4
Scenario Analysis

The costs and consequences of deploying PHEVs into the U.S. market were estimated by analyzing two PHEV market penetration rates, the Maximum Practical scenario and the Probable scenario. The impacts on fuel consumption and well-to-wheel CO2 emissions were then calculated using a modified version of the model developed for the 2008 Hydrogen Report (NRC, 2008). Because PHEVs will be substantially more expensive than HEVs, which are in turn more expensive than conventional vehicles, subsidies will be necessary to achieve these penetration rates, at least until vehicle costs decline sufficiently to be offset by the lower costs of driving on electricity. These subsidies are calculated for the two penetration scenarios using the expected vehicle costs from Chapter 2.

The Reference Case developed in the 2008 Hydrogen Report is used for comparing PHEVs in this report. Retaining that Reference Case for the present study allowed comparison with scenarios in the 2008 Hydrogen Report, although it precluded updating some of the numbers there such as those for oil prices, which were higher in the 2009 Annual Energy Outlook. Forecasts of energy supply and demand over such a long period are in any case highly uncertain. In particular, it is quite possible that the world production of conventional crude oil will reach a maximum during the intervening period and then go into decline, as forecast by a number of individuals and organizations.1 Other analysts predict that supplies will be ample,2 but if worldwide oil shortages cause dramatic oil price escalations during the period covered in this analysis, the world market for light-duty vehicles will change dramatically.

SCENARIO DESCRIPTIONS

In addition to the Reference Case, three other scenarios from the 2008 Hydrogen Report—hydrogen success (Case 1), advanced efficiency of conventional HEVs and nonhybrid vehicles (Case 2), and biofuels (Case 3)—are compared with the two PHEV scenarios. Portfolio cases that combine PHEVs with advanced efficiency and biofuels are also analyzed.

All scenarios describe possible futures for the U.S. light-duty vehicle fleet out to 2050 with the same total number of vehicles and vehicle-miles traveled. However, the vehicle mix over time is different for each scenario as described below.

Cases from the 2008 Hydrogen Report

Reference Case

This case was based on projections out to 2030 in the high oil price scenario in the Annual Energy Outlook 2008 (EIA, 2008) for the number of vehicles and their fuel consumption, oil prices, and other factors. The committee extended the curves to 2050. As shown in Figure 4.1, conventional gasoline internal combustion engine vehicles (ICEVs) continue to dominate the light-duty sector. Gasoline HEVs gain about 10 percent fleet share by 2050. The fuel economy of these vehicles follows projections from the EIA Annual Energy Outlook 2008, meeting fuel economy standards that rise until 2020, with only modest improvements in fuel economy beyond this time. HEVs reach 44.5 mpg in 2050, while non-hybrids reach 31.7 mpg, as shown in Figure 4.2.

Hydrogen

Hydrogen fuel cell vehicles (HFCVs) are introduced beginning in 2012, reaching 10 million on the road by 2025 and 60 percent of the fleet by 2050. Initially, hydrogen is

1

For example, see U.K. Industry Taskforce on Peak Oil and Energy Security, 2008; J. Schlindler et al., 2008; R.A. Kerr, 2008; and Reuters, 2009.

2

See the Energy Information Administration’s Annual Energy Outlook 2009, available at http://www.eia.doe.gov/oiaf/aeo/index.html, or Exxon-Mobil’s The Outlook for Energy: A View to 2030, available at http://www.exxonmobil.com/corporate/files/news_pub_2008_energyoutlook.pdf.



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4 Scenario Analysis SCENARIO DESCRIPTIONS The costs and consequences of deploying PHEVs into the U.S. market were estimated by analyzing two PHEV market In addition to the Reference Case, three other scenarios penetration rates, the Maximum Practical scenario and the from the 2008 Hydrogen Report—hydrogen success (Case Probable scenario. The impacts on fuel consumption and 1), advanced efficiency of conventional HEVs and nonhybrid well-to-wheel CO2 emissions were then calculated using vehicles (Case 2), and biofuels (Case 3)—are compared a modified version of the model developed for the 2008 with the two PHEV scenarios. Portfolio cases that combine Hydrogen Report (NRC, 2008). Because PHEVs will be PHEVs with advanced efficiency and biofuels are also substantially more expensive than HEVs, which are in turn analyzed. more expensive than conventional vehicles, subsidies will All scenarios describe possible futures for the U.S. light- be necessary to achieve these penetration rates, at least until duty vehicle fleet out to 2050 with the same total number of vehicle costs decline sufficiently to be offset by the lower vehicles and vehicle-miles traveled. However, the vehicle costs of driving on electricity. These subsidies are calculated mix over time is different for each scenario as described for the two penetration scenarios using the expected vehicle below. costs from Chapter 2. The Reference Case developed in the 2008 Hydrogen Cases from the 2008 Hydrogen Report Report is used for comparing PHEVs in this report. Retaining that Reference Case for the present study allowed compari- Reference Case son with scenarios in the 2008 Hydrogen Report, although it precluded updating some of the numbers there such as those This case was based on projections out to 2030 in the high for oil prices, which were higher in the 2009 Annual Energy oil price scenario in the Annual Energy Outlook 2008 (EIA, Outlook. Forecasts of energy supply and demand over such 2008) for the number of vehicles and their fuel consumption, a long period are in any case highly uncertain. In particular, oil prices, and other factors. The committee extended the it is quite possible that the world production of conventional curves to 2050. As shown in Figure 4.1, conventional gaso- crude oil will reach a maximum during the intervening line internal combustion engine vehicles (ICEVs) continue period and then go into decline, as forecast by a number of to dominate the light-duty sector. Gasoline HEVs gain about individuals and organizations.1 Other analysts predict that 10 percent fleet share by 2050. The fuel economy of these supplies will be ample,2 but if worldwide oil shortages cause vehicles follows projections from the EIA Annual Energy dramatic oil price escalations during the period covered in Outlook 2008, meeting fuel economy standards that rise this analysis, the world market for light-duty vehicles will until 2020, with only modest improvements in fuel economy change dramatically. beyond this time. HEVs reach 44.5 mpg in 2050, while non- hybrids reach 31.7 mpg, as shown in Figure 4.2. 1For example, see U.K. Industry Taskforce on Peak Oil and Energy Hydrogen Security, 2008; J. Schlindler et al., 2008; R.A. Kerr, 2008; and Reuters, 2009. Hydrogen fuel cell vehicles (HFCVs) are introduced 2See the Energy Information Administration’s Annual Energy Outlook beginning in 2012, reaching 10 million on the road by 2025 00, available at http://www.eia.doe.gov/oiaf/aeo/index.html, or Exxon - and 60 percent of the fleet by 2050. Initially, hydrogen is Mobil’s The Outlook for Energy: A View to 00, available at http://www. exxonmobil.com/corporate/files/news_pub_2008_energyoutlook.pdf. 

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editable vectors (Billion gallons fuel per year 0 70 one-column size below 2000 2010 2020 2030 2040 2050 60 2010 2020 2030 2040 2050 TRANSITIONS TO ALTERNATIVE TRANSPORTATION TECHNOLOGIES—PHEVS Biofuel production  Year Corn E 50 Year No. of Light-Duty Vehicles (millions) 400 Cellulo # Vehicles (millions) 40 400 300 Figure 4-4 Gas oline ICEV 350 Biobu 30 ICEV Gas oline HEV 200 R01653 300 Gasoline TOTAL editable vectors 250 100 Biodie 20 HEV Figure 4-2 Gasoline 200 one-column size below 0 HFCV R01653 150 2000 2010 2020 2030 2040 2050 Total 10 editable vectors 100 Year 50 one-column size below 0 FIGURE 4.3 Types and numbers of light-duty vehicles for the Ef- 0 ficiency Case. SOURCE: NRC, 2008. 2000 2010 2020 2030 2040 2050 2000 2010 2020 2030 2040 2050 Year FIGURE 4.1 Number of light-duty vehicles in the fleet for the Year 70 Reference Case. SOURCE: NRC, 2008. Fuel economy (mpg) 60 50 40 50 ICEV HEV Figure 4-5 45 30 Fuel economy (mpg) 40 R01653 20 35 replaced 30 10 ICEV HEV 25 editable vectors 0 20 2000 2010 2020 2030 2040 2050 one-column size below 15 10 Year 5 FIGURE 4.4 Fuel economy of new light-duty vehicles for the Ef- 0 ficiency Case. SOURCE: NRC, 2008. 2000 2010 2020 2030 2040 2050 Year FIGURE 4.2 On-road fuel economy for vehicles in the Reference (Billion gallons fuel per year) Case. SOURCE: NRC, 2008. 70 60 Biofuel production Corn Ethanol 50 Cellulosic EtOH 40 Biobutanol 30 produced from natural gas, but over time energy sources Biodiesel 20 that emit less carbon are used to produce hydrogen (biomass 10 gasification and coal gasification with carbon capture and 0 sequestration). 2000 2010 2020 2030 2040 2050 Year Efficiency FIGURE 4.5 Biofuel supply for the Biofuels-Intensive Case. Improvements in engines and other vehicle technologies SOURCE: NRC, 2008. continue to be implemented past 2020. The fuel economy of ICEVs and HEVs is assumed to increase according to the following schedule: Biofuels • 2.7 percent per year from 2010 to 2025, • 1.5 percent per year from 2026 to 2035, and Biofuels are introduced at a rapid rate, reaching 75 bil- • 0.5 percent per year from 2036 to 2050. lion gallons per year in 2050 (Figure 4.5). Production of corn ethanol levels off, but cellulosic ethanol grows rapidly, In addition, HEVs become much more important, com- reducing carbon emissions (well-to-wheels greenhouse gas prising 60 percent of the fleet by 2050. The fleet mix is [GHG] emissions for cellulosic ethanol are only 15 percent shown in Figure 4.3. Fuel economy for both types of vehicles those of gasoline). Competition with food crops and indirect approximately doubles by 2050 (Figure 4.4), when HEVs land use impacts on GHG emissions are not considered in average 60 mpg and ICEVs are at 42 mpg. this analysis.

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250  SCENARIO ANALYSIS 200 No. of vehicles (millions) BOX 4.1 manufacturers’ Announced Plans for Electric Vehicles (Partial List) Ma BMW PHEV 50-km (31-mile) range in electric mode. 150 pra 98 lithium polymer cells with a 2.5-hour charge time. pen Ford PHEV scheduled for 2011. Pro General Motors/ChevroletVolt scheduled for release in late 2010. 100 pen PHEV 40-mile range in electric mode. 8-hour charge time at 120 V (3 hr at 240 V). 220 Li-ion battery cells. Honda PHEV scheduled for 2015. 50 Toyota PHEV scheduled for 2012. Nissan EV scheduled for 2011. Mitsubishi EV released in Japan in 2009. 0 Hyundai PHEV 40-mile range in electric mode. 2000 2010 2020 2030 2040 2050 BYD Co. (Chinese) PHEV 60-mile range in electric mode. Year Special charging stations will charge to 70 percent in 10 minutes. Figure 4-6 R01653 PHEV Cases editable vectors In these two scenarios, PHEVs replace some of the vehi- one-column size below cles in the Reference Case which is otherwise unchanged. 250 Maximum Practical Penetration The Maximum Practical scenario uses the same annual 200 sales rate for PHEVs as the Hydrogen Case for HFCVs except No. of vehicles (millions) that sales are initiated in 2010, 2 years earlier.3 Auto compa- Maximum nies are currently scheduling both PHEV-10 and PHEV-40 150 practical vehicles for introduction in that year (see Box 4.1). penetration This scenario assumes that manufacturers are able to Probable 100 penetration rapidly increase production and that consumers find these vehicles acceptable. The Maximum Practical scenario would lead to approximately 240 million PHEVs on the road by 50 2050, the end of the scenario period, as shown in Figure 4.6. Such rapid penetration would require strong policy inter- 0 vention because PHEVs will cost significantly more than 2000 2010 2020 2030 2040 2050 comparable ICEVs and HEVs. At current gasoline prices, the fuel savings will not offset the higher initial cost. This Year policy intervention could be made in a variety of ways: man- FIGURE 4.6 Penetration of PHEVs in the U.S. light-duty fleet. dates to vehicle manufacturers; subsidies to the purchasers 3The PHEV scenarios are described in more detail in Appendix C.

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 TRANSITIONS TO ALTERNATIVE TRANSPORTATION TECHNOLOGIES—PHEVS BOX 4.2 Factors Affecting Deployment and Impact PHEVs will not significantly reduce oil consumption and carbon emissions until there are tens of millions of them on the nation’s roads. Whether and when this might happen is highly uncertain, in part because the following factors are still uncertain at this time: The rate at which the cost of batteries can be reduced, • Future cost and fuel economy of HEVs and advanced conventional vehicles, • Future costs and potential disruptions to the supply of oil, • Changes in government policies, in particular fuel economy standards, carbon restrictions, and subsidies for PHEVs, • The availability of a suitable place to charge the batteries and the potential additional cost of installing a new electric circuit, • Consumer acceptance of the additional cost of PHEVs relative to competing vehicles of comparable size and performance, especially HEVs, • and their willingness to accept vehicles that must be plugged in virtually every day, Resale value—some current HEVs have shown low depreciation rates, but if consumers are concerned that batteries will not last the life of • the car, or that later owners, who are more likely to live in apartments, will not have access to a place to charge the vehicle, then they will be less likely to buy PHEVs, and Large vehicle fleets may be appropriate for PHEVs if the costs are reasonable. Many such fleets, among them the massive federal fleet, are • largely used locally for short distances, with the vehicles returning to a central location at night, prime conditions for PHEVs. In 2008 the federal fleet numbered about 645,000 vehicles, led by the Department of Defense (30 percent) and the U.S. Postal Service (34 percent). In fiscal 2008, federal agencies ordered over 70,000 vehicles, approximately 11 percent of the total federal fleet. About 80 percent of these were light-duty trucks and passenger vehicles.1 The impact PHEVs will have for any specific growth rate also is uncertain: How many miles per year will actually be driven on battery power, given that many people do not drive significant distances every day and, • even when they do drive, may not charge their vehicles every day, and Carbon emissions per kilowatt-hour used varies widely across the country and with the time of day when it is generated, and projections for • the future are even more varied. Resolving such uncertainties was not possible in this study, but it will be important to consider them when planning for the future of PHEVs. 1DOE Office of Energy Efficiency and Renewable Energy, Transportation Energy Data Book, Edition 28. Available at http://cta.ornl.gov/data/tedb28/Edition28_ Chapter07.pdf. of PHEV (perhaps greater than the current federal tax credit absence of strong market-forcing policies to supplement the of $7,500) to offset the additional costs of the vehicles; and policies already in place. It also starts in 2010, but market taxes or restrictions on fuel, but these are beyond the scope penetration is slower than in the Maximum Practical sce- of this study.4 nario, reflecting factors described in Box 4.2. PHEVs rise This scenario uses the optimistic technology costs dis- to 3 percent of new light-duty vehicles entering the U.S. vehicle fleet by 2020 and to 15 percent by 2035.5 This pace cussed in Chapter 2. If costs fail to decline to those levels, this scenario would be prohibitively expensive. would lead to 110 million PHEVs on the road by 2050, as shown in Figure 4.6. The Probable scenario assumes the continuance of cur- Probable Penetration rent policy incentives, which are inadequate to achieve the The Probable scenario represents a PHEV market pen- penetration rate in the Maximum Practical scenario. Vehicles etration that the committee judges to be more likely in the 5The committee based its estimate on estimates in the America’s 4Alternatively, a sharp and prolonged rise in the price of petroleum Energy Future (AEF) Committee report, which drew on “historical case could have the same motivational effect. However, the adverse consequences studies of comparable technology changes” (NAS-NAE-NRC, 2009, of such an event for the health of the economy could leave consumers with - p. 165). The AEF study estimated that PHEVs would represent 1 to 3 percent out sufficient financial resources to purchase large numbers of PHEVs. in 2020 and 7 to 15 percent in 2035.

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 SCENARIO ANALYSIS are more expensive in the Probable scenario because it uses No. of vehicles (millions) 400 the probable technology costs discussed in Chapter 2. ICEV 300 HEV PHEV Portfolio Cases 200 PHEV (max) TOTAL Two additional cases combine PHEVs with other tech- 100 nologies to investigate how they may work together. 0 2000 2010 2020 2030 2040 2050 Year PHEV + Efficiency FIGURE 4.7 Number of vehicles for the Portfolio Cases, a mix of This scenario is the same as the PHEV Maximum Practi- PHEVs and efficient ICEVs and HEVs, introduced at the Maximum cal Case above, except that the fuel economy of the rest of Practical rate. the fleet (ICEVs and HEVs) improves as in the Efficiency Case. The vehicle mix is shown in Figure 4.7. PHEVs make up 65 percent of the fleet in 2050, but 19 percent are HEVs and only 16 percent are conventional nonhybrid vehicles. This case is actually more realistic than the Maximum Practi- these prices to those of the Reference Case vehicle. PHEV cal case, because it makes little sense to invest in expensive costs are significantly higher throughout the time frame of PHEVs unless the more cost-effective efficiency measures this study (2010 to 2050). are implemented first. The prices of gasoline and electricity are shown in Fig- ure 4.9. Gasoline prices rise significantly, but electricity prices do not and are here treated as constant at 8 cents per PHEV + Efficiency + Biofuels kWh for simplicity, a rate slightly lower than the national This case adds biofuels to the PHEV + Efficiency Case average to reflect promotional or time-of-use rates at night. above, replacing some of the gasoline used by ICEVs, HEVs, A case analyzing the effect of higher electricity prices is and PHEVs. The vehicle mix is the same (Figure 4.7), but discussed in Appendix C. the vehicles use significant amounts of biofuels instead of gasoline. TRANSITION COSTS Investments will be required for PHEVs to reach cost PHEV Characteristics competitiveness with the Reference Case gasoline vehicle. The PHEV-10 and PHEV-40 are the only vehicles mod- This transition cost analysis is similar to that in the 2008 eled in this report. These are both midsize cars,6 as are the Hydrogen Report: It examines the annual cash flows to vehicles in the 2008 Hydrogen Report. Modeling a range of find the total investment required. Cost competitiveness is light-duty vehicles was beyond the resources of this study. achieved in the break-even year, when the total incremental Therefore, the results should be viewed as approximations. costs for all the new PHEVs bought that year is balanced by All-electric vehicles were not included in this study. the annual fuel savings for all PHEVs on the road in com- parison to the reference vehicles.8 PHEVs are complicated to model because some of their energy comes from gasoline and some from the grid. The Investment costs in this case are basically government fraction of vehicle miles traveled on electricity rather than buydowns or subsidies to cover some or all of the incremental gasoline and the consumption of electricity and fuel over a costs in order to encourage the public to buy the vehicles. drive cycle are influenced by several factors. The methodol- Manufacturers may at first charge less than the price needed ogy used to calculate gasoline and electricity consumption to cover their costs when only a few vehicles are being sold, is detailed in Appendix C. Energy consumption for all the but that is unlikely to be feasible after a few years at the vehicles discussed here is shown in Table 4.1. penetration rates envisioned here. In addition, costs would PHEV costs are as discussed in Chapter 2. The retail prices that might be expected (40 percent greater than manu- 8The cash flow analysis is not a discounted life-cycle cost analysis. It is facturing costs7) are shown in Table 4.2. Figure 4.8 compares an estimate of the subsidies required each year to make PHEVs appear cost- effective to the consumer and compares those to the fuel savings from all the PHEVs on the road that year. Note that PHEVs are compared to the reference 6The fuel economy and electric use of the modeled mid-sized PHEV vehicle, which is a nonhybrid. Consumers considering a PHEV are much cars are similar to results from Simpson (2006). The energy use is somewhat more likely to compare it to an equivalent HEV, which will be significantly higher than projections for smaller electric vehicles such as the Volt. cheaper, get very good fuel economy, and not require daily plugging in. The 7To make a profit, manufacturers must pass on the cost of the compo - committee decided to use the same Reference Case as in the 2008 Hydrogen nents they buy for their products and some fraction more. These additional Report to allow comparability with that study. If an HEV had been used as costs are needed to cover their design, installation, and warranty costs, the reference vehicle, the incremental costs would have been lower, but so among other things. would have been the fuel savings, as shown in Figure 4.11.

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 TRANSITIONS TO ALTERNATIVE TRANSPORTATION TECHNOLOGIES—PHEVS TABLE 4.1 Energy Requirements of Midsized Vehicles PHEV-10 PHEV-40 HEV Conventional Non-HEV Control strategy, charge-depleting mode Blended Battery only — — Gasoline consumption, gal/100 mi Ref. Case. Efficient Ref. Case. Efficient 2010 2.5 1.4 3.1 3.1 4.5 4.5 2020 1.9 1.1 2.4 2.4 3.4 3.4 2035 1.4 0.8 2.3 1.8 3.3 2.5 2050 1.3 0.7 2.2 1.7 3.1 2.4 Electricity consumption, Wh/mi 2010 99 251 — — 2020 76 193 2035 57 143 2050 53 133 NOTE: HEV and conventional non-HEV data from NRC (2008). PHEV numbers derived from Kromer and Heywood (2007). The electricity data are different from those discussed in Chapter 2 because these are more representative of a diverse fleet, and they decline over time as the vehicle becomes more efficient. Estimates of PHEV electricity consumption vary widely. Gasoline and electricity consumption for new cars, on-road, averaged over drive cycle. PHEV-10 gasoline consumption = 81 percent of efficient HEV. PHEV-40 gasoline consumption = 45 percent of efficient HEV. TABLE 4.2 Estimated Retail Prices of PHEVs Incremental to Retail Price of Reference Case Gasoline Car (dollars) a PHEV-10b PHEV-40c Goald DOE Goale Optimistic Probable DOE Optimistic Probable 2010 7,700 8,800 19,800 25,400 4,500f 7,600g 2020 5,600 6,300 13,500 17,000 2030 5,100 5,700 12,300 15,500 OEM battery cost, $ per usable kWh 720 950 720 1,000 aRetail price = 1.4 × OEM cost (see Table 2.7). An efficient ICEV would cost, at retail, about $1,000 more than the Reference Case gasoline vehicle. The retail price for an efficient HEV would be about $2,000 more than the Reference Case gasoline vehicle, as discussed in the 2008 Hydrogen Report. bBattery size (energy used) = 2.0 kWh (nameplate 4 kWh). cBattery size (energy used) = 8.0 kWh (nameplate 16 kWh). dGoal for OEM cost of battery ($500/usable kWh). eGoal for OEM cost of battery ($300/usable kWh). fCost of PHEV-10 meeting DOE goals assumes that optimistic 2030 vehicle parameters are achieved, but the battery costs $500/kWh instead of $720/kWh. For a 2 kWh battery this subtracts ($720 – $500/kWh) × 2 kWh = $440 from the OEM cost of the vehicle. Accounting for a retail price mark-up factor of 1.4, the added cost is about 1.4 × $440, or ~$600. So the retail price of the vehicle meeting the DOE battery goal is $5,100 (optimistic 2030 case) – $600 (cost reduction for lower cost battery) = $4,500. gCost of PHEV-40 meeting DOE goals assumes that optimistic 2030 vehicle parameters are achieved, but the battery costs $300/kWh instead of $720/kWh. For an 8 kWh battery this subtracts ($720 – $300/kWh) × 8 kWh = $3,360 from the OEM cost of the vehicle. Accounting for a retail price mark-up factor of 1.4, the added cost is about 1.4 × $3,360 ~ $4,700. So the retail price of the vehicle meeting the DOE battery goal is $12,300 (optimistic 2030 case) – $4,700 (cost reduction for lower cost battery) = $7,600. be incurred for deploying charging facilities for PHEVs.9 The cash flow analysis is described in Appendix C. Unlike the analysis in the 2008 Hydrogen Report, invest- Table 4.3 summarizes the results for the two PHEVs under ment costs here do not include research and development the Maximum Practical penetration scenario. It also shows or any energy supplier costs, even though these are nonzero the results for a 30/70 mix of PHEV-40s and PHEV-10s, for PHEVs. showing the effect of two different kinds of PHEVs in the market. These results depend to a significant extent on the 9Capital costs for in-home charging facilities are not explicitly added assumptions that go into the analyses. To explore these, to the electricity cost or vehicle price in the cash flow analysis. These would Appendix C also includes a sensitivity analysis for the PHEV likely would have a very small impact on the breakeven year or buydown price increment, oil price, and electricity price. Break-even cost (see Appendix C for sensitivity analysis).

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R01653 Gasoline price editable vectors Electricity one-column size below  SCENARIO ANALYSIS • The vehicle cost difference is the difference between 60,000 the price of a conventional gasoline vehicle and a PHEV (see Figure 4.8), summed over all the new PHEVs sold that PHEV-10 50,000 year. This is negative because PHEVs always cost more than (Probable) New car price ($) conventional vehicles. It is small at first even though the cost PHEV-10 40,000 (Optimistic) differential is large because only a few PHEVs are sold. It PHEV-40 continues to grow as more vehicles are sold each year. 30,000 (Probable) • The fuel cost difference is the annual difference in PHEV-40 fuel costs for all PHEVs currently in the fleet and the same 202020,000 2030 2040 2050 ) (Optimistic number of comparable conventional vehicles. Electricity is Gasoline Ref Year generally less costly than gasoline on a cents per mile basis 10,000 Vehicle (Figure 4.9), so this difference is positive. • Cash flow combines these two curves to represent the 0 economy-wide cost per year of pursuing a PHEV introduc- 2010 2015 2020 2025 2030 Figure 4-9 tion plan. It starts out negative because all the PHEVs sold Year in a year are much more expensive that the conventional R01653 vehicles they replace, but there are few PHEVs in the fleet FIGURE 4.8 Retail prices for PHEVs for probable and optimistic editable vectors rates of technology progress, compared to the Reference Case producing fuel savings. Cash flow goes positive in 2028 (the one-column size below vehicle (conventional ICEV). break-even year) because the total fuel savings exceed the purchase cost differential of the PHEVs sold that year. • Cumulative cash flow is a year-by-year summation of the annual cash flow over time (starting in 2010). It provides 4.5 a tally of the total funds that would have to be invested to Price of gasoline ($ per gal) 4 make PHEVs competitive. At first, there is a negative cash 3.5 flow (early PHEVs cost more than gasoline cars), but, as PHEV-10 costs come down, the negative cash flow bottoms 3 out in 2028 at a minimum of about $33 billion, when about 2.5 Gasoline price 24 million PHEV-10s have been produced. This minimum is Electricity 2 the buydown investment that must be supplied to bring the 1.5 PHEV-10 to cost competitiveness. 1 0.5 Most of the negative cash flow is due to the high price of the first few million PHEVs. This is not surprising since 0 2010 2020 2030 2040 2050 PHEVs initially cost a lot more than conventional vehicles. Year The subsidy that might be needed by automakers or buyers is the sum of the difference in costs between PHEV-10s and FIGURE 4.9 Price of gasoline over time and electricity price of conventional cars, each year between vehicle introduction 8 cents per kilowatt-hour. SOURCE: EIA, 2008 (gasoline price, in 2010 and breakeven in 2028. This cumulative difference high). in vehicle first cost for PHEVs (as compared to a reference vehicle) is about $133 billion (averaged over the 2010-2028 buydown period, this is about $5,400 per car, or an average of $7.4 billion per year for 18 years). year and buydown costs are very sensitive to oil price and Table 4.3 shows that PHEV-40s have a significantly PHEV incremental price, as shown in Table 4.3, but much higher transition cost than PHEV-10s because the larger less so to electricity price. If gasoline costs twice as much battery is very expensive. The mixed cases lie between the as shown in Figure 4.9, with optimistic technology progress PHEV-10 and PHEV-40 cases. Although the 30 percent of the the PHEV-40 reaches breakeven in 2020 instead of 2028 and PHEV fleet made up of PHEV-40s is costly, this is offset by the PHEV-40 in 2025 instead of 2040. Similarly, if the even the lower cost of the more numerous PHEV-10s. The break- more optimistic DOE goals for battery costs are met by 2020, even time is about 5 years earlier, and the buydown cost is breakeven for the PHEV-10 is in 2020 and the PHEV-40 in less than for a pure PHEV-40 case. 2024 (with Reference Case oil prices). These results under- Table 4.4 compares the transition costs for the 30/70 mix score the need for battery technology breakthroughs. of PHEVs with the two penetration cases. Interestingly, the Figure 4.10 illustrates the various cash flows for the slower market penetration of the Probable Case gives a lower PHEV-10 at the Maximum Practical penetration rate as overall transition cost than the Maximum Practical Case. follows: In the maximum practical cases, more PHEVs are bought

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Fuel cost diff.  TRANSITIONS TO ALTERNATIVE TRANSPORTATION TECHNOLOGIES—PHEVS (gas-PHEV) TABLE 4.3 PHEV Transition Times and Costs Vehicle cost diff. (gas-PHEV) a PHEV-40 PHEV-40 PHEV-40 High Oil PHEV-10 30/70% PHEV-40/10 Mix Penetration Rate: Maximum Practical Maximum Practical Maximum Practical Maximum Practical Maximum Practical Probable Cash floOptimistic w DOE Goalb Technical Progress: Optimistic Optimistic Optimistic Probable year c Break-even 2040 2024 2025 2028 2032 2034 0 2020 2030 2040 (annual cash flow = 0) Cumulative cash Cumulative subsidy 408 24 41 33 94 47 to break-even year flow (billion $)d Cumulative 1,639 82 174 51 363 — vehicle retail price difference until the break-even year (billion $)e Number of PHEVs 132 10 13 24 48 20 sold to break-even year (millions) Yoil costs twice that in the base case, or $160/bbl in 2020, giving results similar to meeting DOE’s cost goals. ear aAssumes bAssumes DOE technology cost goal ($300/kWh) for the PHEV-40 is met by 2020, showing the importance of technology breakthroughs as discussed in Chapter 2 and Appendix F. Reducing costs this rapidly would significantly reduce subsidies and advance the break-even year relative to the Optimistic Technical Progress cases. Figure 4-10 R01653 cYear when annual buydown subsidies equal fuel cost savings for fleet. dDoes not include infrastructure costs for home rewiring, distribution system upgrades, and public charging stations which might average over $1000 per editable vectors vehicle. one-column size below eCost of PHEVs minus the cost of Reference Case cars. earlier, when they are more expensive, leading to higher 100 transition costs.10 Table 4.4 also compares the transition 80 costs of fuel cell vehicles as estimated in the 2008 Hydrogen Report. 60 Fuel cost diff. Cash flow (billion $) 40 (gas-PHEV) OIL CONSUmPTION Vehicle cost diff. 20 (gas-PHEV) Fuel consumption was calculated for the two penetration Cash flow 0 cases with the model used in the 2008 Hydrogen Report, modified to account for PHEV characteristics and the use –20 Cumulative cash flow of two different fuels. Results are compared with the Refer- –40 ence Case in Figure 4.11. For the Maximum Practical Case, –60 the PHEV-40 cuts gasoline use by 55 percent by 2050, and PHEV-10s cuts it 40 percent.11 –80 2010 2020 2030 2040 However, much of the savings achieved with PHEVs Year could also be attained by HEVs, as shown in Figure 4.12, the FIGURE 4.10 Cash flow analysis for PHEV-10, Maximum Practi- cal Case, Optimistic technical assumptions. The break-even year is 2028, and the buydown cost is $33 billion. 10The committee used the same rate of cost reductions (Table 2.6) over time for both penetration rates. As discussed in Chapter 2, most cost reduc- tions are likely to be from technology improvements. While economies of scale will be realized, these are likely to be modest (because Li-ion battery production is already very high) and may be offset by increases in the cost of materials with greater demand. 11The terms “oil” and “gasoline” are used interchangeably in this report. While not strictly accurate, reducing consumption of gasoline by one gallon will reduce demand (and imports) of oil by close to one gallon once adjust- ments at the refinery are accounted for.

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PHEV-10 (max) 0 PHEV-10 (prob) 0 PHEV-40 (max)  SCENARIO ANALYSIS PHEV-40 (prob) 0 TABLE 4.4 Comparison of Transition Costs for PHEV and HFCV Cases 30/70 PHEV-40/PHEV-10 Mix HFCV 0 Penetration Rate Maximum Practical Probable H2 Success H2 Partial Success Break-even yeara 2032 2034 2023 2033 0 Cumulative cash flow difference $94 billion $47 billion $22 billion $46 billion (PHEV-gasoline reference car) to break-even year b Ref Case 0 Cumulative vehicle retail price difference $363 billion $179 billion $40 billion $92 billion 2010 2020 2030 2040 2050 (AFV-gasoline reference car) to break-even year Efficiency Year Number of PHEVs sold to break-even year (millions) 48 20 5.6 10.3 Infrastructure cost $48 billion $20 billion $8 billion $19 billion PHEV-10 (max) Figure 4-11 (In-home charger (In-home charger (H2 stations for first (H2 stations for first +Efficiency car) R01653 $1,000 per car) $1,000 per 5.6 million HFCVs) 10.3 million HFCVs) editable vectors PHEV-40 (max) + aYear when annual buydown subsidies equal fuel cost savings for fleet. bDoes not include infrastructure costs for home rewiring, distribution system upgrades, and public charging stations which might average over $1000 one-column size below Efficiency per vehicle. first Portfolio Case.12 Figure 4.12 also shows the Efficiency 180,000 Case from the 2008 Hydrogen Report. Gasoline use is cut 2010 2020 2030 2040 2050 160,000 by about 40 percent, mainly with advanced HEVs and no PHEVs. When PHEVs are introduced into this fleet instead 140,000 Gasoline consumption Year (million gal per year) of the Reference Case fleet, PHEV-10s reduce fuel consump- 120,000 Ref Case tion by an additional 7 percent and PHEV-40s by 20 percent PHEV-10 (max) 100,000 beyond the Efficiency Case as shown by the two lower curves PHEV-10 (prob) 80,000 PHEV-40 (max) in Figure 4.12 for the Maximum Practical Case. PHEV-40 (prob) 60,000 The impact on oil consumption of adding biofuels to this Figure 4-12 fleet is shown in Figure 4.13, the final Portfolio Case. Com- 40,000 R01653 bining biofuels with advanced efficiency, including HEVs, 20,000 can cut oil consumption by about 65 percent compared with editable vectors 0 the Reference Case by 2050, as shown in Figure 4.13. Adding one-column size below 2010 2020 2030 2040 2050 PHEV-10s to that mix can reduce consumption by another Year 7 percent, while PHEV-40s could account for 23 percent. FIGURE 4.11 Gasoline consumption for PHEV-10s and PHEV-40s Figure 4.13 also shows the results from the 2008 Hydrogen introduced at Maximum Practical and Probable penetration rates shown in Figure 4.6. 12A 40-mpg HEV would use 375 gallons in 15,000 miles. As noted in Table 4.1, the equivalent PHEV-10 would use 81 percent as much fuel, or 304 gal- lons for the same distance, a savings of just 71 gallons. The PHEV-40, which uses just 45 percent of the fuel of the equivalent HEV will do better, saving 180,000 206 gallons. The most gasoline a PHEV-10 can save relative to a 40-mpg HEV 160,000 Gasoline use (million Ref Case is one quart per charge (the 10 miles driven on electricity would require that gallons per year) 140,000 much more gasoline in the HEV). If it is driven at least 10 miles and then 120,000 Efficiency recharged every day, the PHEV-10 would save a total of 91 gallons per year, 100,000 but many drivers will not adhere to such a regular schedule. Charging more 80,000 PHEV-10 (max) than once a day could increase these savings, but that would probably apply +Efficiency 60,000 to relatively few vehicles, especially in the early years, when public charging PHEV-40 (max) + 40,000 Efficiency stations are rare. Results from the North American PHEV Demonstration 20,000 project, involving over 100 Toyota Prius conversions to PHEVs (approxi- 0 mately equivalent to the PHEV-10), measured an average fuel economy of 2010 2020 2030 2040 2050 50 mpg. With the battery pack depleted or turned off, mileage was 44 mpg Year (DOE/EERE, 2009), about what a conventional Prius would achieve. While a converted Prius might not fully reflect the performance of optimized PHEV, FIGURE 4.12 Gasoline use for the Reference Case and the Effi- these tests show that in ordinary driving, a PHEV-10 is unlikely to provide ciency Case and when PHEVs are included in an already highly large fuel savings. Furthermore, HEVs are expected to increase their mileage, efficient fleet, as shown in Figure 4.7. perhaps to an average of 60 mpg by 2050, reducing the benefits of PHEVs.

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one-column size below (million metric 800 PHEV-4 one-column size below GHG (Maxim 600 (million tonnes CO2e per year) PHEV-4 2,000 0 (Probab TRANSITIONS TO ALTERNATIVE TRANSPORTATION TECHNOLOGIES—PHEVS 400 1,800 1,600 200 180,000 700 GHG emissions Ref Case 160,000 gCO2 equivalent/kWh Ref C 1,400 Gasoline use (million 600 gallons per year) 0 140,000 Efficiency + Biofuels 500 1,200 PHEV 120,000 2010 2020 2030 2040 2050IA 2008 hp 400 E 100,000 PHEV-10 (max) + 1,000 PHEV Efficiency + biofuels EPRI/NRDC 300 80,000 Year PHEV-40 (max) + 60,000 200 800 Efficiency + biofuels PHEV 40,000 100 HFCV + Efficiency + 20,000 600 Biofuels PHEV 0 0 Figure2040 2050 4-15 2010 2020 2030 400 2010 2020 2030 2040 2050 YeR01653 ar Year 200 FIGURE 4.14 GHG emissionsvfrom the future electric grid. editable ectors FIGURE 4.13 Gasoline use for scenarios that combine efficiency, one-column size below SOURCES: EPRI/NRDC estimates from EPRI/NRDC (2007), and 0 biofuels, and either PHEVs or HFCVs. EIA estimates from Annual Energy Outlook, 2009 (EIA, 2009a). 2010 2020 2030 2040 2050 Year Report when HFCVs are combined with efficiency and bio- 2,000 fuels, which could completely eliminate gasoline consump- (million metric tons CO2e per yr) 1,800 tion by the light-duty vehicle fleet by 2050.13 1,600 Reference Case 1,400 GHG emissions PHEV-10 1,200 CARBON DIOXIDE EmISSIONS (Maximum) PHEV-10 1,000 (Probable) PHEVs emit less CO2 because they use less gasoline than 800 PHEV-40 (Maximum) Figure 4-16 conventional vehicles, but generating the electricity that 600 PHEV-40 replaces the gasoline usually results in emissions. Thus, total R01653 (Probable) 400 GHG emissions from PHEVs depend on the composition of 200 editable vectors the electric grid and on the time of day for charging.14 0 one-column 2040 e below siz 2050 2010 2020 2030 The committee analyzed two projections for the grid: Year • A business-as-usual case, starting with the high price FIGURE 4.15 GHG emissions for PHEVs at the market pen- case from the Annual Energy Outlook (EIA, 2008) and etrations shown in Figure 4.6 for the grid mix estimated by EIA. extended to 2050 using the same growth rate for electric SOURCE: EIA, 2009a. sector CO2 emissions; • A low-carbon grid projection from a joint EPRI/NRDC study (EPRI/NRDC, 2007). (million tonnes CO2e per year) 2,000 The carbon emissions per kilowatt hour for both grid 1,800 scenarios are shown in Figure 4.14. These projections are 1,600 GHG emissions Ref Case 1,400 discussed in more detail in Appendix C. 1,200 PHEV-10 (max) Figures 4.15 and 4.16 show CO2 emissions under the two 1,000 PHEV-10 (prob) sets of grid conditions. Emissions under the EPRI/NRDC 800 PHEV-40 (max) mix are significantly lower.15 Figure 4.17 compares HFCVs 600 PHEV-40 (prob) 400 to PHEVs, for the Maximum Practical Case with the low- 200 carbon grid. HFCVs give a lower rate of GHG emissions than 0 PHEV-10s, which still use a significant amount of gasoline. 2010 2020 2030 2040 2050 FCVs have lower emissions than PHEV-40s beyond about Year 2040. Low carbon emissions for both PHEVs and HFCVs FIGURE 4.16 GHG emissions for PHEVs at the market penetra- tions shown in Figure 4.6 for the grid mix estimated by EPRI/ NRDC. SOURCE: EPRI/NRDC, 2007. 13Some vehicles might still require gasoline or diesel fuel, but the use of biofuels to replace other uses of oil could more than compensate for this. 14This analysis did not include the additional GHG emissions from manufacturing a PHEV relative to a conventional vehicle. 15The reductions are only for the electricity used in the transportation sector. Total reductions from the electricity sector would be much greater than the difference between Figures 4.7 and 4.8.

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HFCV + one-column size below (milli replaced 200 editable vectors 0 one-column size below  SCENARIO ANALYSIS 2010 2020 2030 2040 2050 Year 2,000 (million tonnes CO2e per year) 2,000 Ref Case 1,800 1,800 1,600 Efficiency (million tonnes CO2e per year) GHG emissions 1,400 1,600 (million tonnes CO2e per year) 1,200 Ref Case 2,000 PHEV-10 (max) + 1,400 1,000 Efficiency GHG emissions 800 Ref Case 1,200 PHEV-40 (max) + 1,800 0 (max) Figure 4-19 600 Efficiency PHEV-1 400 1,000 R01653 HFCV + Efficiency 1,600 0 (max) PHEV-4 200 Efficiency + 800 replaced 2050 GHG emissions HFCV 0 1,400 2010 2020 2030 2040 600 editable vectors Year 1,200 400 one-column size below FIGURE 4.18 GHG emissions for cases combining ICEV Effi- 1,000 200 PHEV-10 (m ciency Case and PHEV or HFCV vehicles at the Maximum Practical 0 800 penetration rate with the EIA grid mix. Efficiency + 2010 2020 2030 2040 2050 600 Year 400 PHEV-40 (m FIGURE 4.17 GHG emissions for cases combining ICEV Effi- ciency Case and PHEV or HFCV vehicles at the Maximum Practical Efficiency + 200 2,000 penetration rate with the EPRI/NRDC grid mix. (million tonnes CO2e per year) Ref Case 1,800 0 1,600 HFCV + Eff 2050 Efficiency 2010 2020 2030 2040 1,400 GHG emissions Biofuels 1,200 PHEV-10 (max) + Year 1,000 depend on using lower carbon primary sources for electricity Efficiency 800 and hydrogen (see Appendix C). PHEV-40 (max) + 600 Efficiency For the first Portfolio Case, Figures 4.18 and 4.19 com- 400 HFCV + Efficiency bine PHEVs at the Maximum Practical penetration rate with 200 the Efficiency Case for the two grid mixes. For the EIA grid 0 mix, there is very little difference in GHG emissions between 2010 2020 2030 2040 2050 Figure 4-20 the Efficiency Case, where no PHEVs are introduced, and the Year R01653 PHEV-10 and PHEV-40 cases. The benefit of PHEVs appears FIGURE 4.19 GHG editablefor ectors emissions v cases combining the ICEV only when a lower carbon grid (the EPRI/NRDC grid mix) is Efficiency Case and PHEV or HFCV vehicles for the EPRI/NRDC one-column size below used. This highlights the importance of low-carbon electric- grid mix. ity for gaining the potential benefits of PHEVs. The HFCV case has significantly lower GHG emissions than either of the PHEV cases for a similar level of energy supply decarbon- ization. That is, well-to-tank carbon emissions for supplying hydrogen can be reduced by about two-thirds by 2050 (as in (million tonnes CO2e per year) Ref Case 2,000 the 2008 Hydrogen Report), resulting in greater CO2 reduc- 1,800 tion than when the electricity carbon emissions (g CO2/kWh) 1,600 Efficiency + Biofuels GHG emissions are reduced by two-thirds by 2050 (as in the EPRI/NRDC 1,400 1,200 grid case). This is true because HFCVs are somewhat more 1,000 PHEV-10 (max) + efficient than PHEVs on an energy per mile basis.16 800 Efficiency + Biofuels 600 Finally, the committee estimated GHG emissions for 400 PHEV-40 (max) + cases that combine efficiency, biofuels, and PHEVs or Efficiency + Biofuels 200 0 HFCVs for the two grid mixes (Figures 4.20 and 4.21). HFCV + Efficiency + 2010 2020 2030 2040 2050 Again, the importance of a low-carbon grid is apparent for Biofuels Year the PHEVs; the GHG emissions reduction in 2050 is about 55 percent for efficiency + biofuels, 59 percent (71 percent) FIGURE 4.20 GHG emissions for scenarios combining ICEV for efficiency + biofuels + PHEV-10s (PHEV-40s), and Efficiency Case, Biofuels Case, and PHEVs or HFCVs for the EIA 80 percent for efficiency + biofuels + HFCVs. With the grid mix. 16Furthermore, the facilities to generate hydrogen from coal or natural gas will be new and use a process that can be adapted relatively easily to carbon capture. Retrofitting an existing pulverized coal electric plant (about 50 percent of current U.S. generating capacity) with carbon capture will be very expensive.

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Figure 4-21 R01653 editable vectors  TRANSITIONS TO ALTERNATIVE TRANSPORTATION TECHNOLOGIES—PHEVS one-column size below • Long-term GHG and oil-use reductions are greater Reference Case with HFCVs than PHEVs for similar levels of energy sup- 2,000 GHG emissions (million metric tons CO2e per yr) ply decarbonization (NRC Hydrogen scenario; EPRI/NRDC 1,800 grid). If PHEVs are charged from the EIA grid, GHG emission 1,600 Efficiency + Biofuels reductions with PHEVs will be much less than with HFCVs. 1,400 1,200 Transition Costs PHEV-10 1,000 (Maximum) + • Transition costs and timing to breakeven are similar for Efficiency + Biofuels 800 HFCVs and PHEV-10s, i.e., tens of billions of dollars total, spent over a 10-20 year period. This is less than the current PHEV-40 600 (Maximum) + corn ethanol subsidy of about $10 billion per year. 400 Efficiency + Biofuels • Majority of transition cost (more than 80 percent) is for 200 vehicle buydown. Average price subsidy needed for HFCVs HFCV + Efficiency + Biofuels and PHEV-10s over a 10-15 year transition period is similar, 0 2010 2020 2030 2040 2050 about $5000 to $6000 per car for PHEV-10s, and $7,000 to Year $9,000 per car for HFCVs. • Transition costs for PHEV-40s are significantly higher FIGURE 4.21 GHG emissions for scenarios combining ICEV than for PHEV-10s, because of higher vehicle first cost. Efficiency Case, Biofuels Case, and PHEVs or HFCVs for the Break-even year for the PHEV-40 is 2040 in the Optimistic EPRI/NRDC grid mix. Technology Case, but not until 2047 for the Probable Case, unless the oil price is high or the cost of batteries can be reduced rapidly. • Slower Probable Case transition strategies sometimes higher-carbon EIA grid, the GHG reduction with PHEV-10s have a lower overall transition cost than the Maximum Practi- (PHEV-40s) is about 55 percent (59 percent), about the same cal Case. This is true because the Maximum Practical Case as for efficiency + biofuels. buys large numbers of expensive early PHEVs. • Transition costs are sensitive to oil prices and to vehicle cost increment, which depends on battery cost assumptions, SCENARIO SUmmARY but are not very sensitive to electricity price. • Infrastructure costs for PHEVs might average $1000 Societal Benefits of PHEVs per car for residential charging. • GHG and oil reductions for PHEVs are small before • Total infrastructure capital costs to breakeven are the 2025 because of the time needed for vehicles to penetrate the same order of magnitude for PHEV-10s and HFCVs, although market. early infrastructure logistics are less complex with PHEVs. • PHEV GHG benefits depend on the grid mix: — PHEV benefits are small compared with HEVs for Overall messages from Scenarios the EIA grid. — With a low-carbon grid (EPRI/NRDC mix), intro- • Bringing PHEVs to cost-competitiveness will take sev- duction of PHEV-40s could significantly lower GHG emis- eral decades and require many billions of dollars in support. sions relative to HEVs. Transition costs for PHEV-40s are significantly larger than • Increasing conventional vehicle efficiency alone (with- for PHEV-10s, but the reduction in gasoline consumption is out PHEVs) can reduce oil use by about 40 percent in 2050 greater also. compared with the Reference Case. Adding PHEV-10s at • GHG benefits of PHEVs depend on the grid mix. With the Maximum Practical rate can reduce oil use an additional a business-as-usual EIA grid mix, the benefits of PHEVs are 7 percent, while PHEV-40s can reduce it an additional similar to those for efficient gasoline HEVs. With a substan- 23 percent. tially decarbonized grid, PHEVs can save 4-16 percent more • Implementing efficiency plus biofuels reduces gasoline GHG emissions than efficient HEVs. use by about 65 percent compared with the Reference Case. • The PHEV transition cost and timing results are sensi- Adding PHEV-10s at the Maximum Practical rate can reduce tive to the oil price and the battery cost. But even with rela- oil use an additional 7 percent, while PHEV-40s can reduce tively high oil prices (AEO high oil price case $80-$120 per it 23 percent. barrel) and achievement of aggressive battery goals (similar • A portfolio approach incorporating efficiency, more to the DOE goals), it will take 15-20 years and tens to hun- use of HEVs and biofuels, as well as PHEVs, yields greater dreds of billions of dollars to bring PHEV-40s to commercial reductions in oil use and GHG. success.