GLOBE Foundation

Cash-for-clunkers – did it really work?


Source: GLOBE Foundation

The popular but short lived US 'Cash for Clunkers' program - hailed by some as a great success - may not have been effective in achieving its longer term economic and environmental goals.

Researchers at Duke University studied the effects of the program on vehicle sales, job creation, and environment impacts and conclude the program did increase new car sales and did bump up jobs in the auto and related sectors, but only by pulling demand forward by a few months.

 In terms of its environmental impact, the program may have helped to lower gasoline consumption and greenhouse gas emissions, but at a very high price.

Using Canada as the control group in a difference-in-differences framework, they found that the program increased new car sales by about 400,000 units during July and August of 2009, while lowering net vehicle sales to about 250,000 units from June to December in the same year, in effect shifting vehicle purchase demand forward from other months.

The program created 3,676 job-years of employment in the auto assembly and parts industries in June to December 2009, again by shifting jobs forward by only a few months.

The research paper, 'Evaluating 'Cash-for-Clunkers': Program Effect on Auto Sales, Jobs and the Environment' by Shanjun Li, Joshua Linn, Elisheba Spiller, is available here.

However the costs of reducing gasoline consumption and CO2 emissions were quite high. The researchers best case scenario suggests a cost of over $91 in government revenue for each ton of CO2 avoided and almost 90 cents for each gallon of gasoline consumption.

In the context stimulating the purchase of new vehicles and the scrapping of used vehicles, they question whether two parallel programs, each targeting one of these two goals, might not have worked better.

They suggest a better way to stimulate the economy would be to provide rebates on new vehicle purchases, but not require that used vehicles be turned-in for dismantling. This would pull sales forward from further in the future, providing longer term economic impacts.

A second program aimed at reducing old gas guzzlers on the road would provide a rebate to consumers who recycled old, fuel-inefficient vehicles. This would provide greater incentives over a longer term for improving fuel economy than the 'Cash for Clunkers' program.

In summary, two separate programs would have broader participation and would be more effective in simultaneously providing an economic stimulus and beneficial environmental impacts.

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