Cost-Effectiveness of Greenhouse Gas Emission Reductions from Plug-in Hybrid Electric Vehicles

Abstract:     
We find that plug-in hybrid electric vehicles (PHEVs) could significantly reduce automotive greenhouse gas (GHG) emissions and petroleum consumption, while improving energy security and urban air quality. Widespread PHEV adoption will depend upon technological and economic advances in batteries because the initial fuel savings do not rapidly compensate consumers for the capital costs of batteries today. For PHEV purchases to become economical to consumers, battery prices must decline from $1,300 per kilowatt-hour (kWh) to about or below $500/kWh, or U.S. gasoline prices must remain at about $5 per gallon-or the federal government must institute policy innovations with equivalent effects, such as policies to lower battery cost and increase battery lifetimes (e.g. a broad and sustained program of battery RD&D), or those to widen the difference between gasoline and electricity prices (e.g. changes in energy taxes). However, even before PHEVs become cost-effective consumers, their purchase can still be highly valuable to society if their significant GHG reductions can be achieved cost-effectively (using a benchmark price of about $50/t-CO2-eq). Using the GREET model, we determine that in order for PHEVs' reductions to become cost-effective, either their purchase must approach current unsubsidized prices-requiring the same policy innovations described above-or very low-GHG electricity must be used to power them. This requires policies to decrease the GHG intensity of electricity, such as renewable portfolio standards, feed-in tariffs or other measures. Importantly, we find that any carbon price would have to exceed $100/t-CO2-eq in order to render PHEVs' reductions cost-effective, and hence a carbon price alone represents an impractical short-term means of achieving this goal.

Keywords: Transport, Trade, Energy, Technology, Energy, Environment, Renewable Resources, Conservation

JEL Classifications: N70, O13, Q27

Working Paper Series