Economic Analysis of Sustainability

Oil is the world’s leading source of energy. In 1900, the world produced 150 million barrels of oil, a number that jumped dramatically to 28 billion barrels by the year 2000. In the twentieth century, oil was readily available, and, therefore, very cheap. This expanding supply of cheap oil caused an explosion in the growth of food production, population, urbanization, and human mobility (Brown, 2009). Today, we live in an oil-based civilization, and are completely reliant on an energy source that will not be around forever. There is an estimated 2 billion barrels of oil on the planet, of which, 1 billion barrels have already been used (Brown, 2009). Aside from the dramatically decreasing oil quantities, the burning of oil also contributes to global warming. According to Brown, 2009, the burning of oil contributes to 38% of all carbon emissions, succeeded only by coal, which is currently responsible for 43% of all carbon emissions.

Economic Analysis of Sustainability

The Earth’s temperature has been increasing over recent years. 25 of the world’s warmest years since records have been kept, have happened since 1980 (Brown, 2009). This warming happens because of greenhouse gasses, like carbon, which trap heat inside the Earth’s atmosphere. Carbon is currently responsible for 63% of the global warming trend (Brown, 2009). One of the main causes of carbon emissions comes from transportation. In 2010, there was an estimated 250.2 million registered passenger cars on the road, in the United States alone (RITA, 2012). In 2011, the number of vehicles worldwide surpassed 1 billion (Tencer, 2011), with the United States being the worst culprit. Even though the number of vehicles in China has been dramatically increasing, they would need to increase their vehicle numbers another 16-fold, just to meet the number of vehicles currently on U.S. roads (Tencer, 2011).

The release of carbon from vehicles contributes to the effects of global warming. Carbon prevents the Earth from cooling down, by trapping heat inside the atmosphere. When sunlight hits glaciers, about 70% of that heat is directed back into space, but because of the carbon build up, this heat can be trapped in the atmosphere, which causes the glaciers to melt even faster. As the glaciers start to melt, more open ocean is exposed. Only about 6% of light that hits the dark-colored, open ocean, is reflected back into space, leaving the rest of the heat from the light, to be absorbed by the ocean, heating the water. As the ocean waters warm, they also contribute to the melting of the glaciers. This creates what scientists call a Positive Feedback Loop. To make any progress in the fight against global warming, we need to find ways to remove excess carbon from the atmosphere.

Some vehicle manufactures have tried to combat this problem by generating more fuel-efficient vehicles, while some have continued to manufacture large gas-guzzling SUVs. Other companies such as Think, have succeeded in building vehicles that can be powered by electricity. Electricity can be generated from many different sources, some of which are far cleaner than burning fossil fuels. One example of this is wind farms. Wind farms, are groups of wind turbines that can be placed in fields, or even directly in the ocean [Offshore Wind Farms]. They can use the energy created from wind, to generate electricity (US Department of Energy, 2011).

Semplici

Some companies might question the rationale behind upgrading their fleet of vehicles to newer, electric vehicles. You would have the cost of purchasing the vehicle, then you would need to pay for the electricity the vehicle uses. To demonstrate this, a factious company, called Semplici, can be used. Semplici is a locally owned Italian pizza company. Their owner is becoming more concerned with current environmental issues, and has been contemplating what his business can do to help combat the growing problems, such as global warming. He has been considering going with an electric vehicle. Currently his delivery employees are using their personal vehicles to make deliveries. He’s concerned that while attempting to help the environment, he may bring down his own business, with the added costs of purchasing company owned vehicles. Also, he’s noticed that the electric vehicles cost a good deal more than a standard gas-powered vehicle, which he could purchase for around $18,000 (Ford). A new electric vehicle, such as the Think, starts at $22,000 after about $10,000 in government incentives. Currently, not all states offer government incentives to purchase electric vehicles.

Semplici currently pays their delivery drivers a starting wage of $9.00 an hour. The drivers also receive a 0.75¢ reimbursement for each delivery made. This reimbursement helps combat the wear and tear on their vehicles, and gas used during the delivery. On average, Semplici delivers two pizzas per hour, during a 12-hour work day. They are open seven days a week. This works out to be about $18.00 per day, which is spent in delivery driver reimbursements, or, about $540.00 per month (Gregster, 2008). With an average delivery distance of about 4.5 miles; over a period of one month, this would use 162 gallons of gas, on a vehicle that receives 20 MPG, or, a total of $539.46, based off an average of $3.33 per gallon. For example, a Ford Taurus with an estimated 18 MPG city, and 25 MPG highway, will drive an average of 39,420 miles delivering pizzas over a period of one year. This would produce a footprint of 36,990 pounds of CO2 per year, or, an average of 1,905 gallons of fuel per year.

After doing some research, Semplici’s owner determines that he can purchase a new electric vehicle from Think, for a total of $22,990 after a federal incentive of $7,500.00, and a tax credit of $2,500.00. The monthly payment on the vehicle would be around $420.03 per month. The Think uses the same amount of power as a 60-watt light bulb. 1 kilowatt-hour produces a carbon footprint of 1.6 pounds per hour. 0.06 Kilowatts an hour gives an average of 0.096 pounds of CO2, per hour, or 2.304 pounds of CO2 per day, giving a total of 840.96 pounds of CO2 per year, which is a reduction of 36,149.04 pounds of CO2 per year, over the Ford Taurus.

It will cost an average of $2.00, to $4.00, to charge the electric vehicle, per day; increasing his electric bill by a maximum of $120.00 per month (plug in america, 2012). The total cost of owning the car, including payments and electricity usage, would be about $540.03 per month. This is only a 0.03¢ increase over the $540.00 that he already pays his delivery drivers in reimbursements.

With this information, he realizes that this new investment isn’t going to cost him any more money than he is currently spending, but it’s not going to bring any additional short-term savings, either. Doing a little more research, he learns that he could pay off his new investment in about 4.5 to 5 years. Using information from the Department of Motor Vehicles Web site, he also learns that the average age of vehicles in the United States is about 10.8 years. If he could manage to pay off his new electric vehicle in the allotted 4.5 years, he could probably get an additional 6.3 years of service out of the vehicle, during which time, no payments would need to be made. At which point, he would only need to pay the additional $120.00 of electric usage, per month, saving him a total of 420.03 per month, over what he is currently paying drivers in reimbursements.

Over the next 6.3 years, he would save a total of $31,754.27 in reimbursement fees. This would not only, completely reimburse him for the investment he made, but also bring in an additional $8,764.27, in long-term savings, that he could use to reinvest in another electric car. Although his electric bill would be considerably higher, he would also remove the need to purchase fuel for his delivery vehicles. He realizes that, not only could he gain some long-term savings by switching to an electric vehicle, he could also make a huge profit by doing so. He also gets the idea of placing “Eco-Friendly Delivery” stickers on his new vehicles, which might help him snag some of the customers from competing pizza restaurants. If this happens, it’s possible he could use the extra income to pay off his new electric vehicle even faster, allowing him to make even more money in the long-term. It’s also possible that his “me-too” competitors will also try to follow suit, purchasing their own electric delivery vehicles, further reducing the amount of damage to the environment.

Costs and Savings

As with most rental car companies, he has decided that the delivery employees will need to provide their own driver’s license, and proof of insurance, before they will be allowed to drive one of the company vehicles. The employees will also have the option of purchasing insurance from Semplici, if they do not currently have their own. This cost will be deducted from their biweekly paychecks. If the vehicles remain on Semplici’s property, they will be covered under the existing commercial insurance, therefore, there won’t be any additional insurance costs for using company owned vehicles.

The Think comes with a 3 year, or 36,000-mile warranty, for the battery, and drive train. Think City makes the claim that the battery life is 10 years, or 100,000 miles. The overall maintenance on the Think will be minimal, as the electric motor has very few moving parts (Think City, 2012).

The initial down payment for the new electric vehicle will require $2,000, which will increase the expenses during the first year. After the first year, the total payments for the electric car will be slightly lower than the current expenses from employee reimbursements. During the fifth year, an additional $600 would be required to purchase new tires for the electric vehicle, however, at this point, only 6 months of payments will be left on the vehicle, so the total expenses, will be further decreased. Moving forward from the sixth year, the savings will be dramatically increased. The ten-year cost of operating with employee vehicles will cost about $64,799, compared with the $40,313, it would cost to operate for ten years using the new company-owned electric vehicle; bringing in a total savings of $24,486, over a ten-year period.

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Conclusion

In conclusion, we can see that, although Semplici’s isn’t going to see any short-term profits for making this change, they will start to notice significant profits over the long-term. They can also bring in more business, and help the environment, by providing a more environmentally friendly operation.

Global warming has been an issue for many years, and is becoming increasingly important, as glaciers are disappearing at record speed, and the Earth starts to suffer other environmental changes. The weather has been changing dramatically, storms have been more violent, the summers (and even the winters) have been considerably hotter. In January 2012, the state of Wisconsin saw temperatures in the range of 80° F, and, in December 2011, temperatures rose to 60° F, or more. Some parts of southern Wisconsin didn’t even see snow fall. During June, and July, 2012, southern Wisconsin experienced several days over 100° F; some days reaching 111° F. It’s hard not to trace these changes back to global warming.

The use of electric vehicles, instead of gasoline powered vehicles, can decrease carbon emissions, and, probably, help slow down the speed at which the Earth is warming. Semplici is just a starting point; if more companies are willing to make an environmental change, we can make a huge impact in the amount of CO2 that is released into the atmosphere. More individuals also need to step up, and start making a change for the better, by buying more environmentally friendly vehicles.

However, before any of this can happen on a large scale, several changes will need to be made. First, and foremost, more states need to start providing incentives for purchasing electric vehicles. Currently, only a few states offer incentives, and tax credits, for buying the Think electric vehicle. Secondly, the price of electric vehicles needs to come down, not only to match the current price level of gas powered vehicles, but also, to beat those prices. Today, many people are still driving older, and, improperly functioning vehicles, which don’t receive the same gas mileage as newer vehicles, because they are economically unable to purchase newer vehicles. Even current gas powered vehicles, fall outside the price range for a lot of people.

If we want to see more people adopting this new technology, the price must come down, to a point where it’s economically feasible for someone-even low income individuals and households-to purchase them. These price changes should, ultimately, be made at the manufacturing level, and not at the governmental level, to avoid major increases in taxes.

There also needs to be major improvements in the convenience of owning electrically powered vehicles. While some large cities have started to implement parking meters, or parking garages, that make it possible for someone to recharge their electric vehicle, these services are far, and few, between. It most places, owning an electric vehicle may still pose a challenge. More cities need to provide charging stations. These charging stations should also be placed at rest stops along interstates.

There can also be involvement by other types of businesses. Hotels, or recreational parks, could start installing more charging stations. The charging stations could be installed at bus stations, air ports, and any other place where a vehicle might be left.

If we can make the purchase, and use, of electric vehicles, more economical, and owner-friendly, more people will start to adopt the technology, and, our environment will be much better off.

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