Impact of downstream emissions cap-and-trade policy on electric vehicle and clean utility adoption

Abstract

In this research, we incorporate emissions cap-and-trade policy into a decision making model for the adoption of electric vehicles (EVs). We consider a fleet environment that includes a taxicab company (TC, a downstream tailpipe emitter) and an infrastructure-service provider (SP, an upstream energy user) that provides fast charging services. Both SP and TC must have allowances to account for their own emissions. We examine several scenarios including (i) an equilibrium case, where the selling and buying prices of carbon are equal, (ii) a “buy-low-sell-high” case with financial derivatives, and (iii) a “transient” case based on market conditions. We combine both analytical and computational approaches to assess the impact of various emission cap values and carbon pricing on TC’s adoption of EVs, SP’s utility provider selection, total emissions, and the profitability of both entities. For instance, in both buy-low-sell-high and transient scenarios, penalizing upstream utility emissions more than tailpipe emissions is preferred if electric vehicles are likely to be adopted; otherwise, tighter tailpipe emissions restrictions should be preferred. In the equilibrium case, we show that policymakers will require additional mandates or market mechanisms to influence TC and SP choices, as both entities prefer dirty technologies. Additionally, we demonstrate that providing intermediate utility options – less expensive, but dirtier or more expensive, but cleaner – did not result in reduced emissions. This indicates that expanding utility options may not be a necessary or high-priority policy.