows us to address additional policy questions regarding the best policies for different jurisdictional levels and the welfare gains from policy differentiation.5
Second, despite being treated by regulators as “zero emission vehicles,” electric vehicles are not necessarily emissions free (see, for example, National Academy of Sciences 2010). In 2014, the US Department of Energy reported that nearly 70 percent of electricity generated in the United States is produced by burning coal and natural gas. In many locations, the comparison between a gasoline vehicle and an electric one is really a comparison between burning gasoline or a mix of coal and natural gas to move the vehicle. However, average emissions of regional power plants can be a misleading indicator of the environmental impact of electric cars because all power plants do not respond proportionally to an increase in electricity usage and because electricity flows do not respect regional (e.g., state) boundaries.6
To assess the emissions from charging an electric vehicle, we use an econometric model to estimate the effect of charging an electric vehicle on the marginal emissions of multiple pollutants at each power plant.7
Third, there are significant physical differences between emissions from gasoline and electric vehicles. This is due to the distributed nature of the electricity grid, the height at which emissions occur, and the chemistry of fuel combustion. As a result, pollutants and emissions rates may be spatially distinct even if gasoline and electric vehicles are driven in the same place. For local pollutants, an additional problem is that the same vehicle driven in different places leads to different damages. For this reason, many prior studies consider only carbon dioxide.8 We use an integrated assessment model to value damages across local and global pollutants for both electric and gasoline vehicles.9
References cited in Holland paper:
1 http://energy.gov/articles/history-electric-car (accessed October 17, 2016).
2 Internal Revenue Code Section 30D(Notice 2009-89) provides a tax credit of up to $7,500.
3 http://energy.gov/eere/vehicles/ev-everywhere-grand-challenge-does-10-year-vision-plug-electric-vehicles (accessed October 17, 2016).
4 See, for example, Graff Zivin, Kotchen, and Mansur (2014) and Michalek et al. (2011).
5 Examples of theoretical discrete choice transportation models include De Borger (2001); De Borger andMayeres(2007); and Parry and Small (2005). Differentiated policy is analyzed by Weitzman (1974); Mendelsohn(1986); Banzhaf and Chupp(2012); and Fowlie and Muller (2013).
6 The EPA’s calculated CO 2 emissions rates for electric vehicles (www.fueleconomy.gov) are regional averages.
7 This builds on Graff Zivin, Kotchen, and Mansur (2014) and Holland and Mansur (2008).
8 See, for example, Graff Zivin, Kotchen, and Mansur (2014) and Archsmith, Kendall, and Rapson(2015).
9 Previous air pollution integrated assessment research includes Mendelsohn (1980); Burtraw et al. (1998); Mauzerall et al. (2005); Tong et al. (2006); Fann, Fulcher, and Hubbell (2009); Levy, Baxter, and Schwartz (2009); Muller and Mendelsohn (2009); and Henry, Muller, and Mendelsohn (2011). We model both ground-Level and power plant emissions throughout the contiguous United States. In contrast to prior work, we report damages within the county of emission, within the state of emission, and in total (across all receptors).
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Revised: August 02, 2021