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The Economics of an Electrified Autonomous Future


Would Autonomous Electric Vehicles Eliminate Transportation Externalities?

After one of the many fun and inspiring lunch conversations here at the Energy Institute, I realized that my thoughts on the economic consequences of an electrified autonomous personal transport sector were in complete disarray. So, I am going to use this self-help outlet to clean house.

As we teach in economics 101, if there were no externalities (costs we impose on others through our choices but do not pay for) individual households would make good decisions regarding the vehicles they purchase and how much to drive them. Unfortunately, there are few sectors more riddled with externalities than the transportations sector. Parry, Walls and Harrington’s seminal survey classifies these into fuel related costs and mileage related costs. They calculate that each gallon of gasoline causes about 6 cents worth of global warming damage (even though I would argue today that a more up to date number is closer to 40 cents) and 12 cents worth of energy security (e.g. reliance on foreign sources of oil) damage. Three other externalities are local pollution (e.g., particulate matter, ozone precursors and toxics), congestion and accidents. Their estimate of congestion costs is 105 cents per gallon, followed by accidents (63 cents) and local pollution (42 cents).

We can of course quibble about the numbers, but the buckets are the right ones. The important part is these external costs are not borne by the consumer and hence drivers consume too much gasoline, drive too many miles and own cars that are too big and heavy. Several pieces of regulation have attempted to address pieces of these, but we are nowhere close to what an economically efficient transport sector looks like.

So let’s jointly have a dream, partially inspired by the hero of my youth: K.I.T.T., the autonomous vehicle inhabited by the young and dashing David Hasselhoff. The dream I have is one of roads exclusively filled with autonomous electric vehicles (K.I.T.T. I assume was powered by a big block V8 not a 9V battery). Would this solve the externality problems? Let’s look at them one by one.

  • Congestion. This is the big one. The big advantage of my fantasy autonomous vehicle fleet is that these vehicles can speak to the infrastructure (e.g., toll booths, traffic lights) and are linked in to a Waze system on steroids, such that a giant computer can solve the routing issue centrally. That will certainly bring some gains. The other aspect of these vehicles is that they can in theory drive closer to each other, drastically reducing the “footprint” of each vehicle and increasing the throughput of some roadways. There is a huge engineering literature looking at this issue. Certainly, this fleet will not make congestion a thing of the past, but it will certainly be able to drastically reduce congestion and the associated externalities on everyone else’s travel time. (We will talk about the possibility of a possibly massive rebound effect in a future blog.)
  • Accidents: An interesting question here is who is less likely to get into an accident? Texting and sometimes drunk/high biological lifeforms or computers? I put my money on computers. If vehicles know what the vehicles in front of them are doing, can scan for hazards in the road ahead of them they can make all the vehicles in the immediate vicinity react optimally. This of course becomes a bit dicey if you have a mixed system, where only a fraction of the cars are smart and are mixed in with Max’s car after he been teaching MBA microeconomics for 9 hours.
  • Local Pollution. Much has been written about the environmental footprint of electric vehicles – assuming the current power generation mix. Depending on where you charge it, your Tesla is either better or worse than a Porsche. But, allow me to dream a bit here. If we solve the storage/intermittency problems related to renewables (happy eclipse everyone!) and are living the carbon-free life, this will have significant benefits. We will have taken a major source of ozone precursors, particulate matter and toxics away from transportation arteries without simply displacing them to the areas where power is being generated. A further big benefit is that vehicles are a major source of toxic pollution for people living near refineries and roadways. These would largely go away (tire and brake dust would remain, I assume). The environmental justice consequences would be significant, as in California many of the disadvantaged communities are near major roadways.
  • GHG and Energy Security Benefits. The greenhouse gas emissions damages from each mile driven and energy security costs would essentially disappear.

Is there anything else we would gain? Time! For those fortunate people who do not get carsick when writing Python code while in a car, travel time is now work/binge-watch-episodes-of-Cheers time. Given the lengthy commute times in most American urban centers, this would be time gained, which of course is valuable. I, unfortunately, will have to use this time looking out the window.

What is there not to like? Well, if you are really attached to being behind the wheel while yelling at other drivers who cannot figure out what a blinker is, you will be privately worse off. But if you ask me, I cannot wait. If we go fully crazy, we stop buying cars individually and you would just summon a pod to pick you up wherever and whenever. Quantifying the benefits of redesigning the transportation sector in this non-marginal fashion is tough with the usual economics toolbox. It would be good if someone would do this.

K.I.T.T., meet me out front. My AppleWatch and I are ready.

energy at haas

3 Comments on "The Economics of an Electrified Autonomous Future"

  1. forbin on Wed, 23rd Aug 2017 4:01 am 

    economic clap trap

    “….hence drivers consume too much gasoline, drive too many miles and own cars that are too big and heavy…”

    codswallop- I do it because I can…. ( and its apparent effect on my social status vis a vis the opposite sex )

    there are other riposte to this silly article but I leave that to the main posters 😉


  2. Outcast_Searcher on Wed, 23rd Aug 2017 10:02 am 

    forbin — you ignoring the reality of the externalities, which the article did a decent job of documenting, is the codswallop.

    They’re still there. You’re just dismissively making your excuse. As though females won’t be swayed by other (stupid) displays of wealth like a $150,000 souped up model S, or a big house, jewelry, a fancy suit, various electronic status devices, etc.

    Grow a brain. If you have the money to waste on economic status symbols, you can certainly afford to pay a couple bucks a gallon for the social costs you inflict.

    If I were running things, the social cost tax for a gallon of gasoline or equivalent would be $20 a gallon — to shove people like you toward less harmful transportation solutions.

    I don’t want it to be illegal to burn FF’s, at least until they truly aren’t needed. I just want people to pay enough for the damage burning them causes to be willing — even eager, to switch to better alternatives, or do without if it’s consumer “codswallop”.

  3. Bob on Wed, 23rd Aug 2017 1:15 pm 

    Sorry, but cars require roads which require maintenance. Think road surfacing, steel, bridges, concrete, potholes. We can’t afford to maintain what we have now. Our infrastructure has a D grade. We need a Trillion dollars to make it acceptable. It will never be fixed. Also, your pollution doesn’t end. Think worn tires, brake dust, car fluids, plastic, etc. Then we would have pranksters dumping a load of roofing nails onto our highways and all traffic stopping. Or crooks putting out a few traffic cones on the highway, stopping all traffic and robbing them. This KITT dream ain’t going to happen, no way.

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