Double Ultra economic stimulus Deluxe!

Cash for Clunkers pays for itself in oil savings while generating free CO2 reductions 5

Seth Borenstein, the AP science writer I admire greatly, has a long piece explaining that Cash for Clunkers is a very cost-ineffective way to save CO2.  Duh*.

“As a means of reducing greenhouse gas emissions, this “cash for clunkers” deal is probably among the least cost-effective uses of federal dollars one could imagine,” as I wrote back in May.

*BUT as a stimulus that saves oil while cutting CO2 for free - it has turned out to be a slam dunk, far better than I had expected. Indeed, Borenstein points out that “America will be using nearly 72 million fewer gallons of gasoline a year because of the program.” At $3 a gallon - hardly what the price is likely to average over the next decade - that is $216 million a year in gasoline savings.

So the billion dollar program pays the taxpayers back in oil savings in 5 years.  That means the CO2 savings are for free!

So quoting a cost of more CO2 saved at more than $100 a ton misses the point, I think.  The primary purpose of the program was NOT CO2 savings.  It certainly wasn’t the primary reason the Center for American Progress put a (tougher) version of the idea forward back in November (see here).  We saw it as an economic boost with efficiency and environmental gains (not just CO2 but urban air pollution).

And it isn’t how Obama described the program last week when he thanked the House for passing a $2 billion increase in funding:

The program has proven to be a successful part of our economic recovery and will help lessen our dangerous dependence on foreign oil, while reducing greenhouse gas emissions and improving the quality of the air we breathe.

The program has multiple benefits - and obviously we wouldn’t even be doing it were we not in a major economic downturn that has crushed the auto industry.

And it’s hard to argue the program’s stimulus benefits:

“The ‘cash-for-clunkers’ program for auto sales has been a dramatic success,” wrote Credit Suisse analysts on Friday. “This could drive auto sales and production sharply higher in the coming months,” wrote the analysts.

And there is a second stimulus from the program.

The majority of the $200+ million a year in gasoline savings would have left the country, since we import nearly 2/3 of our oil (and probably a higher fraction of marginal increases in oil use).  Now that money stays in the pockets of consumers, who will save some of it and spend the rest of it, circulating most of the money in this country rather than overseas.

As a CO2-saver only, sure, Cash for Clunkers wouldn’t be a wise investment.

And I understand the media’s need to criticize everything, even the most successful-seeming government program.  My father - a newspaper editor for 30 years - had a wall hanging (crocheted by my mother) over his desk that said, “Nothing can stand the light of day.”

Still, some ideas turn out better than anyone expected and deserve praise.  This program stimulates the economy in two ways and helps a key industry in trouble while delivering multiple energy and environmental benefits that save the taxpayers more than the program cost.  What more can you ask?

Joseph Romm is the editor of Climate Progress and a senior fellow at the Center for American Progress.

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  1. adfasfdasfd Posted 12:14 pm
    07 Aug 2009

    Um, no, paying itself back in five years is not the same thing as free, because we don't have access to that $3 billion for the next five years.  It's an investment.  Investments may be profitable in the long term, but they are never free.
    The question that needs to be asked is, given that we're making an investment in efficiency, is cash for clunkers the best possible investment?  Or is weatherization?  Or something else?  This is what needs an answer.

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  2. Tasermons Partner Posted 2:04 pm
    07 Aug 2009

    The $2 Billion dollar expansion of the Clash for Clunkers was paid for by diverting money from the renewable energy fund (so as not to add $2 billion to the national debt).We diverted money from a fund that helped pay for pollution-free energy, and put it into a program that allows on-going pollution from motor vehicles.Reduced pollution =/= pollution-free.It could have possibly made a much bigger impact had it been left in the renewable energy fund. 

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  3. 4birds Posted 4:26 pm
    07 Aug 2009

    I heard from a coworker that people were buying old cars for around $200, then trading them in under the Cash for Clunkers incentive.  I hope it's not true, but that's one loophole that we can't afford.

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    1. enviroperk Posted 10:49 pm
      07 Aug 2009

      That loophole does not exist. You have to own AND have paid insurance on the car for 12 months prior to trade-in.That said, this bill only accelerates car purchases that would have been made anyway in the next 12-36 months. This stimulus will be a short lived rush, followed by a crash in auto sales when it ends.

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  4. scarls5 Posted 3:11 pm
    09 Aug 2009

    It's debatable as to whether this is an effective program, even on the author's guarded terms. What was the actual, current usage of the cars being traded in? Was it a primary family vehicle, or one broken down in the garage, which be replaced by more driving in a fancy new car?Life cycle costs of vehicle production?Cost efficiency at $4500 a trade-in? Clearly, the trade-in stipend was much higher than it needed to be to inspire car purchases, since demand outstripped demand immediately.

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