Cash for Clunkers is a hit. But does it work?

Written by adam


The unexpected popularity of the cash-for-clunkers program has sent congress scrambling to find more funding. About 250,000 people have taken advantage of the incentives to trade older cars for ones with better fuel efficiency, burning through the first billion dollars in about a week.

The price tag of the program has given politicians something to argue about, but I’m interested in a more basic question: does it work? The last time I looked at this question, I came up with a somewhat equivocal answer: cash-for-clunkers is an interesting experiment, but it’s tough to pass judgment without some hard data.

Hard data has arrived, and Geoffrey Styles beats me to the punch on crunching numbers. The average trade-in resulted in a better-than-feared 10 mile-per-gallon increase in fuel efficiency:

> The corresponding CO2 reduction would be around 700,000 tons per year, which if you figure the cars removed from the road by this program likely only had a few more years of high-intensity usage left in them yields a CO2 abatement cost in the region of $475/ton. As climate policy, this wins no prizes.

He also beats me to the punchline: cash-for-clunkers isn’t strictly an environmental program, it’s a stimulus effort, and on that score it looks to be pretty successful. Nevertheless, given the unexpected level of demand for the rebates, one obvious way to ratchet up the green value of the program while still pumping money into the economy would be to require even greater fuel efficiency gains. Right now, you can qualify for a rebate by buying a car that gets only 4 miles-per-gallon better fuel efficiency than your clunker. Given that the average fuel efficiency gain has been far higher than this, why not raise the threshold for participation?

In semi-related news, here’s a cash-for-clunker program environmentalists can really get behind: all across the country, states are offering rebates to residents who trade their ancient refrigerators in for more energy-efficient models. Fridges are often the most energy-hogging appliances in your house, and new Energy Star models are vastly more efficient than ones from a decade ago. The rebate programs ease load on the electrical grid, and, in the case of really old fridges, help to clean up ozone-destroying CFCs. In a nice touch, about 95% of the material in the old fridges can be recycled.

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  1. darooda

    I think the cash for clunkers data is misleading. Chances are if someone in this economy can afford a brand new car even if it takes a $4500 rebate to do so, they probably aren’t driving a clunker to work every day. I know three people that have taken advantage of the program. In each case the clunker they traded was a 3rd vehicle, not their daily driver. These 3rd vehicles were driven rarely, less than 3000 miles a year. Ultimately they were traded on vehicles that were similar or worse in economy than the daily drivers they are replacing (Flex for a minivan, Mariner for a Escape).
    I don’t see this being a green victory, at best it’s a slightly better than even swap.
    For more environmental impact, they should let old cars that are below a certian polution standard participate, no matter their economy as long as they are traded on a vehicle of equal or better economy. So my 97 Saab that gets 29mpg, but is clearly not the cleanest vehicle out there with 300k on the clock could participate.
    Or if you wanted to have even bigger impact, let people buy used cars, but mandate it be a swap for a daily driver and the mpg gain be 8 mpg minimum. This way you help out the poor, who can’t afford even discounted new cars, that are putting the big miles on the big polluters.
    Ultimately, though unless we start getting way more out of this program we need worry if it’s the right place to spend billions. Afterall, we do need to pay it back some day.

  2. Tom

    I agree that this program is a minor greenhouse gas improvement, but that isn’t the only goal. I thought the priority was to sell new cars instead of just hand the automakers more money. Plus, there is the decrease in gas used. I do agree that the next wave of money should come with some higher restrictions. I think it would be difficult to mandate it be a daily driver. Still, you could reset the 10mpg improvement as the new minimum and perhaps limit the number of total cars in ownership.

  3. Rob

    The stimulus isn’t meant to help individuals buy a car who otherwise might not be able to afford it, it’s meant to get cash into the economy, and in particular into the ailing auto industry, which includes dealerships, etc. Much of the stimulus package Obama’s administration signed has been criticized as not being real stimulus, which is to say that the cash enters the economy slowly, and mostly not this year. This program is a significant success by that metric.

  4. richard schumacher

    Agreed, the next cash-for-clunkers program should include used cars to help the poor, and the required fuel economy improvement should be increased.
    Note that “fuel consumption” and “greenhouse gas (CO2) production” are exactly equivalent. One gallon of gasoline makes 19+ lbs of CO2 regardless of the fuel economy of the car.

  5. JZ

    Of the three R’s of environmentalism, Reduce and Reuse come WAY before Recycle. I can’t help but think that the embodied energy in these existing cars is not being factored in here. Consumption of raw materials and the pollution involved in their transformation into automobiles is by far a greater concern for me long term than these new automobiles’ paltry gestures toward real fuel economy. The only positive thing I can say is that we have to start somewhere….bummer, because while people are listening we should be explaining these truths in greater detail.

  6. Emily

    Environmentally, it’s a bit weak … but it achieves its main goal (economic stimulus) while raising awareness, which isn’t a bad thing, and it’s taking some particulates out of the air — newer cars are invariably cleaner in that department, even if the mpgs are equal.
    As government programs go, I find this one better than most. When they work, incentives are preferable to mandates, and this one benefits the air a little, the consumer some, and the ailing car industry a lot. Require the new car to be one of the Big Three and demand a 10 mpg bump in efficiency, and I think the whole program could be even more successful. But as federal spending goes, this is a lot better bang for the buck than a lot of programs I could name.

  7. Derek

    The fuel efficiency differential SHOULD be improved in the next round to make this not only a stimulus effort, but a “green” one as well. But one aspect I’ve not heard anything about is – what happens to the clunkers?
    If they are just being resold and not taken off the streets I’m not sure there is that large of an environmental impact especially if (as mentioned) 3rd cars are being traded in and end up as someone’s primary car.
    I personally like the idea of including used cars (as I’m not in a position to buy a new car but have a clunker SUV I’d love to get rid of); dealers are taking trades and have to move those as well so there remains an economic stimulus aspect that should be considered – though perhaps at a lower $$ level). My vehicle is just about worthless so scrapping it would be of benefit to many areas besides Detroit’s new car lines.

  8. Anonymous

    Dealerships would surely benefit from allowing people to swap for better used cars (profit margins are generally higher on used cars), but rescuing Detroit was the primary goal of the program, and a used-car component wouldn’t be much help there. Might be a nice program to add, though — let those below a certain income level buy a later-model used car and retire vehicles that truly spew a lot of pollution every day. You’d have to have some guidelines on the income and the ages of the vehicles involved, but such a program would be good for the environment and for the poor.

  9. Adam Stein

    The clunkers are taken off the streets. I think the specific requirement is that the engines be destroyed. After that, presumably the rest of the car is used for scrap.

  10. Tim

    I’m actually fairly disappointed with the Cash for Clunkers program. It rewards people who have inefficient cars while requiring them to get something that’s only a little better. For those of us who drive efficient vehicles, we see very marginal benefit. Furthermore, it takes our tax dollars to help someone buy a car.

  11. Brian

    Ya know, If my 1996 Chevie Suberban doesn’t qualify as a trade in…I think the entire point has been missed

  12. disdaniel

    I agree with many that as a stimulus to (it was passed in the STIMULUS BILL) a) the economy–the cash for clunkers program is doing great, b) the auto-industry this program is just brilliant and c) to the environment (is there such a thing?), it is hard to know for sure, because there are many unknowns.
    If 250,000 cars are sold under the program and it increases those vehicles MPG by 8 MPG from 20 to 28 MPG, each driver will save ~143 gallons of gas/year. That means the US will need to import ~35 million fewer gallons of gas (650k barrels of oil) every year. This program certainly won’t fix the climate crisis, but it seems like a useful direction to be taking our country, especially if we are going to be spending $787 billion in stimulus anyway, a couple billion in a “climate neutral” program seems acceptable.

  13. Mary

    The help for the auto industry is false. All this program has done is generate a short term, false increase in sales. It won’t sustain and all the sales now will result in even further depressed sales over the next two years.
    The throw-away approach of our culture bothers me and this cash for clunkers program only exemplifies that approach. The carbon footprint of a brand new car is enormous and like others I find it hard to believe that the gas saved on the new vehicle over the old will offset that.
    I’m also concerned that the program could be encouraging credit for people who can’t afford it (like others I wonder who driving a car worth less than $4500 can afford a new $20k vehicle). They will lose their job next as UE shoots up and the car will get reposessed and they will have NO car instead of their clunker.

  14. Rob

    Mary: while I hear your skepticism, and would generally agree with you, in this environment it’s actually quite economically sound. Unemployment is higher than it’s been in a generation, and underemployment is even worse. Buoying any industry to prevent further large scale job loss is important since not doing do creates more unemployed, who can’t buy stuff, so sales figures further go down, etc. etc. The government becomes the buyer of last resort in these times, or we get a depression.
    Car sales in particular are severely depressed, which effects not just the automakers, but the dealerships and their communities. Sure, stimulus money could go to car sales, or VCR sales, or anywhere else to have some impact, but this choice seems reasonable.

  15. kcm

    Any data in yet on how many of the new cars purchased in the program are American made?
    Environmentally speaking, this program is a joke. Economically, while dealerships may be appreciating the program, I’m not sure how much it’s helped our disasterous auto industry situation if 90% of the new vehicles are Toyota Prius’s. And while I’m in grouse mode, from where and how responsible is all the financing for these new vehicles? Will all this new car mania become finance bubble #2?

  16. Brian

    The number I heard was 6 of 10 cars sold were not american made. Of course, some are manufactured here in the US, so the tax money is not ALL going overseas!

  17. Adam Stein

    Four of the top ten cars sold were American, but that’s not the same thing as saying 40% of cars sold were American. According to the Detroit News, “Detroit’s automakers accounted for 47 percent of the first 80,000 ‘Cash for Clunkers’ sales…which is above their overall share in the auto market of about 45 percent.” About 75% of the cars sold were manufactured in the U.S.

  18. Tim

    I’m still stunned that nobody here cares that your tax money was used to help someone with a functional vehicle purchase a new car. Why not instead invest these billions (though few) in public transit or making green rooftops for government buildings?

  19. Rob

    I think you’re continuing to miss the point; this program was not primarily intended as an environmental program. It was specifically meant to be an economic stimulus. The problem with infrastructure projects like public transit, from a stimulus perspective, is that it takes years for the money to enter the economy. You’d want to consider such projects (and some communities are) in addition to pure and fast financial stimuli such as the Cash for Clunkers program, but not instead of them.

  20. JZ

    Is it that the dominant manufacturing left in the U.S. is the automobile industry? I understand that many individuals, families and communities across the U.S. would be adversely affected by the collapse of the Detroit automakers. But are the numbers in the six or seven figures?! As Tim notes, would money spent on public transit infrastructure not eventually serve a greater portion of the population and the design and construction of these systems also stimulate the economy as Roosevelt’s WPA projects?
    If fail to see why we should create incentives to purchase domestic vehicles that, at this time, still remain uncompetitive and less efficient than foreign equivalents. And I fail to see the overwhelming environmental benefit when significant energy and raw materials must be spent before even a gallon of gas is burned or a pound of CO2 is thrown into the atmosphere.
    Auto-centric culture = death.

  21. Tim

    Sure enough this is stimulus program, but I read a report a couple years ago that outlined a method for the US to achieve energy independence, and a program such as this was suggested.
    Maybe I can clarify my view:
    1. I am fine with tax dollars being spent on things that people cannot provide for themselves such as healthcare or housing. But these people already own cars, and in the big picture the environmental appears minimal. I think the long term impact of other green initiatives will produce more benefit.
    2. From an economic standpoint, the auto industry has performed poorly for years and in my estimation is unsustainable, and I personally feel the American love affair with cars is hurting us in several ways. The government is essentially propping up an industry that is failing.

  22. Ed

    Several of the posts refer to the raw materials necessary to manufacture a new car. I’ve always believed that the World War II-era motto of “Use it up, wear it out, make it do or do without” is friendliest to the environment.
    Do you know of any data that show how much CO2 is generated in the creation of a new car, and how that number compares with the CO2 not generated by driving something that gets (pick a number) more miles per gallon?
    Would the planet thank me if I traded in my Ford Explorer (16mpg) for a Smart Car (40+mpg)?

  23. Phil

    I want to see the Bikes For Clunkers program. other people have made the point thatthe actual benefits are pretty modest. I don’t particularly care to see more cars on the road – even if they are more efficient. It’s time for people to become more aware of the total costs of using cars.
    Let’s pedal!

  24. Adam Stein

    The rough rule of thumb we use is that 10% of the environmental impact of a typical car comes from manufacturing, 90% from driving. There are a lot of interesting numbers here:
    The problem is that the rule of thumb is an average. Making some standard assumptions, I translated the 10% figure into 5.5 metric tons of carbon, or roughly 550 gallons of gasoline.
    So you if you’re really going to trade an 16-mpg Explorer in for 40-mpg Smart car, then you’ll “break even” on the environmental side after driving about 15,000 miles. For average Americans, that’s about 15 months of driving, but few people are exactly average.
    Of course, new cars tend to be safer and less polluting in other ways than older cars. So if you do drive your old car a lot, it’s not a bad idea to upgrade. If you only drive 3,000 miles per year, then there are probably other aspects of your life that you should green first.
    One other complicating point: it’s always worth asking what else you could be spending the money on. For the cost of a new car, you might be able to install a solar hot water heater and insulate your roof. These investments could save more carbon than the Smart car and also save you money in the long run. So there’s some additional math to be done.
    And as a final word — the mantra of “use it til it’s dead” is a pretty good one, but it fails when the the item in question carries a heavy usage impact. You absolutely should not, for example, keep an ancient refrigerator around.
    Hope this helps!

  25. Ed

    Yes, thanks. Helps a lot.
    I’d encourage anyone who’s interested in the topic to look at Adam’s link, and the links within the link. Interesting stuff. (Toyota, for example, seems to be gearing their research with the assumption that we’ll run out of oil by 2050. They also say that if current trends continue atmospheric CO2, currently 378 parts per million, will be 1100 ppm by 2100. 450 ppm is the predicted beginning of runaway warming.)
    Another reason not to trade in the old car now is that the car companies seem to be actively working toward hybrids, electrics, and other alternative vehicles. Five years from now the car you buy is likely to get substantially better mileage than the one you’re considering today.