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Return of Cash for Clunkers: The government’s case for the return of the car scrapping scheme

The Biden administration has embraced Senator Chuck Schumer’s (D-NY) idea of paying people to scrap old vehicles and buy new electric ones instead. 

You might remember the Obama-era days of Cash for Clunkers, a federal scheme launched during the Great Recession of 2009 as an attempt to stimulate the economy by spurring new vehicle sales. The Car Allowance Rebate System, or CARS, offered Americans a credit of up to $4,500 to trade in older vehicles for newer, more fuel-efficient ones, which in theory would help combat climate change. 

The $3 billion federal scrappage program wasn’t as successful as the Obama administration might have hoped. According to Josh Linn, economist and associate professor at the University of Maryland, the scheme did cut emissions slightly, but it didn’t affect total new vehicles sales much. 

“Many of the people who participated in the program probably would have bought a new vehicle anyway,” Linn told NPR.

So why is the current administration considering reviving this program? The impetus can be broken down into two categories: Environmental and Financial.

The environmental case for Cash for Clunkers, part deux

Biden has brought America back into the Paris Accords and aims to have the country at net-zero emissions by 2050, a tall order for the world’s second largest greenhouse gas emitter. He has promised to electrify federal fleets and add 500,000 EV charging stations around the country, and recently House Democrats put forth a bill to renew the GREEN Act, which would offer federal tax incentives to EV buyers and open up Tesla and GM to EV tax credits again. 

Linn said the new administration has a chance to learn from the original Cash for Clunkers scheme to make it a more efficient use of money and more effective at fighting climate change, perhaps by focusing on encouraging people to trade in cars that pollute the most.

California seems to have come up with a new version of this program that ensures the highest-polluting vehicles are scrapped, giving low-income residents a boost in purchasing hybrid or electric cars. The Clean Cars 4 All program also gives Californians the choice to go car-free and receive vouchers for public transit, car sharing programs, or even rebates on e-bikes. The program is being implemented in the air districts of the Bay Area, South Coast (which includes Los Angeles), San Diego, Sacramento, and San Joaquin Valley (where the program was successfully piloted). All districts have income-based eligibility requirements and require the car to be in working condition and manufactured sometime in the 1990s or earlier.

The local success of California’s program has policymakers thinking that this time around, a revival of the federal CARS program might be successful in incentivizing people to buy EVs, thus reducing carbon emissions from transportation. There is still the issue of what happens to scrapped vehicles. Environmentalists in 2009 criticized the program for actually contributing to environmental waste. 

“While ‘recycling’ and ‘green’ are often thought to go hand in hand, the reality is that automobile recycling is one of the filthiest toxic-waste-generating industries there is. And Cash for Clunkers will put that soil-, water- and air-fouling business into overdrive,” according to a 2009 SFWeekly article.

But auto recycling has changed in the past 12 years, supplying more than one-third of iron and steel scrap to the scrap processing industry in the US, thus reducing the need to mine for new fossil fuels. Every ton of steel we recycle saves 2,500 pounds of iron ore, 1,400 pounds of coal, and 120 pounds of limestone. Recycling steel also uses 74% less energy than creating it from raw materials. 

Some environmentalists might also question why the Biden administration wouldn’t send the billions of dollars this program would cost elsewhere, like to public transit or bikes? Well, because this scheme isn’t just about the environment.

Financial reasons for reviving Cash for Clunkers

Automobile sales in general, and EVs in particular, suffered in 2020 due to the recession and shelter-in-place orders. New car sales were down about 15% compared to the previous year, and US sales of light-duty EVs in 2020 totaled 296,000 units, down from 331,000 in 2019. A Cash for Clunkers program might be just the ticket to jump-start sales again. 

Morgan Stanley auto analyst Adam Jones said there are a few proposals on the table, like a $5,000 coupon to scrap cars. There might be eligibility limitations, like requiring a large portion of the vehicle’s content to be from the US, as well as household income limitations and guidelines on which cars are available for purchase with this money. The new program might also be limited to vehicles costing under $60,000.   

There are no formal proposals in Washington yet, but Rep. Debbie Dingell (D-MI), whose district includes Ford HQ, told Bloomberg: “It’s out there as an idea along with many other ideas. We’re working with the entire ecosystem of automakers, workers, their unions, suppliers, dealers, and consumers.”

Written by Rebecca Bellan
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