A look into the pyschology of ROI...

Here is a neat (OK somewhat disheartening) story in Joseph Romm's blog (I think it is a blog) over at theenergycollective.com.

It is a long article so stick with it and get to the more thoughtful ROI (Return On Investment) aspects. Like this bit

Lots of equipment is changed at end of life, regardless of energy efficiency. What often happens is that an engineer will say: “Inefficient boiler X will pay for itself in 10 years in savings over the existing model. More efficient boiler Y will pay for itself in 15 years. We’ll take the less efficient cheaper model.” But ROI calculations on these projects should only consider the delta between the cost to replace equipment (which would be spent anyway) and cost to replace with more efficient equipment.

 Makes sense. This is how I justified my change in heating system from a replacement to a re-engineering. The base expense is just going to happen so that is the zero point. Every candidate gets credit for doing the job for that least price. The alternatives then have to have additional benefits that merit the premium over the base. ROI is nice but this is not an investment so much as a prepaid expense. This is expense I cannot easily avoid (my sweater and coffee/soup expenses could not fix the heating problem) so I should not use investment notions, exclusively, to evaluate it.

We had a similar issue with picking a car. (this one does not play out well, sorry to say.) We wanted a new car (to boost reliability as this was a high value for us right then) and sized up 3 year old cars of the base models and found the "roll off the lot penalty" seems to have vanished for base models of the low end Civic Corolla type car. Part of it is that the quality of cars has gone way way up. The rest must be some intersection of lower markups and a better sense among buyers of the value of hanging on to their car. Anyhow, for each car we took the base model expense, then around $15K and our relatively modest annual miles driving and three cost scenarios for gasoline 3,4 and 5 dollars per gallon. PLUS the "get a new battery" penalty on the hybrids at 5 years or whatever it was. That was the killer. The mileage improvement was real but the cost of getting it was also real and we thought that the best comparison was the delta. If we doubled our miles driven in a year then we had an argument for a Hybrid. Instead we figured we could go with the still efficient (in this case Civic) and just try to clip off a day a week with telecommuting and or carpooling. About the same carbon footprint. For far less.

Super read I thought.