Hybrid Watchdog:  Will "Cash for Clunkers" Give Green Purchase Power?

Recently, there’s been a lot of buzz about finding ways to help the struggling automobile industy.  In addition to straight money to the automakers, a popular concept is to empower—and entice—consumers to buy cars, but in a way that isn’t going to simply lead to government subsidies of gas guzzlers.  UCS supports efforts to help the domestic manufacturers emerge from the current crisis as leaders of the industry.  We firmly believe we can best achieve this goal through policies that also reduce global warming pollution and our dependence on oil.

One concept gaining steam on Capitol Hill is a program called “cash for clunkers.”  The idea is that the government would pay owners of older, gas guzzling vehicles to replace them with newer, more efficient vehicles.  Programs based on this concept are being used to increase automotive sales in other countries, and there are currently several bills in Congress promoting the concept. 

While a “cash for clunkers” program may stimulate sales and possibly deliver some energy and environmental benefits, it will only do so if carefully structured. Otherwise, it risks being another expensive subsidy for automakers with no clear benefit to the taxpayers who would have to fund it.  In order to be successful, the incentives should focus on the most fuel efficient segment of the market.  This will both significantly reduce the cost of the program and increase the fuel saving benefits.  Here are some of the key guidelines to shape a successful consumer incentive program:

1. The vehicles being purchased must deliver better than average energy and environmental performance. 
   
   * In order to be eligible, a vehicle should be in at least the top 25 percent of its class on carbon emissions or fuel economy.  In the current economy, even the top-of-the line fuel efficient vehicles—including fuel-efficient hybrids—are sitting on the lot.  There is no reason to provide taxpayer funds for purchase of vehicles that do not help maximize the environmental and oil security benefit of the program.
   
   * Any vehicle purchased must be as clean, or cleaner, than the Tier 2 bin 5 tailpipe emission standard.  While global warming pollution and fuel economy matter, we do not need to increase smog-forming pollution in order to minimize carbon emissions. Numerous models produced today emit low levels of carbon emissions and low levels of smog-forming pollutants. Policies should be designed to encourage the purchase of those vehicles. 
   
   
2. Junked vehicles must have lower than average fuel economy and must be older than the typical vehicle.
   
   * A vehicle being junked should get at least 25% worse fuel economy than today’s average vehicle, or about 18 mpg on Corporate Average Fuel Economy (CAFE) tests.  In the United States, fuel economy standards have not significantly increased over the past twenty years so a new vehicle is not necessarily more efficient.
   
   * A vehicle being junked must be at least 8 years old, roughly the median age of vehicles on the road today. Making a new vehicle takes energy and creates pollution, so junking a relatively new vehicle and replacing it with a brand new one could cancel out much of the energy and environmental benefits of the program.
   
   
3. The “clunker” must be recycled, with all hazardous material properly removed.
   
   Increased sales of new vehicles will only be realized if the vehicle, engine, and other major parts cannot be resold. Resale, even of major parts, will extend vehicle life, blunting the desired increase in sales. The environmental benefits of the program would also be lost.
   
   
4. People who junk their vehicles should be given the option of using the “cash for clunkers” incentive for purchase of transit fares and bicycling equipment.
   
   Even greater oil savings and environmental benefits can be achieved by encouraging drivers to get rid of their cars, and take more trips under their own power, or on public transportation.
   
   
5. If limited federal funds are available, place a priority on replacement of clunkers with new vehicles over used vehicles.
   
   The sales and environmental impacts of allowing used vehicles to qualify as the purchased vehicle are complicated and uncertain, so priority should be given to the purchase of new vehicles (either directly or through transferable vouchers) unless analysis indicates otherwise.

Although “Cash for Clunkers” has had some apparent success in other countries at stimulating auto sales, the environmental benefits are less certain.  Differences in the markets may make realizing climate and oil savings benefits in the U.S. more challenging.  An important part of the likely energy and environmental benefit of European programs is that a new vehicle sold in the European Union today is significantly more efficient and has lower carbon emissions than one sold ten years ago due to voluntarily enforced vehicle greenhouse gas standards.

None of the proposals that are currently before the Congress are perfect, but some are better than others.  The bill introduced by Betty Sutton (D-OH) has fairly low standards for new vehicles being purchased, subsidizing vehicles that are below today’s market average, and thus would have no clear benefit on fuel use or greenhouse gas reductions.  An earlier bill introduced by Sen. Feinstein (D-CA) and Congressman Steve Israel (D-NY) would require that any new vehicles being purchased exceed the fuel economy standard by 25 percent, providing guaranteed greenhouse gas benefits.  Although the future of either bill is uncertain, we will be working to ensure that any vehicles incentives legislation actually improves the performance of the fleet.

Although “Cash for Clunkers” is the popular idea of the moment, setting strong fuel economy and greenhouse gas standards will save far more oil and money, and will reduce far more greenhouse gas emissions than even the most expansive and aggressive scrappage program.  Further, a simple consumer incentives program focused at highly fuel efficient vehicles might offer at least similar levels of benefits with fewer administrative burdens, and less potential for corruption.  As Congress and the president move forward with legislation to encourage the purchase of fuel efficient automobiles, we encourage them to look at multiple avenues for improving the overall efficiency of the fleet while stimulating sales.