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CMU study finds taxes on emissions would result in more rapid electrification by ridesharing companies

Researchers at Carnegie Mellon’s College of Engineering have found that with an emissions-based incentive towards electrification, ridesourcing companies such as Uber and Lyft would electrify more and cut their emissions by amounts ranging from 10% in New York to 22% in Los Angeles. In LA alone, this represents a reduction of about $29 million per year in health and environmental costs, the researchers said.

A paper on the work is published in the ACS journal Environmental Science & Technology.

Ridesourcing services from transportation network companies, like Uber and Lyft, serve the fastest growing share of U.S. passenger travel demand. Ridesourcing vehicles’ high use intensity is economically attractive for electric vehicles, which typically have lower operating costs and higher capital costs than conventional vehicles. We optimize fleet composition (mix of conventional vehicles (CVs), hybrid electric vehicles (HEVs), and battery electric vehicles (BEVs)) and operations to satisfy demand at minimum cost and compare findings across a wide range of present-day and future scenarios for three cities.

In nearly all cases, the optimal fleet includes a mix of technologies, HEVs and BEVs make up the majority of distance traveled, and CVs are used primarily for periods of peak demand (if at all). When life cycle air pollution and greenhouse gas emission externalities are internalized via a Pigovian tax, fleet electrification increases and externalities decrease, suggesting a role for policy.

Externality reductions vary from 10% in New York (where externality costs for both gasoline and electricity consumption are relatively high and a Pigovian tax induces a partial shift to BEVs), to 22% in Los Angeles (where high gasoline and low electric grid externalities lead a Pigovian tax to induce a near-complete shift to BEVs).

—Bruchon et al.

For the study, the team constructed an optimization model to choose fleet composition (mix of CVs, HEVs, and BEVs) and operations (vehicle routing and BEV charging) to minimize the cost of satisfying exogeneous demand (origin and destination location and time) under a range of scenarios.

The team estimated the societal impact of emitted greenhouse gasses and conventional pollutants in terms of higher medical costs and premature deaths in surrounding communities, as well as the broader economic and environmental costs. Then they created a model that envisioned how ridesourcing companies might act were they forced to internalize these public costs via an emissions-based fee.

Across a wide range of scenarios for three cities—Austin, Los Angeles, and New York City—they found the optimal fleet composition and operations for (1) minimizing private costs; and (2) minimizing private costs plus air emission externality costs, and then compared the resulting outcomes.

Vehicle purchases (x-axis) and average utilization (y-axis) by powertrain type for cost-minimizing fleets when excluding (left) and including (right) a Pigovian tax on air emissions. Private and external costs of energy inputs vary across cities. Source: Bruchon et al.

The second case assumes the firm faces a Pigovian tax (a tax on any activity that generates negative externalities) on direct emissions as well as other life cycle emissions passed through suppliers to the fleet operator without inducing other changes in the economy.

Air pollution is a classic case where free markets fail. I get the benefit of driving my car, but the cost of the air pollution it creates is shared with everyone in my region. The conventional way to efficiently correct for this failure is to charge the polluter for the cost its pollution imposes on society so that it has an incentive to reduce pollution when it is cost effective to do so. We wanted to see the effects of such a policy for ridesourcing fleets like Uber and Lyft.

—corresponding author Jeremy Michalek, professor of Mechanical Engineering and Engineering and Public Policy

Perhaps unsurprisingly, they found that when companies such as Uber and Lyft are charged for the cost of polluting, they find ways to pollute less, including shifting from traditional conventional vehicles to cleaner hybrid electric vehicles (HEVs) and battery electric vehicles (BEVs). While electrified vehicles have a higher cost in initial capital, their lower operating costs and cleaner environmental profile are well-suited for high use-intensity scenarios such as ridesourcing.

And although companies have already acknowledged the need to electrify the US automotive fleet—Uber and Lyft have pledged to shift to 100% electric vehicles by 2030—the rate of electrification motivated by private interests today cannot compare to the rate that they might achieve were ridesourcing companies forced to factor in the public costs of increased emissions.


  • Matthew B. Bruchon, Jeremy J. Michalek, and Inês L. Azevedo (2021) “Effects of Air Emission Externalities on Optimal Ridesourcing Fleet Electrification and Operations” Environmental Science & Technology doi: 10.1021/acs.est.0c05141


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