When my girlfriend was shopping for a new car in late 2024, I advocated getting an Electric Vehicle- until I realized that the effective carbon abatement cost would be $1,200 / tonne CO2-e abated, more than twice the cost of carbon capture and sequestration (per Charm Industrial). Given that $600/ton for carbon removal is a sky-high price for startup technology, that nature-based solutions almost always cost less than $100/ton, and the social cost of carbon is generally estimated below $250/ton, I found it inconceivable that California mandated that all vehicles be zero-emissions by 2035 if EVs are one of the most expensive ways to hit the state’s climate goals. What drives these counter-intuitive numbers? Let’s dig in.
Here’s the calculator which I pulled together for this comparison, populated with the numbers for comparing a Tesla Model Y (including federal credit) with a Toyota RAV4 hybrid, two functionally comparable cars:
| Assumptions | ||
|---|---|---|
| Miles Driven/year | ||
| Years held | ||
| Hybrid Car Specs | ||
| Purchase price $ | ||
| Resale price $ | ||
| Fuel economy (mi/gal) | ||
| Gas price $/gal | ||
| Gas CO₂ per gal (kg) | ||
| EV Specs | ||
| Purchase price $ | ||
| Resale price $ | ||
| Miles per kWh | ||
| Electricity Price $/kWh | ||
| Electricity CO₂/kWh (kg) | ||
| Monthly EV insurance surcharge | ||
| Results | ||
| Metric | EV | Hybrid |
| Annual fuel cost | ||
| Annual emissions (tonnes CO₂-e) | ||
| Total lifetime cost of ownership | ||
| Annualized cost of ownership | ||
| EV annual emissions reduction | ||
| EV annual cost premium | ||
| EV cost of abatement ($/tonne CO₂) | ||
This raises a major policy question: Should California be mandating that only zero-emission cars be sold, or is it a cheaper policy to pair carbon capture and sequestration with efficient hybrid vehicles? Heck, if we decide that our policy stance is comfortable with $1200/ton abatement costs, we could offset 2kg of CO2 for every kg of tailpipe emissions- we’d still be zooming ahead financially, and this would be the fastest way to a low-carbon future!
But first, let’s dig into what makes this so high:
- EVs have a higher up-front cost, but also a steeper loss in value over time (based on our research of resale prices for EVs and hybrid cars; we assume the steeper EV depreciation is due to battery degradation). If the purchase and resale costs were the same, EVs could just barely match total ownership cost of a hybrid.
- EVs currently have significantly higher insurance rates, which we quoted at $44/month or $528/yr. Two main factors drive this “EV surcharge” : EVs currently have more tightly-integrated designs which result in higher part costs to repair comparable accidents, and EV mechanics are in high demand in Northern California which means that their labor can demand a premium.
- Even assuming $5/gallon gas prices, EVs aren’t operationally much cheaper per mile: whether you’re on PGE’s EV2-A tariff or big-installer solar, you’re likely paying around $0.31/kWh (the quote I got from Sunrun came in at a levelized cost of $0.31/kWh), or $0.08/mile. A 40mpg hybrid vehicle filled with $5/gal gas means a marginal cost of $0.125/mile. If you’re an Uber/Lyft driver, this can make a big difference- but if you drive less than 1,000 miles per month this isn’t enough to make up for the higher insurance rate for EVs.
This picture starts to change if you can drive down your electricity prices, but requires getting below $0.10/kWh to be comparable with a carbon-capture cost of $600/ton.
- In Australia, solar costs a third of what it costs in the US, with a levelized cost of $0.10/kWh or an installed cost of $1/W. A competing quoted from Tesla’s solar division offered me to get close to that rate in the US, when including the 33% IRA tax rebate. But installing solar to get low rates is only available to homeowners, not renters.
- Our rates at PGE are some of the highest in the country, due to wildfire liability, fire mitigation, subsidies for early clean energy contracts, and sunk costs in antiquated generating facilities.
- Comparable northern-California municipal utilities like SMUD which don’t have PGE’s liabilities are able to provide residential power at 40-60% the cost of PGE rates– San Franciscans may be able to reap the same benefits if they could acquire PGE’s distribution grid and form a municipal utility, as was proposed in 2020 and is being litigated in ongoing cases..
- In deregulated regions with high solar penetration like Australia and Texas, electricity rates are closer to $0.10/kWh (around $0.20/kWh with distribution fees). Deregulating retail supply would allow for lower customer rates by just charging customers for the actual costs of providing power.
For me, the biggest take-away from this analysis was that we need to reform electricity rates in California: if we pay high costs for low-carbon energy, the “business as usual” high-emission option or the moral hazard of carbon removal will be cheaper than an efficient low-carbon future.
*Note: The emission intensity of 0.291 kg CO2-e/kWh is derived from the 2023 Greet update to the CA LCFS emission intensities of 81 gCO2-e / MJ for “average grid electricity used as a transportation fuel in California”, and a conversion factor of 3.6MJ/kWh = 0.291 kg CO2-e/kWh