Economists: Scrappage Programs Are Clunkers for Environment

They don’t call economics the dismal science for nothing. Despite the apparent early success of Cash For Clunkers in stimulating auto sales, academic papers studying the effects of government auto incentives on carbon emissions have cast doubt on the program.

Clunker Ready to Scrap

A just-released study fromr the University of California’s Center for the Study of Energy Markets finds that Cash for Clunkers likely spends between $237 and $365 for each ton of carbon it keeps out of the atmosphere. That makes CARS at least 10 times less efficient than buying carbon credits or other carbon-reducing measures. The authors of the study gave Cash for Clunkers the benefit of the doubt in terms of the average amount of time each clunker would have stayed on the road if it weren’t replaced, though it is widely believed that many consumers would have likely bought a new car in the near future regardless of the rebate.

“Subsidizing high-mileage cars to reduce carbon emissions is a bit like subsidizing low-calorie foods or low-tar cigarettes in order to reduce obesity or lung cancer. If the amount of cookie consumption was constant, then a lower-calorie cookie would lead to thinner waistlines. ”

Harvard Economist Edward Glaeser

A Canadian study released earlier this month also questions environmental benefits of green car incentives. The University of British Columbia studied a $1,000 provincial sales tax rebate awarded to Canadian drivers who purchase a hybrid. They found that most participants in the program were likely to purchase fuel-efficient vehicles—hybrid or gas-only—regardless of the incentive. While the program is credited with a 31 to 38 percent increase in hybrid market share in Canada, researchers found the cost per carbon ton to be $195 Canadian—or $178 in US dollars.

Harvard economist Edward Glaeser, in a op-ed piece in the Boston Globe, rehashes the argument that replacing gas-guzzlers with fuel-efficient vehicles has little effect on emissions regardless of the cost. Glaeser believes that as fuel efficiency improves, drivers increase use of their cars at the expense of car pools and public transportation. To Glaeser and other advocates of higher gas taxes, the only way to cut emissions is to make driving expensive enough that people avoid it whenever possible.

If the Price is Right

Regardless of the immediate environmental benefits of the CARS program, the program demonstrated that there’s a genuine yearning on the part of the public for more fuel-efficient cars. At a time when gas prices remain relatively low, consumers chose cars that go well above the minimum fuel economy required to qualify for the program.

Under the program, consumers must trade in a car getting 18 mpg or less EPA combined city/highway rating—or SUVs and light trucks that number is 16 mpg. For a mileage improvement of 4 mpg, consumers can receive a voucher from the dealership for $3,500 towards a new car. An improvement of 10 mpg qualifies for a $4,500 voucher. And yet, the Toyota Prius, with a combined average fuel efficiency rating of 50 mpg, was the fourth most popular car purchased under the CARS program.

Perhaps former President Bill Clinton had the right idea when he recently suggested a scrappage program specifically tailored to stimulate the sale of electric vehicles, which will be hitting the market soon. Such a program would help make expensive electric cars accessible to mainstream buyers, and it would also be a boost to General Motors, one of the American car companies Cash for Clunkers was designed help. GM’s Chevy Volt has been trumpeted as the car that could bring the company back to relevancy. Clinton’s suggestion—made in passing at last week’s National Clean Energy Summit in Las Vegas—could take $4,500 off the car’s sticker price for trading in a Clunker for a Volt—in addition to the $7,500 tax credit already offered as an alternative vehicle.

According to Clinton, what holds true for the current Cash for Clunkers program would also work for introducing zero or near-zero emission vehicles. “Americans will bite if you make it economical enough,” said Clinton.

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  • Charles

    While I agree with Professor Glaeser that a higher fuel tax is the best way to reduce use and therefore CO2, I disagree that because people buy a higher MPG vehicle that the new vehicle is driven more, losing the CO2 reduction.

    My personal example: Over the last ten years I have owned a 1999 VW Passat Wagon (1.8L Turbo, manual) and a 2004 Ford Focus Wagon (2.3L, manual). Over the same time period, my girlfriend has owned a 1998 Honda Accord (2.3L, manual) and a 2006 Toyota Prius. My wagons got better MPG (EPA says tied for the VW and a little better for the Ford, but in real world the VW was 2-3 MPG better and the Ford 4-6) than her Honda. The Prius does much better than all the others. So we drove my cars on most short trips and on all long trips while she owned the Honda. Now that she has the Prius, she drives on most short trips and all long trips that do not require the extra cargo space of the Focus Wagon. Our combined amount of driving has not changed. The amount of driving she does has gone up noticeably. So the Prius is saving more CO2 than the difference between the MPG of her Honda and Prius would indicate. It is also saving CO2 because it has replaced miles that would have been driven in my Focus. I suspect that is true for a lot of couples that have a Prius or other high MPG hybrid.

    For me to change my personal driving habits, fuel would have to become a much, much higher percentage of my income. I walk to the mall, drug store, and grocery (when not too hot). I drive to work (no showers, else I would bike when not hauling computers and video equipment). I pick my cars based on cargo space (work and play equipment), Consumer Reports, MPG and other pollution equipment. I also look at my girlfriend’s car and pick a vehicle that can fill in the holes for what her car cannot do.

    I guess I could be the odd person that would drive the same regardless my vehicle’s MPG rating, but I doubt it. I still think Professor Glaeser’s suggestions for fuel tax and mass transit subsidizes should be carried out, but not because people drive Priuses more than their old cars.

  • greenearthautoservice

    There are several facets to the cash for clunkers program that seem to be frequently ignored. Yes, the amount of offset carbon by tonnage is slim. But what about the other stuff that is coming out of the tailpipe of these older cars that ruin the air quality and kill the ozone layer? A lot of the older cars output a much higher amount of NOX, particulate matter, carbon monoxide, etc that the new cars do not. They are much gentler on the ozone, generate much less heat, and do burn cleaner. A lot of the older cars on the list came with a catalyst that only addressed 2 of the bad things cars put out whereas all of the new cars are running a 3 way catalyst. And lets not forget how the level of efficiency of these older catalysts was probably marginal at best.

  • Samie

    Let’s not say all economists would follow the University of California’s Center for the Study of Energy Markets study. There are other variables that could be factored in. Economics is a social science so the study could have easily looked at microeconomic conditions such as willingness to pay for a hybrid or even consumers uncertainty about future oil prices. Permanently changing consumer preferences away from a fallacy of needing giant SUV’s or monster trucks as part of being “American” needs to change & I argue long-term transportation changes need not have great divides in consumer demands or preferences or we will be stuck w/ all the old habits that are hard to break.

    I do not know why anybody does not point this out but the longer the Cash for Clunkers Program continues less fuel efficiency will happen. In the State I live in Ford runs a oxymoron type of ad in it the spokesman talks about trading in your clunker or gas guzzler then it breaks to buying a brand new F150 pickup though the one shown has all the bells & whistles on it. So the longer this program continues auto manufactures will revert back to selling the most profitable vehicles, SUV’s & Trucks including ramping up production of these vehicles that got them in trouble before the down-turn.

  • DC

    The one thing that needs to be kepi in mind is, the CFC program real purpose, as opposed to its PR reason, was never really meant to benifit ‘The enviorment’ in any meaningful way. Its real purpose is to benefit the american ecomony. Any other concerns are secondary, unless they can be exploited for PR points, then those points will be empahsized over all others. While there is nothing wrong with a government attemping to boost or assist industry in hard times per se, cash for clunkers as a concept, is one that essentially works at cross-purposes with itselt. Puting more gas powered cars on the roads, can never benifit the enviroment, it can only make an allready untenable enviromental situation perhaps mariginally less so, and the cost?, putting more air-conditioned mobile trash bins onto an allready overcrowded and wasteful road system. In short, any cash for clunkers that promotes replaceing ICE’s with other ICE’s, even if more ‘effiicent’, is pointless. Pointless if you beleive CFC is a envorimental program(its not), it works well if your wish is to maintain the car culture-status quo.

    A CFC program that ONLY awarded incentives to people that replaced there ICE’s with ZEV’s(of whatever type), would be the only program that could truly claim to be benifiting both the economy and the envoriment equally.

  • NoYouCan’t

    Thanks to Nobama you are not only forced to pay for GM and Chrysler’s failed businesses but you now have to spend your tax dollars on this ludicrous and ineffective CFC debacle.
    Effect on the ‘environment’: Pitifully small.
    Effect on the economy: Short term blip that further buys off the failed car companies.

    Nobama – I want my money back.

    I find it an irony that you (if you’re American, I mean you) would applaud the government for the CFC program when it was you who bought the clunkers in the first place.

  • David

    You know, many of these ‘clunkers’ *were* smart choices way back when. In the past 20 years I’ve owned a few cars that would have qualified if I still had them. My Intrepid was more efficient than the minivan I had which, in turn, was more efficient than the Lincoln Town Car I’d inherited when my mother died. Now I’m driving a still-more-efficient Camry (now that 1 kid has graduate college and the other is in her last year of high school I don’t need the ‘family truckster’ abilities quite so much)

  • steved28

    NoYouCan’t, we have spent about 674 billion in Iraq to date. And you want your 1 billion back for a program which at least puts some money into our own economy? Where are the the complaints about where our money is really going?

  • EVO

    Charles said “I disagree that because people buy a higher MPG vehicle that the new vehicle is driven more, losing the CO2 reduction.”

    This is known as the Jevons Effect and is usually counteracted and dominated by the opposite pure efficiency gain effect.
    “in the context of a mature market such as for oil, the direct rebound effect is usually small, and so increased fuel efficiency usually reduces resource use.”

    Put simply, if people buy a much higher MPG vehicle but the new vehicle is driven only a little more (real world example in studies – Prius) only a small portion of the total possible CO2 reduction from efficiency gains is lost to the Jevons Effect. Net CO2 reduction still occurs and at close to the iamount without the Jevons rebound effect.

    Welcome to the world of countervailing forces. High efficiency gains dominate the gain reducing Jevon’s effect, which is why we still have any coal, which is what Jevons was studying, left on the planet.

  • Anonymous

    “For a mileage improvement of 4 mpg, consumers can receive a voucher from the dealership for $3,500 towards a new car. An improvement of 10 mpg qualifies for a $4,500”

    To little.
    Improvement of 4 mpg way to little. ghange it to 8 mpg & if your new car gets 15 mpg improvement you should get $5,500. & if your new car gets 20 mpg improvement you should get $7,500.

  • Todd1964

    I am with Steved28. We spend SOOOO much of our tax payer funds on other countries, that a measly 3 billion on our own people gets some people all worked up. However, I wished that they would have dedicated every penny given to the auto companies to cash for vehicles. Allowing EVERY American the chance to trade to a more efficient, less polluting vehicle. This would have had nearly the same result as it would have given billions and billions to tax payers to purchase vehicles, instead of corporations.

    My only hesitation with this or any program right now… the government is borrowing the money. What they take in, is what they should be allowed to spend; not one penny more!!

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