Where Brad and Britt Are Wrong: Version II

This morning I was driving to work and had the radio tuned to WZTK.  Brad and Britt are the morning talent.  The discussion during the segment I caught was “Cash for Appliance Clunkers”.  Apparently I missed the lead up ’cause Brad was all worked up over the fact that folks were callin’ him out for taking advantage of the program.  I kinda resonate with that fact, I mean serious, if you have a 20-year-old freezer and you claim to be concerned about the environment, why is it you will only replace your nasty old hardware when I pay for it?

Anyway, the conversation turned to the other “Cash for…” program, the infamous “Cash for Clunkers”.

The guys trotted out the “success” of this program as defense of the “Cash for Appliance” program.  They could hardly stop tripping over each other to measure the success of CARS deal.  Raving about its success and how much more Green the world is and, well, children are just much happier.

So, let’s check it out.  Was Cash for Clunkers a success?

First, let’s see if we can identify the measures of success:

1. We want to stimulate the auto industry.
2. We want to help “the folks”.
3. We want to take the old nasty polluters off the road and replace them with more efficient cars.

I think about sums it up; 3 very good targets.

How did we do?

Number 1:  Stimulate the Auto Industry

Let’s look at car sales for the period:

Car Sales

So, when the CfC program was initiated, we see a massive spike in car sales [great news] followed by the lowest valley of car sales ever [bad news, really bad news].  And in aggregate, from the time the program was put in place until now, we actually see a decline in car sales.

Number 2:  Help the Folks

Well, first, let’s look at the average annual income for new car buyers:

$61,000 for all new car buyers these days

Hmm, not the type of folk I had in mind when we were discussing helping the folks.  So, hopefully, the program was able to help the lower income folks buy new cars.  Did it?

the average annual income of those who bought cars with their rebates was $57,700

Nope.

But, on the flip side, we did some really good stuff.  We destroyed a number of perfectly good used cars!

Number of clunkers turned in (and taken out of the market):  677,081

And that’s good news right?  Because when you take a whole bunch of a supply of something and just flush it down the toilet, you make that thing cheaper, right?

Price increase for used cars since CfC:  13.7%

Oh no….It didn’t work out that way.  Instead of helping low-income people buy new cars, we helped high income people buy new cars at the SAME TIME we actually increased the price of cars that low-income people tend to buy by nearly 14%!

Number 3: Reduce Carbon

Another benefit of the CfC program has been the environmental angel; we are removing CO2 from the atmosphere.  And the program certainly does that:

Imagine a CfC program with a $4500 rebate.  Suppose the driving habits of both the clunkers and new cars are same, say an annual vehicle miles travelled of 12,000 miles.   If the clunker’s fuel economy is 16 mpg, while the new car’s fuel economy is 25 mpg, then the scrappage program saves 270 gallons for every year the clunker would have been on the road.  When burned, a gallon of gasoline creates roughly 20 pounds of carbon dioxide.  Therefore, the program saves 2.7 tons of carbon dioxide each year the clunker would have survived.

Not bad.  2.7 tons per year is not negligible.  Multiply that by the number of clunkers removed and you get  1828118.7 tons per year!  That’s a TON!

But wait, how much can we buy a ton of CO2 for on the open market?

carbon credits are projected to sell in the U.S. for about $28 per ton

Wow!  That’s expensive [though to be fair, that’s Aug, 2009 price–it’s gone down since then].  I’m sure that the CfC program was able to reduce CO2 at a much MUCH cheaper rate:

Cash for Clunkers remains an expensive way to reduce greenhouse gases even when we “credit” for criteria pollutants. Table 2 reports the results using the parameters from the base case. The implied cost of carbon is $516, $365 and $269 for three, four and ve year scrappage time, respectively.  If we increase the social costs of each pollutant by 50 percent, the implied cost of carbon remains above $237 per ton. This is the lower bound of the estimates in this note.

The Cash for Clunker program is both a stimulus and environmental program. In this note, I calculate the implied cost of greenhouse gas emission reductions and nd that they exceed those estimates from the Waxman-Markey bill by nearly tenfold.

Hmm, not so much.  It appears that the President was wrong.  And by a lot; like an order of magnitude wrong!  On the upside, that’s much better than being wrong by TWO orders of magnitudes!

So, while I am happy that our fearless talk show host was able to buy a new freezer on my dime, the fact remains, this program, just like the Cash for Clunkers before it, is a dog.