The Equilibrium Effects of Urban Air Quality Policies: Evidence from the Grand Paris Low-Emission Zone

Urban low-emission zones (LEZs) are increasingly used to reduce transportrelated air pollution, yet little is known about their long-run general equilibrium effects on the urban spatial structure and their implications in term of pollution exposure. To explore this question, we develop a quantitative spatial equilibrium model with endogenous commuting, transport mode choice and air pollution generated by transport, housing and firms activity. Pollution dispersion is described by an advection-diffusion equation accounting for atmospheric diffusion, deposition, and wind. We apply the model to the Grand Paris Low-Emission Zone and evaluate a long-run counterfactual in which internal combustion engine vehicles are banned from commuting within or through the regulated area. The results show that the policy substantially reduces car use and transport-related emissions. However, endogenous relocation by workers and firms partly offsets environmental gains by shifting economic activity and commuting flows toward more car-dependent peripheral areas, while simultaneously attenuating welfare losses. As a result, partial-equilibrium approaches that abstract from spatial reorganization tend to overestimate both the environmental benefits and welfare costs of the LEZ policy.