OLD CARS THAT FOUL THE AIR WITH DIRTY exhaust are a valuable commodity in Texas. If you own a clunker at least 10 years old and live near a major city like Houston, the state will give you a voucher worth more than the car’s value. Drive the car to a dealer, sign a few forms, hand over the voucher—worth up to $3,500—and drive off in a newer vehicle, no soot trailing you down the road.
For the clunker, this swap is the last stop before being plundered for parts and scrap metal. But for low- and middle-income consumers, it’s an opportunity to trade up to a newer car they might not otherwise have been able to afford—a cleaner car that is also cheaper to operate because, being much newer, it gets better gas mileage—further benefiting the environment. Texas sent 13,492 jalopies to the scrap heap during the last year in a program financed by auto inspection fees and designed to help the state’s urban areas meet clean air standards. California is trying a scrappage program, too, as are Canada and various European countries.
In Washington, talk has become serious about starting a national program that would use taxpayer money to take clunkers off the road. President Barack Obama first endorsed such a plan in March. Advocates cite several motivations: to lower emissions of carbon dioxide and other harmful pollutants; to save on imported oil; to assist low-income people who are stuck with relics that are expensive to operate in a time of high gasoline prices; and to provide economic stimulus by subsidizing purchases from stricken automakers. In Europe, such plans have been credited with boosting car sales.Speeding to the Scrap Heap
The “cash for clunkers” idea has been promoted by economists and policymakers alike. Alan S. Blinder, an economics professor at Princeton University and a former vice chair of the Board of Governors of the Federal Reserve System, is one vigorous proponent. “If the U.S. is going to take the December Copenhagen summit [for a new global-warming agreement] seriously, and I think we will, we will need to come up with a list of ways to reduce greenhouse gas emissions, and this is a good one,” he says. “A lot of emissions come from cars and an inordinate amount, from clunkers.”
Jason Bordoff, policy director of the Hamilton Project at the Brookings Institution, agrees. “This is a timely idea—simple and straightforward. It’s the low-hanging fruit.” Evidently, some legislators on Capitol Hill agree. In May, the House Committee on Energy and Commerce released a plan for a nationwide trade-in system that combined elements of several competing bills, including one by Senator Dianne Feinstein of California.
Although the car market should move naturally toward more efficient cars as older ones are retired, the turnover typically happens at a turtle’s pace. The federal government has mandated that the average fuel economy for each carmaker’s fleet rise from 27.5 to 35 miles per gallon, but not until 2020. And retiring old polluters can take a long time. Some 240 million cars run on American roads; if history is a guide, only half of them will be retired in 17 years, according to Oak Ridge National Laboratory. If the government offers cash vouchers worth more than the trade-in value of old cars, the thinking goes, then people will be induced to turn those cars in sooner than they would have otherwise to buy something better.
The costs and benefits of such programs vary widely depending on their design—the amount of money offered, for example, and the vintage of the cars eligible for trade-in and for purchase. Bordoff and his Brookings colleague Pascal Noel modeled the effectiveness of the program proposed in the Feinstein bill. It would provide an owner who turns in his or her clunker with a voucher worth $2,500 to $4,500 to purchase either public transit rides or a more fuel-efficient car. Bordoff found that the cost benefits for both the vehicle owner and the government (in reduced pollution, oil consumption and carbon emissions) are most attractive for cars between 10 and 20 years old.
Another analysis by the American Council for an Energy-Efficient Economy (ACEEE), a nonprofit group that promotes energy efficiency, recommends a sliding scale of vouchers up to $4,500 to retire cars that had a rating of less than 18 miles per gallon when they were new. Owners who turned in such cars would receive a voucher good for transit fare or for another car with a fuel economy rating at least 25 percent higher than its vehicle class earned as a whole. Most vehicles eligible for trade-in would be light trucks and SUVs.
Under those parameters, the ACEEE estimates that 575,124 cars would be scrapped and replaced each year, costing taxpayers $1.1 billion annually. But the country would save about 11,480 barrels of gasoline and diesel fuel each day in the first year, rising to 45,920 barrels after four years.Perverse Incentive?
Paying cash for clunkers is not a popular notion in all quarters. An ambitious scrappage program could add billions of dollars annually to the nation’s budget deficit. And the social dynamics are not well proved. Donald H. Stedman, a chemistry professor at the University of Denver, points to what he calls the “perverse incentive” that could make such programs less effective than desired. In his view, vehicles being driven the fewest miles will tend to be traded in disproportionately. A car in such poor shape that it is hardly driven—maybe even one that has been sitting amid the weeds in the backyard—would be a prime candidate, although the public would get little benefit in reduced pollution and oil consumption.
David L. Greene, a fellow in the transportation science and energy division at Oak Ridge, argues that a scrappage program designed to raise fuel economy is not likely to be very cost-effective because average miles per gallon hasn’t risen much in the past two decades.
But a program that focused on pollutants—perhaps determined by the types of pollution-control equipment from which they were made—would be better. Cars from the 1960s, 1970s and even 1980s typically emit many more pollutants than modern cars. “So it can make sense to pay people to take these cars off the road,” Greene says.
How well the Feinstein bill or others might fare is, of course, hard to say. Negotiations over legislation can bog down in details both sensible and capricious, such as whether buyers could use their vouchers solely to purchase cars built in the U.S. Even so, advocates cite not only the savings in emissions and oil consumption but social justice as well. “We have a serious inequality problem in the United States,” Blinder says. “This program gives a lot to the people who need it.”