Market News

 August 14, 2009
High Carbon Cost for 'Clunkers' Program

 By Jad Mouawad, New York Times - Whatever its success in getting new cars off the lots and quickly injecting several billion dollars into the economy, some academics say that the "cash for clunkers" program is an expensive way to help the environment.

The popular program may be costing the government - and taxpayers - several hundred dollars for each ton of carbon dioxide emissions that it saves, according to conclusions reached separately by Michael Wara at Stanford University and Christopher R. Knittel of the the University of California, Davis. Both performed back-of-the envelope calculations to figure out how well the program was meeting its environmental goals.

"The program is really not cost effective as a climate policy," said Mr. Wara, who is an assistant professor at Stanford Law School and a faculty fellow at the university’s program on energy and sustainable development. "It might be a great economic stimulus - we’re selling a lot of cars - but this is not the way to deal with mobile sources of climate change."

Mr. Wara found that the program cost between $200 to $400 per ton of carbon dioxide emissions avoided, and Mr. Knittel’s estimates went up to $500 per ton. By contrast, the climate bill recently passed in the House of Representatives would result in a $28 per ton carbon price in 2020, according to analysis by the Congressional Budget Office.

Mr. Wara did his calculation as follows: The average fuel economy of retired cars is 15.8 miles per gallon, and the average mileage of the new cars is 25.4 miles per gallon. Assuming the clunkers, which get destroyed, would have otherwise been driven another 100,000 miles, then the savings would be 2,392 gallons of gasoline for each car.

Using estimates from the Environmental Protection Agency that nearly 20 pounds of carbon dioxide are emitted for each gallon of gasoline burned, Mr. Wara figures that the savings amount to 21 tons of carbon. Since the government paid an average of $4,229 per clunker, the price of carbon abated by the program comes to $201 per ton.

But Mr. Wara points out that he is making cautious assumptions: the creaky old cars junked in the clunkers program probably would not have been able to make it another 100,000 miles. If the not-traded-in clunkers would have been driven only another 50,000 miles, then the price for each ton of carbon abated by the government program would jump to $402.

A similar conclusion was reached separately by Mr. Knittel, an associate professor of economics at the University of California, Davis, who found that the cost per ton of carbon avoided ranges from $237 to $500 a ton, depending on how much longer the clunkers would have stayed on the road if they had not been traded in.

For More Information: New York Times