Cash-for-Clunkers Agreement: Still Not Ready for Prime Time

Congress has been kicking around the idea of paying people to scrap their old cars and buy new, more fuel-efficient ones. On May 5, Democratic lawmakers and President Obama reportedly agreed on a one-year cash-for-clunkers proposal. Unfortunately, as far as the planet is concerned, the proposal ... well, kind of clunks.

The reported "goal of the 'cash for clunkers' legislation is to sell 1 million vehicles." It’s also supposed to help get old gas-guzzlers off the roads and put Americans into cars with higher gas mileage in an effort to:

• cut back on our dependence on foreign oil,
• limit air pollution, and
• emit less greenhouse gases.

Great idea in theory, but in practice it’s not quite that simple.

The Devil in the Detail

Manufacturing a new car requires energy and that in turn leads to greenhouse gas emissions like carbon dioxide (CO2). It's estimated that when you drive your new car out of the showroom your car has already effectively emitted anywhere from three to 12 tons of CO2 — we call those embedded emissions. For purposes of illustration, we’ll use an average value of 6.7 tons for our embedded emissions, a little more, it turns out, than a typical car emits over a year of operation.

When you scrap an old car for a new one, you actually start out having emitted more CO2 than you would have if you had just stayed with your clunker — about a year and a half’s worth. If your new car is more fuel-efficient than the old one, those excess emissions shrink with each mile you drive. Eventually, you reach a break-even point when your new car's embedded emissions are offset by those emissions you avoided by driving that new car. The time for that to occur is called the payback time. It's not until the payback time is over that the cash-for-clunkers swap begins to accrue real greenhouse gas emissions savings.

An environmentally sound cash-for-clunkers program must require a big enough miles-per-gallon differential between the old and new cars to keep the payback time short, and certainly no longer than the lifetime of the new car. Cars today probably last about 10 years or more.

How the New Plan Stacks Up

The House Committee on Energy and Commerce has released a fact sheet [pdf] that lays out the basics of the new plan. Here's the summary.

Minimum Requirements of Cash-for-Clunker Trade in Proposed House Bill

All of the above deals are worth $3,500. A voucher of $4,500 can be earned by purchasing a new vehicle with even better fuel economy: 10 mpg (for cars), five (for light trucks), and two (for the road hogs).

The Worst Case Scenarios

Building on the example from my first post on this topic, here are the payback times for a cash-for-clunker program involving the minimum mileage differential required to qualify for the $3,500 voucher.

Short Payback Time Highly Dependent on MPG

Want more details? Interested in a different comparison? Our graph and table below show the payback time in action.

The number of years it takes to “drive off” the embedded carbon dioxide emissions in a new vehicle when it replaces an old one. The x-axis shows the new car's mpg, and the various line are for different old vehicles. Assumptions: New car's embedded emissions are 6.7 tons CO2; average number of miles driven in a year is 13,000.

What to Do?

Click on table for larger, readable version. (Table will open in new window.)

The curves in the graph show that a cash-for-clunker deal can have real greenhouse gas benefits. If the requirements are stringent enough (like those in the $4,500-voucher deal), reasonably quick payback times of two years or less are achievable. You can see how focusing on scrapping old vehicles with fuel efficiencies of less than 12 mpg would be especially effective.

But the latest proposal on the table is too lax. Payback times of five years for a car and 10 years or more for a truck strike me as far too long to subsidize a new car purchase to the tune of $3,500. My recommendation, Mr. or Ms. Congressperson, if you are interested, is to scrap the $3,500-voucher — it's a clunker. And if you're really serious about ratcheting down the pollution from our roadways, don't just help Detroit — make the voucher dependent on the amount of embedded CO2 emissions in the new vehicle as well as the mpg differential. Now that would be really innovative.