Blog Post

Valuing Private Goods with Public Benefits: Confessions of a “Clean” Diesel Owner

Oct 1, 2015 | Casey J. Wichman

In 2011, I bought a new Volkswagen (VW) Golf TDI and, since then, I have driven it nearly 100,000 miles. Yes, this is one of those “clean” diesel vehicles that VW outfitted with technology to cheat emissions tests. So my driving behavior emitted a lot more nitrogen oxides (NOx), a precursor to ground-level ozone, or smog, than I was aware. Last week, RFF’s Virginia McConnell and Joshua Linn covered the VW scandal and tackled some deeper questions for manufacturers and consumers about trade-offs in environmental regulation. Here’s my quick take, as an environmental economist and VW diesel owner directly affected by the recent scandal.

As a consumer, I was duped into thinking I could have a fuel-efficient vehicle that had more pep than a Prius and still maintain a level of “greenness” that gave me license to scoff at “dirtier” vehicles on the road. In fact, I was willing to pay a few thousand dollars more for those benefits, and Volkswagen capitalized on these personal preferences. Max Auffhammer characterized my experience and that of so many others like me in a recent blog post. (In short: “Look! It’s fuel efficient and clean! Many of my Birkenstock-wearing, dog-owning, El Capitan-summiting colleagues and graduate students ran out and traded in their Prii for the VW TDI wagon. . . . Well, it turns out what sounded too good to be true was.”)

Since the scandal broke, environmentally conscious consumers have lamented, primarily in the form of class action lawsuits, exactly that—VW’s clean diesel cars are not actually clean. The New York Post summarized what many were feeling with the sensational headline “Man sues VW because diesel car won’t actually save environment.” But my individual purchase of a diesel vehicle was never going to save the environment. In fact, for me personally, the acknowledgement that my car was spewing up to 40 times more NOx emissions than I previously thought isn’t even that bad; by Auffhammer’s back-of-the-envelope calculations, the additional external damages from my personal driving habits are less than $500 over my four years of diesel ownership. Of course, mine is just one of 11 million affected vehicles. At that scale, the environmental and health damages should not be ignored.

As an environmental economist, considering those public costs is second nature. As a consumer, however, I now have to reconsider how much I value the individual attributes that led me to purchase the vehicle initially, which are now likely to change—just this week, VW announced plans to retrofit cars affected by the scandal. First, the resale value of my car has dropped substantially. But this effect is easy to quantify and will likely compose the bulk of VW’s payout in response to a class action suit. What’s more difficult to put a number on is the value that individuals like me place on fuel economy, power, and perceived greenness.

There is a strand of literature in environmental and public economics that attempts to value economic goods that have both private and public benefits. In the latter third of my dissertation, I examined incentive contracts that induce optimal provision of environmental benefits arising from the consumption of private goods with public benefits, specifically when individuals have different attitudes about the environment. Fuel-efficient vehicles are excellent examples of these “impure” public goods. In my case, the purchase of a VW Golf TDI allowed me to get from A to B while saving money on fuel and producing less emissions than driving a comparable vehicle (at least, that’s what I thought)—all with the fuzzy feeling I got from doing my part for the environment. I placed a non-trivial weight on each of these attributes.

But this calculus needs to be updated in light of the VW scandal. The weight I initially placed on the environmental bona fides of my car is now more of a burden than a benefit. What’s more, any recall that “fixes” the emissions cheating software on my car will inevitably come at the cost of reduced fuel economy and torque. These trade-offs might put some people in a tough spot—determining whether they value benefits to themselves or to society more. A 2011 report by the US Government Accountability Office found that an average of only around 65 percent of vehicle owners actually repaired recalled cars (for some of these recalls, however, consumers were trading off the opportunity cost of their time, rather than seeking to hold onto vehicle attributes that they valued). Some diesel owners—provided they don’t have to meet strict emissions standards—might choose to forgo the recall and keep their powerful, fuel-efficient cars.

Looking forward, as a resident of Washington, DC, I’ll have to ensure that my car meets the District’s vehicle emissions standards, which are likely tight enough to demand the recall, so my decision has been made for me. Rather than a fuel-efficient, powerful, and “clean” vehicle, I will own an exceptionally average car. And that fuzzy feeling from doing my part for the environment? Well, perhaps I’ll compensate by using the Capital Bikeshare more often.