The Ups And Downs Of Cash-for-Clunkers

by Bradford Plumer | August 5, 2009

There's no shortage of debate over Congress's cash-for-clunkers program, which rapidly burned through its first $1 billion in funds and is getting ready for a re-up. Time's Justin Fox has a very enlightening post surveying the discussion among academic economists over whether the program is effective as stimulus (not terribly, though it has gotten much-needed cash flowing to a wheezing auto sector), whether it's environmental friendly (marginally), and whether it's regressive (pretty much).

One of the program's pleasant surprises, though, was that it does appear to have improved gas mileage more than originally expected. As crafted by Congress, the program only required newly purchased vehicles to get 4 mpg more than the cars traded in—not a huge upgrade. But in practice, according to the Transportation Department, people were upgrading an average of 9.6 mpg. And 80 percent of the "clunkers" traded in were SUVs or gas-guzzling pickup trucks. So here comes the AP's Seth Borenstein with some cold hard number-crunching:

Calculations by The Associated Press, using Department of Transportation figures, show that replacing those fuel hogs will reduce carbon dioxide emissions by just under 700,000 tons a year. While that may sound impressive, it's nothing compared to what the U.S. spewed last year: nearly 6.4 billion tons (and that was down from previous years). …

Likewise, 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. U.S. drivers go through that amount of gas every 4 and 1/2 hours, according to the Department of Energy.

Now, the cash-for-clunkers program is assuredly not the cheapest or easiest way to reduce oil consumption or hack away at carbon emissions. (And, if you want to get finicky, it doesn't appear those carbon figures  fully take into account the emissions associated with manufacturing new vehicles.) But, as Joe Romm points out, a savings of 72 million gallons of gas per year is still a net plus—with gas at $3 per gallon, that means the $1 billion program will pay for itself in oil savings over just five years.

Overall, the evidence suggests that the clunkers program could've been designed more intelligently, that Congress probably could've found better uses for that stimulus money (so there are big opportunity costs), but that, on balance, the program is at least doing slightly more good than harm. Not exactly a ringing endorsement, but what were you expecting?

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