Oct 05 2009

A Clunker of a Program?

Posted by: Jonathan Marshall

To Princeton economist Alan Blinder, who was among the first to propose it, "Cash for Clunkers" seemed like a win-win.  "If done successfully," he wrote last year, a program of government payments to scrap older, polluting cars "holds the promise of performing a remarkable public policy trifecta -- stimulating the economy, improving the environment and reducing income inequality all at the same time."

But critics now question whether the "Car Allowance Rebate System," as the government blandly called it, might have been a lose-lose proposition instead.

After a huge surge in August stimulated by government rebates of up to $4,500, car sales by U.S. manufacturers plunged in September after the program expired, according to new sales figures.

"The reports of monthly sales numbers confirmed predictions that some of the spectacular gains of August had merely been achieved by moving up sales that would have happened in September," according to the Washington Post.

Blinder himself--who criticized the program for being much too brief--conceded that the $3 billion spent was "mostly" a waste.

Just as disappointing, consumer surveys suggest that the replacement of older, more polluting cars with cleaner new models may not result in fewer harmful emissions after all.

The new cars purchased under the program average almost 25 miles per gallon, compared to the average 16 mpg of clunkers handed over to the government for scrapping.

Unfortunately, customers say they plan to drive their new cars much farther each year--an average of 10,900 miles versus 6,200 miles annually for their clunkers. The extra miles more than offset the improved fuel economy.

According to one calculation, "The approximately 700,000 total vehicles moved under the program will therefore use an additional 42 million gallons of fuel annually during the first years of ownership."

That's a paradox familiar to students of energy efficiency. Sometimes called the rebound effect--or the 'Khazzoom-Brookes Postulate'--it notes that any technology that saves energy in effect makes energy cheaper, thus encouraging more use that offsets some of the savings. 

That's why many economists say if you really want to reduce vehicle carbon emissions, there's no better way than raising gas taxes. Higher gas taxes encourage people to drive less and switch to more fuel-efficient cars. And in principle, the revenue can be used to soften the blow on the poor by improving public transit or lowering other taxes.

© 2008 Pacific Gas and Electric Company. All Rights Reserved. Privacy Policy | Terms

"PG&E" refers to Pacific Gas and Electric Company, a subsidiary of PG&E Corporation.