"Cash for Clunkers is a double economic stimulus that pays for itself in oil savings so CO2 savings are free"
Given the silly sniping at this small, wildly successful program, I feel obliged to update my last post.
BusinessWeek’s Auto Beat whines, “They say the program was effective in selling cars, but the boost won’t last long enough to really help the car industry for very long.” Ya think? It’s a friggin’ stimulus, and a tiny one at that — $3 billion.
And then we have the academics — UC Davis’s Christopher R. Knittel actually did a study on “The Implied Cost of Carbon Dioxide under the Cash for Clunkers Program,” which got lots of media attention like “Cash for Clunkers Pays Ten Times Market Rate for Greenhouse Gas Reduction.” I could have saved them a lot of trouble had they bothered to read my May post, which noted “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.”
Memo to media: It ain’t “Cash for carbon.”
I was not a big fan of the final version of “Cash for Clunkers” because its mileage improvement requirements were so inadequate, as Senators Dianne Feinstein (D-CA) and Susan Collins (R-ME) explained here.
But in the real world, the public has mostly turned in gas-guzzlers in exchange for fuel-efficient cars “” which perhaps should not have been a total surprise since oil prices are rising, gas guzzlers remain a tough resell in the used car market, and most fuel-efficient cars are much cheaper than SUVs. So 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.
You can read the government’s final report on Cash for Clunkers aka Car Allowance Rebate System (CARS) here. The economic bottom line, “According to a preliminary analysis by the White House Council of Economic Advisers, the CARS program” will:
- Boost economic growth in the third quarter of 2009 by 0.3-0.4 percentage points at an annual rate thanks to increased auto sales in July and August.
- Will sustain the increase in GDP in the fourth quarter because of increased auto production to replace depleted inventories.
- Will create or save 42,000 jobs in the second half of 2009. Those jobs are expected to remain well after the program’s close.
I should note that Detroit sold 39% of new vehicles in the program. Further, as AP reported yesterday, “The Toyota Corolla was the most popular new vehicle purchased under the program. The Honda Civic, Toyota Camry and Ford Focus held the next three top spots. All four are built in the United States.”
I don’t think the CEA factored in the economic benefit of lowering people’s gasoline bill, which puts more money in their pocket to save or spend in their community.
Even Seth Borenstein, the AP science writer I admire greatly, who has a long piece explaining that CARS is a very cost-ineffective way to save CO2, noted that “America will be using nearly 72 million fewer gallons of gasoline a year because of the program, based on the first quarter-million vehicles replaced.”
Well, the basic stats for the second phase, which brings the total cars sold to 700,000 are about the same:
84 percent of consumers traded in trucks and 59 percent purchased passenger cars. The average fuel economy of the vehicles traded in was 15.8 miles per gallon and the average fuel economy of vehicles purchased is 24.9 mpg. – a 58 percent improvement.
Yes, it costs energy to manufacture new cars, but most of that is in the steel and other metal in the car, so you get a lot of that energy back when you scrap it.
Yes, people drive newer cars further, but vehicle miles traveled declined 3.6% in 2008 compared to 2007, in large part because of gasoline prices, though Brookings believes more fundamental trends are at play. I expect gasoline prices to rise relatively steadily over the next decade, to more than $5 a gallon, so exactly how VMT play out is far from clear.
Let’s assume the new cars are driven nearly 20% more over the next 5 years, and that the average price of gasoline over the next five years is $3.50. Then we’re “only” saving 140 million gallons a year or roughly $500 million a year. The $3 billion program “pays for itself” in oil savings in 6 years. And most of that oil savings is money that would have left the country, so it is a (small) secondary stimulus.
Using a rough estimate of 25 pounds of CO2 per gallon of gas (full lifecycle emissions), then we’re saving over 1.5 million metric tons of CO2 per year — and all of the ancillary urban air pollutants from those clunkers — for free.
The bottom line is that the program seems to be a shot in the arm for the auto industry and economy, while achieving better energy and environmental gains than expected. Let the sniping begin!