Buy A Diesel?

A concerned reader is in the market for a used car, and wants to know what we’d recommend: a fuel-efficient hybrid vehicle (like a Prius), or one that can run on veggie-oil-based biodiesel (like a Volkswagen Jetta)?

A while back I posted on a similar question—whether to buy a new Prius or an old Accord.  There, the price differences were so wide that the Accord seemed the better buy—provided that the buyer commits to using some of the savings to offset their environmental impacts in other ways.

Here, however, the price differences aren’t so wide.  And—at risk of aggravating people attached to one solution or the other—I’m not yet convinced that there’s all that big a difference.

Of course, there are lots of uncertainties in play here.  First, a lot depends on what used cars are available when you’re ready to buy.  Both hybrids and biodiesel-ready cars are still fairly scarce, so you may have no choice but to buy a car with more options—a good stereo, plush seats, etc.—than you really need.  Paying more could put a crimp in your wallet—which, in turn, could leave you with less money for other earth-friendly purchases.

Second, with the purchase price of a used Jetta and Prius so close, a lot depends on what you think fuel is going to cost a few years down the road. It’s hard enough to predict prices for next month; over ten years, prices are essentially unknowable. That’s especially true for an evolving market like biodiesel; but it’s also true for oil prices, which tend to be volatile. 

Third, "external costs"—the things that society, rather than the driver, pays for—are harder to get a handle on, since there are two different kinds of fuels with different kinds of externalities. Should you count the security & military costs associated with petroleum? The environmental costs of oilseed farming? The risk of oil spills? Pesticide safety? Compounding the problem, the numbers themselves are pretty sketchy—so no matter what you decide to include in your analysis, the figures are going to be approximations.

And fourth, a lot depends on you—in particular, are you willing to drive a car that uses a little more gas than you’d like, if it saves you some money? And if so, are you willing to invest those savings in something that might do even more environmental good in some other sector of the economy?

So starting with the basics:  before you buy a car—any car—you should take a look at your needs. How many passengers will you need to carry? How much cargo (if any)?  How many miles per year are you expecting to drive? Don’t overbuy—if you need a truck just a few times per year, it’s usually cheaper and more earth-friendly to buy a smaller car, and rent or borrow a truck only when you need it.

Our reader has done all that: she needs a car to hold 2 adults, plus one or two car seats for kids, that will be driven less than 10,000 miles per year. She’s interested in a used hybrid (such as the Prius) or a biodiesel-ready car (such as the Volkswagen Jetta).  Just to round out her choices, I’ll look at a used Toyota Camry and a Toyota Corolla as well.

I took a look at the Kelly Blue Book value for comparably equipped used cars from the 2002 model year.  And I made some assumptions:  first, that the car would be driven for 12 consecutive years, for 10,000 miles per year, after which it would have to be junked; second, that future gas purchases would be discounted at a 3 percent annual rate; third, that biodiesel will cost 40 cents more per gallon than gasoline; fourth, that each vehicle’s actual gas mileage would be about 5 percent lower than the federal ratings; fifth, that CO2 credits (the cost to reduce a ton of CO2 emissions on the EU carbon market) would cost $30 per ton—which is a little more than today’s rate in US dollars; sixth, that the US spends about 30 cents per gallon to defend its petroleum supply (as described here, way down on the page); and seventh, that biodiesel reduces CO2 emissions by 78 percent, compared with gasoline.  Then, I calculated the total cost of buying and fueling the car for 12 years; plus the cost of buying enough CO2 credits, purchased up front, to offset the car’s CO2 emissions; plus per-gallon defense costs.

The winner in the Prius vs. biodiesel-Jetta grudge match was…wait for it…the Toyota Corolla, by a hair.  The Prius came in a close second, followed by the Jetta, with the Camry trailing the pack. 

If gasoline averages about $2.50 over the next 12 years (a huge if), choosing the Corolla could give you a little cash—perhaps a couple thousand dollars—which you can use to buy a super-efficient fridge or, if you’re in a generous mood, some more carbon credits.  That will make the cost savings on the Corolla add up to even greater environmental benefits over time. The higher gas prices go, of course, the less the Corolla saves; but as long as gas prices average less than an inflation-adjusted $4.00 per gallon over the next 12 years, the Corolla (plus carbon credits) is consistently the cheaper choice.

But not by much.  The real lesson here, perhaps, is that there’s no overwhelming winner.  What you consider the best choice is very dependent on what assumptions you make, what external costs you include, what probability you assign to future events, how much you actually drive, and the like.  In the range of assumptions that I made, the choices just aren’t that different; your mileage may vary. 

The real difference, however, is between a reasonably efficient car and a gas guzzler. Assuming $4.00/gallon gas, a car that costs the same as a Corolla, but is rated at 18 mpg rather than the Corolla’s 31, could cost $10,000 more over 12 years. That’s a big difference—far bigger than the difference between Corolla and a Prius.

Now, for the (inevitable) caveats.

• I didn’t look into pollution costs, outside of greenhouse gases.  The diesel Jetta gets a pretty poor rating on tailpipe emissions; but biodiesel burns more cleanly than regular diesel. (However, this post from the Green Car Congress blog suggests that biodiesel may have worse overall emissions than regular diesel, because of the higher emissions and energy costs of agriculture; I don’t know enough to decid.) Still, I think that the Prius would beat out the Jetta on this score, since in addition to being fuel efficient it’s also a very clean car.  The Corolla is probably somewhere between the Prius and the Jetta.
• Biodiesel currently sells at a premium to gasoline—in mid-May, the premium was about 70 cents, based on this and this.  If you think that premium will decline over time, then the Jetta looks a lot better.
• I don’t yet know how to buy EU CO2 credits, though you can buy US credits (as detailed here). With some reservations, I think these are worthwhile—especially since the projects they fund tend to have ancillary air quality and habitat benefits.

So to get back to the original point—what do I recommend for someone looking to buy an environmentally friendly used car?  First, during your search, identify a few vehicles that get at least
30 mpg, that you think you think are safe, and that you could live with.  Then, sum the purchase cost of the vehicle, plus an estimate of the cost of 10 years of fuel, plus carbon credits, plus at least 30 cents extra per gallon of petroleum to account for externalities.  Compare costs based on that number, not on the purchase price.  Then check your gut, and if you feel comfortable, go with the least expensive option.  And finally…once you make your choice, buy your carbon credits, and turn your attention to your next big purchasing choice.  Perhaps a place to live that’s closer to work or stores, so you can drive less?