August 16, 2002

Green Consumption

Richie Abrams, Professor of History here at Berkeley, and my part-time boss in his role as Associate Dean for International and Area Studies, has bought a Toyota Prius--one of the hybrid internal combustion-electric motor cars, that achieves extraordinary fuel efficiency (60 miles to the gallon?) by using the kinetic energy reduction accomplished during braking to charge up the battery. The only thing wrong with the car seems to be a lack of rear legroom...

As he talked about the car, I couldn't help doing the math in my head, and finding that the financial side seemed to make the car's purchase nearly irresistible. Seven years of free maintenance--that's got to have a present value today of $2500. Increased efficiency implying a savings of $600 a year in gasoline costs at current prices--that's got to have a present value of $5000 today, plus whatever allowance for the risk of gasoline price changes we wish to include ($6500 in total?). Thus in buying a--fully-loaded--Prius, Richie paid $25000 and got back $9000 worth of maintenance, repair, and gasoline cost savings, for an NPV cost of only $16000.

Plus he got enormous ecobragging rights, living as he does in North Berkeley. In a context in which most people's green activism is limited to writing letters to the city council urging it to forbid the sale of non-shade-grown coffee within Berkeley city limits, to have switched from a 15 to a 60 mpg car gives one enormous numbers of green status points...

Posted by DeLong at August 16, 2002 10:48 AM | TrackBack

Comments

I can't believe this! You've forgotten to answer the most important questions of all...

Does it look cool, and does it come in red? ;)

Posted by: Just John on August 16, 2002 11:30 AM

We think it looks cool and it does come in red. Honda makes an interesting hybrid. We are thinking, perhaps leaning to Prius.

Posted by: on August 16, 2002 11:47 AM

This is well and good, but as far as I know, all manufacturers cross-subsidize hybrids in hopes of achieving a greater market share in the future. Do we have any idea what the price of a hybrid would be if it was mass-produced and had to be profitable?

Posted by: Nikolai Chuvakhin on August 16, 2002 01:11 PM

On a more practical note - an eco-friendly friend's Prius went through a pair of front tires in the first 8,000 miles (lots of petroleum dust). A few months later the front end began to violently vibrate. The dealer says both problems are not unique to her car (really?), not dangerous (I didn't feel so confident riding over Donner Pass), and that the front end will be replaced (sure). Two months later and she's still waiting for the dealer to find a new front end. Cool? Hardly. Financially irresistable? Maybe. Cross-subsidized? Without a doubt - in ways not easily imagined.

Posted by: Tom Englezos on August 16, 2002 02:11 PM

I know Honda makes a hybrid version of the Civic. It seems like a good car.

Posted by: Mitch on August 16, 2002 03:49 PM

Isn't there a tax-deduction as well which adds to the benefits? Also, the car's now in its 3d year of production, right? Hopefully they've gotten the kinks out.

Posted by: lisse on August 16, 2002 04:06 PM

How long do you drive your car, and what discount rate do you use, to get a present value of $5,000 on fuel efficiency savings of $600 a year? And don't your regular new cars come with a warranty? I mean, I like the hybrids, but my ex-boyfriend did a DCF on it when he was thinking of buying one, and financially, you don't get much bang for your buck, especially comparing them to cars with similar legroom, cargo space, safety ratings, and power, which at least when we priced them, were on the small end and thus already pretty fuel efficient and cheap. As far as we could tell, you're paying for your conscience.

Posted by: Jane Galt on August 17, 2002 03:12 PM

Hybrids have more horsepower than an all-gasoline car with comparable gas mileage. The addition of the electric motor lets you use a very small gasoline engine for efficient highway driving, while the electric engine provides virtually all acceleration.

Oh, you also get a $2,000 Clean Fuels tax deduction for buying one.

Posted by: Jason McCullough on August 20, 2002 09:45 AM
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