Cash for Clunkers is a double economic stimulus that pays for itself quickly in oil savings while generating CO2 reductions for free

Seth Borenstein, the AP science writer I admire greatly, has a long piece explaining that Cash for Clunkers is a very cost-ineffective way to save CO2.  Duh*.

As a means of reducing greenhouse gas emissions, this “cash for clunkers” deal is probably among the least cost-effective uses of federal dollars one could imagine,” as I wrote back in May.

*BUT as a stimulus that saves oil while cutting CO2 for free — it has turned out to be a slam dunk, far better than I had expected.  Indeed, Borenstein points out that “America will be using nearly 72 million fewer gallons of gasoline a year because of the program.”  At $3 a gallon — hardly what the price is likely to average over the next decade — that is $216 million a year in gasoline savings.

So the billion dollar program pays the taxpayers back in oil savings in 5 years.  That means the CO2 savings are for free!

So quoting a cost of more CO2 saved at more than $100 a ton misses the point, I think.  The primary purpose of the program was NOT CO2 savings.  It certainly wasn’t the primary reason the Center for American Progress put a (tougher) version of the idea forward back in November (see here).  We saw it as an economic boost with efficiency and environmental gains (not just CO2 but urban air pollution).

And it isn’t how Obama described the program last week when he thanked the House for passing a $2 billion increase in funding:

The program has proven to be a successful part of our economic recovery and will help lessen our dangerous dependence on foreign oil, while reducing greenhouse gas emissions and improving the quality of the air we breathe.

The program has multiple benefits — and obviously we wouldn’t even be doing it were we not in a major economic downturn that has crushed the auto industry.

And it’s hard to argue the program’s stimulus benefits:

“The ‘cash-for-clunkers’ program for auto sales has been a dramatic success,” wrote Credit Suisse analysts on Friday. “This could drive auto sales and production sharply higher in the coming months,” wrote the analysts.

And there is a second stimulus from the program.

The majority of the $200+ million a year in gasoline savings would have left the country, since we import nearly 2/3 of our oil (and probably a higher fraction of marginal increases in oil use).  Now that money stays in the pockets of consumers, who will save some of it and spend the rest of it, circulating most of the money in this country rather than overseas.

As a CO2-saver only, sure, Cash for Clunkers wouldn’t be a wise investment.

And I understand the media’s need to criticize everything, even the most successful-seeming government program.  My father — a newspaper editor for 30 years — had a wall hanging (crocheted by my mother) over his desk that said, “Nothing can stand the light of day.”

Still, some ideas turn out better than anyone expected and deserve praise.  This program stimulates the economy in two ways and helps a key industry in trouble while delivering multiple energy and environmental benefits that save the taxpayers more than the program cost.  What more can you ask?

20 Responses to Cash for Clunkers is a double economic stimulus that pays for itself quickly in oil savings while generating CO2 reductions for free

  1. B Buckner says:

    We are destroying operating vehicles and replacing them with new vehicles. What about the CO2 emitted during the manufacturing of these new vehicles?

    [JR: Net — under 10% of life-cycle, I’d say, especially since oil consumption is getting more carbon intense. See more details below.]

  2. Dan K. says:

    Or these vehicles could be used (if found to be in functioning order and structurally sound) as a testing ground for plug-in conversions.

  3. Steve Bloom says:

    What does seem to be a clear negative from an emissions reduction standpoint is the account the money came out of, unless the funds get replaced.

    [JR: Pelosi said the money will be returned.]

  4. N DeWind says:

    I have to agree with Buckner. Joe, you have written so eloquently on the global resource and pollution Ponzi scheme. But this post fails to address the bottom line. We need to assess the full life cycle emissions generated by a newly constructed car. We can’t be wooed into thinking that propping up the auto industry is an end in itself.

    [JR: This program is permanently trashing tens of thousands and ultimately perhaps hundreds of thousands of gas guzzling SUVs and light trucks — before the end of their lifetime. They aren’t being shipped off to some third world country, but the vast majority of their parts will be recycled. And remember, many cars in this country don’t get recycled at end of life.

    A full lifecycle analysis is always welcome — and you can find a bunch here. They typically find that the embedded manufacturing energy is 10% to 15% over the lifetime of a car — and many of them are several years old and based on 1990s data. Cars today are higher quality and typically lasts longer. Also, if you factor in the huge energy savings from using recycled steel and other parts, I’d say the net embedded manufacturing energy is under 10%.

    I don’t think we’re going to get people out of cars until oil prices are much, much higher. Until then, I’m glad to see so many gas guzzlers go.]

  5. pete best says:

    ITs 20% of total fuel used over a lifetime to make a car.

    [JR: That strikes me as high — and one must subtract out the highly recycled energy intensive components that this program specifically captures.]

  6. Bill Woods says:

    A program that was supposed to run for several months ran out of money in a week. This doesn’t say much for the government’s ability to predict the costs of its programs.

    [JR: Yes, you libertarian types are so damn funny. A government program that is oversubscribed — that is beating all expectations — is a failure. You kill me. Well, not me personally but the whole planet.]

  7. Leif says:

    You folks want to nit pic, how about the benifits to the people who receive the up grade. Being able to get to work on time in a safer car. Perhaps getting a better job. Less accident injuries and related costs to society,
    ( huge !). cleaner air and related medical costs. The list goes on…

  8. Niels Madsen says:

    If the energy to produce the car is supplied by renewable sources and the transport is relatively clean as well then it is indeed a huge amount of savings, so we should focus on getting cheap renewable energy to the car companies. This would also serve as a way to make them more competitive in the new energy age, fulfilling more than a few political talking points for a democratic president.

  9. Dean says:

    I suppose even a minimal environmental benefit from a stimulus bill is a good thing since so many of the stimulus projects will enhance climate change. But I have a hard time getting over the minimal mileage improvement requirement – 2 MPG – for trucks and SUVs.

    I heard on a radio report that people turning in large gas guzzlers generally want the same kind of car – as close as they can get – and so usually get near to the least mileage vehicle that they can under the program. So clunker SUV-to-Prius examples are rare. They said that the typical carbon payback time for the mfr of the replacement car is 5 years, though in the case of a Prius might only be 18 months.

    Given how popular this program is, they could have had a larger mileage improvement requirement and still gotten good stimulus from the program.

    [JR: True in theory, not in practice. The average mpg gain under the program has been 9.6 mpg — a 62% gain. That’s why I have switched from not being particularly excited by it to endorsing it.]

  10. Col says:

    Joe, what do you make of this?

    Glenn Beck: Cash For Clunkers is a government scam to gain access to your computer

    [JR: Consider the source. It has been debunked elsewhere.]

  11. “So the billion dollar program pays the taxpayers back in oil savings in 5 years. That means the CO2 savings are for free!”

    It uses money from all the taxpayers, and it only pays back the small number of taxpayers who buy new cars. It doesn’t pay back anything to low-income taxpayers who can only afford to buy used cars, and it doesn’t pay back anything to people like me who don’t own cars.

    [JR: Yes, and couples without children don’t benefit from supporting education, and old people gain nothing from climate action, and people with health insurance gain nothing from paying to give it to those who don’t…. You sound like a libertarian, now.]

  12. Nic says:

    Does anyone know if these stated co2 reductions from the c4c program assume the new car purchased is replacing the clunker’s mileage at a 1 to 1 ratio? I have a feeling many people are digging out the clunker from the garage which was not being driven and using it to buy a second or third car which now becomes the primary vehicle.

    [JR: No, the vehicle needed to have been insured the previous year, I believe (and the cars can’t be too old). It was designed to not get real clunkers but merely middle-aged guzzlers.]

  13. Joe, my point is that we are subsidizing those who do a little bit to help but not subsidizing those who do much more to help. The basic reasoning of cash for clunkers is (to use round numbers):

    The average American emits 5 tons of CO2 per year by driving.
    If you buy a more efficient car that emits 4 tons of CO2 per year by driving, we will give you thousands of dollars.
    If you live in a neighborhood where you can bicycle or walk, you don’t own a car, and you emit zero tons per year by driving, we will give you nothing.

    (PS: For the libertarian position on these issues, try reading Randal O’Toole of the Cato Institute. You will see that he is all for the automobile, and he is against walkable neighborhoods. That is the position of virtually all libertarians: the market for everything else, but socialism for the automobile with free road use, parking, etc.)

  14. Erik Schimek says:

    Isn’t this what the government is supposed to do … increase funding for effective popular programs, and decrease funding for ineffective unpopular programs? (like hydrogen storage research)

    This was 1/789th of a comprehensive package, they’re talking about increasing it to 3/789th. That doesn’t seem out of line.

  15. Dean says:

    If the average mileage improvement is 9.6 mpg, that is great. And it is not what the NPR report said. They didn’t offer a number, just said that it is not much above the minimum. Is there a public place where we can access and follow this information?

    [JR: This comes from DOT, Lahood — just try googling.]

  16. Leland Palmer says:

    9.6 mpg is a big jump, but maybe they should have a sliding scale, so that the higher the mpg of the new vehicle, the bigger the check.

    But it seems like a success. Good for the Obama administration.

    All of this stuff is too little, perhaps to late. But this certainly is progress, I think.

  17. lizardo says:

    Re comment “A program that was supposed to run for several months ran out of money in a week. This doesn’t say much for the government’s ability to predict the costs of its programs.”

    Au contraire: It simply turned out that many more people who were not buying new cars for the last 18 months were basically not broke, but afraid for their job and finances, but are more hopeful now AND realize that it’s a good deal for them in both ways, not just the rebate but the gas expenditures down the road.

    If noone knew how willing people would be to give up their guzzlers, so what? What’s incredible is that the actual mileage increase people are getting is closer to 9 mpg better compared to the narrow limits in the program. Plus the number one model is the Ford Focus, actually beating out civics and camrys and such.

    I am desperate on the global warming front, while also really worried about the consequences of mass unemployment, so I think this program is a lot better use of my tax money than say the F-22 jet fighter or a whole long list of things that cost a lot more.

    I happened to be in town today and so I cruised by my local Ford dealership who service my old Ford Ranger and my Honda civic. I went into the showroom and had a chat with a salesman and was glad I did as we both learned something. I was able to explain to him (since I read the newspaper) that it looked as if the GOP Senators blocking the next $2 billion were hearing back and it looked likely the program was going to go for another $2 billion up til Labor Day (or whichever comes first).

    I also explained that I thought that the problem had been that the system to accept all the complicated paperwork wasn’t set up to handle the astonishing traffic of the first few days and that it appeared that the first billion may not have been used up.

    What he told me was that it was hard to get commitments (or cars) for the demand for Ford Fusions and Focuses, and that the big boys (Dealership Association or some such) was telling them at this point they are giving the credit “at their own risk.” Yikes.

    He told me about some folks who qualified for the program on mileage improvement, if trading an old F-150 truck (with a V-8 engine and over 200 miles) for a new Explorer (which has a V-6) but the Explorer was $40,000 and out of reach, so in the end they worked out a good deal for them on a used Explorer and regular trade in.

    So in this case there’s a safer vehicle using less gas, and no taxpayer funds used. And dollars circulating in the economy. Okay you ask, but what happens to the old F-150??? Not taken off the road officially. No, but given age and mileage I would think it’s days are seriously numnbered and would most likely to be sold to someone who isn’t likely to keep on the road for long, only until they can trade up. And more likely than that, scrapped shortly for parts, if it has any.

    I actually think this particular salesman was of the sort who usually buys into the government is bad and doesn’t work sort of mindset and was struggling with the notion that government has actually come up with someone that benefits him…. (Oh, see Glen Beck comment!)

    I do agree that it would be nice to create a stimulus whereby everyone (who needs to drive) gets to trade up into more mileage-efficient and safer cars (safer for them and other drivers).

    I still wish it were more tradable like carbon allowances, because it’s missing so many clunkers by only applying to new cars, though it’s clear what the dual purpose of the program is.

  18. lizardo says:

    Oops, that old F-150 truck had over 200K miles not over 200.

    And p.s. re “safer”, in addition to airbags if trading up, a pickup is not designed to be aerodynamically very roadworthy when empty so it’s safer to encourage folks not to use them for commuting to work and such.

  19. Bob Wallace says:

    Leland, the program is not exactly sliding scale, but it does have two levels of reimbursement based on the MPG improvement of your new vehicle.

    Trading an 18 MPG or less passenger car for a car that gets 4-9 MPG more will get one $3,500. If the new car is a 10 MPG or more improvement the rebate will be $4,500.

    The mileage spread various for different type of vehicles, but it’s got to make people take a minute or two to consider a higher mileage model in order to earn the extra thou.

  20. Honestjohn says:

    Why doesn’t everyone understand that, for too many reasons to even list, this program is a hugh, gigantic, major league winner for everyone. To list just a few of the important benefits: it sells 700,000 new cars that were sittuing on auto dealers lots, with an average price tag of $25,000 per car, thats $17.5 billion in new car sales, That returns an average of 5% state sales tax, which is $875 million in new state taxes. We’re just getting started. It also adds through city and county taxes, and the sales people get an average of a 5% commission, which is $875 million more for them to pay taxes to the state and federal govt,and spend in the local economy. The dealer makes an average profit of 10% on the sale, which is $175 million, upon which they pay 30% to the federal govt, which is $525 million returned to Uncle Sam just on this tax. Then you get more car companies hiring their workers back to build more cars, and their added income contributes to the local and state economy, and on and on. Advertising, shipping of the cars, and many other add ons kick in. Plus, 700,000 people have new, much safer fuel efficent cars which cut down on gas use of $700 million of fuel per year (see above), which in itself pays for the program in five years. And it will help jump start the economy and create confidence by consumers-with a big success during a tough time. By the time you include all the various taxes and direct savings, this program will probably pay for itself many times over in just five years, And did I mention, it will also make the air we all breathe a lot cleaner and help with global warming? Anybody that says this isn’t a great program just doesn’t want to know the true facts. This is one government program that really delivers. The facts can’t be denied.