New MISES Working Paper – Decarbonizing a Portfolio of Operating Assets: Cost Estimates for Vehicle Fleets

Companies across industries seek to assess the costs of complying with environmental regulations and meeting voluntary emission targets. 

In a new working paper, Gunther Glenk, Katrin Gschwind, and Stefan Reichelstein develop a carbon abatement cost model for firms operating a portfolio of assets with differing cost or load profiles. The resulting abatement cost curves serve as a decision tool for configuring individual assets to achieve firm-wide emission reductions at least cost. 

Salient examples of such asset portfolios are commercial vehicle fleets, such as taxis, buses, trucks, cargo ships, and airplanes. Similar to firms in other industries, fleet operators seek to assess the economics of new drivetrain technologies across vehicles with varying duty cycles to achieve targeted emission reductions for the entire fleet.

The paper applies the model to urban bus fleets regulated under the California Cap-and-Trade Program. This analysis finds that a carbon price of $35 per ton of CO2e (2024 average) incentivizes firms to configure their fleets such that battery-electric drivetrains constitute 70% of usable installed capacity and 92% of annual demand, while diesel drivetrains serve peak loads. 

Since the resulting emissions are fairly inelastic to the carbon price, the authors conclude that the life-cycle cost per mile would increase substantially if deep decarbonization were to be induced entirely by higher carbon prices.

Read the working paper here: https://dx.doi.org/10.2139/ssrn.6302139