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Amherst College Spends $40,000 to Reduce $30 Annual Damages
October 26, 2012 Economic Illiteracy

My alma mater is much in the news lately, and I will post on that if I can figure out the right way to articulate my view on the unfortunate events. But they still can’t help sending their alumni triumphal emails about how awesome they are. In the latest e-mail they are celebrating the Chevy Volt purchase that was made for their Amherst College Emergency Medical Service students. Now, ignore the fact that a Volt does not seem to be an idea car for EMT services (to be fair, they don’t need an ambulance), here is one of the triumphs of the purchase:

Hatch and Tepe calculate that, compared to the old Crown Victoria, the new Volt will reduce ACEMS’ carbon footprint by about 87 percent—nearly a ton of emissions per year. It’s also more reliable, capable of running on gasoline when the electric charge runs out. And if it ever does break down, Tepe points out, they can “literally push it down the hill” for repairs at the Classic Chevrolet dealership right next to campus.

Well for students, at the margin the Volt is free. But one-ton of CO2 emissions imposes roughly $30 of damage according to the Climate Experts (not the “deniers”) as reported in their IPCC 4th Assessment report. So let me ask, assume that the Volt requires no other expenditures whatsoever and that it can run for 20 years on the same battery without any expenditures, and that by the end of 20 years the car will have no value, would you still want to spend the $40,000 in order to prevent $30 per year of damages each year for 20 years? Let’s be more generous than the Stern Report and assume a discount rate of zero percent – which is to say that saving $30 of damages in the year 2032 is just as valuable as saving $30 in damages today. Or even use a negative discount rate if you wish. Cumulatively, would you pay $40,000 to save $600?

Spending $40,000 to save $600 in total would be a rate of return of 1.5% per year if the Volt were infinitely lived That is downright awful as far as investments go, unless of course we are living in an atmosphere where the returns to normal business activity are zero or negative – as some thing they are now. But if we treat this like any other way to spend money, I calculated the internal rate of return on a $40,000 investment that yields $30 per year for 20 years to be … -25.3%.

Now to be fair, there are other costs of emissions beyond CO2 that the Volt is presumably replacing. But to be fair, the calculation above is assuming that the Volt is not actually a coal powered car! The Volt here does seem to be powered by the CoGen plant at Amherst, so I’ll keep the assumption that powering it does not in itself cause emissions problems and I will make the assumption that the Volt battery is itself Eco-Friendly, even after its ultimate disposal. And we are keeping the assumption that emissions during the full life-cycle of production of the Volt are identical or less than the emissions from the production of a new Impala, for example.

So, leave it to Amherst, who in its fight song boasts, “To the Frenchmen and the Indians He Didn’t Do a Thing … ” to figure out a way to “do a thing” to the environment. And that thing sure does not mean “protecting” it. Of course, it’s all in the name of prestige and “doing what seems to be the right thing.” Because of course, no one knows Amherst College. Without parroting green triumphalism they would surely find themselves struggling to attract the best and the brightest.

And in a future post we’ll examine what this stupidity has to do with recent tragic events on my old campus.  This kind of symbolism is not costless.

"10" Comments
  1. >> “… a Volt does not seem to be an idea car for EMT services …”

    Massive understatement.

    >> “And if it ever does break down, Tepe points out, they can “literally push it down the hill” for repairs”

    Isn’t that true for any car that can be put into neutral? Including an old Dodge Dart?

  2. Dr. Rizzo, you performance a completely sane, responsible, and reasonable back-of-the-envelope calculation.

    But do you get the feeling the the decision-makers for this effort did nothing of the sort? That they just thought green/climate change/environment/PR and made their decision based on little more than that?

  3. I put way too much effort into this but here it goes:

    ‘And if it ever does break down, Tepe points out, they can “literally push it down the hill” for repairs at the Classic Chevrolet dealership right next to campus.’

    Or you could push the crown vic 0.2 miles further to College Street Motors as seen here:
    http://maps.google.com/maps?hl=en&safe=active&rls=com.microsoft:en-us:IE-SearchBox&rlz=1I7ADRA_enUS401&um=1&ie=UTF-8&q=amherst+college&fb=1&gl=us&hq=amherst+college&hnear=amherst+college&cid=0,0,5339552891781850812&sa=X&ei=I-OKUI6RBuXi0gHwwICgDA&ved=0CH8Q_BIwAA

    But wait there’s more! The route to Classic Chevrolet, starting from the intersection of College Street and Dickenson, gains 9 feet in elevation. The route to College Street Motors, starting from the same intersection, loses 40 feet in elevation. So, in fact, you’re actually going to be pushing uphill to get it to Classic Chevrolet while you would be pushing downhill (or perhaps just watching the driver coast on down) to get it College Street Motors.

    *Elevation figures from mapmyride.com.

  4. LOL, Sherlock, that was outstanding. 😉

  5. If, to be fair, that they do not need an ambulance, then what do they need the Volt for? Road trips to Vassar?

    And if this is replacing a Crown Vic, which I assume was selected in part for its trunk space, where are they going to fit all their equipment in a Volt?

    Good work, Sherlock. Bet you won the Pinewood Derby.

  6. Typically your financial modeling is beyond reproach, however in this case you did not appear address the following in your internal rate of return calculation:

    The ($20,000) PEP Station… will be “available for any college [students,] faculty or staff who have electric cars…” Carter notes that one alumnus already used the charger over Reunion weekend in May.

    If we expect 100% year over year growth in alumni electric car ownership, and consistent attendance at reunion weekends, 2 would use the charger over the May 2013 reunion, 4 over the 2014 reunion weekend, 8 at the 2015 weekend, and a potential 16 charges over the May 2016 weekend! (I think this might make a nice goal “16 in 2016” for students involved in the project.) Post 2016, it may be difficult to project future charges at alumni weekends due to changing technology. We may find that grease cars, rickshaws, or steam cars may necessitate a grease refuelling station, a power bar and water dispenser, and wood/coal station respectively compete with the PEP charging station.

    I’d like to see you re-run your rate of return calculation with the above scenario applied, and am hoping that gets us to at least -23%.

  7. I love these threads, and nice work, Joe.

    I’m definitely a free-rider here, does WinterCow have a tip-jar? 😉

  8. Hahaha, Speedmaster. I feel like a freeloader, too, with WC and others doing the work. Where else do you get free tuition?

    Joe’s work is, as they say in France, a tour de force.

  9. If you actually think the goal of this move was to save money, you’ve missed the point. This was, on the contrary, an admittedly costly way to have an edge over our peer institutions by having an electric institutional car and an electric charging station. The student government gets roughly $900,000 a year to disburse to clubs and do stuff like this. So $40,000 is just 4% of that budget. And over 10 years, which I think the car is projected to last, it’s less than half of a percent. So, 44 basis points for a hand up in the green arena? I think it was a good move. Amherst has more money than it knows what to do with, so at least it’s spending money on going green.

    Now, the fact that electric car batteries are more harmful to the environment than normal automobiles…that’s a different story!

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