'Cash for Clunkers' Environmental Benefits Are in Doubt

Aug. 24, 2009— -- "Cash for Clunkers" has generated a surge in car and truck sales, as well as a comparable increase in complaints about the program. But whether or not the program -- which is due to end at the end of the day today -- meets environmental goals of reducing gasoline consumption and greenhouse gas emissions has received less attention.

"As an environmental program, Cash for Clunkers is basically overpaying for the environmental benefits," said Christopher Knittle, an economics professor at the University of California at Davis who analyzed the Cash for Clunkers impact on the environment.

It is yet another concern about a program that, despite its popularity and success, has been criticized from the beginning.

Cash for Clunkers or Complaints?

In late July, when the Car Allowance Rebate System or "CARS" began, surprising demand from consumers led to complaints that the initial $1 billion was not enough. After much debate, with some members of Congress worried that the goal of replacing gas guzzlers with high-mileage cars was not being met, an additional $2 billion was approved.

Then there was grumbling about dwindling supplies of vehicles for sale. General Motors, Ford and other automakers responded by announcing they would increase production. Furthermore, the Transportation Department reassured consumers and dealers that purchased vehicles, even if they were not yet on the lot, would be eligible for the rebate.

Finally, several dealers moaned that it was taking the government too long to reimburse them. To date, more than 600,000 vehicles representing $2.58 billion in rebates have been purchased. Some analysts have calculated that the government has paid dealers for less than 10 percent of the rebates due.

To address the growing pile of dealer submissions, the Transportation Department has tripled the workforce processing the claims to nearly 1,200 (including staff from the press office). Early reports indicated that dealers submitted incomplete and inaccurate forms that required fixes to ensure that taxpayer dollars were not being wasted.

Despite the complaints, however, the program achieved the goal of stimulating car sales.

"It has been successful beyond anyone's imagination," said President Obama Thursday during an interview with radio talk show host Mike Smerconish.

J.D. Power and Associates estimated that total sales in August will surpass the one million mark for the first time in a year thanks in large part to the clunkers program. Edmunds.com estimated that August sales will be near 1.2 million.

In June, before CARS began, nearly 860,000 vehicles were sold.

"This is a wildly successful program," said Transportation Secretary Ray LaHood on ABCNews.com's "Top Line" late last week. "In four days, when we had $1 billion. we sold 250,000 cars. Now, who's to say that's not successful?"

A Win for the Environment?

LaHood also has touted the environmental impact of the program.

"The lion's share that are being purchased are much more fuel-efficient cars," he told ABC News' Rick Klein. The department's latest available figures show that a nearly 60 percent improvement, on average, in gas mileage between the clunker and the new vehicle.

"People will be driving more fuel-efficient cars, will be taking CO2 out of the air," said LaHood. "This is a win-win for the environment, for the economy, for the automobile industry and for people who work in the industry."

Yet, questions remain about just how much of an effect "Cash for Clunkers" will have on the environment.

"It is hard to say what environmental benefits are or will be because all we have to work from is the one average for all vehicles traded in," said Lena Pons, a policy analyst with Public Citizen.

To date, the average fuel economy of the new vehicles is 25 miles per gallon compared to 15.8 miles per gallon for the trade-ins.

"The average might sound like it is doing a pretty good job, but we don't have enough information to say there are a lot of not-so-good trades that are being masked in the average."

Most new vehicles purchased have been cars -- nearly 60 percent -- while almost two-thirds of the trade-ins have been SUVs, minivans and pickup trucks.

Knittel, the economist at Davis who has studied gas prices and their effects on driving behavior, found that while the program might benefit the economy, it is an inefficient way to take older cars off the road, to lower carbon emissions and to reduce gasoline consumption.

"The fuel economy increase from the trade-in to new car seems large, but it doesn't have that big of impact on environment," he said.

Knittle calculated the program will save approximately 270 gallons of gasoline per car, per year. If a total of 750,000 vehicles are sold, as appears likely, approximately 12,000 barrels of oil a day will be saved in a country that consumes 9 million a day.

"It really is just a drop in bucket in terms of gasoline consumption or vehicle turnover," said Knittle. "Within the U.S. there are about 250 million cars on the road. When we are playing around with only 700,000, it is hard to get any large impact."

Ed Morse, director of economic research at LCM who has closely studied the energy industry, agreed. "It's a nice test case, but it has limited application today."

Morse pointed out that the current national car fleet turns over, on average, every 12 years.

"If we could reduce that to five, six or seven years, then it can have a major impact," he said.

Have New Car, Will Drive

Even with more fuel-efficient vehicles on the road, it does not always follow that gasoline consumption will fall, especially as gas prices currently average 30 percent below last year's record highs.

Harvard Economist Edward Glaeser, in an op-ed article in the Boston Globe earlier this month, wrote, "One side effect of the program is that new car owners will surely find it more appealing to drive in their snazzy new cars."

The program, he said, assumes there is a defined amount that people drive that does not change. Subsidizing the purchase of more fuel-efficient vehicles, while it may lower the amount of gas used per mile, could end up encouraging people to drive more. He compared the issue with low-calorie cookies.

"If the amount of cookie consumption was constant, then a lower-calorie cookie would lead to thinner waistlines," he said. "But if someone makes a less fattening, delicious cookie, I'll want to eat plenty of them."

But as concerns mount about reducing U.S. dependence on foreign oil and the increase in CO2 levels, analysts acknowledge that making significant headway is not always easy, quick, inexpensive or palatable. Expecting more from the Cash for Clunker program might be too much.

"It is baby step," said Knittle, "but probably an expensive baby step."