Plug-in hybrid electric vehicle (PHEV) technology has the potential to reduce operating cost, greenhouse gas (GHG) emissions, and petroleum consumption in 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 optimization model integrating vehicle physics simulation, battery degradation data, and U.S. driving data. The model identifies optimal vehicle designs and allocation of vehicles to drivers for minimum net life cycle cost, GHG emissions, and petroleum consumption under a range of scenarios. We compare conventional and hybrid electric vehicles (HEVs) to PHEVs with equivalent size and performance (similar to a Toyota Prius) under urban driving conditions. We find that while PHEVs with large battery packs minimize petroleum consumption, a mix of PHEVs with packs sized for ∼25–50 miles of electric travel under the average U.S. grid mix (or ∼35–60 miles under decarbonized grid scenarios) produces the greatest reduction in life cycle GHG emissions. Life cycle cost and GHG emissions are minimized using high battery swing and replacing batteries as needed, rather than designing underutilized capacity into the vehicle with corresponding production, weight, and cost implications. At 2008 average U.S. energy prices, Li-ion battery pack costs must fall below $590/kW h at a 5% discount rate or below $410/kW h at a 10% rate for PHEVs to be cost competitive with HEVs. Carbon allowance prices offer little leverage for improving cost competitiveness of PHEVs. PHEV life cycle costs must fall to within a few percent of HEVs in order to offer a cost-effective approach to GHG reduction.
