Tuesday, August 18, 2009

Too Much Cash for Clunkers?

One complaint about the Cash for Clunkers program, in which the government subsidizes new auto purchases for car owners with inefficient vehicles, is that it costs too much. A recent report supports that conclusion:

While carbon credits are projected to sell in the U.S. for about $28 per ton (today's price in Europe was $20), even the best-case calculation of the cost of the clunkers rebate is $237 per ton, said UC Davis transportation economist Christopher Knittel.

"When burned, a gallon of gasoline creates roughly 20 pounds of carbon dioxide. I combined that known value with an average rebate of $4,200 and a range of assumptions about the fuel economy of the new vehicles purchased and how long the clunkers would have been on the road if not for the program," Knittel said. "I even assumed drivers didn't change their habits, although some analysts have suggested that the owners of new vehicles will drive more than they would have with their old cars.

"In the end, the lowest cost to remove one ton of carbon from the environment was $237. More likely scenarios produced a cost of more than $500 per ton, even when we accounted for reductions in pollutants other than greenhouse gases. That suggests the Cash for Clunkers program is an expensive way to reduce carbon."
As climate change policies go, there are definitely better ways to spend money. However, reducing emissions is not the only goal of the program. Economic stimulus and support for the domestic auto industry were probably as important as efficiency when the bill was formulated. The stimulus portion seems to be working to some degree since the program is already out of money; support for domestic workers may be harder to measure. An analysis of whether this particular plan has been worth the cost ought to take those goals into consideration. It may still be a case of overspending, but perhaps not by quite as much.