Yeah! Pollution is a local problem! Definitely address it at the city level. Can we go further? Why not just have specific individuals who care about this funding the subsidies?
Have you visited LA recently? Pollution is very much a local problem. Why do you think it's cities leading the way on gasoline engine bans? I have no problem with these bans, but cities that take them up should be providing the incentive for switching, not offloading their problems on the rest of the country.
Yes, some pollution is to a degree localized, but not all of it. Don't forget that LA residents aren't somehow polluting more than their counterparts. In fact I suspect they are polluting less. It's just that they are concentrated in one place. And once again reducing C02 emissions (probably the most pressing pollution issue of our time) is not localized.