Association for Public Policy Analysis & Management

Developing countries characterized by increasing electricity demand face a dilemma: fossil-fuel fired generation is cheap and reliable yet has substantial environmental consequences. Using a difference-in-differences approach comparing locations close to versus far away from coal-fired power plants in India, we show that increases in coal-fired capacity result in sizable increases in local air pollution levels and infant mortality. In contrast, using data on firm-level outcomes, district-level GDP, district-level agricultural outcomes, and district-level "night-lights", we find that coal-fired capacity increases have relatively small (but precisely estimated) impacts on local economic benefits. Combined, our results indicate that the environmental costs of coal-fired power plants vary substantially over space while the economic benefits from these plants are distributed across the state or region; this suggests that coal-fired power plants should be sited based primarily on their environmental costs.