Green Business: The Case of the Nissan Leaf

Posted by Dan Karney on Oct 4, 2010

Filed Under (Environmental Policy)

Water drips ominously from an icicle…

A glacier menacingly cleaves into the sea…

A lonely polar bear floats on a solitary iceberg…

Soft but eerily urgent music plays in the background…

No, this is not a trailer for the sequel to Al Gore’s “An Inconvenient Truth”, but the beginning of a television commercial for the Nissan Leaf (seen here).  Eventually, the camera focuses on a man and his new Leaf, where the polar bear – whom the viewers follow throughout the advertisement – hugs the man.  The announcer proclaims, “The 100% electric Nissan Leaf.  Innovation for the planet.  Innovation for all.”

Indeed, the Nissan Leaf is scheduled to be the first mass produced all-electric, plug-in vehicle sold in the United States starting in December 2010.  With an MRSP of $32,780, the Leaf is relatively expensive for its size, performance characteristics, and Nissan brand.  Federal tax credits for electric vehicles offset some of the high cost, but buyers will still pay a premium for the Leaf.  In exchange for the purchase price premium, the Leaf offers a reduction in the fuel cost per mile driven.  And, yes, the Leaf does burn “fuel” in the form of electricity purchased from the grid.

Another reason for the Leaf’s price premium comes from its green credentials.  Clearly, Nissan’s “polar bear” advertisement is meant to play-up the car’s greenness.  However, the electricity used to charge the Leaf creates pollution too, so the true green credentials of the Leaf takes some analysis.  Since the commercial implies that the Leaf reduced greenhouse gases, I limit my analysis of “greenness” to carbon dioxide (CO2) emissions.

To begin, I calculate the CO2(kg)/mile of a new conventional passenger car.  According to government agencies, the average new passenger car gets 31 miles/gallon and each gallon of gasoline combusted emits 8.86 CO2(kg).  Doing the division yields 0.295 CO2(kg)/mile.

Next, calculating the CO2(kg)/mile for the Leaf is a bit trickier and requires some assumptions.  First, I assume that coal-fired power plants meet all the MARGINAL demand for electricity due to charging the Leaf.  This is approximately true in all regions of the country during off-peak hours.  Second, I assume a heat rate of 10,500 for coal plants.  Third, I take Nissan’s word that the Leaf has a 100 range from a full 24kwh battery charge.  (Critics point out that the effective range of the Leaf might be quite less under certain weather and driving conditions.)

Using these assumptions, along with the CO2 emission factor of coal combustion, I find that the Leaf gets 0.238 CO2(kg)/mile.  This represents a 20% improvement over a conventional new car.  Thus, the Leaf is not an “emission free” vehicle, but potentially provides modest gains in the rate of CO2 emissions per mile driven.

However, the Leaf may not reduce total CO2 emissions for (at least) two reasons.  First, the cheaper per mile operating cost of the Leaf could lead to more driving, and thus more emissions.  This phenomenon is often referred to as the “rebound effect”.  Second, due to the limited range of the Leaf (only 100 miles), a second car might be purchased to fulfill the transportation needs of some consumers.  That is, the introduction of electric cars could increase the total number of cars, all else equal, and recall that all cars are manufactured from emission intensive inputs like steel, aluminum, and plastics.

In the end, Nissan is a profit-maximizing firm responsible to its shareholders.  Running their “polar bear” commercial to boost sales must be seen by the company as a way to increase profits, regardless if the Leaf is really green or not.

One Response to “Green Business: The Case of the Nissan Leaf”

  • Pat Murphy says:

    It would be useful for you to expand your calculations somewhat. I could not follow your analysis. Don’t understand the “heat rate = 10,500 for coal plants”. There are no units. This is an important concept and such a detailed analysis is vital.