Does Being Green Make Economic Sense? – Part 1 – Green and Hybrid Automobiles

It is clear these days to most people that being “green,” or living in a way that is not harmful to the environment, is the appropriate course and absolutely the right thing to do.

However, are we at a point yet that it makes sense economically to do so? In other words, are you punished economically by your urge to live properly?

In my opinion, if being green is truly ever going to be adopted by the majority of the population, it has to be made financially beneficially to do so (even though I wish it weren’t this way – it is just the way things are).

In this series, we will go through several analyses to take a look at if you are rewarded financially (or at least not punished by spending more) for living “green”.

Today, in Part 1, I want to take a look at the interesting subject of if buying “green” / hybrid cars is financially equivalent, more expensive, or less expensive than buying a regular gas-powered car.

To perform this analysis, we’ll compare three new cars – a Toyota Prius, a Toyota Corolla, and a Toyota Camry.

How does purchase price compare?

To start off, let’s get an idea of how much each of these cars costs.

After examining the prices at the links below from Toyota.com for the most basic models of all of these cars, we find the results below.

• Toyota Prius II = $22,800
• Toyota Corolla = $15,450
• Toyota Camry = $19,595
• It is also interesting to note that the hybrid version of the Camry is $26,400. Quite a bit more expensive than the regular car!

Prius Hybrid Price and Gas Mileage – Toyota.com
Camry Price and Gas Mileage – Toyota.com
Corolla Price and Gas Mileage – Toyota.com

So, to summarize, it looks like we will have to spend an extra $3,205 to purchase the basic model of the Toyota Prius over the Camry and an extra $7,350 over the Corolla.

How does the gas mileage compare?

To see if this makes economic sense, we need to now know what sort of gas mileage each car gets. Using the references above from Toyota.com, we find the following gas mileage results. For simplicity, I have taken the average of the city and highway gas mileage rated by the manufacturer.

• Prius average city/highway gas mileage = 50 miles per gallon (mpg)
• Camry average city/highway gas mileage = 28 miles per gallon (mpg)
• Corolla average city/highway gas mileage = 31 miles per gallon (mpg)

Do you get any tax benefits or other financial bonuses for owning a green car?

As a matter of thoroughness, I also want to make sure to include any kind of bonuses you get from owning a green car (tax credits, etc).

I was fairly disappointed to find out that the tax credits you are eligible to receive from purchasing a hybrid vehicle are becoming less and less common.

In fact, according to the links below, the Ford Fusion and the Mercury Milan hybrids were the only cars that were eligible for a tax credit in 2010. The Prius has not been eligible for this credit since 2004. Sad…

Alternativefuels.com – Hybrid Vehicle Tax Credits
Hybridcars.com – Federal Incentives for Environmentally Friendly Cars

How long would you have to own the Prius to break even financially?

So, with no tax credits, we will have to rely on gas savings only to see if buying an environmentally responsible car makes economic sense.

To analyze this, we’ll have to first lay out some assumptions to use.

Assumptions

• Car will be driven 1,000 miles per month, or 12,000 miles per year.
• The cost of gas is $2.50 per gallon.
• Prius gas mileage = 50 mpg, Camry gas mileage = 28 mpg, Corolla = 31 mpg.

Results of Analysis


Due to the higher fuel economy with the Prius, given the assumptions above, it equates to a $472 per year cost savings in fuel purchases with the Prius over the Camry and only a $367 per year cost savings over the Corolla.

With this magnitude of cost savings per year, it will take almost 7 years of owning the Toyota Prius to break even financially over the Camry, and a whopping 20 years over the Corolla.


The details of this calculation can be seen in the Google Docs spreadsheet below that I put together.
Google Docs – Does it Make Sense Financially to Purchase a Toyota Prius or Camry?


This is quite an unfortunate find due to the fact that after you have owned a car for 7 years (let alone 20 years), you are most likely getting ready and/or thinking about selling it.

Bottom Line

So, from today’s investigation, I think our findings can be summarized as follows

• 1) “Green” cars are much more expensive than regular cars
• 2) Even though hybrid cars get good gas mileage, it still takes quite a few years to recoup your investment
• 3) Purchasing a “green” car does not make financial sense in 2010 unless you are able to receive a tax credit for doing so.

Are there any other costs to maintain a hybrid car that I missed? Are there any other financial benefits of hybrid cars (tax breaks from government, etc) that I might have missed?


If you performed an economic analysis similar to this when you bought a car, what was your line of thinking? 


Share your thoughts by commenting below!

Part 2 of this series analyzes if it is economically justifiable to use recycled paper and use rechargeable batteries.

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Related articles about green living at several of my favorite personal finance blogs:
Is a Hybrid Worth It? – Omninerd.com