Cash for Clunkers: How Big an Environmental Boost?

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Mike Groll / AP

Greg Miller fills his Toyota Prius with gasoline in Colonie, N.Y.

Not even the most optimistic greens could have predicted that the federal government's cash-for-clunkers program would work this well — more than 240,000 Americans have traded in their clunkers so far, and the program has already burned through its first round of funding. But green groups were a bit wary of cash for clunkers at the outset, concerned that the legislation's requirements on fuel economy were too lax. Under the program, newly purchased passenger cars must have a minimum fuel-economy rating of 22 miles per gallon — hardly superefficient — and they need to be only 4 m.p.g. more efficient than the clunker being traded in to trigger the $3,500 credit. (The $4,500 credit requires an improvement in fuel economy of at least 10 m.p.g.) And there's the undeniable fact that destroying an existing car — even a clunker — and manufacturing a new one requires energy and carbon emissions that would be saved if you just held onto your old car.

The initial data released by Department of Transportation, however, shows that so far cash for clunkers has been a green success. The clunkers averaged 15.8 m.p.g., compared with 25.4 m.p.g. for the new vehicles purchased, for an average fuel-economy increase of 61%. On the whole, American drivers are trading in inefficient trucks and SUVs for much more efficient passenger cars. Car manufacturers like Nissan are already retooling some models to improve their fuel economy so they can qualify for the credits. The early numbers were enough to convince California Senator Dianne Feinstein to go from criticizing cash for clunkers as too lax to supporting additional funding for the bill in the Senate. "This program has done much better than we ever thought it would for the environment," she told reporters on Aug. 4.

But while cash for clunkers has helped out the U.S. auto industry and the environment — two entities that have clearly seen better days — it shouldn't obscure the need for addressing the real green cost of driving: gas prices. It's not the car or truck that adds greenhouse-gas emissions into the atmosphere — it's burning gasoline. There's no denying that it's beneficial for Americans to climb out of their clunkers and into more efficient cars, but what happens if drivers take advantage of the lowered cost of their fuel bill by driving more? The environmental benefits of cash for clunkers goes up in smoke.

It's called the efficiency paradox: as we get more efficient at using energy — through less wasteful cars and appliances — the overall cost of energy goes down, but we respond by using more of it. In the case of cars, that means driving more. Ultimately our gas bill stays the same, but we spend more time on the road and pump the same amount of greenhouse-gas emissions into the atmosphere. The earth isn't any better off.

To address the emissions problem directly, we need to look at fuel, not Fords: institute carbon taxes that raise the price of gas. We already know that higher gas prices discourage driving and reduce greenhouse-gas emissions — total vehicle miles traveled in the U.S. declined 3.6% in 2008 compared with the previous year, thanks largely to the sky-high price of gas for much of 2008. (The recession didn't help, but sharp declines in driving began well before the bottom dropped out of the economy.) As gas prices have fallen in 2009, however, driving has begun to tick back up.

Americans already pay considerably less than the Europeans and Japanese for gas — it's one of the reasons we've been able to subsidize a wasteful SUV lifestyle for so long. A smart tax would stabilize the price of gas at a high enough level to discourage driving — and it would generate revenue that could be used for a number of green programs, including cash for clunkers. Certainly, efficiency is an important goal — a new report from McKinsey & Co. found that the U.S. economy could save $1.2 trillion through 2020 by investing $520 billion in various efficiency investments — and encouraging the switch to less wasteful cars is smart policy. But unless we end the era of cheap gas too, those savings will go down the drain.