The Prius Conundrum 28 comments
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Dan Ariely asks why people are more willing to shell out for a Toyota (TM) Prius than they are to spend a similar amount of money to save much more CO2 by making their houses energy-efficient. And I think a large part of the answer is connected to the popularity of 2/1 and 3/1 ARM mortgages.
If you're going to do things like install energy-efficient appliances and well-insulated windows and solar panels and so on and so forth, you're going to worry about the cost, which will be earned back over the years in lower energy bills. If you're not going to stay in your house for very long, you might end up negative. And there's really no way in which a house with energy-effiencent appliances is going to be more valuable than one without them.
One of the causes/effects (I'm not sure which, it's probably both) of the housing boom was that homeownership moved from being a decades-long thing to being something with a much shorter time horizon: often just the two years after which you could sell your house without paying capital gains tax. Parents would buy apartments for their kids to live in while going to university; newlyweds would buy houses which were too small for the families they were planning; and, especially in New York, people would buy unsuitable apartments they didn't really like just for the sake of getting one foot onto the property ladder and the hope that they could trade up in a couple of years.
When people took out 3/1 mortgages, they didn't worry about the resets often because they had no intention of staying in their house for the full three years. And in that kind of context, home improvements which only pay back over the long term are much less attractive: it's the people you sell to who will get most of the benefit with none of the cost.
This is one of the pet peeves of Amory Lovins: while it makes sense from a simple economic perspective to install these energy-efficient devices, any one actor, in reality, has little incentive to do so. The plumber won't use wide-gauge pipe because it'll make him seem overpriced. Landlords, renters, contractors, homeowners - all end up concentrating much more on up-front costs than on net present value.
So why is the Prius a success? Well, for one thing, it isn't, really, not outside Berkeley: it accounts for a tiny fraction of cars sold in this country, and the US as a whole has atrocious gas mileage. And it turns out that insofar as the Prius is a success, it's a success precisely among the small class of people who don't tend to concentrate on up-front costs. And even they won't buy a Prius unless and until they need a new car; windows wear out much more slowly than cars do.
This is really why we need a carbon tax, or a cap-and-trade system, or some other way of using a market mechanism to somehow provide incentives to jump on to the energy-efficiency bandwagon. If there's money in it, someone will invent a way to arbitrage people's discount curves. And with arbitrageurs comes efficiency.
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This article has 28 comments:
I wish there was a better answer, but for now, if you want to be green, buy the cheapest car you can, and stop driving so much.
I am trying to do the right thing and having a tough time justifying it on my own home where I intend to stay at least 10 years. Imagine a tract builder or spec builder. There is no way they can even begin to justify it.
I would be supportive of a tax on energy-wasting construction techniques. It would help reduce the awful government deficit and at the same time encourage energy-efficient construction. But it would serve as a further drag on new construction, so is unlikely to happen. Perhaps it could be coupled with energy credits for efficient construction techniques, in such a way as to be revenue neutral and therefore encourage construction on the one hand while it discourages wasteful construction.
Something has to be done. If we continue to ignore the energy problem the US dollar will become worthless. We will have to go to the grocery stores with Euros or Yen.
seekingalpha.com/artic...
Carbon is good. CO2 is GREAT for my garden. Without it, we would die.
Do you want me to die?
BTW, the same arguments FS made also apply for energy infrastructure (power plants, transmission lines...): there are cases where it's clearly in the public interest to go with a more expensive (short-term) option that has better long-term economics (and externals).
The trouble in all of these cases is that once the government gets involved, they don't stop, and then all sorts of unintended consequences pop up... (And one might say the same about the Fed these past couple of weeks!)
And the Prius? No payback, just the smug satisfaction of being ostensibly green.
Virtue is it's own reward. For MONETARY reward, we have the stock market.
If We the People, really, want to “green the planet” and provide non-polluting, abundant, and cheap energy, we must put a full court press on the clowns in Washington to adopt a national priority to develop the use of hydrogen to generate energy. It is a technology that is, already being used in Norway and can be implemented in this country in less than 10 years. You would have “on-demand” hydrogen to generate electricity in your home and in your automobile. Researchers at Purdue U. developed a process, last summer, that converts water to hydrogen, on demand, from water. Fuel cells for converting hydrogen to electricity already exist and can be greatly improved, quickly, if we have the will to do it.
The roadblock to this Nirvana of energy is the Big Oil/Utilities/governme... conspiracy to keep current, expensive, polluting, and oligarchy controlled systems in place. If the electorate of the nation doesn’t wrest control of their destiny from government and big business, it will continue to suffer and pay. It’s up to you.
Some of the people I know who drive a Prius do so for their efficiency, not because they're trying to make a statement, although I know there are many people with the car who drive it precisely because they want to be seen making a statement.
The sad thing is that much of the time, Prius drivers are not driving the cars in a manner to extract maximum efficiency.
Put *all* the costs of energy (electricity and gasoline, etc) *into* the price.
Examples: costs of climate change, costs of defense spending related to oil, costs of roads, costs of accidents now borne through other taxes, etc.
Once all the costs are in energy prices, then the incentives will be accurate and balanced.
The Prius is now #8 for number sold in the U.S. (ahead of ALL Volvos put together, equal to all Subaru sales). It was #1 in vehicle demand (as measured by days on dealer lots) for 30 out of the first 36 months it was on sale. (Somebody needs to get outside Berkeley).
A Corolla is listed as 27/35 mpg, don't expect 40mpg, and doesn't have the same interior space. Real-world Prius results are about 47 mpg, I've averaged 49mpg, some careful drivers are in the 60's.
A Prius is classified as a mid-size car, based on interior space. Looking for a $20-$30K car that will save you money in the long term, the Prius is the best option, according to Consumer Reports (a couple years ago they weren't so sure on that, but the resale value has held up, expenses are low, gas prices have risen and will continue to rise). A Prius has a $2K hybrid premium at best, you can't change your windows or furnace for that kind of money (I know, I've done that too). If you're simply into saving money, buy a ten-year-old Metro, but if you want a new car, buy a Prius. (Honda Civic Hybrid is a close second).
I chose not to send my money to Al Qaeda, and to reduce our single largest item on the trade deficit at the same time. Wasting gas is simply not patriotic, and soon it won't be an option.
1. CO2 is necessary, but we're at levels not seen for over 600,000 years. We don't need that much. It's a proven greenhouse gas, and it seems very likely our climate will change in ways that will make sustained economic growth difficult, to say the least.
2. Hydrogen is a scam. It's okay in certain situations (spaceflight, submarines, etc.) but not for vehicles. They're experimenting with this in Iceland (not Norway), but there they have abundant geothermal energy and no petroleum. Hydrogen needs to be made somehow, currently that's mostly from natural gas, hardly a green source. Electrolysis is another method, if you have lots of electricity. Fuel cells to power vehicles are still not below 6 digits, then add in difficulties in transporting and storing H2. Much better to skip that whole step of converting electricity to hydrogen back to electricity, and just store energy in modern batteries, run on EVs. That is the real future.
editorial.autos.msn.co...
Calculating the dollars of gasoline that a Prius will save you is like calculating the minutes of commute time you will save in a faster-accelerating sports car. The abilities of the car are nice but they are very much secondary to the <i>image</i&g... that comes from the abilities. And if you say you've never made any purchase decision based on image, I say you're a liar.
Tshock, unimpressed - apparently both Iceland and Norway are pushing the hydrogen agenda. I was unaware of Norway's efforts, and if the scope of that surpasses similar efforts (like California's hydrogen highway), but I know Iceland, at least early last year, eventually wants to run all their vehicles on hydrogen.
Ms. Mary Nickerson, Technical Marketing Manager for Toyota, speaking what Toyota does with spent, Prius batteries (see link at bottom for interview):
"Toyota dealers and the nine regional Toyota parts distribution centers collaborate on battery recycling. That kind of networking is something Toyota generally excels at. When a customer's Prius battery pack needs replacement, the truck that delivered a new one to his dealer returns to the parts center with the spent battery, and any other parts destined for disassembly and reclamation. When enough batteries have accumulated at a parts center to fill a truck, they are shipped to a recycle operation."
Interview link:
www.treehugger.com/fil...
I'm a free market guy. Building last anywhere from 20 - hundreds of years. The buildings we are building now could last for 100's of yeas. Thus more sound energy construction should be taking place on all buildings. The only way the market will recongnize the long term reality benefits would be to force the better construction intot he building codes. The problem is that this one solution fits all might not realize that in some situations buildings might be planned only for temporary use and all kinds of other situations. Still the total society and economic benefit on a one solution fits all on whole would probably outweigh the cons.
The free market would be more efficient however if BUYERS and Leasers (and I think we will get there) would recognize the value of buildings that are cheaper to run. That way resell value of more energy efficient buildings would be higher. Leases for buildings with that use less air conditioning would be higher. Again though if a business is perhaps short term or risky the buyer or leaser still won't care. Big business like Walmart etc are starting to realize the benefits of building green. Building green is still a small market and not really knowing what the return on the investment in green construction is what is really holding back green building. I've read several books on the subject. From reading books it would be very hard to do a present day analysis because the saving on energy vary so much.
That is why the Prius is easier for people to accept. It not hard to figure out a cash flow analysis and bring the future cash flows into the present day cost. Engineering economics was a great course buy the way. Everyone should take it.
So for green building to be recognized and priced by the free market better information needs to be available (preferably software) that will accurately and easily tell someone how much benefit of loss one can expect for different types of building depending on where you live.
See building green is really complicated. Air conditioning savings in the south are much better than in the north for example. Also prices for different green materials bouce all over the place too. So better information modeling needs to be available for a free market solution or more government. I prefer the free market but government would be quicker.
One last thing. As a structural engineer I can also tell you that this argument not only applies to being green. Better structural design, better craftsmenship during construction prolong the useable life of the building. This should result in lower insurance rates. With a longer building life a better return on investment could also be acheived. Again the problem is the public and information modeling fails to recongnize this. The insurance industry models the structure on a very very limited basis. If the inspectors during construction were paid by the insurance company and insurance contracts were for the life of the building we'd get more bang for our buck through better insurance rates and better construction. Again long term owner is the only one who stands to benfit from this unless better information modeling is available. With information technology ever improving perhaps someday this will be the way of the future.
Again with cars they depreciate based on models that have been developed based on information for each car and its history as a model.
Overall the information modeling for cars is easier to do and much better.
later,
John
- Gas gets more and more expensive over time. The more expensive gas gets, the more I save over a comparable car (in the Prius's case, its most directly compares to a 4-cylinder Toyota Camry in size.)
- I got a $3200 Federal Tax Credit for buying my Prius back in 2005.
- AND THIS MOST PEOPLE DON'T TAKE INTO ACCOUNT-- The Prius has LOWER maintenance costs than a regular car. My Prius does not need a brake job until 100K miles because it uses regenerative braking, and since it does not have a multiple-gear shifting transmission, it does not need a tranny fluid change until 60K miles. It does not have a starter or alternator to go bad, and it doesn't have a timing belt either.
After driving the Prius, normal cars just feel so primitive.