It's been all over the news. The cash-for-clunkers program blew through a billlion dollars in the first week. The House of Representatives has approved 2 billion more dollars before they headed out on summer vacation. The Senate has yet to vote.
Where is the money coming from? The bill states: "shall be derived by transfer from the amount made available for 'Department of Energy - Energy Programs - Title 17 - Innovative Technology Loan Guarantee Program' in title IV of division A of the American Recovery and Reinvestment Act of 2009 (Public Law 111-5)." In English this is the money that is suppose to go to the car companies to develop innovative new fuel efficient vehicles. So the decision point is --how much innovation can be made in auto technology with $2B? And what will be the environmental impact if the car companies aren't given this money to comply with the new MPG standards? Will this mean taxpayers will have to come up with the money later on? Good question.
Let's look at the footprint of this program...now realize that I have not put pencil to paper for a detailed analysis but here is some basic information: the biggest generator of CO2 is driving, accounting for 72 percent of emissions through the life of a car (calculated by Toyota) and the average lifetime of a car is 9 years or 90,000 miles. So how much CO2 is this cash for clunkers program preventing from entering the environment? Assuming one drives 10,000 miles/year and the car gets 18 MPG that is 556 gallons of gasoline used. If the new car gets 25 MPG, as required by the cash for clunkers program, the amount of gas used in a year is 400 gallons. EPA states that the CO2 content is 19.4 pounds CO2/gallon so the cash for clunkers program will save 3000 pounds of CO2 per car in the first year. This means the taxpayer is paying $0.50/pound CO2 not emitted by buying a new car now (assumption is that a clunker would have only lasted 3 more years). If the market rate of CO2 is $35/ton, thus, doing the math, the taxpayer is paying $1000/ton to reduce CO2.
Hmm. This doesn't sound like a cost effective carbon reduction strategy. However, the key comparison here is whether giving the car companies $3B, in LOANS, would result in a better return on taxpayer investment in producing innovative new highly efficient vehicles and the taxpayer would get their money back.
Granted, people seem to feel good about this program and at least it is putting control back in the hands of the citizens. What do you think?