Was “Cash for Clunkers” worth it?

Cash for clunkers is over. Was it a good economic investment? A good environmental one?

The federal government stimulus strategy of paying “cash for clunkers” ended last Monday as the program ran out of money, and many dealers ended their promotions early so they could begin the onerous task of filling in the paperwork necessary to get their money back. Was the program a success? Well, part of the goal of a stimulus package is to inject money into the economy that will be spent and not saved. In that sense, the cash for clunkers program was a resounding success. [That’s why tax cuts are a poor choice for stimulus (people tended to save them, evidence now shows) and government spending is a good choice (though most of the stimulus spending has yet to come). ]

So it is a bit beside the point to ask “Did it make good environmental sense?” But being beside the point has never stopped academic economists from asking questions, and two economists have analyzed the program, estimating that the carbon savings were very costly indeed. Using cautious assumptions, one found that the program cost between $200 and $400 per ton of carbon dioxide emissions avoided, and the other got an estimate closer to $500 per ton. Get a taste their calculations here.

If the goal of the program were merely to find ways to cut carbon emissions at lowest cost, this would not be the best way to spend the money. But as we noted above, stimulus was the main goal, especially for ailing carmakers. Moreover, there are other benefits besides reduced global warming pollution, particularly health benefits, from air pollution avoided. Here in
Atlanta, about 60% of smog-forming air pollution comes from cars, so we’re happy to see some clunkers taken off the road. (We in the south don’t have the corrosive blessing of salted roads in winter reducing the lifespan of automobiles that many of you have in the north, which takes your worst-polluting vehicles off the road at a much faster rate than we experience).

Just out of curiosity, you might like to see some estimates of what kinds of investments in carbon dioxide reduction would make most sense. The McKinsey Company (an international business consulting firm) estimated the costs for a range of mitigation strategies in 2005. Notably, they identified huge potential to avoid greenhouse gas pollution at costs of less than zero, which is to say, they save money rather than cost money over the lifecycle of the investment. Examples include building insulation, fuel efficiency in commercial vehicles, upgrading lighting systems, HVAC systems, water heating, etc. Almost all the other improvements they recommend for reducing greenhouse gases cost a lot less than the cash-for-clunkers program did.
That means we may have paid more than we needed to for the cash-for-clunkers program, if the primary goal had been to reduce global warming. But that wasn’t the primary goal.

What will be the outcome of the proposed “cash for fridges” program? It remains to be seen, since the details are still being worked out. Old refrigerators are the most wasteful appliance in anyone’s home, and consumers are loath to exchange them before they die a natural death, despite the fact that they waste much energy. A new refrigerator is not nearly so much fun as a new car, so a financial inducement to upgrade may be that much more necessary, and perhaps more effective.

This post originally appeared on the Flourish blog as ‘Was “Cash for Clunkers” worth it?’ and in the ESA ePistle. Please leave your comments on the Flourish site.

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