Payoff of fuel efficient cars depends on how you jigger the numbers

Hybrids and other fuel efficient cars tend to cost more than comparable cars without the hybrid battery or other fuel-efficient technology. The natural question from the economic point of view is how long until the breakeven point? How many gallons of gasoline do I have to pump into the hybrid until the cost savings of getting more miles per gallon equals the increased cost to purchase the car?

Nick Bunkley proposed and answered the question for 18 fuel efficient cars in an article titled “Payoff for Efficient Cars Takes Years,” which started on the front page of yesterday’s New York Times business section and continued for almost a full page inside, including chart and photos.

From the Ford Fiesta SFE, which you must run for almost 27 years to break even with the traditional Fiesta to the Jetta TDI, which breaks even in 1.1 years over the traditional Jetta, it takes a while for the money savings to kick in from driving any fuel efficient car, no matter what the technology.

The problem is, Bunkley, like virtually every other economics writer, forgets about a lot of the costs. They only look at the costs that the owner of the car pays directly, and not at the indirect costs that all of society—including the owner—pay, or in this case don’t pay.

These social costs include:

  • The cost of increased respiratory and related illnesses because of the additional pollution.
  • The cost in damaged property from the greater increase in extreme weather events that global warming will bring.
  • Any costs to remediate the environmental damage directly resulting from car emissions e.g., cleaning buildings and streets.
  • The cost of military expenditures to protect gas supplies. Years ago an economist for CNG Pipeline named Mendel Yoho told me that if we added the additional cost of our military expenditures over those of Europe and added that to the price of gasoline that we would be paying about what Europeans pay for their gas.

With the great advances in digital technology and computational software, we can pretty much accurately assess each gallon of gas its share of these social costs. Adding social costs to the current price of gasoline would yield a “real” price of gasoline, which would be much higher, meaning that the payoff of switching to the more fuel efficient car would come more quickly.

We shouldn’t heap too much blame on Mr. Bunkley, who is merely taking a conventional approach.

In general, free-market economists and their popularizers frown upon the concept of social costs. They don’t like the idea of taxing companies and individuals for the social cost of a product or service, for several reasons. On the simplest level, any tax represents constraint on the market. The implication of a tax to assess social costs is that the government is intervening in the economy and society, either by using the money to address the social cost or by redistributing the tax to the population through lower other taxes.

This particular line of reasoning falls within the consistent position of Republicans for decades: no taxes and no redistribution of wealth (which in this case would be from polluters to everyone).

Did Bunkley think about including something about social costs saved by driving fuel-efficient cars and reject the idea? Probably not, because from health care to pollution controls to raising tuition to public universities, economics writings never focus on the cost to society, only to individuals.

And let‘s face it, an article with a list of 36 cars for sale is really about buying stuff. Bunkley is analyzing one of the criteria of purchase. I can imagine the car salesman saying, “The Civic Hybrid may have a cool color and great pick-up, but it’ll take you 12.1 years to break even, while it only takes you 4.4 years if you buy a Lexus HS 250h!”

At the end of the day, whatever one you buy, you’re buying a car, which is about the best thing anyone can do to support our suburbs-and-car-centered consumer society. Never mind that you will pollute the atmosphere to some degree, unless you’re running on solar or wind.

I’d like to see someone do an analysis, with and without social costs, of the breakeven point of building and riding mass transit.

2 thoughts on “Payoff of fuel efficient cars depends on how you jigger the numbers

  1. It is good to see someone pointing out that the cost of motor transport is more than just the direct cost to the driver. I have attempted to do this in the UK but have been told by some motoring groups that my figures don’t make sense because they don’t recognise the external cost as being their responsibility.

  2. You have left out the production batteries for hybrid cars causes more pollution and uses more energy than production of conventional cars. Nor have you mentioned the problems faced by hybrid cars that have reached their end – how those cars present a new set of challenges in preventing them from damaging our environment.

    If we are going to have an intelligent discussion regarding the impacts of hybrid vehicles, we should not leave anything off the table of discussion. As you point out – it all depends on how you “jigger the numbers”.

    The analysis you suggest would have to include production of these vehicles and the impact theses vehicles have when they reach the “junk yard”, and everything in-between.

Leave a Reply

Your email address will not be published. Required fields are marked *