Prospects for plug-in hybrid electric vehicles in the United States and Japan: A general equilibrium analysis

The plug-in hybrid electric vehicle (PHEV) may offer a potential near term, low-carbon alternative to today’s gasoline- and diesel-powered vehicles. A representative vehicle technology that runs on electricity in addition to conventional fuels was introduced into the MIT Emissions Prediction and Policy Analysis (EPPA) model as a perfect substitute for internal combustion engine (ICE-only) vehicles in two likely early-adopting markets, the United States and Japan. We investigate the effect of relative vehicle cost and all-electric range on the timing of PHEV market entry in the presence and absence of an advanced cellulosic biofuels technology and a strong (450 ppm) economy-wide carbon constraint. Vehicle cost could be a significant barrier to PHEV entry unless fairly aggressive goals for reducing battery costs are met. If a low-cost PHEV is available we find that its adoption has the potential to reduce CO₂ emissions, refined oil demand, and under a carbon policy the required CO₂ price in both the United States and Japan. The emissions reduction potential of PHEV adoption depends on the carbon intensity of electric power generation. Thus, the technology is much more effective in reducing CO₂ emissions if adoption occurs under an economy-wide cap and trade system that also encourages low-carbon electricity generation.