Environmental Moonbats Need an Economics Lesson

Through Digg.com I found THIS article about a couple in the U.S. who have taken up making BioDiesel.

I have nothing against BioDiesel itself and would love to learn how to make it. I think it’s a great idea, but let’s look at the economics of it.

Any Econ 101 course will teach you the concept of ‘opportunity cost’ , which is basically the next best economic alternative. For example, I can make $4,000 a month in construction in Alberta, but I have to take 8 months off per year to go to school. So, for every year in school, I forego $32,000 in lost income. So my real cost for a year of school is this amount plus my $5,000 tuition.

This is a powerful concept, an I think it’s why people with a B.A. degree in Economics do so well on the Law School Aptitude Test (LSAT). I was doing the practice questions a few months ago and found that many of the harder questions were centered on this concept. Think about it. If you get rear-ended in a car crash and get whiplash, you lawyer has to sue for damages, which are most often in the form of lost income opportunities.

Let’s look at the economics of this guy’s decision.

He paid $840 for a kit from www.greasecar.com that will reconfigure a diesel-powered car’s fuel system so it can burn vegetable oil. Soon Gardner was his own mechanic and, later, his own petroleum transfer technician.

“I spent four very meticulous weekends converting the car,” he says. “I was doing it very, very carefully.”

“I thought David was rather ambitious to do himself,” adds his wife. “I’m just so impressed that he was able to take apart this car and put it back together again.”

And it worked.

Since late last summer, about three times a month, Gardner picks up a 5-gallon bucket full of oil from the Midland cafeteria and takes it home, where he pours it into a cooler in the garage attic (although these days he is using a neighbor’s garage because strong winds blew a tree into the Gardner garage and wrecked the rafters). From the cooler the oil drips through a filter that removes food bits and other debris.

Flipping a switch

After drip-filtering the oil, Gardner pours it into a tank in his car’s trunk that was built into the space that formerly held a spare tire.

When Gardner flips a switch on his dash - after the engine has warmed up the cooking oil through yet another device - the car can run. It works in winter, too, because a warmer prevents the cooking oil from congealing.

Gardner figures the system will pay for itself in about three years. He usually drives about 250 miles a week on the cooking oil and could go farther but hasn’t had the time or inclination to locate another source of oil.

He figures he saves about $15 to $20 a week when compared to a car that runs on unleaded gas.

The main points are:

- paid $840 for a conversion kit.
-Spent 8 days installing it - about 64 hours.
- Three times a month, he picks up the grease he uses. Let’s say it takes him an hour each time, so 3 hours/month or 36 hours/year in labour transporting and pouring grease. This translates into 108 hours over three years.
-He drives 250 miles per week, saving $15-$20 per week, or $60-$80 per month. Let’s average that to $17.50/week, or $70/month in average savings. The total savings over three years is $2520.
-He says that his investment will pay off in 3 years.

We should be able to figure out his implicit wage from this data.

Solution: at $70 in savings per month, he will pay for the fixed cost of the kit itself: $840.

The remainder is $1680 dollars, and he must expend 108 + 64 = 172 hours to do this.

$1680/172 hours is $9.77 per hour. This is how much he is valuing his labour time.

If, after taxes, he makes an amount greater than $9.77 per hour, he would be better off working about 1 hour extra each work day and buying regular gas. If his wage is less than $9.77, then he’s making more money producing his own Biodiesel.

It’s not a perfect analysis, but it shows you how economists think. The only way biodiesel production makes economic sense is if one has a fairly low opportunity cost of time.

He’s probably doing it though, for more subjective reasons, such as: novelty, perceived environmental benefits, nice-smelling exhaust or as a hobby.

Sorta reminds me of bloggers.