May

24

Real time substitutions are taking place in commodities due to NYC Mayor Bloomberg's schedule for all NYC taxis to be hybrids by 2012, and also the increased presence and use of other energy sources such as solar and wind. I wonder about the dire predictions of $100 per barrel oil.

I also heard today the suggestion that if U.S. drivers switched to the equivalent European models, one year's consumption Chinese oil would be saved. I wonder about countries such as Venezuela and Russia, which are heavily oil-dependent and moving in non-market friendly directions.

Henry Gifford replies:

Yes, things are changing a little. Many NYC taxis are already hybrids, the jeep looking ones. As they are driven more than other vehicles, the payback is more attractive, with drivers reporting huge savings, especially when the air conditioning is off. Looked at another way, a non-taxi hybrid sits idle most of 24 hours, yielding no payback.

Yesterday I heard about a New York State agency paying about 2/3 of the purchase cost of a solar system that has a 94-year payback. Solar is nice, but expensive.

Wind in urban areas is mostly for show, as velocities close to the earth's surface are lower than a few dozen meters, and it is hard to harvest energy from the turbulent wind currents near buildings.

This all strikes me as two examples of the government using our money for things that don't pay well. That is unless the systems installed result in property tax increases exceeding the value of the energy saved. This isn't unheard of. It would be one example of the government partly taking credit for a change already in progress, and perhaps slowing the change down in the process, by encouraging taxi owners to wait for the government to set up the plan to pay them for what some are already doing.


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  1. Matthew Kennel on May 26, 2007 10:34 pm

    When people compute a “payback period” for energy savings, this nearly always assumes a price for energy inputs fixed forever at the current spot rate.

    I’d imagine that the readers of this blog would have a more sophisticated understanding. When you buy a high efficiency vehicle or building, you’re also buying a partial hedge against future energy price rises, as well as volatility shocks.

    This has to be worth something greater than zero, and of course the value depends on the anticipated price trend (which a few people recognize) and volatility (which almost nobody recognizes). One might argue (though I think that’s very wrong for anything from petroleum) that the real price of energy is best estimated by today’s spot price, but arguing for zero volatility is of course idiocy.

    Virtually no consumers can effectively hedge their gasoline costs years into the future, and nobody offers a “gasoline annuity” which provides fuel for the remaining lifetime of the vehicle.

    It would be an interesting exercise for some ambitious MBA student with access to data to estimate US retail gasoline volatility, perhaps using RBOB and crude futures and of course option prices, including the strong contango and volatility smile, and attempt to price the extra value for efficiency.

    For example. What would it cost somebody to have options or futures to buy gasoline at today’s price for 12 years sufficient to drive a standard vehicle a typical distance over a typical lifetime.

    Given that likely usage is calculable, buying high efficiency now buys you partial insurance against bad cost shocks—which in practice might be correlated positively with other negative income shocks.

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