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.

Plug-in hybrid electric vehicle (PHEVs) technology has the potential to address economic, environmental, and national security concerns in the United States by reducing operating cost, greenhouse gas (GHG) emissions and petroleum consumption. However, the net implications of PHEVs depend critically on the distances they are driven between charges: Urban drivers with short commutes who can charge frequently may benefit economically from PHEVs while also reducing fuel consumption and GHG emissions, but drivers who cannot charge frequently are unlikely to make up the cost of large PHEV battery packs with future fuel cost savings. We construct an optimization model to determine the optimal PHEV design and optimal allocation of PHEVs, hybrid-electric vehicles (HEVs) and conventional vehicles (CVs) to drivers in order to minimize net cost, fuel consumption, and GHG emissions. We use data from the 2001 National Household Transportation Survey to estimate the distribution of distance driven per day across vehicles. We find that (1) minimum fuel consumption is achieved by assigning large capacity PHEVs to all drivers; (2) minimum cost is achieved by assigning small capacity PHEVs to all drivers; and (3) minimum greenhouse gas emissions is achieved by assigning medium-capacity PHEVs to drivers who can charge frequently and large-capacity PHEVs to drivers who charge less frequently.