Cash for Clunkers: A Modest Proposal

Congress is authorizing an additional $2 billion to extend the Cash for Clunkers program, to be redirected from a program designed to support loans for green energy projects.  If the government is now looking for the most effective ways to use cash to green our economy, I offer this modest proposal.

Some background

U.S. consumers and car dealers burned through the initial $1 billion in the "Cash for Clunkers" program in this first week.  The additional $2 billion comes as a result of public outcry—273,077 consumers got in on the first deal and now there's a "run on the bank" as many more (both consumers and car dealers) are feeling left out (WSJ 8/11/09).

The Cash for Clunkers program is a political "two-fer." The original billion came from the stimulus package and was designed primarily to goose the comatose auto industry with the added benefit, however, of appearing green because the program was "designed to replace gas guzzlers with more fuel-efficient vehicles." The additional $2 billion is coming directly out of the pocket of another stimulus program designed specifically to support green energy projects.  At this point, the congress and the administration is prioritizing its green efforts: cash for clunkers versus green energy projects. 

Congress appropriated $1 billion for the payments as part of the stimulus package, which was quickly exhausted. In early August 2009, lawmakers approved providing an additional $2 billion for the program, intended to keep it alive through the end of the month, and President Obama was expected to sign the bill. That money would be borrowed from another stimulus program, a loan program for green energy projects. (NYT 8/06/09)

While the actual green benefits will not be known for several years (and much debate),  the Washington Post has a nice initial review of the issues here. Essentially, estimates put the green benefits of the Clunkers program at a savings of 7 million metric tons of carbon from 2010-2019 (about the lifetime expected, had those clunkers been kept on the streets).  In perspective, U.S. automobiles will emit 16,000 million metric tons during that same time, so congress is spending $2 billion to offset 0.04% of U.S. auto emissions. 

By comparison, the Obama Administration's proposed improvements in new automobile fuel-efficiency will offset roughly 220 million tons (a 1.3% drop): 

The new standards, covering model years 2012-2016, and ultimately requiring an average fuel economy standard of 35.5 mpg in 2016, are projected to save 1.8 billion barrels of oil over the life of the program with a fuel economy gain averaging more than 5 percent per year and a reduction of approximately 900 million metric tons in greenhouse gas emissions. This would surpass the CAFE law passed by Congress in 2007 required an average fuel economy of 35 mpg in 2020. (White House Press Release)

A Modest Proposal

So as Congress debates the worth of increasing the fuel efficiencies of America's cars and trucks, I offer this modest proposal for how we might best spend the next billion-dollar program of Cash for Clunkers.

My proposal is based on a few simple assumptions.  The Lincoln Savings & Loan scandal of 1989 provides some useful data.  Five senators "were accused of improperly intervening in 1987 on behalf of Charles H. Keating, Jr., chairman of the Lincoln Savings and Loan Association, which was the target of a regulatory investigation by the Federal Home Loan Bank Board (FHLBB). The FHLBB subsequently backed off taking action against Lincoln." (see Keating Five).  Aside from costing the federal government $3 billion, we learned that Charles Keating had made substantial political contributions to these five senators for a total of $1.3 million dollars. 

According to MeasuringWorth.com, $1.3 million in 1989 is the equivalent of $2,257,208.87 in 2008 dollars.  Rounding up to $2.5 million suggests that the current price of a U.S. Senator's influence is approximately $500,000 (in 2008 dollars).  It's possible, given the politics of the past decade, that prices in this market have increased at a faster pace than the overall economy, so let's be conservative and set the price of influence at $1 million per Senator.  I'm going to make the (generous) assumption that Representatives cost roughly the same, though by numbers they should only cost a fourth of that. 

At 435 members of the House of Representatives, and 100 members of the Senate, that puts the total at $535 million to buy up all the influence of Congress on a particular issue.  We could assume that we only need half as much to ensure passage, but why not get everyone involved.  That increases the chance nobody will complain or whistle-blow.

So ensuring the passage of any higher fuel efficiency standards or other energy efficiency or clean energy legislation, then, would come with a price tag of approximately half a billion dollars.  That's 1/6th of the total spent on achieving a 0.04% improvement in auto emissions for the next 10 years. 

Seems like a great bargain to me.

ADDENDUM 8/13/09

From Professor Chris Knittel, Economist and transportation expert at UC Davis:

'CLUNKERS' PROGRAM IS EXPENSIVE WAY TO CUT CARBON EMISSIONS

New UC Davis estimates say the federal government's Cash for Clunkers
program is paying at least 10 times the "sticker price" to reduce
emissions of the greenhouse gas carbon dioxide.

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."

Additional information:
* Analysis text <http://www.ucei.berkeley.edu/>
* Christopher Knittel home page <http://www.econ.ucdavis.edu/faculty/knittel/>

Comments

[Donald]

Sounds like you're a little disillusioned about our government... ;)

Another alternative would be to pick the worst polluting regions and invest in infrastructure to promote electric or hydrogen fuel cell vehicles.

I bet a small portion of the $2 billion could build quite a few electric charging stations in each of the rest stops all down Interstate 5, which would make it possible to drive all the way from Sacramento to San Diego on electricity.

Or it could provide loans to gas stations earmarked to build a Hydrogen refueling station grid so that we would be able to refuel our hydrogen vehicles. (I realize there are environmental concerns with the production of hydrogen as well, but that could be dealt with centrally at generation plants, instead of at the smog check station on each individual tail pipe.)

Just a couple other ways I can think of to spend the money.

[tim akin]

How about making all the members of congress drive one of these clunkers around their district and measure the carbon emissions for a period of time to really show them the problem. Then bribe them

[DebTinnison]

Another Obama 'great idea' that has resulted in ZERO economic benefit, except for a very short term boost in sales.

Stop the government bailouts. Stop wasting tax payer dollars.