Friday, 7 August 2009

Cash For Clunkers seems a little Clunky to me

I don't doubt at all that Cash For Clunkers has a stimulative effect on the economy. I'm far more sceptical about claims that it has a positive environmental impact.

Consider the environmental impact of producing a new car, let's call that amount EIP. Suppose that we can expect a car to last Y years, then the environmental impact of producing (EIP) a car is EIP/Y for each year it's on the road. If I have an old car that I might have driven for, say, three more years but which I retire early, then I have to replace my old car but the EIP of my old car has already been paid. It's paid if it lasts for a week or a century (the longer a car lasts, the less its EIP/year). So the total EIP is a fixed amount and we might even say that, in effect, the EIP/year goes up if I take the car off the road early.

Now consider the new car that I buy3 years earlier than I would have. That is a brand new cost of 3*(EIP/Y), a cost we wouldn't have had to pay had we kept my old car on the road for three more years. Now, further suppose that I drive 12000 miles/year and my new car gets 22 mpg while my old one got 17. With my new car, I'd have to buy 1636 gallons of fuel vs. 2117 with my old car. Let's call the environmental impact of burning a gallon of gas, EIGG. Is it obvious that 3*(EIP/Y) < 481*EIGG? If it's not, we incur an environmental loss from the C for C program here. (And what if the buyer uses the program to gain a 2 mpg improvement?)

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