No. 223: 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. This paper develops 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. We apply our model to urban bus fleets regulated under the California Cap-and-Trade Program. We find 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, we conclude that the life-cycle cost per mile would increase substantially if deep decarbonization were to be induced entirely by higher carbon prices.