Plug-in hybrid electric vehicle (PHEV) technology has the potential to help address economic, environmental, and national security concerns in the United States by reducing operating cost, greenhouse gas (GHG) emissions and petroleum consumption from the transportation sector. However, the net effects of PHEVs depend critically on vehicle design, battery technology, and charging frequency. To examine these implications, we develop an integrated optimization model utilizing vehicle physics simulation, battery degradation data, and U.S. driving data to determine optimal vehicle design and allocation of vehicles to drivers for minimum life cycle cost, GHG emissions, and petroleum consumption. We find that, while PHEVs with large battery capacity minimize petroleum consumption, a mix of PHEVs sized for 25–40 miles of electric travel produces the greatest reduction in lifecycle GHG emissions. At today’s average US energy prices, battery pack cost must fall below $460/kWh (below $300/kWh for a 10% discount rate) for PHEVs to be cost competitive with ordinary hybrid electric vehicles (HEVs). Carbon allowance prices have marginal impact on optimal design or allocation of PHEVs even at $100/tonne. We find that the maximum battery swing should be utilized to achieve minimum life cycle cost, GHGs, and petroleum consumption. Increased swing enables greater all-electric range (AER) to be achieved with smaller battery packs, improving cost competitiveness of PHEVs. Hence, existing policies that subsidize battery cost for PHEVs would likely be better tied to AER, rather than total battery capacity.

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