Sunday, January 25, 2009

Cash for Clunkers is Being Weighed in Congress

[Update June 20 2009

If you are considering a trade in,
please use the tools linked here to see the cash value of your gas savings. The gas savings can be more valuable than a Cash for Clunkers voucher.

The final bill is linked to this post. The details below refer to an older bill.]

The Senate is now considering a Cash for Clunkers program, introduced by Dianne Feinstein, Susan Collins, and Charles Schumer. The bill has also been introduced in the House. The program works by subsidizing car owners who trade in a highly inefficient car for a car that is above average in efficiency.


Jason Bordoff of the Brookings Institution recently made the case for a Cash for Clunkers program in a Detroit Free Press Column and a Brookings Institution Paper, as did Dean Baker of CEPR at Truthout. Alan Blinder proposed a Cash for Clunkers program in July 2008 and reviews similar programs that have been implemented in several states.

GPM makes clear why this is a brilliant idea--the gas savings and CO2 reduction of removing a 14 MPG for a 25 MPG car is huge (3 tons of carbon dioxide over 10,000 miles). There is no possible improvement that can be made to a 33 MPG to reduce carbon emissions by that amount. And, of course, it is a way of stimulating car purchases during the current economic crisis.

25 MPG doesn't seem like much. But removing the 14 MPG cars is extremely valuable, and as important today as winning the X prize with a 100 MPG car tomorrow.....

The math:

14 MPG = 700 gallons per 10,000 miles
25 MPG = 400 gallons per 10,000 miles
33 MPG = 300 gallons per 10,000 miles

The 14 MPG to 25 MPG improvement eliminates 300 gallons per 10,000 miles, or 3 tons of carbon dioxide.

The net carbon impact of Cash for Clunkers must also take into account CO2 emissions from car production. Honda emits less than a ton of carbon dioxide to produce each vehicle. Based on Honda's numbers, replacing a 14 MPG car with a new 25 MPG car would be carbon neutral after 4,000 miles of driving, and would represent a net carbon reduction after that. (Update: More on the carbon consequences of new cars at this later post.)

Eric De Place at Sightline Daily endorses the idea.

There are a few moral hazard issues with this proposal that I'll let the economists sort out (i.e., junkers sitting in a yard are fixed up to make a couple of thousand dollars, but the car is worth less than the bounty, and removing it yields no carbon reduction). The proposal addresses this issue by requiring that the car be registered in the previous 120 days.