By the time August is over, the administration may very well have gotten 750,000 gas guzzlers off the road while injecting some new life into an auto industry of which portions verged on collapse just a few months ago. No small achievement.
Behind this is the Car Allowance Rebate System program, colloquially known as "cash for clunkers," a $3 billion jump-start for the economy, with considerable environmental impact. From the beginning, it’s had vociferous critics, from right, left and green sectors of the political spectrum. Despite cash for clunkers’ phenomenal success at auto dealerships, which shut the mouths of those critics who said it would fail its most basic test – actually moving more fuel-efficient cars out of overstocked inventories – some of the critics were right. Here and at his own website, for instance, A Siegel has done an excellent job of following the program while it was still in committee.
But given that the program is a done deal, its $2 billion extension confirmed by the Senate late last week in a lopsided vote, why bother now with what the critics had to say about it?
One reason: Spurring Americans to buy more fuel-efficient cars has to be more than a short-term fix. We need long-term incentives, a two- or three- or five-year CARS program that provides auto buyers and makers alike with good reason to buy vehicles that get ever better mileage and force the dinosaurs off the road. Such a program must be restructured to overcome the legitimate objections to current program.
Before going into details, the bigger picture should be acknowledged. Some environmentalists argue that such incentives foolishly feed America’s auto culture at a time when that needs to be completely transformed. They have a point. Over the long haul, we need to greatly alter the persons-per-car ratio in America. A green future means redensifying our urban areas and desurbanizing new development to allow for affordable, integrated public transit to meet far more of our transportation needs. Throughout the country, we need shared-auto programs, more and better trolleys and light rail systems, more buses, more interurban commuter rail and fully electrified heavy rail, including high-speed commuter and long-distance rail. To get there we need greener planning at the local, regional and federal levels. And, of course, another kind of green: public and private investment in the trillions.
That’s not all. There are building codes, energy systems and a multitude of other efforts to be included in reshaping our living and working space, not the least of which is putting tens of millions of us into living space that is our working space, something which will have a major impact on transportation infrastructure.
However, with all the stakeholders involved, with all the philosophical, political and economic objections, with all the NIMBYism put forth against the most modest changes in the way we build, energize and get around inside and between our communities, it is not difficult to imagine the powerful opposition that such a vision will produce. Bits of it can be seen everywhere a city has already moved toward turning one or more of such projects into reality. Nowhere is that more in evidence than when you start talking about taking away people’s cars. Outside Manhattan, San Francisco and a few green redoubts, it requires a change in mindset only a tiny fraction of Americans are willing to make.
A green future will be achieved. We have no choice. But even if the blueprints were complete, the permits signed, the dollars screaming down the pipeline, a carbon tax or realistic cap-and-trade program enacted, and citizens 100% behind making the needed changes, the day when cars will make up a far smaller percentage of our favored modes of transportation would still be many, many years away. Creating the physical alternatives cannot be done overnight. Changing minds takes even longer.
So a vast number of cars are going to be with us for a long time, no matter how rapidly the green future can overcome the foot-draggers. And the cars we now have on the road keep guzzling fuel, polluting the air and overburdening the atmosphere with new infusions of carbon dioxide for every mile they drive. Reducing fuel consumption lowers all three. The best short-run solution is getting people out of guzzlers and into ever-more fuel efficient vehicles until the time when there will be no need for new freeways and parking lots. A restructured CARS program would provide the proper incentives for moving in that direction.
Nobody needs to say that politics mean that such a program – or one with amended details – will be difficult to get through Congress. Projected deficits are already huge, with accumulated debt now approaching equality with annual GDP, and the budget balancers are dialing up the volume. Nonetheless, the program is still worth fighting for. My favored version comes in five parts:
Stimulus: One objection to the existing CARS program is that it will soon be over and may only be condensing demand that would have extended over the rest of 2009 into a single month or two. If true, car purchases after Labor Day may quickly dissipate and dealers will soon be accumulating unsellable inventories again. From a stimulus point of view, therefore, it makes sense to have a steady consumer subsidy available over a longer period.
Environment #1: One important complaint against the existing program, with its two-tiered rebate system, is that it rewards people who in the past bought vehicles without concern for whether they sipped or guzzled while providing no incentive to people who bought more fuel-efficient cars that have since become clunkers. For instance, before my stepdaughter fried the engine of her 280,000-mile 1990 Toyota Corolla on the way to the airport two weeks ago, it still averaged 22 mpg, making it ineligible for any clunker dollars. There also have been objections that the program allows people to get subsidies for new cars that themselves are only slightly less more efficient guzzlers.
There are many ways to fix this. One is a technique we put together for Energize America 2020, the 20-item package of energy legislation initiated four years ago by Jerome a Paris, Devilstower and me. This resulted in an 18-month-long focused discussion involving more than 1000 Kossacks. In short, provide a sliding-scale subsidy for car buyers based on how much fuel their new vehicle consumes. Rather than miles per gallon, this would best be determined by calculating in gallons per mile, or gallons per 100 miles (g100pm), an explanation of which by Richard Larrick and Jack Soll you can see here.
A possible approach: Start with a floor. FeeBates would only kick in for a car getting at least 30 mpg – that is, one that consumes 3.33 gallons of gasoline per every hundred miles. For every 5% improvement, the buyer would receive a $500 incentive. So a car that gets 40 mpg, that is, consumes 2.5 gallons per hundred miles (a 30% improvement), qualifies for $3000.
A formula for including electric cars in this subsidy arrangement should also be included.
Environment #2: Money for the CARS program should have its own budget, not taken from spending for renewable energy projects. And every dollar spent should be legislatively tied to a matching dollar added to the federal mass transit appropriation in the following year. Funding for both these projects should come from increased taxes on gasoline. An extra tax of 10 cents a gallon would generate $14 billion a year. Higher gasoline prices are, of course, a tough sell, raising the final cost of gasoline to less than half what it has been in most of Europe for ages ought to be a no-brainer. Some amount can be set aside and a mechanism developed to provide low-income Americans with some relief for this extra cost.
Class: One cogent complaint is that the existing cash for clunkers program puts up two barriers for Americans on the lower end of the income scale. It euthanizes many perfectly drivable cars and light trucks that might be affordable upgrades (or first cars) for people who clean houses for a living or work in other low-paying jobs. Two possible additions to the CARS program could ameliorate this situation. First, no traded-in car that meets the CAFE average minimum would be destroyed, and would itself be eligible for a subsidized trade-in. Other used fuel-efficient cars would be eligible for a subsidy based more along the lines of the current program, but at a lower rate, say $250 for every 5% improvement over 5 gallons consumed for every 100 miles. That is, $1250 for moving from 20 mpg to 30 mpg.
All I've proposed can be nitpicked, rejiggered or completely redone to produce better benefits. No doubt in trying to meet old objections has raised new ones. But together with other initiatives, such as the administration’s grants program for next generation batteries and electric vehicles, a long-term CARS program could quickly reduce the number of guzzlers on our roads by millions, move the nation closer toward manufacture of greener cars and encourage a new attitude about fuel efficiency. It won’t bring us to ecotopia. No silver bullet exists for that.