Executive Summary

One respondent questioned whether subsidies to specific technologies are the best policy mechanism to reduce emissions from the transport sector, suggesting instead that price should reflect CO2 emissions whereby the marketplace will identify technologies that reduce emissions at the lowest cost. Others agreed.

The case of Europe’s expanding fleet of diesel vehicles is offered in support of this assertion: improved fuel efficiency has led to increased size and miles traveled and thus little or no reduction in CO2 emissions. This experience explains an argument that any incentives should consider electricity use per mile and the range while in electric mode rather than the energy capacity of the battery.

Two respondents noted externalities such as public health benefits of PHEVs that are not included when comparing manufacturing costs of conventional vehicles, HEVs and PHEVs.

1. 1. What is the current cost of the battery for PHEVs?

   Many respondents emphasized the need for a consistent cost basis. Good practice is to quote costs (1) for the battery pack, not the battery cells alone, (2) to measure electrical energy by full nameplate capacity (as compared to the ratio of nameplate capacity to useable capacity, or state of charge utilization, which is typically 50-70% of the nameplate capacity), and (3) of the first commercial cycle of the battery pack (i.e. not recycled).

   On this basis, the current cost range in the National Academies’ report ($625-875/kWh) is in the middle of estimates by other recent studies: $700-1500/kWh (McKinsey Report, 2009), $1000/kWh (Shiau et al., 2009), $800-1000/KwH (Pesaran et al., 2007), $500-1000/kWh (NRC: America’s Energy Future), $560/kWh (DOE), $500/kWh (ZEV report, California Air Resources Board, 2007).

   Respondents estimated current cost within a range of $500-1000/kWh.

2. 2. What is the reasonable projected costs of the battery for PHEVs as a function of time into the future (or cumulative amounts of units produced)?

   The National Academies’ (NA) report projected future costs of $400-560/kWh in 2020, and $360-500/kWh in 2030. These assumptions are higher than some but not all other recent reports: $600/kWh (Anderman, 2010), $420/kWh in 2015 (McKinsey Report, 2009), $350/kWh (Nelson et al., 2009), $168-280/kWh (DOE goals for 2014). In general, respondents supported the NA report by indicating that future cost reductions of Li-ion batteries will be modest, noting that cost of materials is a large fraction (~75%) of current total cost of these batteries. One respondent argued that the cost of battery safety systems in future generations of batteries will decrease and result in significant cost reductions.

3. 3. What factors will govern penetration levels of PHEVs vs. HEVs? To what extent will one technology dominate over the other, and what factors will control this dominance?

   There seems to be consensus among respondents that the high cost of long-range (>40 miles) PHEVs will keep them from competing with HEVs for the foreseeable future. Without great increases in gasoline prices or decreases in battery costs, gasoline savings are not likely to offset the substantial difference in capital costs (now several thousand dollars).

   Several respondents noted social dimensions that will affect ultimate penetration: the entrenchment of conventional vehicles, the economic irrationality of some market segments, and the possibility of game changing business models (e.g., leasing and reclamation of batteries).

4. 4. Between PHEVs and HEVs, which is likely to make the bigger impact on our CO2 emissions and oil consumption in the next 25 years? In the next 50 years? What are the reasons behind your assertions?

   There seems to be consensus among respondents that HEVs will have the greatest impact on both emissions and oil consumption (20-70% less CO2/mile and oil/mile than conventional vehicles) over the next 25 years due to the higher cost of PHEVs, and most see this staying the case over the next 50 years in absence of significant reductions in battery costs or price increases of gasoline. One respondent calculates that the impact of a finite supply of battery capacity is optimized when deployed in HEVs; PHEVs require an order of magnitude more battery capacity than HEVs but do not comparably reduce emissions or oil consumption.

   Oil savings and reduced emissions are distinct metrics. Electrifying travel will save oil, but the net effect on CO2 emissions depends on the carbon intensity of electrical generation. Many respondents therefore emphasized the linkage of transport and electricity sectors. At the grid-average carbon intensity, emissions reductions of PHEVs relative to HEVs are small, but reductions grow if marginal generation is from natural gas or renewable sources. If climate policy constrains point source (e.g. electricity sector) emissions but not non-point source (e.g. gasoline vehicle) emissions, PHEVs have an advantage over HEVs because marginal emissions from using PHEVs in electric mode would effectively be zero (assuming any cap does not anticipate this use). Also, if biofuels are used to displace fossil fuels, greater reduction in GHG emissions will come from replacing coal (and powering PHEVs) than replacing gasoline (and driving HEVs).

5. 5. Are the conclusions of the National Academies’ (NA) PHEV study accurate? Is there a better source of information available on PHEVs?

   Generally, respondents regard the conclusions of the NA report as accurate. Several respondents noted that the study should be repeated in 3-4 years when more cost information is available (several manufacturer-built PHEVs will soon be entering the market, which will aid in providing real world data on costs).

   One respondent was more critical, pointing out: (1) The report takes cost estimates from secondary literature (not the primary studies) and studies where cost estimates were not the focus, ignoring the results of studies based on industrial surveys and bottom-up models. (2) The report assesses potential emissions reductions using the current grid-average emissions intensity, whereas any impact will depend upon the emissions intensity of marginal generation (as discussed above). (3) The considerations implicit in lifecycle costs and vehicle payback analysis are not well-documented in the report.

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