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Cash for Clunkers program falls short of goals to help economy, environment

 

The Cash for Clunkers program that was pitched to the public as a big boost for the economy and the environment turned out to be nothing more than a lemon, according to a new study released by the Brookings Institution.

In fact, the Car Allowance Rebate System (CARS) known as Cash for Clunkers, did little to help the environment and was “far more expensive per job created than alternative fiscal stimulus programs,” according to new research led by Ted Gayer and Emily Parker of Brookings.  

Sold as an economic stimulus and an environmental salve, the program made early progress in jump-starting the ailing auto industry.

Initial data seemed to indicate that the program, which offered $3,500 to $4,500 for people who trade in their old cars for a new one with higher fuel economy, was popular.

The plan, which was the brainchild of the National Highway Transportation Safety Administration, was championed as one that would stimulate the economy, create jobs and reduce emissions. But ultimately, all of those lofty goals fell short of expectations.

For starters, the fuel-economy requirements ended up being fairly loose. For example, a person trading in a vehicle like a Hummer, which clocks in 14 miles-per-gallon, could get a $3,500 voucher that would go towards a new SUV with 18 miles-per-gallon. Experts argue that the small gains made in efficiency would be offset by the energy costs put into manufacturing a new car.

“The existing evidence also suggests that these sales were pulled forward from sales that would have occurred otherwise in the future,” Gayer and Parker said. “Ten months after the end of the program, the cumulative purchases from July 2009 to June 2010 were nearly the same, showing little lasting effect.”

Americans traded in 700,000 “clunkers” between July 1 and Aug. 24, 2009, according to Brookings.

While the study found that the $2.85 billion program provided a short-term bump in vehicle sales, the program only provided a small boost in employment which the government watchdog group says could have been done easily through other fiscal stimulus programs like reducing employers’ and employees’ payroll taxes.

The environmental gains made through the program weren’t all that impressive either, according to the study.

The cost per ton of carbon dioxide reduced from the program suggests that the program was not a cost-effective way to reduce emissions, although it was more cost effective  than certain other environmental policies, such as the tax subsidy for electric vehicles or the tax  credit for ethanol.

Total emissions reduction was not “substantial” because “only about half a percent of all vehicles in the United States were the new, more energy-efficient CARS vehicles.”

During the CARS program, vehicle sales increased 14 percent in July 2009 and another 28 percent in August but sales reverted to pre-program levels after the program ended, Brookings said.

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