Senate negotiators recently offered proposals for more offshore drilling and nuclear plant construction in exchange for signing on to cap-and-trade and other environmental mandates in the Kerry-Boxer climate change legislation. The federal government, however, has demonstrated time and again that it is not the best vehicle to drive successful emissions reduction. For example, take the federal “cash for clunkers” program – it was a failure on every count. Shall we draw lessons from that, or simply hope for success from a cap-and–trade approach to mitigating climate change similar to the Ponzi scheme perpetrated by Bernard Madoff?
Congress created “cash for clunkers” to reinvigorate the U.S. auto industry, and to cut U.S. dependence on foreign oil. They never asked, “Will it be a one-time handout rather than a stimulus program?” “Will it waste $3 billion for no energy independence gain?” “Could another program cost-effectively address the same goals?”
Quite simply, the program threw $3,500 to $4,500 at owners of big cars who could afford new ones. We taxpayers then helped pay for 700,000 of them. Ford and Toyota sold the most, while Chevrolet and Chrysler trailed several other foreign brands. What happened next? September U.S. auto sales plummeted – GM, Ford and Chrysler all sold 35 to 40 percent fewer vehicles once the “wildly popular,” tax-funded subsidy ended.
But did it cut our foreign oil dependence? If the 700,000 new cars average 12,000 miles per year at 25 miles per gallon – and replace just as many 15 mpg cars – each car would save 320 gallons per year. Simple math tells us that 700,000 multiplied by 320 gallons equals 5.3 million barrels of gasoline. That’s equivalent to just a half day of America’s gasoline use. It takes 11.5 million barrels of oil to convert into 5.3 million barrels of gasoline, in addition to 6 million barrels of other oil products. With oil at $70 per barrel, U.S. taxpayers spent $3 billion to “save” half a day’s worth of gasoline consumption and $803 million. So, our elected officials failed again.
Nonetheless, could a program meet these goals efficiently? If the private sector leads the initiative, then the answer is yes. In 1991, Unocal, a California-based oil company, bought old cars to show that air pollution could be cost-effectively cleaned up, to avoid mandates closing more than a dozen oil refineries in the Los Angeles Basin. The company, therefore, paid pennies on the dollar to avert costs of several billion dollars for each refinery. This Unocal initiative, the South Coast Recycled Auto Program (SCRAP), paid $700 for any 20-year old car that was registered, insured and in use in Los Angeles for the previous two years. The company thus bought many $300 cars for $700. Unocal wanted the worst, and plenty of beaters on the road today could be bought for $700. Even at twice the price, SCRAP would still work.
SCRAP’s budget was $5 million, funds that came from Unocal’s books, not the taxpayer’s pocket. About $15 per car from the junkyard and donations from Ford and others added almost $1 million. SCRAP bought and crushed nearly 8,400 cars. Then, 46 percent of SCRAP participants bought cars that averaged five years newer. Many of those sellers then bought newer cars. And after an average of four transactions, at least 840 people bought new cars, thus stimulating Detroit.
Tests by the California Air Resources Board (CARB) and an independent laboratory showed that SCRAP eliminated 13 million pounds of hydrocarbons – carbon monoxide and nitrogen oxides from Los Angeles’ air – equal to taking 150,000 1990 vehicles or 200,000 2009 vehicles off the road. The cars averaged 12 mpg, half the average for a new 1990 vehicle. SCRAP did not report carbon dioxide (CO2) emissions. It was not viewed as a pollutant, and no one had ever heard of “greenhouse gases.” But they were still significant then and they were eliminated.
Demographically, SCRAP participants reflected the diverse population of the Los Angeles Basin, though, on average, participants were slightly older, more likely to be male and with about 15 percent less household income. The government, however, has kept no statistics and did no follow-up on “cash for clunkers.” It took dealers weeks to get their clunkers money from the federal government. In comparison, SCRAP used a telephone appointment system, had participants drive their cars to the junkyard, data was confirmed by an on-site DMV official and computer, and drivers then collected their pre-written $700 check within 10 minutes.
“Cash for clunkers” was an excessive $3 billion subsidy that blipped and then slammed the U.S. auto industry. Its economic impact, as well as its impact on energy consumption, was a sham. SCRAP was economical and highly cost-effective. It yielded data and could have shown Congress how to implement a long-term program that would help with greenhouse gases, air pollution and highway safety. It could have included follow-up surveys to show the true impact on Detroit, and on gasoline mileage. In this light, “cash for clunkers” should have been done tax-free, by allowing companies to get pollution credits or greenhouse gas credits. Companies would have leaped at this chance.
If companies ran $3 billion worth of SCRAP-type programs across the nation, they would have four to five times as many transactions, leading to more and more new cars sold as the worst, old polluters were crushed. The impact would be long-lived, consistent and could run for years without taxpayer funding. America would then reap the benefits of less air pollution, and greenhouse gas cleanup would increase dramatically. Now, Congress needs to forget cap-and-trade and “cash for clunkers” and adopt an updated SCRAP-type program.