I have to admit to being somewhat bemused at the apparent success of the "Cash for Clunkers" scheme, which burned through its initial $1 billion of funding so rapidly that Congress is still scrambling to find more money for it before leaving town. Although the final version of the program wasn't quite along the lines of the idea I supported back in January, it appears to have produced much more useful results than most critics predicted when it looked as if it would mainly move Americans out of old SUVs and into new but minimally-thriftier ones. Given its popularity and the boost it's provided the flagging car industry at just the right time, I very much hope the Senate will pass an extension before escaping the August heat and humidity here.
Let me briefly focus on a few key points concerning the program and its funding. If the report I saw in Bloomberg is correct in showing an average fuel economy improvement from 15.8 mpg for the clunkers that were junked to 25.4 mpg for the new cars that are replacing them, that works out to an impressive annual fuel savings of around 280 gallons for the average driver. That's more than the average Prius driver uses in total. Aggregate that across approximately a quarter-million new cars and it works out to 70 million gallons per year--impressive-sounding but still a relative drop in the bucket in a fuel market of 138 billion gallons per year. The corresponding CO2 reduction would be around 700,000 tons per year, which if you figure the cars removed from the road by this program likely only had a few more years of high-intensity usage left in them yields a CO2 abatement cost in the region of $475/ton. As climate policy, this wins no prizes.
However, despite the immense seriousness of that issue, climate surely can't be the only lens through which to view a program such as this. In particular, when you examine the way the House of Representatives came up with the $2 billion to stretch it through the end of September, it is clear that they viewed it as an extension to--or more properly an acceleration of--the federal economic stimulus. Their bill, which is a model of brevity and simplicity, shifted $2 billion from a $6 billion appropriation for DOE loan guarantees to advanced energy projects. Considering that the DOE still has yet to dole out all the money originally appropriated for this purpose when it was funded under the Energy Policy Act of 2005, and that their highest-profile decision so far was to turn down an application from a major nuclear fuel processing project in Ohio, it seems fair to say that Cash for Clunkers will get this money into the economy vastly quicker than under a stimulus program that has taken its own sweet time about stimulating anything.
As New York Times columnist David Brooks described Cash for Clunkers in last Friday's weekly segment with Mark Shields on the News Hour, "It's costing some billions of dollars, but it's actually temporary, timely and targeted, so I'm all for it." Despite the program's reported administrative glitches, Mr. Shields liked it, too. That may be as close to a bi-partisan consensus as we are likely to get all summer.