Cash for Clunkers, Turning Beaters into Value

For every good idea there are ten bad ones, and this seems to be one of the bad ones.  The program is just like it sounds.  Turn in your used car; get $3,500 – $4,500 towards a new, fuel efficient one.

Rich put it in perspective by saying that it clearly isn’t an environmental program, it’s an auto subsidy.  But still, seriously???  If we are interested in promoting the purchase of new autos, the government should provide an across the board credit for purchasing a new car.  All Cash for Clunkers does is greenwash an auto subsidy and put it under the climate umbrella.  It also ads a number of strange quarks to what might have been a straightforward auto credit.

Let’s think some reasons that cash for clunkers is a bad idea for an environmental (or economic) perspective

1.  There is no way to know how much someone drives the car they turn in.  I could bring in my 1975 Gremlin which has sat in my front yard collecting rust for the last few years.  As long as I can drive it to trade it in, I get the credit.  Basically, having an old beater gives you a free credit.  In the end a family might end up driving more since they now have more cars than they previously did.

2.  Building a new car generates around 6.7 tons of CO2 emissions according to a duke’s Bill Chameides.   He estimates that it would take at least 5 years to offset this with the new vehicles lower MPG.  This increases to almost 20 years if the new car is an SUV.  This of course assumes that people drove their old cars as much as they drive their new cars.  If they didnt’ drive their old cars it will take a LONG time to offset the zero emissions they gave off.

3. A SUV which has at least 18 MPG (sticker, not actual MPG) gets a voucher (WSJ).

4. Democrats want to potentially fold this into the larger energy bill, “unless [the] measure becomes hopelessly entangled in policy disputes (NY times).”  Adding provisions like this is exactly how a large energy bill is not going to pass.

5.  This is the sort of thing Stavins was trying to warn against…don’t cook dinner and eat in the shower at the same time.  Remember?

I guess we have to give the compromise some credit for not including a “buy American” or flex fuel provision.

Regarding the auto bailout

H/T: Boing Boing.

Recharging the SEMATECH concept?

Thom comments on Rich’s post about the new battery consortium:

Furthermore, the comparison to Sematech isn’t terribly exciting. A super-quick Google Scholar search reveals things like “Sematech induced members to cut their overall R&D spending on the order of $300 million per year” (Irwin & Klenow, 1996) and others. Lets hope that isn’t the result the battery people are seeking (getting someone else to pay for R&D they would otherwise do).

I agree to a large extent.  For those who are unfamiliar with SEMATECH, the story begins in the heady year of 1986.  I was 2 years old, the Bangles were on the verge of releasing “Walk Like an Egyptian”, and Duchess Sarah Ferguson married a Prince which paved the way for future stardom as a Weight Watchers spokeswoman.   SEMATECH was an effort by U.S. semiconductor manufacturers to regain their competitiveness in the face of growing Asian dominance.  It was initially funded in equal parts by the constituent firms and the Defence Advanced Research Projects Agency (DARPA).  The basic idea behind a consortium is that since some discoveries will spread across the industry anyway, a joint investment can spread the costs across firms while still obtaining the final result.  In addition, collaboration can reduce redundant innovation; in principle, innovation increases, costs fall, or both.

However, there are always pitfalls in such a collective action case.  How do you determine a firm’s contribution to the consortium, in both funds and manpower?  Is there to be a centralized facility, or will personnel exchange among labs?  What prevents freeriding?  In the end, SEMATECH lost its DARPA funding and restructured, but not before its focus had significantly shifted.  Because so much of the most crucial R&D was proving intensely proprietary, the primary function of SEMATECH evolved toward encouraging R&D by semiconductor manufacturing equipment firms.  Thus, the proprietary R&D could remain in-house, while the consortium members benefited roughly equally from the advances they funded.  Of course, the phrase “in principle” comes to mind again.  Because SEMATECH’s facilities were centralized, it was crucial for firms to send engineers and technicians in to aid technology transfer.  Thus, large, vertically integrated firms benefited disproportionately while smaller companies were stretched thin trying to send even a few experts out to pick up the innovations.

So how does this lesson apply to batteries?  From an ungated Reuters story (check it out if you couldn’t get the WSJ one):

The alliance, which includes battery industry giants such as 3M Co and Johnson Controls-Saft, intends to secure $1 billion to $2 billion in U.S. government funding over the next five years to build a manufacturing facility with an “open foundry” for the participants to pursue the goal of perfecting lithium-ion batteries for cars.

To me, this sounds like a consortium-run sandbox for trying out new techniques for lithium-ion battery production.  Will the firms be able to effectively separate improving the efficiency of battery manufacturing from proprietary technological advances?  I’m not sure, since it seems to me that some of the most profitable innovations will be process-based until a totally new battery paradigm arises.  So I’m pretty skeptical myself, though I don’t really know enough about battery technology to make a good assertion.  Anti-climactic, I know, but I hope you all enjoyed my story about the good old days.

Interestingly, USCAR is an existing auto industry umbrella organization of consortia that used to work on batteries but shifted a lot of money and energy to hydrogen.  You might be surprised about the lack of wisdom in that decision until you look at the membership: Chyrsler, GM, Ford.  Maybe we should also have a consortium to research fuel-efficient private jets.

Your mileage may vary

From the inbox:

A new website, www.fueleconomy.gov maintained by EPA and the DOE Office of Energy Efficiency and Renewable Energy is probably of interest to everyone here. It’s one stop shopping for information otherwise available in various EIA, EPA and news sources.

An entire section is devoted to gas prices. Besides gas mileage tips, it gives fuel economy information for new and used cars and light trucks back to 1985. It also provides links to sites showing the cheapest gas in your area. It has historical gas price information and helps you compare gas prices in your area with other areas.  It also has information on tax incentives for purchasing hybrid, alternative fuel and electric vehicles.

There’s also an interactive component: you can report your the mileage for your own vehicle and see how it compares to the mileage others are getting. And you can get a detailed Energy Impact Score for a vehicle showing average mileage, petroleum consumption, pollution tally and safety information. You can also compares data on up to four vehicles.

H/T: Chris Clotworthy, RFF librarian

Unsurprising unpleasantries

I don’t want to throw too much cold water on my co-blogger’s enthusiasm for the NHTSA’s newly proposed CAFE schedule. But two things need correcting. The first is clerical; the other is substantive.

First, be very careful anytime you read quotes about percent changes in fuel efficiency. Due to America’s weird fascination with reporting fuel efficiency in miles per gallon, and also because of her citizens’ nigh universal numerical illiteracy, reported percentages are nearly always wrong. An obvious example comes courtesy of the Green Car Congress post Rich linked previously:

The 35 mpg target for 2020 represents a 31% increase above the 2007 new fleet average of 26.7 mpg.

Green Car Congress a great source for environmental and energy news and it is written by some very smart people. But this is just plain wrong.

The problem is that fuel efficiency should actually be measured in how much gas it takes to go a mile rather than in how many miles you can drive on a given amount of gas. To illustrate, your crappy old car that gets 26.7 mpg will require 3.75 gallons of gas to go 100 miles. Your shiny new 35 mpg car can go those 100 miles on 2.86 gallons of gas. This is better — but it is only 24% less fuel than your old car required, not 31% less.

The second — and much more important — point comes courtesy of Geoffrey Styles. He reminds us that the improvements in efficiency being proposed should not be compared to current regulation, but rather the world as it actually is (and will be):

Turning to CAFE, the proposed timetable for implementing the 35 mpg standard that was signed into law last December would raise the overall fuel economy of the new car fleet, including SUVs, to 27.8 mpg by the 2011 model year and to 31.6 mpg by 2015. … That sounds quite aggressive, until you realize that … based on the sales mix reflected in NHSTA’s January 2008 CAFE report, the combined 2007 new car fleet delivered an average of 27.2 mpg. With SUV sales having fallen back below 50% from their 2004 high of 53%, it’s a reasonable bet that the shifting sales mix alone would allow the fleet to achieve the 2011 goal without any changes in vehicle performance. In that context, the 2015 milestone goal of 31.6 mpg overall looks more like a 2% per year average improvement over the next seven model years, rather than the 4.5% cited by Secretary Peters.

Hmm, sounds like we are already basically at the 2011 standards right here in ol’ 2008. Wonder what could be causing that?

Of course whether you think it’s a bad thing that the new CAFE standards may not actually be much of a stretch relative to a counterfactual world without them depends largely on what you think of regulation in the first place.

But we should keep this in mind before we go too far praising either Congress or the NHTSA for their “courage”. If oil prices go where some people are predicting, we’ll probably look back and wonder why we ever thought about driving those 35 mpg gas guzzlers — or should I say 2.86 gallons-per-100-miles guzzlers — in the first place.

For once, a pleasant surprise

This week the National Highway Transportation and Safety Administration issued a Notice of Proposed Rulemaking for new vehicle fuel economy standards. While the Energy Independence and Security Act of 2007 set the fuel economy target of 35 mpg by 2020, implementation of this goal actually resides with NHTSA. Thus I was pleasantly surprised to learn that NHTSA had frontloaded the requirement, achieving more than 50% of the increased fuel efficiency in the first 5 years. Under the proposed plan, “Fuel efficiency standards for both passenger vehicles and light trucks would increase by 4.5 percent per year over the five-year period ending in 2015 – a 25 percent total improvement that exceeds the 3.3 percent baseline proposed by Congress last year.”

H/T Green Car Congress.

Fun with statistics: the regressivity of gasoline taxes

Yesterday on Grist, Joseph Romm responded to a reader who argued that he should care more about incidence when talking about gas taxes. His response was a litany of citations suggesting that gas taxes were not in fact regressive, partially because the poor don’t own cars/ drive as much. Romm’s supporting evidence is pretty compelling. He cites a recent study by Don Fullerton (who used to be at RFF) which finds that a gas tax would only be regressive across the top half of the income distribution (BTW, Fullerton’s paper is one of the best I’ve seen on the public finance options for curbing vehicle emissions if you’re interested in that issue). Yet despite all of the evidence Romm put forth, I was still skeptical of his claim. I’m working on an incidence paper myself right now, and do see regressivity in the data. It just depends on how you define it. Below is a table with gas expenditure by income quintile from the 2007 BLS Consumer Expenditure Survey (which, btw, is the same source Fullerton uses):

Notice how different the story looks depending on whether you put income or consumption in the denominator. Both measures have their faults, and, in the policy world, people tend to flip back and forth between them depending what point is being made. Ideally economists would like to put lifetime income in the denominator, assuming that people incorporate their future welfare/ wealth into their current decision making (ie college student go into debt with the expectation that they’ll make much more money later on). For a more detailed discussion on defining incidence see this working paper by Gilbert Metcalf.

For those who don’t have time to check out the Fullerton paper, I’d also just like to point out something about the table Romm presented in his post.

However, he omitted the third column. To be fair, his point was about average effects across all people. Yet one can imagine how the second statistic might be relevant to policymakers. While poorer people are less likely to own cars/ drive, the ones that do are likely to be significantly impacted by an increase in the price of gasoline. If a household making under $20,000 a year does own a car, it’s probably because they live in an area where there aren’t any other options for getting to school, work, etc. This means that their demand response in the face of a price increase would probably be negligible, and a gas tax would simply crowd out other consumption. Thus you could imagine framing incidence in terms of rural vs. urban households, as well as simply rich vs. poor.

None of this is to say that one way is best. And I definitely support a gas tax, although I think we should be smart about implementing it. I just thought I’d point out that on this issue, like just about every other issue in DC, different people can use the same data to make different points.

The water resource implications of PHEVs

Today’s NYTimes has a piece on an interesting new paper from Carey W. King and Michael E. Webber of UT Austin. The authors point out that converting our auto fleet from gasoline power to electric power would put substantial strain on our nation’s water resources. Water is used to both mine and process fuels and to cool power plants during the generation process. The study estimates that “For every mile driven by a gas-powered vehicle that is displaced by one driven by an electric vehicle, about three times as much water is consumed (that is, lost to evaporation) and about 17 times as much is withdrawn (used and returned to its source).” However, far from arguing against PHEVs, the authors lay out a series of steps that policymakers should begin taking now in order to prepare for the shift to plug-ins.

Though the paper doesn’t mention how climate change will affect things, it seems obvious to me that things could get even worse. Hotter temperatures mean more cooling for generators, and warmer water to cool with. Several nuclear plants were shut down during the droughts in the southeast last year. The NYTimes also had a long much talked about article on how climate change could affect water supplies.

Finally, the authors do point out that renewable resources like wind and solar use no water, which is yet another reason why we should encourage their development.

let’s get rid of used cars?

Regular CT commenter and friend Tmoney often sends me interesting links and ideas. Today he sent me a policy idea in response to this article from the LA Times and thought I’d share it with y’all. I’m running out the door now but will think about this some more and post my thoughts in the comments later. I encourage you to do the same.

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here’s an interesting policy idea.

used cars tend to be big, gas chuggers, less safe than new cars (all else equal), and with lower quality combustion (leading to more nox, pm, etc). additionally, the market for used cars gives the marginal car buyer an alternative to newer, safer, cleaner, and more efficient new cars. finally, used cars don’t create manufacturing jobs.

is there a role for government intervention here? policy makers want cleaner air, manufacturing jobs, less oil consumption, and auto accidents with fewer injuries. replacing older cars with newer ones tend to acchieve these goals. why not offer some sort of incentive to owners of older cars to have them destroyed instead of being used. I wonder what the combined public benefits of scrapping an older car are relative to continuing to drive it.

in practice, how would this work? lets say Bob owns an older suv. it has a trade-in value of say, $2k. instead of getting $2k from the dealer for it (and having the dealer subsequently re-sell it in the US or mexico), why not have the government buy it and scrap it? the costs to the government are $2k (or so). the benefits are the market value of the scrap steel + the environmental benefits + the public health benefits (higher quality emissions, less emissions, and safer vehicles leading to lower costs). given that its not easy to capture the last 2 pieces (financially), you’d need a way to pay for this. gas taxes come to mind, as well has vehicle registration fees. with the $2k, bob buys a newer car that is hopefully safer and more efficient. society consumes less oil, emissions go down, and bob is less likely to be seriously injured in a car accident.

I know amory lovins has proposed this before, but I wonder if there’s something politically feasible and economically rational that would work.

thoughts?

-tmoney