In January 2019, an organization of community leaders and stakeholders from a major metropolitan city in the US released a draft report detailing a proposal for a city-wide climate adaptation plan with a goal of 100% carbon reduction by 2050. The report described 41 different greenhouse gas (GHG) emissions mitigation strategies for meeting that goal, including qualitative estimates of their relative capital investment requirements and relative GHG reduction contributions. 

NERA was retained by the organization to evaluate the incremental costs of implementing two potential mitigation strategies of the 41 strategies outlined in the draft report:

• A continued reduction in the GHG emissions rate of the city’s electricity supply to a zero-carbon emissions rate by 2050.
• A transition starting in the near-term toward 100% “electrification” of the vehicle stock by 2050.

The approach was based on contrasting a business as usual (BAU) projection of these two activities through 2050 with a scenario that reflects the policy of 100% transition (referred to as the “policy scenario”) with the incremental costs of each strategy defined as the costs in the policy scenario minus the costs in the BAU scenario. These two mitigation strategies (if implemented) would eliminate about 75% of the emissions per the city’s GHG inventory. The estimates developed in this study can best be described as approximate or “bounding” estimates of the costs of the two decarbonization strategies. The approaches adopted involve simplified analytical methods that broadly follow the more detailed and complex models that economists use when conducting a detailed cost analysis of policies in these two sectors. Such “bounding” style analyses can provide important policy-relevant information when evaluating specific proposals and can also be used to determine whether the proposals merit more comprehensive study.

For the two strategies evaluated, the study provided estimates of the total capital investment of each strategy, the necessary timing of these investments to be on track to reach their final GHG reduction targets by 2050, ways in which these costs might be borne by the city’s residents and businesses, and a qualitative assessment of some of the challenges and uncertainties relating to strategy implementation. A separate cost model was developed to evaluate the incremental costs of each mitigation strategy. 

The analysis projects that on a present value basis, the incremental capital investment associated with implementation of the “vehicle electrification” and “grid decarbonization” strategies amounts to around $2 billion for the 2020–2030 period and around $8 billion in the 2020–2050 period. The analysis further indicates that the implementation of the two strategies would result in an incremental rate increase of 11% in current average electricity rates in the period 2020–2030. The study also estimated that during the 2030–2040 period, the purchasers of new battery electric vehicles (BEV) would face an additional vehicle ownership cost averaging about $4,000 per car. For the period 2040–2050 (during which time the costs of implementing the strategy become increasingly uncertain), the analysis projects that the two strategies could result in a 23% increase in rates over current rates, with vehicle ownership cost increases averaging about $2,000 per car.

For the grid decarbonization strategy, the study identified uncertainties relating to the technical feasibility of “energy storage” and the acceptance of “nuclear generation” as a key component of the mitigation strategy. For the vehicle electrification strategy, the uncertainties included the lack of a current policy mechanism in the city to enforce a goal of 100% BEV penetration and the cost of the subsidy program being larger than the actual incremental cost of the BEVs due to “free ridership.”