Monday, August 31, 2009

Clunkers Don’t Come Cheap

The New York Times Editorial Board Agrees With Wottrich Article With ChinaView

(Editor's Note: Wottrich was interviewed by Xinhau News Agency on August 26th, 2009, regarding the U.S. Cash-for-Clunkers program. His critical conclusions are supported by today's NYT's editorial.)

The $3 billion cash-for-clunkers program that ended last week worked well as a jolt of economic stimulus. Nearly 700,000 people used the rebate to buy new cars in July and August — adding about 0.3 to 0.4 percentage points to economic growth in the third quarter, at an annual rate.

But there’s also another lesson in the cash-for-clunkers experience: such rebates are a spectacularly inefficient way to implement environmental policy. Sure, the new cars deliver about nine miles per gallon more than those traded in, on average. But the benefits — measured in terms of reduced greenhouse gas emissions — come at inordinate expense.

On average, cars are driven 12,000 miles per year, according to government statistics. Considering that the traded-in clunkers had an average fuel economy of 15.8 m.p.g. while the new ones deliver 24.9 m.p.g., a swap saved some 278 gallons of gas per year — which would have released almost 2.8 tons of carbon dioxide when burned.

Assuming the clunkers would have been driven four more years, the $4,200 average rebate removed 11.2 tons of carbon from the atmosphere, at a cost of some $375 per ton. If they would have been driven five years, the carbon savings cost $300 per ton. And if drivers drive their sleek new wheels more than they drove their old clunkers, the cost of removing carbon from the atmosphere will be even higher.

To put this in perspective, an allowance to emit a ton of CO2 costs about $20 on the European Climate Exchange. The Congressional Budget Office estimated that a ton of carbon would be valued at $28 under the cap-and-trade program in the clean energy bill passed by the House in June.

The program might have been more efficient with modifications, like a smaller rebate. But even if the new cars bought under the program had zero emissions, the price of removing the clunkers’ carbon dioxide from the atmosphere would have been nearly $140 per ton.
The best tool to induce Americans to drive more fuel-efficient cars would be a gas tax that provided rebates for low-income drivers. Another, though inferior, alternative — if Congress couldn’t face the political risks of a gas tax — would be a program that provided a rebate for drivers of clean cars while imposing a fee on drivers of gas hogs.

In any case, as environmental policy, it’s just too expensive to buy clunkers to take them off the road.

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