Which state is the cleanest of them all? Pricing long run heterogeneity in carbon abatement costs across America

Abstract

Electric vehicles (EVs) feature prominently in the United States' efforts to decarbonize the light-duty vehicle fleet and mitigate climate change. To spur EV adoption, public policy offers procurement incentives for individuals willing to purchase an EV instead of an internal combustion engine vehicle (ICEV). How cost-effective are such policies? To what extent does their efficiency vary across states? We address these questions using state-level data on projected electric grid carbon intensity and fuel prices, as well as models of vehicle utilization. Our approach focuses on comparable vehicle models that enable us to jointly estimate the lifecycle emissions and total cost of ownership (TCO) associated with ICEVs, hybrid electric vehicles (HEVs), and EVs. Our findings are fourfold. First, although EVs offer the largest emissions benefit relative to ICEVs, there exists significant state-level heterogeneity. Compared to HEVs' emissions advantage of 20.54 tons of CO2e, EVs' emissions advantage ranges from 10.18 to 58.83 tons of CO2e across states. Second, HEVs offer a more favorable cost-to-emissions advantage nationwide, with an average cost of $59/ton CO2e reduced compared to $192/ton CO2e reduced via EVs. Third, state-level variation in fuel prices and grid carbon intensity enable HEVs to offer emissions reductions at a minimum cost of $3/ton CO2e reduced, while EVs' minimum cost is $76/ton CO2e reduced. Fourth, envisioned grid decarbonization efforts are insufficient for EVs to deliver economically efficient cost-to-emissions advantages due to EVs' relatively high TCO. If EVs produced zero emissions in totality, realizing cost-effective emissions reductions would still necessitate lowering their TCO by an average of at least $3200. We conclude that favorable abatement cost realization necessitates better targeting of procurement incentives at both the federal and state level. We demonstrate that this outcome can be achieved by incentivizing the adoption of HEVs and high-utilization EVs in the short run and by improving EVs’ cost and continuing to invest in EV battery longevity in the long run.