How a "cash for clunkers" program can help the auto industry and the environment
While a “cash for clunkers” program can stimulate sales and deliver some energy and environmental benefits, it will only do so if carefully structured. Otherwise, it risks being another expensive subsidy for automakers with no clear benefit to the taxpayers who would have to fund it. Focusing on the most fuel efficient segment of the market, can significantly reduce the cost of the bill and increase the fuel saving benefits.
The following is a list of guidelines to help ensure a successful program:
- The vehicles being purchased must deliver better than average energy and environmental performance.
Government funding for vehicles of average performance levels will not help to cut oil use or carbon emissions. In order to be eligible, a vehicle should be in at least the top 25 percent of its class on carbon emissions or fuel economy. This has the added benefit of reducing gasoline bills for the vehicle purchaser. At the same time, the accelerated retirement program should be designed to reduce smog and toxic emissions by requiring that any vehicle purchased must be as clean, or cleaner, than the Tier 2 bin 5 tailpipe emission standard (or an equivalent California standard).
- Junked vehicles must have lower than average fuel economy and must be older than the typical vehicle.
In the United States fuel economy standards have not significantly increased over the past twenty years so a new vehicle is not necessarily more efficient. In order to be eligible, a vehicle being junked should get at least 25% worse fuel economy than today’s average vehicle, or about 18 mpg on CAFE tests. Making a new vehicle takes energy and creates pollution, so junking a relatively new vehicle and replacing it with a brand new one could cancel out much of the energy and environmental benefits of the program. A vehicle being junked must be at least 8 years old, roughly the median age of vehicles on the road today
- The “clunker” must be recycled, with all hazardous material properly removed. Increased sales of new vehicles will only be realized if the vehicle, engine and other major parts cannot be resold. Resale, even of major parts, will extend vehicle life, blunting the desired increase in sales. The environmental benefits of the program would also be lost.
- People who junk their vehicles should be given the option of using the “cash for clunkers” incentive for purchase of transit fares and bicycling equipment. Even greater oil savings and environmental benefits can be achieved by encouraging drivers to get of their cars, and take more trips under their own power, or on public transportation.
- If limited federal funds are available, place a priority on replacement of clunkers with new vehicles over used vehicles. The sales and environmental impacts of allowing used vehicles to qualify as the purchased vehicle are complicated and uncertain, so priority should be given to the purchase of new vehicles (either directly or through transferable vouchers) unless analysis indicates otherwise.
Although “Cash for Clunkers” has had some apparent success in other countries and at the state level, differences in the markets may make realizing climate and oil savings benefits in the US more challenging. An important part of the apparent energy and environmental success of European programs is that a new vehicle sold in the EU today is significantly more efficient and has lower carbon emissions than one sold ten years ago due to voluntarily enforced vehicle greenhouse gas standards.
Setting strong fuel economy and greenhouse gas standards will save far more oil and money and will reduce more greenhouse gas emissions than even the most expansive and aggressive scrappage program. Further, a simple consumer incentives program focused at highly fuel efficient vehicles might offer at least similar levels of benefits with fewer administrative burdens, and less potential for corruption. As Congress and the President move forward with legislation to encourage the purchase of fuel efficient automobiles, we encourage them to look at multiple avenues for improving the performance of the fleet while stimulating sales.
