Friday, October 19, 2007

Little Green Lies

BusinessWeek Online reminds us about opportunity cost:
The sweet notion that making a company environmentally friendly can be not just cost-effective but profitable is going up in smoke.

....
Back in 2003, FedEx announced that it would soon begin deploying clean-burning hybrid trucks at a rate of 3,000 a year, eventually sparing the atmosphere 250,000 tons of greenhouse gases annually from diesel-engine vehicles. "This program has the potential to replace the company's 30,000 medium-duty trucks over the next 10 years," FedEx announced at the time. The U.S. Environmental Protection Agency awarded the effort a Clean Air Excellence prize in 2004.

Four years later, FedEx has purchased fewer than 100 hybrid trucks, or less than one-third of one percent of its fleet. At $70,000 and up, the hybrids cost at least 75% more than conventional trucks, although fuel savings should pay for the difference over the 10-year lifespan of the vehicles. FedEx, which reported record profits of $2 billion for the fiscal year that ended May 31, decided that breaking even over a decade wasn't the best use of company capital. "We do have a fiduciary responsibility to our shareholders," says environmental director Mitch Jackson. "We can't subsidize the development of this technology for our competitors."

1 comment:

  1. This is a case where government incentives kept fantasies alive well beyond the end of reason. In these class 4 and class 6 trucks especially, hybrid drivelines are very sensitive to variations in drive profiles. Systems that typically perform well (wrt improved fuel economy) on routes with lots of starts and stops do not perform well on routes with lots of highway driving and vice versa. Fed Ex typically operates their vehicles over very different profiles making it very difficult to optimize a system. Fed Ex knew of these technical challenges, yet they chose to ignore them because there were DoE and DoD dollars backing the investment. Only when they were expected to start buying the systems with their own funds did they decide it wasn't cost effective. What's worse is that it didn't really end. They have moved away from hybrid electric and are pursuing the same path with hybrid hydraulic systems. See http://www.calstart.org/programs/htuf for links to the different working groups including a working group to define the incentives needed to keep the work going and get the technology fielded. Oh, by the way, the system designed for Fed Ex would never reach break even. The energy storage system needed to be replaced every 3-5 years which would add significant recurring cost to the system.

    ReplyDelete