Taxpayer Cash for Environmental Clunkers

Earlier this month the House approved a measure that would give consumers up to $4500 to dump their gas guzzlers and buy a newer and more fuel efficient vehicle. Despite widespread support, this “cash for clunkers” program has its problems, and so do other environmental regulations coming out of Washington.

The “clunkers” program would direct dealers to scrap or shred traded-in vehicles with fuel economy of 18 miles per gallon or less. The buyer, in turn, would get an incentive towards the price of a new vehicle with fuel economy of 22 miles per gallon or better. Environmental groups, the auto industry and unions support the plan, which also has its critics.

“Taxpayers should not see their hard-earned money used to buy their neighbor a new car,” explained Representative Tom Price, a Georgia Republican. Yet, the clunker concept is just one of many programs for which taxpayers will foot the bill.

Last month, the Obama administration unveiled their plan to set tighter limits on vehicle emissions. By 2016, the administration wants to see a Corporate Average Fuel Economy (CAFE) standard of 35.5 miles per gallon. Current federal rules call for a CAFE standard of 35 mpg by 2020.

Administration officials estimate that the plan will add about $600 to the price of an average vehicle by 2016. This comes in addition to the estimated $700 added cost per vehicle from the current CAFE standard increase. Proponents argue that improved fuel economy will recoup these added costs in a matter of years. The plan, however, is likely more costly than those numbers reflect.

Many economists, the Christian Science Monitor notes, believe the program’s success will likely hinge on supporting incentives and taxes. History suggests that increased fuel economy does not necessarily mean less consumption of gasoline overall. Rather, the increases in miles driven tend to offset the gains in miles per gallon. So in order for us to realize any benefits of improved fuel economy in our vehicle fleet, these programs will have to be accompanied by others that discourage gasoline use. The most likely candidate for that task seems to be, yes, higher gasoline taxes.

Still, on its face, increased fuel economy pays off over time in reduced fuel costs. Even so, many consumers do not elect to pay the higher up-front costs for a more fuel efficient vehicle. This is because a number of factors, not just economics, drive consumer choice when it comes to purchasing a vehicle. Traditionally, manufacturers have not met CAFE standards through technological innovation but by making cars smaller and lighter. Many consumers prefer larger vehicles, for a variety of reasons, including the reality they are markedly more crashworthy. Safer, that is, for consumers and their families.

Bear in mind that these federal programs can’t require anyone actually to purchase a vehicle with a particular fuel economy. The financial beneficiaries, therefore, tend to be people who would have made those choices anyway, while the costs are spread throughout the entire taxpayer base. One might argue that the larger population benefits through reduced greenhouse gas emissions, but here we also have a problem.

If things were that simple, greenhouse gas emissions would have been steadily decreasing over the last several decades as the federal government expanded regulations and programs supporting energy efficiency. The expansion of the regulatory regime failed to curb greenhouse gas emissions, which actually decreased only in response to high energy prices at various points during the last couple of years.

All told, the real price tag of these vehicle programs is difficult to assess, but it is safe to say that in Washington things generally wind up far more expensive than politicians proclaim at the outset. As for the environmental benefits, they remain even more uncertain. In the spirit of “cash for clunkers,” legislators might want to scrap these programs in favor of something less costly, more efficient, and friendlier to taxpayers.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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