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5 Lessons from Cash for Clunkers for the Green Car Market

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cash-for-clunkers-cars-logoAs the whirlwind of Cash for Clunkers draws to a close, it’s coming full circle: The federal program that until 8 p.m. Monday night provided rebates of up to $4,500 for old gas-guzzlers when they were traded in for more fuel efficient new vehicles kicked off last month with the government web site for the program crashing under the strain of dealers racing to sign up to participate. This weekend, dealers again overloaded the site as they scrambled to file documentation for last-minute deals — prompting the government to extend the filing deadline yesterday afternoon by 24 hours.


While Congress moved rather hastily when it implemented the original legislation, as well as when it tripled the budget and carved the extra funds out of a clean energy loan guarantee program, we can still learn from how the program played out. Here are five lessons we see for reducing greenhouse gas emissions, cleaning up the national vehicle fleet and helping boost the market for greener cars.

Green Tint + Stimulus = Fast Pass on Capitol Hill: Help consumers, the environment, an ailing industry, entrepreneurs and the U.S. economy in one fell swoop — that was the basic pitch for cash for clunkers. Add in the fact that legislators were in a hurry to leave for their August vacation, and you have a formula for a very speedy $3 billion trip through Congress.

The problem with this, of course, is that some of the gloss on these supposed benefits doesn’t hold up when you take the time for closer inspection. Some economists have argued that the rebates have condensed vehicle purchases into a narrower time frame, rather than spurring additional sales, and others predict that the hundreds of thousands of consumers opting into the program will now be making car payments instead of buying other goods and services.

It’s the Economics, Stupid: Former President Bill Clinton updated his famous campaign line, “It’s the economy, stupid,” with a cleantech twist this month at the National Clean Energy Summit in Las Vegas. He suggested modeling a set of incentives for electric vehicles after cash for clunkers, saying the high level of participation in the program “proves that Americans will bite if you make it economical enough.”

While Clinton didn’t get into specifics, the Obama administration’s efforts to promote greener cars have so far focused mostly at offsetting the sticker price (through a $7,500 tax credit for plug-in hybrid and all-electric vehicles, for example.) But that might not be enough to spur a sustainable leap to greener vehicles. For evidence, look to the success of Japan’s more comprehensive approach to boosting hybrids and the results of a new study on Canadian rebates for hybrid buyers. However, making Americans “bite” at plug-in vehicles over the long term might require other regulations affecting vehicle cost, such as fuel prices.

Consumers Are Interested in Fuel Economy Gains, Next Time Set A Higher Bar: The cash for clunkers legislation that passed as part of a military spending bill in June included only modest MPG requirements (the feds would kick in $3,500 towards new vehicles getting as little as 18 MPG, depending on the trade-in), but it beat out a competing proposal that wouldn’t have taken fuel efficiency into account at all in the criteria for trade-in vouchers. As it turned out, many consumers opted to make bigger fuel economy gains than required.

Crunch the Data Before the Program Starts: For a program to reduce carbon emissions and stimulate the economy effectively, you’ve got to take a hard look at the numbers before the program begins. With cash for clunkers, those calculations didn’t come out until the 11th hour of the program. And they didn’t come from Capitol Hill or the Government Accountability Office, but rather a University of California-Davis professor who determined that each ton of carbon dioxide saved through the fuel economy improvements produced via cash for clunkers will end up costing ten times more than the going rate for carbon reductions.

Take What You Can Get, Expand Later: Automakers stepped up production to meet increased demand, and car dealerships made enough deals in the first week of the program that the Obama administration said cash for clunkers would be suspended unless Congress refilled the program’s coffers. For nascent cleantech sectors looking for a boost from Uncle Sam, cash for clunkers shows how putting an early allocation of government funds to work quickly and effectively (by the policy makers’ standards) can help pave the way to additional aid. So sectors or companies hoping for more funding than they’ve gotten so far under the stimulus package or other government programs may see an additional boost if they demonstrate that initial awards have been wisely spent.

Photo credit Flickr user ThreadedThoughts

4 Responses to “5 Lessons from Cash for Clunkers for the Green Car Market”

  1. “some economists have argued” is a straw man. OK, I guess, if you agree with the substance.

    I don’t.

    1. Yes.

    2. Whining about the “bar” is useful after the fact. Including the last sentence validates it for next time. The lower standards got the critter passed in a timely fashion. Consumers proved smarter than Congress. What a surprise!

    3. The most important data was jobs saved and created, sales made, some level of improvement was guaranteed. Stimulus.

    4. The way it worked provides additional motive for applying the program elsewhere – like refrigerators.

    NEXT TIME – tell the Feds to quit kowtowing to Republican beancounters stuck in the 19th Century ethic of “never trust the consumer or the seller”.

    The amount of paperwork required for the rebate was patently absurd. Not having enough computing horsepower handy came in 2nd.

    Can you imagine Amazon, for example, trying to sell something and process a rebate this way?