June 17, 2009
Cash For Clunkers Seen As Bad Energy Policy

Blogger "Engineer-Poet" (who many of you will recognize for his data-rich comments postings here) argues that a bill in the US Congress that provides rebates for trading up to more efficient vehicles requires very little improvement in MPG in order to get the rebate.

There is NO solution to this problem on the supply side.  The supply needed to continue BAU does not exist; oil prices high enough to expand supply will instead collapse the economy before that supply can be brought to market.  The only way this challenge will be met is on the demand side, by shifting to other energy sources where it is feasible and aggressive economizing where it is not.

What's depressing is the utter inadequacy of our government response.  Let's take this "Cash for Clunkers" bill (HR2751).  It would give a $3500 rebate for the purchase of a vehicle achieving as little as two miles per gallon more than the one traded in.  A five MPG increase nets $4500.

This will help clear dealer lots, but it won't do squat for our real problems:

  • It will not significantly reduce our fuel consumption; we will still be burning far too much to accomplish too little.
  • It will not fix the bad production mix of the auto companies; it adds demand for guzzlers only slightly less thirsty than the ones they'd replace.  But worst of all,
  • It will leave us with a brand-new fleet of guzzlers which will not be paid off for years at the exact time when we are facing radical increases in the cost of oil.
It's almost as if this bill was intended to screw the country.

A 2 MPG increase is pretty pathetic. The rest of us as taxpayers are going to subsidize this?

The minimum requirements for absolute fuel efficiency seem pretty lame to me: 22 MPG for cars, 18 MPG for small light duty trucks, and 15 MPG for large light trucks. These are pretty low bars to meet. Though for cars the absolute size of the improvement required is 4 MPG. For large light trucks the improvement required is only 2 MPG. Also, the existing vehicle has to be below 18 MPG. So that leaves out a lot of old vehicles. Still, pick-up truck drivers with a 1990s truck that has low fuel efficiency can get a newer car that has a couple more MPG and save a few thousand dollars at taxpayer expense. That seems like bad policy to me.

Why not focus the purchase incentives at stylish hybrids and other high fuel efficiency cars? Drop incentives for selling trucks. Put the bar above 25 MPG at least. The price of oil is headed toward another spike in a year or two. People shouldn't get subsidies paid by the rest of us to buy trucks that are below 20 MPG.

Update: To be clear: I'm not advocating an improved version of "cash for clunkers". But my argument is that if we are going to make taxpayers pay subsidies for a small subset of us to buy new cars that these cars ought to bring about a much bigger fuel efficiency increase than this plan requires. Create a bigger public good. I doubt that the net effect will be beneficial. But it will at least be less bad if the MPG requirements are raised.

Share |      Randall Parker, 2009 June 17 06:53 PM  Energy Policy


Comments
simone said at June 17, 2009 7:02 PM:

Randall-

I would like to start by saying I am not sure that there is a problem to be solved by such policies. What is the energy problem that is being solved for by the anointed "worry warts" that are spouting?

As for the tax break, it only continues the misguided intellectual tradition that someone in government is smarter than the market. This is just another wealth transfer mechanism implemented for special interests propelled by legions of self proclaimed "worry wart" experts who track record is like that of all experts, dismal.

Randall Parker said at June 17, 2009 8:38 PM:

simone,

The government wants to revive the US auto industry that it has sunk so much money into. That's the main motivator. The fuel efficiency part of it has the aim of enticing more Congresscritters to vote for it.

My point is not that this proposal can be made a net benefit My point is that by raising the MPG standards in the proposal it can produce a bigger benefit.

What energy problem: The trade deficit and the declining reserves of oil. Also, the green house gas build-up. These are some of the arguments that can be made in favor of the proposal. But it doesn't do a good job on any of these points because the requirements for getting the subsidies are too lax.

K said at June 17, 2009 10:46 PM:

Getting older heavy vehicles off the road isn't the worst possible scheme.

I hope it could be kept honest. Somehow there always seem to be loopholes in such programs though which huge sums fly to the friends of ....... or the stated intent of the spending is somehow negated.

A direct tax credit for buying a new vehicle seems simpler. The higher the rated mpg the higher the rebate. $4000 for 40mpg down to $2000 for 30mpg.

I don't advocate either. The clunker program or the tax credits. But the credit seems the better of the two.

Any of theses ideas will be politicized. Critics will argue that some people need large heavy vehicles and they must be treated equally, etc. Special cases and adjustments creep in and pretty soon the program means nothing.

dave.s. said at June 18, 2009 3:18 AM:

It's not an energy bill. It's a rescue-Ford-and-GM bill in energy camouflage. S'wunnerful - I have a 1991 F150, put your ear to the gas tank it sounds like a toilet flushing. I will likely take advantage of this thing, why not? But as a national policy, it's just dreadful.

JAY said at June 18, 2009 5:35 AM:

If this bill were to become law, every junked clunker that had not yet been crushed would be worth several thousand dollars as a trade in car to qualify for the credit. The law would create a secondary market in old junkers. It would create a market for junker paper work, a new car buyer could go to a junk car dealer buy a car take the paperwork to the new car dealer, sell the junker to the dealer, and take the credit.

Randall Parker said at June 18, 2009 7:09 AM:

simone,

The government wants to revive the US auto industry that it has sunk so much money into. That's the main motivator. The fuel efficiency part of it has the aim of enticing more Congresscritters to vote for it.

My point is not that this proposal can be made a net benefit My point is that by raising the MPG standards in the proposal it can produce a bigger benefit.

What energy problem: The trade deficit and the declining reserves of oil. Also, the green house gas build-up. These are some of the arguments that can be made in favor of the proposal. But it doesn't do a good job on any of these points because the requirements for getting the subsidies are too lax.

Jay,

The law is written so that you have to already own the car for a year to trade it in and get the credit.

Engineer-Poet said at June 18, 2009 8:52 PM:

Maybe the government should buy the guzzlers on the lots to take them off the maker's hands.  Drain the fuel, pull the batteries, squirt oil in the cylinders and put these masses of unsold trucks in warehouses.  If "light trucks" went back to the 20% market share they had before CAFE and the SUV craze, this supply would last quite a while; we wouldn't have to build any more for years.  We should reinforce that by slapping a $4500 tax on every new guzzler put on the road, except for people with special-use certificates (like farmers and building contractors).

This is exactly what we should work for.  Every low-economy vehicle that's built is a liability; either it consumes more fuel than we can afford over its lifespan, or it is scrapped early and wastes the resources to build it (and perhaps bankrupts the person who took out a loan to buy it).  There are some needs which can be served by e.g. pickup trucks and nothing else, but everyone else should be strongly discouraged from wasting fuel just to be stylish (in over-sized vehicles, or any other way).

Allan said at June 19, 2009 9:40 AM:

My idea is that the government would offer to pay full book value for gasoline-only cars traded in at the time a PHEV or EV is purchased. The cars will then either be junked for parts or sold for export only. This way the gasoline engines are removed from our roads and the government recovers the cost of doing so.

averros said at June 19, 2009 10:14 PM:

> The government wants to revive the US auto industry that it has sunk so much money into. That's the main motivator.

Isn't throwing good money after bad is a height of idiocy if one's trying to run a business?

This is a perfect illustration of why government shouldn't be allowed to mess with business or ecomonics in general.

(In fact, it's a no brainer to predict that after the half-assed socialist "solutions" like bailouts and "incentives" will fall short, this government will be increasingly resorting to hardline socialist tactics - like prohibiting alternatives for the government-produced crap. Just like Soviets did, just like that.)

Post a comment
Comments:
Name (not anon or anonymous):
Email Address:
URL:
Remember info?

                       
Go Read More Posts On FuturePundit
Site Traffic Info
The contents of this site are copyright