Fuel expenses, diesel exhaust health externalities, and climate change are concerns that encourage the use of electric vehicles. Vehicle-to-grid (V2G) policies provide additional economic incentives. This analysis evaluates the costs and benefits associated with the use of electric vehicles and determines the cost effectiveness of using a V2G-capable electric school bus compared to a traditional diesel school bus. Several factors were analyzed, including fuel expense, electricity and battery costs, health externalities, and frequency regulation market price. The V2G-capable electric bus provides the school savings of $6070 per seat in net present value and becomes a net present benefit after five years of operation. Without externalities, the net present benefit would be $5700 per seat. If the entire school district's fleet switched to V2G-capable electric buses, the net present savings would be upwards of $38 million. A sensitivity analysis was conducted to determine how the factors influenced the costs and benefits. In all cases, purchasing an electric school bus is consistently a net present benefit. Policies could be set into place to incentivize public school adoption of electric buses, encourage more efficient batteries, and develop V2G capabilities. (C) 2014 Elsevier Ltd. All rights reserved.